Document:

EXHIBIT (10)-58

                                                                  EXECUTION COPY

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                                CREDIT AGREEMENT

                                  by and among,

                            HEALTHSOUTH CORPORATION,
                                  as Borrower,

                            UBS AG, STAMFORD BRANCH,
                             as Administrative Agent

                        DEUTSCHE BANK AG NEW YORK BRANCH
                              as Syndication Agent

                   THE LENDERS PARTY HERETO FROM TIME TO TIME

                                 UBS WARBURG LLC
                                       and
                          DEUTSCHE BANK SECURITIES INC.
                             as Joint Lead Arrangers

                                       and

                     THE INDUSTRIAL BANK OF JAPAN, LIMITED,
                             as Documentation Agent

                                October 31, 2000

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                                                 TABLE OF CONTENTS

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ARTICLE I Definitions and Terms...................................................................................1
   1.1.     Definitions...........................................................................................1
   1.2.     Rules of Interpretation..............................................................................25
   1.3.     Classes and Types of Loans...........................................................................26

ARTICLE II The Loans.............................................................................................27
   2.1.     Revolving Credit Loans...............................................................................27
   2.2.     Facility Extension Loans.............................................................................29
   2.3.     Payment of Interest..................................................................................30
   2.4.     Payment of Principal.................................................................................30
   2.5.     Non-Conforming Payments..............................................................................31
   2.6.     Notes................................................................................................31
   2.7.     Pro Rata Payments....................................................................................31
   2.8.     Reductions...........................................................................................32
   2.9.     Conversions and Elections of Subsequent Interest Periods.............................................32
   2.10.       Unused Fees.......................................................................................33
   2.11.       Deficiency Advances...............................................................................33
   2.12.       Use of Proceeds...................................................................................33
   2.13.       Increase and Decrease in Amounts..................................................................33

ARTICLE III Letters of Credit....................................................................................34
   3.1.     Letters of Credit....................................................................................34
   3.2.     Reimbursement........................................................................................34
   3.3.     Letter of Credit Facility Fees.......................................................................37
   3.4.     Administrative Fees..................................................................................38
   3.5.     Applications.........................................................................................38

ARTICLE IV Change in Circumstances...............................................................................38
   4.1.     Increased Cost and Reduced Return....................................................................38
   4.2.     Limitation on Types of Loans.........................................................................39
   4.3.     Illegality...........................................................................................40
   4.4.     Treatment of Affected Loans..........................................................................40
   4.5.     Compensation.........................................................................................41
   4.6.     Taxes................................................................................................41

ARTICLE V Conditions to Making Loans and Issuing Letters of Credit...............................................43
   5.1.     Conditions of Initial Advance........................................................................43
   5.2.     Conditions of Loans and Letters of Credit............................................................45

ARTICLE VI Representations and Warranties........................................................................46
   6.1.     Organization and Authority...........................................................................46
   6.2.     Loan Documents.......................................................................................47
   6.3.     Solvency.............................................................................................47

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   6.4.     Subsidiaries and Subsidiaries' Guarantees............................................................47
   6.5.     Ownership Interests..................................................................................47
   6.6.     Financial Condition..................................................................................47
   6.7.     Title to Properties..................................................................................48
   6.8.     Taxes................................................................................................48
   6.9.     Other Agreements.....................................................................................48
   6.10.       Litigation........................................................................................49
   6.11.       Margin Stock......................................................................................49
   6.12.       Investment Company................................................................................50
   6.13.       Patents, Etc......................................................................................50
   6.14.       No Untrue Statement...............................................................................50
   6.15.       No Consents, Etc..................................................................................50
   6.16.       ERISA Requirement.................................................................................50
   6.17.       No Default........................................................................................51
   6.18.       Hazardous Materials...............................................................................51
   6.19.       Employment Matters................................................................................51
   6.20.       RICO..............................................................................................51
   6.21.       Reimbursement from Third Party Payors.............................................................51
   6.22.       Material Adverse Change...........................................................................52

ARTICLE VII Affirmative Covenants................................................................................52
   7.1.     Financial Statements, Reports, Etc...................................................................52
   7.2.     Maintain Properties..................................................................................53
   7.3.     Conduct of Business and Maintenance of Existence, Qualification, Etc.................................54
   7.4.     Regulations and Taxes................................................................................54
   7.5.     Insurance............................................................................................54
   7.6.     True Books...........................................................................................54
   7.7.     Right of Inspection..................................................................................54
   7.8.     Observe all Laws.....................................................................................54
   7.9.     Governmental Licenses................................................................................55
   7.10.       Covenants Extending to Other Persons..............................................................55
   7.11.       Officer's Knowledge of Default....................................................................55
   7.12.       Suits or Other Proceedings........................................................................55
   7.13.       Notice of Discharge of Hazardous Material or Environmental Complaint..............................55
   7.14.       Environmental Compliance..........................................................................56
   7.15.       Continuation of Current Business..................................................................56
   7.16.       Management Contracts..............................................................................56
   7.17.       Payment of Obligations............................................................................56
   7.18.       New Subsidiaries..................................................................................56

ARTICLE VIII Negative Covenants..................................................................................56
   8.1.     Financial Covenants..................................................................................57
   8.2.     Investments and Loans................................................................................57
   8.3.     Indebtedness.........................................................................................57
   8.4.     Disposition of Assets................................................................................57
   8.5.     Consolidation or Merger..............................................................................58
   8.6.     Liens................................................................................................58

                                                        ii
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   8.7.     Dividends and Distributions..........................................................................58
   8.8.     Acquisitions and Capital Expenditures................................................................58
   8.9.     Restricted Payments; Other Payments..................................................................59
   8.10.       Compliance with ERISA.............................................................................59
   8.11.       Fiscal Year.......................................................................................60
   8.12.       Dissolution, etc..................................................................................60
   8.13.       Transactions with Affiliates......................................................................60

ARTICLE IX Events of Default and Acceleration....................................................................60
   9.1.     Events of Default....................................................................................60
   9.2.     Administrative Agent to Act..........................................................................63
   9.3.     Cumulative Rights....................................................................................63
   9.4.     No Waiver............................................................................................63
   9.5.     Allocation of Proceeds...............................................................................64

ARTICLE X The Administrative Agent...............................................................................64
   10.1.       Appointment, Powers, and Immunities...............................................................64
   10.2.       Reliance by Administrative Agent..................................................................65
   10.3.       Defaults..........................................................................................65
   10.4.       Rights as Lender..................................................................................65
   10.5.       Indemnification...................................................................................66
   10.6.       Non-Reliance on Administrative Agent and Other Lenders............................................66
   10.7.       Resignation of Administrative Agent...............................................................66
   10.8.       Fees..............................................................................................67

ARTICLE XI Miscellaneous.........................................................................................67
   11.1.       Assignments and Participations....................................................................67
   11.2.       Notices...........................................................................................69
   11.3.       No Waiver.........................................................................................70
   11.4.       Rights of Setoff; Adjustments.....................................................................70
   11.5.       Survival..........................................................................................71
   11.6.       Expenses..........................................................................................71
   11.7.       Amendments and Waivers............................................................................72
   11.8.       Counterparts......................................................................................72
   11.9.       Waivers by Borrower...............................................................................72
   11.10.      Termination.......................................................................................72
   11.11.      Governing Law.....................................................................................73
   11.12.      Indemnification...................................................................................73
   11.13.      Agreement Controls................................................................................74
   11.14.      Integration.......................................................................................74
   11.15.      Successors and Assigns............................................................................74
   11.16.      Severability......................................................................................75
   11.17.      Lender Addenda....................................................................................75
   11.18.      Designated Senior Indebtedness....................................................................75

EXHIBIT A                  Lender Addendum
EXHIBIT B                  Form of Assignment and Acceptance
EXHIBIT C                  Notice of Appointment (or Revocation) of Authorized Representative

                                                        iii
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EXHIBIT D                  Form of Borrowing Notice
EXHIBIT E                  Form of Interest Rate Selection Notice
EXHIBIT F                  Form of Note
EXHIBIT G                  Investments
EXHIBIT H                  Form of Opinion of Borrower's Counsel
EXHIBIT I                  Compliance Certificate
EXHIBIT J                  Executive Officers
EXHIBIT K                  Form of Guarantee

Schedule 1.1(a)            Preferred Cash Distribution Arrangement
Schedule 6.4               Subsidiaries
Schedule 6.19              Employment Matters
Schedule 8.3               Existing Subsidiary Indebtedness

                                                         iv
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                                       74
<PAGE>

                                CREDIT AGREEMENT

                  THIS  CREDIT  AGREEMENT  dated as of  October  31,  2000 (this
"Agreement") is entered into by and among  HEALTHSOUTH  CORPORATION,  a Delaware
corporation (the "Borrower"), the Lenders signatories hereto (the "Lenders") and
UBS AG,  STAMFORD  BRANCH,  as  administrative  agent  (in  such  capacity,  the
"Administrative Agent").

                                    RECITAL:

                  The Borrower has requested  that the Lenders make available to
the  Borrower a revolving  credit  facility of up to  $400,000,000,  including a
$20,000,000 sublimit for the issuance of standby letters of credit, the proceeds
of which shall be used as set forth in Section 2.12, and the Lenders have agreed
to  make  such  revolving  credit  facility  available  to the  Borrower  on the
following terms and conditions:

                                    ARTICLE I

                              Definitions and Terms

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

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

                  "Acquisition/CapEx  Basket Amount" means, for any Fiscal Year,
         the sum of (a) the Acquisition/CapEx Initial Basket Amount plus (b) 50%
         of  the  amount,  if  any,  of  the  Acquisition/CapEx   Basket  Amount
         applicable  to the  immediately  preceding  Fiscal Year pursuant to the
         foregoing  clause (a) that was not  expended  during  such  immediately
         preceding Fiscal Year for Acquisitions  pursuant to Section  8.8(a)(ii)
         or for  Capital  Expenditures  pursuant  to  Section  8.8(b).  For  the
         purposes  hereof,  any amount  spent in any  Fiscal  Year in respect of
         Acquisitions  pursuant to Section  8.8(a)(ii)  or Capital  Expenditures
         pursuant to Section  8.8(b)  shall be applied,  first,  toward  amounts
         permitted to be spent during such Fiscal Year pursuant to the foregoing
         clause (a) of this definition and, second,  to amounts  permitted to be
         spent during such Fiscal Year pursuant to the  foregoing  clause (b) of
         this definition.

                  "Acquisition/CapEx  Initial  Basket  Amount"  means an  amount
         equal to $650,000,000.

                  "Actual/360  Basis"  means a method of  computing  interest or
         other charges hereunder on the basis of an assumed year of 360 days for
         actual number of days  elapsed,

<PAGE>

         meaning  that  interest or other  charges  accrued for each day will be
         computed by  multiplying  the rate per annum  applicable on that day by
         the unpaid  principal  balance (or other  relevant sum) on that day and
         dividing the result by 360.

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

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

                  "Applicable Commitment Percentage" means, with respect to each
         Lender, that portion of the Total Revolving Credit Commitment allocable
         to such Lender (a) with respect to Lenders as of the Closing  Date,  as
         set forth on Schedule 1 to the Lender  Addendum  executed and delivered
         by such Lender, and (b) with respect to any Person who becomes a Lender
         thereafter,  as reflected in each  Assignment  and  Acceptance to which
         such  Lender  is  a  party  assignee;   provided  that  the  Applicable
         Commitment Percentage of each Lender shall be increased or decreased to
         reflect any  assignments  to or by such Lender  effected in  accordance
         with Section 11. 1.

                  "Applicable  Extension Percentage" means, with respect to each
         Lender,  that  portion of the  aggregate  amount of Facility  Extension
         Loans  outstanding  and allocable to such Lender as in effect from time
         to time giving effect to each  Assignment  and Acceptance to which such
         Lender is a party.

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

                  "Applicable  Margin" means that percent per annum set forth in
         the table  below under the heading  "Applicable  Margin for  Eurodollar
         Rate Loans" or "Applicable  Margin for Base Rate Loans", as applicable,
         opposite the  applicable  Tier  determined by the highest  Rating as in
         effect at the time of determination  (subject to the provisions of this
         definition following the table below):

                                       2
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                                RATING                   APPLICABLE MARGIN FOR           APPLICABLE MARGIN
         TIER               S&P OR MOODYS                EURODOLLAR RATE LOANS          FOR BASE RATE LOANS
         ------------------------------------------------------------------------------------------------------
<S>                                      <C>                    <C>                           <C>
         I          BBB+              Baa1                      1.250%                        0.250%
                    or higher         or higher
         ------------------------------------------------------------------------------------------------------
         II         BBB               Baa2                      1.500%                        0.500%
         ----------------------------------------------------------------------------------------------------
         III        BBB-              Baa3                      1.750%                        0.750%
         ------------------------------------------------------------------------------------------------------
         IV         BB+               Ba1                       2.000%                        1.000%
         ------------------------------------------------------------------------------------------------------
         V          Less than         Less than                 2.250%                        1.250%
                    BB+               Ba1
         ------------------------------------------------------------------------------------------------------
</TABLE>

                  The Applicable  Margin shall be established  from time to time
         based upon the  Rating  then in  effect.  Any change in the  Applicable
         Margin due to a change in any Rating  shall be effective on the date of
         such change in such  Rating.  In the event (i) of a split  Rating where
         the Ratings are more than one Tier apart,  then the Tier next above the
         Tier  corresponding  to the lower Rating  shall apply and,  (ii) either
         Rating is Tier IV or below (or unrated), then (A) the Applicable Margin
         shall be Tier IV if either  Rating is Tier IV or higher  and (B) Tier V
         otherwise.  In the event that the  Borrower  shall not have a Rating by
         either S&P or Moody's,  the Applicable  Margin shall be mutually agreed
         to by the Borrower,  the Administrative Agent and the Lenders and shall
         be Tier V until such mutual agreement is reached.

                  "Applicable Unused Fee" means that percent per annum set forth
         in the table below under the heading  "Applicable  Unused Fee" opposite
         the  applicable  Tier  determined by the highest Rating as in effect at
         the time of determination (subject to the provisions of this definition
         following the table below):
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         ----------------------------------------------------------------------------------------------------------
                                                RATING                                   APPLICABLE UNUSED
             TIER                           S&P OR MOODY'S                                      FEE
         ----------------------------------------------------------------------------------------------------------
<S>                            <C>                            <C>                              <C>
              I                 BBB+                       Baa1                                0.250%
                                or higher                  or higher
         ----------------------------------------------------------------------------------------------------------
              II                BBB                        Baa2                                0.375%
         ----------------------------------------------------------------------------------------------------------
             III                BBB-                       Baa3                                0.375%
         ----------------------------------------------------------------------------------------------------------
              IV                BB+                        Ba1                                 0.500%
         ----------------------------------------------------------------------------------------------------------
              V                 Less than                  Less than                           0.500%
                                BB+                        Ba1
         ----------------------------------------------------------------------------------------------------------
</TABLE>

                  The Applicable  Unused Fee shall be  established  from time to
         time  based  upon  the  Ratings  then  in  effect.  Any  change  in the
         Applicable  Unused Fee due to a change in any Rating shall be effective
         on the date of such  change in such  Rating.  In the event (i) of split
         Ratings  where the Ratings are more than one Tier apart,  then the Tier
         next above the Tier  corresponding to the lower Rating shall apply and,
         (ii)  either  Rating  is Tier IV or below  (or  unrated),  then (A) the
         Applicable  Unused Fee shall be Tier IV if either  Rating is Tier IV or
         higher and (B) Tier V otherwise.  In the event that the Borrower  shall
         not have a Rating by either S&P or Moody's,  the Applicable  Unused Fee
         shall be mutually agreed to by the Borrower,  the Administrative  Agent
         and the  Lenders and shall be Tier IV until such  mutual  agreement  is
         reached.

