FindLaw - Bridge Credit Agreement - HealthSouth Corp. and NationsBank NA

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                             BRIDGE CREDIT AGREEMENT


                                  by and among


                            HEALTHSOUTH CORPORATION,
                                  as Borrower,


                       NATIONSBANK, NATIONAL ASSOCIATION,
                                    as Agent


                                       and


                   THE LENDERS PARTY HERETO FROM TIME TO TIME


                                October 22, 1997


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<PAGE>



                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I

                              Definitions and Terms

1.1.     Definitions...........................................................2
1.2.     Rules of Interpretation..............................................25
1.3.     Types of Loans.......................................................26

                                   ARTICLE II

                                    The Loans

2.1.     Bridge Loans.........................................................27
2.2.     Payment of Interest..................................................29
2.3.     Payment of Principal.................................................29
2.4.     Non-Conforming Payments..............................................29
2.5.     Notes................................................................30
2.6.     Pro Rata Payments....................................................30
2.7.     Reductions...........................................................30
2.8.     Conversions and Elections of Subsequent Interest Periods.............31
2.9.     Unused Fees..........................................................32
2.10.    Deficiency Advances..................................................32
2.11.    Use of Proceeds......................................................33

                                   ARTICLE III

                                Letters of Credit

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

                                   ARTICLE IV

               Termination of Eurodollar Rate and Yield Protection

4.1.     Suspension of Loans..................................................39
4.2.     Compensation.........................................................40
4.3.     Taxes................................................................40


<PAGE>



                                    ARTICLE V

            Conditions to Making Loans and Issuing Letters of Credit

5.1.     Conditions of Initial Advance........................................43
5.2.     Conditions of Loans and Letters of Credit............................44

                                   ARTICLE VI

                         Representations and Warranties

6.1.     Organization and Authority...........................................47
6.2.     Loan Documents.......................................................47
6.3.     Solvency.............................................................48
6.4.     Subsidiaries.........................................................48
6.5.     Ownership Interests..................................................48
6.6.     Financial Condition..................................................48
6.7.     Title to Properties..................................................49
6.8.     Taxes................................................................49
6.9.     Other Agreements.....................................................49
6.10.    Litigation...........................................................50
6.11.    Margin Stock.........................................................50
6.12.    Investment Company...................................................50
6.13.    Patents, Etc.........................................................51
6.14.    No Untrue Statement..................................................51
6.15.    No Consents, Etc.....................................................51
6.16.    ERISA Requirement....................................................51
6.17.    No Default...........................................................51
6.18.    Hazardous Materials..................................................51
6.19.    Employment Matters...................................................52
6.20.    RICO.................................................................52
6.21.    Reimbursement from Third Party Payors................................52
6.22.    Representations and Warranties from the Related Acquisition

         Transaction Documents................................................52

                                   ARTICLE VII

                              Affirmative Covenants

7.1.     Financial Statements, Reports, Etc...................................53
7.2.     Maintain Properties..................................................54
7.3.     Existence, Qualification, Etc........................................54
7.4.     Regulations and Taxes................................................55
7.5.     Insurance............................................................55
7.6.     True Books...........................................................55
7.7.     Right of Inspection..................................................55


<PAGE>



7.8.     Observe all Laws.....................................................55
7.9.     Governmental Licenses................................................55
7.10.    Covenants Extending to Other Persons.................................56
7.11.    Officer's Knowledge of Default.......................................56
7.12.    Suits or Other Proceedings...........................................56
7.13.    Notice of Discharge of Hazardous Material or Environmental Complaint.56
7.14.    Environmental Compliance.............................................56
7.15.    Continuation of Current Business.....................................57
7.16.    Management Contracts.................................................57

                                  ARTICLE VIII

                               Negative Covenants

8.1.     Financial Covenants..................................................58
8.2.     Investments and Loans................................................58
8.3.     Indebtedness.........................................................58
8.4.     Existing Facility....................................................59
8.5.     Consolidation or Merger..............................................59
8.6.     Liens................................................................59
8.7.     Dividends and Distributions..........................................59
8.8.     Acquisitions.........................................................59
8.9.     Restricted Payments..................................................59
8.10.    Compliance with ERISA................................................59
8.11.    Fiscal Year..........................................................60
8.12.    Dissolution, etc.....................................................60

                                   ARTICLE IX

                       Events of Default and Acceleration

9.1.     Events of Default....................................................61
9.2.     Agent to Act.........................................................63
9.3.     Cumulative Rights....................................................63
9.4.     No Waiver............................................................64
9.5.     Allocation of Proceeds...............................................64

                                    ARTICLE X

                                    The Agent

10.1.    Appointment..........................................................65
10.2.    Attorneys-in-fact....................................................65
10.3.    Limitation on Liability..............................................65
10.4.    Reliance.............................................................65
10.5.    Notice of Default....................................................66


<PAGE>



10.6.    No Representations...................................................66
10.7.    Indemnification......................................................66
10.8.    Lender...............................................................67
10.9.    Resignation..........................................................67
10.10.   Sharing of Payments, etc.............................................67
10.11.   Fees.................................................................68
10.12.   Independent Agreements...............................................68

                                   ARTICLE XI

                                  Miscellaneous

11.1.    Assignments and Participations.......................................69
11.2.    Notices..............................................................70
11.3.    No Waiver............................................................71
11.4.    Setoff...............................................................72
11.5.    Survival.............................................................72
11.6.    Expenses.............................................................72
11.7.    Amendments...........................................................73
11.8.    Counterparts.........................................................74
11.9.    Waivers by Borrower..................................................74
11.10.   Termination..........................................................74
11.11.   Governing Law........................................................75
11.12.   Indemnification......................................................75
11.13.   Agreement Controls...................................................76
11.14.   Integration..........................................................76
11.15.   Successors and Assigns...............................................76
11.16.   Severability.........................................................76
11.17.   Usury Savings Clause.................................................76

