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Published: 2008-03-26

Stock Purchase Agreement - NovaCare Inc., NC Resources Inc. and HealthSouth Corp.



                            STOCK PURCHASE AGREEMENT




                                    ******



                                NOVACARE, INC.,

                               NC RESOURCES, INC. 



                                      AND



                            HEALTHSOUTH Corporation




                            Dated: February 3, 1995



                            STOCK PURCHASE AGREEMENT

                               Table of Contents



                                   ARTICLE 1
                                  DEFINITIONS

...........................................................................  1
Section 1.1  Certain Defined Terms.........................................  1
Section 1.2  Index of Other Defined Terms..................................  3

                                   ARTICLE 2
                               BASIC TRANSACTIONS

...........................................................................  4
Section 2.1  Conveyance of RSC Shares......................................  4
Section 2.2  Purchase Price; Post Closing Adjustment.......................  4
Section 2.3  Excluded Assets...............................................  5
Section 2.4  Employee Matters..............................................  6
Section 2.5  Use of Names and Manuals......................................  6
Section 2.6  Procedure for Consents or Default.............................  7
Section 2.7  Closing.......................................................  7
Section 2.8  Resolution of Cooperative Arrangements........................  8
Section 2.9  Guaranty by NovaCare..........................................  9

                                   ARTICLE 3
                    REPRESENTATIONS AND WARRANTIES OF SELLER

...........................................................................  9
Section 3.1  Organization and Corporate Power..............................  9
Section 3.2  RSC and Subsidiaries.......................................... 10
Section 3.3  Authority Relative to this Agreement.......................... 10
Section 3.4  Absence of Breach............................................. 10
Section 3.5  Private Party Consents........................................ 11
Section 3.6  Governmental Consents......................................... 11
Section 3.7  Brokers....................................................... 11
Section 3.8  Title to Personal Property.................................... 11
Section 3.9  Contracts and Leases.......................................... 12
Section 3.10  Licenses..................................................... 12
Section 3.11  Employee Relations........................................... 12
Section 3.12  Employee Plans............................................... 12
Section 3.13  Litigation................................................... 13
Section 3.14  Inventory.................................................... 13
Section 3.15  Hazardous Substances......................................... 13
Section 3.16  Financial Information and Related Matters.................... 13
Section 3.17  Changes Since Balance Sheet.................................. 15
Section 3.18  Compliance with Laws......................................... 15
Section 3.19  Lists of Other Data.......................................... 16

                                      (i)

                                   ARTICLE 4
                    REPRESENTATIONS AND WARRANTIES OF BUYER

........................................................................... 16
Section 4.1  Organization and Corporate Power.............................. 16
Section 4.2  Authority Relative to this Agreement.......................... 16
Section 4.3  Absence of Breach............................................. 17
Section 4.4  Private Party Consents........................................ 17
Section 4.5  Governmental Consents......................................... 17
Section 4.6  Brokers....................................................... 17
Section 4.7  Qualified for Licenses........................................ 17
Section 4.8  Financial Ability to Perform.................................. 17
Section 4.9  No Assurance.................................................. 18
Section 4.10  Disposal of Assets........................................... 18

                                   ARTICLE 5
                            COVENANTS OF EACH PARTY

........................................................................... 18
Section 5.1  Efforts to Consummate Transactions............................ 18
Section 5.2  Cooperation................................................... 18
Section 5.3  Further Assistance............................................ 19
Section 5.4  Cooperation Respecting Proceedings............................ 19
Section 5.5  Expenses...................................................... 19
Section 5.6  Announcements; Confidentiality................................ 20
Section 5.7  Cost Reports.................................................. 21

                                   ARTICLE 6
                         ADDITIONAL COVENANTS OF SELLER

........................................................................... 22
Section 6.1  Conduct Pending Closing....................................... 22
Section 6.2  Access and Information; Environmental Survey; Remediation or
             Adjustment.................................................... 23
Section 6.3  Updating...................................................... 24
Section 6.4  No Solicitation............................................... 24
Section 6.5  Filing of Cost Reports........................................ 24

                                   ARTICLE 7
                         ADDITIONAL COVENANTS OF BUYER

........................................................................... 24
Section 7.1  Waiver of Bulk Sales Law Compliance........................... 24
Section 7.2  Cost Reports and Audit Contests............................... 24
Section 7.3  Letters of Credit............................................. 25



                                      (ii)

                                   ARTICLE 8
                         BUYER'S CONDITIONS TO CLOSING

........................................................................... 25
Section 8.1  Performance of Agreement...................................... 25
Section 8.2  Accuracy of Representations and Warranties.................... 25
Section 8.3  Officer's Certificate......................................... 25
Section 8.4  Consents...................................................... 25
Section 8.5  Absence of Injunctions........................................ 25
Section 8.6  Opinion of Counsel............................................ 26
Section 8.7  Receipt of Other Documents.................................... 26
Section 8.8  Certificates of Need and Consents............................. 26

                                   ARTICLE 9
                         SELLER'S CONDITIONS TO CLOSING

........................................................................... 27
Section 9.1  Performance of Agreement...................................... 27
Section 9.2  Accuracy of Representations and Warranties.................... 27
Section 9.3  Officer's Certificate......................................... 27
Section 9.4  Consents...................................................... 27
Section 9.5  Absence of Injunctions........................................ 28
Section 9.6  Opinion of Counsel............................................ 28
Section 9.7  Receipt of Other Documents.................................... 28

                                   ARTICLE 10
                                  TERMINATION

........................................................................... 29
Section  10.1  Termination................................................. 29
Section  10.2  Effect of Termination....................................... 29

                                   ARTICLE 11
                     SURVIVAL AND REMEDIES; INDEMNIFICATION

........................................................................... 29
Section 11.1  Survival..................................................... 29
Section 11.2  Exclusive Remedy............................................. 29
Section 11.3  Indemnity by Seller.......................................... 30
Section 11.4  Indemnity by Buyer........................................... 30
Section 11.5  Further Qualifications Respecting Indemnification............ 31
Section 11.6  Procedures Respecting Third Party Claims..................... 32


                                     (iii)

                                   ARTICLE 12
                               GENERAL PROVISIONS

........................................................................... 32
Section 12.1  Notices...................................................... 32
Section 12.2  Attorneys' Fees.............................................. 34
Section 12.3  Successors and Assigns....................................... 34
Section 12.4  Counterparts................................................. 34
Section 12.5  Captions and Paragraph Headings.............................. 34
Section 12.6  Entirety of Agreement; Amendments............................ 34
Section 12.7  Construction................................................. 34
Section 12.8  Waiver....................................................... 35
Section 12.9  Governing Law................................................ 35
Section 12.10  Severability................................................ 35
Section 12.11  Consents Not Unreasonably Withheld.......................... 35
Section 12.12  Time Is of the Essence...................................... 35


                                      (iv)

                               LIST OF SCHEDULES


                  A-1               Subsidiaries and Their
                                    Respective States of Incorporation and
                                    Qualification

                  A-2               Facilities

                  1.1-1             Leased Real Property

                  1.1-2             Other Contracts

                  1.1-3             Owned Real Property

                  1.1-5             Transferred Business Names

                  2.3               Excluded Assets

                  2.4               Employee Pension Benefit Plans

                  3.7               Brokers

                  3.13              Litigation

                  3.16(a)           EBITDA Statements

                  3.16(b)           Balance Sheet

                  3.19(a)           Depreciation Schedule

                  3.19(b)           Personal Property Leases

                  3.19(c)           Insurance

                  3.19(d)           Employee Benefit Arrangements

                  3.19(f)           Material Licenses

                  7.3               Bonds, Letters of Credit, etc.


                                      (v)

                            STOCK PURCHASE AGREEMENT


         STOCK  PURCHASE  AGREEMENT,  made and entered  into as of the 3d day of
February,   1995,  by  and  among   NOVACARE,   INC.,  a  Delaware   corporation
("NovaCare"),  NC  RESOURCES,  INC.,  a  Delaware  corporation  ("Seller"),  and
HEALTHSOUTH Corporation, a Delaware corporation ("Buyer").


                             W I T N E S S E T H :


         WHEREAS, Seller owns all of the issued and outstanding capital stock of
Rehab Systems Company, a Delaware corporation ("RSC");

         WHEREAS,  through  subsidiary  corporations  identified on Schedule A-1
hereto (each, a "Subsidiary", and collectively, the "Subsidiaries"), RSC engages
in the business of delivering  rehabilitative health care services to the public
through 11  rehabilitation  hospitals,  five community  re-entry  centers,  five
sub-acute  units  and two  satellite  outpatient  facilities,  all of which  are
identified on Schedule A-2 (the "Facilities");

         WHEREAS,  Buyer desires to purchase from Seller,  and Seller desires to
sell to Buyer, all of the issued and outstanding  shares of capital stock of RSC
(the  "RSC  Shares"),   such  transaction   being  referred  to  herein  as  the
"Transaction"; and

         WHEREAS,  NovaCare is the  ultimate  parent of Seller and is willing to
guarantee the obligations of Seller hereunder.

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
promises  and  covenants  contained  herein,  and for  other  good and  valuable
consideration,  the receipt and sufficiency of which are hereby acknowledge, the
parties hereto to hereby agree as follows:


                                   ARTICLE 1
                                  DEFINITIONS

         Section 1.1 Certain Defined Terms. For purposes of this Agreement,  the
following terms shall have the following meanings:

                  "Affiliate" of a specified  person shall mean any corporation,
partnership,  sole  proprietorship  or other person or entity which  directly or
indirectly through one or more intermediaries  controls,  is controlled by or is
under common control with the person  specified.  The term  "control"  means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
amended.

                  "Cost Report" shall mean the cost report required to be filed,
as of the end of a provider  cost year or for any other  required  period,  with
cost-based Payors with respect to cost reimbursement.

                  "Cost  Report  Settlements"  shall mean all  right,  title and
interest of RSC or any Subsidiary in assets resulting from the finalization with
Payors of amounts due with respect to Cost Reports.

                  "Equipment"   means  fixed  machinery  and  equipment,   other
fixtures and  fittings,  movable  plant,  machinery,  equipment  and  furniture,
trucks, tractors, trailers, and other vehicles, tools and other similar items of
tangible  personal  property (i) that are not consumed,  disposed of or held for
sale or as Inventory in the ordinary course of business, and (ii) that are owned
or leased by or consigned to RSC or any Subsidiary as of the closing.

                  "Inventory" means all of RSC's or any Subsidiary right,  title
and interest in and to inventories  and supplies,  drugs,  food,  janitorial and
office  supplies,  maintenance  and shop  supplies,  and other  similar items of
tangible personal property intended to be consumed,  disposed of or sold, in the
ordinary  course  of  business  that  are  owned by or  consigned  to RSC or any
Subsidiary as of the Closing.

                  "Knowledge" of a party shall mean the collective  knowledge of
the  persons  who  serve as of the date of this  Agreement  as the duly  elected
officers of such party.

                  "Laws"   shall   mean  all   statutes,   rules,   regulations,
ordinances,  orders, codes, permits, licenses and agreements with or of federal,
state, local and foreign governmental and regulatory  authorities and any order,
writ,  injunction  or decree  issued by any court,  arbitrator  or  governmental
agency or in connection with any judicial,  administrative or other non-judicial
proceeding (including, without limitation, arbitration or reference).

                  "Leased Real  Property"  shall mean the land,  Facilities  and
real property  improvements  (whether  owned or leased) which are held by RSC or
any Subsidiary  pursuant to the Real Property Leases and which are identified in
Schedule  1.1-1,  together  with all  construction  work-in-progress  in respect
thereof and rights, privileges and easements appurtenant thereto.

                  "Licenses"  shall mean  certificates of need,  accreditations,
registrations, licenses, permits and other consents or approvals of governmental
agencies or accreditation organizations.

                  "Other  Contracts"  shall mean all contracts and agreements to
which  RSC or any  Subsidiary  is a party as of the  Closing,  other  than  Real
Property  Leases,  including,  but not limited to the  contracts  identified  on
Schedule  1.1-2,  which  contains a list of the  following  categories  of Other
Contracts:  constructions contracts relating to construction work-in-progress at
a  Facility;   equipment  leases  (whether  operating  or  capitalized  leases),
installment  purchase  contracts  where  the  annualized  lease  or  installment
payments exceed $25,000;  contracts or arrangements binding on a Subsidiary or a
Facility  which  contain any covenant not to compete or otherwise  significantly
restrict  the nature of the  business  activities  in which such  Subsidiary  or
Facility may engage;  employment contracts,  if any, between RSC, any Subsidiary
or any Facility and any person providing services for such Facility;  collective
bargaining  agreements,  if any;  Medicare  and  Medicaid  provider  numbers and
provider  agreements,  and provider  agreements with other Payors; and any other
contracts  pursuant to which RSC or any Subsidiary paid or received over $25,000
during its last fiscal year;  provided,  however,  that Schedule  1.1-2 need not
list an Other Contract if all material  obligations of RSC and/or the Subsidiary
thereunder have been, or prior to the Closing will be,  completed or RSC, or RSC
or the  Subsidiary is entitled,  or has or by the Closing will have  exercised a
right, to terminate the contract without penalty on 90 days' notice or less.

                  "Owned Real  Property"  shall mean the real property  owned in
fee by RSC or any Subsidiary that is identified on Schedule 1.1-3, together with
the Facilities  located thereon,  construction  work-in-progress,  and all other
buildings and  improvements  thereon,  and all rights,  privileges,  permits and
easements appurtenant thereto.

                  "Payor" shall mean Medicare,  Medicaid,  CHAMPUS and Medically
Indigent Assistance  programs,  Blue Cross, Blue Shield or any other third party
payor (including an insurance  company),  or any health care provider (such as a
health maintenance  organization,  preferred provider organization,  peer review
organization, or any other managed care program).

                  "Prepayments"   shall  mean  advance  payments,   prepayments,
prepaid  expenses,  deposits and the like made by RSC or any  Subsidiary  in the
ordinary course of business prior to the Closing,  which exist as of the Closing
and with respect to which RSC or any  Subsidiary  will receive the benefit after
the  Closing,  and other  items  recorded  as  prepaid  expenses  by RSC and the
Subsidiaries.