                                       3
<PAGE>

                  "Applications  and  Agreements  for Letters of Credit"  means,
         collectively, the Applications and Agreements for Letters of Credit, or
         similar  documentation,  executed by the Borrower from time to time and
         delivered  to the Issuing  Bank to support  the  issuance of Letters of
         Credit and which terms shall state that the requested  Letter of Credit
         is to be issued under this Agreement.

                  "Assignment and Acceptance" means an Assignment and Acceptance
         in the form of Exhibit B (with blanks  appropriately  filled in) (or in
         such  other  form as shall be  approved  by the  Administrative  Agent)
         delivered to the Administrative  Agent in connection with an assignment
         of a Lender's interest under this Agreement pursuant to Section 11. 1.

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

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

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

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

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

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

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

                                       4
<PAGE>

                  "Capital  Expenditures" means, for any period, with respect to
         any Person,  the aggregate of all  expenditures  by such Person and its
         Subsidiaries  for the  acquisition  or leasing  (pursuant  to a Capital
         Lease) of fixed or capital assets or additions to equipment  (including
         replacements,  capitalized repairs and improvements during such period)
         which should be capitalized under GAAP on a consolidated  balance sheet
         of  such  Person  and  its  Subsidiaries,  but  for  the  avoidance  of
         duplication, excluding any amounts included in Cost of Acquisition with
         respect to any Acquisition.

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

                  "Capital Stock" of any Person means any and all shares, rights
         to   purchase,   warrants  or  options   (whether   or  not   currently
         exercisable),  participation  or other  equivalents  of or  interest in
         (however  designated) the equity (including  without  limitation common
         stock,  preferred stock and partnership and joint venture interests) of
         such Person  (excluding any debt securities that are convertible  into,
         or exchangeable for, such equity).

                  "Change of Control" means, at any time:

                  (i) all or substantially all of the Borrower's assets are sold
         as an entirety to any Person or related group of Persons;

                  (ii) there shall be consummated any consolidation or merger of
         the  Borrower  (A) in  which  the  Borrower  is not the  continuing  or
         surviving  corporation  (other  than a  consolidation  or merger with a
         wholly  owned  Subsidiary  of the  Borrower  in which all shares of the
         Borrower's   Common  Stock   outstanding   immediately   prior  to  the
         effectiveness  thereof  are  changed  into or  exchanged  for the  same
         consideration)  or (B)  pursuant to which the  Borrower's  Common Stock
         would be converted  into cash,  securities or other  property,  in each
         case other than a consolidation  or merger of the Borrower in which the
         holders  of  the  Borrower's  Common  Stock  immediately  prior  to the
         consolidation  or  merger  have,  directly  or  indirectly,  at least a
         majority  of the total  Voting  Stock of the  continuing  or  surviving
         corporation   immediately   after  such   consolidation  or  merger  in
         substantially  the same proportion as their ownership of the Borrower's
         Common Stock immediately before such transaction;

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

                  (iv)  during  any  period  of  up to  24  consecutive  months,
         commencing  on the Closing  Date,  individuals  who at the beginning of
         such period were  directors of the

                                       5
<PAGE>

         Borrower  shall cease for any reason (other than the death,  disability
         or  retirement  of an  officer  of the  Borrower  that is  serving as a
         director  at  such  time so long as  another  officer  of the  Borrower
         replaces  such Person as a director)  to  constitute  a majority of the
         board of directors of the Borrower;

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

                  (vi) the Borrower is  liquidated or dissolved or adopts a plan
         of liquidation or dissolution.

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

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

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

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

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

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

                  "Consolidated  EBITDA" means, with respect to the Borrower and
         its  Consolidated  Entities for any  Four-Quarter  Period ending on the
         date of  computation  thereof,  the sum of,  without  duplication,  (i)
         Consolidated Net Income,  (ii)  Consolidated  Interest  Expense,  (iii)
         Consolidated  Income  Tax  Expense,   (iv)  Consolidated   Amortization
         Expense,  (v)  Consolidated  Depreciation  Expense,  (vi) the  minority
         interest  of any  Person  or  Persons  in the  income  of  Consolidated
         Entities for such period,  (vii) the  non-recurring,  non-cash expenses
         and cash  transaction  costs relating to  professional  fees arising in
         conjunction  with an  Acquisition  provided such expenses do not exceed
         10%  of  the  Cost  of  Acquisition  and  (viii)  as  applicable,   the
         non-recurring,  non-cash  expenses  incurred  by

                                       6
<PAGE>

         the  Borrower  and its  Consolidated  Entities  during the three  month
         period  ended  September  30,  1999 and the three  month  period  ended
         December 31, 1999; all determined on a consolidated basis in accordance
         with GAAP applied on a Consistent Basis.

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

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

                  "Consolidated  Interest  Expense"  means,  with respect to any
         Four-Quarter  Period  ending on the date of  computation  thereof,  the
         gross interest expense of the Borrower and its  Consolidated  Entities,
         including without  limitation (i) the current amortized portion of debt
         discounts to the extent  included in gross interest  expense,  (ii) the
         current  amortized  portion  of all fees  (including  fees  payable  in
         respect of any Rate Hedging  Obligation) payable in connection with the
         incurrence of  Indebtedness  to the extent  included in gross  interest
         expense,  (iii) the portion of any  payments  made in  connection  with
         Capital Leases allocable to interest expense,  and (iv) lease payments,
         other than the Headquarters Obligations and Hospitals Obligations, made
         pursuant to the Headquarters  Lease and Hospitals Lease,  respectively,
         all determined on a consolidated  basis in accordance with GAAP applied
         on a Consistent Basis.

                  "Consolidated Net Income" of the Borrower for any period means
         the net income (or loss) of the Borrower and its Consolidated  Entities
         for such period  determined on a consolidated  basis in accordance with
         GAAP,  without  giving  effect to  dividends on any series of preferred
         stock of any Consolidated Entity, whether or not in cash, to the extent
         such  consolidated net income was reduced thereby;  provided that there
         shall be excluded  from such net income (for all  purposes,  other than
         compliance  with  Section  8.1(a),  to the  extent  otherwise  included
         therein), without duplication,  (i) the net income of any Person (other
         than a Consolidated  Entity) to the extent that any such income has not
         actually been received by the Borrower or a Consolidated  Entity in the
         form of dividends  or similar  distributions  during such  period,  but
         including,  in any  event,  net  income  of any  Person  who  becomes a
         Consolidated Entity whose Acquisition is accounted for on a "pooling of
         interests"   basis;  (ii)  except  to  the  extent  includable  in  the
         consolidated  net  income  of the  Borrower  or a  Consolidated  Entity
         pursuant to the foregoing clause (i), the net income of any Person that
         accrued prior to the date that (a) such Person  becomes a  Consolidated
         Entity or is merged into or consolidated with a Consolidated  Entity or
         (b) the  assets  of such  Person  are  acquired  by the  Borrower  or a
         Consolidated Entity;  (iii)the net income of any Consolidated Entity to
         the extent  that the  declaration  or payment of  dividends  or similar
         distributions  by  such  Consolidated  Entity  of  that  income  is not
         permitted by  operation  of the terms of its charter or any  agreement,
         instrument,  judgment,  decree,  order,  statute,  rule or governmental
         regulation  applicable to that Consolidated  Entity during such period;
         (iv) any gain (or loss), together with any related provisions for taxes
         on any such gain,  realized  during such period by the  Borrower or its
         Consolidated  Entities upon (a) the acquisition of any  securities,  or
         the  extinguishment  of  any  Indebtedness,  of  the  Borrower  or  its
         Consolidated  Entities or (b) any asset sale by the

                                       7
<PAGE>

         referent Person or any of its Subsidiaries;  (v) any extraordinary gain
         (or extraordinary loss),  together with any related provision for taxes
         or tax  benefit  resulting  from any such  extraordinary  gain or loss,
         realized  by the  Borrower  or its  Consolidated  Entities  during such
         period;  and  (vi)  in  the  case  of a  successor  to  any  Person  by
         consolidation,  merger or transfer of its assets,  any  earnings of the
         successor prior to such merger, consolidation or transfer of assets.

                  "Consolidated  Net Worth" of the Borrower as of any date means
         the Consolidated  Stockholders'  Equity  (including any preferred stock
         that is classified as equity under GAAP, other than Disqualified Stock)
         of the Borrower and its  Consolidated  Entities  (excluding  any equity
         adjustment for foreign currency  translation for any period  subsequent
         to  the  Closing  Date)  on a  consolidated  basis  at  such  date,  as
         determined in accordance  with GAAP,  less all write-ups  subsequent to
         the Closing  Date in the book value of any asset owned by the  Borrower
         or any of its Consolidated Entities.

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

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

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

                                       8
<PAGE>

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

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

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

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

                  "Controlled  Investment  Affiliate" of any  specified  Person,
         means any other Person that (i) directly or  indirectly  through one or
         more  intermediaries  is in control of, is  controlled  by, or is under
         common  control with,  such  specified  Person and (ii) is organized by
         such  specified  Person  primarily  for the purpose of making equity or
         debt  investments  in one or  more  companies.  For  purposes  of  this
         definition,  "control"  of  a  Person  means  the  power,  directly  or
         indirectly,  to direct or cause the  direction  of the  management  and
         policies of such Person,  whether through ownership of Voting Stock, by
         contract or otherwise.

                  "Controlled  Partnership" means a general partnership of which
         the  Borrower  or a  Subsidiary  is a  general  partner,  or a  limited
         partnership whose general partners include the Borrower or a Subsidiary
         (but not including  Vanderbilt),  or a limited  liability company whose
         members  include the  Borrower or a  Subsidiary  or another  Controlled
         Partnership, which partnership,  whether general or limited, or limited
         liability  company has assets with a value in excess of $2,000.00,  and
         with  respect to which  partnership  or limited  liability  company the
         Borrower  or a  Subsidiary  is entitled to receive not less than 50% of
         any  distributions  of cash made to the  partners  or members  thereof,
         other than any preferred cash distribution  arrangement in existence at
         the Closing Date as set forth on Schedule 1.1(a) hereto, or approved by
         the Required  Lenders in writing,  or which is otherwise a Consolidated
         Entity.

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

                  "Convertible   Subordinated   Debentures"   means   the  3.25%
         Convertible Subordinated Debentures due 2003 issued by the Borrower, as
         the same may be amended,  supplemented,  waived or  otherwise  modified
         from time to time.

                  "Cost of Acquisition" means in respect of any Acquisition, the
         sum of (i) the amount of cash paid by the Borrower and its Consolidated
         Entities  in  connection  with such  Acquisition,  (ii) the Fair Market
         Value of all Capital Stock or other ownership

                                       9
<PAGE>

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

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

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

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

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

                  "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
         Lender, (iii) any Controlled Investment Affiliate of a Lender, and (iv)
         any other Person  approved by the  Administrative  Agent and, unless an
         Event  of  Default  has  occurred  and is  continuing  at the  time any
         assignment is effected in accordance  with Section 11.1,  the Borrower,
         such  approval  not  to be  unreasonably  withheld  or  delayed  by the
         Borrower  or the  Administrative  Agent and such  approval to be deemed
         given by the  Borrower if no  objection  is  received by the  assigning
         Lender  and the  Administrative  Agent  from the  Borrower  within  two
         Business Days after written notice of such proposed assignment has been
         provided by the assigning  Lender to the Borrower;  provided,  however,
         that  neither the  Borrower  nor an  affiliate  of the  Borrower  shall
         qualify as an Eligible Assignee.

                  "Employee Benefit Plan" means any employee benefit plan within
         the  meaning  of  Section  3(3) of ERISA  which (i) is  maintained  for
         employees of the Borrower or any of its ERISA  Affiliates or is assumed
         by the Borrower or any of its ERISA  Affiliates in

                                       10
<PAGE>

         connection with any Acquisition or (ii) has at any time been maintained
         for the  employees  of the  Borrower  or any  current  or former  ERISA
         Affiliate.

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

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

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

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

                    Eurodollar Rate = Interbank Offered Rate
                                      ----------------------
                                     (1- Reserve Requirement)

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

                  "Event of Default" means any of the  occurrences  set forth as
         such in Section 9. 1.

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

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

                  "Facility"  means an  inpatient or  outpatient  rehabilitation
         facility, certified outpatient rehabilitation facility, skilled nursing
         facility,  specialty medical center,  specialty  orthopedic hospital or
         acute care hospital,  subacute inpatient facility,  transitional living
         center,   medical  office  building,   outpatient   surgery  center  or
         outpatient  diagnostic  center  with  all  buildings  and  improvements
         associated therewith, that is owned or leased or acquired (as permitted
         under  Section  8.8), in whole or part, by the Borrower or a Subsidiary
         or any Controlled Partnership.

                                       11
<PAGE>

                  "Facility  Extension Loan Termination Date" means the Facility
         Extension Maturity Date or such earlier date of termination of Lenders'
         obligations hereunder as may be determined pursuant to Section 9.1 upon
         the  occurrence  of an  Event of  Default,  or such  date on which  the
         Borrower may voluntarily and permanently terminate the Revolving Credit
         Facility  by  payment  in full of all  outstanding  amounts  under  the
         Facility  Extension Loans with all accrued and unpaid interest and fees
         thereon.

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

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

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

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

                  "GAAP" or "Generally  Accepted  Accounting  Principles"  means
         generally  accepted  accounting  principles,  being those principles of
         accounting  set forth in  pronouncements  of the  Financial  Accounting
         Standards  Board  or  the  American   Institute

                                       12
<PAGE>

         of  Certified  Public  Accountants  or  which  have  other  substantial
         authoritative support and are applicable in the circumstances as of the
         date of a report.

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

                  "Guarantee" means the guarantee,  substantially in the form of
         Exhibit K, to which each Guarantor shall become a party.

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

                  "Guarantor" means any Subsidiary of the Borrower that directly
         or indirectly guarantees any Indebtedness of the Borrower and becomes a
         party to the Guarantee.

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

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

                  "Headquarters  Lease"  means the  Amended and  Restated  Lease
         Agreement  dated as of October 31, 2000,  between First  Security Bank,
         National Association, a national banking association, not individually,
         but solely as Owner Trustee  under the  HEALTHSOUTH  Corporation  Trust
         1995-1,   as  Lessor  and  HEALTHSOUTH   Holdings,   Inc.,  a  Delaware
         corporation,  as  Lessee,  as  such  Lease  Agreement  may be  amended,
         modified, supplemented or restated in its entirety from time to time.

