Document:

EXHIBIT 10.53

                              EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"), between
HEALTHSOUTH Corporation,  a Delaware corporation (the "Company"), and ANTHONY J.
TANNER, a resident of Birmingham, Alabama (the "Executive").

                              W I T N E S S E T H:
                               - - - - - - - - - -

     WHEREAS,  the  Company  provides  comprehensive  rehabilitative,  clinical,
diagnostic and surgical healthcare services;

     WHEREAS,  the Executive is a founder of the Company and serves as Executive
Vice  President-Administration  and  Secretary of the Company and as a member of
its Board of Directors; and

     WHEREAS,  the Company wishes to assure itself of the continued  services of
the  Executive  so that it will  have  the  continued  benefit  of his  ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.

     NOW,  THEREFORE,  in consideration of good and valuable  consideration  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereby
covenant and agree as follows:

     1. EMPLOYMENT

     The Company  hereby  agrees to continue  to employ the  Executive,  and the
Executive  hereby agrees to remain in the employ of the Company,  on and subject
to the terms and conditions of this Agreement.

     2. TERM

     (a) The period of this Agreement (the  "Agreement  Term") shall commence as
of the date  hereof  (the  "Effective  Date")  and  shall  expire  on the  third
anniversary of the Effective  Date.  The Agreement  Term shall be  automatically
extended for an  additional  year on each  anniversary  of the  Effective  Date,
unless written notice of  non-extension is provided by either party to the other
party at least 90 days prior to such anniversary.

     (b) The period of the  Executive's  employment  under this  Agreement  (the
"Employment Period") shall commence as of the Effective Date and shall expire at
the end of the Agreement Term,  unless sooner  terminated in accordance with the
terms and conditions of this Agreement.

     3. POSITION, DUTIES AND RESPONSIBILITIES

     (a) The Executive shall serve as, and with the title,  office and authority
of, the Executive Vice President-Administration and Secretary of the Company and
as a member of the Board of  Directors  of the Company  (the  "Board") and shall
report  directly to the Chairman of the Company.  The Company shall use its best
efforts to cause the Executive to be nominated and

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elected (or renominated and reelected, as the case may be) during the Employment
Period as a director of the Company.

     (b) The  Executive  shall  have all of the  powers,  authority,  duties and
responsibilities usually incident to the positions and offices of Executive Vice
President-Administration and Secretary of the Company.

     (c) The Executive agrees to devote  substantially all of his business time,
efforts and skills to the performance of his duties and  responsibilities  under
this Agreement; provided, however, that nothing in this Agreement shall preclude
the Executive from devoting reasonable periods required for (i) participating in
professional, educational, philanthropic, public interest, charitable, social or
community  activities,  (ii)  serving  as a  director  or member of an  advisory
committee of any corporation or other entity that the Executive is serving on as
of the Effective  Date or any other  corporation or entity that is not in direct
competition  with  the  Company  or (iii)  managing  his  personal  investments,
provided that such  activities do not materially  interfere with the Executive's
regular performance of his duties and responsibilities hereunder.

     4. PLACE OF PERFORMANCE

     The  Executive  shall  perform his duties at the  principal  offices of the
Company located at One HealthSouth Parkway,  Birmingham,  Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.

     5. COMPENSATION AND BENEFITS

     In  consideration  of the  services  rendered by the  Executive  during the
Employment Period, the Company shall pay or provide to the Executive the amounts
and benefits set forth below.

     (a) Salary.  The Company shall pay the Executive an annual base salary (the
"Base Salary") of at least $375,000.  The Executive's  Base Salary shall be paid
in arrears  in  substantially  equal  installments  at monthly or more  frequent
intervals,  in accordance with the normal payroll practices of the Company.  The
Executive's  Base Salary shall be reviewed at least annually by the Compensation
Committee  of the Board (the  "Compensation  Committee")  for  consideration  of
appropriate merit increases and, once established,  the Base Salary shall not be
decreased during the Employment Period.

     (b) Incentive  Plans.  The Executive  shall  participate  in all annual and
long-term  bonus or  incentive  plans or  arrangements  in  which  other  senior
executives of the Company of a comparable level are eligible to participate from
time  to  time,  including,   without  limitation,  any  management  bonus  pool
arrangement.  The Executive's  incentive  compensation  opportunities under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.

     (c) Equity Incentives. The Executive shall be given consideration, at least
annually,  by the  Compensation  Committee  for the grant of options to purchase
shares of the common stock of the Company.  In addition,  the Executive shall be
entitled  to  receive   awards  under  any  stock  option,   stock  purchase  or
equity-based  incentive  compensation plan or arrangement adopted by the Company
from time to time for which  senior  executives  of the Company of a  comparable
level are eligible to participate.  The Executive's  awards under such plans and
arrangements  shall  be  determined  from  time  to  time  by  the  Compensation
Committee.

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     (d) Employee  Benefits.  The Executive  shall be entitled to participate in
all employee benefit plans,  programs,  practices or arrangements of the Company
in which  other  senior  executives  of the  Company of a  comparable  level are
eligible to participate from time to time,  including,  without limitation,  any
qualified or non-qualified pension,  profit sharing and savings plans, any death
benefit and  disability  benefit  plans,  and any  medical,  dental,  health and
welfare plans.  Without  limiting the  generality of the foregoing,  the Company
shall provide the Executive with the following:

          (i) long-term  disability  insurance coverage paying benefits equal to
     at  least  60% of the  Executive's  Base  Salary  for the  duration  of any
     permanent and total disability of the Executive;

          (ii) continued provision of split-dollar life insurance coverage; and

          (iii) provision of the pension benefits provided under a non-qualified
     retirement  plan for the  Executive,  a  summary  of the  terms of which is
     attached hereto as Exhibit A.

     (e) Fringe  Benefits and  Perquisites.  The Executive  shall be entitled to
continuation of all fringe benefits and perquisites provided to the Executive on
the  Effective  Date,  and to all  fringe  benefits  and  perquisites  which are
generally  made  available to senior  executives  of the Company of a comparable
level from time to time.  Without limiting the generality of the foregoing,  the
Company shall provide the Executive with the following:

          (i) provision of executive offices and secretarial staff;

          (ii) vacation in accordance with the Company's policy for other senior
     executives of a comparable level;

          (iii) provision of a non-accountable automobile allowance in an amount
     to be determined from time to time by the Board of Directors; and

          (iv)  reimbursement  of  all  reasonable  travel  and  other  business
     expenses and disbursements  incurred by the Executive in the performance of
     his duties under this Agreement,  upon proper accounting in accordance with
     the Company's normal practices and procedures for reimbursement of business
     expenses.

     6. TERMINATION OF EMPLOYMENT

     The Employment  Period will be terminated  upon the happening of any of the
following events:

     (a)  Resignation.  The Executive may  voluntarily  terminate his employment
hereunder for any reason at any time.

     (b)  Termination  for Cause.  The Company  may  terminate  the  Executive's
employment  hereunder for Cause.  For purposes of this Agreement,  the Executive
shall be considered  to be  terminated  for "Cause" only if (i) the Executive is
found, by a  non-appealable  order of a court or competent  jurisdiction,  to be
guilty of a felony under the laws of the United  States or any state  thereof or
(ii) the Executive is found, by a  non-appealable  order of a court of competent
jurisdiction,  to have committed a fraud, which has a material adverse effect on
the Company. However, in no event shall the Executive's employment be considered
to have been terminated for

<PAGE>

"Cause"  unless and until the  Executive  receives a copy of a  resolution  duly
adopted by the  affirmative  vote of a majority of the Board at a meeting called
and held for such purpose  (after  reasonable  written notice is provided to the
Executive setting forth in reasonable detail the facts and circumstances claimed
to  provide  a basis of  termination  for Cause  and the  Executive  is given an
opportunity,  together with counsel,  to be heard before the Board) finding that
the Executive is guilty of acts or omissions constituting Cause.

     (c)  Termination  other than for Cause.  The Board  shall have the right to
terminate  the  Executive's  employment  hereunder  for any  reason at any time,
including  for any  reason  that  does  not  constitute  Cause,  subject  to the
consequences of such termination as set forth in this Agreement.

     (d) Disability.  The Executive's  employment hereunder shall terminate upon
his  Disability.  For purposes of this  Agreement,  "Disability"  shall mean the
inability  of the  Executive  to perform his duties to the Company on account of
physical or mental illness for a period of six consecutive full months, or for a
period  of eight  full  months  during  any  12-month  period.  The  Executive's
employment  shall  terminate  in such a case on the last  day of the  applicable
period;  provided,  however,  in no event shall the  Executive be  terminated by
reason of  Disability  unless (i) the  Executive is eligible  for the  long-term
disability  benefits set forth in Section  5(d)(i) hereof and (ii) the Executive
receives  written  notice from the Company,  at least 30 days in advance of such
termination,  stating its  intention to terminate  the  Executive  for reason of
Disability  and setting forth in reasonable  detail the facts and  circumstances
claimed to provide a basis for such termination.

     (f) Death.  The Executive's  employment  hereunder shall terminate upon his
death.

     7. COMPENSATION UPON TERMINATION OF EMPLOYMENT

     In the event the Executive's employment by the Company is terminated during
the Agreement  Term, the Executive  shall be entitled to the severance  benefits
set forth below:

     (a)  Resignation.  In the event the Executive  voluntarily  terminates  his
employment  hereunder  for any  reason,  the  Company  shall pay and provide the
Executive any Accrued Rights (as defined in paragraph (c) below).

     (b)  Termination  for  Cause.  In  the  event  the  Executive's  employment
hereunder  is  terminated  by the Company for Cause,  the Company  shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).

     (c) Termination other than for Cause, Disability or Death. In the event the
Executive's  employment  hereunder is  terminated  by the Company for any reason
other than for Cause,  Disability or death,  the Company shall pay the Executive
and provide him with the following:

          (i) Accrued  Rights.  The Company  shall pay the  Executive a lump-sum
     amount  equal to the sum of (A) his earned but unpaid Base  Salary  through
     the date of termination,  (B) any earned but unpaid bonus for any completed
     calendar year,  (C) pro-rata  payment of any bonus (based on the bonus paid
     or payable to Executive for the most recently  completed calendar year) for
     any partial year or period of service  through the date of termination  and
     (D)  any  unreimbursed  business  expenses  or  other  amounts  due  to the
     Executive from the Company as of the date of termination.  In addition, the
     Company shall  provide to the  Executive all payments,  rights and benefits
     due as of the date of termination under the terms of the Company's employee
     and fringe benefit plans, practices,  programs and arrangements referred to
     in  Sections

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     5(d) and  5(e)  hereof  (including,  but not  limited  to,  the  retirement
     benefits  set  forth on  Exhibit  A  hereto)  (together  with the  lump-sum
     payment, the "Accrued Rights").

          (ii) Severance  Payment.  The Company shall provide the Executive with
     continued  payment of the Executive's Base Salary, as in effect on the date
     of  termination,  for a  period  of two  years  following  the  Executive's
     termination,  payable at the times and in the manner such Base Salary would
     have been paid if the  Executive  had  continued in the  employment  of the
     Company.

          (iii) Equity Rights. All stock options and other  equity-based  rights
     held by the Executive at the date of termination  shall become  immediately
     and fully vested and exercisable,  and the Executive shall retain the right
     to  exercise  all  outstanding  stock  options  for the  duration  of their
     original  full  term  (without  regard to  termination  of  employment)  in
     accordance with the Founder  Retirement  Benefit Program attached hereto as
     Exhibit B (the "Founders'  Program").  The Company shall forthwith take all
     necessary steps to amend any relevant stock option plans of the Company and
     stock option  agreements to the extent necessary to allow for the foregoing
     vesting and term of exercise.

     (d)  Disability.  In the  event the  Executive's  employment  hereunder  is
terminated by reason of the  Executive's  Disability,  the Company shall pay and
provide to the Executive any Accrued Rights,  including all disability insurance
coverage.

     (e) Death. In the event the Executive's  employment hereunder is terminated
by reason of the  Executive's  death,  the Company  shall pay and provide to the
Executive's  representatives  or estate any Accrued  Rights,  including all life
insurance coverage.

     8. FOUNDERS' BENEFITS

     Upon the  Executive's  termination of employment  hereunder for any reason,
and in addition to any severance benefits payable to him under Section 7 hereof,
the Company shall treat such  termination as a "retirement"  for purposes of the
Founder's Program, and shall provide the Executive with the benefits outlined in
the Founders' Program in recognition of his status as a founder of the Company.

     9. CHANGE IN CONTROL

     (a) Supplemental  termination Rights. In the event Executive's  termination
other  than  for  Cause,  Disability  or death  or in the  event of a  voluntary
termination of employment by the Executive  pursuant to Section 6(a) hereof,  in
either case occurring within one year following a Change in Control, the Company
shall  pay to the  Executive  and  provide  him with  the  benefits  and  rights
described in Section 7(c) hereof.

     (b) Definition. For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred by reason of:

          (i) the  acquisition  (other  than from the  Company)  by any  person,
     entity or "group"  (within the meaning of Sections  13(d)(3) or 14(d)(2) of
     the Securities Exchange Act of 1934, but excluding,  for this purpose,  the
     Company or its subsidiaries, or any employee benefit plan of the Company or
     its subsidiaries which acquires  beneficial  ownership of voting securities
     of the Company) of beneficial  ownership  (within the meaning of Rule 13d-3
     promulgated  under the  Securities

<PAGE>

     Exchange Act of 1934) of 25% or more of either the then-outstanding  shares
     of the common  stock of the  Company or the  combined  voting  power of the
     Company's  then-outstanding voting securities entitled to vote generally in
     the election of directors; or

          (ii) individuals who, as of the date hereof,  constitute the Board (as
     of such date, the "Incumbent  Board") cease for any reason to constitute at
     least a majority of the Board; provided,  however, that any person becoming
     a  director  subsequent  to such date whose  election,  or  nomination  for
     election,  was  approved by a vote of at least a majority of the  directors
     then constituting the Incumbent Board (other than an election or nomination
     of an individual  whose initial  assumption of office is in connection with
     an actual or  threatened  election  contest  relating  to the  election  of
     directors of the Company) shall be, for purposes of this Section  9(b)(ii),
     considered as though such person were a member of the Incumbent Board; or

          (iii) approval by the stockholders of the Company of a reorganization,
     merger, consolidation or share exchange, in each case with respect to which
     persons who were the stockholders of the Company  immediately prior to such
     reorganization, merger, consolidation or share exchange do not, immediately
     thereafter, own more than 75% of the combined voting power entitled to vote
     generally  in  the  election  of  directors  of  the  reorganized,  merged,
     consolidated   or  other   surviving   entity's   then-outstanding   voting
     securities,  or a liquidation  or dissolution of the Company or the sale of
     all or substantially all of the assets of the Company.

     10. NO MITIGATION OR OFFSET

     The Executive  shall not be required to seek other  employment or to reduce
any severance benefit payable to him under Section 7, 8 or 9 hereof, and no such
severance  benefit shall be reduced on account of any  compensation  received by
the Executive from other employment.  The Company's  obligation to pay severance
benefits  under this  Agreement  shall not be reduced by any amount  owed by the
Executive to the Company.