                  "Real Property Leases" shall mean all leases pursuant to which
RSC or any Subsidiary holds a leasehold interest in land, Facilities and/or real
property improvements, all of which are identified on Schedule 1.1-4.

                  "Receivables"  shall  mean all of  RSC's  or any  Subsidiary's
right,  title and  interest  as of the  Closing  in and to  accounts  receivable
recorded  by RSC or  such  Subsidiary  as an  account  receivable  from  Payors,
patients  and other third  parties,  including,  but not limited to, Cost Report
Settlements.

                  "Taxes"  shall mean (i) all federal,  state,  county and local
sales, use, property,  payroll,  recordation and transfer taxes, (ii) all state,
county  and local  taxes,  levies,  fees,  assessments  or  surcharges  (however
designated,  including  privilege taxes,  room or bed taxes and user fees) which
are based on the gross  receipts,  net  operating  revenues or patient days of a
Facility  for a period  ending on,  before or  including  the  Closing  Date (as
defined  in  Section  2.7) or a formula  taking  any one of the  foregoing  into
account, and (iii) any interest,  penalties and additions to tax attributable to
any of the foregoing.

                  "Transferred  Business  Names"  means  all  right,  title  and
interest  of RSC or any  Subsidiary  in and to the  business  names set forth in
Schedule 1.1-5.

         Section 1.2 Index of Other  Defined  Terms.  In addition to those terms
defined  above,  the following  terms shall have the  respective  meanings given
thereto in the sections indicated below:

      Defined Term                                      Section
      -------------                                     ---------
      Balance Sheet                                       3.16(b)
      Buyer                                              Preamble
      Charter Documents                                   3.4
      Claim Notice                                       11.6
      Closing                                             2.7
      Closing Balance Sheet                               2.2(b)
      Closing Date                                        2.7
      Consultant                                          6.2(b)
      Current Cost Reports                                5.7(a)
      EBITDA                                              3.16(a)
      EBITDA Statements                                   3.16(a)
      Employee Benefit Arrangements                       3.18(d)
      Environmental Regulations                           3.15(a)
      Environmental Survey                                6.2(b)
      ERISA                                               2.4
      Excluded Assets                                     2.3
      Facilities                                         Recitals
      Financial Schedule                                  3.16
      Hazardous Materials                                 3.15
      HSR Act                                             3.4
      Indemnitee                                         11.5
      Indemnitor                                         11.5(a)
      Losses                                             11.3(a)
      Manuals                                             2.5(b)
      Material Adverse Effect                             3.4
      NovaCare                                           Preamble
      Panel                                               2.8
      Pension Plans                                       2.14
      Permitted Encumbrances                              3.8
      Post-Closing Adjustment Amount                      2.2(b)
      Prior Cost Reports                                  5.7(b)
      Purchase Price                                      2.2(a)
      Related Agreements                                  3.4
      Seller                                             Preamble
      Subsidiaries                                       Recitals
      Termination Date                                   10.1(b)
      Third Party Claims                                 11.5(a)
      Transaction                                        Recitals
      Working Capital                                    2.2(b)


                                   ARTICLE 2
                               BASIC TRANSACTIONS

         Section 2.1 Conveyance of RSC Shares.  On the Closing Date, Seller will
convey,  transfer and assign to Buyer all the Seller's right, title and interest
in and to the RSC  Shares,  free and clear of all  liens,  claims,  charges  and
encumbrances of any kind whatsoever.

         Section 2.2 Purchase Price;  Post-Closing Adjustment.  (a) The purchase
price (the "Purchase Price") in the aggregate for all of the RSC Shares shall be
$215,000,000,  as adjusted  pursuant to this Section  2.2,  which price is based
upon the retention by RSC and the  Subsidiaries  of all assets which they own or
lease immediately prior to the Closing,  including,  but not limited to, working
capital and Receivables, subject only to Section 2.3 below.

                  (b) Within 30 days after the Closing,  Seller shall deliver to
Buyer a balance  sheet (the  "Closing  Balance  Sheet") of RSC as of the Closing
Date, which shall be prepared in accordance with generally  accepted  accounting
principles,  in a manner  consistent with the methods and principles used by RSC
in preparing its financial statements on the date of this Agreement. Buyer shall
provide Seller with access to the books and records of RSC and the  Subsidiaries
and the  cooperation  of their  employees in connection  with such  preparation.
Seller  shall also at that time  prepare  and  deliver a  statement  computing a
"Post-Closing Adjustment Amount" equal to the difference between $26,573,000 and
the Working  Capital of RSC as  reflected  on the  Closing  Balance  Sheet.  For
purposes  of this  Section  2.2,  "Working  Capital"  shall  mean the sum of the
following  categories on the Closing Balance Sheet:  (i) Cash, (ii) Net Patients
Accounts  Receivable,   (iii)  Due  (To)  From  Medicare,  (iv)  Other  Accounts
Receivable,  and (v) Other  Current  Assets,  less (i)  Accounts  Payable,  (ii)
Accrued Expenses and (iii) Other Current  Liabilities.  The following categories
shall not be included in the computation of Working Capital: (i) Current Portion
of Capital Leases and (ii) Current Portion of Long-Term Debt.

                      RSC and the  Subsidiaries  have  received  cash  payments,
through the Subsidiary Cost Reports by interim or tentative cost report payments
and  otherwise,  based on Home Office Cost  Statements  of NovaCare for 1994 and
prior years. These amounts have historically been included as a liability in the
category Due (To) From Medicare.  On the Closing  Balance  Sheet,  these amounts
will be reclassified to a liability account entitled NovaCare,  Inc. Home Office
Liability.

                      Cash  held  in  trust  accounts  or  other  funds  to  pay
indebtedness pursuant to the Trust Indentures and Loan Agreements as amended (i)
by and between Mercer  County,  West Virginia and American  Health  Enterprises,
Ltd.,  and (ii) by and between Wood  County,  West  Virginia  and West  Virginia
Rehabilitation  Services,  Inc.  will be  included in the  category  Cash on the
Closing Balance Sheet.

                  (c) Buyer  shall  have  a period  of 15 days  from the date of
delivery  to it of the Closing  Balance  Sheet and the  Post-Closing  Adjustment
Amount statement to object to the  determination of the Post-Closing  Adjustment
Amount,  computed as aforesaid.  In the event of an objection from Buyer,  Price
Waterhouse, LLP and a public accounting firm chosen by Buyer shall have a period
of 15 days in which to  review  the  Closing  Balance  Sheet  and the  statement
showing  Seller's  computation of the  Post-Closing  Adjustment  Amount.  If the
dispute is not resolved in the said 15-day period to the  satisfaction  of Buyer
and Seller,  such accounting firms shall have an additional period of 15 days to
select a third  accounting firm acceptable to both of them to review the Closing
Balance  Sheet,  and  to  make  the  final  determination  of  the  Post-Closing
Adjustment Amount,  which  determination,  absent fraud, shall be conclusive and
binding.  If Price Waterhouse and the second accounting firm are unable to agree
upon a third accounting firm to make the final determination, such an accounting
firm  shall  be  appointed  in  accordance  with the  then-current  rules of the
American Arbitration Association.  The fees and expenses of the third accounting
firm shall be shared equally by Buyer and Seller.

                  (d) Upon the  determination  of  the  Post-Closing  Adjustment
Amount as provided for in the preceding two paragraphs, the Purchase Price to be
paid by Buyer  hereunder  shall be  adjusted  by the amount of the  Post-Closing
Adjustment Amount. Such adjustment shall be paid by the appropriate party within
ten days after final determination of the Post-Closing Adjustment Amount.

         Section 2.3 Excluded Assets.  Notwithstanding any contrary provision of
this Agreement,  the parties  acknowledge and agree that the following described
assets  of RSC and the  Subsidiaries  and the  assets  listed  on  Schedule  2.3
(collectively,  "Excluded  Assets")  are  not  intended  to be  included  in the
Transaction and that Seller,  RSC and the  Subsidiaries may take such actions as
are reasonably  necessary to cause RSC and the Subsidiaries to sign all of their
respective  right,  title and interest in and to such Excluded  Assets to Seller
(or a person or entity  designated by Seller)  immediately prior to the Closing:
all proprietary materials, documents,  information, media, methods and processes
owned by  Seller,  and any and all  rights to use the same,  including,  but not
limited to, all intangible  assets of an  intellectual  property  nature such as
trademarks, service marks and trade names (whether or not registered) other than
the  Transferred  Business Names,  proprietary  computer  software,  proprietary
procedures  and manuals,  promotional  and marketing  materials  (including  all
marketing and computer  hardware and software);  provided,  however,  that Buyer
shall have the rights set forth in Section 2.5.

         Section 2.4 Employee Matters.  Schedule 2.4 lists all "employee pension
benefit  plans"  ("Pension  Plans")  within the  meaning of Section  3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),  in which
employees (as defined in Subsection (b) below) directly  employed to work at the
Facilities participate. Neither Seller nor RSC nor any Subsidiary is a party to,
nor do any such employees  participate in, any "multiemployer  plans" within the
meaning of Section 3(37) of ERISA. Seller shall, or shall cause the Subsidiaries
to, (i)  terminate as of the Closing Date the active  participation  of all such
employees  in the Pension  Plans,  (ii) cause the  Pension  Plans to make timely
appropriate  distributions,  to  the  extent  required,  to  such  employees  in
accordance  with,  and to the extent  permitted by, the terms and  conditions of
such Pension Plans,  and (iii) in connection  with the termination of the active
participation  of all such  employees in such Pension Plans,  comply,  and cause
each Pension Plan to comply,  with all  applicable  Laws.  Prior to the Closing,
Seller shall have delivered to Buyer,  for information  purposes only,  forms of
any letters or other  written  communications  which Seller or the  Subsidiaries
shall distribute  generally to such employees  notifying them of their rights in
respect of their cessation of active participation in the Pension Plans.

       Section 2.5  Use of Names and Manuals.

                  (a) Although trade names of Seller, other than the Transferred
Business Names, are Excluded  Assets,  such names appear on certain fixtures and
Equipment, and on supplies,  materials,  stationery and similar consumable items
which will be on hand at the  Facilities  at the Closing.  Notwithstanding  that
such names are Excluded  Assets,  Buyer shall be entitled to use such consumable
items for a period of three  months  following  the Closing and shall have up to
six  months  following  the  Closing to remove  such  names  from fixed  assets,
provided that Buyer shall not send  correspondence  or other  materials to third
parties on any  stationery  that contains a trade name (other than a Transferred
Business Name) of Seller or any Affiliate of Seller.

                  (b) Seller  hereby  grants to Buyer,  for the period  from the
Closing  Date  through the  expiration  of the  ninetieth  day  thereafter,  the
non-exclusive  right and license to use, solely in connection with the operation
of the  Facilities,  the clinical  policy and procedures  manuals of Seller (the
"Manuals")  presently  used at the  Facilities.  Such  license  shall  be on the
following terms and conditions:

                           (i) Buyer shall  accept the Manuals in their  present
         condition, "AS IS" and "WITH ALL FAULTS" and without any representation
         or  warranty of any kind  whatsoever,  either  express or  implied,  by
         Seller,  including,  but not limited to, any representation or warranty
         that the Manuals are adequate for Buyer's  operation of the  Facilities
         after the Closing or are in compliance with any Laws;

                           (ii)  Buyer   agrees  that   Seller   shall  have  no
         obligation  whatsoever to update or otherwise revise the Manuals,  even
         if Seller or its  Affiliates  are  revising  similar  manuals  at other
         healthcare  facilities,  and that Buyer shall have sole  responsibility
         for updating and revising such manuals;

                           (iii) Buyer  acknowledges and agrees that the Manuals
         are  confidential  and  proprietary   information  of  Seller  and  its
         Affiliates  and Buyer agrees that it will not,  directly or indirectly,
         reproduce, distribute or disclose the contents of the Manuals except as
         may be required in the operation of the Facilities (including,  but not
         limited to, as may be required by any Laws) and shall exercise due care
         to otherwise preserve and protect the proprietary nature thereof;

                           (iv)  Upon  the  termination  of  Buyer's  use of the
         Manuals  pursuant to this  Section,  Buyer  shall  return to Seller all
         originals and copies of the Manuals; and

                           (v) Buyer shall  diligently  implement its own policy
         and procedure  manuals promptly  following the Closing Date, and in any
         event  by the  date on  which  the  license  hereby  granted  to  Buyer
         terminates.

         Section 2.6 Procedure for Consents or Default.  The transfer of the RSC
Shares,  in the absence of the consent or authorization of a third party,  could
constitute a breach or default under a lease, agreement, encumbrance, obligation
or commitment or could adversely affect the rights, or increase the obligations,
of Buyer,  Seller,  RSC or any  Subsidiary  with  respect  thereto.  If any such
consent or  authorization  is not obtained before Closing,  and transfer of such
lease, agreement,  encumbrance,  obligation or commitment in the absence of such
consent or  authorization  would be  ineffective or would  adversely  affect the
rights or increase the obligations of Seller,  RSC, a Subsidiary or Buyer,  with
respect to any such lease, agreement,  encumbrance or commitment,  so that Buyer
would not,  in fact,  receive  all such  rights,  or assume the  obligations  of
Seller,  RSC or such  Subsidiary  with respect  thereto,  as they exist prior to
Closing,  then,  in  accordance  with the  procedures  described in Section 2.8,
Seller and Buyer shall, and Seller shall cause RSC and each Subsidiary to, enter
into such reasonable cooperative arrangements as may be reasonably acceptable to
both  Buyer  and  Seller  (including,  without  limitation,   sublease,  agency,
management,  indemnity or payment arrangements and/or other means to enforce, at
the cost and for the  benefit  of Buyer  and any and all  rights  of RSC and the
Subsidiaries  against an involved third party) to provide for Buyer the benefits
of such items or to relieve  Seller  from the  obligations  of such  items.  The
assignment  of  any  contract,  lease,  agreement,  encumbrance,  obligation  or
commitment,  including,  but not  limited  to,  Medicare,  Medicaid  and similar
provider agreements,  which may lawfully be made subject to customary conditions
subsequent (such as needs surveys,  evaluations of Buyer or other determinations
by the  counterparties  to such agreements)  shall be deemed not to constitute a
default  under,  or to in any way  adversely  affect the rights or increase  the
obligations  of Buyer with  respect to, such lease,  agreement,  encumbrance  or
commitment,  whether or not the counterparty indicates prior to the Closing that
such condition or conditions subsequent are likely or not likely to be met.