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

                  "Headquarters  Participation  Agreement" means the Amended and
         Restated  Participation  Agreement  dated as of October 31, 2000 by and
         among  HEALTHSOUTH  HOLDINGS,  INC., as Lessee,  FIRST  SECURITY  BANK,
         NATIONAL ASSOCIATION, a national banking association, not individually,
         except as expressly  stated  herein,  but solely as Owner Trustee under
         the HEALTHSOUTH Corporation Trust

                                       13
<PAGE>

         1995-1,  THE CHASE MANHATTAN BANK, as Documentation  Agent; UBS WARBURG
         LLC and  DEUTSCHE  BANK  SECURITIES,  INC.,  as Joint  Lead  Arrangers;
         DEUTSCHE  BANK  AG NEW  YORK  BRANCH,  as  Syndication  Agent;  UBS AG,
         Stamford  Branch,  as  Administrative  Agent  for the  Lenders  and the
         Holders;  UBS AG,  Stamford  Branch,  and the  various  other banks and
         lending  institutions  which are parties  thereto  from time to time as
         Holders,  and UBS AG,  Stamford  Branch and the various other banks and
         lending  institutions  which are parties  thereto  from time to time as
         Lenders, as such Headquarters  Participation  Agreement may be amended,
         modified, supplemented or restated in its entirety from time to time.

                  "Hospitals  Lease"  means  the  Lease  Agreement  dated  as of
         October 31, 2000,  between  First  Security  Bank,  a national  banking
         association,  not  individually,  but solely as Owner Trustee under the
         HEALTHSOUTH  Corporation  Trust  2000-1,  as  Lessor,  and  HEALTHSOUTH
         Corporation, a Delaware corporation, as Lessee, as such Lease Agreement
         may be amended, modified, supplemented or restated in its entirety from
         time to time.

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

                  "Hospitals  Participation  Agreement" means the  Participation
         Agreement  dated  as of  October  31,  2000  by and  among  HEALTHSOUTH
         Corporation.,  as Lessee, FIRST SECURITY BANK, NATIONAL ASSOCIATION,  a
         national banking  association,  not  individually,  except as expressly
         stated  therein,  but  solely as Owner  Trustee  under the  HEALTHSOUTH
         Corporation  Trust 2000-1,  THE CHASE MANHATTAN BANK, as  Documentation
         Agent;  UBS WARBURG LLC and DEUTSCHE  BANK  SECURITIES,  INC., as Joint
         Lead Arrangers; DEUTSCHE BANK AG NEW YORK BRANCH, as Syndication Agent;
         UBS AG, Stamford Branch,  as  Administrative  Agent for the Lenders and
         the Holders;  UBS AG, Stamford Branch,  and the various other banks and
         lending  institutions  which are parties  thereto  from time to time as
         Holders,  and UBS AG,  Stamford  Branch and the various other banks and
         lending  institutions  which are parties  thereto  from time to time as
         Lenders,  as such  Hospitals  Participation  Agreement  may be amended,
         modified, supplemented or restated in its entirety from time to time.

                  "Indebtedness"  of any  Person  at  any  date  means,  without
         duplication:  (i) all  indebtedness  of such Person for borrowed  money
         (whether  or not the  recourse  of the  lender  is to the  whole of the
         assets  of  such  Person  or  only  to a  portion  thereof);  (ii)  all
         obligations  of such Person  evidenced by bonds,  debentures,  notes or
         other  similar  instruments;   (iii)  all  obligations  (contingent  or
         otherwise)  of such  Person in  respect  of  letters of credit or other
         similar   instruments  (or   reimbursement   obligations  with  respect
         thereto);  (iv) all  obligations  of such Person  with  respect to Rate
         Hedging  Obligations  (excluding,  for all  purposes of this  Agreement
         other than Section 9.1(e), those that fix the interest rate on variable
         rate  indebtedness  otherwise  permitted  hereunder or that protect the
         Borrower and or its  Consolidated  Entities  against changes in foreign
         exchange rates); (v) obligations of such Person to pay the deferred and
         unpaid  purchase  price of property or services,  except trade payables
         and accrued expenses incurred in the ordinary course of business;  (vi)
         all   Capitalized   Lease   Obligations  of  such  Person;   (vii)  all
         indebtedness  of

                                       14
<PAGE>

         others  secured by a Lien on any assets of such Person,  whether or not
         such  indebtedness  is assumed by such  Person;  (viii) all  Guaranteed
         Obligations;  (ix)  the  Headquarters  Obligations  and  the  Hospitals
         Obligations;  and  (x)  all  obligations  of a  like  nature  to  those
         described in clauses (i) through (ix) above of a  partnership  of which
         such Person is a general partner or of a limited  liability  company of
         which such Person is a member. The amount of Indebtedness of any Person
         at any  date  shall  be the  outstanding  balance  at such  date of all
         unconditional  obligations as described above, the maximum liability of
         such Person for any such  contingent  obligations  at such date and, in
         the case of clause (vii), the amount of the Indebtedness secured.

                  "Interbank  Offered Rate" means,  for any Eurodollar Rate Loan
         for the Interest Period applicable thereto, the rate per annum (rounded
         upwards, if necessary,  to the nearest one-one hundredth (1/100) of one
         percent)  appearing on Dow Jones  Telerate  Page 3750 (or any successor
         page) as the London  interbank  offered rate for deposits in Dollars at
         approximately  11:00 a.m.  (London time) two Business Days prior to the
         first  day of  such  Interest  Period  for a term  comparable  to  such
         Interest Period. If for any reason, as determined by the Administrative
         Agent,  such rate is not available,  the term "Interbank  Offered Rate"
         means, for any Eurodollar Rate Loan for the Interest Period  applicable
         thereto,  the rate per annum  (rounded  upwards,  if necessary,  to the
         nearest 1 /100 of 1 %)  appearing  on Reuters  Screen  LIBO Page as the
         London interbank  offered rate for deposits in Dollars at approximately
         11:00 a.m.  (London  time) two Business  Days prior to the first day of
         such Interest  Period for a term  comparable  to such Interest  Period;
         provided, however, if more than one rate is specified on Reuters Screen
         LIBO Page, the applicable rate shall be the arithmetic mean of all such
         rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).

                  "Interest  Period" means,  with respect to any Eurodollar Rate
         Loan,  each period  commencing on the date such Eurodollar Rate Loan is
         made or  Converted  from a Loan of another  Type or the last day of the
         next  preceding  Interest  Period  for  such  Loan  and  ending  on the
         numerically  corresponding  day in the  first,  second,  third or sixth
         calendar  month  thereafter,  as the Borrower may select as provided in
         Section 2.3,  except that each  Interest  Period that  commences on the
         last Business Day of a calendar month (or on any day for which there is
         no numerically corresponding day in the appropriate subsequent calendar
         month) shall end on the last Business Day of the appropriate subsequent
         calendar  month.  Notwithstanding  the  foregoing:  (i) if any Interest
         Period  for any  Eurodollar  Rate Loan  would  otherwise  end after the
         Revolving  Credit  Termination  Date (with respect to Revolving  Credit
         Loans) or the Facility Extension Loan Termination Date (with respect to
         Facility  Extension  Loans),  such  Interest  Period  shall  end on the
         Revolving  Credit  Termination  Date  or the  Facility  Extension  Loan
         Termination  Date, as applicable;  (ii) each Interest Period that would
         otherwise  end on a day  which is not a  Business  Day shall end on the
         next succeeding Business Day (or, in the case of an Interest Period for
         a Eurodollar Rate Loan, if such next  succeeding  Business Day falls in
         the next  succeeding  calendar  month,  on the next preceding  Business
         Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest
         Period for any Loan  shall  have a duration  of less than one month (in
         the case of a Eurodollar Rate Loan) and, if the Interest Period for any
         Eurodollar  Rate Loan would  otherwise be a shorter  period,  such Loan
         shall not be available hereunder for such period.

                                       15
<PAGE>

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

                  "Issuing  Bank" means UBS AG,  Stamford  Branch,  as issuer of
         Letters of Credit under Article III.

                  "LC Account Agreement" means the LC Account Agreement dated as
         of the date hereof among the Borrower, the Administrative Agent and the
         Lenders, as amended, modified or supplemented from time to time.

                  "Lender Addendum" means, with respect to any initial Lender, a
         Lender Addendum, substantially in the form of Exhibit A, to be executed
         and delivered by such Lender on the Closing Date as provided in Section
         11.17.

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

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

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

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

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

                                       16
<PAGE>

                  "Loan"  or  "Loans"   means  any   Revolving   Credit   Loans,
         Reimbursement  Obligations  and Letter of Credit  Outstandings  and all
         extensions and renewals thereof,  including,  if applicable and without
         limitation, any Facility Extension Loans.

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

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

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

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

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

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

                                       17
<PAGE>

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

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

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

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

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

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

                   "1999 10-K" means the  Borrower's  Annual Report on Form 10-K
         for the Fiscal Year Ended December 31, 1999

                  "Notes" means, the promissory notes of the Borrower evidencing
         the Loans  executed and delivered to the Lenders as provided in Section
         2.6,   substantially  in  the  form  of  Exhibit  F,  with  appropriate
         insertions as to amounts, dates and names of Lenders.

                  "Obligations"   means   the   obligations,   liabilities   and
         Indebtedness  of the  Borrower  with respect to (i) the  principal  and
         interest on the Loans, (ii) the Reimbursement Obligations and otherwise
         in respect  of the  Letters of  Credit,  (iii) all  liabilities  of the
         Borrower to any Lender which arise under a Swap Agreement, and (iv) the
         payment  and  performance  of all other  obligations,  liabilities  and
         Indebtedness of the Borrower to the Lenders or the Administrative Agent
         hereunder,  under any one or more of the other Loan  Documents  or with
         respect to the Loans.

                                       18
<PAGE>

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

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

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

                  "Permitted Encumbrances" means:

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

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

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

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

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

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

                  "Permitted Investments" means:

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

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

                                       19
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       20
<PAGE>

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

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

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

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

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

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

                  "Principal  Office"  means the  office  of the  Administrative
         Agent  at  677  Washington  Boulevard,   Stamford,  Connecticut  06901,
         Attention:  Jennifer  Poccia,  or such other  office and address as the
         Administrative Agent may from time to time designate.

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

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

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

                  "Reimbursement  Obligation" means, at any time, the obligation
         of the Borrower  with respect to any Letter of Credit to reimburse  the
         Issuing  Bank  and  the  Lenders  to the  extent  of  their  respective
         Participations  (including  by the  receipt  by  the  Issuing  Bank  of

                                       21
<PAGE>

         proceeds of Loans pursuant to Section 3.2) for amounts theretofore paid
         by the Issuing Bank pursuant to a drawing under such Letter of Credit.

                  "Required Lenders" means, as of any date, Lenders on such date
         having Credit Exposures (as defined below)  aggregating at least 51% of
         the  aggregate  Credit  Exposures of all the Lenders on such date.  For
         purposes of the preceding sentence, the amount of the "Credit Exposure"
         of each Lender shall be equal to the aggregate  principal amount of the
         Loans,  so long as there  exists  no Event  of  Default,  owing to such
         Lender plus the aggregate unutilized amounts of such Lender's Revolving
         Credit   Commitment  plus  the  amount  of  such  Lender's   Applicable
         Commitment Percentage of Letter of Credit Outstandings;  provided that,
         if any  Lender  shall  have  failed  to pay to  the  Issuing  Bank  its
         Applicable  Commitment  Percentage  of any drawing  under any Letter of
         Credit  resulting  in an  outstanding  Reimbursement  Obligation,  such
         Lender's  Credit  Exposure   attributable  to  Letters  of  Credit  and
         Reimbursement  Obligations  shall be deemed  to be held by the  Issuing
         Bank for purposes of this definition.

                  "Reserve  Requirement" means, at any time, the maximum rate at
         which reserves (including,  without limitation, any marginal,  special,
         supplemental,  or emergency  reserves)  are  required to be  maintained
         under regulations issued from time to time by the Board by member banks
         of the Federal Reserve System (or any successor) by member banks of the
         Federal Reserve System against "Eurocurrency liabilities" (as such term
         is used in Regulation D). Without limiting the effect of the foregoing,
         the Reserve Requirement shall reflect any other reserves required to be
         maintained  by such member  banks with  respect to (i) any  category of
         liabilities   which  includes   deposits  by  reference  to  which  the
         Eurodollar Rate is to be determined, or (ii) any category of extensions
         of credit or other  assets which  include  Eurodollar  Rate Loans.  The
         Eurodollar  Rate  shall  be  adjusted  automatically  on  and as of the
         effective date of any change in the Reserve Requirement.

                  "Restricted   Payment"   means  (a)  any   dividend  or  other
         distribution, direct or indirect, on account of any shares of any class
         of stock of Borrower or any of its  Consolidated  Entities  (other than
         those payable or distributable solely to the Borrower) now or hereafter
         outstanding,  except a dividend  payable solely in shares of a class of
         stock to the holders of that  class;  (b) any  redemption,  conversion,
         exchange,  retirement or similar payment, purchase or other acquisition
         for value,  direct or indirect,  of any shares of any class of stock of
         the  Borrower  or any of its  Consolidated  Entities  (other than those
         payable  or  distributable  solely to the  Borrower)  now or  hereafter
         outstanding; (c) any payment made to retire, or to obtain the surrender
         of, any outstanding warrants, options or other rights to acquire shares
         of any  class  of  stock  of the  Borrower  or any of its  Consolidated
         Entities  now or  hereafter  outstanding;  (d) any issuance and sale of
         capital  stock  of any  Consolidated  Entity  of the  Borrower  (or any
         option,  warrant  or right to  acquire  such  stock)  other than to the
         Borrower;  and (e)  any  optional  or  voluntary  payment,  prepayment,
         repurchase  or  redemption  of,  or  otherwise  voluntary  or  optional
         defeasance of any Subordinated Debt, including, without limitation, the
         New  Senior   Subordinated  Notes  and  the  Convertible   Subordinated
         Debentures,   or  the  segregation  of  funds  for  any  such  payment,
         prepayment, repurchase, redemption or defeasance.

                                       22
<PAGE>

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

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

                  "Revolving  Credit  Loan" means any  borrowing  pursuant to an
         Advance  provided for by Section  2.1,  which may be Base Rate Loans or
         Eurodollar Rate Loans.

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

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

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

                  "Senior  Debt"  means  (i)  the   Obligations   and  (ii)  all
         obligations  of the  Borrower  and its  Subsidiaries,  now or hereafter
         existing  under the Credit  Agreement  dated as of June 23, 1998 by and
         among the Borrower, as borrower,  Nationsbank National Association,  as
         Administrative  Agent  and  Arranger,   J.P.  Morgan  Securities  Inc.,
         Deutsche  Bank AG and  Scotiabanc,  Inc.,  as  Syndication  Agents  and
         Co-Arrangers, and the other lenders party thereto from time to time, as
         amended and in effect from time to time.

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

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

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

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

                                       23
<PAGE>

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

                  "Stated Termination Date" means October 30, 2001.

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

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

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

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

                  "Total  Letter of Credit  Commitment"  means an amount  not to
         exceed $20,000,000.

                  "Total Revolving Credit  Commitment"  means a principal amount
         equal to $400,000,000,  as reduced from time to time in accordance with
         Section 2.1(a) and Section 2.8.