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 Bridge 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 1.1           Closing Date Prepayable Debt
Schedule 6.4           Subsidiaries
Schedule 6.19          Employment Matters


<PAGE>



Schedule 8.3           Existing Subsidiary Indebtedness


<PAGE>



                             BRIDGE CREDIT AGREEMENT

     THIS  BRIDGE  CREDIT   AGREEMENT   dated  as  of  October  22,  1997  (this
"Agreement") is entered into by and among  HEALTHSOUTH  CORPORATION,  a Delaware
corporation (the "Borrower"), the Lenders signatories hereto (the "Lenders") and
NATIONSBANK, N.A., a national banking association, as agent for the Lenders (the
"Agent").

                                    RECITAL:

     The  Borrower  has  requested  that the Lenders  make bridge loans of up to
$1,250,000,000 to the Borrower, the proceeds of which shall be used (i) to repay
existing short-term indebtedness owed to NationsBank, National Association, (ii)
to purchase ASC Network  Corporation,  (iii) to repay existing  indebtedness  of
Horizon/CMS Healthcare  Corporation,  Borrower's Subsidiary,  and (iv) for other
general  corporate  purposes  and the  Lenders  have  agreed to make such  loans
available to the Borrower on the following terms and conditions:


<PAGE>



                                  ARTICLE XXIV

                              Definitions and Terms

     24.1.  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 8.8;  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 Bridge  Facility  consisting of
     the aggregate principal amount of a Bridge 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 Bridge  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 11.1.

          "Applicable  Margin"  means that number of basis  points per annum set
     forth  below  determined  based upon the more  favorable  of either (i) the
     highest Rating of outstanding senior unsecured Indebtedness of the Borrower
     from time to time or (ii) the ratio of Consolidated  EBITDA to Consolidated
     Interest  Expense  for the  Four-Quarter  Period  most  recently  ended  as
     specified below:


<PAGE>

<TABLE>
<CAPTION>



                  Ratio of Consolidated              Rating              Applicable
         EBITDA to Consolidated Interest         S&P or Moody's            Margin

          <S>                                          <C>                <C> <C>    
         a) Greater than 7.50 to 1.00                  A-                 A3   25 b.p.

         b) Equal to or Less than 7.50
            to 1.00 but Greater than
            6.50 to 1.00                               BBB+               Baa1 30

         c) Equal to or Less than 6.50
            to 1.00 but Greater than
            5.50 to 1.00                               BBB                Baa2 35

         d) Equal to or Less than 5.50
            to 1.00 but Greater than
            4.50 to 1.00                               BBB-               Baa3 45

         e) Equal to or Less than 4.50
            to 1.00 but Greater than
            3.50 to 1.00                               BB+                Ba1  55

         f) Equal to or Less than 3.50
            to 1.00 but Greater than
            3.00 to 1.00                               BB                 Ba2  62.5

         g) Equal to or Less than 3.00
            to 1.00 but Greater than           BB-     Ba3
            2.50 to 1.00                               or Lower           75
</TABLE>

         The Applicable Margin shall be established in the case of a Rating from
         time to time based upon the Rating  then in effect  and, in the case of
         the  ratio,  at the end of each  fiscal  quarter of the  Borrower  (the
         "Ratio  Determination  Date").  Any  change  in the  Applicable  Margin
         following each Ratio  Determination Date shall be determined based upon
         the  computations set forth in the Compliance  Certificate,  subject to
         review and  approval of such  computations  by the Agent,  and shall be
         effective commencing on the date following the date such certificate is
         received  until the date  following the date on which a new  Compliance
         Certificate  is  delivered  or is required to be  delivered,  whichever
         shall first occur;  provided  however,  if the  Borrower  shall fail to
         deliver any such certificate within the time period required by Section
         7.1,  then the  Applicable  Margin  shall be 2% until  the  appropriate
         certificate  is so delivered.  From the Closing Date to the first Ratio
         Determination Date, the Applicable Margin shall be 25 basis points.

               "Applicable  Unused  Fee" means that  number of basis  points per
          annum set forth below,  which shall be determined  based upon the more
          favorable  of either  (i) the  highest  Rating of  outstanding  senior
          unsecured Indebtedness of the Borrower from time to time


<PAGE>



         or (ii) the  ratio of  Consolidated  EBITDA  to  Consolidated  Interest
         Expense for the Four- Quarter  Period most recently  ended as specified
         below:
<TABLE>
<CAPTION>

                  Ratio of Consolidated          Rating         
         EBITDA to Consolidated Interest       S&P or Moody's       Applicable Unused Fees

         <S>                                    <C>                           <C>                  
         a) Greater than 7.50 to 1.00           A-    A3                      9 b.p.

         b) Equal to or Less than 7.50
            to 1.00 but Greater than
            6.50 to 1.00                        BBB+  Baa1                      10

         c) Equal to or Less than 6.50
            to 1.00 but Greater than
            5.50 to 1.00                        BBB   Baa2                      12.5

         d) Equal to or Less than 5.50
            to 1.00 but Greater than
            4.50 to 1.00                        BBB-  Baa3                      15

         e) Equal to or Less than 4.50
            to 1.00 but Greater than
            3.50 to 1.00                        BB+   Ba1                       17.5

         f) Equal to or Less than 3.50
            to 1.00 but Greater than
            3.00 to 1.00                        BB    Ba2                       20

         g) Equal to or Less than 3.00
            to 1.00 but Greater than            BB-   Ba3
            2.50 to 1.00                          or Lower                      25
</TABLE>