         Section 2.7 Closing.  Subject to the terms and conditions  hereof,  the
consummation  of the  Transactions  (the  "Closing")  shall  occur at a mutually
agreeable  time and place or places  within five  business  days after the first
date on which all of the  conditions set forth in Article 8 and Article 9 hereof
are capable of being satisfied,  but in no event later than the Termination Date
set forth in Section  10.1(b).  The date on which the Closing actually occurs is
referred to herein as the "Closing Date". The Closing shall be effective for all
purposes at 11:59 p.m.  Eastern Time on the Closing  Date.  At the Closing,  and
subject to the terms and conditions hereof, the following will occur:

                  (a) Deliveries by Seller.  Seller shall deliver,  or cause the
Subsidiaries to deliver, to Buyer:

                           (i) A certificate or  certificates  representing  the
         RSC Shares, together with stock powers duly executed in blank:

                           (ii) The documents and instruments  required pursuant
         to Section 8.7; and

                           (iii) Such other  instruments of transfer executed by
         Seller as may be  necessary  or  advisable  to  transfer to and vest in
         Buyer  all of  Seller's  right,  title and  interest  in and to the RSC
         Shares.

                  (b)  Deliveries by Buyer.  Buyer shall deliver to Seller:

                           (i)  Immediately  available  funds,  by way  of  wire
         transfer to an account or accounts  designated by Seller,  in an amount
         equal to the Purchase Price, as adjusted by the expenses due at Closing
         pursuant to Section 5.5; and

                           (ii) The  documents  and  instruments  required to be
         delivered pursuant to Section 9.7.


         Section 2.8 Resolution of Cooperative  Arrangements.  In the event that
circumstances  exist  that  require  the  parties  to  negotiate  in good  faith
cooperative  arrangements  under  Section 2.6 or  potential  amendments  to this
Agreement  pursuant to Sections 8.5 then and in such event,  such  negotiations,
and the resolution of  disagreements  arising  therefrom,  shall be conducted in
accordance  with the provisions of this Section 2.8. The parties shall negotiate
such cooperative  arrangements in good faith prior to any scheduled Closing Date
(as may be  extended by mutual  agreement  of the  parties).  If the parties are
unable  to agree by the day  prior to such  scheduled  Closing  Date,  then such
scheduled  Closing  Date  (and the  Termination  Date,  if  necessary)  shall be
extended for up to 15 business  days to provide for the  opportunity  to resolve
such disagreement pursuant to the provisions of this Section 2.8. On the day the
Closing  would have  occurred  but for the  absence  of  agreement  between  the
parties,  each party shall  designate an individual (who may not be a present or
former officer,  director, partner or employee of the party or of any present or
former  investment  banker,  accounting firm, law firm or attorney of or for the
party) to mediate  such  disagreement,  and advise the other party in writing of
the identity of such individual,  which advice shall be accompanied by a list of
up to 10  suggested  neutral  individuals  to  serve  as a third  mediator.  The
mediators  originally  designated by each party shall promptly  confer about the
selection of a third  mediator  from such lists,  and within five  business days
following the originally  scheduled  Closing Date (or  Termination  Date, as the
case may be), the originally  designated mediators shall agree upon and (subject
to  availability)  select the third  mediator  from the lists  submitted  by the
parties or otherwise,  provided that if the originally designated mediators fail
to agree  upon a third  mediator  by such  date,  the  third  mediator  shall be
designated  by the  American  Arbitration  Association  in  accordance  with its
then-current  rules.  The three  mediators so selected are herein referred to as
the "Panel".  Within two business days  following the  designation  of the third
mediator,  each  party  shall  submit  to the  Panel in  writing,  its  proposed
cooperative arrangements.  Such proposals shall be materially in accordance with
the last  proposals  made by such party to the other party  during the course of
the  aforementioned  good faith negotia- tions between the parties.  The parties
shall  additionally  submit such  memoranda,  arguments,  briefs and evidence in
support of their respective  positions,  and in accordance with such procedures,
as a majority of the Panel may  determine.  Within seven business days following
the designation of the third mediator, the Panel shall, by majority vote, select
the proposed cooperative  arrangements  proposed by one of the parties, it being
agreed that the Panel shall have no authority to alter any such  proposal in any
way. Thereafter,  the parties shall, subject to the terms and conditions of this
Agreement, consummate the Transactions on the basis of such selected cooperative
arrangements,  amendments or adjustments at a mutually  agreeable time and place
or places,  in accordance  with the provisions of Section 2.7, which shall be no
later than the fifteenth business day following the originally scheduled Closing
Date or such later date as the parties may agree upon. Subject to the foregoing,
the  Panel may  determine  the  issues in  dispute  following  such  procedures,
consistent with the language of this Agree- ment, as it deems appropriate to the
circumstances  and  with  reference  to the  amounts  in  issue.  No  particular
procedures are intended to be imposed upon the Panel, it being the desire of the
parties  that any such  disagreement  shall be  resolved  as  expeditiously  and
inexpensively as reasonably  practicable.  No member of the Panel shall have any
liability  to the  parties in  connection  with  service  on the Panel,  and the
parties shall provide such indemnities to the members of the Panel as they shall
request.

         Section  2.9  Guaranty  by  NovaCare.  To induce  Buyer to execute  and
deliver  this  Agreement,   NovaCare  hereby   absolutely  and   unconditionally
guarantees the full, prompt and faithful  performance by Seller of all covenants
and obligations to be performed by Seller under this Agreement and any Schedule,
certificate  and  agreement  executed  and  delivered  in  connection  herewith,
including,  without limitation, the payment of all sums stipulated to be paid by
Seller  pursuant  to this  Agreement.  In the event that  Seller  fails to fully
perform all such covenants and obligations in accordance with their terms or pay
all or any part of such sums when due,  NovaCare will perform all such covenants
and  obligations in accordance  with their terms or immediately pay to Buyer (or
such other payee as may be provided  herein or in any such agreement) the amount
due and  unpaid by  Seller,  it being  understood  that each  such  covenant  or
obligation and each obligation to pay any such amount constitutes the direct and
primary obligation of NovaCare.  NovaCare hereby waives  presentment,  demand of
payment,  protest,  dishonor,  notice of  protest  or  dishonor,  and  notice of
acceptance  of the  guaranty  set forth in this  Section  2.9 and all  rights to
require Buyer to proceed  against  Seller,  or to pursue any other remedy it may
have  against  Seller in the event of a breach by Seller of any  representation,
warranty,  obligation  or  covenant  in  this  Agreement  or  in  any  Schedule,
certificate or agreement executed and delivered in connection therewith.  In the
event that Seller is not liable to perform  any such  obligations  or  covenants
because  the act  creating  such  obligation  or  covenant  is  ultra  vires  or
unauthorized,  and for such reasons  such  obligations  or  covenants  cannot be
enforced against Seller,  such fact shall not affect NovaCare's  liability under
this  Section  2.9.  In the  event  of  the  merger,  acquisition,  termination,
liquidation or dissolution of Seller, this unconditional guaranty shall continue
in full force and effect.


                                   ARTICLE 3
                    REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller hereby  represents and warrants to Buyer, as of the date hereof,
as follows, except as disclosed in Schedule 3:

         Section 3.1 Organization  and Corporate Power.  Seller is a corporation
duly  incorporated  and validly existing under the laws of, and is authorized to
exercise its corporate powers, rights and privileges and is in good standing in,
the State of Delaware and has full  corporate  power to carry on its business as
presently  conducted and to own or lease and operate its  properties  and assets
now owned or leased and operated by it.

         Section 3.2 RSC and Subsidiaries.

                  (a)  Each of RSC and each  Subsidiary  is a  corporation  duly
organized,  validly existing and in good standing under the laws of its state of
incorporation  (which in each case is  indicated  on  Schedule  A-1) and is duly
qualified and in good standing as a foreign  corporation in all jurisdictions in
which such  qualification  is required by reason of its business,  properties or
activities in or relating to such jurisdictions  (which is likewise indicated on
Schedule  A-1),  except  where the  failure to be so  qualified  will not have a
Material  Adverse  Effect (as defined in Section  3.4) on RSC or the  applicable
Subsidiary.

                  (b) (i) All of the  outstanding  capital stock of RSC has been
duly authorized and is validly issued, fully paid and nonassessable and is owned
beneficially  and of  record by  Seller.  There  are no  rights,  subscriptions,
warrants,  options,  conversion  rights or agreements of any kind outstanding to
purchase or otherwise  acquire any shares of capital  stock of or  securities or
obligations  of any kind  convertible  into or  exchangeable  for any  shares of
capital stock of RSC.

                           (ii)  All of the  outstanding  capital  stock of each
Subsidiary  has been duly  authorized  and is  validly  issued,  fully  paid and
nonassessable  and,  except as indicated on Schedule A-1, is owned  beneficially
and of record by RSC.  Except as provided in Schedule A- 1, there are no rights,
subscriptions,  warrants,  options,  conversion rights or agreements of any kind
outstanding  to purchase or otherwise  acquire any shares of capital stock of or
securities or obligations of any kind  convertible  into or exchangeable for any
shares of capital stock of any Subsidiary.

                  (c) Upon  consummation of the Transaction,  Buyer will acquire
valid title to the RSC Shares, free and clear of all liens, charges,  pledges or
security interests (except for those created or allowed to be suffered by Buyer)
and free of any restrictions on voting and transfer.

                  (d) No corporate  act or  proceeding on the part of RSC or any
Subsidiary or their respective  boards of directors or shareholders is necessary
to authorize the Transaction.

         Section  3.3  Authority  Relative  to this  Agreement.  The  execution,
delivery and performance of this Agreement and all other agreements contemplated
hereby and the consummation of the transactions  contemplated hereby and thereby
have been duly and  effectively  authorized by the board of directors of Seller;
no other  corporate  act or  proceeding  on the  part of  Seller,  its  board of
directors or its stockholders is necessary to authorize this Agreement, any such
other  agreement  or the  transactions  contemplated  hereby and  thereby.  This
Agreement has been, and each of the other agreements contemplated hereby will as
of the Closing  have been,  duly  executed  and  delivered  by Seller,  and this
Agreement constitutes, and each such other agreement when executed and delivered
will constitute,  a valid and binding obligation of Seller,  enforceable against
Seller in accordance with its terms,  except as it may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors'  rights  generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable  defenses  and to  the  discretion  of  the  court  before  which  any
proceeding may be brought.

         Section 3.4 Absence of Breach.  Subject to the  provisions  of Sections
3.5 and 3.6 below regarding private party and governmental  consents, and except
for  compliance  with  the  requirements  of  the  Hart-Scott-Rodino   Antitrust
Improvements  Act of 1976,  as amended (the "HSR Act"),  and any  regulatory  or
licensing  Laws  applicable  to the  businesses  and assets  represented  by the
Transferred  Assets,  the execution,  delivery and performance by Seller of this
Agreement and all other agreements contemplated hereby or executed in connection
herewith  (the  "Related  Agreements"),  do not (a) conflict with or result in a
breach of any of the provisions of the Articles or Certificates of Incorporation
or Bylaws or similar charter  documents (the "Charter  Documents") of Seller, of
RSC  or of any of  the  Subsidiaries,  (b)  contravene  any  Law  or  cause  the
suspension or revocation  of any License  presently in effect,  which affects or
binds  Seller  or  RSC or any of  the  Subsidiaries,  or any of  their  material
properties,  except where such contravention,  suspension or revocation will not
have a Material  Adverse Effect (as defined  below) on RSC and the  Subsidiaries
and will not affect the validity or  enforceability  of this  Agreement  and the
Related  Agreements or the validity of the Transaction  contemplated  hereby and
thereby,  or (c)  conflict  with or result in a breach of or  default  under any
indenture or loan or credit  agreement or any other  agreement or  instrument to
which Seller or any of the Subsidiaries is a party or by which it or they or any
of their  properties  may be  affected or bound,  the effect of which  conflict,
breach, or default, either individually or in the aggregate, would be a Material
Adverse Effect on RSC and the Subsidiaries.  As used herein, a "Material Adverse
Effect":  (a) when used with  respect to a  Facility,  means a material  adverse
effect on a Facility and on the businesses operated  therefrom,  including their
condition (financial or otherwise) and results of operations,  taken as a whole;
and (b) when used with respect to an entity,  such as Seller,  RSC, a Subsidiary
or Buyer, means a material adverse effect on the business,  condition (financial
or  otherwise)  and  results  of  operations  of such  entity  taken  as a whole
(including any subsidiaries of such entity).

         Section 3.5  Private  Party  Consents.  Except as set forth on Schedule
3.5, the execution, delivery and performance by Seller of this Agreement and the
Related Agreements do not require the authorization,  consent or approval of any
non-governmental  third  party of such a nature  that the  failure to obtain the
same would have a Material Adverse Effect on RSC and the Subsidiaries.

         Section  3.6  Governmental  Consents.   The  execution,   delivery  and
performance  by Seller  of this  Agreement  and the  Related  Agreements  do not
require the authorization, con- sent, approval, certification,  license or order
of, or any filing with, any court or  governmental  agency of such a nature that
the  failure to obtain the same  would  have a  Material  Adverse  Effect on the
Transferred  Assets,  except for compliance with the HSR Act and except for such
governmental authorizations,  consents, approvals, certifications,  licenses and
orders that customarily accompany the transfer of health care facilities such as
the Facilities.

         Section  3.7  Brokers.  No  broker,  finder,  or  investment  banker is
entitled to any  brokerage,  finder's or other fee or  commission  in connection
with this  Agreement  or the  Transaction  contemplated  hereby  based  upon any
agreements or arrangements or commitments, written or oral, made by or on behalf
of Seller or any of its Affiliates.  Seller shall be solely  responsible for the
payment of any such fee or commission to any person or entity listed on Schedule
3.7 as an exception to the foregoing.