                                       24
<PAGE>

                  "Unused  Amount"  means with respect to each  Lender,  (a) the
         Revolving  Credit  Commitment of such Lender less (b) such Lender's pro
         rata share of outstanding  Revolving  Credit Loans and Letter of Credit
         Outstandings; provided that in no event shall such amount be a negative
         number.

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

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

         (b)      Other  Defined  Terms.  The  following  terms  shall  have the
                  meanings  defined  for such  terms in the  Sections  set forth
                  below:

                  Term                                           Section
                  -----                                           -------

                  Administrative Agent                           Preamble
                  Affected Loans                                 4.4
                  Affected Type                                  4.4
                  Compliance Certificate                         7.1(c)
                  Contractual Obligation                         6.2(c)
                  Eurodollar Margin                              2.2(c)(ii)(C)
                  Event of Default                               9.1
                  Facility Extension Loan                        2.2(b)
                  Facility Extension Loan Maturity Date          2.2(b)
                  Facility Extension Notice                      2.2(a)
                  Indemnified Parties                            11.12
                  Indemnified Liabilities                        11.12
                  New Senior Subordinated Notes                  5.1(c)
                  Notice of Default                              10.3
                  Other Taxes                                    4.6(b)
                  Pro Forma Financial Statements                 6.6(d)
                  Refinancing                                    5.1(c)
                  Register                                       11.1(b)
                  Related LC Documents                           3.2(i)
                  Requirement of Law                             6.2(b)
                  Taxes                                          4.6(a)

                  1.2. Rules of Interpretation.

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

                                       25
<PAGE>

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

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

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

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

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

                  (g) All dates and times of day specified herein shall refer to
such dates and times at New York, New York.

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

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

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

                  1.3.   Classes  and  Types  of  Loans.   Loans  hereunder  are
distinguished by Class and Type. The Class of a Loan refers to whether such Loan
is a Revolving  Credit Loan or a Facility  Extension  Loan. The "Type" of a Loan
refers to whether such Loan is a Base Rate Loan or a Eurodollar  Rate Loan, each
of which constitutes a Type. Loans may be identified by both Class and Type.

                                       26
<PAGE>

                                   ARTICLE II

                                    The Loans

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

                  (b) Amounts.  The  aggregate  unpaid  principal  amount of the
Revolving  Credit  Outstandings  plus  Letter of Credit  Outstandings  shall not
exceed the Total  Revolving  Credit  Commitment and, in the event there shall be
outstanding any such excess,  the Borrower shall  immediately make such payments
and  prepayments  as shall be  necessary to comply with this  restriction.  Each
Revolving Credit Loan hereunder,  other than Base Rate Refunding Loans, and each
Conversion under Section 2.9, shall be in an amount of at least $2,000,000, and,
if greater than  $2,000,000,  an integral  multiple of $500,000  with respect to
Eurodollar Rate Loans and $100,000 with respect to Base Rate Loans.

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

                                       27
<PAGE>

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

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

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

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

                                       28
<PAGE>

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

                  2.2.  Facility  Extension  Loans.  (a) The  Borrower  may,  by
written  irrevocable  notice to the  Administrative  Agent (such  notice being a
"Facility  Extension Notice") given no later than sixty days prior to the Stated
Termination  Date,  convert  the  Revolving  Credit  Outstandings  on the Stated
Termination  Date into term loans on the terms and  conditions set forth in this
Section 2.2; provided,  however, that the Lenders will not be required and shall
have no obligation to convert any Revolving Credit Outstandings  pursuant to the
terms in this Section 2.2 if the  applicable  conditions  precedent  thereto set
forth in Article V have not been satisfied. No Facility Extension Loan that is a
Eurodollar  Rate Loan shall be made which has an Interest  Period  that  extends
beyond the Facility  Extension Loan Termination Date and each Facility Extension
Loan that is a Eurodollar  Rate Loan may,  subject to the  provisions of Section
2.4, be repaid only on the last day of the Interest  Period with respect thereto
unless such payment is accompanied by the additional  payment,  if any, required
by Section 4.5. The  Administrative  Agent shall promptly  transmit any Facility
Extension Notice to each Lender.

                  (b) If the Borrower delivers a Facility Extension Notice, each
Lender  severally agrees that the Revolving  Credit  Outstandings  owing to such
Lender on the Stated  Termination  Date shall be  converted  into a term loan (a
"Facility  Extension Loan") with a maturity date of June 22, 2003 (the "Facility
Extension Loan Maturity  Date").  The Facility  Extension Loans may from time to
time be Base Rate Loans or Eurodollar  Loans,  as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2(c) and 2.9.

                  (c) In the event  that a  Facility  Extension  Notice has been
delivered,  an Authorized  Representative shall give the Administrative Agent at
least  three  (3)  Business  Days'  prior  to the  Stated  Termination  Date  an
irrevocable written notice by telefacsimile  transmission  stating if all or any
portion of the Facility Extension Loans are to be Eurodollar Rate Loans, and the
length of the initial Interest Period applicable thereto.

                                       29
<PAGE>

                  (d) On the date on which the  Borrower  provides  the Facility
Extension  Notice  according to Section 2.2(a) above, the Borrower agrees to pay
to the  Administrative  Agent, for the benefit of each Lender,  an extension fee
equal to .25% of the amount of the  Facility  Extension  Loan to be made by such
Lender.

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

                  (b)  Interest on each Loan shall be computed on an  Actual/360
Basis.  Interest on each Loan shall be paid (i) quarterly in arrears on the last
Business Day of each March, June,  September and December,  commencing  December
31,  2000,  for each  Base  Rate  Loan.  (ii) on the last day of the  applicable
Interest  Period for each  Eurodollar  Rate Loan and,  if such  Interest  Period
extends for more than three (3) months,  at  intervals of three (3) months after
the first day of such  Interest  Period,  and (iii)  upon the  Revolving  Credit
Termination  Date and the Facility  Extension Loan  Termination  Date.  Interest
payable at the Default Rate shall be payable on demand.

                  2.4.  Payment of Principal (a) Unless  converted to a Facility
Extension  Loan pursuant to Section 2.2, the principal  amount of each Revolving
Credit Loan shall be due and payable to the Administrative Agent for the benefit
of  each  Lender  in  full  on  the  Stated  Termination  Date,  or  earlier  as
specifically  provided herein.  The Facility Extension Loan of each Lender shall
mature in 8 equal quarterly installments,  the first 7 such installments payable
on the last Business Day of the following  months:  September,  2001;  December,
2001; March, 2002; June, 2002; September, 2002; December, 2002; March, 2003; and
the last installment payable on the Facility Extension Loan Maturity Date

                  (b) From time to time,  the Borrower may prepay the Loans,  in
whole or in part,  without  premium or penalty,  upon at least four (4) Business
Days' irrevocable  written notice to the  Administrative  Agent,  specifying the
date and amount of prepayment and whether the prepayment is of Eurodollar Loans,
Base Rate Loans or a  combination  thereof,  and if a combination  thereof,  the
amount  allocable  to each.  If any notice of  prepayment  is given,  the amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued  interest to the payment date on the amount prepaid.  Upon
receipt of any notice of  prepayment,  the  Administrative  Agent shall promptly
notify each Lender thereof. Notwithstanding anything to the contrary herein, the
principal  amount of any Eurodollar  Rate Loan may be prepaid only at the end of
the   applicable   Interest   Period  unless  the  Borrower  shall  pay  to  the
Administrative  Agent for the account of the Lenders the additional  amount,  if
any,  required under Section 4.5. All prepayments of Revolving Credit Loans and,
where applicable,  Facility Extension Loans made by the Borrower shall be in the
amount of  $5,000,000  or such

                                       30
<PAGE>

greater amount which is an integral multiple of $1,000,000,  or the amount equal
to all Revolving Credit  Outstandings or, where applicable,  outstanding amounts
under the Facility  Extension Loans, as the case may be, or such other amount as
necessary to comply with Section 2.1(b) or Section 2.9.  Partial  prepayments of
the Facility  Extension Loans shall be applied to the  installments of principal
under the  Facility  Extension  Loans in the  inverse  order of their  scheduled
maturities.  Amounts prepaid on account of the Facility  Extension Loans may not
be reborrowed.

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

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

                  (c) In the event that any  payment  hereunder  becomes due and
payable on a day other than a Business Day, then such due date shall be extended
to the  next  succeeding  Business  Day  unless  provided  otherwise  under  the
definition of "Interest Period"; provided that interest shall continue to accrue
during the period of any such extension and provided  further,  that in no event
shall any such due date be extended  beyond the Stated  Termination  Date or the
Facility Extension Termination Date, as the case may be.

                  2.6. Notes(a) . The Loans of each Lender shall be evidenced by
the Register (as defined in Section 11.1(b)) and by a loan account maintained by
such Lender. The Borrower hereby agrees that, upon request to the Administrative
Agent by any Lender,  the Borrower  will  execute and deliver to the  requesting
Lender a promissory  note of the Borrower  evidencing  the Loans of such Lender,
substantially in the form of Exhibit F, with appropriate insertions.

                  2.7. Pro Rata Payments.  Except as otherwise  provided herein,
(a) each payment on account of the  principal  of and interest on the  Revolving
Credit Loans,  the Facility  Extension  Loans and the fees  described in Section
2.2(d),  Section 2.10 and the first  sentence of Section 3.3(a) shall be made to
the Administrative  Agent for the account of the Lenders pro rata based on their
Applicable Commitment Percentages with respect to the Revolving Credit Loans and
the Applicable  Extension  Percentages,  with respect to the Facility  Extension
Loans,  (b) all

                                       31
<PAGE>

payments  to be made by the  Borrower  for the account of each of the Lenders on
account of  principal,  interest  and fees,  shall be made  without  diminution,
setoff,  recoupment  or  counterclaim,  and (c) the  Administrative  Agent  will
promptly  distribute  to the Lenders in  immediately  available  funds  payments
received in fully collected, immediately available funds from the Borrower.

                  2.8.  Reductions.  The Borrower shall,  by irrevocable  notice
from an Authorized Representative, have the right from time to time but not more
frequently than once each calendar month,  upon not less than three (3) Business
Days' written notice to the  Administrative  Agent,  effective upon receipt,  to
permanently  reduce the Total Revolving Credit  Commitment.  The  Administrative
Agent shall give each  Lender,  within one (1)  Business  Day of receipt of such
notice,  telefacsimile  notice, or telephonic notice (confirmed in writing),  of
such  reduction.  Each  such  reduction  shall  be in the  aggregate  amount  of
$10,000,000  or  such  greater  amount  which  is in  an  integral  multiple  of
$1,000,000, or the entire remaining Total Revolving Credit Commitment, and shall
permanently reduce the Total Revolving Credit Commitment.  Each reduction of the
Total Revolving  Credit  Commitment shall be accompanied by payment of Revolving
Credit  Loans to the  extent  that the  principal  amount  of  Revolving  Credit
Outstandings  plus Letter of Credit  Outstandings  exceeds  the Total  Revolving
Credit  Commitment after giving effect to such reduction,  together with accrued
and unpaid interest on the amounts  prepaid.  If any such reduction shall result
in the  payment  of any  Eurodollar  Rate Loan other than on the last day of the
Interest  Period  of  such  Eurodollar  Rate  Loan  such  prepayment   shall  be
accompanied by amounts due, if any, under Section 4.5.

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

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

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

                  (i) subject to Section  2.2(c),  elect a  subsequent  Interest
         Period  for all or a portion of  Eurodollar  Rate Loans to begin on the
         last day of the then current  Interest  Period for such Eurodollar Rate
         Loans; and

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

                  Each  election  and  Conversion  pursuant to this  Section 2.9
shall be subject to the  limitations  on Eurodollar  Rate Loans set forth in the
definition of "Interest Period" herein and in Sections 2.1, 2.2, 2.4 and Article
IV. The  Administrative  Agent shall give written  notice to each Lender of such
notice of

                                       32
<PAGE>

election or Conversion  prior to 3:00 P.M. on the day such notice of election or
Conversion is received.  All such Continuations or Conversions of Loans shall be
effected pro rata based on the Applicable Commitment Percentages of the Lenders.

                  2.10. Unused Fees.

                  (a) For the period beginning on the Closing Date and ending on
the  Revolving  Credit  Termination  Date,  the  Borrower  agrees  to pay to the
Administrative Agent, for the benefit of each Lender, an unused fee equal to the
Applicable  Unused Fee  multiplied  by the average  daily Unused  Amount of such
Lender.  Such fees  shall be due in  arrears  on the last  Business  Day of each
March,  June,  September  and December  commencing  on the last  business day of
December, 2000 to and on the Revolving Credit Termination Date.

                  (b) Notwithstanding the foregoing, so long as any Lender fails
to make available any portion of its Revolving Credit Commitment when requested,
such Lender  shall not be  entitled to receive  payment of its pro rata share of
such fees until such Lender shall make available such portion.  All fees payable
pursuant to this Section 2.10 shall be calculated on an Actual/360 Basis.

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

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

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

                                       33
<PAGE>

                                  ARTICLE III

                                Letters of Credit

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

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

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

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

                                       34
<PAGE>

                  (ii) Each Lender  (including  the Issuing Bank in its capacity
as a Lender)  shall,  subject to the terms and  conditions of Article II, pay to
the  Administrative  Agent for the account of the Issuing Bank at the  Principal
Office in Dollars and in  immediately  available  funds,  an amount equal to its
Applicable  Commitment  Percentage of any drawing under a Letter of Credit, such
funds to be provided in the manner described in Section 2.1(c)(iv) plus interest
at the Federal Funds Rate for the period from and including the date the drawing
under a Letter of Credit is made to the date of such payment.

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

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

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

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

                  (e) The  issuance by the Issuing Bank of each Letter of Credit
shall,  in  addition  to the  conditions  precedent  set forth in  Article V, be
subject to the conditions that such Letter of Credit be in such form and contain
such terms as shall be reasonably  satisfactory  to the Issuing Bank  consistent
with the then current  practices and procedures of the Issuing Bank with respect
to similar letters of credit, and the Borrower shall have executed and delivered
such other instruments and agreements  relating to such Letters of Credit as the
Issuing Bank shall have

                                       35
<PAGE>

reasonably requested consistent with such practices and procedures and shall not
be in conflict with any of the express terms herein contained.

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

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

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

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

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

                  (iii) the existence of any claim, setoff,  defense (other than
         the defense of payment in accordance  with the terms of this Agreement)
         or other  rights  which the  Borrower  may have at any time against any
         beneficiary  or any transferee of a Letter of Credit (or any

                                       36
<PAGE>

         persons  or  entities  for  whom  any  such  beneficiary  or  any  such
         transferee may be acting), the Administrative Agent, the Lenders or any
         other  Person,  whether  in  connection  with the Loan  Documents,  the
         Related LC Documents or any unrelated transaction;

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

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

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

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

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

                  3.3.  Letter of Credit  Facility  Fees. (a) The Borrower shall
pay to the  Administrative  Agent, for the pro rata benefit of the Lenders based
on  their  Applicable  Commitment  Percentages,  a fee on the  aggregate  amount
available  to be drawn on each  outstanding  Letter of Credit at a rate equal to
the Applicable  Margin for Eurodollar  Rate Loans as set forth in the definition
of  "Applicable  Margin".  In  addition,  the  Borrower  agrees  to  pay  to the
Administrative  Agent for the benefit of the Issuing  Bank an issuance fee equal
to  one-eighth of one percent  (1/8%) per annum times the amount of  outstanding
Letters of Credit.  Such fees shall be due with respect to each Letter of Credit
quarterly in arrears on the last Business Day of each March, June, September and
December,  the  first  such  payment  to be made  on the  last  business  day of
December, 2000. The fees described in this Section 3.3 shall be calculated on an
Actual/360 Basis.