          The Applicable Unused Fee shall be established in the case of a Rating
          from time to time  based upon the  Rating  then in effect,  and in the
          case of the ratio,  at the end of each fiscal  quarter of the Borrower
          (the "Ratio Determination  Date"). Any change in the Applicable Unused
          Fee following each Ratio  Determination Date shall be determined based
          upon the computations set forth in the Compliance Certificate, subject
          to review and approval of such  computations by the Agent and shall be
          effective  commencing on the date following the date such  certificate
          is  received  until  the  date  following  the  date  on  which  a new
          Compliance  Certificate  is delivered or is required to be  delivered,
          whichever shall first occur;  provided however,  if the Borrower shall
          fail to deliver any such  certificate  within the time period required
          by Section 7.1, then the  Applicable  Unused Fee shall be 2%. From the
          Closing Date to the first Ratio  Determination  Date,  the  Applicable
          Unused Fee shall be 9 basis points on the Bridge Facility.

               "Applications  and  Agreements  for  Letters  of  Credit"  means,
          collectively,  the  Applications and Agreements for Letters of Credit,
          or similar  documentation,  executed by the Borrower from time to time
          and  delivered  to the Issuing Bank to support the issuance of Letters
          of Credit.

          "ASC" means ASC Network Corporation, a Delaware corporation.


<PAGE>



          "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 11.1.

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

          "Base Rate" means the per annum rate of interest  equal to the greater
     of (i) the  Prime  Rate or (ii)  the  Federal  Funds  Effective  Rate  plus
     one-half of one percent (1/2%).  Any change in the Base Rate resulting from
     a change in the Prime Rate or the Federal Funds Effective Rate shall become
     effective  as of 12:01 A.M. of the  Business  Day on which each such change
     occurs.  The Base Rate is a reference rate used by the Agent in determining
     interest  rates on certain  loans and is not intended to be the lowest rate
     of interest charged on any extension of credit to any debtor.

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

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

          "Base  Rate  Segment"  means a  Segment  bearing  interest  or to bear
     interest at 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 Bridge Facility,  in
     the form of Exhibit D.

          "Bridge Commitment" means, with respect to each Lender, the obligation
     of such Lender to make Bridge Loans to the  Borrower in a principal  amount
     equal to such Lender's Applicable Commitment Percentage of the Total Bridge
     Commitment.

          "Bridge  Facility"  means the  facility  described  in Section  2.1(a)
     providing  for Bridge  Loans to the Borrower by the Lenders in the original
     principal amount of the Total Bridge Commitment.

          "Bridge  Loan" means a loan made  pursuant  to the Bridge  Facility in
     accordance with Section 2.1(a).


<PAGE>



          "Bridge  Notes"  means,  collectively,  the  promissory  notes  of the
     Borrower  evidencing  Bridge 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.

          "Bridge  Outstandings"  means,  as of any date of  determination,  the
     aggregate  principal  amount  of  Bridge  Loans  then  outstanding  and all
     interest accrued thereon.

          "Bridge  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  9.1 upon the  occurrence  of an Event of
     Default, or (iii) such date as the Borrower may voluntarily and permanently
     terminate the Bridge Facility by payment in full of all Bridge Outstandings
     and Letter of Credit Outstandings.

          "Business Day" means, (i) except in the case of a Eurodollar Loan, 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 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:

               (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


<PAGE>



     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 5.1 have been satisfied.

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

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

     "Compliance  Certificate" shall have the meaning attributed to that term in
Section 7.1(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 6.6(a).

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

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

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


<PAGE>




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

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

     "Consolidated  Interest  Expense" means,  with respect to any  Four-Quarter
Period ending on the date of computation  thereof, the gross interest expense of
the Borrower and its Consolidated Entities, including without limitation (i) the
current  amortized  portion of debt  discounts  to the extent  included in gross
interest expense, (ii) the current amortized portion of all fees (including fees
payable in respect of any Rate Hedging  Obligation)  payable in connection  with
the incurrence of Indebtedness to the extent included in gross interest expense,
(iii) the  portion  of any  payments  made in  connection  with  Capital  Leases
allocable  to  interest  expense,  and  (iv)  lease  payments,  other  than  the
Headquarters   Obligations,   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  8.1(a),  to the extent  otherwise
included therein), without duplication,  (i) the net income of any Person (other
than a Consolidated  Entity) to the extent that any such income has not actually
been received by the Borrower or a Consolidated  Entity in the form of dividends
or similar  distributions  during such period, but including,  in any event, net
income of any Person who becomes a  Consolidated  Entity  whose  Acquisition  is
accounted  for on a "pooling  of  interests"  basis;  (ii)  except to the extent
includable  in the  consolidated  net income of the  Borrower or a  Consolidated
Entity  pursuant to the foregoing  clause (i), the net income of any Person that
accrued prior to the date that (a) such Person becomes a Consolidated  Entity or
is merged into or consolidated  with a Consolidated  Entity or (b) the assets of
such Person are acquired by the Borrower or a Consolidated Entity; (iii) the net
income of any Consolidated  Entity to the extent that the declaration or payment
of dividends or similar distributions by such Consolidated Entity of that income
is not  permitted  by  operation  of the terms of its charter or any  agreement,
instrument,  judgment,  decree, order, statute, rule or governmental  regulation
applicable to that  Consolidated  Entity  during such period;  (iv) any gain (or
loss), together with any related provisions for taxes on any such gain, realized
during such period by the  Borrower or its  Consolidated  Entities  upon (a) the
acquisition of any securities, or the extinguishment of any Indebtedness, of the
Borrower  or its  Consolidated  Entities  or (b) any asset sale by the  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


<PAGE>



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 Shareholders' Equity of the Borrower and its Consolidated Entities.