         Section 3.8 Title to Personal  Property.  Each  Subsidiary has good and
defensible title, or valid and effective  leasehold rights in the case of leased
property,  to all tangible personal property owned by such Subsidiary or used in
the operations of the applicable Facility, free and clear of all liens, charges,
claims,  pledges,  security  interests,  equities and encumbrances of any nature
whatsoever,  except for those  created or  allowed to be  suffered  by Buyer and
except  for  the  following  (individually  and  collectively,   the  "Permitted
Encumbrances"):  (a) the lien of current taxes not delinquent,  (b) matters that
when viewed in the aggregate,  do not have a Material  Adverse Effect on RSC and
the Subsidiaries, (c) such consents,  authorizations,  approvals and Licenses as
are referred to in Sections 3.5 and 3.6, (e) liens,  charges,  claims,  pledges,
security  interests,  equities  and  encumbrances  which will be  discharged  or
released either prior to, or substantially simultaneously with, the Closing, and
(f) liens created under or pursuant to the Real Property Leases.

         Section 3.9 Contracts and Leases.  Except for matters that, when viewed
in the  aggregate,  do  not  have a  Material  Adverse  Effect  on RSC  and  the
Subsidiaries,  (a) there is no  liability to any person by reason of the default
by Seller,  RSC or a Subsidiary under any Real Property Lease or Other Contract,
(b) neither  Seller nor RSC nor any  Subsidiary  has  received  written or other
notice that any person intends to cancel or terminate any Real Property Lease or
Other  Contract,  (c) all of the Real Property Leases and Other Contracts are in
full force and effect,  (d) subject to the  provisions  of Sections 3.5 and 3.6,
the  consummation  of the  transactions  contemplated by this Agreement will not
constitute and, to the best of Seller's current actual  knowledge,  no event has
occurred  which,  with or without  the  passage of time or the giving of notice,
would constitute a breach or default by Seller, RSC or a Subsidiary of such Real
Property  Lease or  Other  Contract  or  would  cause  the  acceleration  of any
obligation of Seller,  RSC or any Subsidiary or the creation of any lien (except
for Permitted  Encumbrances)  upon any asset of RSC or any  Subsidiary,  and (e)
neither  Seller nor RSC nor any  Subsidiary  has waived any right under any Real
Property Lease or Other Contract.

         Section  3.10  Licenses.   To  the  best  of  Seller's  current  actual
knowledge,  and except for such matters which,  in the aggregate,  do not have a
Material  Adverse  Affect  on RSC and  the  Subsidiaries,  (a) the  Subsidiaries
possess all Licenses  necessary  for their  operation of the  Facilities  at the
locations and in the manner presently operated, (b) if required, such Facilities
are  accredited  by  applicable  accrediting  agencies  as  necessary  for their
operations in the manner presently  operated,  (c) such Facilities are certified
for  participation  in the Medicare and  applicable  Medicaid  programs and have
current and valid provider  contracts  with such  programs,  and (d) there is no
matter  which  would  adversely  affect the  maintenance  of any such  Licenses,
program participations or accreditations.

         Section 3.11 Employee  Relations.  With respect to the employees of RSC
and the Subsidiaries:

                  (a) Neither Seller nor RSC nor any Subsidiary nor any Facility
is a party to any agreement with any union,  trade  association or other similar
employee  organization,  no written  demand has been made for  recognition  by a
labor  organization,  and to the best of Seller's  current  actual  knowledge no
union organizing  activities by or with respect to any such employees are taking
place; and

                  (b) There are no controversies (including, without limitation,
any unfair labor practice  complaints,  labor strikes,  arbitrations,  disputes,
work slowdowns or work stoppages)  affecting a material number of such employees
pending, or to the best of Seller's current actual knowledge, threatened.

         Section 3.12 Employee Plans.  Except for the Pension Plans,  and except
as set forth on Schedule  3.19(d)  hereto,  neither RSC nor any  Subsidiary  has
established  or maintains or is obligated to make  contributions  to or under or
otherwise  participate in any Employee  Benefit  Arrangement.  All such Employee
Benefit  Arrangements  have  been  operated  and  administered  in all  material
respects in accordance  with, as applicable,  ERISA,  the Code, Title VII of the
Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as amended, the
age  discrimination  in employment  act of 1967, as amended,  the Americans with
Disabilities Act, as amended,  and the related rules and regulations  adopted by
those federal  agencies  responsible  for the  administration  of such Laws. All
accrued  benefits  under any such  Employee  Benefit  Arrangement  will be fully
funded at the  Closing  Date.  No act or failure  to act by  Seller,  RSC or any
Subsidiary  has resulted in a  "prohibited  transaction"  (as defined in ERISA).
With respect to any employee benefit plan, and no "reportable event" (as defined
in ERISA) has occurred with respect to any such employee benefit plan.

         Section  3.13  Litigation.  Except  for  ordinary  routine  claims  and
litigation   incidental  to  the   businesses   represented  by  the  Facilities
(including,   but  not  limited  to,   actions  for   negligence,   professional
malpractice,  workers' compensation claims, so-called "slip-and-fall" claims and
the  like),  and  governmental  inspections  and  reviews  customarily  made  of
businesses  such as those  operated from the  Facilities,  there are no actions,
suits,  claims or proceedings  pending,  or to the current  actual  knowledge of
Seller,  threatened  against or affecting RSC or the Subsidiaries or relating to
the  operations  of the  Facilities,  at law or in  equity,  or before or by any
federal, state, municipal or other governmental department,  commission,  agency
or instrumentality. Schedule 3.13 sets forth identifying information and a brief
description  with respect to any pending or, to the current actual  knowledge of
Seller, RSC and the Subsidiaries, threatened claims or litigation affecting RSC,
the  Subsidiaries or the Facilities (i) where the amount in controversy  exceeds
$100,000,  (ii) which  involve any alleged  violation of any Laws or (iii) which
could otherwise be reasonably  expected to have a Material Adverse Effect on RSC
or the applicable Subsidiary.

         Section 3.14  Inventory.  All Inventory of the Facilities  will, at the
Closing  Date,  consist of a quality  and  quantity  usable  and  salable in the
ordinary  course  of  business,  except  for  items of  obsolete  materials  and
materials  of  below-standard  quality,  all  of  which  in  the  aggregate  are
immaterial to the financial condition or results of operations of the businesses
operated from the Facilities taken as a whole, or have been, or prior to Closing
will be, written down to realizable market value.

         Section  3.15  Hazardous  Substances.  To the best of Seller's  current
actual  knowledge,  except as may be disclosed by the  Environmental  Survey (as
defined in Section 6.2(b)):

                  (a) There are no Hazardous  Materials (as defined below) upon,
about,  beneath or migrating or threatening to migrate to or from the Owned Real
Property or the Leased Real  Property or the  existence of any  violation in any
material respect of any Laws relating to industrial hygiene, Hazardous Materials
and environmental protection ("Environmental Regulations"); and

                  (b) There is no proceeding or action  pending or threatened by
any person or  governmental  agency  regarding  the  environmental  condition or
occupational safety of the Facilities.

"Hazardous Materials" shall mean any substance  (including,  without limitation,
any asbestos, formaldehyde, radioactive substance, hydrocarbons, polychlorinated
biphenyls,  industrial solvents, flammables,  explosives and any other hazardous
substance or toxic material) which, in any material respect,  is known to cause,
as of the date of this Agreement,  a health,  safety or environmental hazard and
require remediation at the behest of any governmental agency.

         Section 3.16  Financial Information and Related Matters.

                  (a) To be attached  hereto as Schedule  3.16(a)  within  seven
days  after  the  execution  and  delivery  of this  Agreement  is an  unaudited
statement of certain combined earnings from the operations of the Facilities (as
they were comprised on the as of date of such schedule) before interest,  income
taxes,  depreciation and amortization  ("EBITDA") for the fiscal year ended June
30, 1994 (the "EBITDA  Statements")  and for the six months  ended  December 31,
1994.  The  EBITDA  Statements  present  fairly  the  combined  EBITDA  of  such
operations,  taken as a whole,  as of the dates and for the periods  shown,  and
were derived from and are in accordance  with the internal  books and records of
RSC and the Subsidiaries and the regularly prepared unaudited internal financial
statements  of the  Facilities,  which are  prepared  on a basis  materially  in
accordance with the generally  accepted  accounting  principles  utilized in the
preparation of the published financial statements of Seller.

                  (b)  Attached  hereto  as  Schedule  3.16(b)  is  a  regularly
prepared  internal  unaudited  combined  balance  sheet of the  Facilities as of
December 31, 1994 (the "Balance Sheet"; collectively,  the Balance Sheet and the
EBITDA  Statement  are the  "Financial  Schedule").  The Balance  Sheet has been
prepared from, and is in accordance  with, the internal books and records of RSC
and  the  Subsidiaries  and  presents  fairly  the  financial  condition  of the
Facilities,  taken as a whole,  as of the date  shown.  The  Balance  Sheet  was
prepared in accordance  with Seller's  practices for the preparation of internal
financial statements, consistently applied, and is materially in accordance with
the generally accepted accounting  principles utilized in the preparation of the
published financial statements of Seller.

                  (c) Notwithstanding the foregoing, the Financial Schedule does
not (i) reflect  allocations of indirect costs and overhead or the corresponding
cost reimbursement impact of claiming such costs in a Facility cost report, (ii)
reflect  all  intercompany  eliminations,  adjustments  and  accruals  that  are
reflected in financial  statements of Seller,  (iii) reflect any anticipation of
the  divestiture of the Facilities and any adjustments to the carrying values of
the Facilities  occasioned thereby,  (iv) contain footnotes or other explanatory
material  associated  with  financial  statements  prepared in  accordance  with
generally  accepted  accounting  principles,  or  (v)  contain  normal  year-end
adjustments  with  respect to interim  peri- ods.  In  addition,  the  Financial
Schedule  is to be read in  conjunction  with,  and is subject to, all notes and
other explanatory material set forth therein.

                  (d) The Balance Sheet reflects the amount of Receivables as of
the date thereof, net of allowances customarily recorded by the Subsidiaries for
uncollectible  and doubtful  accounts,  and contractual  allowances  pursuant to
agreements  with Payors,  all in  conformity  with  Seller's  practices  for the
preparation of internal  financial  statements and materially in accordance with
the generally accepted accounting  principles utilized in the preparation of the
published financial  statements of the Seller and the past practices employed by
each Subsidiary. To the current actual knowledge of Seller, all such Receivables
included in the Balance Sheet  represent  amounts validly owed to the applicable
Subsidiary by reason of the provision of goods, services and other consideration
by such  Subsidiary,  and, to the current  actual  knowledge of Seller,  are not
valued in excess of the amounts  expected to be collected with respect  thereto.
Each  Subsidiary  maintains  its  accounting  records  in  sufficient  detail to
substantiate the Receivables  reflected on the Balance Sheet.  Since the date of
Seller's most recent audited  financial  statements,  neither Seller nor RSC nor
any  Subsidiary  has  changed any  principle  or  practice  with  respect to the
recordation of accounts  receivable or the calculation of reserves therefor,  or
any material collection, discount or write-off policy or procedure.

                  (e) RSC and the Subsidiaries, as applicable, have timely filed
all Cost Reports  required to be filed with respect to the  Facilities  prior to
the date of this  Agreement.  All such Cost  Reports  are, to the  knowledge  of
Seller,  true and complete in all  material  respects and comply in all material
respects with all applicable Laws  respecting  Cost Reports.  Neither Seller nor
RSC nor any  Subsidiary  has received any notice with respect to any  challenge,
dispute or adjustment  with respect to any open Cost Reports except  challenges,
disputes or adjustments (i) which, if resolved  adversely to Seller,  RSC or the
Applicable  Subsidiary,  as the case may be,  would not have a Material  Adverse
Effect on such entity, or (ii) which are described on Schedule 3.16(e).

                  (f) Each of RSC and the  Subsidiaries  has filed  all  returns
required  to be filed by it, and made all  payments  required  to be made by it,
with  respect to any Taxes as to which such  filings or payments  were due on or
before the date of this Agreement.  To the best of Seller's  knowledge,  neither
RSC nor any Subsidiary has any liability with respect to any Taxes for which its
reserves are inadequate, except for sales, use, employment and similar Taxes for
periods as to which such Taxes have not yet become due and payable.

         Section 3.17 Changes Since Balance Sheet. Since the date of the Balance
Sheet  and up to and  including  the  date  of  this  Agreement,  other  than as
contemplated  or  permitted by this  Agreement,  RSC and the  Subsidiaries  have
conducted  their  respective  businesses only in the ordinary and normal course,
except for matters in anticipation  of the  divestiture of the  Facilities,  and
there has not been:

                  (a)  Any  entry  into or  termination  by  Seller  or RSC or a
Subsidiary  of any  material  commitment,  contract,  agreement  or  transaction
(including,  without limitation, any borrowing or lending transaction or capital
expenditure)  related to RSC, the  Subsidiaries  or the  Facilities,  except for
transactions  in the  ordinary  course of business and  renegotiation  of credit
agreements to which Seller and certain of its subsidiaries are parties;

                  (b) Any casualty,  physical  damage,  destruction  or physical
loss respecting,  or change in the physical condition of, the Facilities and the
Equipment that has had a Material Adverse Effect on RSC and the Subsidiaries;

                  (c) Any transfer of or rights granted under any contract which
would have been an Other  Contract on the date of the Balance  Sheet  except for
transactions in the ordinary course of business;

                  (d) Other than in the ordinary course of business, any sale or
other  disposition of any fixed asset included in the Balance Sheet having a net
book value in excess of $50,000 or any material  mortgage,  pledge or imposition
of any lien or other  encumbrances  on any such asset,  or sales or dispositions
of, or the imposition of material encumbrances on, fixed assets included in such
Balance Sheet having a net book value that exceeds $250,000 in the aggregate, or
any sale or other disposition of Inventories included in the Balance Sheet;

                  (e) Any  amendment  (other than general  amendments  which the
carrier makes for a category of policy) or termination  of any insurance  policy
or failure to renew any insurance  policy  covering the  Facilities,  except for
amendments,  terminations  or  failures  to renew  that do not  have a  Material
Adverse Effect on RSC and the Subsidiaries;

                  (f) Any default or breach by Seller, RSC or a Subsidiary under
any contract  that would have been an Other  Contract on the date of the Balance
Sheet which,  when viewed  individually or in the aggregate of all such breaches
or defaults, has had a Material Adverse Effect on RSC and the Facilities; or

                  (g) Any increase made in the compensation  levels of any chief
executive  officer or chief  financial  officer of any Facility,  or any general
increase made in the  compensation  levels of the other  employees of RSC or any
Subsidiary, except in the ordinary course of business.