     11. TAX WITHHOLDING; METHOD OF PAYMENT

     All compensation  payable  pursuant to this Agreement,  shall be subject to
reduction by all  applicable  withholding,  social  security and other  federal,
state and local taxes and  deductions.  Any  lump-sum  payments  provided for in
Sections 7 or 9 hereof shall be made in a cash payment,  net of any required tax
withholding, no later than the fifth business day following the Executive's date
of  termination.  Any payment  required to be made to the  Executive  under this
Agreement  that is not made in a timely  manner  shall bear  interest  at a rate
equal to 100% of the monthly  compounded  applicable  federal rate, as in effect
under Section 1274(d) of the Internal Revenue Code of 1986, as amended,  for the
month in which payment was required to be made.

     12. RESTRICTIVE COVENANTS

     (a) Confidential Information. During the Employment Period and at all times
thereafter,  the Executive agrees that he will not divulge to anyone (other than
the Company or any persons  employed or designated by the Company) any knowledge
or information of a confidential  nature relating to the business of the Company
or any of its subsidiaries or affiliates,  including,  without  limitation,  all
types of trade secrets  (unless readily  ascertainable  from public or published
information or trade sources) and confidential commercial  information,  and the
Executive further

<PAGE>

agrees not to disclose, publish or make use of any such knowledge or information
without the consent of the Company.

     (b)  Noncompetition.  During the  Employment  Period and for any applicable
period the Executive is entitled to severance benefits under Section 7(c) hereof
following the  termination of his employment,  the Executive shall not,  without
the  prior  written  consent  of  the  Company,   engage  in  the  comprehensive
rehabilitative and related healthcare services business on behalf of any person,
firm or corporation  within any geographical area in which the Company transacts
such  business,  and the  Executive  shall not  acquire any  financial  interest
(except for an equity interest in publicly-held  companies that do not exceed 5%
of any  outstanding  class of  equity of that  company),  in any  business  that
engages in the  comprehensive  rehabilitative  and related  healthcare  services
business  within  any  geographical  area in which the  Company  transacts  such
business.  Notwithstanding  the  foregoing,  upon the  occurrence of a Change in
Control (whether before or after the termination of the Employment Period),  the
restrictions of this Section 12(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.

     (c) Enforcement.  The Company shall be entitled to seek a restraining order
or injunction in any court of competent jurisdiction to prevent any continuation
of any violation of the provisions of this Section 12.

     13. SUCCESSORS

     (a) This Agreement  shall be binding upon and shall inure to the benefit of
the Company,  its  successors and assigns and any person,  firm,  corporation or
other entity which succeeds to all or substantially all of the business,  assets
or property of the  Company.  The Company will  require any  successor  (whether
direct or indirect, by purchase, merger, consolidation,  or otherwise) to all or
substantially  all of the  business,  assets  or  property  of the  Company,  to
expressly  assume and agree to perform this  Agreement in the same manner and to
the same  extent  that the  Company  would be  required to perform it if no such
succession had taken place. As used in this Agreement,  the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid  which executes and delivers an agreement  provided for in
this Section 13 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.

     (b) This Agreement and all rights of the Executive hereunder shall inure to
the  benefit  of and  be  enforceable  by  the  Executive's  personal  or  legal
representatives,  executors,  administrators,  successors,  heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder,  all such amounts,  unless otherwise  provided herein,
shall be paid to the Executive's  designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.

     14. NO ASSIGNMENT

     Except as to  withholding of any tax under the laws of the United States or
any other  country,  state or locality,  neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to alienation, sale, transfer,  assignment, pledge, attachment, or
other  legal  process,  or  encumbrance  of any  kind  by the  Executive  or the
beneficiaries  of the  Executive  or by his legal  representatives  without  the
Company's  prior  written  consent,  nor shall  there be any right of set-off or
counterclaim  in  respect  of any debts or  liabilities  of the  Executive,  his
beneficiaries or legal representatives;  provided, however, that nothing in this
Section shall preclude the Executive  from  designating a beneficiary to receive
any benefit payable on his death, or the legal  representatives of the Executive
from assigning any rights hereunder to the

<PAGE>

person or persons entitled  thereto under his will or, in case of intestacy,  to
the person or persons entitled thereto under the laws of intestacy applicable to
his estate.

     15. ENTIRE AGREEMENT

     This  Agreement  contains  the entire  understanding  of the  parties  with
respect to the  subject  matter  hereof  and,  except as  specifically  provided
herein,  cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement  shall not be binding  unless in writing and signed by the Company and
the Executive.

     16. SEVERABILITY

     In the event that any  provision  of this  Agreement  is  determined  to be
invalid or  unenforceable,  the remaining terms and conditions of this Agreement
shall be  unaffected  and shall  remain in full force and  effect,  and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.

     17. NOTICES

     All notices  which may be necessary or proper for either the Company or the
Executive  to give to the other  shall be in writing and shall be  delivered  by
hand or sent by registered or certified mail,  return receipt  requested,  or by
air courier, to the Executive at:
              Mr. Anthony J. Tanner
              2112 Swan Lake Cove
              Birmingham, Alabama  35243

and shall be sent in the manner  described above to the Chief Executive  Officer
of the Company at the Company's principal  executives offices at One HealthSouth
Parkway, Birmingham, Alabama 35243, with a copy to the Legal Services Department
at the same address or delivered by hand to the Secretary and the Legal Services
Department  of the Company,  and shall be deemed given when sent,  provided that
any notice required under Section 6 hereof or notice given pursuant to Section 2
hereof shall be deemed given only when received. Any party may by like notice to
the other party  change the  address at which he or they are to receive  notices
hereunder.

     18. GOVERNING LAW

     This Agreement  shall be governed by and enforceable in accordance with the
laws of the  State of  Alabama,  without  giving  effect  to the  principles  of
conflict of laws thereof.

     19. LEGAL FEES AND EXPENSES

     To induce  the  Executive  to execute  this  Agreement  and to provide  the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement  should the Company fail to perform
its  obligations  under this Agreement or should the Company or any  subsidiary,
affiliate or stockholder of the Company  contest the validity or  enforceability
of this  Agreement,  the  Company  shall pay and be solely  responsible  for any
attorneys'  fees and expenses and courts  costs  incurred by the  Executive as a
result of a claim that the Company has breached or  otherwise  failed to perform
this  Agreement or any  provision  hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting  the validity or  enforceability  of this  Agreement or any provision
hereof to be performed by the Company,  in each case  regardless of which party,
if any, prevails in the contest.

<PAGE>

     IN WITNESS  WHEREOF,  the  Company and the  Executive  have  executed  this
Agreement as of the date first above written.

                                       EXECUTIVE

                                       /s/ ANTHONY J. TANNER
                                       ------------------------------
                                       Anthony J. Tanner

                                       HEALTHSOUTH Corporation

                                       By   /s/ RICHARD M. SCRUSHY
                                          ---------------------------
                                            Richard M. Scrushy
                                            Chairman of the Board and
                                            Chief Executive Officer

<PAGE>

                                                                       EXHIBIT A

                             HEALTHSOUTH CORPORATION

                            EXECUTIVE RETIREMENT PLAN
                              FOR ANTHONY J. TANNER

                                          Summary of Terms(2)
                                          -------------------

Retirement Benefits:          In consideration of Executive's role as a founder,
                              his service to HEALTHSOUTH since its formation and
                              in lieu of the benefits and  compensation  offered
                              through  full-time  employment  as Executive  Vice
                              President, Administration and Secretary, Executive
                              shall be entitled to the benefits  described below
                              upon his retirement  from active  employment  with
                              HEALTHSOUTH  and  continuing  until he reaches the
                              age of 72 (as more  specifically set forth below).
                              In addition,  in  recognition  of the  Executive's
                              founder  status,  HEALTHSOUTH  shall  provide  the
                              Executive  with  suitable  office and  secretarial
                              support  within the corporate  headquarters  for a
                              period of up to 10 years following his retirement.

Benefit Formula:              Annual  retirement  benefit  equal  to 60% of Base
                              Compensation  (defined below) at Normal Retirement
                              Age

Base Compensation:            Average Base Salary and bonus of Executive for the
                              highest four of the five most  recently  completed
                              calendar years of service with HEALTHSOUTH

Vesting:                      Fully vested at all times,  such that all benefits
                              payable  as set  forth in this  Exhibit  A will be
                              payable  upon  Executive's   termination  for  any
                              reason  from and after  January 23, 1999 (the date
                              on which  Executive  will have  completed  fifteen
                              consecutive  years of service  with  HEALTHSOUTH).
                              There can be no breach of this  retirement plan by
                              the  Executive  except  for  violation  of Section
                              12(b)   of   the   Employment   Agreement.    This
                              consideration is fully earned by the Executive and
                              HEALTHSOUTH  has no right under any  circumstances
                              to  discontinue  any  payments  or other  benefits
                              under this plan.

Payment of Benefits:          The annual  retirement  benefits payable hereunder
                              will be adjusted  annually for inflation (based on
                              the  Consumer  Price Index) and will be paid until
                              Executive  reaches  the age of 65.  From and after
                              the date on which Executive  reaches the age of 65
                              and  continuing  until he  reaches  the age of 72,
                              Executive   will  be   entitled  to  40%  of  Base
                              Compensation  (as  adjusted  for  inflation).   If
                              HEALTHSOUTH fails to provide payment in accordance
                              with the selected schedule and remains  delinquent
                              for a period of 10 business days following receipt
                              of  written  notice  from the  Executive  (made in
                              accordance  with  Section  17  of  the  Employment
                              Agreement),  HEALTHSOUTH shall pay a penalty equal
                              to three times the amount owed.

--------
     (2)  All  defined  terms  shall  have  the  meanings  given  to them in the
Employment  Agreement to which this Exhibit A is a part, and all  determinations
shall be made in accordance with the terms and provisions hereof.

<PAGE>

Alternative Forms of Payment: Unless  Executive  chooses one of the  alternative
                              forms of  payment  listed  below,  payment of this
                              retirement  benefit will be in accordance with the
                              normal payroll practices. Executive may choose one
                              of the following alternative forms of payment:

                                  o Single Life Annuity
                                  o Single Life  Annuity with10 year  guarantee
                                  o Joint and  Survivor  Annuity (50% or 100%)
                                  o Lump Sum
                                  o Payment  of  present  value   of  retirement
                                    benefits in 5 equal annual installments

Death Benefit:                For death  prior to reaching  age 72,  Executive's
                              estate   will   continue  to  receive  the  annual
                              retirement benefits payable to Executive hereunder
                              (as if  Executive  had not died) for a period of 5
                              years.

Unfunded Status:              Plan  is  an  unfunded,  unsecured  obligation  of
                              HEALTHSOUTH,  but HEALTHSOUTH may elect to fund on
                              a tax-neutral basis to Executive

<PAGE>

                                                                       EXHIBIT B

                       FOUNDER RETIREMENT BENEFITS PROGRAM

     In recognition of the significant  contributions of the management founders
of HEALTHSOUTH  Corporation,  upon their  retirement from the  Corporation,  the
Corporation  shall  provide  the  following  benefits  to each  of them  for the
remainder  of  their  natural  life or until  their  written  election  to cease
receiving them:

o    Health  Benefits.  The Corporation  will extend its regular Employee Health
     Benefit  Program,  as it may exist from time to time,  to cover the retired
     founder, and his spouse, for the remainder of their natural lives, with the
     founder  continuing  to bear  the  cost of  dependent  coverage.  When  the
     individuals  become  eligible for the Medicare  program,  or any other such
     government-funded  health  benefit,  the  HEALTHSOUTH  benefit program will
     become the individual's secondary coverage.

o    Insurance.  The  Corporation  will allow the retired founder to continue to
     participate in any of the Company's voluntary  insurance programs,  as they
     may exist from time to time, until age 72.

o    Split-Dollar  Policy.  The Corporation will continue to pay the premiums on
     the retired founder's existing split-dollar life insurance policies (or any
     policies issued in substitution therefor) until such founder reaches age 65
     or until the policies are fully paid, whichever comes first.

o    Stock Options.  The  Corporation  will waive the normal option  termination
     period for the  retired  founder,  so that all vested  option  grants  will
     continue for the term of the original grant period.

o    Travel.  The  Corporation  will allow the  retired  founder to utilize  the
     Corporation's  travel department to make personal travel  arrangements.  In
     addition,  the retired  founder will also be able to use the  Corporation's
     aircraft, at no cost, if the aircraft is already scheduled for the trip and
     there are seats available.  Otherwise,  the retired founder will be allowed
     to use the  Corporation's  aircraft  at the  standard  use rate,  including
     direct and indirect expenses.EXHIBIT 10.58

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

                           SHORT TERM CREDIT AGREEMENT

                                  by and among

                            HEALTHSOUTH CORPORATION,
                                  as Borrower,

                             BANK OF AMERICA, N. A.,
                     as Administrative Agent and as Lender,

                                       and

                               CITICORP USA, INC.,
                       as Syndication Agent and as Lender,

                                       and

                   THE LENDERS PARTY HERETO FROM TIME TO TIME

                         BANC OF AMERICA SECURITIES LLC,
                         Lead Arranger and Book Manager

                                December 15, 1999

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

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I
                             Definitions and Terms

1.1.   Definitions.............................................................2
1.2.   Rules of Interpretation................................................19
1.3.   Classes and Types of Loans.............................................21

                                   ARTICLE II
                                    The Loans

2.1.   Loans..................................................................22
2.2.   Payment of Interest....................................................23
2.3.   Payment of Principal...................................................23
2.4.   Non-Conforming Payments................................................23
2.5.   Notes..................................................................24
2.6.   Pro Rata Payments......................................................24
2.7.   Reductions.............................................................24
2.8.   Conversions and Elections of Subsequent Interest Periods...............25
2.9.   Unused Fees and Utilization Fees.......................................25
2.10.  Deficiency Advances....................................................25
2.11.  Use of Proceeds........................................................26
2.12.  Intraday Funding.......................................................26

                                   ARTICLE III
                            Change in Circumstances

3.1.   Increased Cost and Reduced Return. ....................................27
3.2.   Limitation on Types of Loans...........................................28
3.3.   Illegality.............................................................28
3.4.   Treatment of Affected Loans............................................28
3.5.   Compensation...........................................................29
3.6.   Taxes..................................................................29

                                   ARTICLE IV
                           Conditions to Making Loans

4.1.   Conditions of Initial Advance..........................................32
4.2.   Conditions of Loans....................................................33