                  (b) The Borrower  acknowledges that the Issuing Bank as issuer
of each Letter of Credit will be required by applicable rules and regulations of
the Board to maintain reserves for its liability to honor draws made pursuant to
a  Letter  of  Credit  notwithstanding  the  obligation  of  the  Lenders  for a
Participation in such liability.  The Borrower agrees to promptly  reimburse the
Issuing Bank for all  additional  costs which it may  hereafter  incur solely by
reason of its acting as issuer of the  Letters of Credit and its being  required
to reserve for such  liability,  it being  understood by the Borrower that other
interest and fees payable under this  Agreement do not include  compensation  of
the  Issuing  Bank for such  reserves.  The  Issuing  Bank shall  furnish to the
Borrower at the time of its demand for  payment of such  additional  costs,  the
computation

                                       37
<PAGE>

of such  additional  cost  which  shall be  conclusive  absent  manifest  error,
provided that such computations are made on a reasonable basis.

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

                  3.5.  Applications.  To the extent that any  provision  of any
Application  and  Agreement  for  Letters  of  Credit is  inconsistent  with the
provisions of this Article III, the provisions of this Article III shall apply.

                                   ARTICLE IV

                             Change in Circumstances

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

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

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

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

and the result of any of the  foregoing  is to increase  the cost to such Lender
(or its Applicable Lending Office) of making,  Converting into,  Continuing,  or
maintaining  any  Eurodollar  Rate  Loans  or to  reduce  any  sum  received  or
receivable  by such  Lender  (or  its  Applicable  Lending  Office)  under  this
Agreement with respect to any Eurodollar Rate Loans, then the Borrower shall

                                       38
<PAGE>

pay to such  Lender on demand  such  amount or amounts as will  compensate  such
Lender for such  increased  cost or  reduction;  provided that no Lender will be
entitled to any  compensation for any such increased cost or reduction if demand
for  payment  thereof  is made by such  Lender  more  than  180 days  after  the
occurrence  of the  circumstances  giving  rise to  such  claim.  If any  Lender
requests  compensation by the Borrower under this Section  4.1(a),  the Borrower
may, by notice to such Lender (with a copy to the Administrative Agent), suspend
the obligation of such Lender to make or Continue Loans of the Type with respect
to which such  compensation is requested,  or to Convert Loans of any other Type
into  Loans of such  Type,  until the  event or  condition  giving  rise to such
request  ceases to be in effect (in which  case the  provisions  of Section  4.4
shall be applicable);  provided that such suspension  shall not affect the right
of such Lender to receive the compensation so requested.

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

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

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

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

                  (b)  the  Required   Lenders   reasonably   determine   (which
         determination shall be conclusive) and notify the Administrative  Agent
         that the  Eurodollar  Rate will not

                                       39
<PAGE>

         adequately  and  fairly  reflect  the cost to the  Lenders  of  funding
         Eurodollar Rate Loans for such Interest Period;

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

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

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

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

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

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

                                       40
<PAGE>

are held pro rata (as to principal  amounts,  Types,  and  Interest  Periods) in
accordance with their respective Revolving Credit Commitments.

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

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

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

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

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

                  (c) The  Borrower  agrees to  indemnify  each  Lender  and the
Administrative  Agent for the full amount of Taxes and Other  Taxes  (including,
without  limitation,  any  Taxes or  Other  Taxes  imposed  or  asserted  by any
jurisdiction  on amounts  payable under this Section 4.6)

                                       41
<PAGE>

paid by such  Lender  or the  Administrative  Agent (as the case may be) and any
liability  (including  penalties,  interest,  and expenses) arising therefrom or
with respect thereto.

                  (d) Each  Lender  organized  under the laws of a  jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this  Agreement  in the case of each  Lender  listed on the  signature  pages
hereof  and on or prior to the date on which it  becomes a Lender in the case of
each other Lender,  and from time to time  thereafter if requested in writing by
the  Borrower  or the  Administrative  Agent  (but  only so long as such  Lender
remains   lawfully  able  to  do  so),   shall  provide  the  Borrower  and  the
Administrative Agent with two copies of (i) Internal Revenue Service Form W-8BEN
or W-8-ECI,  as  appropriate,  or any successor form  prescribed by the Internal
Revenue  Service,  certifying  that such Lender is entitled to benefits under an
income tax treaty to which the United  States is a party which  reduces the rate
of  withholding  tax on  payments  of  interest  or  certifying  that the income
receivable pursuant to this Agreement is effectively  connected with the conduct
of a trade  or  business  in the  United  States  and  (ii)  any  other  form or
certificate required by any taxing authority (including any certificate required
by Sections  871(h) and 881(c) of the Internal  Revenue Code),  certifying  that
such  Lender  is  entitled  to an  exemption  from or a  reduced  rate of tax on
payments  pursuant  to  this  Agreement  or  any of the  other  Loan  Documents.
Contemporaneously  with the delivery of the appropriate Internal Revenue Service
form,  each  Lender  which  is  not a  "bank"  within  the  meaning  of  Section
881(c)(5)(A) of the Code and intends to claim the "portfolio interest" exemption
described  above shall  provide the Borrower and the  Administrative  Agent (but
only so  long  as such  Lender  remains  lawfully  able to do so) a  certificate
representing  that such Lender is not a bank for  purposes of Section  881(c) of
the Code,  is not a  10-percent  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).

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

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

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

                                       42
<PAGE>

                  (h) Without  prejudice to the survival of any other  agreement
of the  Borrower  hereunder,  the  agreements  and  obligations  of the Borrower
contained in this Section 4.6 shall  survive the  termination  of the  Revolving
Credit  Termination  Date,  the Facility  Extension  Loan  Termination  Date, if
applicable, and the repayment of the Loans.

                                   ARTICLE V

            Conditions to Making Loans and Issuing Letters of Credit

                  5.1.  Conditions  of Initial  Advance.  The  occurrence of the
Closing Date,  and the  obligation of the Lenders to make the initial  Revolving
Credit Loans on the Closing Date,  shall be conditioned upon the satisfaction of
the following  conditions  precedent in the sole judgment of the  Administrative
Agent:

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

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

                  (ii) the favorable written opinion or opinions with respect to
         the Loan Documents and the transactions contemplated thereby of counsel
         to the Borrower dated the Closing Date, addressed to the Administrative
         Agent and the Lenders and  satisfactory  to Simpson Thacher & Bartlett,
         special counsel to the Administrative Agent,  substantially in the form
         of Exhibit H;

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

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

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

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

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

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

                                       43
<PAGE>

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

                  (x) a  certificate  substantially  in the  form of  Exhibit  I
         completed as of June 30, 2000;

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

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

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

                  (i) there  shall  not have  occurred  or  become  known to the
         Administrative Agent or the Lenders any event, condition,  situation or
         status  since  December  31, 1999 that has had or could  reasonably  be
         expected to result in a Material Adverse Effect;

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

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

                  (c) The following  refinancing (the "Refinancing")  shall have
occurred or shall occur simultaneously with the occurrence of the Closing Date:

                  (i) The  Borrower  shall  have  issued  and sold not less than
         $350,000,000 of senior  subordinated  notes having terms and conditions
         acceptable to the  Administrative  Agent (the "New Senior  Subordinated
         Notes");

                  (ii)  The   Closing   Date  under  (and  as  defined  in)  the
         Headquarters  Participation  Agreement  shall  have  occurred,  and the
         refinancing of the notes and equity issued by  HEALTHSOUTH  Corporation
         Trust 1995-1 shall have occurred;

                  (iii) The Closing Date under (and as defined in) the Hospitals
         Participation Agreement shall have occurred, and the refinancing of the
         notes and equity issued by HEALTHSOUTH  Corporation  Trust 2000-1 shall
         have occurred;

                                       44
<PAGE>

                  (iv) All amounts  outstanding  under the Borrower's Short Term
         Credit Agreement,  dated as of December 15, 1999 shall have been repaid
         in full,  and all  commitments to extend credit  thereunder  shall have
         been terminated.

                  (d) The Borrower  shall have made available to the Lenders the
pro forma  consolidated  balance  sheets of the Borrower as of December 31, 1999
and June 30, 2000.

                  (e) No  litigation  by any entity  (private  or  governmental)
shall  be  pending  or  threatened  with  respect  to any  of  the  transactions
contemplated hereby or any other  documentation  executed in connection herewith
or  therewith  or  the  transactions  contemplated  hereby  (including,  without
limitation, the Refinancing).

                  5.2.   Conditions   of  Loans  and  Letters  of  Credit.   The
obligations of the Lenders to make any Loans including,  without limitation, the
conversion of any Revolving  Credit Loans to Facility  Extension  Loans, and the
Issuing  Bank to issue  Letters of Credit,  hereunder  on or  subsequent  to the
Closing Date, are subject to the satisfaction of the following conditions:

                  (a) the  Administrative  Agent shall have received a Borrowing
         Notice or Facility  Extension  Notice,  as  applicable,  if required by
         Article II;

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

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

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

                  (e)      immediately after giving effect to:

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

                                       45
<PAGE>

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

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

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

                                   ARTICLE VI

                         Representations and Warranties

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

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

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

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

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

                                       46
<PAGE>

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

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

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

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

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

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

                  6.4. Subsidiaries and Subsidiaries'  Guarantees.  The Borrower
has no Subsidiaries  other than those Persons listed as Subsidiaries in Schedule
6.4 and additional  Subsidiaries  created or acquired after the Closing Date. As
of the Closing  Date, no Subsidiary  has directly or indirectly  guaranteed  any
Indebtedness of the Borrower.

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

                  6.6.  Financial  Condition.  (a) The Borrower  has  heretofore
furnished to the  Administrative  Agent and each Lender an audited  consolidated
balance sheet of the Borrower and its  Consolidated  Entities as at December 31,
1999 and the notes  thereto and the related  consolidated  statements of income,
stockholders'  equity and cash flows for the Fiscal  Year then ended as examined
and certified by Ernst & Young LLP. Except as set forth therein,  such financial
statements  (including the notes thereto) present fairly the financial condition
of the Borrower and its Consolidated  Entities as of the end of such Fiscal Year
and results of their operations and the changes in its stockholders'  equity for
the Fiscal Year,  all in  conformity  with GAAP  applied on a Consistent  Basis,
subject however,  in the case of unaudited interim  statements to year end audit
adjustments.

                                       47
<PAGE>

                  (b)  Since  December  31,  1999,  there  has been no  material
adverse change in the condition,  financial or otherwise, of the Borrower or any
of its Consolidated  Entities,  or in the businesses,  properties,  performance,
prospects or operations of the Borrower or any of its Consolidated  Entities nor
have such  businesses  or properties  been  materially  adversely  affected as a
result  of  any  fire,  explosion,   earthquake,   accident,   strike,  lockout,
combination of workers, flood, embargo or act of God.

                  (c) Neither the Borrower nor any  Consolidated  Entity has any
material   Indebtedness,   Guaranteed   Obligations  or  other   obligations  or
liabilities,  direct or contingent, in an aggregate amount in excess of $300,000
other than (i) the  liabilities  reflected in such  balance  sheet and the notes
thereto,  (ii)  obligations  arising under this Agreement,  (iii) the New Senior
Subordinated  Notes and (iv)  liabilities  incurred  in the  ordinary  course of
business.

                  (d) The unaudited pro forma balance sheets of Borrower and the
Consolidated  Entities as at December 31, 1999 and June 30, 2000, (including the
notes thereto (the "Pro Forma Financial Statements"),  copies of which have been
furnished to the  Administrative  Agent, have been prepared giving effect to the
financings  and   refinancings   contemplated  by  this  Agreement  as  if  such
transactions had occurred on the dates of such pro forma balance sheets. The Pro
Forma  Financial  Statements  have been prepared  based on the best  information
available to the Borrower on the date of delivery thereof, and present fairly on
a pro forma basis the estimated  financial position and results of operations of
the Borrower, based upon the assumptions described in the preceding sentence.

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

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

                  6.9. Other Agreements.  Except as disclosed in or incorporated
by reference in the 1999 10-K:

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

                  (b) neither the  Borrower  nor any  Consolidated  Entity is in
         default in the  performance,  observance or  fulfillment  of any of the
         obligations,  covenants  or  conditions  contained  in (i) any Medicaid
         Provider  Agreement,  Medicare Provider Agreement or other agreement or
         instrument to which the Borrower or any Consolidated Entity

                                       48
<PAGE>

         is a party,  which  default has resulted in, or if not remedied  within
         any   applicable   grace  period  could  result  in,  the   revocation,
         termination,  cancellation or suspension of Medicaid  Certification  or
         Medicare  Certification  of Borrower or any  Consolidated  Entity which
         could have a Material  Adverse  Effect or (ii) any other  agreement  or
         instrument to which the Borrower or any Consolidated Entity is a party,
         which  default  has, or if not  remedied  within any  applicable  grace
         period could reasonably be likely to have, a Material Adverse Effect;

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

                  (d) to the  knowledge of  Borrower's  Executive  Officers,  no
         Contract  Provider  is in default  in the  performance,  observance  or
         fulfillment  of  any  of  the  obligations,   covenants  or  conditions
         contained  in  any  Medicaid  Provider  Agreement,   Medicare  Provider
         Agreement or other  agreement or  instrument  to which such Person is a
         party,  which  default has resulted  in, or if not remedied  within any
         applicable  grace period could result in, the revocation,  termination,
         cancellation  or  suspension  of  Medicaid  Certification  or  Medicare
         Certification   of  such   Person,   which   revocation;   termination,
         cancellation  or  suspension  could  reasonably  be  likely  to  have a
         Material Adverse Effect.

                  6.10.  Litigation.  Except as disclosed in or  incorporated by
reference  in  the  1999  10-K,  there  is no  action,  suit,  investigation  or
proceeding at law or in equity or by or before any governmental  instrumentality
or  agency or  arbitral  body  pending  or, to the  knowledge  of the  Borrower,
threatened  by or against  the  Borrower or any  Consolidated  Entity or, to the
knowledge  of the  Borrower,  pending or  threatened  by or against any Contract
Provider,  or  affecting  the  Borrower  or any  Consolidated  Entity or, to the
knowledge of the Borrower,  any Contract Provider or any properties or rights of
the Borrower or any  Consolidated  Entity or, to the  knowledge of the Borrower,
any Contract  Provider,  which could  reasonably  be likely (i) to result in the
revocation, termination, cancellation or suspension of Medicaid Certification or
Medicare   Certification  of  such  Person,   which   revocation,   termination,
cancellation or suspension could reasonably be likely to have a Material Adverse
Effect, or (ii) to have a Material Adverse Effect.

