FindLaw - Short Term Credit Agreement - HealthSouth Corp., Bank of America NA, Citicorp USA Inc. and Banc of America Securities LLC

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





                           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