<PAGE>

                                    ARTICLE V
                         Representations and Warranties

5.1.   Organization and Authority.............................................34
5.2.   Loan Documents.........................................................34
5.3.   Solvency...............................................................35
5.4.   Subsidiaries...........................................................35
5.5.   Ownership Interests....................................................35
5.6.   Financial Condition....................................................35
5.7.   Title to Properties....................................................35
5.8.   Taxes..................................................................35
5.9.   Other Agreements.......................................................36
5.10.  Litigation.............................................................36
5.11.  Margin Stock...........................................................36
5.12.  Investment Company.....................................................37
5.13.  Patents, Etc...........................................................37
5.14.  No Untrue Statement....................................................37
5.15.  No Consents, Etc.......................................................37
5.16.  ERISA Requirement......................................................37
5.17.  No Default.............................................................37
5.18.  Hazardous Materials....................................................38
5.19.  Employment Matters.....................................................38
5.20.  RICO...................................................................38
5.21.  Reimbursement from Third Party Payors..................................38
5.22.  Year 2000 Compliance...................................................38

                                   ARTICLE VI
                             Affirmative Covenants

6.1.   Financial Statements, Reports, Etc.....................................40
6.2.   Maintain Properties....................................................41
6.3.   Existence, Qualification, Etc..........................................41
6.4.   Regulations and Taxes..................................................41
6.5.   Insurance..............................................................41
6.6.   True Books.............................................................42
6.7.   Right of Inspection....................................................42
6.8.   Observe all Laws.......................................................42
6.9.   Governmental Licenses..................................................42
6.10.  Covenants Extending to Other Persons...................................42
6.11.  Officer's Knowledge of Default.........................................42
6.12.  Suits or Other Proceedings.............................................42
6.13.  Notice of Discharge of Hazardous Material or Environmental Complaint...43
6.14.  Environmental Compliance...............................................43
6.15.  Continuation of Current Business.......................................43
6.16.  Management Contracts...................................................43
6.17.  Year 2000 Compliance...................................................43

                                   ARTICLE VII
                               Negative Covenants

7.1.   Financial Covenants....................................................44
7.2.   Investments and Loans..................................................44

                                       ii

<PAGE>

7.3.   Indebtedness...........................................................45
7.4.   Disposition of Assets..................................................45
7.5.   Consolidation or Merger................................................45
7.6.   Liens..................................................................45
7.7.   Dividends and Distributions............................................45
7.8.   Acquisitions...........................................................45
7.9.   Restricted Payments....................................................45
7.10.  Compliance with ERISA..................................................45
7.11.  Fiscal Year............................................................46
7.12.  Dissolution, etc.......................................................46
7.13.  Transactions with Affiliates...........................................46

                                  ARTICLE VIII
                       Events of Default and Acceleration

8.1.   Events of Default......................................................47
8.2.   Agent to Act...........................................................49
8.3.   Cumulative Rights......................................................49
8.4.   No Waiver..............................................................49
8.5.   Allocation of Proceeds.................................................49

                                   ARTICLE IX
                                   The Agent

9.1.   Appointment, Powers, and Immunities....................................51
9.2.   Reliance by Agent......................................................51
9.3.   Defaults...............................................................51
9.4.   Rights as Lender.......................................................52
9.5.   Indemnification........................................................52
9.6.   Non-Reliance on Agent and Other Lenders................................52
9.7.   Resignation of Agent...................................................52
9.8.   Fees...................................................................53
9.9.   Syndication Agent......................................................53

                                      iii

<PAGE>

                                   ARTICLE X
                                 Miscellaneous

10.1.  Assignments and Participations.........................................54
10.2.  Notices................................................................55
10.3.  No Waiver..............................................................56
10.4.  Rights of Setoff; Adjustments..........................................56
10.5.  Survival...............................................................56
10.6.  Expenses...............................................................57
10.7.  Amendments and Waivers.................................................57
10.8.  Counterparts...........................................................58
10.9.  Waivers by Borrower....................................................58
10.10. Termination............................................................58
10.11. Governing Law..........................................................59
10.12. Indemnification........................................................59
10.13. Agreement Controls.....................................................59
10.14. Integration............................................................60
10.15. Successors and Assigns.................................................60
10.16. Severability...........................................................60
10.17. Usury Savings Clause...................................................60

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

Schedule 5.4    Subsidiaries.................................................S-1
Schedule 5.13   Patent Issue.................................................S-2
Schedule 5.19   Employment Matters...........................................S-3
Schedule 7.3    Existing Subsidiary Indebtedness.............................S-4

                                       iv

<PAGE>

                           SHORT TERM CREDIT AGREEMENT

     THIS  SHORT TERM  CREDIT  AGREEMENT  dated as of  December  15,  1999 (this
"Agreement") is entered into by and among:

     HEALTHSOUTH CORPORATION, a Delaware corporation (the "Borrower"),

     BANK OF  AMERICA,  N.A.,  a  national  banking  association  organized  and
existing under the laws of the United States, in its capacity as a Lender ("Bank
of America"),  and each other financial  institution  executing and delivering a
signature page hereto and each other financial  institution  which may hereafter
execute and deliver an instrument of assignment  with respect to this  Agreement
pursuant  to  Section  10.1  (hereinafter  such  financial  institutions  may be
referred to individually as a "Lender" or collectively as the "Lenders"),

     BANK OF  AMERICA,  N.A.,  a  national  banking  association  organized  and
existing under the laws of the United States,  in its capacity as Administrative
Agent for the Lenders (in such capacity,  and together with any successor  agent
appointed in accordance with the terms of Section 9.7, the "Agent"), and

     CITICORP USA, INC., a Delaware corporation,  in its capacity as Syndication
Agent.

                                    RECITAL:

     The Borrower  has  requested  that the Lenders make a short term  revolving
credit  facility of up to  $250,000,000  to the Borrower,  the proceeds of which
shall be used as set forth in Section 2.11,  and the Lenders have agreed to make
such short term  revolving  credit  facility  available  to the  Borrower on the
following terms and conditions:

<PAGE>

                                    ARTICLE I

                              Definitions and Terms

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

          "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 7.8;  provided such Person
     or Facilities is in  substantially  the same line of business engaged in by
     Borrower or its Consolidated Entities.

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

          "Advance"  means a  borrowing  under the Short  Term  Credit  Facility
     consisting of the aggregate principal amount of a 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 Short Term Credit  Commitment  allocable to such
     Lender (a) with respect to Lenders as of the Closing  Date, as set forth on
     Exhibit  A,  and (b)  with  respect  to any  Person  who  becomes  a Lender
     thereafter,  as reflected in each  Assignment  and 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 10.1.

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

          "Applicable Margin" means that percent per annum set forth below under
     the heading  "Applicable  Margin for Eurodollar  Rate Loans" or "Applicable
     Margin for Base Rate Loans",  as appropriate,  opposite the applicable Tier
     determined by the highest Rating as in effect at the time of determination:

                                       2
<PAGE>

<TABLE>
<CAPTION>
        ---------- -------------------------------------- ------------------------------ ----------------------------
          Tier                    Rating                      Applicable Margin for      Applicable Margin for Base
                              S&P or Moody's                  Eurodollar Rate Loans              Rate Loans
        ---------- -------------------------------------- ------------------------------ ----------------------------
        <S>        <C>                                    <C>                             <C>
            I                  BBB+      Baa1                        1.125%                           0.000%
                            or higher or higher
        ---------- -------------------------------------- ------------------------------ ----------------------------
           II                  BBB       Baa2                        1.375%                           0.375%
        ---------- -------------------------------------- ------------------------------ ----------------------------
          III                  BBB-      Baa3                        1.500%                           0.500%
        ---------- -------------------------------------- ------------------------------ ----------------------------
           IV               Less than  Less than                     1.750%                           0.750%
                               BBB-      Baa3
        ---------- -------------------------------------- ------------------------------ ----------------------------
</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, then the Applicable  Margin
     shall be Tier IV. 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 Agent and the  Lenders  and shall be Tier IV until such
     mutual agreement is reached.

          "Applicable  Unused Fee" means that  percent per annum set forth 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):

<TABLE>
<CAPTION>
        ------------------- ----------------------------------------------------- --------------------------
               Tier                                Rating                              Applicable Unused
                                               S&P or Moody's                                 Fee
        ------------------- ----------------------------------------------------- --------------------------
        <S>                 <C>                                                   <C>
                I                              BBB+      Baa1                                 0.300%
                                            or higher  or higher
        ------------------- ----------------------------------------------------- --------------------------
               II                              BBB      Baa2                                  0.375%
        ------------------- ----------------------------------------------------- --------------------------
              III                              BBB-     Baa3                                  0.500%
        ------------------- ----------------------------------------------------- --------------------------
               IV                           Less than  Less than                              0.500%
                                               BBB-      Baa3
        ------------------- ----------------------------------------------------- --------------------------
</TABLE>

     The Applicable Unused Fee shall be established from time to time based upon
     the Rating 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 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, then the
     Applicable  Unused  Fee shall be Tier IV. 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

                                       3
<PAGE>

     by the Borrower,  the Agent and the Lenders and shall be Tier IV until such
     mutual agreement is reached.

          "Assignment and Acceptance" shall mean an Assignment and Acceptance in
     the form of Exhibit B (with blanks  appropriately  filled in)  delivered to
     the Agent in connection  with an assignment  of a Lender's  interest  under
     this Agreement pursuant to Section 10.1.

          "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.

          "Bank of America" means Bank of America, N.A. and its successors.

          "Base Rate" means, for any day, the rate per annum equal to the sum of
     (a)  higher of (i) the Prime  Rate for such day or (ii) the  Federal  Funds
     Rate for such day plus (A) from  December  15, 1999  through and  including
     January 15, 2000,  one and  one-half  percent (1 1/2%) and (B) at all other
     times,  one-half of one percent (1/2%) plus (b) the Applicable  Margin. 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.

          "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 Short Term Credit
     Facility, in the form of Exhibit D.

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

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

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

                                       4
<PAGE>

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

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

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

          "Closing  Date" means the date as of which this  Agreement is executed
     by the Borrower,  the Lenders and the Agent and on which the conditions set
     forth in Section 4.1 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.

          "Compliance  Certificate"  shall have the meaning  attributed  to that
     term in Section 6.1(c).

          "Consistent  Basis" in reference to the  application of GAAP means the
     accounting  principles observed in the period referred to are comparable in
     all material  respects to those applied in the  preparation  of the audited
     financial statements of the Borrower referred to in Section 5.6(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.

                                       5
<PAGE>

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

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

          "Consolidated  Income Tax Expense" means, with respect to the Borrower
     and its  Consolidated  Entities for any  Four-Quarter  Period ending on the
     date of  computation  thereof,  the provision for taxes based on income and
     profits of the  Borrower and its  Consolidated  Entities to the extent such
     income or profits were  included in computing  Consolidated  Net Income for
     such period.

          "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,
     made pursuant to the  Headquarters  Lease, all determined on a consolidated
     basis in accordance with GAAP applied on a Consistent Basis.

          "Consolidated Net Income" of the Borrower for any period means the net
     income (or loss) of the  Borrower  and its  Consolidated  Entities for such
     period determined on a consolidated  basis in accordance with GAAP, without
     giving  effect  to  dividends  on any  series  of  preferred  stock  of any
     Consolidated   Entity,   whether  or  not  in  cash,  to  the  extent  such
     consolidated net income was reduced  thereby;  provided that there shall be
     excluded from such net income (for all purposes, other than compliance with
     Section  7.1(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

                                       6
<PAGE>

     by the Borrower or its  Consolidated  Entities upon (a) the  acquisition of
     any securities, or the extinguishment of any Indebtedness,  of the Borrower
     or its  Consolidated  Entities or (b) any asset sale by the referent person
     or any of its Subsidiaries;  (v) any  extraordinary  gain (or extraordinary
     loss),  together  with any  related  provision  for  taxes  or tax  benefit
     resulting  from  any  such  extraordinary  gain or  loss,  realized  by the
     Borrower or its Consolidated  Entities during such period;  and (vi) in the
     case of a successor to any Person by  consolidation,  merger or transfer of
     its  assets,   any  earnings  of  the  successor   prior  to  such  merger,
     consolidation or transfer of assets; provided, further, however, that there
     shall be added back to net income non-recurring, non-cash expenses and cash
     transaction costs relating to professional fees arising in conjunction with
     an  Acquisition  provided  such  expenses  do not exceed 10% of the Cost of
     Acquisition.

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

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

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

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

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

          "Continue",   "Continuation",  and  "Continued"  shall  refer  to  the
     continuation  pursuant to Section 2.8 hereof of a  Eurodollar  Rate Loan of
     one Type as a  Eurodollar  Rate  Loan of the same  Type  from one  Interest
     Period to the next Interest Period.

                                       7
<PAGE>

          "Convert",  "Conversion"  and "Converted"  shall refer to a conversion
     pursuant  to Section  2.8 or Article  III of one Type of Loan into  another
     Type of Loan.

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

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

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

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

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

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

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

                                       8
<PAGE>

          "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender,
     and (iii) any other  Person  approved by the Agent and,  unless an Event of
     Default  has  occurred  and is  continuing  at the time any  assignment  is
     effected in accordance  with Section 10.1, the Borrower,  such approval not
     to be  unreasonably  withheld  or delayed by the  Borrower or the Agent and
     such  approval  to be  deemed  given by the  Borrower  if no  objection  is
     received by the assigning Lender and the Agent from the Borrower within two
     Business Days after written  notice of such  proposed  assignment  has been
     provided by the assigning Lender to the Borrower;  provided,  however, that
     neither the Borrower nor an affiliate of the Borrower  shall  qualify as an
     Eligible Assignee.

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

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

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

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

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

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

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

          "Event of Default" means any of the  occurrences  set forth as such in
     Section 8.1.

          "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.

                                       9
<PAGE>

          "Existing  Credit  Agreement"  means that  certain  Short Term  Credit
     Agreement  dated as of September  28, 1998 by and among the  Borrower,  the
     Agent and the lenders party thereto.

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

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

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

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

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

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

                                       10
<PAGE>

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

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

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

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

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

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

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

                                       11
<PAGE>

     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 such rate is not available,  the term "Interbank Offered Rate" shall
     mean,  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 2.2,  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) no Interest  Period for any  Eurodollar  Rate Loan shall be
     available  which  would end after the Short Term Credit  Termination  Date;
     (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.

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

          "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.

                                       12
<PAGE>

          "Loan" or "Loans"  means any  borrowing  made  pursuant  to an Advance
     under the Short Term Credit  Facility in accordance with Section 2.1(a) and
     all extensions and renewals thereof.

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

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

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

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

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

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

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

                                       13
<PAGE>

          "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.

          "1998 10-K" means the  Borrower's  Annual  Report on Form 10-K for the
     Fiscal Year Ended December 31, 1998.

          "Notes"  means,  collectively,  the  promissory  notes of the Borrower
     evidencing  Loans  executed  and  delivered  to the  Lenders as provided in
     Section  2.5,  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 as
     evidenced by the Notes,  (ii) all liabilities of the Borrower to any Lender
     or affiliate of a Lender which arise under a Swap Agreement,  and (iii) the
     payment  and  performance  of  all  other   obligations,   liabilities  and
     Indebtedness  of the  Borrower  to the Lenders or the Agent or any of their
     affiliates hereunder,  under any one or more of the other Loan Documents or
     with respect to the Loans.