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

                                       49
<PAGE>

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

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

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

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

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

                                       50
<PAGE>

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

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

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

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

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

                  6.21.  Reimbursement  from Third Party  Payors.  The  accounts
receivable  of the  Borrower  and each  Consolidated  Entity  and each  Contract
Provider  have been and will  continue to be  adjusted to reflect  reimbursement
policies  of third party  payors such as  Medicare,  Medicaid,  Blue  Cross/Blue
Shield, private insurance companies, health maintenance organizations, preferred
provider  organizations,  alternative  delivery  systems,  managed care systems,
government  contracting  agencies and other third party payors.  In  particular,
accounts

                                       51
<PAGE>

receivable  relating  to such  third  party  payors do not and shall not  exceed
amounts any obligee is entitled to receive under any capitation arrangement, fee
schedule,  discount  formula,  cost-based  reimbursement  or other adjustment or
limitation to its usual charges.

                 6.22.  Material Adverse Change.  Since December 31, 1999, there
has been no development or event,  which has had or could reasonably be expected
to have a Material Adverse Effect.

                                  ARTICLE VII

                              Affirmative Covenants

                  The  Borrower  hereby  agrees that,  so long as the  Revolving
Credit Commitments remain in effect, any Letter of Credit remains outstanding or
any Loan or other  amount  is owing to any  Lender or the  Administrative  Agent
hereunder,  unless the Required Lenders shall otherwise consent in writing,  the
Borrower will, and where applicable will cause each Consolidated Entity to:

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

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

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

                                       52
<PAGE>

         Consistent  Basis,  and (C) present fairly the financial  condition and
         results of operations of the Borrower and its Consolidated Entities for
         the periods covered.

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

                  (d)  Contemporaneously  with the  distribution  thereof to the
         Borrower's or any Consolidated Entity's stockholders or partners or the
         filing thereof with the Securities and Exchange Commission, as the case
         may  be,  copies  of  all  statements,  reports,  notices  and  filings
         distributed  by  the  Borrower  or  any  Consolidated   Entity  to  its
         stockholders  or partners  or filed with the  Securities  and  Exchange
         Commission (including reports on SEC Forms 10-K, 10-Q and 8-K).

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

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

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

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

                  7.2. Maintain Properties. Maintain all properties necessary to
its  operations in good working order and  condition,  make all needed  repairs,
replacements and renewals to such

                                       53
<PAGE>

properties,  and maintain free from Liens all trademarks,  trade names,  service
marks,  patents,  copyrights,  trade secrets,  know-how,  and other intellectual
property and proprietary  information (or adequate  licenses  thereto),  in each
case as are reasonably  necessary to conduct its business as currently conducted
or as contemplated hereby, all in accordance with customary and prudent business
practices.

                  7.3.   Conduct  of  Business  and  Maintenance  of  Existence,
Qualification,  Etc. Except as otherwise  expressly permitted under Section 8.4,
do or cause to be done all things  necessary  to preserve and keep in full force
and effect its existence and all material  rights and  franchises,  maintain its
license  or  qualification  to do  business  as a foreign  corporation  and good
standing in each jurisdiction in which its ownership or lease of property or the
nature of its business makes such license or qualification  necessary and comply
with all Contractual  Obligations  and  Requirements of Law except to the extent
that failure to comply  therewith  would not, in the aggregate,  have a Material
Adverse Effect.

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

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

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

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

                                       54
<PAGE>

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

                  7.9.  Governmental  Licenses.  Obtain  and  maintain,  and use
reasonable  effort to cause all Contract  Providers to obtain and maintain,  all
licenses,  permits,  certifications and approvals of all applicable Governmental
Authorities  as are  required  for the  conduct  of its  business  as  currently
conducted and herein  contemplated,  including without  limitation  professional
licenses, Medicaid Certifications and Medicare Certifications,  except where the
failure  to do so could not  reasonably  be likely  to have a  Material  Adverse
Effect.

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

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

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

                  7.13.   Notice  of   Discharge   of   Hazardous   Material  or
Environmental  Complaint.  Promptly  provide to the  Administrative  Agent true,
accurate  and  complete  copies  of any and  all  notices,  complaints,  orders,
directives,  claims,  or citations  received by the Borrower or any Consolidated
Entity  relating  to any of the  following  which is likely  to have a  Material
Adverse  Effect:  (a)  violation  or alleged  violation  by the  Borrower or any
Consolidated  Entity  of  any  applicable  Environmental  Law;  (b)  release  or
threatened  release  by the  Borrower  or  any

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Consolidated  Entity, or at any Facility or property owned or leased or operated
by the Borrower or any Consolidated  Entity, of any Hazardous  Material,  except
where occurring  legally;  or (c) liability or alleged liability of the Borrower
or any Consolidated  Entity for the costs of cleaning up, removing,  remediating
or responding to a release of Hazardous Materials.

                  7.14.  Environmental   Compliance.  If  the  Borrower  or  any
Consolidated  Entity  shall  receive  any  letter,  notice,  complaint,   order,
directive,  claim or citation from any Governmental  Authority alleging that the
Borrower or any  Consolidated  Entity has violated any  Environmental  Law or is
liable for the costs of cleaning up,  removing,  remediating  or responding to a
release  of  Hazardous  Materials,  within  the  time  period  permitted  by the
applicable  Environmental  Law or the  Governmental  Authority  responsible  for
enforcing  such  Environmental  Law,  remove or remedy,  or cause the applicable
Consolidated  Entity to remove or remedy,  such  violation or release or satisfy
such liability unless and only during the period that the  applicability of such
Environmental  Law, the fact of such  violation or liability or what is required
to remove or remedy such  violation  is being  contested  by the Borrower or the
applicable  Consolidated Entity by appropriate  proceedings diligently conducted
and all reserves  with respect  thereto as may be required  under GAAP,  if any,
have been made, and no Lien in connection  therewith  shall have attached to any
property of the Borrower or the applicable  Consolidated Entity which shall have
become enforceable against creditors of such Person.

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

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

                  7.17.  Payment of  Obligations.  Pay,  discharge  or otherwise
satisfy at or before maturity or before they become delinquent,  as the case may
be, all its obligations of whatever nature,  except where the amount or validity
thereof is currently  being  contested in good faith by appropriate  proceedings
and reserves in conformity  with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.

                  7.18. New  Subsidiaries.  Promptly  cause any Subsidiary  that
shall, after the Closing Date, directly or indirectly guarantee any Indebtedness
of the Borrower (x) to execute and deliver the  Guarantee to the  Administrative
Agent or (y) to become a party to such Guarantee,  should such Guarantee already
be in existence.

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                                  ARTICLE VIII

                               Negative Covenants

                  The  Borrower  hereby  agrees that,  so long as the  Revolving
Credit Commitments remain in effect, any Letter of Credit remains outstanding or
any Loan or other  amount  is owing to any  Lender or the  Administrative  Agent
hereunder,  unless the Required Lenders shall otherwise consent in writing,  the
Borrower will not, nor will it permit any Consolidated Entity to:

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

                  (b)  Consolidated  EBITDA  to  Consolidated  Interest  Expense
Ratio.  Permit the ratio of Consolidated  EBITDA for any Four-Quarter  Period to
Consolidated  Interest Expense for such  Four-Quarter  Period to be less than or
equal to 3.00 to 1.00.

                  (c) Consolidated  Indebtedness to Consolidated  Total Capital.
Permit the ratio of Consolidated  Indebtedness to Consolidated  Total Capital at
any time to equal or exceed 0.60 to 1.00.

                  (d) Consolidated  Indebtedness to Consolidated EBITDA.  Permit
the  ratio  of  Consolidated  Indebtedness  at  any  date  of  determination  to
Consolidated  EBITDA for the  Four-Quarter  Period of the Borrower most recently
ended on or prior to such date of determination to exceed 3.50 to 1.00.

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

                  8.3.  Indebtedness.  Permit to exist  Indebtedness,  howsoever
evidenced,   of   Subsidiaries   and  Controlled   Partnerships   (exclusive  of
Indebtedness  to the Borrower) in an aggregate  amount at any time exceeding the
greater of $70,000,000  or 15% of  Consolidated

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Tangible  Net  Worth,  excluding,  however,  Indebtedness  of  Subsidiaries  and
Controlled Partnerships existing as of the date hereof and described on Schedule
8.3.

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

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

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

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

                  8.8.  Acquisitions  and  Capital  Expenditures.  In any Fiscal
Year, (a) make an Acquisition or enter into any agreement to make an Acquisition
unless (i) (A) the Person or Facility to be  acquired  is in  substantially  the
same line of business  presently  engaged in by the Borrower or its Consolidated
Entities, (B) if the Cost of Acquisition exceeds $150,000,000 the Borrower shall
have furnished to the  Administrative  Agent (1) pro forma historical  financial
statements  as of the end of the  most  recently  completed  Fiscal  Year of the
Borrower and most recent interim fiscal quarter, if applicable, giving effect to
such Acquisition and (2) a Compliance  Certificate prepared on an historical pro
forma  basis  giving  effect  to  such  Acquisition,   which  certificate  shall
demonstrate  that no Default or Event of Default would exist  immediately  after
giving effect thereto and (C) the entire consideration paid for such Acquisition
is  common  stock of the  Borrower  or (ii) (A) the  Person  or  Facility  to be
acquired is in substantially  the same line of business  presently engaged in by
the  Borrower  or its  Consolidated  Entities,  (B) if the  Cost of  Acquisition
exceeds  $150,000,000  the Borrower shall have  furnished to the  Administrative
Agent (1) pro forma  historical  financial  statements as of the end of the most
recently  completed  Fiscal Year of the Borrower and most recent  interim fiscal
quarter,  if applicable,  giving effect to such Acquisition and (2) a Compliance
Certificate  prepared on an  historical  pro forma basis  giving  effect to such
Acquisition,  which  certificate  shall  demonstrate that no Default or Event of
Default  would exist  immediately  after giving  effect  thereto and (C) (1) the
aggregate  amount of  consideration  (other  than  consideration  in the form of
common  stock  of  the  Borrower)  paid  in  such   Acquisition  and  all  other
Acquisitions  consummated in such Fiscal Year pursuant to this clause (ii), plus
(2) the  aggregate  amount  expended by the  Borrower and its  Subsidiaries  for
Capital   Expenditures   during   such   Fiscal   Year,   does  not  exceed  the

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Acquisition/CapEx  Basket  Amount for such Fiscal Year; or (b) make or commit to
make any Capital  Expenditure  unless (i) the aggregate  amount  expended by the
Borrower and its Subsidiaries for Capital  Expenditures during such Fiscal Year,
plus (ii) the aggregate amount of consideration (other than consideration in the
form of Common  Stock) paid by the  Borrower  and its  Subsidiaries  during such
Fiscal Year pursuant to the foregoing clause (a)(ii) in respect of Acquisitions,
does not exceed the Acquisition/CapEx Basket Amount for such Fiscal Year.

                  8.9.  Restricted  Payments;   Other  Payments.  (a)  Make  any
Restricted  Payment or apply or set apart any of their assets  therefor or agree
to do any of the foregoing;  provided, however, the Borrower may make Restricted
Payments  in an  amount  not  exceeding  $50,000,000  in any  Fiscal  Year (on a
non-cumulative  basis,  with the effect that amounts not paid in any Fiscal Year
may not be carried over for payment in a subsequent period) if immediately prior
and immediately after giving effect thereto no Default or Event of Default shall
exist or occur and be continuing.

                  (b) (i) amend, modify or otherwise change, or consent or agree
to any amendment,  modification,  waiver or other change to, any of the terms of
any Subordinated  Debt (other than any such amendment,  modification,  waiver or
other  change  which (A) would  extend the  maturity or reduce the amount of any
payment of principal thereof,  reduce the rate or extend the date for payment of
interest  thereon or relax any covenant or other  restriction  applicable to the
Borrower  or any of its  Subsidiaries  and (B) does not involve the payment of a
consent fee), or (ii) designate any Indebtedness (other than the Senior Debt) as
"Designated  Senior  Indebtedness" for the purposes of any instrument  governing
any Subordinated Debt, including,  without limitation,  the Indentures governing
the New Senior Subordinated Notes and the Convertible Subordinated Debentures.

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

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

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

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

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

                  (e) engage, or permit any Subsidiary or any ERISA Affiliate to
         engage,  in any  prohibited  transaction  under Section 406 of ERISA or
         Section 4975 of the Code for

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<PAGE>

         which a civil  penalty  pursuant  to  Section  502(I) of ERISA or a tax
         pursuant to Section 4975 of the Code may be imposed; or

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

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

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

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

                  8.13.  Transactions  with Affiliates.  Other than transactions
permitted  under  Sections  8.2 and 8.5,  enter into any  transaction  after the
Closing  Date,  including,  without  limitation,  the purchase,  sale,  lease or
exchange of property,  real or personal,  or the rendering of any service,  with
any Affiliate of the Borrower,  except (a) that such Persons may render services
to the Borrower for  compensation  at the same rates  generally  paid by Persons
engaged in the same or similar businesses for the same or similar services,  (b)
that the Borrower may render  services to such Persons for  compensation  at the
same rates  generally  charged  by the  Borrower  and (c) in either  case in the
ordinary  course of business and pursuant to the reasonable  requirements of the
Borrower's  business consistent with past practice of the Borrower and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arm's-length transaction with a Person not an Affiliate.

                                   ARTICLE IX

                       Events of Default and Acceleration

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

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<PAGE>

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

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

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

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

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

                  (f) the  Borrower or any  Material  Group shall fail to pay or
         admit in writing its  inability to pay its or their debts  generally as
         they come due, or a receiver,  trustee,  liquidator or other  custodian
         shall be appointed for the Borrower or any Material Group or for any of
         the  property of the  Borrower or any  Material  Group or a petition in
         bankruptcy,  or under any insolvency  law, shall be filed by or against
         the  Borrower or any  Material  Group or the  Borrower or any  Material
         Group shall apply for the benefit of, or take advantage of, any law for
         relief of debtors, or enter into an arrangement or composition with, or
         make an assignment for the benefit of, creditors; or

                  (g) final  judgment  for the  payment of money in excess of an
         aggregate  of $500,000  shall be rendered  against the  Borrower or any
         Material Group, and the same

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<PAGE>

         shall  remain  undischarged  for a  period  of  30  days  during  which
         execution shall not be effectively stayed; or

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

                  (i) this Agreement,  the Loans, the LC Account  Agreement,  or
         any part thereof, shall be deemed unenforceable by a court of competent
         jurisdiction or shall no longer be effective; or

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

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

                  (l)  there  shall  occur  (i)  any  cancellation,  revocation,
         suspension  or  termination  of any  Medicare  Certification,  Medicare
         Provider  Agreement,   Medicaid   Certification  or  Medicaid  Provider
         Agreement  affecting  the  Borrower,  any  Subsidiary  or any  Contract
         Provider,   or  (ii)  the  loss  of  any   other   permits,   licenses,
         authorizations,  certifications or approvals from any federal, state or
         local  Governmental  Authority or  termination of any contract with any
         such  authority,   in  either  case  which  cancellation,   revocation,
         suspension,  termination  or loss (X) in the case of any  suspension or
         temporary  loss only,  continues for a period  greater than 60 days and
         (Y) results in the  suspension  or  termination  of  operations  of the
         Borrower or any  Subsidiary  or in the  failure of the  Borrower or any
         Subsidiaries or any Contract  Provider to be eligible to participate in
         Medicare or Medicaid  programs  or to accept  assignments  of rights to
         reimbursement under Medicaid  Regulations or Medicare  Regulations,  if
         and  only  if  such  Person,   in  the  ordinary  course  of  business,
         participates   in  the   Medicare  or  Medicare   programs  or  accepts
         assignments of rights to  reimbursement  thereunder;  provided that any
         such events  described in this Section 9.1(1) shall constitute an Event
         of Default  only if such event  shall  result  either  singly or in the
         aggregate  in the  termination,  cancellation,  suspension  or material
         impairment of operations or rights to reimbursement which produce 5% or
         more of the Borrower's gross revenues (on an annualized basis); or

                  (m) there shall occur a Change of Control;

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

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<PAGE>

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

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

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

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

                  9.3.  Cumulative  Rights.  No right or remedy herein conferred
upon the Lenders or the Administrative  Agent is intended to be exclusive of any
other rights or remedies  contained  herein or in any other Loan  Document,  and
every such right or remedy shall be cumulative and shall be in addition to every
other such right or remedy  contained  herein  and  therein or now or  hereafter
existing at law or in equity or by statute, or otherwise.