         Section 3.18  Compliance  with Laws.  Except as otherwise  disclosed in
this  Agreement  (or in the Schedule  thereto),  RSC, each  Subsidiary  and each
Facility  are, to the  knowledge of NovaCare and Seller,  in  compliance  in all
material  respects  with all Laws  applicable  to a Facility  or the  operations
thereof,  and neither  Seller,  RSC nor any Facility has received any notices of
violations of any such Laws.

         Section 3.19 Lists of Other Data.  Except for contracts and  agreements
already  listed in  Schedules  1.1-2 and 1.1-4,  Schedules  3.19(a)  through (f)
contain  lists,  complete  and  correct as of the dates  shown  thereon,  of the
following:

                  (a) The most recent regularly generated depreciation schedules
0related to tangible personal  property  constituting  Equipment,  together with
copies of such schedules;

                  (b) Each lease  constituting an Other Contract as of such date
(whether an operating or a capital lease) under which tangible personal property
was leased, where the annualized lease payments exceed $25,000;

                  (c) A brief  description  of insurance in force covering fixed
assets that would constitute assets of the Facilities as of such date;

                  (d) All compensation,  bonus,  incentive,  deferred  payments,
retirement, pension, severance,  profit-sharing, stock purchase and stock option
plans, group life, automobile,  medical,  dental,  disability,  welfare or other
employee  benefit plans or insurance  policies,  and other similar  arrangements
(collectively,  "Employee  Benefit  Arrangements")  generally  applicable to the
employees  of  the  Facilities  or  a  substantial  part  thereof  or  generally
applicable to the chief executive or chief financial officers,  or a substantial
part thereof, of the Facilities as of such date;

                  (e) The aggregate  accrued paid time off  (including  vacation
time) and earned or available sick pay for all employees at each Facility, as of
the date shown; and

                  (f) Material Licenses of Seller and the Subsidiaries in force,
as of the date shown, with respect to the Facilities.


                                   ARTICLE 4
                    REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer hereby  represents and warrants to Seller, as of the date hereof,
as follows, except as disclosed in Schedule 4:

         Section 4.1 Organization  and Corporate  Power.  Buyer is a corporation
duly  incorporated  and validly existing under the laws of, and is authorized to
exercise its corporate powers, rights and privileges and is in good standing in,
the State of Delaware and has full  corporate  power to carry on its business as
presently  conducted and to own or lease and operate its  properties  and assets
now owned or leased and operated by it.

         Section  4.2  Authority  Relative  to this  Agreement.  The  execution,
delivery and  performance of this  Agreement and the Related  Agreements and the
consummation of the transactions  contemplated hereby and thereby have been duly
and  effectively  authorized  by the  board  of  directors  of  Buyer;  no other
corporate act or proceeding on the part of Buyer,  its board of directors or its
stockholders  is  necessary  to  authorize  this  Agreement,  any  such  Related
Agreement or the transactions  contemplated  hereby and thereby.  This Agreement
has been, and each of the Related Agreements contemplated hereby will, as of the
Closing,  have been,  duly  executed and  delivered by Buyer and this  Agreement
constitutes,  and each such Related  Agreement  when executed and delivered will
constitute,  a valid and binding obligation of Buyer,  enforceable against Buyer
in  accordance  with its  terms,  except  as it may be  limited  by  bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors'  rights  generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable  defenses  and to  the  discretion  of  the  court  before  which  any
proceeding may be brought.

         Section 4.3 Absence of Breach.  Subject to the  provisions  of Sections
4.4 and 4.5 below regarding private party and governmental  consents, and except
for  compliance  with  the  requirements  of the HSR Act and any  regulatory  or
licensing  Laws  applicable  to the  businesses  and assets  represented  by the
Facilities,  the execution,  delivery and performance by Buyer of this Agreement
and the Related  Agreements  do not, (a) conflict  with or result in a breach of
any of the provisions of Charter  Documents of Buyer,  (b) contravene any Law or
cause the  suspension or revocation  of any License  presently in effect,  which
affects or binds Buyer or any of its material  properties,  or (c) conflict with
or result  in a breach  of or  default  under  any  indenture  or loan or credit
agreement or any other  agreement or  instrument to which Buyer is a party or by
which it or any of its properties may be affected or bound.

         Section  4.4  Private  Party  Consents.  The  execution,  delivery  and
performance by Buyer of this Agreement and the Related Agreements do not require
the authorization, consent or approval of any non-governmental third party.

         Section  4.5  Governmental  Consents.   The  execution,   delivery  and
performance by Buyer of this Agreement and the Related Agreements do not require
the authorization, consent, approval, certification, license or order of, or any
filing with, any court or governmen- tal agency,  except for compliance with the
HSR Act and except for such governmental  authorizations,  consents,  approvals,
certifications,  licenses and orders that customarily  accompany the transfer of
health care facilities such as the Facilities.

         Section  4.6  Brokers.  No  broker,  finder,  or  investment  banker is
entitled to any  brokerage,  finder's or other fee or  commission  in connection
with this  Agreement  or the  transactions  contemplated  hereby  based upon any
agreements or arrangements or commitments, written or oral, made by or on behalf
of Buyer or any of its  Affiliates.  Buyer shall be solely  responsible  for the
payment of any such fee or commission to any person or entity listed on Schedule
4.6 as an exception to the foregoing.

         Section 4.7 Qualified  for  Licenses.  Buyer is qualified to obtain any
Licenses and program participations  necessary for the operation by Buyer of the
Facilities in the same manner as the Facilities are presently operated by Seller
and the  Subsidiaries.  Each of Buyer and its Affiliates  possesses all Licenses
and program  participations  necessary to permit them to operate the  healthcare
facilities  operated by them. If required,  all such  healthcare  facilities are
accredited by applicable  accrediting agencies as necessary for their operations
in the manner  presently  operated.  Neither Buyer nor any of its Affiliates has
received any notice or has any  knowledge  of any matter which would  materially
adversely affect the maintenance of any such Licenses, program participations or
accreditations.

         Section 4.8 Financial  Ability to Perform.  Buyer has liquid capital or
committed  sources  therefor  sufficient  to permit  it to  perform  timely  its
obligations  hereunder,  including,  but not  limited  to,  the  payment  of the
Purchase  Price to  Seller  at the  Closing  and the  other  payments  to Seller
required hereunder. Promptly after its receipt of letters of commitment or other
documents  related to the  financing of its  obligations  hereunder,  Buyer will
provide copies of the same to Seller.

         Section 4.9 No Assurance.  Buyer acknowledges and agrees that the rates
or bases  used in  calculating  payments  or  reimbursements  to it by any Payor
(including but not limited to Medicare) may differ from the rates and bases used
in  calculating  such  payments  or  reim-  bursements  to  Seller,  RSC and the
Subsidiaries.

         Section 4.10 Disposal of Assets.  Buyer does not intend to or currently
plan to dispose of, or cause RSC to dispose of, a significant part of the assets
of RSC or the  Subsidiaries  within  two years  after the  Closing,  other  than
dispositions  in the  ordinary  course of  business  or to  eliminate  duplicate
facilities or excess capacity.


                                   ARTICLE 5
                            COVENANTS OF EACH PARTY

         Section 5.1 Efforts to  Consummate  Transactions.  Subject to the terms
and  conditions  herein  provided,  each of the parties hereto agrees to use its
reasonable  commercial  efforts to take, or to cause to be taken, all reasonable
actions  and to do, or to cause to be done,  all  reasonable  things  necessary,
proper or advisable under  applicable Laws to consummate and make effective,  as
soon as reasonably practicable,  the Transaction  contemplated hereby, including
the satisfaction of all conditions thereto set forth herein.  Such actions shall
include,  without  limitation,  exerting their reasonable  efforts to obtain the
consents, authoriza- tions and approvals of all private parties and governmental
authorities whose consent is reasonably  necessary to effectuate the Transaction
contemplated  hereby,  and  effecting  all  other  necessary  registrations  and
filings,  including  but not  limited to  filings  under  Laws  relating  to the
transfer or  obtaining of  necessary  Licenses,  under the HSR Act and all other
necessary filings with governmental authorities.  The foregoing notwithstanding,
it shall be the responsibility of Buyer to use its reasonable commercial efforts
and to act diligently and at its expense to obtain any authorizations, approvals
and consents in connection  with acquiring  Licenses and program  participations
that will  permit it to operate the  Facilities  after the  Closing.  Subject to
Sections 2.6 and 8.8,  neither  party shall have any  liability to the other if,
after  using its  reasonable  commercial  efforts  (and,  in the case of Buyer's
efforts to obtain requisite Licenses, acting diligently), it is unable to obtain
any consents, authorizations or approvals necessary for such party to consummate
the Transactions,  except as may result from cooperative arrangements determined
in accordance with Section 2.8. As used herein, the terms "reasonable commercial
efforts"  or   "reasonable   efforts"  do  not  include  the  provision  of  any
consideration to any third party or the suffering of any economic detriment to a
party's   ongoing   operations   for  the   procurement  of  any  such  consent,
authorization  or approval  except for the costs of gathering and supplying data
or other  information  or making any  filings,  fees and expenses of counsel and
consultants and for customary fees and charges of  governmental  authorities and
accreditation organizations.

         Section 5.2  Cooperation.  Prior to and after the  Closing,  upon prior
reasonable  written  request,  each party agrees to cooperate  with the other in
every reasonable  commercial way to consummate the Transaction.  Notwithstanding
the foregoing,  all analyses,  appearances,  presentations,  memoranda,  briefs,
arguments,  opinions and  proposals  made or submitted by or on behalf of either
party hereto in connection with proceedings  under or relating to the HSR Act or
any other federal or state  antitrust or fair trade law, or made or submitted by
or on behalf of Buyer in connection with  proceedings to obtain the Licenses and
program  participations  referred to in Section 5.1 hereof,  shall be subject to
the joint  approval or  disapproval  and the joint  control of Buyer and Seller,
acting with the advice of their respective  counsel,  it being the intent of the
foregoing  that the parties  hereto will consult and cooperate with one another,
and consider in good faith the views of one another, in connection with any such
analysis,  presentation,  memorandum,  brief, argument,  appearance,  opinion or
proposal;  provided that nothing herein shall prevent either party hereto or any
of their  Affiliates  or their  authorized  representatives  from (a)  making or
submitting  any such  analysis,  appearance,  presentation,  memorandum,  brief,
argument,  opinion or proposal in response to a subpoena or other legal  process
or as otherwise  required by Law, or (b) submitting  factual  information to the
United States  Department of Justice,  the Federal Trade  Commission,  any other
govern- mental agency or any court or administrative  law judge in response to a
request therefor or as otherwise required by Law.

         Section 5.3 Further  Assistance.  From time to time,  at the request of
either party,  whether on or after the Closing,  without further  consideration,
either  party,  at its  expense  and  within a  reasonable  amount of time after
request hereunder is made, shall execute and deliver such further instruments of
assignment,  transfer  and  assumption  and take  such  other  action  as may be
reasonably  required to more  effectively  assign and transfer the RSC Shares to
Buyer,  deliver  or make the  payment  of the  Purchase  Price to  Seller or any
amounts due from one party to the other  pursuant to the terms of this Agreement
or confirm Seller's ownership of the Excluded Assets.

         Section 5.4 Cooperation Respecting Proceedings. After the Closing, upon
prior reason- able written  request,  each party shall cooperate with the other,
at the requesting party's expense (but including only out-of-pocket  expenses to
third  parties  and not the costs  incurred  by any party for the wages or other
benefits  paid  to  its  officers,   directors  or  employees),   in  furnishing
information,  testimony and other  assistance in connection  with any inquiries,
actions,  tax or cost  report  audits,  proceedings,  arrangements  or  disputes
involving  either of the parties hereto (other than in connection  with disputes
between the parties  hereto) and based upon  contracts,  arrangements or acts of
Seller,  RSC or any of the  Subsidiaries  which were in effect or occurred on or
prior to the  Closing and which  relate to the  Facilities,  including,  without
limitation, arranging discussions with (and the calling as witness of) officers,
directors, employees, agents, and representatives of Buyer.

         Section  5.5  Expenses.  Whether or not the  Transactions  contemplated
hereby are  consummated,  except as otherwise  provided in this  Agreement,  all
costs  and  expenses   incurred  in  connection  with  this  Agreement  and  the
transactions  contemplated  hereby  shall be paid by the  party  incurring  such
expenses. Notwithstanding the foregoing:

                  (a) All  costs  of the  Environmental  Survey  referred  to in
Section 6.2(b) shall be borne by Buyer;

                  (b) All charges of any neutral  independent  public accountant
or mediator, and related costs, shall be borne one-half by Buyer and one-half by
Seller  (it  being  agreed  that  each  party  shall  bear the  costs of its own
independent public accountant or designated mediator);

                  (c) All fees  and  charges  of  governmental  authorities  and
accreditation   agencies  in   connection   with  the   transfer,   issuance  or
authorization of any License,  accreditation or program  participation  shall be
borne by Buyer; and

                  (d) All fees,  charges or costs,  including  auditing fees and
expenses,  incurred  as a result  of  Buyer's  compliance  with  the  Securities
Exchange  Act of 1934,  as amended,  and the rules and  regulations  thereunder,
shall be borne by Buyer.

All such charges and expenses shall be promptly  settled  between the parties at
the Closing or upon termination or expiration of further  proceedings under this
Agreement,  or with respect to such charges and  expenses not  determined  as of
such time, as soon thereafter as is reasonably practicable.