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

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

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

                                       14
<PAGE>

          "Permitted Encumbrances" shall mean:

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

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

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

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

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

               (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; and

               (7) Liens on shares of  Capital  Stock of the  Borrower  that are
          owned by the Borrower.

          "Permitted Investments" shall mean:

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

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

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

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

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

                                       15
<PAGE>

               (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  Agent  and  investments  of
          $5,000,000  or greater  expressly  approved in writing by the Required
          Lenders;

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

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

               (16)  investments  in  Acacia  Venture   Partners,   HEALTHSMART,
          Caremark Rx 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.

                                       16
<PAGE>

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

          "Principal  Office"  means the office of the Agent at Bank of America,
     N.A., 101 North Tryon Street, 15th Floor,  NC1-001-15-04,  Charlotte, North
     Carolina  28255,  Attention:  Agency  Services,  or such  other  office and
     address as the Agent may from time to time designate.

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

          "Rating"  means the rating of senior  unsecured,  non-credit  enhanced
     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.

          "Required  Lenders" means, as of any date, Lenders on such date having
     Credit  Exposures  (as  defined  below)  aggregating  more  than 50% 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 (a) so long as there  exists  no Event of  Default,  the
     aggregate  principal  amount of the  Loans  owing to such  Lender  plus the
     aggregate  unutilized amounts of such Lender's Short Term Credit Commitment
     and (b) following the occurrence and during the  continuance of an Event of
     Default,  the  aggregate  principal  amount  of  such  Lender's  Applicable
     Commitment Percentage of the Short Term Credit Outstandings; provided that,
     for the purpose of this definition only, if any Lender shall have failed to
     fund its Applicable  Commitment  Percentage of any Advance,  then the Short
     Term Credit Commitment of such Lender shall be deemed reduced by the amount
     it so failed to fund for so long as such  failure  shall  continue and such
     Lender's Credit Exposure  attributable to such failure shall be deemed held
     by any Lender making more than its Applicable Commitment Percentage of such
     Advance to the extent it covers such failure.

          "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

                                       17
<PAGE>

     Eurodollar Rate Loans. The Eurodollar Rate shall be adjusted  automatically
     on and as of the effective date of any change in the Reserve Requirement.

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

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

          "Short Term Credit Commitment" means, with respect to each Lender, the
     obligation  of such Lender to make 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 Short Term Credit Commitment.

          "Short Term 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 Short Term Credit Commitment.

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

          "Short Term Credit  Termination Date" means (i) the Stated Termination
     Date or (ii) such earlier date of  termination  of Lenders'  Obligations as
     may be determined  pursuant to Section 8.1 upon the  occurrence of an Event
     of  Default,  or  (iii)  such  date as the  Borrower  may  voluntarily  and
     permanently  terminate the Short Term Credit Facility by payment in full of
     all Short Term Credit  Outstandings,  together  with all accrued and unpaid
     interest and fees thereon.

          "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

                                       18
<PAGE>

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

          "Stated Termination Date" means December 12, 2000.

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

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

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

          "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 Short Term Credit Commitment" means a principal amount equal to
     $250,000,000,  as  reduced  from time to time in  accordance  with  Section
     2.1(a) and Section 2.7.

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

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

     1.2. Rules of Interpretation.

                                       19
<PAGE>

     (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.

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

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

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

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

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

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

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

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

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

     (k) Whenever  interest rates or fees are established in whole or in part by
reference  to  a  numerical  percentage  expressed  as  "__%",  such  arithmetic
expression  shall be interpreted in accordance with the convention that 1% = 100
basis points.

                                       20
<PAGE>

     1.3.  Classes and Types of Loans.  Loans  hereunder  are  distinguished  by
"Type".  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.

                                       21
<PAGE>

                                   ARTICLE II

                                    The Loans

     2.1. Loans.

     (a) Commitment. Subject to the terms and conditions of this Agreement, each
Lender  severally  agrees to make Advances to the Borrower  under the Short Term
Credit  Facility  from time to time from the  Closing  Date until the Short Term
Credit Termination Date on a pro rata basis as to the total borrowing  requested
by the Borrower on any day  determined  by such Lender's  Applicable  Commitment
Percentage  up to but not  exceeding  the Short Term Credit  Commitment  of such
Lender, provided,  however, that the Lenders will not be required and shall have
no  obligation  to make any such Advance (i) so long as a Default or an Event of
Default has  occurred  and is  continuing  or (ii) if the maturity of any of the
Notes has been accelerated as a result of an Event of Default; provided further,
however,  that  immediately  after  giving  effect  to each  such  Advance,  the
principal  amount of Short Term Credit  Outstandings  shall not exceed the Total
Short Term Credit Commitment. Within such limits, the Borrower may borrow, repay
and  reborrow  under the Short Term Credit  Facility on a Business  Day from the
Closing Date until, but (as to borrowings and reborrowings)  not including,  the
Short Term Credit Termination Date; provided,  however, that (y) no Loan that is
a Eurodollar  Rate Loan shall be made which has an Interest  Period that extends
beyond  the  Short  Term  Credit  Termination  Date and (z) each  Loan that is a
Eurodollar  Rate Loan may,  subject to the  provisions of Section 2.3, 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
3.5.

     (b) Amounts. The aggregate unpaid principal amount of the Short Term Credit
Outstandings shall not exceed the Total Short Term 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 Loan hereunder and each Conversion under Section 2.8, shall be
in an amount  of at least  $5,000,000,  and,  if  greater  than  $5,000,000,  an
integral multiple of $1,000,000.

     (c) Advances. (i) An Authorized  Representative shall give the Agent (1) at
least three (3) Business Days' irrevocable  telephonic notice of each Eurodollar
Rate  Loan  (whether  representing  an  additional  borrowing  hereunder  or the
Conversion of a borrowing  hereunder from a Base Rate Loan to a Eurodollar  Rate
Loan) prior to 10:30 A.M.  and (2)  irrevocable  telephonic  notice of each Base
Rate  Loan  (whether  representing  an  additional  borrowing  hereunder  or the
Conversion of a borrowing  hereunder from a Eurodollar  Rate Loan to a Base Rate
Loan) prior to 10:30 A.M.  on the day of such  proposed  Loan.  Each such notice
shall be effective  upon receipt by the Agent,  shall  specify the amount of the
borrowing,  the  Type of  Loan  (Base  Rate or  Eurodollar  Rate),  the  date of
borrowing and, if a Eurodollar  Rate Loan, the Interest Period to be used in the
computation of interest.  The Authorized  Representative shall provide the Agent
written  confirmation of each such telephonic  notice in the form of a Borrowing
Notice or  Interest  Rate  Selection  Notice (as  applicable)  with  appropriate
insertions,  but  failure  to  provide  such  confimation  shall not  affect the
validity of such telephonic  notice.  Notice of receipt of such Borrowing Notice
or Interest Rate Selection  Notice, as the case may be, together with the amount
of each Lender's portion of an Advance requested  thereunder,  shall be provided
by the  Agent to each  Lender  by  telefacsimile  transmission  with  reasonable
promptness,  but  (provided  the Agent shall have  received such notice by 10:30
A.M.) not later than 1:00 P.M.  on the same day as the  Agent's  receipt of such
notice.

                                       22
<PAGE>

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

     (iii) The  Borrower  shall  have the  option to elect the  duration  of the
initial  and any  subsequent  Interest  Periods  and to  Convert  the  Loans  in
accordance  with Section 2.8.  Eurodollar  Rate Loans and Base Rate Loans may be
outstanding at the same time, provided,  however, there shall not be outstanding
at any one time Loans having more than eight (8) different Interest Periods.  If
the Agent does not receive a  Borrowing  Notice or an  Interest  Rate  Selection
Notice  giving  notice of election of the  duration of an Interest  Period or of
Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by
the time  prescribed by Section  2.1(c) or 2.8, the Borrower  shall be deemed to
have elected to Convert such Loan to (or Continue such Loan as) a Base Rate Loan
until the Borrower notifies the Agent in accordance with Section 2.8.

     2.2. Payment of Interest.  (a) The Borrower shall pay interest to the Agent
for the account of each Lender on the outstanding and unpaid principal amount of
each Loan made by such Lender for the period commencing on the date of such Loan
until  such  Loan  shall be due at the then  applicable  Base Rate for Base Rate
Loans or applicable  Eurodollar Rate for Eurodollar Rate Loans, as designated by
the Authorized  Representative pursuant to Section 2.1; 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
8.1(a)), all amounts outstanding hereunder shall bear interest thereafter 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,  1999,  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 Short  Term  Credit
Termination  Date.  Interest  payable  at the  Default  Rate shall be payable on
demand.

     2.3.  Payment of Principal.  The principal amount of each Loan shall be due
and  payable to the Agent for the  benefit of each  Lender in full on the Stated
Termination  Date, or earlier as  specifically  provided  herein.  The principal
amount of any Base Rate Loan may be prepaid in whole or in part at any time. 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 Agent for
the account of the Lenders the additional amount, if any, required under Section
3.5. All  prepayments  of Loans made by the  Borrower  shall be in the amount of
$5,000,000 or such greater  amount which is an integral  multiple of $1,000,000,
or the amount equal to all Short Term Credit  Outstandings,  as the case may be,
or such other amount as necessary to comply with Section 2.1(b) or Section 2.8.

     2.4. Non-Conforming  Payments. (a) Each payment of principal (including any
prepayment)  and payment of interest and fees, and any other amount  required to
be paid to the Lenders with respect to the Loans,  shall be made to the Agent at
the  Principal  Office,  for the  account  of each  Lender,  in  Dollars  and in
immediately available funds, without setoff, recoupment, deduction

                                       23
<PAGE>

or  counterclaim  before  10:00 A.M. on the date such  payment is due. The Agent
may, but shall not be obligated  to, debit the amount of any such payment  which
is not  made by such  time  to any  ordinary  deposit  account,  if any,  of the
Borrower  with the Agent.  The Agent shall  promptly  notify the Borrower of any
such debit;  however,  failure to give such notice shall not affect the validity
of such debit.

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

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

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

     2.6. Pro Rata  Payments.  Except as  otherwise  provided  herein,  (a) each
payment on account of the  principal  of and  interest on the Loans and the fees
described  in  Section  2.9 shall be made to the Agent  for the  account  of the
Lenders  pro rata  based on their  Applicable  Commitment  Percentages,  (b) all
payments  to be made by the  Borrower  for the account of each of the Lenders on
account of  principal,  interest  and fees,  shall be made  without  diminution,
setoff,  recoupment or counterclaim,  and (c) the Agent will promptly distribute
to the  Lenders  in  immediately  available  funds  payments  received  in fully
collected, immediately available funds from the Borrower.

     2.7.  Reductions.  The  Borrower  shall,  by  irrevocable  notice  from  an
Authorized  Representative,  have  the  right  from  time to time  but not  more
frequently than once each calendar month,  upon not less than three (3) Business
Days' written notice to the Agent, effective upon receipt, to permanently reduce
the Total Short Term Credit Commitment. The Agent shall give each Lender, within
one (1)  Business  Day of  receipt  of such  notice,  telefacsimile  notice,  or
telephonic notice (confirmed in writing), of such reduction. Each such reduction
shall be in the aggregate  amount of $10,000,000 or such greater amount which is
in an integral multiple of $1,000,000,  or the entire remaining Total Short Term
Credit  Commitment,  and shall  permanently  reduce the Total  Short Term Credit
Commitment.  Each reduction of the Total Short Term Credit  Commitment  shall be
accompanied by payment of Loans to the extent that the principal amount of Short
Term Credit  Outstandings  exceeds the Total Short Term 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 3.5.

                                       24
<PAGE>

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

     (a) upon  delivery  of  telephonic  notice  to the  Agent  (which  shall be
irrevocable) on or before 10:30 A.M. on any Business Day,  Convert all or a part
of  Eurodollar  Rate  Loans to Base Rate  Loans on the last day of the  Interest
Period for such Eurodollar Rate Loans; and

     (b) provided that no Default or Event of Default shall have occurred and be
continuing  upon  delivery of  telephonic  notice to the Agent  (which  shall be
irrevocable)  on or before 10:30 A.M.  three (3) Business Days prior to the date
of such election or Conversion:

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

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

     Each election and Conversion  pursuant to this Section 2.8 shall be subject
to the  limitations  on  Eurodollar  Rate Loans set forth in the  definition  of
"Interest  Period" herein and in Sections 2.1 and 2.3 and Article III. The Agent
shall  give  written  notice  to each  Lender  of such  notice  of  election  or
Conversion  prior to 3:00 P.M. on the day such notice of election or  Conversion
is received.  All such  Continuations  or Conversions of Loans shall be effected
pro rata based on the Applicable Commitment Percentages of the Lenders.

     2.9. Unused Fees and Utilization Fees.

     (a) For the period  beginning  on the Closing  Date and ending on the Short
Term Credit  Termination  Date, the Borrower agrees to pay to the Agent, for the
benefit  of each  Lender,  an unused  fee  equal to the  Applicable  Unused  Fee
multiplied  by the  average  daily  amount by which the Total  Short Term Credit
Commitment  exceeds  the  aggregate   principal  amount  of  Short  Term  Credit
Outstandings. Such fees shall be due in arrears on the last Business Day of each
March, June,  September and December  commencing December 31, 1999 to and on the
Short Term Credit Termination Date.

     (b) For the period  beginning  on the Closing  Date and ending on the Short
Term Credit  Termination  Date, the Borrower agrees to pay to the Agent, for the
benefit of each Lender,  a  utilization  fee equal to 0.150%  multiplied  by the
aggregate  principal  amount of Short Term Credit  Outstandings  any time during
which the Short Term Credit Outstandings exceed $125,000,000. Such fees shall be
due in arrears on the last  Business  Day of each  March,  June,  September  and
December  commencing  December  31,  1999  to  and  on  the  Short  Term  Credit
Termination Date.

     (c)  Notwithstanding  the  foregoing,  so long as any Lender  fails to make
available any portion of its Short Term 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 2.9 shall be calculated on an Actual/360 Basis.

     2.10.  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  hereunder  nor  shall the  Short  Term  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 Short Term Credit  Facility as herein
provided, the Agent

                                       25
<PAGE>

may in its discretion,  but shall not be obligated to, advance under the Note in
its favor as a Lender all or any  portion of such  amount or  amounts  (each,  a
"deficiency  advance") and shall thereafter be entitled to payments of principal
of and  interest on such  deficiency  advance in the same manner and at the same
interest  rate or rates to which such other Lender would have been  entitled had
it made such advance under its Note;  provided  that,  upon payment to the Agent
from such other Lender of the entire  outstanding amount of each such deficiency
advance, together with accrued and unpaid interest thereon, from the most recent
date or dates  interest  was  paid to the  Agent by the  Borrower  on each  Loan
comprising such deficiency  advance at the interest rate per annum for overnight
borrowing by the Agent from the Federal Reserve Bank of Richmond, Virginia, then
such payment shall be credited  against the applicable Note of the Agent in full
payment of such  deficiency  advance  and the  Borrower  shall be deemed to have
borrowed the amount of such deficiency  advance from such other Lender as of the
most  recent  date or dates,  as the case may be,  upon  which any  payments  of
interest were made by the Borrower thereon.