     "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


<PAGE>



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 and
Eurodollar  Rate  Segment,  until  the  end of the  Interest  Period  applicable
thereto,  a rate of two percent (2%) plus the Eurodollar Rate applicable to such
Loan or Segment,  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
Base Rate  Segments,  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
Bridge 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.

     "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


<PAGE>



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, collectively,  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,  any  other
"Superfund" or  "Superlien"  law or any other  federal,  or applicable  state or
local  statute,  law,  ordinance,  code,  rule,  regulation,   order  or  decree
regulating,   relating  to,  or  imposing  liability  or  standards  of  conduct
concerning, any Hazardous Material.

     "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- Eurodollar Reserve Percentage      Margin

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

     "Eurodollar  Rate  Segment"  means a Segment  bearing  interest  or to bear
interest at the Eurodollar Rate.

     "Eurodollar  Reserve  Percentage"  means,  for  any  day,  that  percentage
(expressed as a decimal) which is in effect from time to time under Regulation D
or any successor regulation,  as the maximum reserve requirement  (including any
basic, supplemental,  emergency,  special, or marginal reserves) applicable with
respect to Eurocurrency  liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by reference to
which the interest rate on Eurodollar Rate Loans is determined),  whether or not
the  Agent  or any  Lender  has any  Eurocurrency  liabilities  subject  to such
requirements,  without  benefits of credits or proration,  exceptions or offsets
that  may be  available  from  time to  time to the  Agent  or any  Lender.  The
Eurodollar Rate shall be adjusted  automatically on and as of the effective date
of any change in the Eurodollar Reserve Percentage.

     "Event  of  Default"  means  any of the  occurrences  set  forth as such in
Section 9.1.


<PAGE>




     "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 M.

     "Existing  Availability"  means that, at any point in time,  there shall be
available to the Borrower under the Existing  Credit  Agreement for borrowing or
issuance of letters of credit an amount of $5,000,000 or more.

     "Existing  Credit  Agreement"  means the Third Amended and Restated  Credit
Agreement  dated  April 18,  1996  among  the  Borrower,  NationsBank,  National
Association,  as Agent and the  lenders  party  thereto  from  time to time,  as
amended, modified or supplemented.

     "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  partnership  controlled
directly or indirectly by the Borrower.

     "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  Effective  Rate"  means,  for any day,  the rate per annum
(rounded upward 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
Effective Rate for such day shall be such rate


<PAGE>



on such transactions on the next preceding Business Day, and (b) if no such rate
is so  published  on such  next  succeeding  Business  Day,  the  Federal  Funds
Effective  Rate for such day shall be the  average  rate  quoted to the Agent 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,  or with respect to Horizon,  the twelve
month fiscal  period of Horizon  commencing  on June 1 of each calendar year and
ending on May 31 of the next succeeding calendar year.

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

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

     "Governmental Authority" 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 hazardous,  toxic or dangerous
waste,  substance or material,  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


<PAGE>



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.

     "Horizon" means Horizon/CMS Healthcare Corporation, a Delaware corporation.

     "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.   The  amount  of
Indebtedness of any Person at any date shall be the outstanding  balance at such
date of all unconditional  obligations as described above, the maximum liability
of such Person for any such contingent obligations at such date and, in the case
of clause (vii), the amount of the Indebtedness secured.

     "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan or
Eurodollar  Rate Segment or  Eurodollar  Market  Loans for the  Interest  Period
applicable  thereto,  the average  (rounded upward to the nearest  one-sixteenth
(1/16) of one percent) per annum rate of interest  determined by the Agent (each
such determination to be conclusive and binding absent manifest error) as of two
Business Days prior to the first day of such Interest  Period,  as the effective
rate at which deposits in immediately available funds in Dollars are being, have
been,  or  would be  offered  or  quoted  by the  Agent  to  major  banks in the
applicable  interbank  market for  Eurodollar  deposits  at any time  during the
Business Day which is the second  Business Day  immediately  preceding the first
day of such Interest  Period,  for a term comparable to such Interest Period and
in the  amount  of such  Eurodollar  Rate Loan or  Eurodollar  Rate  Segment  or
Eurodollar Market Loan. If no such offers or quotes are generally  available for
such amount,  then the Agent shall be entitled to determine the Eurodollar  Rate
by estimating in its reasonable judgment the per annum rate (as described above)
that would be applicable if such quote or offers were generally available.


<PAGE>



     "Interest Period" shall mean 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) if any  Interest  Period  for  any
Eurodollar Rate Loan would otherwise end after the Bridge Termination Date, such
Interest  Period shall end on the Bridge  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 Eurodollar Rate Segment or the
conversion of any  Eurodollar  Rate Loan or Eurodollar  Rate Segment into a Base
Rate Loan or Base Rate Segment or the  conversion  of any Base Rate Loan or Base
Rate Segment into a Eurodollar Rate Loan or Eurodollar Rate Segment, in the form
of Exhibit E.

     "Issuing  Bank"  means  NationsBank  as issuer of Letters  of Credit  under
Article III.

     "LC Account  Agreement" means the LC Account Agreement dated as of the date
hereof  between the  Borrower  and the  Issuing  Bank,  as amended,  modified or
supplemented from time to time.

     "Lending  Office"  means,  as to 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 in an  Assignment  and
Acceptance  or such  other  office of such  Lender (or of an  affiliate  of such
Lender)  as  such  Lender  may  from  time  to  time  specify  to an  Authorized
Representative and the Agent as the office by which its Loans are to be made and
maintained.