         Section 5.6 Announcements;  Confidentiality. Prior to the Closing Date,
no press or other  public  announcement,  or  public  statement  or  comment  in
response to any  inquiry,  relating  to the  transactions  contemplated  by this
Agreement  shall be issued or made by Buyer or Seller or any Subsidiary  without
the joint  approval of Buyer and Seller;  provided that a press release or other
public announcement, statement or comment made without such joint approval shall
not be in  violation  of this  Section  if it is made in  order to  comply  with
applicable  securities  Laws or stock  exchange  policies and in the  reasonable
judgment of the party making such release or announcement,  based upon advice of
independent counsel, prior review and joint approval, despite reasonable efforts
to obtain the same, would prevent  dissemination of such release or announcement
in a timely enough  fashion to comply with such Laws or policies,  provided that
in all  instances  prompt notice from one party to the other shall be given with
respect to any such release, announcement,  statement or comment. Subject to the
foregoing,  the  parties  hereto  recognize  and  agree  that  all  information,
instruments,  documents and details concerning the businesses of Buyer,  Seller,
RSC and the  Subsidiaries  are  strictly  confidential,  and  Seller  and  Buyer
expressly  covenant  and agree  with  each  other  that,  prior to and after the
Closing,  they will not, nor will they allow any of their  respective  officers,
directors,   employees,   representatives  or  agents  (including   professional
advisors)  to  disclose  or publicly  comment  upon any matters  relating to the
business  of the  other  or  relating  to  this  Agreement,  including,  without
limitation,  the terms,  timing or  progress  of the  transactions  contemplated
hereby, or its negotiation, terms, provisions or conditions,  including Purchase
Price,  except for  disclosure to their  respective  professional  advisors (who
shall  agree  not to  disclose  the  same)  which  is  reasonably  necessary  to
effectuate the Transaction  contemplated  hereby and in a manner consistent with
the provisions of this Agreement. Each party shall keep all information obtained
from the other either before or after the date of this  Agreement  confidential,
and neither party shall reveal such  information  to, nor produce  copies of any
written  information  for,  any  person  outside  its  management  group  or its
professional  advisors  without the prior  written  consent of the other  party,
unless such party is  compelled  to  disclose  such  information  by judicial or
administrative  process or by any other  requirements of Law. If the Transaction
contemplated by this Agreement  should fail to close for any reason,  each party
shall return to the other as soon as  practicable  all  originals  and copies of
written  information  provided  to such party by or on behalf of the other party
and none of such information  shall be used by either party, or their employees,
agents  or   representatives   in  the  business   operations   of  any  person.
Notwithstanding the foregoing, each party's obligations under this Section shall
not apply to any  information or document  which is or becomes  available to the
public other than as a result of a disclosure by the other party in violation of
this  Agreement  or  other  obligation  of  confidentiality   under  which  such
information may be held or becomes available to the party on a  non-confidential
basis  from a source  other  than the other  party or its  officers,  directors,
employees,  representatives  or  agents.  The  parties'  obligations  under this
Section shall survive the termination of this Agreement. Nothing in this Section
shall,  or is intended to, impair or modify any of the rights or  obligations of
Buyer or its Affiliates  under that certain letter  agreement  dated January 14,
1995,  1995,  all of which  remain in effect  until  termination  of such letter
agreement in accordance with its terms.

         Section 5.7  Cost Reports.

                  (a) Buyer shall cause the Subsidiaries to prepare and file the
Cost Reports as required under their  agreements and applicable  laws, rules and
regulations  pertaining  to Medicare and Medicaid for their  current cost report
years (the  "Current Cost  Reports";  similar Cost Reports for prior periods are
referred to as the "Prior Cost Reports")  within the time periods required under
said  agreements,  laws,  rules and  regulations.  Seller shall cooperate in the
preparation of the Cost Reports.

                  (b) No adjustments or positions shall be taken or agreed to by
Buyer or the  Subsidiaries or their  successors with respect to the Current Cost
Reports,  or with respect to any Cost Reports for prior or  subsequent  periods,
which  would  create  any  claims on the part of Buyer  pursuant  to  Article 11
without  prior  written  consent of Seller.  With respect to rights  retained by
Seller relating to Prior Cost Reports,  Seller shall not agree to any adjustment
or take any position which would adversely  effect Buyer or the  Subsidiaries or
their  successors  without  prior  written  consent of Buyer.  In the event that
Seller and Buyer fail to agree on any such  adjustments or positions,  either of
Seller or Buyer may cause the matter to be  resolved by  arbitration;  provided,
however,  that the arbitrator  chosen by the parties shall have  experience with
and  understanding of the rules and regulations of the Payor with which the Cost
Report in question is to be filed and in the  preparation  of Cost Reports.  The
matter shall be resolved within the time for filing such Cost Reports, or within
the time  required for taking any action with respect  thereto,  including  such
extensions as Buyer can cause the  Subsidiaries to obtain using the best efforts
of said companies.

                  (c)  NovaCare  shall  prepare  and file its Home  Office  Cost
Statement  for the fiscal year  beginning on July 1, 1994 and ending on June 30,
1995  within  the  time  period   required   pursuant  to  applicable  laws  and
regulations.  Buyer  agrees to include  NovaCare's  home office  expenses in the
applicable  Subsidiaries'  Cost Reports and to cause RSC and the Subsidiaries to
deliver to NovaCare  within ten days after their  receipt  thereof any  payments
made by Medicare or other cost-based  payors based on such Cost Reports or based
on the Home  Office Cost  Statement  for prior  periods,  or any appeals of such
reports.

                  (d)  The  Closing  Balance  Sheet  will  contain   Receivables
representing   amounts  Seller   determines  are  payable  by  Medicare  to  the
Subsidiaries  pursuant to the Current Cost Reports and the Prior Cost Reports. A
separate  schedule  identifying these amounts based on the financial data in the
Closing  Balance Sheet and back-up  materials  will be prepared and delivered by
Seller  along  with  the  Closing  Balance  Sheet.  In  addition,  RSC  and  the
Subsidiaries  may receive  payments  from  Medicare or other  cost-based  payors
pursuant to appeals of items  contained in the Prior Cost Reports.  Buyer agrees
to cause RSC and the  Subsidiaries to deliver to NovaCare,  Inc. within ten days
after their receipt  thereof (i) any payments  based on the Current Cost Reports
in excess of the amounts reflected on such schedule; and (ii) any payments based
on the Prior Cost Reports in excess of the amounts reflected on such schedule.

                  (e) Buyer,  RSC or the  Subsidiaries may be obligated to repay
Medicare or other  cost-based  payors for amounts which were  reflected on Prior
Cost Reports or on the Current Cost Reports.  Seller agrees to reimburse  Buyer,
within ten days after such  repayment  is made,  to the extent  such  repayments
exceed  the  amounts  reflected  on the  schedule  referred  to in  5.7(d)  as a
liability for such  repayment.  In such event,  Buyer and Seller shall  mutually
agree on  whether  to  appeal  the  determination  resulting  in such  repayment
obligation.

                                   ARTICLE 6
                         ADDITIONAL COVENANTS OF SELLER

         Seller hereby additionally covenants, promises and agrees as follows:

         Section 6.1  Conduct  Pending  Closing.  Prior to  consummation  of the
Transaction  contemplated  hereby  or the  termination  or  expiration  of  this
Agreement  pursuant  to its  terms,  unless  Buyer  shall  otherwise  consent in
writing, which consent shall not be unreasonably withheld or delayed, and except
for actions taken pursuant to Real Property or Other  Contracts,  or which arise
from  or are  related  to the  anticipated  transfer  of the RSC  Shares,  or as
otherwise contemplated by this Agreement or disclosed in Schedule 6.1 or another
Schedule  to  this  Agreement,  Seller  shall,  and  shall  cause  RSC  and  the
Subsidiaries to:

                  (a) Conduct the business  represented  by, and otherwise  deal
with,  the  Facilities  only  in  the  usual  and  ordinary  course,  materially
consistent with practices followed prior to the execution of this Agreement;

                  (b) Use  reasonable  efforts to keep intact the Facilities and
the business  they  represent and to preserve  relationships  beneficial to such
business that physicians,  patients,  Payors, suppliers and others have with the
Facilities;

                  (c) Except as required by their terms,  not amend,  terminate,
renew,  fail to  renew or  renegotiate  any  material  contract,  except  in the
ordinary course of business and consistent with practices of the recent past, or
default (or take or omit to take any action that,  with or without the giving of
notice or passage of time, would constitute a default) in any of its obligations
under any such contracts,  that would be a Real Property Lease or Other Contract
as of the date hereof;

                  (d) Not sell, lease, mortgage,  encumber, or otherwise dispose
of or  grant  any  interest  in,  or  permit  or  suffer  to  exist  any lien or
encumbrance  upon or the  disposition of, any Facility,  Inventory,  or items of
Equipment  having an  undepreciated  book value in excess of $25,000,  including
without limitation any of its leasehold interests therein, whether by the taking
of action or the failure to take  action,  except for (i) sales of  Inventory in
the ordinary course, (ii) liens constituting  Permitted  Encumbrances,  or (iii)
sales or dispositions of Equip- ment in the ordinary course of business that are
consistent with practices of the recent past;

                  (e)  Maintain  in force  and  effect  the  insurance  policies
identified in Section 3.19(c);

                  (f) Not enter into any  contract  that will  constitute a Real
Property Lease or Other Contract as of the Closing except in the ordinary course
of business and consistent with practices of the recent past; or

                  (g) Not grant any general or uniform  increase in the rates of
pay or benefits  to  employees  of the  Facilities  (or a class  thereof) or any
increase in salary or benefits of any chief  executive or  financial  officer of
any Facility,  except for  compensation  previously  agreed to prior to the date
hereof;

provided  that  nothing  in  this  Section  shall  (i)  obligate  Seller  or any
Subsidiary to make  expenditures  other than in the ordinary  course of business
and  consistent  with  practices of the recent past or to  otherwise  suffer any
economic detriment, or (ii) preclude Seller from paying,  prepaying or otherwise
satisfying any liability of RSC or any Subsidiary.

         Section 6.2 Access and Information;  Environmental Survey;  Remediation
or Adjustment.

                  (a)  Subject  to the  restrictions  set forth in  Section  5.6
respecting  confidentiality,  Seller shall, and shall cause the Subsidiaries to,
afford Buyer, and the counsel,  accountants and other  representatives of Buyer,
reasonable access, throughout the period from the date hereof to the Closing, to
the  Facilities  and the  employees,  personnel  and  medical  staff  associated
therewith and all the properties,  books, contracts,  commitments,  cost reports
and records  respecting RSC, the Subsidiaries and the Facilities  (regardless of
where such  information may be located).  Such access shall be afforded after no
less than 24 hours' prior written notice,  during normal business hours whenever
reasonably possible and only in such manner so as not to disturb patient care or
to interfere with the normal  operations of the Facilities.  Seller's  covenants
under this Section are made with the understanding that Buyer shall use all such
information in compliance with all Laws.

                  (b) At least ten business  days prior to the  Closing,  Seller
shall,  if so  requested by Buyer,  provide to Buyer copies of an  environmental
survey  conducted (at Buyer's  expense)  with respect to each of the  Facilities
(the "Environmental  Survey"). The Environmental Survey shall be conducted by an
environmental consulting firm or firms (the "Consultant") and in accordance with
such reasonable  procedures as are jointly  determined by Seller and Buyer.  The
results of any such  Environmental  Survey  shall be  delivered  to and owned by
Seller, and all proceedings in connection with the Environmental  Survey and the
results  thereof shall be subject to the  confidentiality  provisions of Section
5.6  and  such  other  restrictions  as  Seller  may  impose  in its  reasonable
discretion. Buyer acknowledges and agrees that the Environmental Survey shall be
only an initial  "Phase I"  environmental  site assess-  ment.  If  subsequently
agreed by Seller and Buyer, after consultation with Consultant,  to be necessary
or prudent and if Seller and Buyer jointly  thereafter  direct the Consultant to
undertake the same (at Buyer's sole cost and expense),  the Environmental Survey
may include a further "Phase II" investigation respecting certain Facilities. In
any "Phase  II"  investigation,  Seller  shall give Buyer no less than 24 hours'
notice  before  the  Consultant  enters  onto any  Facility,  and the "Phase II"
Environmental  Survey shall be conducted so as not to interfere  with the normal
operation  of the  Facilities.  Buyer  shall  be  permitted  to have  one of its
employees  present during all inspections of, and sample  gatherings  (including
borings) from the soil or any floor tile, insulation or other internal component
of, a Facility.

                  (c)  With   respect   to  any   matters   disclosed   by  such
Environmental  Survey that would  constitute a breach of Seller's  warranties in
Section 3.15, but for the  qualifications  to such warranties  based on Seller's
knowledge  or  disclosures  in the  Environmental  Survey,  Seller  will  at its
election,  either  (i)  clean  up  or  otherwise  remediate  such  matters  in a
reasonable  manner prior to the Closing Date, at its expense;  or (ii) reimburse
Buyer for the costs of such reasonable clean-up or remediation incurred by Buyer
after the  Closing  Date,  provided  Seller  shall have  approved  such costs in
advance and in writing (such approval not unreasonably to be withheld).

                  (d) Promptly after  execution and delivery of this  Agreement,
Seller  shall  provide,  or shall  cause  RSC or any  applicable  Subsidiary  to
provide, Buyer with a copy of the most recent title binder, commitment or policy
in the  possession  of any of the  foregoing  entities with respect to the Owned
Real Property and the Leased Real Property,  together with any  documentation in
any of such  entities'  possession  relating to any  exceptions or  encumbrances
reflected on such title binders, commitments or policies.