     2.11.  Use of  Proceeds.  The  proceeds of the Loans made  pursuant to this
Agreement  shall  be  used  by the  Borrower  for  general  corporate  purposes,
including  working  capital  needs,  capital  expenditures  and permitted  share
repurchases.

     2.12.  Intraday  Funding.  Without limiting the provisions of Section 2.10,
unless the  Borrower or any Lender has  notified  the Agent not later than 12:00
Noon of the Business Day before the date of any payment  (including  in the case
of  Lenders  any  Advance)  to be made by it is due,  that it does not intend to
remit such payment,  the Agent may, in its discretion,  assume that the Borrower
or each  Lender,  as the case may be, has timely  remitted  such  payment in the
manner  required  hereunder and may, in its discretion and in reliance  thereon,
make available such payment (or portion  thereof) to the Person entitled thereto
as otherwise  provided  herein.  If such payment was not in fact remitted to the
Agent in the manner required hereunder, then:

          (a) if the  Borrower  failed to make such  payment,  each Lender shall
     forthwith on demand  repay to the Agent the amount of such assumed  payment
     made available to such Lender, together with interest thereon in respect of
     each day from and including the date such amount was made  available by the
     Agent to such  Lender to the date such amount is repaid to the Agent at the
     Federal Funds Rate; and

          (b) if any  Lender  failed to make such  payment,  the Agent  shall be
     entitled to recover such  corresponding  amount  forthwith upon the Agent's
     demand  therefor,  the Agent  promptly  shall notify the Borrower,  and the
     Borrower  shall  promptly  pay such  corresponding  amount  to the Agent in
     immediately  available  funds upon receipt of such  demand.  The Agent also
     shall be  entitled  to recover  interest  on such  corresponding  amount in
     respect  of each  day  from the date  such  corresponding  amount  was made
     available  by the  Agent to the  Borrower  to the date  such  corresponding
     amount is recovered by the Agent,  (A) from such Lender at a rate per annum
     equal to the daily Federal Funds Rate or (without duplication) (B) from the
     Borrower,  at a rate per annum equal to the interest rate applicable to the
     Loan  which  includes  such  corresponding  amount.  Until the Agent  shall
     recover such  corresponding  amount  together with interest  thereon,  such
     corresponding  amount  shall  constitute a  deficiency  advance  within the
     meaning of Section  2.10.  Nothing  herein  shall be deemed to relieve  any
     Lender from its  obligation  to fulfill  its  commitments  hereunder  or to
     prejudice  any rights  which the Agent or the Borrower may have against any
     Lender as a result of any default by such Lender hereunder.

                                       26
<PAGE>

                                   ARTICLE III

                             Change in Circumstances

     3.1. 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,
     its Note, 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  or its  Note  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  Short  Term  Credit  Commitment  of  such  Lender
     hereunder; or

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

and the result of any of the  foregoing  is to increase  the cost to such Lender
(or its Applicable Lending Office) of making,  Converting into,  Continuing,  or
maintaining  any  Eurodollar  Rate  Loans  or to  reduce  any  sum  received  or
receivable  by such  Lender  (or  its  Applicable  Lending  Office)  under  this
Agreement  or its Note with  respect  to any  Eurodollar  Rate  Loans,  then the
Borrower  shall pay to such  Lender on demand  such  amount or  amounts  as will
compensate  such Lender for such increased  cost or reduction;  provided that no
Lender will be  entitled  to any  compensation  for any such  increased  cost or
reduction  if demand for  payment  thereof is made by such  Lender more than 180
days after the occurrence of the circumstances giving rise to such claim. If any
Lender  requests  compensation  by the Borrower under this Section  3.1(a),  the
Borrower  may, by notice to such Lender (with a copy to the Agent),  suspend the
obligation of such Lender to make or Continue  Loans of the Type with respect to
which such compensation is requested, or to Convert Loans of any other Type into
Loans of such Type,  until the event or  condition  giving rise to such  request
ceases to be in effect (in which  case the  provisions  of Section  3.4 shall be
applicable);  provided that such  suspension  shall not affect the right of such
Lender to receive the compensation so requested.

     (b) If, after the date hereof,  any Lender shall have  determined  that the
adoption of any applicable law, rule, or regulation  regarding  capital adequacy
or any change therein or in the interpretation or administration  thereof by any
governmental  authority,  central bank, or  comparable  agency  charged with the
interpretation or administration  thereof, or any request or directive regarding
capital  adequacy  (whether  or not  having  the  force  of  law)  of  any  such
governmental

                                       27
<PAGE>

authority,  central bank, or comparable  agency, has or would have the effect of
reducing  the rate of return on the  capital of such  Lender or any  corporation
controlling such Lender as a consequence of such Lender's obligations  hereunder
to a level below that which such Lender or such corporation  could have achieved
but for such adoption,  change, request, or directive (taking into consideration
its  policies  with  respect to capital  adequacy),  then from time to time upon
demand the Borrower shall pay to such Lender such  additional  amount or amounts
as will compensate such Lender for such reduction.

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

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

          (a) the 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 Agent that the Eurodollar Rate will not
     adequately and fairly reflect the cost to the Lenders of funding Eurodollar
     Rate Loans for such Interest Period;

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

     3.3. 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 3.4 shall be applicable).

     3.4. 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 3.1 or 3.3
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 3.3 hereof,

                                       28
<PAGE>

on such earlier  date as such Lender may specify to the Borrower  with a copy to
the Agent) and, unless and until such Lender gives notice as provided below that
the circumstances  specified in Section 3.1 or 3.3 hereof that gave rise to such
Conversion no longer exist:

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

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

If such Lender gives notice to the Borrower  (with a copy to the Agent) that the
circumstances  specified  in  Section  3.1 or 3.3  hereof  that gave rise to the
Conversion  of such  Lender's  Affected  Loans  pursuant to this  Section 3.4 no
longer exist (which such Lender  agrees to do promptly  upon such  circumstances
ceasing  to  exist)  at a time  when  Loans of the  Affected  Type made by other
Lenders are  outstanding,  such Lender's Base Rate Loans shall be  automatically
Converted,  on the first day(s) of the next  succeeding  Interest  Period(s) for
such  outstanding  Loans of the Affected Type, to the extent  necessary so that,
after giving effect thereto,  all Loans held by the Lenders holding Loans of the
Affected  Type and by such  Lender are held pro rata (as to  principal  amounts,
Types,  and Interest  Periods) in accordance  with their  respective  Short Term
Credit Commitments.

     3.5.  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  8.1) 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 IV
     to be satisfied) to borrow, Convert, Continue, or prepay an 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.

     3.6. Taxes.  (a) Any and all payments by the Borrower to or for the account
of any Lender or the Agent  hereunder or under any other Loan Document  shall be
made free and clear of and without  deduction  for any and all present or future
taxes, duties, levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect thereto,  excluding, in the case of each Lender and the
Agent,  taxes imposed on its income,  and franchise  taxes imposed on it, by the
jurisdiction  under the laws of which  such  Lender (or its  Applicable  Lending
Office)  or the  Agent  (as the  case  may  be) is  organized  or any  political
subdivision  thereof (all such  non-excluded  taxes,  duties,  levies,  imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred to
as "Taxes").  If the Borrower  shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Agreement or any other Loan Document
to any Lender or the Agent,  (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional  sums  payable  under  this  Section  3.6)  such  Lender or the Agent
receives an

                                       29
<PAGE>

amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such  deductions,  (iii) the Borrower shall pay the
full amount  deducted to the relevant  taxation  authority or other authority in
accordance  with  applicable  law,  and (iv) the Borrower  shall  furnish to the
Agent,  at its address  referred to in Section 10.2, the original or a certified
copy of a receipt evidencing payment thereof.

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

     (c) The Borrower agrees to indemnify each Lender and the Agent for the full
amount of Taxes and Other Taxes  (including,  without  limitation,  any Taxes or
Other Taxes  imposed or asserted by any  jurisdiction  on amounts  payable under
this  Section 3.6) paid by such Lender or the Agent (as the case may be) and any
liability  (including  penalties,  interest,  and expenses) arising therefrom or
with respect thereto.

     (d) Each  Lender  organized  under the laws of a  jurisdiction  outside the
United  States,  on or prior to the date of its  execution  and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which  it  becomes  a Lender  in the case of each  other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender  remains  lawfully able to do so),
shall provide the Borrower and the Agent with (i) Internal  Revenue Service Form
1001 or 4224, as  appropriate,  or any successor form prescribed by the Internal
Revenue  Service,  certifying  that such Lender is entitled to benefits under an
income tax treaty to which the United  States is a party which  reduces the rate
of  withholding  tax on  payments  of  interest  or  certifying  that the income
receivable pursuant to this Agreement is effectively  connected with the conduct
of a trade or business in the United States,  (ii) Internal Revenue Service Form
W-8 or W-9, as  appropriate,  or any successor  form  prescribed by the Internal
Revenue Service,  and (iii) any other form or certificate required by any taxing
authority  (including any certificate  required by Sections 871(h) and 881(c) of
the  Internal  Revenue  Code),  certifying  that such  Lender is  entitled to an
exemption  from or a reduced rate of tax on payments  pursuant to this Agreement
or any of the other Loan Documents.

     (e) For any period with respect to which a Lender has failed to provide the
Borrower  and the Agent with the  appropriate  form  pursuant to Section  3.6(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  3.6(a),
3.6(b), or 3.6(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 3.6, then such Lender will agree
to use reasonable  efforts to change the jurisdiction of its Applicable  Lending
Office  so as to  eliminate  or reduce  any such  additional  payment  which may
thereafter  accrue  if such  change,  in the  judgment  of such  Lender,  is not
otherwise disadvantageous to such Lender.

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

                                       30
<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  3.6  shall  survive  the  termination  of the Short  Term  Credit
Commitments and the payment in full of the Notes.

                                       31
<PAGE>

                                   ARTICLE IV

                           Conditions to Making Loans

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

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

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

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

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

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

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

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

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

               (viii)  evidence of  repayment of all  Indebtedness  owing by the
          Borrower under the Existing  Credit  Agreement and  termination of the
          Existing Credit Agreement;

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

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

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

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

                                       32
<PAGE>

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

               (i) there shall not have occurred or become known to the Agent or
          the Lenders any event,  condition,  situation or status since June 30,
          1998  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.

     4.2.  Conditions of Loans. The obligations of the Lenders to make any Loans
hereunder on or subsequent to the Closing Date, are subject to the  satisfaction
of the following conditions:

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

          (b)  the  representations  and  warranties  of the  Borrower  and  the
     Subsidiaries set forth in Article V 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  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 5.6(a) shall be
     deemed to be those  financial  statements  most  recently  delivered to the
     Agent and the  Lenders  pursuant  to  Section  6.1 from the date  financial
     statements  are delivered to the Agent and the Lenders in  accordance  with
     such Section;

          (c) at the  time of (and  after  giving  effect  to) each  Advance  no
     Default or Event of Default shall have occurred and be continuing; and

          (d) immediately after giving effect to a Loan, the aggregate principal
     balance of all  outstanding  Loans for each  Lender  shall not exceed  such
     Lender's Short Term Credit Commitment and the aggregate principal amount of
     Short Term Credit Outstandings shall not exceed the Total Short Term Credit
     Commitment.

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

                                       33
<PAGE>

                                    ARTICLE V

                         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), that:

     5.1. Organization and Authority.

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

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

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

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

     5.2.  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;

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

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

                                       34
<PAGE>

     5.3.   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.

     5.4.  Subsidiaries.  The  Borrower  has no  Subsidiaries  other  than those
Persons  listed as  Subsidiaries  in Schedule  5.4 and  additional  Subsidiaries
created or acquired after the Closing Date.

     5.5.  Ownership  Interests.  Borrower  owns no interest in any Person other
than the  Persons  listed in Schedule  5.4,  equity  investments  in Persons not
constituting   Subsidiaries   permitted   under   Section  7.2  and   additional
Subsidiaries created or acquired after the Closing Date.

     5.6. Financial Condition.

          (a) The Borrower has heretofore furnished to the Agent and each Lender
     an audited  consolidated balance sheet of the Borrower and its Consolidated
     Entities  as at  December  31,  1998 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,
     and unaudited  consoidated interim financial statements of the Borrower and
     its Consolidated  Entitites  consisting of a consolidated balance sheet and
     related  consolidated  statements of income,  stockholders' equity and cash
     flows, in each case without notes,  for and as of the end of the nine month
     period  ending  September  30,  1999.  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  nine  month  period  and  results  of their
     operations and the changes in its stockholders'  equity for the Fiscal Year
     and interim  period then ended,  all in  conformity  with GAAP applied on a
     Consistent  Basis,  subject  however,  in the  case  of  unaudited  interim
     statements to year end audit adjustments;

          (b) since  September  30,  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
     Subsidiaries  nor  have  such  businesses  or  properties  been  materially
     adversely  affected  as  a  result  of  any  fire,  explosion,  earthquake,
     accident, strike, lockout, combination of workers, flood, embargo or act of
     God; and

          (c) except as set forth in the  financial  statements  referred  to in
     Section 5.6(a) or in Schedule 5.6 or permitted by Section 7.3,  neither the
     Borrower  nor any  Consolidated  Entity  has  incurred,  other  than in the
     ordinary  course  of  business,  any  material   Indebtedness,   Contingent
     Obligation or other  commitment or liability  which remains  outstanding or
     unsatisfied.

     5.7. 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.

     5.8. 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  5.6(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.

                                       35
<PAGE>

     5.9. Other Agreements.  Except as disclosed in or incorporated by reference
in the 1998 10-K:

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

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

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

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

     5.10.  Litigation.  Except as disclosed in or  incorporated by reference in
the 1998 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.

     5.11.  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;
provided that the Borrower may repurchase its own

                                       36
<PAGE>

Capital Stock in accordance with the terms of Section 7.9.  Neither the Borrower
nor any agent acting in its behalf has taken or will take any action which might
cause this Agreement or any of the documents or instruments  delivered  pursuant
hereto to violate any  regulation of the Board or to violate the Exchange Act or
the Securities Act of 1933, as amended,  or any state  securities  laws, in each
case as in effect on the date hereof.

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

     5.13. Patents,  Etc. Except as set forth on Schedule 5.13, the Borrower and
each  Consolidated  Entity  owns or has the right to use,  under  valid  license
agreements or otherwise, all material patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, trade secrets,  service marks,
service  mark rights and  copyrights  necessary to or used in the conduct of its
businesses as now conducted and as contemplated  by the Loan Documents,  without
known conflict by, or with, any patent,  license,  franchise,  trademark,  trade
secret,  trade name, service mark,  copyright or other proprietary right of, any
other Person.

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

     5.15. 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;

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

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

                                       37
<PAGE>

     5.18. 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.