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

     "Letter of Credit  Commitment"  means,  with  respect to each  Lender,  the
obligation  of such  Lender to acquire  Participations  in respect of Letters of
Credit and  Reimbursement  Obligations up to an aggregate amount at any one time
outstanding equal to such Lender's


<PAGE>



Applicable Commitment Percentage of the Total Letter of Credit Commitment as the
same may be increased or decreased from time to time pursuant to this Agreement.

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

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

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

     "Line  of   Business"   means,   with  respect  to  the  Borrower  and  its
Subsidiaries,  any separate and  distinguishable  type of business carried on by
the Borrower or its Subsidiaries, including (but not limited to) long-term care,
institutional  pharmacy  services,  physician  placement  and  contract  therapy
services.

     "Loan" or "Loans"  means any Bridge Loans and all  extensions  and renewals
thereof.

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

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (i) the
business,  properties,  operations 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).


<PAGE>



     "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.

     "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


<PAGE>



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.

     "NationsBank" means NationsBank, National Association.

     "Notes" means the Bridge Notes.

     "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) the  Reimbursement  Obligations  and  otherwise in
respect of the Letters of Credit,  and (iii) the payment and  performance of all
other  obligations,  liabilities and Indebtedness of the Borrower to the Lenders
or the Agent  hereunder,  under any one or more of the other Loan  Documents  or
with respect to the Loans.

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

     "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,  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.


<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) mechanics',  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  other  than  Liens  that do not
     materially adversely affect the value or utility of the affected property;

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

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

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

     "Permitted Investments" 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 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;


<PAGE>



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

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

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

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

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

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

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

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

     (13) other  investments of less than $5,000,000 in the aggregate  expressly
     approved in writing by the 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,  Wellmark,   HEALTHSMART,
     MedPartners  and Austin Medical  Office  Building which in the aggregate do
     not exceed $5,000,000; and


<PAGE>




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

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

     "Prepayable   Debt"   means  the   Indebtedness   described   in   Schedule
1.1--Prepayable Debt.

     "Prime Rate" means the rate of interest per annum announced publicly by the
Agent as its prime rate from time to time.

     "Principal  Office" means the office of the Agent at NationsBank,  National
Association,  Independence Center, 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.

     "Pro  Forma  Historical  Statements"  means (i) the pro forma  consolidated
balance  sheet as at March 31, 1997 and (ii) the pro forma  consolidated  income
statements  for Fiscal  Year ended  December  31,  1994,  December  31, 1995 and
December 31, 1996  prepared in  accordance  with GAAP by  independent  certified
public accountants of national reputation, of the Borrower and its Subsidiaries,
giving  historical pro forma effect to the Related  Acquisition,  which shall be
furnished to the Agent and the Lenders prior to the Closing Date.

     "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 at least one of
the parties thereto from the  fluctuations of interest rates,  exchange rates or
forward  rates  applicable  to such  party's  assets,  liabilities  or  exchange
transactions,   including,   but   not   limited   to,   Dollar-denominated   or
cross-currency  interest rate exchange  agreements,  forward  currency  exchange
agreements,  interest  rate cap or collar  protection  agreements,  forward rate
currency or interest rate options,  puts,  warrants and those  commonly known as
interest rate "swap" agreements;  and (ii) any and all cancellations,  buybacks,
reversals, terminations or assignments of any of the foregoing.

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

     "Registration  Statement"  means the Borrower's  Registration  Statement on
Form S-4 Registration  No.  33336419,  as filed with the Securities and Exchange
Commission  on  September   25,  1997,  as  amended,   including  all  documents
incorporated therein by reference.


<PAGE>




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

     "Reimbursement  Obligation"  shall mean, at any time, the obligation of the
Borrower  with respect to any Letter of Credit to reimburse the Issuing Bank and
the Lenders to the extent of their respective  Participations  (including by the
receipt by the Issuing  Bank of proceeds of Loans  pursuant to Section  3.2) for
amounts  theretofore  paid by the Issuing Bank  pursuant to a drawing under such
Letter of Credit.

     "Related  Acquisition"  means the acquisition by the Borrower of Horizon in
accordance  with  the  terms  of the  Related  Acquisition  Agreement,  as  such
transaction is further described in the Registration Statement.

     "Related  Acquisition  Agreement"  means that certain Plan and Agreement of
Merger dated as of February 17, 1997 by and among the Borrower, Horizon and Reid
Acquisition Corporation, and all schedules, annexes and exhibits thereto, as the
same may be amended or supplemented in a manner acceptable to the Administrative
Agent and the Required Lenders in their discretion.

     "Related Acquisition  Transaction  Documents" means the Related Acquisition
Agreement  and each  document,  agreement,  instrument,  opinion or  certificate
incorporated  therein or delivered in  connection  therewith,  including in each
case all  annexes,  schedules  and exhibits  thereto,  as any of the same may be
amended or  supplemented  in a manner  acceptable  to the Agent and the Required
Lenders in their discretion.

     "Required  Lenders"  means,  as of any date,  Lenders  on such date  having
Credit  Exposures (as defined  below)  aggregating at least 51% of the aggregate
Credit  Exposures of all the Lenders on such date. For purposes of the preceding
sentence,  the amount of the "Credit  Exposure" of each Lender shall be equal to
the  aggregate  principal  amount of the Loans,  owing to such  Lender  plus the
aggregate  unutilized amounts of such Lender's Bridge Commitment plus the amount
of  such  Lender's  Applicable   Commitment   Percentage  of  Letter  of  Credit
Outstandings;  provided  that,  if any Lender  shall  have  failed to pay to the
Issuing  Bank its  Applicable  Commitment  Percentage  of any drawing  under any
Letter of Credit  resulting in an  outstanding  Reimbursement  Obligation,  such
Lender's  Credit Exposure  attributable  to Letters of Credit and  Reimbursement
Obligations  shall be deemed to be held by the Issuing Bank for purposes of this
definition.