         Section  6.3  Updating.  Seller  shall  notify  Buyer of any changes or
additions  to any of Seller's  Schedules  to this  Agreement  by the delivery of
updates thereof, if any, not later than five business days prior to the Closing,
provided, however, that the Financial Schedule shall not be updated to cover any
period or periods  subsequent to the respective  dates thereof.  No such updates
made  pursuant  to this  Section  shall  be  deemed  to cure any  breach  of any
representation  or warranty made in this  Agreement,  unless Buyer  specifically
agrees  thereto in writing,  nor shall any such  notification  be  considered to
constitute  or give rise to a waiver by Buyer of any condition set forth in this
Agreement.  Seller has  delivered to Buyer all Other  Contracts  and leases that
Seller has knowledge of, if such contracts were located at the corporate offices
of Seller.  Seller  shall  deliver all Other  Contracts  and leases  which it is
obligated to deliver pursuant to this Agreement within seven business days after
the date hereof.  Unless performance under such contracts or leases would have a
Material  Adverse Effect (as defined in Section 3.4),  Buyer shall have no claim
against  Seller based on the delivery  after the date hereof  rather than before
execution of this Agreement.

         Section 6.4  No Solicitation.  Seller will not, and shall cause RSC and
the  Subsidiaries  not to, and will use its best  efforts to cause its and their
officers,  employees,  agents  and  representatives  (including  any  investment
banker) not to,  directly or  indirectly,  solicit,  encourage  or initiate  any
discussions with, or, subject to fiduciary duties to shareholders,  negotiate or
otherwise  deal  with,  or  provide  any   information   to,  any   corporation,
partnership, person or other entity or group, other than Buyer and its officers,
employees and agents,  concerning any sale of or similar transactions  involving
RSC, the  Facilities  or the stock of the  Subsidiaries.  None of the  foregoing
shall prohibit  providing  information to others in a manner in keeping with the
ordinary conduct of Seller's or the Subsidiaries' businesses.

         Section 6.5 Filing of Cost  Reports.  Seller shall cause to be prepared
and timely  filed all Cost  Reports  which are required to be filed prior to the
Closing Date with Medicare and any other  cost-based  Payors with respect to the
operations of the Facilities for any and all periods ending prior to the Closing
Date.

                                   ARTICLE 7
                         ADDITIONAL COVENANTS OF BUYER

         Section  7.1  Waiver  of Bulk  Sales  Law  Compliance.  Subject  to the
indemnification  provisions of Section  11.3(a)(iii) hereof, Buyer hereby waives
compliance  by Seller and the  Subsidiaries  with the  requirements,  if any, of
Article 6 of the Uniform  Commercial  Code as in force in any state in which the
Facilities  are located and all other similar laws  applicable to bulk sales and
transfers.

         Section 7.2 Cost Reports and Audit Contests.  After the Closing and for
the period of time  necessary  to  conclude  any pending or  potential  audit or
contest of any Cost Reports with respect to the Facilities  that include periods
ending on or before the Closing Date, Buyer shall properly keep and preserve all
financial  books and records  delivered to Buyer by Seller and the  Subsidiaries
(if any) and utilized in preparing such Reports, including,  without limitation,
accounts payable invoices,  Medicare logs and billing  information in accordance
with Section  5.7.  Upon  reasonable  written  notice by Seller,  Seller (or its
agents) shall be entitled,  at Seller's expense,  during regular business hours,
to have access to,  inspect and make copies of all such books and records.  Upon
the reasonable request of Seller, Buyer shall assist Seller and the Subsidiaries
in  obtaining  information  deemed by Seller to be  necessary  or  desirable  in
connection with any audit or contest of such reports.  To the extent required to
meet its  obligations  under this Section,  Buyer shall  provide the  reasonable
support of its employees at no cost to Seller.

         Section  7.3  Letters  of Credit.  Subject to the terms and  conditions
hereof,  at the  Closing,  Buyer shall cause  guaranties,  letters of credit and
indemnity or performance bonds to be provided to substitute for those letters of
credit and bonds listed in Schedule 7.3, so that at and as of the Closing Seller
and its Affiliates  shall have no further  obligation to provide such designated
letters of credit or bonds. Buyer shall use its reasonable commercial efforts to
cause the release of NovaCare promptly after Closing from any guaranties related
to the business of RSC or the  Subsidiaries,  provided that such guaranties have
been disclosed to Buyer in writing.


                                   ARTICLE 8
                         BUYER'S CONDITIONS TO CLOSING

         The obligations of Buyer to consummate the  Transactions at the Closing
shall be subject to the  fulfillment at or prior to the Closing of the following
conditions, unless Buyer waives such fulfillment:

         Section 8.1  Performance  of Agreement.  Seller shall have performed in
all material respects its agreements and obligations contained in this Agreement
required to be performed on or prior to the Closing.

         Section  8.2   Accuracy  of   Representations   and   Warranties.   The
representations  and  warranties  of  Seller  set  forth  in  Article  3 of this
Agreement shall be true in all respects as of the date of this Agreement (unless
the inaccuracy or inaccuracies which would otherwise result in a failure of this
condition  have been cured by the  Closing) and as of the Closing (as updated by
the  revising of  Schedules  contemplated  by Section 6.3) as if made as of such
time, except where such inaccuracy or inaccuracies  would not individually or in
the aggregate result in a Material Adverse Effect on RSC and the Subsidiaries.

         Section  8.3  Officer's  Certificate.  Buyer shall have  received  from
Seller  an  officer's  certificate,  executed  on  Seller's  behalf by its chief
executive  officer,  president,  chief financial officer or treasurer (in his or
her  capacity  as such) dated the  Closing  Date and stating  that to the actual
knowledge of such individual,  after inquiry of the other officers identified in
this Section 8.3, the conditions in Sections 8.1 and 8.2 above have been met.

         Section 8.4 Consents.  The waiting  period under the HSR Act shall have
expired or been terminated.

         Section  8.5  Absence of  Injunctions.  There  shall not be in effect a
temporary  restraining  order or a preliminary or permanent  injunction or other
order,  decree  or  ruling  by  a  court  of  competent  jurisdiction  or  by  a
governmental   agency  which  restrains  or  prohibits  Buyer's  acquisition  or
operation of the Facilities, provided that the parties will use their reasonable
efforts to litigate  against the entry of, or to obtain the lifting of, any such
order or injunction,  and the existence of any such temporary  restraining order
or preliminary  injunction shall operate, at the option of Seller, only to delay
the Closing (and extend the Termination  Date) until the thirtieth day following
the  lifting of any such  order or  injunction,  except  that such delay may not
extend the original Termination Date for more than nine months.

         Section 8.6 Opinion of Counsel. Buyer shall have received, on and as of
the  Closing  Date,  an opinion  of Peter D.  Bewley,  Esq.,  counsel to Seller,
substantially as to the matters set forth in Sections 3.1, 3.2, 3.3, 3.4(a), and
3.4(c) (to the knowledge of such counsel),  subject to customary  conditions and
limitations.

         Section 8.7 Receipt of Other  Documents.  Buyer shall have received the
following:

                  (a) Certified  copies of the  resolutions of Seller's board of
directors respecting this Agreement, the Related Agreements and the Transaction,
together  with  certified  copies  of  any  stockholder  resolutions  which  are
necessary  to approve  the  execution  and  delivery of this  Agreement  and any
Related Agreements and/or the performance of the obligations of Seller hereunder
and thereunder;

                  (b) Certified copies of Seller's,  RSC's and each Subsidiary's
Charter  Documents,  together with a certificate  of the corporate  secretary of
each that none of such documents have been amended;

                  (c)  One or more  certificates  as to the  incumbency  of each
officer of Seller or of RSC or of any  Subsidiary  who has signed the Agreement,
any Agreement or any certificate,  document or instrument  delivered pursuant to
the Agreement or any Agreement;

                  (d) Good standing certificates for Seller, RSC and each of the
Subsidiaries  from  the  Secretaries  of State of  their  respective  states  of
incorporation  dated as of a date not earlier  than 30 days prior to the Closing
Date; and

                  (e)  Copies of all  third  party  and  governmental  consents,
permits  and  authorizations  that  Seller or any  Subsidiary  has  received  in
connection with the Agreement, the Agreements and the Transactions.

         Section 8.8 Certificates of Need and Consents.  The consent of the West
Virginia  Health  Care  Cost  Review  Authority  ("HCCRA")  or other  applicable
authority for  facilities  in other states and the issuance of a Certificate  of
Need is legally required for Buyer to operate certain of the Subsidiaries  after
Closing. In addition, other approvals, consents, authorizations and waivers from
governmental  and  accreditation  agencies  and from  other  third  parties  are
required  to  consummate  the   transactions.   If  such  approvals,   consents,
authorizations,  waivers  or  issuance  with  respect  to  one  or  more  of the
Subsidiaries  has not been  obtained  within  three days before the date Closing
would  otherwise  have  occurred  pursuant  to  this  Agreement,  the  following
procedure shall be followed:

                           (i)  The  shares  of  the  affected   Subsidiary   or
         Subsidiaries  which are owned by RSC shall be  transferred  from RSC to
         Seller.

                           (ii) Seller  shall then  deposit  such shares with an
         escrow agent (the "Escrow Agent") chosen by the parties pursuant to the
         mechanism in Section 2.8.

                           (iii) When the approval and issuance of a Certificate
         of Need and  delivery of consents,  authorizations  or waivers to Buyer
         with respect to such Subsidiary  occurs, the Escrow Agent shall deliver
         the shares of such Subsidiary of Buyer.

                           (iv) If the approval and issuance with respect to any
         Subsidiary  is not approved  within six months after  Closing,  or such
         longer  period as Buyer may  determinie,  Buyer shall use  commercially
         reasonable  efforts to resell the shares of such  Subsidiary to a buyer
         who is able to obtain the required  Certificate of Need. Buyer shall be
         entitled to retain any proceeds  from such sale and shall be subject to
         any  liabilities  or  obligations  in connection  with such sale.  Upon
         closing of such sale,  the Escrow  Agent  shall  deliver  the  escrowed
         shares of such Subsidiary to Buyer.

                           (v) After Closing, and until release of the shares of
         each  Subsidiary  from  escrow,  Buyer  shall  operate  the  Subsidiary
         pursuant  to a  Management  Agreement.  Buyer  shall be entitled to any
         income with respect to each  Subsidiary  it manages and shall be liable
         for any  expenses  or  liabilities  with  respect  to such  Subsidiary;
         provided,  however,  that  all  employees  providing  services  to  the
         Subsidiary  shall remain  employees of the Subsidiary and Buyer and the
         Subsidiary shall enter into appropriate  arrangements to cause Buyer to
         bear all compensation expense of such employees.

                           (vi)  Within  two  weeks  after   execution  of  this
         Agreement,  Buyer  and  Seller  shall  agree  on  the  form  of  Escrow
         Agreement,   designation  of  Escrow  Agent,  and  form  of  Management
         Agreement to effectuate  the foregoing  process.  If they are unable to
         reach agreement by such time, the dispute shall be settled  pursuant to
         the mechanism in Section 2.8.

                                   ARTICLE 9
                         SELLER'S CONDITIONS TO CLOSING

         The  obligations of Seller to consummate the Transaction at the Closing
shall be subject to the  fulfillment at or prior to the Closing of the following
conditions, unless Seller waives such fulfillment:

         Section 9.1 Performance of Agreement. Buyer shall have performed in all
material  respects its  agreements and  obligations  contained in this Agreement
required to be performed on or prior to the Closing.

         Section  9.2   Accuracy  of   Representations   and   Warranties.   The
representations and warranties of Buyer set forth in Article 4 of this Agreement
shall be true in all material  respects as of the date of this Agreement (unless
the inaccuracy or inaccuracies which would otherwise result in a failure of this
condition have been cured by the Closing) and as of the Closing as if made as of
such time.

         Section 9.3  Officer's  Certificate.  Seller shall have  received  from
Buyer  an  officers'  certificate,  executed  on  Buyer's  behalf  by its  chief
executive  officer,  president,  chief financial officer or treasurer (in his or
her  capacity  as such) dated the  Closing  Date and stating  that to the actual
knowledge of such individual  after inquiry of the other officers  identified in
this Section 9.3, the conditions in Sections 9.1 and 9.2 above have been met.

         Section 9.4 Consents.  The waiting  period under the HSR Act shall have
expired or been terminated,  and, subject to the provisions of Sections 2.6, 2.7
and 2.8, all approvals,  consents,  authorizations and waivers from governmental
and  accreditation  agencies and from other third parties required for Seller to
consummate the Transaction shall have been obtained,  except for such approvals,
consents,  authorizations  and  waivers  the  failure to obtain  which will not,
individually or in the aggregate,  result in a Material Adverse Effect on Seller
following the Closing.

         Section  9.5  Absence of  Injunctions.  There  shall not be in effect a
temporary  restraining  order or a preliminary or permanent  injunction or other
order,  decree  or  ruling  by  a  court  of  competent  jurisdiction  or  by  a
governmental  agency which restrains or prohibits  Seller's  consummation of the
Transaction,  or any threat by governmental  authorities to exact any penalty or
impose any economic  detriment upon Seller if it consummates  the Transac- tions
that would have a Material  Adverse  Effect upon Seller  following  the Closing,
provided that the parties will use their reasonable  efforts to litigate against
the entry of, or to  obtain  the  lifting  of,  any such  order,  injunction  or
potential  penalty  or  imposition,  and the  existence  of any  such  temporary
restraining  order,  preliminary  injunction or potential  penalty or imposition
shall  operate,  at the option of Seller,  only to delay the Closing (and extend
the Termination  Date) until the thirtieth day following the lifting of any such
order or  injunction  or  threat,  except  that such  delay may not  extend  the
original Termination Date for more than nine months.

         Section 9.6 Opinion of Counsel.  Seller shall have received,  on and as
of the Closing Date,  an opinion  ofWilliam W. Horton,  Esq.,  counsel to Buyer,
substantially  as to the matters set forth in Sections  4.1,  4.2,  4.3(a),  and
4.3(c) (to the knowledge of such counsel),  subject to customary  conditions and
limitations.