     5.19. Employment Matters. (a) Except as set forth on Schedule 5.19, 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.

     5.20. 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.

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

     5.22.  Year 2000  Compliance.  The Borrower has (i)  initiated a review and
assessment  of all  areas  within  its and  each of its  Consolidated  Entities'
business and operations  (including  those affected by suppliers,  vendors,  and
customers) that could be adversely affected by the "Year 2000 Problem" (that is,
the  risk  that  computer  applications  used  by  the  Borrower  or  any of its
Consolidated  Entities (or  suppliers,  vendors and  customers) may be unable to
recognize and perform

                                       38
<PAGE>

properly date-sensitive  functions involving certain dates prior to and any date
after December 31, 1999),  (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable.  Based on the foregoing,  the Borrower  believes
that all computer  applications  (including those of its suppliers,  vendors and
customers)  that  are  material  to its or  any  of its  Consolidated  Entities'
business and operations are reasonably  expected on a timely basis to be able to
perform proper  date-sensitive  functions for all dates before and after January
1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure
to do so could not reasonably be expected to have a Material Adverse Effect.

                                       39
<PAGE>

                                   ARTICLE VI

                              Affirmative Covenants

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

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

          (a) Not later  than 50 days  after the end of each of the first  three
     quarters of each Fiscal Year, a balance  sheet and a statement of income of
     the Borrower and its  Consolidated  Entities on a consolidated  basis and a
     statement of cash flow of the Borrower and its  Consolidated  Entities on a
     consolidated  basis for such calendar  quarter and for the period beginning
     on the first  day of such  Fiscal  Year and  ending on the last day of such
     quarter  (in  sufficient   detail  to  indicate  the  Borrower's  and  each
     Consolidated  Entity's compliance with the financial covenants set forth in
     Section  7.1),  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 7.1), together with statements in comparative form as of the end of
     and for the preceding Fiscal Year as summarized in the Borrower's Form 10-K
     for the  corresponding  period,  and accompanied by an opinion of certified
     public  accountants  acceptable to the Agent,  which opinion shall state in
     effect that such  financial  statements  (A) were audited  using  generally
     accepted auditing standards, (B) were prepared in accordance with generally
     accepted  accounting  principles  applied on a  Consistent  Basis,  and (C)
     present  fairly the  financial  condition  and results of operations of the
     Borrower and its Consolidated Entities for the periods covered.

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

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

                                       40
<PAGE>

     ERISA Affiliate has taken or will take with respect  thereto,  and promptly
     after the filing or  receiving  thereof,  copies of all reports and notices
     that the Borrower and each  Consolidated  Entity files under ERISA with the
     Internal  Revenue  Service or the PBGC or the United  States  Department of
     Labor.

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

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

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

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

     6.3. Existence, Qualification, Etc. Except as otherwise expressly permitted
under  Section 7.4, do or cause to be done all things  necessary to preserve and
keep in full  force  and  effect  its  existence  and all  material  rights  and
franchises,  and  maintain  its  license or  qualification  to do  business as a
foreign  corporation  and  good  standing  in each  jurisdiction  in  which  its
ownership or lease of property or the nature of its business  makes such license
or qualification necessary.

     6.4. 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.

     6.5.  Insurance.  At all times maintain in force,  and pay all premiums and
costs related to, insurance coverages in amounts deemed by the management of the
Borrower  to be  sufficient  in  accordance  with usual and  customary  business
practices  and  any  other  coverages  required  under  applicable  governmental
requirements.  The Borrower shall deliver to the Agent and each Lender  annually
on or before each anniversary date of this Agreement,  and at such other time or
times as the Agent or any Lender may request (but not more often than  monthly),
a certificate of the president

                                       41
<PAGE>

or chief  financial  officer of the  Borrower  setting out in such detail as the
Agent or any  Lender  may  reasonably  require a  description  of all  insurance
coverages  maintained by the Borrower and each  Consolidated  Entity.  The Agent
shall have no obligation to give the Borrower or any Consolidated  Entity notice
of any notification received by the Agent with respect to any insurance policies
or take  any  steps to  protect  the  Borrower's  or any  Consolidated  Entity's
interests under such policies.

     6.6. 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.

     6.7. Right of Inspection.  Permit any Person designated by the Agent or 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.

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

     6.9. 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.

     6.10. 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  6.2 through  6.9,  6.15 and 6.16
inclusive.

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

     6.12.  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

                                       42
<PAGE>

Consolidated  Entity) to suspend,  revoke or  terminate  any  Medicaid  Provider
Agreement,  Medicaid  Certification,  Medicare  Provider  Agreement  or Medicare
Certification,  which suspension,  revocation or termination could reasonably be
likely to have a Material  Adverse  Effect,  cause such Executive  Officer or an
Authorized  Representative  to  promptly  deliver  to the Agent and each  Lender
written  notice  thereof  stating  the  nature  and  status of such  litigation,
dispute, proceeding, levy, execution or other process.

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

     6.14. 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.

     6.15.  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.

     6.16.  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.

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

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<PAGE>

                                    ARTICLE VII

                               Negative Covenants

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

     7.1. Financial Covenants.

          (a) Minimum Net Worth.  Permit  Consolidated Net Worth to be less than
     $3,136,581,000  plus (A) 50% of  Consolidated  Net Income (if  positive and
     including for purposes of this Section 7.1(a) only any extraordinary gain),
     on an  ongoing  basis for each  fiscal  quarter  beginning  with the fiscal
     quarter  ended  December 31,  1999,  plus (B) the  aggregate  amount of all
     increases,  if any, in its capital accounts  resulting from the issuance of
     Capital Stock or conversion of debt into Capital Stock or other  securities
     properly  classified  as  equity  in  accordance  with  generally  accepted
     accounting  principles,  or from the sale or other  disposition of treasury
     shares,  from the date of this Agreement  through the date of determination
     plus (c) without  duplication,  any addition to Consolidated  Stockholders'
     Equity resulting from an Acquisition  after the Closing Date which shall be
     accounted for on a pooling-of-interests basis.

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

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

     7.2.  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 7.8; (B) make Permitted Investments;  and (C) make other
investments in an amount not exceeding 15% of Consolidated Total Assets.

     7.3. Indebtedness.  Permit to exist Indebtedness,  howsoever evidenced,  of
Subsidiaries  and  Controlled  Partnerships  (exclusive of  Indebtedness  to the
Borrower)  in  an  aggregate  amount  at  any  time  exceeding  the  greater  of
$70,000,000  or 15% of  Consolidated  Tangible  Net Worth,  excluding,  however,
Indebtedness of Subsidiaries and Controlled Partnerships existing as of the date
hereof and described on Schedule 7.3.

     7.4.  Disposition  of Assets.  Sell,  lease or otherwise  dispose of assets
(other than shares of Capital  Stock of the Borrower  owned by the  Borrower) 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.

                                       44
<PAGE>

     7.5.  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.

     7.6. 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.

     7.7. 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.

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

     7.9. Restricted Payments. Make any Restricted Payment or apply or set apart
any of their  assets  therefor  or agree to do any of the  foregoing;  provided,
however,  the  Borrower  may make  Restricted  Payments in any Fiscal Year (on a
non-cumulative  basis,  with the effect that amounts not paid in any Fiscal Year
may not be carried over for payment in a subsequent period) if immediately prior
and immediately after giving effect thereto no Default or Event of Default shall
exist or occur  and be  continuing;  provided,  further  that the  Borrower  may
repurchase not more than  $300,000,000  of its Capital Stock  (calculated by the
actual  purchase price paid therefor and not by reference to prior or subsequent
changes in value) in the Fiscal Year ending December 31, 2000.

     7.10.  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

                                       45
<PAGE>

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

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

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

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

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

     7.12.  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 7.5 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.

     7.13. Transactions with Affiliates. Other than transactions permitted under
Sections  7.2 and 7.5,  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;

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                                  ARTICLE VIII

                       Events of Default and Acceleration

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

          (a) the Borrower shall fail to pay (i) when due any principal  payable
     under the terms of any Note or (ii) not later  than five  Business  Days of
     the date when due any interest or fees payable  under the terms of any Note
     or any other amount  payable under this Agreement or any other of the other
     Obligations  or any other amount owed 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 VI and Article  VII),  except as covered by
     clause (a) above,  and shall not cure such default within thirty days after
     the first to occur of (i) the date the Agent or any Lender gives written or
     telephonic  notice of such  default  to the  Borrower  or (ii) the date the
     Borrower otherwise has notice thereof; or

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

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

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

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

                                       47
<PAGE>

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

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

          (i) any of the  Notes  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  Medicaid or  Medicare  programs  or accepts  assignments  of rights to
     reimbursement  thereunder;  provided that any such events described in this
     Section  8.1(l)  shall  constitute  an Event of Default  only if such event
     shall  result  either  singly  or in  the  aggregate  in  the  termination,
     cancellation,  suspension or material impairment of operations or rights to
     reimbursement which produce 5% or more of the Borrower's gross revenues (on
     an annualized basis); or

          (m) there shall occur a Change of Control;

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

          (A)  either or both of the  following  actions  may be taken:  (i) the
     Agent, with the consent of the Required Lenders,  may, and at the direction
     of the Required  Lenders  shall,  declare any  obligation of the Lenders to
     make further Loans  terminated,  whereupon the obligation of each Lender to
     make further Loans  hereunder  shall  terminate  immediately,  and (ii) the
     Agent shall at the  direction of the  Required  Lenders,  at their  option,
     declare  by  notice to the  Borrower  any or all of the  Obligations  to be
     immediately due and payable,  and the

                                       48
<PAGE>

     same,  including all interest accrued thereon and all other  obligations of
     the  Borrower  to  the  Agent  and  the  Lenders,  shall  forthwith  become
     immediately due and payable without presentment, demand, protest, notice or
     other  formality  of any kind,  all of which are hereby  expressly  waived,
     anything  contained herein or in any instrument  evidencing the Obligations
     to the contrary  notwithstanding;  provided,  however, that notwithstanding
     the above, if there shall occur an Event of Default under clause (f) above,
     then  the  obligation  of  the  Lenders  to  make  Loans   hereunder  shall
     automatically  terminate  and  any  and  all of the  Obligations  shall  be
     immediately  due and  payable  without the  necessity  of any action by the
     Agent or the Required Lenders or notice to the Agent or the Lenders; and

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

     8.2.  Agent to Act. In case any one or more  Events of Default  shall occur
and be continuing and not have been waived, subject to the provisions of Article
IX, the Agent may, and at the direction of the Required  Lenders shall,  proceed
to protect and enforce  their  rights and  remedies  contained  herein or in any
other Loan  Document,  or as may be  otherwise  available at law or in equity to
enforce the payment of the  Obligations or any other legal or equitable right or
remedy.

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

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

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

          (i)  amounts  due to the  Lenders  pursuant  to Section 2.9 or Section
     10.6;

          (ii) amounts due to the Agent pursuant to Section 9.8;

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

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

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

                                       49
<PAGE>

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

                                       50
<PAGE>

                                   ARTICLE IX

                                    The Agent

     9.1.  Appointment,  Powers, and Immunities.  Each Lender hereby irrevocably
appoints and  authorizes  the Agent to act as its agent under this Agreement and
the other Loan  Documents  with such powers and  discretion as are  specifically
delegated  to the  Agent  by the  terms of this  Agreement  and the  other  Loan
Documents, together with such other powers as are reasonably incidental thereto.
The Agent (which term as used in this  sentence and in Section 9.5 and the first
sentence of Section 9.6 hereof shall include its  affiliates and its own and its
affiliates' officers, directors,  employees, and agents): (a) shall not have any
duties or  responsibilities  except those  expressly set forth in this Agreement
and  shall  not be a  trustee  or  fiduciary  for any  Lender;  (b) shall not be
responsible  to the  Lenders  for any  recital,  statement,  representation,  or
warranty  (whether  written  or  oral)  made in or in  connection  with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under,  any Loan Document,  or for the value,  validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document  referred to or provided for therein or for any failure by
any  Person  to  perform  any of its  obligations  thereunder;  (c) shall not be
responsible  for or have any duty to  ascertain,  inquire  into,  or verify  the
performance  or  observance  of any covenants or agreements by any Person or the
satisfaction  of any condition or to inspect the property  (including  the books
and records) of any Person; (d) shall not be required to initiate or conduct any
litigation or collection  proceedings under any Loan Document; and (e) shall not
be  responsible  for any  action  taken or omitted to be taken by it under or in
connection  with any Loan  Document,  except for its own  negligence  or willful
misconduct.  The Agent may employ agents and  attorneys-in-fact and shall not be
responsible   for  the   negligence   or   misconduct  of  any  such  agents  or
attorneys-in-fact selected by it with reasonable care.

     9.2.  Reliance  by Agent.  The  Agent  shall be  entitled  to rely upon any
certification,  notice, instrument,  writing, or other communication (including,
without limitation, any thereof by telephone or telefacsimile) believed by it to
be genuine and correct and to have been signed,  sent or made by or on behalf of
the proper Person or Persons,  and upon advice and  statements of legal counsel,
independent accountants,  and other experts selected by the Agent. The Agent may
deem and treat  the payee of any Note as the  holder  thereof  for all  purposes
hereof  unless  and until the Agent  receives  and  accepts  an  Assignment  and
Acceptance  executed in accordance  with Section 10.1 hereof.  As to any matters
not expressly provided for by this Agreement, the Agent shall not be required to
exercise any  discretion or take any action,  but shall be required to act or to
refrain  from acting (and shall be fully  protected  in so acting or  refraining
from  acting)  upon  the  instructions  of  the  Required   Lenders,   and  such
instructions shall be binding on all of the Lenders; provided, however, that the
Agent  shall  not be  required  to take any  action  that  exposes  the Agent to
personal liability or that is contrary to any Loan Document or applicable law or
unless it shall first be indemnified to its  satisfaction by the Lenders against
any and all  liability  and  expense  which may be  incurred  by it by reason of
taking any such action.

     9.3. Defaults. The Agent shall not be deemed to have knowledge or notice of
the  occurrence  of a Default or Event of Default  unless the Agent has received
written notice from a Lender or the Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent  receives  such a notice of the  occurrence  of a Default  or Event of
Default,  the Agent shall give prompt notice  thereof to the Lenders.  The Agent
shall  (subject  to Section 9.2  hereof)  take such action with  respect to such
Default or Event of Default as shall  reasonably  be  directed  by the  Required
Lenders,  provided  that,  unless and until the Agent shall have  received  such
directions,  the Agent may (but shall not be obligated to) take such action,  or
refrain

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<PAGE>

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.