     "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


<PAGE>



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, a division of The McGraw Hill Companies.

     "Segment"  means a portion of a Loan (or all thereof) with respect to which
a particular interest rate is (or is proposed to be) applicable.

     "Short Term Credit Facility" means the short-term loan of $500,000,000 made
by NationsBank,  National  Association to the Borrower evidenced by a promissory
note dated September 25, 1997.

     "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

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

          "Stated Termination Date" means October 21, 1998.

          "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


<PAGE>



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 4068(f) of ERISA; or (iii) the termination of a
Pension  Plan,  the filing of a notice of intent to  terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA; or (iv) the institution of proceedings to terminate a Pension Plan by the
PBGC; or (v) any other event or condition which would  constitute  grounds under
Section 4042(a) of ERISA for the termination of, or the appointment of a trustee
to administer,  any Pension Plan; or (vi) the partial or complete  withdrawal of
the Borrower or any ERISA  Affiliate  from a  Multiemployer  Plan;  or (vii) the
imposition  of a Lien  pursuant  to Section  412 of the Code or  Section  302 of
ERISA; or (viii) any event or condition which results in the  reorganization  or
insolvency of a Multiemployer  Plan under Section 4241 or Section 4245 of ERISA,
respectively; or (ix) any event or condition which results in the termination of
a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC
of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA.

     "Total  Letter  of  Credit  Commitment"  means  an  amount  not  to  exceed
$50,000,000.

     "Total Bridge Commitment" means a principal amount equal to $1,250,000,000,
as reduced from time to time in accordance with Section 2.1(a) and Section 2.7.

     "Type" shall have the meaning assigned to such term in Section 1.3.

     "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.

     24.2. Rules of Interpretation.

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


<PAGE>



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

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

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

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

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

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

     24.3.  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.


<PAGE>



                                   ARTICLE XXV

                                    The Loans

     25.1. Bridge Loans.

     (a) Bridge Facility. Subject to the terms and conditions of this Agreement,
each Lender  severally  agrees to make Advances to the Borrower under the Bridge
Facility  from time to time from the Closing  Date until the Bridge  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 Bridge 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  or  (iii)  if there is  Existing  Availability;
provided  further,  however,  that immediately  after giving effect to each such
Advance,  the  principal  amount of Bridge  Outstandings  plus Letters of Credit
Outstandings shall not exceed the Total Bridge  Commitment.  Within such limits,
the  Borrower  may borrow,  repay and  reborrow  under the Bridge  Facility on a
Business  Day  from  the  Closing  Date  until,   but  (as  to  borrowings   and
reborrowings) not including,  the Bridge  Termination Date;  provided,  however,
that (y) no Bridge Loan that is a  Eurodollar  Rate Loan shall be made which has
an Interest Period that extends beyond the Bridge  Termination Date and (z) each
Bridge 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 4.2.

     (b)  Amounts.   The  aggregate   unpaid  principal  amount  of  the  Bridge
Outstandings  shall not exceed the Total  Bridge  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 Bridge 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  written  notice by  telefacsimile
transmission  of a  Borrowing  Notice or  Interest  Rate  Selection  Notice  (as
applicable) with appropriate insertions,  effective upon receipt, of each Bridge
Loan  that  is a  Eurodollar  Rate  Loan  (whether  representing  an  additional
borrowing  hereunder or the  conversion of a borrowing  hereunder from Base Rate
Loans to Eurodollar Rate Loans) prior to 10:30 A.M. and (2) irrevocable  written
notice by  telefacsimile  transmission  of a Borrowing  Notice or Interest  Rate
Selection  Notice (as applicable) with  appropriate  insertions,  effective upon
receipt,  of each Bridge Loan that is a Base Rate Loan (whether  representing an
additional  borrowing  hereunder or the  conversion of borrowing  hereunder from
Eurodollar Rate Loans to Base Rate Loans) prior to 10:30 A.M. on the day of such
proposed Bridge Loan. Each such notice shall specify the amount of the borrowing
the Type of Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a
Eurodollar  Rate Loan,  the  Interest  Period to be used in the  computation  of
interest.  Notice of receipt of such Borrowing Notice or Interest Rate Selection
Notice, as the case may be, together with the amount


<PAGE>



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.

     (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 Bridge Loan or Bridge 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 Bridge 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  Segment to (or  continue  such Segment as) a Base
Rate Loan until the Borrower notifies the Agent in accordance with Section 2.8.

     (iv)  Notwithstanding the foregoing,  if a drawing is made under any Letter
of Credit,  such  drawing is  honored  by the  Issuing  Bank prior to the Bridge
Termination  Date, and the Borrower shall not  immediately  fully  reimburse the
Issuing Bank in respect of such  drawing,  (A) provided  that the  conditions to
making  a  Bridge  Loan  as  herein  provided  shall  then  be  satisfied,   the
Reimbursement  Obligation arising from such drawing shall be paid to the Issuing
Bank by the Agent without the requirement of notice to or from the Borrower from
immediately  available  funds which  shall be advanced as a Base Rate  Refunding
Loan by each  Lender  under  the  Bridge  Facility  in an  amount  equal to such
Lender's Applicable Commitment Percentage of such Reimbursement Obligation,  and
(B) if the conditions to making a Bridge Loan as herein  provided shall not then
be  satisfied,  each of the Lenders  shall fund by payment to the Agent (for the
benefit of the Issuing Bank) in  immediately  available  funds the purchase from
the Issuing Bank of their respective Participations in the related Reimbursement
Obligation based on their respective  Applicable  Commitment  Percentages.  If a
drawing is  presented  under any Letter of Credit in  accordance  with the terms
thereof and the Borrower  shall not  immediately  reimburse  the Issuing Bank in
respect  thereof,  then  notice of such  drawing  or payment  shall be  provided
promptly by the Issuing Bank to the Agent and the Agent shall provide  notice to
each Lender by telephone or telefacsimile transmission. If notice to the Lenders
of a drawing under any Letter of Credit is given by the Agent at or before 12:00
noon  on any  Business  Day,  each  Lender  shall,  pursuant  to the  conditions
specified in this Section 2.1(c)(iv), either make a Base Rate Refunding