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<PAGE>

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

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

                  (i)  amounts due to the  Lenders  pursuant to Section  2.2(d),
         Section 2.10, Section 3.3 or Section 11.6;

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

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

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

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

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

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

                                   ARTICLE X

                            The Administrative Agent

                  10.1. Appointment,  Powers, and Immunities. Each Lender hereby
irrevocably  appoints  and  authorizes  the  Administrative  Agent to act as its
Administrative Agent under this Agreement and the other Loan Documents with such
powers and discretion as are specifically  delegated to the Administrative Agent
by the terms of this Agreement and the other Loan Documents,  together with such
other powers as are reasonably  incidental  thereto.  The

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

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

                  10.3.  Defaults.  The Administrative Agent shall not be deemed
to have  knowledge or notice of the  occurrence of a Default or Event of Default
unless the Administrative Agent has received written notice from a Lender or the
Borrower  specifying  such  Default or Event of Default  and  stating  that such
notice is a "Notice  of  Default".  In the event that the  Administrative  Agent
receives such a notice of the  occurrence of a Default or Event of Default,  the
Administrative  Agent  shall give  prompt  notice  thereof to the  Lenders.  The
Administrative  Agent shall  (subject to Section  10.2  hereof) take such action
with respect to such Default or Event of Default as shall reasonably be directed
by the Required  Lenders,  provided  that,  unless

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<PAGE>

and until the  Administrative  Agent shall have  received such  directions,  the
Administrative  Agent may (but shall not be obligated  to) take such action,  or
refrain  from  taking  such  action,  with  respect to such  Default or Event of
Default as it shall deem advisable in the best interest of the Lenders.

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

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

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

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<PAGE>

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

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

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

                                   ARTICLE XI

                                  Miscellaneous

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

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

                  (ii)  except  in the case of an  assignment  by a Lender to an
         affiliate of such Lender or a Controlled  Investment  Affiliate of such
         Lender,  or to another  Lender,  or an  assignment of all of a Lender's
         rights  and  obligations   under  this  Agreement,   any  such  partial
         assignment  shall be in an amount at least  equal to  $4,000,000  or an
         integral multiple of $1,000,000 in excess thereof;

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<PAGE>

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

                  (iv) the parties to such assignment  shall execute and deliver
         to the  Administrative  Agent  for its  acceptance  an  Assignment  and
         Acceptance  together  with any Note  subject to such  assignment  and a
         processing fee of $3,500.

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

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

                  (c) Upon its receipt of an Assignment and Acceptance  executed
by the parties  thereto,  together with any Note subject to such  assignment and
payment  of  the  processing  fee,  the  Administrative  Agent  shall,  if  such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit B hereto,  (i) accept such  Assignment and  Acceptance,  (ii) record the
information  contained  therein in the  Register  and (iii) give  prompt  notice
thereof to the parties thereto.

                  (d) Each Lender may sell participations to one or more Persons
in all or a portion of its rights,  obligations or rights and obligations  under
this Agreement (including all or a portion of its Revolving Credit Commitment or
its Loans);  provided,  however,  that (i) any such participation in a Revolving
Credit  Commitment,  but not its Loans,  shall be in an amount at least equal to
$4,000,000 or an integral  multiple of $1,000,000 in excess  thereof,  (ii) such
Lender's  obligations  under this Agreement shall remain  unchanged,  (iii) such
Lender shall  remain  solely  responsible  to the other  parties  hereto for the
performance of such  obligations,  (iv) the participant shall be entitled to the
benefit of the yield protection provisions contained in Article IV and the right
of set-off  contained in Section 11.4,  and (v) the Borrower  shall  continue to
deal solely and  directly  with such  Lender in  connection  with such  Lender's
rights and obligations  under this  Agreement,  and such Lender shall retain the
sole right to enforce the

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<PAGE>

obligations of the Borrower  relating to its Loans and to approve any amendment,
modification,  or  waiver  of  any  provision  of  this  Agreement  (other  than
amendments,  modifications,  or waivers decreasing the amount of principal of or
the rate at which  interest is payable on such Loans,  extending  any  scheduled
principal  payment date or date fixed for the payment of interest on such Loans,
or extending its Revolving Credit Commitment).

                  (e) For  avoidance  of doubt,  the  parties to this  Agreement
acknowledge  that the provisions of this Section 11.1 concerning  assignments of
Loans  relate  only to  absolute  assignments  and that such  provisions  do not
prohibit  assignments  creating  security  interests,  including  any  pledge or
assignment  by a Lender of any Loan to any Federal  Reserve  Bank in  accordance
with applicable law.

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

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

                  (a)      if to the Borrower:

                           Malcolm E. McVay, Senior Vice President and
                             Treasurer
                           HEALTHSOUTH Corporation
                           One HealthSouth Parkway
                           Birmingham, Alabama 35243
                           Tel:  205-969-6140
                           Fax:  205-969-4620
                           Email:  tadd.mcvay@healthsouth.com

                           with a copy to:

                           William W. Horton
                           HEALTHSOUTH Corporation
                           One HealthSouth Parkway

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<PAGE>

                           Birmingham, Alabama 35243
                           Tel:  205-969-4977
                           Fax:  205-969-4730
                           Email:  bill.horton@healthsouth.com

                  (b)      if to the Administrative Agent:

                           UBS AG STAMFORD BRANCH
                           677 Washington Boulevard
                           Stamford, Connecticut 06901
                           Attention: Jennifer Poccia
                           Tel:  203-719-3834
                           Fax:  203-719-3888
                           Email:  jennifer.poccia@ubsw.com
                           Reference:  HealthSouth

                  (c)      if to the Lenders:

                           At the addresses set forth on each Lender's  Addendum
                           and on the  signature  page  of each  Assignment  and
                           Acceptance.

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

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

                  (b) If any Lender (a  "benefitted  Lender")  shall at any time
receive  any  payment  of all or part of the  Loans  owing  to it,  or  interest
thereon,  or receive any collateral in respect thereof  (whether  voluntarily or
involuntarily,  by set-off, or otherwise), in a greater

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

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

                  11.6.  Expenses.  The Borrower  agrees (a) to pay or reimburse
the  Administrative  Agent for all its  reasonable  and customary  out-of-pocket
costs and expenses incurred in connection with the preparation,  negotiation and
execution of, and any amendment,  supplement or modification  to, this Agreement
or any of the other Loan Documents,  and the  consummation  of the  transactions
contemplated hereby and thereby,  including,  without limitation, the reasonable
fees and  disbursements  of counsel to the  Administrative  Agent, (b) to pay or
reimburse  the  Administrative  Agent and each  Lender for all their  reasonable
costs and expenses  incurred in connection  with the enforcement or preservation
of any rights under this Agreement, including without limitation, the reasonable
fees and disbursements of their counsel, (c) to pay, indemnify and hold harmless
the  Administrative  Agent and each Lender from any and all recording and filing
fees and any and all liabilities  with respect to, or resulting from any failure
of Borrower to pay or delay of Borrower in paying,  documentary,  stamp, excise,
withholding  and other similar taxes, if any, which may be payable or determined
to be payable in connection  with the execution and delivery of, or consummation
of any amendment,  supplement or modification of, or any waiver or consent under
or in respect of, this  Agreement,  and (d) from and after the occurrence of any
Event of Default to pay, and  indemnify  and hold  harmless  the  Administrative
Agent  and  each  Lender  from  and  against,  any  and all  other  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or disbursements  of any kind or nature  whatsoever with respect to the
execution,  delivery,  enforcement,   performance  and  administration  of  this
Agreement or in any respect relating to the transactions  contemplated hereby or
thereby  (all  the  foregoing,  collectively,  the  "indemnified  liabilities");
provided,  however,  that the Borrower  shall have no obligation  hereunder with
respect to indemnified

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<PAGE>

liabilities  arising from (i) the willful  misconduct or gross negligence of the
party seeking  indemnification,  as determined by a final judgment of a court of
competent   jurisdiction   (ii)  legal   proceedings   commenced   against   the
Administrative  Agent or any Lender by any security  holder or creditor  thereof
arising  out of and based  upon  rights  afforded  any such  security  holder or
creditor  solely in its  capacity  as such,  (iii) any  taxes  imposed  upon the
Administrative  Agent or any Lender other than the documentary,  stamp,  excise,
withholding and similar taxes described in clause (c) above or any tax resulting
from any change  described in Section 4.1, which tax would be payable to Lenders
by Borrower pursuant to Article IV, (iv) taxes imposed as a result of a transfer
or  assignment  of any Loan or Revolving  Credit  Commitment,  participation  or
assignment  of a portion  of rights  therein,  (v) any  taxes  imposed  upon any
assignee of any Loan or Revolving  Credit  Commitment,  or (vi) by reason of the
failure  of the  Administrative  Agent or any  Lender  to  perform  its or their
obligations  under this  Agreement.  The  agreements  in this  subsection  shall
survive the Revolving  Credit  Termination  Date,  the Facility  Extension  Loan
Termination Date, if applicable, and the repayment of the Loans.

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

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

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

                  11.10.  Termination.  The  termination of this Agreement shall
not affect any rights of the Borrower,  the Lenders or the Administrative  Agent
or any  obligation of the  Borrower,  the Lenders or the  Administrative  Agent,
arising  prior to the effective  date of such  termination,  and the  provisions
hereof shall continue to be fully operative until all transactions  entered into
or rights created or obligations  incurred prior to such  termination  have been
fully disposed of,

                                       72
<PAGE>

concluded  or  liquidated  and the  Obligations  arising  prior to or after such
termination  have been  irrevocably  paid in full.  The  rights  granted  to the
Administrative  Agent for the  benefit of the  Lenders  hereunder  and under the
other Loan Documents  shall  continue in full force and effect,  notwithstanding
the termination of this Agreement,  until all of the Obligations  have been paid
in full after the  termination  hereof or the Borrower has furnished the Lenders
and  the  Administrative  Agent  with  an  indemnification  satisfactory  to the
Administrative  Agent and each Lender with respect thereto. All representations,
warranties,  covenants,  waivers and agreements  contained  herein shall survive
termination  hereof until payment in full of the  Obligations  unless  otherwise
provided herein.  Notwithstanding the foregoing, if after receipt of any payment
of all or any part of the Obligations, any Lender is for any reason compelled to
surrender  such payment to any Person  because such payment is  determined to be
void or voidable as a  preference,  impermissible  setoff,  a diversion of trust
funds or for any other reason,  this Agreement  shall continue in full force and
the  Borrower  shall be liable  to,  and shall  indemnify  and hold such  Lender
harmless  for,  the amount of such payment  surrendered  until such Lender shall
have been finally and irrevocably  paid in full. The provisions of the foregoing
sentence shall be and remain effective notwithstanding any contrary action which
may have been taken by the Lenders in reliance upon such  payment,  and any such
contrary action so taken shall be without prejudice to the Lenders' rights under
this  Agreement and shall be deemed to have been  conditioned  upon such payment
having become final and irrevocable.

                  11.11.  Governing  Law. (a) THIS  AGREEMENT AND THE RIGHTS AND
OBLIGATIONS  OF THE  PARTIES  UNDER THIS  AGREEMENT  SHALL BE  GOVERNED  BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  (b) Submission To Jurisdiction;  Waivers.  The Borrower hereby
irrevocably and unconditionally:

                  (i) submits for itself and its property in any legal action or
         proceeding  relating to this  Agreement and the other Loan Documents to
         which it is a party, or for recognition and enforcement of any judgment
         in respect thereof,  to the non-exclusive  general  jurisdiction of the
         courts of the State of New York,  the courts of the  United  States for
         the  Southern  District  of New York,  and  appellate  courts  from any
         thereof;

                  (ii)  consents  that  any such  action  or  proceeding  may be
         brought in such  courts and  waives  any  objection  that it may now or
         hereafter  have to the venue of any such  action or  proceeding  in any
         such  court  or that  such  action  or  proceeding  was  brought  in an
         inconvenient court and agrees not to plead or claim the same;

                  (iii)  agrees  that  service of process in any such  action or
         proceeding  may be efected by mailing a copy thereof by  registered  or
         certified  mail (or any  substantially  similar form of mail),  postage
         prepaid, to the Borrower at its address set forth in Section 11.2 or at
         such other  address of which the  Administrative  Agent shall have been
         notified pursuant thereto; and

                  (iv)  agrees that  nothing  herein  shall  affect the right to
         effect service of process in any other manner permitted by law or shall
         limit the right to sue in any other jurisdiction.

                                       73
<PAGE>

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

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

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

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

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

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

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

                  11.14.   Integration.   This  Agreement  and  the  other  Loan
Documents  represent the final  agreement  between the parties as to the subject
matter  hereof or thereof  and may not be

                                       74
<PAGE>

contradicted  by  evidence  of  prior,   contemporaneous,   or  subsequent  oral
agreements of the parties. There are no oral agreements between the parties.

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

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

                  11.17.  Lender  Addenda.  Each  initial  Lender shall become a
party to this  Agreement  by  delivering  to the  Administrative  Agent a Lender
Addendum  duly  executed by such Lender,  the  Borrower  and the  Administrative
Agent.

                  11.18.  Designated  Senior  Indebtedness.  For purposes of the
Convertible  Subordinated  Debentures and the New Senior Subordinated Notes, the
Obligations shall be designated "Designated Senior Indebtedness".

                                       75
<PAGE>

                IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement  to be duly  executed  and  delivered  in New York,  New York by their
proper and duly authorized officers as of the day and year first written above.