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

     9.5.  Indemnification.  The Lenders  agree to  indemnify  the Agent (to the
extent not  reimbursed  under  Section 10.12  hereof,  but without  limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective  Short  Term  Credit  Commitments,   for  any  and  all  liabilities,
obligations,  losses, damages, penalties,  actions, judgments, suits, reasonable
costs and expenses (including attorneys' fees), or disbursements of any kind and
nature  whatsoever that may be imposed on,  incurred by or asserted  against the
Agent  (including  by any  Lender) in any way  relating to or arising out of any
Loan Document or the  transactions  contemplated  thereby or any action taken or
omitted by the Agent under any Loan  Document;  provided that no Lender shall be
liable  for any of the  foregoing  to the  extent  they  arise  from  the  gross
negligence  or  willful  misconduct  of the  Person to be  indemnified.  Without
limitation of the foregoing,  each Lender agrees to reimburse the Agent promptly
upon  demand  for its  ratable  share of any costs or  expenses  payable  by the
Borrower  under  Section  10.6,  to the  extent  that the Agent is not  promptly
reimbursed for such costs and expenses by the Borrower. The agreements contained
in this Section shall survive payment in full of the Loans and all other amounts
payable under this Agreement.

     9.6.  Non-Reliance  on Agent and Other Lenders.  Each Lender agrees that it
has,  independently  and without reliance on the Agent or any other Lender,  and
based on such documents and information as it has deemed  appropriate,  made its
own credit analysis of the Borrower and its  Subsidiaries  and decision to enter
into this Agreement and that it will,  independently  and without  reliance upon
the Agent or any other Lender, and based on such documents and information as it
shall  deem  appropriate  at the time,  continue  to make its own  analysis  and
decisions in taking or not taking  action under the Loan  Documents.  Except for
notices,  reports, and other documents and information  expressly required to be
furnished  to the Lenders by the Agent  hereunder,  the Agent shall not have any
duty  or  responsibility  to  provide  any  Lender  with  any  credit  or  other
information  concerning  the affairs,  financial  condition,  or business of the
Borrower  or any of its  Subsidiaries  or  affiliates  that  may  come  into the
possession of the Agent or any of its affiliates.

     9.7.  Resignation  of Agent.  The  Agent  may  resign at any time by giving
notice thereof to the Lenders and the Borrower.  Upon any such resignation,  the
Required  Lenders  shall have the right to appoint a successor  Agent subject to
the  approval of the  Borrower  so long as no Default or Event of Default  shall
have occurred and be continuing,  such approval not to be unreasonably withheld.
If no successor  Agent shall have been so appointed by the Required  Lenders and
shall have accepted such appointment  within thirty (30) days after the retiring
Agent's giving of notice of resignation,  then the retiring Agent may, on behalf
of the  Lenders,  appoint a successor  Agent which  shall be a  commercial  bank
organized under the laws of the United States of America having combined capital
and surplus of at least $100,000,000.  Upon the acceptance of any appointment as
Agent hereunder

                                       52
<PAGE>

by a successor, such successor shall thereupon succeed to and become vested with
all the  rights,  powers,  discretion,  privileges,  and duties of the  retiring
Agent,  and  the  retiring  Agent  shall  be  discharged  from  its  duties  and
obligations  hereunder.  After any  retiring  Agent's  resignation  hereunder as
Agent,  the  provisions  of this  Article  IX shall  continue  in effect for its
benefit in respect  of any  actions  taken or omitted to be taken by it while it
was acting as Agent.

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

     9.9.  Syndication  Agent.  The Syndication  Agent, in its capacity as such,
shall not have any duties or  responsibilities  under this Agreement  other than
its obligations as a Lender.

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<PAGE>

                                    ARTICLE X

                                  Miscellaneous

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

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

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

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

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

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 Agent
and the Borrower shall make appropriate  arrangements so that, if required,  new
Notes are  issued to the  assignor  and the  assignee.  If the  assignee  is not
incorporated  under the laws of the United States of America or a state thereof,
it shall  deliver to the  Borrower and the Agent  certification  as to exemption
from deduction or withholding of Taxes in accordance with Section 3.6.

     (b) The Agent shall  maintain at its address  referred to in Section 10.2 a
copy of each  Assignment  and  Acceptance  delivered to and accepted by it and a
register for the  recordation  of the names and addresses of the Lenders and the
Short Term Credit  Commitment  of, and  principal  amount of the Loans owing to,
each Lender  from time to time (the  "Register").  The  entries in the  Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender  hereunder for all purposes of this  Agreement.  The
Register  shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

     (c) Upon its  receipt  of an  Assignment  and  Acceptance  executed  by the
parties  thereto,  together with any Note subject to such assignment and payment
of the processing  fee, the Agent shall,  if such  Assignment and Acceptance has
been completed and is in substantially the form 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 Short Term Credit Commitment or its
Loans);  provided,  however,  that (i) any such  participation  in a Short  Term
Credit  Commitment,  but not its Loans,  shall be in an amount at least equal to

                                       54
<PAGE>

$5,000,000 or an integral  multiple of $1,000,000 in excess  thereof,  (ii) such
Lender's  obligations  under this Agreement shall remain  unchanged,  (iii) such
Lender shall  remain  solely  responsible  to the other  parties  hereto for the
performance of such  obligations,  (iv) the participant shall be entitled to the
benefit of the yield  protection  provisions  contained  in Article  III and the
right of set-off  contained in Section 10.4, and (v) the Borrower shall continue
to deal solely and directly  with such Lender in  connection  with such Lender's
rights and obligations  under this  Agreement,  and such Lender shall retain the
sole right to enforce the obligations of the Borrower  relating to its Loans and
its Note and to approve any amendment,  modification, or waiver of any provision
of this Agreement (other than amendments,  modifications,  or waivers decreasing
the  amount of  principal  of or the rate at which  interest  is payable on such
Loans or Note,  extending any scheduled principal payment date or date fixed for
the  payment of  interest  on such Loans or Note,  or  extending  its Short Term
Credit Commitment).

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

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

     10.2.  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:

         Michael D. Martin, Executive Vice President, Chief
          Financial Officer and Treasurer
         HEALTHSOUTH Corporation
         One HealthSouth Parkway
         Birmingham, Alabama  35243

         with a copy to:

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

                                       55
<PAGE>

     (b) if to the Agent at:

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

     (c) if to the Lenders:

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

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

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

     (b) If any Lender (a  "benefited  Lender")  shall at any time  receive  any
payment of all or part of the Loans owing to it, or interest thereon, or receive
any collateral in respect  thereof  (whether  voluntarily or  involuntarily,  by
set-off,  or  otherwise),  in a greater  proportion  than any such payment to or
collateral  received  by any other  Lender,  if any,  in  respect  of such other
Lender's Loans owing to it, or interest  thereon,  such benefitted  Lender shall
purchase  for cash  from the  other  Lenders a  participating  interest  in such
portion of each such other  Lender's  Loans owing to it, or shall  provide  such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be  necessary  to cause  such  benefitted  Lender to share  the  excess
payment or benefits of such  collateral  or  proceeds  ratably  with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter  recovered  from such  benefitted  Lender,  such purchase
shall be rescinded,  and the purchase price and benefits returned, to the extent
of such recovery,  but without interest.  The Borrower agrees that any Lender so
purchasing a  participation  from a Lender pursuant to this Section 10.4 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.

     10.5. Survival. All covenants,  agreements,  representations and warranties
made  herein  shall  survive  the  making  by the  Lenders  of the Loans and the
execution and delivery to the Lenders of this

                                       56
<PAGE>

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

     10.6.  Expenses.  The Borrower agrees (a) to pay or reimburse the Agent for
all its reasonable and customary  out-of-pocket  costs and expenses  incurred in
connection  with  the  preparation,   negotiation  and  execution  of,  and  any
amendment,  supplement or  modification  to, this  Agreement or any of the other
Loan Documents, and the consummation of the transactions contemplated hereby and
thereby,  including,  without limitation,  the reasonable and customary fees and
disbursements  of counsel to the Agent,  (b) to pay or reimburse  the Agent and,
after an Event of  Default,  each  Lender  for all  their  reasonable  costs and
expenses  incurred in connection  with the  enforcement or  preservation  of any
rights under this Agreement,  including without limitation,  the reasonable fees
and disbursements of their counsel,  (c) to pay, indemnify and hold harmless the
Agent and each Lender from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure of Borrower to pay or
delay of Borrower in paying,  documentary,  stamp, excise, withholding and other
similar  taxes,  if any,  which may be  payable or  determined  to be payable in
connection with the execution and delivery of, or consummation of any amendment,
supplement or modification  of, or any waiver or consent under or in respect of,
this Agreement, and (d) from and after the occurrence of any Event of Default to
pay, and indemnify and hold harmless the Agent and each Lender from and against,
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any  kind or  nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration  of this Agreement or in any respect relating to the transactions
contemplated  hereby  or  thereby,   (all  the  foregoing,   collectively,   the
"indemnified  liabilities");  provided, however, that the Borrower shall have no
obligation  hereunder with respect to indemnified  liabilities  arising from (i)
the willful misconduct or gross negligence of the party seeking indemnification,
(ii) legal proceedings commenced against the Agent or any Lender by any security
holder or creditor  thereof  arising out of and based upon rights  afforded  any
such security holder or creditor solely in its capacity as such, (iii) any taxes
imposed upon the Agent or any Lender other than the documentary,  stamp, excise,
withholding and similar taxes described in clause (c) above or any tax resulting
from any change  described in Section 3.1, which tax would be payable to Lenders
by  Borrower  pursuant  to  Article  III,  (iv)  taxes  imposed as a result of a
transfer or assignment of any Note,  participation or assignment of a portion of
its rights,  (v) any taxes  imposed upon any  transferee of any Note, or (vi) by
reason  of the  failure  of the  Agent or any  Lender  to  perform  its or their
obligations  under this  Agreement.  The  agreements  in this  subsection  shall
survive the Short Term Credit Termination Date.

     10.7.  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 IX or the  rights or duties of the Agent are  affected  thereby,  by the
Agent);  provided that no such  amendment or waiver shall,  unless signed by all
the Lenders, (i) increase the Short Term Credit Commitments 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 Short Term Credit
Commitment,  (iv) change the percentage of the Short Term Credit  Commitments or
of the unpaid  principal  amount of the Notes, or the percentage of Lenders that
constitute Required Lenders or (v) amend the definition of "Required Lenders" or
amend Section 10.15.

                                       57
<PAGE>

     10.8.  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.

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

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

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

                                       58
<PAGE>

     10.11.  Governing Law. ALL DOCUMENTS  EXECUTED PURSUANT TO THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING,  WITHOUT LIMITATION,  THIS AGREEMENT AND EACH OF
THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND FOR ALL
PURPOSES  SHALL BE CONSTRUED IN ACCORDANCE  WITH, THE INTERNAL LAWS AND JUDICIAL
DECISIONS OF THE STATE OF NORTH  CAROLINA.  THE BORROWER  HEREBY  SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF NORTH CAROLINA FOR THE
PURPOSES OF  RESOLVING  DISPUTES  HEREUNDER  OR ARISING  OUT OF THE  TRANSACTION
CONTEMPLATED HEREBY OR FOR THE PURPOSES OF COLLECTION.

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

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

          (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,  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 10.12 shall survive the Short Term Credit Termination
Date.

     10.13.  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.

                                       59
<PAGE>

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

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

     10.16.  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.

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

                                       60
<PAGE>

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

                                              HEALTHSOUTH CORPORATION

                                              By:     /s/MALCOLM E. McVAY
                                                     ---------------------------
                                              Name: Malcolm E. McVay
                                              Title: Vice President - Finance

                              Signature Page 1 of 5

<PAGE>

                                              BANK OF AMERICA, N.A.
                                              as Agent for the Lenders

                                              By:        /s/PHILIP S. DURAND
                                                     ---------------------------
                                              Name:  Philip S. Durand
                                              Title: Principal

                                              BANK OF AMERICA, N.A.

                                              By:        /s/PHILIP S. DURAND
                                                     ---------------------------
                                              Name:  Philip S. Durand
                                              Title: Principal

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

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

                              Signature Page 2 of 5

<PAGE>

                                              CITICORP USA, INC.
                                              as Lender

                                              By:       /s/ JAMES J. McCARTHY
                                                     ---------------------------
                                                     Name: James J. McCarthy
                                                     Title: Vice President

                                              Applicable Lending Office:
                                              399 Park Avenue
                                              New York, New York 10043

                                              Wire Transfer Instructions:
                                              Citibank N.A.
                                              New York, New York
                                              ABA # 021-000-089
                                              Account # 38460803
                                              Attention: Alyssa Kawalek
                                              Reference: HEALTHSOUTH Corporation

                              Signature Page 3 of 5

<PAGE>

                          THE INDUSTRIAL BANK OF JAPAN, LIMITED
                          as Lender

                          By:      /s/ MINAMI MIURA
                                 ---------------------
                          Name:  Minami Miura
                          Title: Vice President

                          Applicable Lending Office:
                          1251 Avenue of the Americas
                          New York, New York 10020

                          Wire Transfer Instructions:
                          The Industrial Bank of Japan, Limited, New York Branch
                          New York, New York
                          ABA # 026-008-345
                          Attention: Credit Administration
                          Reference: HEALTHSOUTH Corporation

                              Signature Page 4 of 5

<PAGE>

                                              UBS AG, STAMFORD BRANCH
                                              as Lender

                                              By: /s/ROBERT H. RILEY III
                                                 ------------------------
                                              Name: Robert H. Riley III
                                              Title: Executive Director

                                              By:    /s/WILFRED SAINT
                                                 ------------------------
                                              Name:  Wilfred Saint
                                              Title: Associate Director
                                              Loan Portfolio Support, US

                                              Applicable Lending Office:
                                              677 Washington Boulevard
                                              Stamford, Connecticut 06901

                                              Wire Transfer Instructions:
                                              UBS AG, Stamford Branch
                                              Stamford, Connecticut
                                              ABA # 026-007-993
                                              Account # 101-WA-894001-001
                                              Attention: Philip M. FitzGerald
                                              Reference: HEALTHSOUTH Corporation

                              Signature Page 5 of 5

<PAGE>

                                    EXHIBIT A

                        Applicable Commitment Percentages

<TABLE>
<CAPTION>
                                                                                 Applicable
                                                    Short Term Credit            Commitment
Lender                                                 Commitment                Percentage
------                                              -----------------          --------------
<S>                                                 <C>                         <C>
Bank of America, N.A.                               $ 48,118,867.00             19.247546800%

CitiCorp USA, Inc.                                  $100,000,000.00             40.000000000%

UBS AG, Stamford Branch                             $ 76,881,133.00             30.752453200%

The Industrial Bank of Japan, Limited               $ 25,000,000.00             10.000000000%
                                                    ---------------             -------------
                                                    $250,000,000.00             100%
</TABLE>

                                      A-1

<PAGE>

                                    EXHIBIT B

                        Form of Assignment and Acceptance

Reference  is made to the Short Term Credit  Agreement  dated as of December 15,
1999  (the  "Credit  Agreement")  among  HEALTHSOUTH  Corporation,   a  Delaware
corporation (the "Borrower"),  the Lenders (as defined in the Credit Agreement),
Bank of America, N.A., as Administrative Agent for the Lenders (the "Agent") and
the Syndication  Agent named therein.  Terms defined in the Credit Agreement are
used herein with the same meaning.