<PAGE>



Loan or fund the purchase of its  Participation  in the amount of such  Lender's
Applicable  Commitment  Percentage of such drawing or payment and shall pay such
amount to the Agent for the account of the Issuing Bank at the Principal  Office
in Dollars  and in  immediately  available  funds  before  2:30 P.M. on the same
Business  Day. If notice to the Lenders of a drawing under a Letter of Credit is
given by the Agent  after 12:00 noon on any  Business  Day,  each Lender  shall,
pursuant to the conditions  specified in this Section 2.1(c)(iv),  either make a
Base Rate Refunding Loan or fund the purchase of its Participation in the amount
of such Lender's Applicable Commitment Percentage of such drawing or payment and
shall pay such amount to the Agent for the  account of the  Issuing  Bank at the
Principal Office in Dollars and in immediately available funds before 12:00 noon
on the next  following  Business Day. Any such Base Rate Refunding Loan shall be
advanced  as,  and shall  continue  as, a Base Rate  Loan  unless  and until the
Borrower  converts such Base Rate Loan in  accordance  with the terms of Section
2.8.

     25.2. 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
9.1(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 September
30,  1997,  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 Bridge  Termination
Date. Interest payable at the Default Rate shall be payable on demand.

     25.3. Payment of Principal.  The principal amount of each Bridge 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.  In
addition,  if at any time there shall be any Existing  Availability the Borrower
shall  promptly  reduce  the  Bridge  Outstandings  by an  amount  equal  to the
difference  between  $1,250,000,000  and the  amount  of  outstanding  loans and
letters of credit under the Existing Credit  Agreement.  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
4.2. All prepayments of Bridge 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 Bridge Outstandings,  as the case may be,
or such other amount as necessary to comply with Section 2.1(b) or Section 2.8.


<PAGE>



     25.4. 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 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
continue to accrue on any principal as to which a non-conforming payment is made
until the later of (x) the date such  funds  become  available  funds or (y) the
next  Business  Day at the  Default  Rate from the date such  amount was due and
payable.

     (c) In the event that any payment  hereunder 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
clause (ii) of 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  Bridge
Termination Date.

     25.5.  Notes.  Bridge  Loans made by each Lender  shall be evidenced by the
Bridge Note payable to the order of such Lender in the respective  amount of its
Applicable  Commitment  Percentage of the Bridge  Commitment,  which Bridge 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.

     25.6.  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.

     25.7.  Reductions.  (a) 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 Bridge  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


<PAGE>



of  $10,000,000  or such  greater  amount  which is in an  integral  multiple of
$1,000,000,  or  the  entire  remaining  Total  Bridge  Commitment,   and  shall
permanently  reduce the Total  Bridge  Commitment.  Each  reduction of the Total
Bridge  Commitment shall be accompanied by payment of Bridge Loans to the extent
that  the  principal  amount  of  Bridge  Outstandings  plus  Letter  of  Credit
Outstanding  exceeds the Total Bridge  Commitment  after  giving  effect to such
reduction,  together with accrued and unpaid interest on the amounts prepaid. If
any such reduction shall result in the payment of any Eurodollar Rate Loan other
than on the last day of the Interest  Period of such  Eurodollar  Rate Loan such
prepayment shall be accompanied by amounts due, if any, under Section 4.2.

     (b) The Borrower shall make the following mandatory permanent reductions of
the Total Bridge  Commitment,  each such payment to be made to the Agent for the
benefit of the Lenders within the time period specified below:

          (i) With respect to the sale, lease,  transfer or other disposition of
     any Line of Business  where the sales price for such Line of Business shall
     exceed $35,000,000, 100% of the net cash proceeds of the first $500,000,000
     derived from all such transactions in the aggregate and 50% of the net cash
     proceeds of the next $500,000,000 derived from all such transactions in the
     aggregate,  less expenses of such sale,  any taxes actually paid or payable
     as a result of such sale and any secured Indebtedness required to be repaid
     in  connection  with such sale,  lease or transfer,  if the sales price for
     such Line of Business shall exceed  $35,000,000,  such reduction to be made
     within 30 days of the receipt of such proceeds;  the Company shall give not
     less than five (5) Business  Days' prior written notice to the Agent of any
     such prepayment resulting as a result of such reduction, which notice shall
     include a  certificate  of an  Authorized  Representative  setting forth in
     reasonable detail the calculations utilized in computing the amount of such
     prepayment or other reduction; and

          (ii)  with   respect  to  the  issuance  and  sale  for  cash  of  any
     Indebtedness or equity securities of the Borrower or (but only if the sales
     proceeds shall exceed  $5,000,000) any of its  Subsidiaries,  the principal
     amount of any Indebtedness or the cash proceeds of any securities, less any
     costs of issuance and any original  issue  discount,  such  reduction to be
     made within 30 days of the receipt of such proceeds; the Company shall give
     the Agent not less than five (5) days written notice of any such prepayment
     resulting as a result of such reduction.