                                HEALTHSOUTH CORPORATION

                                By:               /s/Malcolm E. McVay
                                     --------------------------------
                                Name:  Malcolm E. McVay
                                Title:  Senior Vice President and Treasurer

<PAGE>

                                UBS AG, STAMFORD BRANCH, as Administrative Agent

                                By:               /s/Daniel W. Ladd III
                                    -----------------------------------
                                Name:  Daniel W. Ladd III
                                Title:  Executive Director

                                By:               /s/Wilfred V. Saint
                                    ---------------------------------
                                Name:  Wilfred V. Saint
                                Title:  Associate DirectorEXHIBIT 10.3

                            SHARE EXCHANGE AGREEMENT

THIS AGREEMENT dated for reference November 29, 2000, is between COMMUNICATE.COM
INC., a Nevada corporation with an office at 360 - 220 Cambie Street, Vancouver,
B.C., V6B 2M9 and fax (604) 687-2192  ("CMNN") and the  UNDERSIGNED  SHAREHOLDER
(the "SHAREHOLDER").

WHEREAS:

A.       CMNN has  acquired or has reached an  agreement to acquire an aggregate
         16,896,335  shares in the capital of  Communicate.com  Inc., an Alberta
         company (the  "SUBSIDIARY")  and wishes to acquire all of the remaining
         issued and outstanding  shares of the Subsidiary  pursuant to the terms
         and conditions of this agreement,

B.       the  Shareholder is a registered  shareholder of the Subsidiary  owning
         the number of shares as set out in the Register of  Shareholders of the
         Subsidiary (the "SHARES") as of the date of this agreement,

C.       CMNN  has made the same  share  exchange  offer to all of the  existing
         shareholders of the Subsidiary,

FOR  VALUABLE   CONSIDERATION,   the  receipt  and   sufficiency  of  which  are
acknowledged, the parties agree that:

                   TERMS AND CONDITIONS OF THE SHARE EXCHANGE

SHARE EXCHANGE

3.       The  Shareholder  will transfer all of its shares in the  Subsidiary to
         CMNN on the terms and conditions set out in this  agreement.  For every
         5.1470588  shares in the Subsidiary held by the  Shareholder  CMNN will
         issue to the  Shareholder  one common share in the capital of CMNN (the
         "EXCHANGE SHARES") based on a value of US$0.34 per Share and a value of
         US$1.75  per  Exchange   Share.   CMNN  will   deliver  a   certificate
         representing the Exchange Shares to the Shareholder within a reasonable
         time.

4.       The Shareholder will tender a duly executed stock power of attorney for
         the  transfer  of the Shares to CMNN  immediately  after  signing  this
         agreement.

5.       The  obligations  of each party are subject to the condition  that each
         party's  representations and warranties are true at the time of Closing
         and the  covenants  of the other party that were to be performed by the
         other party on or before the Closing have been performed.

                         REPRESENTATIONS AND WARRANTIES

6.       REPRESENTATIONS,  WARRANTIES,  COVENANTS  AND  ACKNOWLEDGMENTS  OF  THE
         SHAREHOLDER

         1.       SHARE  OWNERSHIP.  The Shareholder owns the Shares free of any
                  claim or potential  claim by any person and has the  authority
                  to transfer the Shares as described in this agreement.

         2.       ADDITIONAL  RIGHTS. The Shareholder does not have any right to
                  acquire additional shares of the Subsidiary.

         3.       INDEPENDENT  INVESTIGATION.  The  Shareholder,  in electing to
                  exchange  the  Shares  for  Exchange  Shares,  relied  upon an
                  independent  investigation made by it and its representatives,
                  if any,  and has been given access to and the  opportunity  to
                  examine  all  books  and  records  of CMNN,  and all  material
                  contracts  and  documents  of CMNN.  The  Shareholder  has the
                  experience  in business  and  financial  matters  that make it
                  capable  of  evaluating   the  risk  of  its   investment  and
                  determining the suitability of its investment.

         4.       NO  GOVERNMENT  RECOMMENDATION  OR APPROVAL.  The  Shareholder
                  understands  that no United  States  federal or state  agency,
                  securities  commission or regulatory authority has passed upon
                  or  recommended  or endorsed  CMNN,  this  transaction  or the
                  acquisition of the Exchange Shares. Furthermore, the foregoing
                  authorities  have not reviewed,  confirmed or  determined  the
                  accuracy or adequacy of this document.

         5.       NO REGISTRATION. The Shareholder understands that the Exchange
                  Shares have not been registered under
<PAGE>

Share Exchange Agreement                                                   2 / 4

                  the  Securities  Act of 1933 (the  "ACT")  or with the  United
                  States  Securities  and Exchange  Commission or the securities
                  commission  of any  state,  and are  being  offered  and  sold
                  pursuant to the  provisions  of the Act based in part upon the
                  representations  of the Shareholder,  and that CMNN is relying
                  on the truth and accuracy of the Shareholder's representations
                  and warranties to determine  whether the offer and sale of the
                  Exchange  Shares is exempt  from  registration  under the Act.
                  This  agreement  does  not  constitute  an offer to sell nor a
                  solicitation  of  an  offer  to  buy  the  securities  in  any
                  jurisdiction  in which  such  offer or  solicitation  would be
                  unlawful.  The  securities  may not be resold  or  transferred
                  except as permitted  pursuant to registration under the Act or
                  an exemption from it.

         6.       INVESTMENT  INTENT.  The Shareholder is acquiring the Exchange
                  Shares  for  its  own  account  (or a  trust  account  if  the
                  Shareholder   is  a  trustee)  and  not  as  a  nominee.   The
                  Shareholder  understands  that the  exchange of the Shares for
                  Exchange  Shares  involves a high  degree of risk and that the
                  Shareholder  must bear the  economic  risk of this  investment
                  indefinitely  unless sale of the Exchange Shares is registered
                  pursuant to the Act, or an  exemption  from  registration  for
                  their sale is available.  The Shareholder understands that, in
                  the view of the SEC,  the  statutory  basis for the  exemption
                  claimed  for this  transaction  would  not be  present  if the
                  offering  of  the  Exchange  Shares,   although  in  technical
                  compliance  with  Regulation S, is part of a plan or scheme to
                  evade the registration  provisions of the Act. The Shareholder
                  is acquiring the Exchange  Shares for investment  purposes and
                  has no present  intention to sell the  Exchange  Shares to any
                  person  or for the  account  or  benefit  of any  person.  The
                  Shareholder  covenants  that neither the  Shareholder  nor its
                  affiliates  nor any person  acting on its or their  behalf has
                  the intention of entering or will enter before the  expiration
                  of one year from the Closing (the "RESTRICTED  PERIOD"),  into
                  any put option,  short position or other similar instrument or
                  position or any other  hedging  transactions  or  arrangements
                  with  respect  to  CMNN's  common   stock,   and  neither  the
                  Shareholder nor any of its affiliates nor any person acting on
                  its or  their  behalf  will use at any  time  Exchange  Shares
                  acquired  pursuant to this agreement to settle any put option,
                  short position or other similar  instrument or position or any
                  other hedging  transaction or  arrangement  that may have been
                  entered into before the execution of this  agreement or during
                  the Restricted Period.

         7.       NO SALE IN VIOLATION OF THE SECURITIES  LAWS. The  Shareholder
                  covenants   that  it  will  not  knowingly  sell  transfer  or
                  otherwise  dispose of the Exchange  Shares in violation of the
                  Act, the  Securities  and Exchange Act of 1934 (the  "EXCHANGE
                  ACT") or the  rules  and  regulations  of the  Securities  and
                  Exchange Commission (the  "COMMISSION").  The Shareholder will
                  only  offer  and  sell  the  Exchange  Shares  pursuant  to an
                  effective registration statement under the Act or an exemption
                  from the  registration  provisions of the Act. The Shareholder
                  will not,  during  the  Restricted  Period,  offer or sell the
                  Exchange  Shares to any  persons or for the account or benefit
                  of any  persons  and will offer and sell the  Exchange  Shares
                  only in compliance with the provisions of the Act.

         8.       AUTHORITY. The Shareholder has the full power and authority to
                  execute,  deliver and perform this agreement.  This agreement,
                  when executed and delivered by the Shareholder,  constitutes a
                  legal,  valid  and  binding  obligation  of  the  Shareholder,
                  enforceable  against the  Shareholder  in accordance  with its
                  terms.

         9.       NO RELIANCE ON TAX ADVICE.  The  Shareholder has reviewed with
                  its own tax advisors the tax  consequences of the transactions
                  contemplated  by this  agreement.  The  Shareholder is relying
                  solely  on  the  advisors  and  not  on  any   statements   or
                  representations  of CMNN or any of its agents with  respect to
                  the tax consequences and understands that the Shareholder (and
                  not CMNN) is responsible for the  Shareholder's  tax liability
                  that  may  arise  as  a  result  of  this  investment  or  the
                  transactions contemplated by this agreement.

         10.      NO LEGAL ADVICE FROM CMNN. The Shareholder  acknowledges  that
                  it has had the  opportunity  to review this  agreement and the
                  transactions  contemplated  by it with its own legal  counsel.
                  The  Shareholder  is relying  solely on its counsel and not on
                  any statements or representations of CMNN or any of its agents
                  for  legal  advice  with  respect  to this  investment  or the
                  transactions  contemplated  by this  agreement  except for the
                  representations, warranties and covenants specifically stated.

         11.      RESALES.  The  Shareholder  acknowledges  and agrees  that the
                  Exchange  Shares may only be resold pursuant to a registration
                  statement  under  the Act or  pursuant  to an  exemption  from
                  registration under the Act.

<PAGE>

Share Exchange Agreement                                                   3 / 4

                  CMNN will not register  any  transfer of Exchange  Shares that
                  does not  comply  with  this  section  4(l).  The  Shareholder
                  covenants  that all offering  materials and  documents  (other
                  than press  releases) used in connection with offers and sales
                  of the Exchange Shares before the expiration of the Restricted
                  Period must state that (i) the  Exchange  Shares have not been
                  registered under the Act and may not be offered or sold to any
                  person  unless  they  are  registered  under  the  Act  or  an
                  exemption  from the  registration  requirements  of the Act is
                  available,  and that (ii) hedging  transactions  involving the
                  Exchange  Shares may not be conducted  unless they comply with
                  the Act. These  statements  must appear on the cover or inside
                  cover page and in the  underwriting  section of any prospectus
                  or offering circular and must appear in any advertisement used
                  in connection with the offer or sale of the Exchange Shares.

         12.      RESTRICTIONS   ON   TRANSFER   OF  SHARES   AND   LEGENDS   ON
                  CERTIFICATES.    The   Shareholder   acknowledges   that   the
                  certificates  representing  the Exchange  Shares must bear the
                  following  legend  and any  other  legend,  if the  legend  or
                  legends are reasonably required by CMNN, to comply with state,
                  federal or foreign law:

                           "THESE  SECURITIES ARE RESTRICTED  SECURITIES AS THAT
                           TERM IS DEFINED IN RULE 144 UNDER THE U.S. SECURITIES
                           ACT OF 1933 (THE "ACT").  AS  RESTRICTED  SECURITIES,
                           THEY MAY BE RESOLD ONLY IN ACCORDANCE WITH THE ACT OR
                           PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
                           THE ACT OR AN EXEMPTION FROM THE ACT."

7.       REPRESENTATIONS, WARRANTIES AND COVENANTS OF CMNN.

         1.       AUTHORIZED  CAPITAL.  CMNN  represents and warrants that it is
                  authorized  to issue 50 million  common  shares of its capital
                  stock,  of which  10,300,000  common  shares  are  issued  and
                  outstanding.  It  has  no  other  classes  of  shares  and  no
                  obligation  to issue  any  additional  shares  for any  reason
                  including options, warrants or convertible instruments.

         2.       ORGANIZATION  AND GOOD  STANDING.  CMNN is a corporation  duly
                  organized,  validly  existing and in good  standing  under the
                  laws of the State of Nevada  and has the  requisite  corporate
                  power and  authority to carry on its business as now conducted
                  and as proposed to be conducted.

         3.       AUTHORIZATION.  CMNN has taken the  corporate  action  that is
                  necessary  for the  authorization,  execution  and delivery of
                  this agreement, the performance of CMNN's obligations, and the
                  authorization,  issuance and delivery of the Exchange  Shares,
                  and this  agreement  constitutes  a legal,  valid and  binding
                  obligation  of CMNN,  enforceable  against CMNN in  accordance
                  with its terms.

         4.       VALID ISSUANCE OF THE EXCHANGE  SHARES.  The Exchange  Shares,
                  when issued,  sold and delivered in accordance  with the terms
                  hereof in  exchange  for the Shares  will be duly and  validly
                  issued  and  outstanding,  fully paid and  nonassessable,  and
                  based in part on the  representations  and  warranties  of the
                  Shareholder  will be issued in compliance  with all applicable
                  federal, state and other applicable securities laws.

                                OTHER PROVISIONS

8.       Time is of the essence of this agreement.

9.       This agreement is governed by the laws of British  Columbia and must be
         litigated in the courts of British Columbia, except for matters arising
         under the Act or the Exchange Act which  matters must be construed  and
         interpreted in accordance with those laws

10.      Any notice that must be given or delivered under this agreement must be
         in writing and delivered by hand to the address or  transmitted  by fax
         to the fax  number  given for the party on page 1 and is deemed to have
         been received when it is delivered by hand or transmitted by fax unless
         the  delivery  or  transmission  is  made  after  4:00  p.m.  or  on  a
         non-business  day where it is  received,  in which case it is deemed to
         have been  delivered  or  transmitted  on the next  business  day.  Any
         payments of money must be delivered by hand or wired as instructed

<PAGE>

Share Exchange Agreement                                                   4 / 4

         in writing by the receiving  party.  Any delivery  other than a written
         notice or money must be made by hand at the receiving party's address.

11.      Neither the  Shareholder nor CMNN may assign this agreement or any part
         of it to another party.

12.      This  agreement  constitutes  the entire  understanding  and  agreement
         between the parties, and no party is liable or bound to any other party
         in any manner by any warranties, representations or covenants except as
         specifically  stated in this agreement.  Except as expressly  provided,
         neither  this  agreement  nor any  term of it may be  amended,  waived,
         discharged or terminated other than by a written  instrument  signed by
         the party against whom enforcement of the amendment,  waiver, discharge
         or termination is sought.

13.      This agreement enures to the benefit of and binds the parties and their
         respective successors, heirs and permitted assignees.

14.      No  failure  or  delay  of CMNN in  exercising  any  right  under  this
         agreement  operates as a waiver of the right.  CMNN's rights under this
         agreement  are  cumulative  and do not preclude CMNN from relying on or
         enforcing any legal or equitable right or remedy.

15.      If any provision of this agreement becomes or is declared by a court of
         competent  jurisdiction  to be  illegal,  unenforceable  or void,  this
         agreement  continues  in full force and effect  without the  provision,
         except that the severability is not effective if it materially  changes
         the economic benefit of this agreement to any party.

16.      This  agreement  may be signed in  counterparts  and  delivered  to the
         parties  by fax,  and the  counterparts  together  are deemed to be one
         original document.

THE PARTIES' signatures below are evidence of their agreement.

COMMUNICATE.COM INC.

                                        ----------------------------------------
----------------------------------      SIGNATURE OF SHAREHOLDER
AUTHORIZED SIGNATORY

                                        ----------------------------------------
                                        NAME OF SHAREHOLDER

                                        ----------------------------------------
                                        ADDRESS OF SHAREHOLDER

                                        ----------------------------------------

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