     The  "Assignor"  and the  "Assignee"  referred  to on  Schedule  1 agree as
follows:

     1. The Assignor hereby sells and assigns to the Assignee,  without recourse
and without representation or warranty except as expressly set forth herein, and
the Assignee hereby purchases and assumes from the Assignor,  an interest in and
to the  Assignor's  rights and  obligations  under the Credit  Agreement and the
other Loan  Documents  as of the date hereof  equal to the  percentage  interest
specified  on Schedule 1 of all  outstanding  rights and  obligations  under the
Credit Agreement and the other Loan Documents.  After giving effect to such sale
and assignment,  the Assignee's  Short Term Credit  Commitment and the amount of
the Loans owing to the Assignee will be as set forth on Schedule 1.

     2. The  Assignor  (i)  represents  and  warrants  that it is the  legal and
beneficial  owner of the interest  being  assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty  and  assumes  no  responsibility   with  respect  to  any  statements,
warranties or  representations  made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability,  genuineness,  sufficiency
or value of the Loan  Documents or any other  instrument  or document  furnished
pursuant  thereto;  (iii) makes no  representation  or  warranty  and assumes no
responsibility  with respect to the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations  under the
Loan Documents or any other instrument or document  furnished  pursuant thereto;
and (iv)  attaches the Note held by the  Assignor  and  requests  that the Agent
exchange  such Note for a new Note  payable to the order of the  Assignee  in an
amount  equal to the  Short  Term  Credit  Commitment  assumed  by the  Assignee
pursuant  hereto and to the Assignor in an amount equal to the Short Term Credit
Commitment retained by the Assignor, if any, as specified on Schedule 1.

     3. The  Assignee  (i)  confirms  that it has  received a copy of the Credit
Agreement,  together  with  copies of the  financial  statements  referred to in
Section 6.1 thereof and such other  documents and  information  as it has deemed
appropriate  to make its own credit  analysis  and  decision  to enter into this
Assignment and Acceptance;  (ii) agrees that it will,  independently and without
reliance  upon the Agent,  the  Assignor  or any other  Lender and based on such
documents and information as it shall deem appropriate at the time,  continue to
make its own credit  decisions  in taking or not taking  action under the Credit
Agreement;  (iii)  confirms that it is an Eligible  Assignee;  (iv) appoints and
authorizes  the Agent to take such action as agent on its behalf and to exercise
such powers and  discretion  under the Credit  Agreement as are delegated to the
Agent by the terms  thereof,  together  with such powers and  discretion  as are
reasonably  incidental  thereto;  (v) agrees that it will perform in  accordance
with  their  terms  all of the  obligations  that  by the  terms  of the  Credit
Agreement are required to be performed by it as a Lender;  and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 3.6.

         4. Following the execution of this Assignment and  Acceptance,  it will
be  delivered  to the Agent for  acceptance  and  recording  by the  Agent.  The
effective date for this Assignment and

                                      B-1

<PAGE>

Acceptance (the "Effective  Date") shall be the date of acceptance hereof by the
Agent, unless otherwise specified on Schedule 1.

     5. Upon such  acceptance  and  recording by the Agent,  as of the Effective
Date,  (i) the  Assignee  shall be a party to the Credit  Agreement  and, to the
extent  provided  in  this  Assignment  and  Acceptance,  have  the  rights  and
obligations of a Lender  thereunder and (ii) the Assignor  shall,  to the extent
provided  in this  Assignment  and  Acceptance,  relinquish  its  rights  and be
released from its obligations under the Credit Agreement.

     6. Upon such  acceptance  and  recording  by the Agent,  from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the  Notes in  respect  of the  interest  assigned  hereby  (including,  without
limitation, all payments of principal, interest and commitment fees with respect
thereto) to the Assignee.  The Assignor and Assignee shall make all  appropriate
adjustments  in payments  under the Credit  Agreement  and the Notes for periods
prior to the Effective Date directly between themselves.

     7. This  Assignment and  Acceptance  shall be governed by, and construed in
accordance with, the laws of the State of North Carolina.

     8.  This  Assignment  and  Acceptance  may be  executed  in any  number  of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall  constitute one and the same  agreement.  Delivery of an executed
counterpart of Schedule 1 to this  Assignment  and  Acceptance by  telefacsimile
shall be  effective  as  delivery  of a manually  executed  counterpart  of this
Assignment and Acceptance.

     IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to
this  Assignment and Acceptance to be executed by their officers  thereunto duly
authorized as of the date specified thereon.

                                      B-2

<PAGE>

                                   SCHEDULE 1
                                       to
                            ASSIGNMENT AND ACCEPTANCE

         Percentage interest assigned:                            ________%

         Assignee's Short Term Credit Commitment:                 $_______

         Assignor's Short Term Credit Commitment                  $_______

         Aggregate outstanding principal amount
           of Loans assigned:                                     $_______

         Aggregate outstanding principal amount
           of Loans retained by Assignor:                         $_______

         Principal amount of Note payable
            to Assignee:                                          $_______

         Principal amount of Note payable
            to Assignor:                                          $_______

         Effective Date (if other than date
            of acceptance by Agent):                              *_______, 200_

                                        [NAME OF ASSIGNOR], as Assignor

                                        By:_____________________________________
                                           Title:

                                        Dated: ___________________________, 200_

                                        [NAME OF ASSIGNEE], as Assignee

                                        By:_____________________________________
                                           Title:

                                        Applicable Lending Office:

                                      B-3

<PAGE>

*    This date should be no earlier than five  Business  Days after the delivery
     of this Assignment and Acceptance to the Agent.

Accepted [and Approved] **
this ___ day of ___________, 20 _

BANK OF AMERICA, N.A.

By:_______________________________
Title:

[Approved this ____ day
of ____________, 200__

HEALTHSOUTH Corporation

By: ____________________]**
Title:

**Required  if the Assignee is an Eligible  Assignee  solely by reason of clause
(iii) of the definition of "Eligible Assignee".

<PAGE>

                                    EXHIBIT C

               Notice of Appointment (or Revocation) of Authorized
                                 Representative

     Reference  is hereby  made to the Short Term Credit  Agreement  dated as of
December 15, 1999, as amended (the "Agreement"),  among HEALTHSOUTH Corporation,
a  Delaware  corporation  (the  "Borrower"),  the  Lenders  (as  defined  in the
Agreement),  Bank of  America,  N.A.,  as  Administrative  Agent for the Lenders
("Agent") and the Syndication  Agent named therein.  Capitalized  terms used but
not defined herein shall have the respective  meanings therefor set forth in the
Agreement.

     The Borrower  hereby  nominates,  constitutes  and appoints each individual
named below as an Authorized Representative under the Loan Documents, and hereby
represents and warrants that (i) set forth opposite each such  individual's name
is a true and  correct  statement  of such  individual's  office  (to which such
individual has been duly elected or appointed),  a genuine specimen signature of
such  individual  and an address  for the  giving of notice,  and (ii) each such
individual  has  been  duly  authorized  by the  Borrower  to act as  Authorized
Representative under the Loan Documents:

Name and Address                   Office                Specimen Signature

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

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

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

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

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

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

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

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

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

Borrower  hereby revokes  (effective upon receipt hereof by the Agent) the prior
appointment of ________________ as an Authorized Representative.

     This the ___ day of __________________, 20__.

                                                   HEALTHSOUTH CORPORATION

                                                   By:__________________________
                                                   Name:________________________
                                                   Title:_______________________

                                      C-1

<PAGE>

                                    EXHIBIT D

                            Form of Borrowing Notice

To:  Bank of America, N.A.,
     as Agent
     101 North Tryon Street, 15th Floor
     NC1-001-15-04
     Charlotte, North Carolina  28255
     Attention: Agency Services
     Telefacsimile:  (704) 386-9923

     Reference  is hereby  made to the Short Term Credit  Agreement  dated as of
December 15, 1999, as amended (the "Agreement"),  among HEALTHSOUTH  Corporation
(the  "Borrower"),  the Lenders (as defined in the Agreement),  Bank of America,
N.A., as  Administrative  Agent for the Lenders  ("Agent")  and the  Syndication
Agent named  therein.  Capitalized  terms used but not defined herein shall have
the respective meanings therefor set forth in the Agreement.

     The Borrower through its Authorized  Representative  hereby gives notice to
the Agent that Loans of the Type and amount set forth  below be made on the date
indicated:

  Type Loan               Interest              Aggregate
  (check one)               Period(1)              Amount(2)    Date of Loan(3)
   ---------    -------------------      ------------------     ------------

  Base Rate
  ___

  Eurodollar
  Rate ___

-----------------------
(1)  For any Eurodollar Rate Loan, one, two, three or six months.
(2)  Must be $5,000,000 or if greater an integral multiple of $1,000,000.
(3)  At least three (3) Business Days later if a Eurodollar Rate Loan;

     The Borrower  hereby  requests that the proceeds of Loans described in this
Borrowing  Notice  be  made  available  to  the  Borrower  as  follows:  [insert
transmittal instructions] .

     The undersigned hereby certifies that:

     1. No Default or Event of Default  exists either now or after giving effect
to the borrowing described herein; and

     2. All the  representations  and  warranties  set forth in Article V of the
Agreement and in the other Loan Documents  (other than those expressly stated to
refer to a  particular  date) are true and correct as of the date hereof  except
that  the  reference  to the  financial  statements  in  Section  5.6(a)  of the
Agreement  are to those  financial  statements  most  recently  delivered to you
pursuant to Section 6.1 of the Agreement (it being understood that any financial
statements  delivered  pursuant  to Section  6.1(b) have not been  certified  by
independent public accountants).

                                      D-1

<PAGE>

     3. All  conditions  contained  in the  Agreement  to the making of any Loan
requested hereby have been met or satisfied in full .

                                    HEALTHSOUTH CORPORATION

                                    BY: ___________________________________
                                             Authorized Representative

                                    DATE: _________________________________

                                      D-2

<PAGE>

                                    EXHIBIT E

                     Form of Interest Rate Selection Notice

To:  Bank of America, N.A., as Agent
     101 North Tryon Street, 15th Floor
     NC1-001-15-04
     Charlotte, North Carolina  28255
     Attention:  Agency Services
     Telefacsimile:  (704) 386-9923

     Reference  is hereby  made to the Short Term Credit  Agreement  dated as of
December 15, 1999, as amended (the "Agreement"),  among HEALTHSOUTH  Corporation
(the  "Borrower"),  the Lenders (as defined in the Agreement),  Bank of America,
N.A., as  Administrative  Agent for the Lenders  ("Agent")  and the  Syndication
Agent named  therein.  Capitalized  terms used but not defined herein shall have
the respective meanings therefor set forth in the Agreement.

         The Borrower through its Authorized  Representative hereby gives notice
to the Agent of the following selection of a type of Loan and Interest Period:

Type of Loan            Interest             Aggregate              Date of
(check one)             Period(1)            Amount(2)             Conversion(3)
 ---------               ------               ------               ----------

Loan

Base Rate Loan ___

Eurodollar Rate
Loan ___

-----------------------
(1)  For any Eurodollar Rate Loan one, two, three or six months.
(2)  Must be $5,000,000 or if greater an integral multiple of $1,000,000.
(3)  At least three (3) Business Days later if a Eurodollar Rate Loan.

                                                    HEALTHSOUTH CORPORATION

                                                    BY: ________________________
                                                       Authorized Representative
                                                    DATE: ______________________

                                      E-1

<PAGE>

                                    EXHIBIT F

                                  Form of Note

                                 Promissory Note

$______________                                              Birmingham, Alabama

                                                             December ___ , 1999

     FOR VALUE RECEIVED,  HEALTHSOUTH Corporation, a Delaware corporation having
its principal place of business located in Birmingham, Alabama (the "Borrower"),
hereby promises to pay to the order of

     _______________________________________________   (the  "Lender"),  in  its
individual capacity,  at the office of BANK OF AMERICA,  N.A., as Administrative
Agent for the Lenders (the "Agent"),  located at One  Independence  Center,  101
North Tryon Street,  NC1-001-15-04,  Charlotte, North Carolina 28255 (or at such
other  place or places as the Agent may  designate  in writing) at the times set
forth in the Short Term Credit Agreement dated as of December 15, 1999 among the
Borrower,  the financial  institutions party thereto, as amended  (collectively,
the  "Lenders"),  the  Agent  and  the  Syndication  Agent  named  therein  (the
"Agreement" -- all capitalized terms not otherwise defined herein shall have the
respective  meanings set forth in the Agreement),  in lawful money of the United
States of America, in immediately available funds, the principal amount of

         ________________________________________  DOLLARS  ($__________) or, if
less than such principal  amount,  the aggregate  unpaid principal amount of all
Loans made by the Lender to the Borrower  pursuant to the Agreement,  and to pay
interest from the date hereof on the unpaid  principal  amount  hereof,  in like
money,  at said office,  on the dates and at the rates provided in Article II of
the  Agreement.  All or any  portion  of the  principal  amount  of Loans may be
prepaid as provided in the Agreement.

     If any  amount  payable  under  this Note is not paid  when  due,  the then
remaining  principal  amount and accrued but unpaid interest shall bear interest
which shall be payable on demand at the rates per annum set forth in the proviso
to Section 2.2(a) of the Agreement.  Further, in the event of such acceleration,
this Note shall become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.

     In the event  this Note is not paid when due at any  stated or  accelerated
maturity, the Borrower agrees to pay, in addition to the principal and interest,
all costs of collection,  including reasonable attorneys' fees, and interest due
hereunder thereon at the rates set forth above.

     Interest hereunder shall be computed as provided in the Agreement.

     This Note is one of the Notes  referred to in the  Agreement  and is issued
pursuant to and entitled to the benefits of the Agreement to which  reference is
hereby made for a more complete statement of the terms and conditions upon which
the Loans evidenced  hereby were or are made and are to be repaid.  This Note is
subject to certain  restrictions  on transfer or  assignment  as provided in the
Agreement.

                                      F-1

<PAGE>

     All Persons  bound on this  obligation,  whether  primarily or  secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent  permitted by law the benefits of all  provisions  of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability  hereon  until  judgment be obtained
and execution  issues against any other of them and returned  satisfied or until
it can be shown  that the  maker  or any  other  party  hereto  had no  property
available for the  satisfaction  of the debt  evidenced by this  instrument,  or
until any other proceedings can be had against any of them, also their right, if
any,  to  require  the  holder  hereof  to hold as  security  for this  Note any
collateral  deposited  by any of said Persons as  security.  Protest,  notice of
protest, notice of dishonor,  diligence,  presentment or any other formality are
hereby waived by all parties bound hereon.

     IN WITNESS WHEREOF,  the Borrower has caused this Note to be made, executed
and  delivered  by its duly  authorized  representative  as of the date and year
first above written, all pursuant to authority duly granted.

                                         HEALTHSOUTH CORPORATION

                                         By: ___________________________________
                                         Name: _________________________________
                                         Title: ________________________________

                                      F-2

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