     25.8.  Conversions and Elections of Subsequent  Interest Periods.  Provided
that no Default or Event of Default shall have  occurred and be  continuing  and
subject to the limitations set forth below and in Article IV, the Borrower may:

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


<PAGE>



            (b) upon delivery,  effective upon receipt,  of a properly completed
Interest Rate  Selection  Notice to the Agent 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 under the Bridge  Facility to begin on the last
          day of the then  current  Interest  Period  for such  Eurodollar  Rate
          Loans; and

               (ii)  convert  Base Rate  Loans  under  the  Bridge  Facility  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 IV. 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.

     25.9. Unused Fees.

     (a) For the period  beginning  on the Closing Date and ending on the Bridge
Termination  Date,  the  Borrower  agrees to pay to the Agent,  for the pro rata
benefit of the Lenders  based on their  Applicable  Commitment  Percentages,  an
unused fee equal to the  Applicable  Unused Fee  multiplied by the average daily
amount by which the Total  Bridge  Commitment  exceeds the  aggregate  principal
amount of Bridge  Outstandings  plus  Letter of Credit  Outstandings.  Such fees
shall be due in arrears on the last Business Day of each March, June,  September
and  December  commencing  September  30, 1997 to and on the Bridge  Termination
Date.

     (b)  Notwithstanding  the  foregoing,  so long as any Lender  fails to make
available any portion of its Bridge 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.

     25.10.  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 or fund its purchase of any  Participation  hereunder  nor shall the Bridge
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 Bridge Facility
as herein provided, the Agent may in its discretion,  but shall not be obligated
to, advance under the Bridge 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 Bridge 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


<PAGE>



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.

     25.11.  Use of Proceeds.  The  proceeds of the Loans made  pursuant to this
Agreement shall be used by the Borrower (i) to repay  Prepayable  Debt, (ii) pay
in full the Short Term  Facility,  (iii) to purchase ASC, to provide  funding in
connection  with the  acquisition of Horizon and (iv) to provide for the working
capital needs and other corporate  purposes of the Borrower and its Consolidated
Entities.


<PAGE>



                                  ARTICLE XXVI

                                Letters of Credit

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

     26.2. Reimbursement.

     (a) The Borrower hereby  unconditionally  agrees to pay to the Issuing Bank
immediately  on demand at the Principal  Office all amounts  required to pay all
drafts  drawn or  purporting  to be drawn  under the  Letters  of Credit and all
reasonable  expenses incurred by the Issuing Bank in connection with the Letters
of Credit,  and in any event and without  demand to place in  possession  of the
Issuing  Bank  (which  shall  include  Advances  under the  Bridge  Facility  if
permitted by Section 2.1(c))  sufficient  funds to pay all debts and liabilities
arising in respect of any Letter of Credit.  The Issuing Bank agrees to give the
Borrower  prompt notice of any request for a draw under a Letter of Credit.  The
Issuing  Bank may charge any account the  Borrower  may have with it for any and
all  amounts the Issuing  Bank pays under a Letter of Credit,  plus  charges and
reasonable  expenses as from time to time agreed to by the Issuing  Bank and the
Borrower;  provided that to the extent permitted by Section 2.1(c)(iv),  amounts
shall be paid  pursuant  to Advances  under the Bridge  Facility.  The  Borrower
agrees to pay the Issuing Bank  interest on any  Reimbursement  Obligations  not
paid when due hereunder at the Base Rate plus two percent (2.0%), or the maximum
rate  permitted by  applicable  law, if lower,  such rate to be calculated on an
Actual/360 Basis.

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

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


<PAGE>



hereinafter described,  its Applicable Commitment Percentage of the liability of
the Issuing Bank under such Letter of Credit.

               (i) Each Lender  (including the Issuing Bank in its capacity as a
          Lender) shall,  subject to the terms and conditions of Article II, pay
          to the Agent for the  account  of the  Issuing  Bank at the  Principal
          Office in Dollars and in immediately  available funds, an amount equal
          to its Applicable  Commitment Percentage of any drawing under a Letter
          of  Credit,  such funds to be  provided  in the  manner  described  in
          Section 2.1(c)(iv).

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

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

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

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

     (e) The  issuance by the Issuing  Bank of each Letter of Credit  shall,  in
addition to the  conditions  precedent set forth in Article V, be subject to the
conditions  that such Letter of Credit be in such form and contain such terms as
shall be reasonably  satisfactory  to the Issuing Bank  consistent with the then
current practices and procedures of the Issuing Bank with respect


<PAGE>



to similar letters of credit, and the Borrower shall have executed and delivered
such other instruments and agreements  relating to such Letters of Credit as the
Issuing Bank shall have reasonably  requested consistent with such practices and
procedures  and shall not be in conflict  with any of the express  terms  herein
contained.  All Letters of Credit shall be issued pursuant to and subject to the
Uniform   Customs  and  Practice  for   Documentary   Credits,   1993  revision,
International  Chamber  of  Commerce  Publication  No.  500 and  all  subsequent
amendments and revisions thereto.

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

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

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

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

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


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          (iii) the  existence  of any claim,  setoff,  defense  (other than the
     defense of payment in accordance with the terms of this Agreement) or other
     rights which the Borrower may have at any time against any  beneficiary  or
     any  transferee  of a Letter of Credit (or any persons or entities for whom
     any such beneficiary or any such transferee may be acting),  the Agent, the
     Lenders or any other Person, whether in connection with the Loan Documents,
     the Related LC Documents or any unrela