         Section 9.7 Receipt of Other Documents.  Seller shall have received the
following:

                  (a) Certified  copies of the  resolutions  of Buyer's board of
directors   respecting   this   Agreement,   the  Related   Agreements  and  the
Transactions;

                  (b) Certified  copies of Buyer's Charter  Documents,  together
with a certificate  of Buyer's  corporate  secretary that none of such documents
have been amended;

                  (c)  One or more  certificates  as to the  incumbency  of each
officer of Buyer who has signed the  Agreement,  any Related  Agreement,  or any
certificate,  document or instrument  delivered pursuant to the Agreement or any
Related Agreement;

                  (d) Good  standing  certificates  for Buyer and for each Buyer
Subsidiary  from the Secretaries of State of the State of Delaware dated as of a
date not earlier than 30 days prior to the Closing Date;

                  (e)  Copies of all  third  party  and  governmental  consents,
permits  and  authorizations  that Buyer has  received  in  connection  with the
Agreement, the Related Agreements and the Transactions; and

                  (f) A certificate of Buyer executed on its behalf by the Chief
Executive Officer, the Chief Financial Officer or the Treasurer of Buyer stating
that to the best of their knowledge and belief,  specifying in reasonable detail
their basis for same, after giving effect to the Transaction,  neither Buyer nor
any  of  its  Subsidiaries  is  insolvent  or  will  be  rendered  insolvent  by
obligations incurred in connection therewith,  or will be left with unreasonably
small  capital with which to engage in their  businesses,  or will have incurred
obligations  beyond their  respective  abilities to perform the same as and when
due.


                                   ARTICLE 10
                                  TERMINATION

         Section  10.1   Termination.   This  Agreement  and  the   transactions
contemplated hereby may be terminated at any time prior to the Closing:

                  (a)  By mutual consent of Seller and Buyer; or

                  (b) By either Buyer or Seller upon written notice to the other
party,  if (i) the  Closing  shall not have  occurred  by the later of April 30,
1995, the fifth business day following the expiration of the HSR waiting period,
or such later date as may be provided  for in this  Agreement  or agreed upon by
the parties (the  "Termination  Date"); or (ii)(A) in the case of termination by
Seller,  the conditions  set forth in Article 9 cannot  reasonably be met by the
Termination  Date, and (B) in the case of  termination by Buyer,  the conditions
set forth in Article 8 cannot  reasonably be met by the Termination Date, unless
in either of the cases  described  in  clauses  (A) or (B),  the  failure of the
condition  is the result of the material  breach of this  Agreement by the party
seeking to terminate.

Each party's right of  termination  hereunder is in addition to any other rights
it may have hereunder or otherwise.

         Section  10.2 Effect of  Termination.  In the event this  Agreement  is
terminated  pursuant to Section  10.1,  all further  obligations  of the parties
hereunder  shall  terminate,  except that the obligations set forth in Sections,
5.5 and 5.6 and in Articles 11 and 12 shall survive. In the event of termination
of this Agreement as provided above,  there shall be no liability on the part of
a party to another  under and by reason of this  Agreement  or the  transactions
contemplated  hereby except as set forth in Article 11 and except for fraudulent
acts by a party,  the remedies for which shall not be limited by the  provisions
of this Agree- ment.  The  foregoing  provisions  shall not,  however,  limit or
restrict  the  availability  of  specific  performance  or other  injunctive  or
equitable  relief to the extent that specific  performance  or such other relief
would otherwise be available to a party hereunder.


                                   ARTICLE 11
                     SURVIVAL AND REMEDIES; INDEMNIFICATION

         Section 11.1 Survival.  Except as may be otherwise  expressly set forth
in this Agreement, the representations,  warranties, covenants and agreements of
Buyer and Seller set forth in this Agreement,  or in any writing  required to be
delivered in connection with this  Agreement,  shall survive the Closing and the
consummation of the Transactions.

         Section 11.2 Exclusive Remedy.  Absent fraud, the sole exclusive remedy
for damages of a party hereto for any breach of the representations, warranties,
covenants and agreements of the other party  contained in this Agreement and the
Agreements shall be the remedies contained in this Article 11.

         Section 11.3  Indemnity by Seller.

                  (a) Seller shall  indemnify Buyer and hold Buyer harmless from
and  against  any  and  all  loss,  liability,  damage  and  expense,  including
reasonable  attorneys' fees and costs of investigation,  litigation,  settlement
and judgment  (collectively  "Losses"),  which Buyer may sustain or suffer or to
which Buyer may become subject as a result of:

                           (i)  The  inaccuracy  of  any  representation  or the
         breach  of any  warranty  made  by  Seller  herein  or in a  Agreement,
         provided that any such inaccuracy or breach shall be determined without
         regard to any  qualification of such  representation  or warranty based
         upon the  absence  of a  Material  Adverse  Effect  on the  Transferred
         Assets; and

                           (ii) The  nonperformance or breach of any covenant or
         agreement  made or  undertaken  by Seller in this  Agreement  or in any
         Related Agreement.

                  (b) The  indemnification  obligations of Seller provided above
shall,  in addition to the  qualifications  and conditions set forth in Sections
11.5 and 11.6, be subject to the following qualifications:

                           (i) Buyer shall not be entitled  to  indemnity  under
         Section 11.3(a)(i) above unless:

                                    (A)  Written  notice to Seller of such claim
                  specifying  the basis  thereof is made, or an action at law or
                  in equity  with  respect to such  claim is served,  before the
                  second anniversary of the earlier to occur of the Closing Date
                  or the date on which this Agreement is terminated, as the case
                  may be;

                                    (B)  If  the  Closing  occurs,   the  Losses
                  sustained  or  suffered by Buyer or to which it may be subject
                  as  a  result  of  circumstances  described  in  such  Section
                  11.3(a)(i)   exceeds,   in  the  aggregate,   $3,000,000  (the
                  "Deductible  Amount"),   provided,  however,  that  individual
                  claims of $10,000 or less shall not be aggregated for purposes
                  of calculating  the Deductible  Amount or the excess of Losses
                  over the Deductible Amount; and

                                    (C) If the Closing occurs, in no event shall
                  Seller be liable to Buyer under  Section  11.3 for (1) amounts
                  which, in the aggregate,  exceed 100% of the Purchase Price or
                  (2) amounts below the Deductible Amount.

                           (ii)  If  the  Closing  occurs,  Buyer  shall  not be
         entitled  to  indemnity  under  Subsection  (a)(ii)  above  except  for
         out-of-pocket  Losses  actually  suffered or  sustained  by Buyer or to
         which Buyer may become subject as a result of  circumstances  described
         in such  Subsections  (a)(ii),  and such  indemnity  shall not  include
         Losses in the nature of consequential damages, lost profits, diminution
         in value, damage to reputation or the like.

         Section 11.4  Indemnity by Buyer.

                  (a) Buyer shall indemnify Seller and hold Seller harmless from
and against  any and all Losses  which they may sustain or suffer or to which it
may become subject as a result of:

                           (i)  The  inaccuracy  of  any  representation  or the
         breach of any warranty made by Buyer herein or in a Agreement;

                           (ii) The  nonperformance or breach of any covenant or
         agreement  made or  undertaken  by  Buyer in this  Agreement  or in any
         Related Agreement;

                           (iii) If the Closing occurs,  the ongoing  operations
         of Buyer,  RSC, the  Subsidiaries  and the Facilities after the Closing
         Date.

                  (b) The  indemnification  obligations  of Buyer provided above
shall,  in addition to the  qualifications  and conditions set forth in Sections
11.5 and 11.6, be subject to the following qualifications:

                           (i) Seller shall not be entitled to  indemnity  under
         Section 11.4(a)(i) above unless:

                                    (A)  Written  notice to Buyer of such  claim
                  specifying  the basis  thereof is made, or an action at law or
                  in equity  with  respect to such  claim is served,  before the
                  first  anniversary of the earlier to occur of the Closing Date
                  or the date on which this Agreement is terminated, as the case
                  may be; and

                                    (B)  If  the  Closing  occurs,   the  Losses
                  sustained  or suffered by Seller or to which it may be subject
                  as  a  result  of  circumstances  described  in  such  Section
                  11.4(a)(i) exceeds,  in the aggregate,  the Deductible Amount,
                  provided,  however,  that individual claims of $10,000 or less
                  shall  not be  aggregated  for  purposes  of  calculating  the
                  Deductible  Amount or the excess of Losses over the Deductible
                  Amount; and

                                    (C) If the Closing occurs, in no event shall
                  Buyer be liable to Seller under Section 11.4(a)(i) for amounts
                  below the Deductible Amount.

                           (ii)  If  the   Closing   occurs,   Seller   and  the
         Subsidiaries   shall  not  be  entitled  to  indemnity  under  Sections
         11.4(a)(ii)-(iii)   above  except  for  out-of-pocket  Losses  actually
         suffered or sustained by them or to which they may become  subject as a
         result of circumstances  described in such Sections  11.4(a)(ii)-(iii),
         and  such  indemnity   shall  not  include  Losses  in  the  nature  of
         consequential  damages,  lost profits,  diminution in value,  damage to
         reputation or the like.

         Section 11.5 Further  Qualifications  Respecting  Indemnification.  The
right of a party (an  "Indemnitee")  to indemnity  hereunder shall be subject to
the following additional qualifications:

                  (a) The Indemnitee  shall promptly upon its discovery of facts
or circumstances giving rise to a claim for  indemnification,  including receipt
by it of notice of any demand, assertion, claim, action or proceeding, judicial,
governmental  or  otherwise,  by any third party (such third party actions being
collectively referred to herein as "Third Party Claims"), give notice thereof to
the indemnifying party (the "Indemnitor"),  such notice in any event to be given
within 60 days from the date the  Indemnitee  obtains  actual  knowledge  of the
basis or alleged basis for the right of indemnity or such shorter  period as may
be necessary to avoid material prejudice to the Indemnitor; and

                  (b) In computing Losses, such amounts shall be computed net of
any related  recoveries  to which the  Indemnitee  is entitled  under  insurance
policies or other related payments received or receivable from third parties and
net of any tax benefits  actually  received by the Indemnitee or for which it is
eligible,  taking  into  account  the income  tax  treatment  of the  receipt of
indemnification.

         Section 11.6  Procedures  Respecting  Third Party Claims.  In providing
notice to the  Indemnitor  of any Third Party Claim (the  "Claim  Notice"),  the
Indemnitee shall provide the Indemnitor with a copy of such Third Party Claim or
other  documents  received and shall  otherwise make available to the Indemnitor
all  relevant  information  material to the defense of such claim and within the
Indemnitee's possession. The Indemnitor shall have the right, by notice given to
the Indemnitee  within 15 days after the date of the Claim Notice, to assume and
control  the  defense of the Third Party Claim that is the subject of such Claim
Notice,  including the employment of counsel  selected by the  Indemnitor  after
consultation with the Indemnitee,  and the Indemnitor shall pay all expenses of,
and the Indemnitee shall cooperate fully with the Indemnitor in connection with,
the  conduct  of such  defense.  The  Indemnitee  shall have the right to employ
separate  counsel in any such proceeding and to participate in (but not control)
the defense of such Third Party Claim, but the fees and expenses of such counsel
shall be borne by the Indemnitee unless the Indemnitor shall agree otherwise. If
the Indemnitor  shall have failed to assume the defense of any Third Party Claim
in accordance  with the provisions of this Section,  then the  Indemnitee  shall
have the absolute  right to control the defense of such Third Party Claim,  and,
if and  when it is  finally  determined  that  the  Indemnitee  is  entitled  to
indemnification  from  the  Indemnitor  hereunder,  the  fees  and  expenses  of
Indemnitee's  counsel  shall  be  borne  by the  Indemnitor,  provided  that the
Indemnitor  shall  be  entitled,  at its  expense,  to  participate  in (but not
control)  such  defense.  The  Indemnitor  shall  have the  right to  settle  or
compromise  any such Third Party Claim for which it is  providing  indemnity  so
long as such  settlement  does not  impose  any  obligations  on the  Indemnitee
(except with respect to providing  releases of the third party).  The Indemnitor
shall not be liable for any settlement  effected by the  Indemnitee  without the
Indemnitor's  consent. The Indemnitor may assume and control, or bear the costs,
of any  such  defense  subject  to its  reservation  of a right to  contest  the
Indemnitee's  right to  indemnification  hereunder,  provided  that it gives the
Indemnitee  notice of such  reservation  within 15 days of the date of the Claim
Notice.


                                   ARTICLE 12
                               GENERAL PROVISIONS

         Section 12.1 Notices. All notices, requests, demands, waivers, consents
and other  communications  hereunder  shall be in  writing,  shall be  delivered
either in person,  by  telegraphic,  facsimile  or other  electronic  means,  by
overnight  air  courier or by mail,  and shall be deemed to have been duly given
and to have  become  effective  (a) upon  receipt if  delivered  in person or by
telegraphic,  facsimile or other  electronic  means  calculated to arrive on any
business day prior to 5:30 p.m. local time at the address of the  addressee,  or
on the next succeeding  business day if delivered on a non-business day or after
5:30 p.m. local time, (b) one business day after having been delivered to an air
courier for  overnight  delivery  or (c) five  business  days after  having been
deposited  in  the  mails  as  certified  or  registered  mail,  return  receipt
requested,  all  fees  prepaid,  directed  to the  parties  or  their  permitted
assignees at the following addresses (or at such other address as shall be given
in writing by a party hereto):

         If to NovaCare or Seller, addressed to:

                  NovaCare, Inc.
                  1016 West Ninth Avenue
                  King of Prussia, Pennsylvania  19406
                  Attention:  Timothy E. Foster
                              President and Chief Operating Officer
                  Facsimile:  (610) 992-3326

with a copy to counsel for Seller:

                  NovaCare, Inc.
                  1016 West Ninth Avenue
                  King of Prussia, Pennsylvania  19406
                  Attention:  Peter D. Bewley, Esq.
                  Facsimile:  (610) 902-3341

                  and

                  Tucci & Semes
                  Suite 206
                  Three Mill Road
                  Wilmington, Delaware  19806

If to Buyer, addressed to:

                  HEALTHSOUTH Corporation
                  Two Perimeter Park South
                  Birmingham, Alabama 35243
                  Attention:  Richard M. Scrushy
                              Chairman of the Board, President and
                              Chief Executive Officer
                  Facsimile:  (205) 969-4729

with a copy to counsel for Buyer:

                  HEALTHSOUTH Corporation
                  Two Perimeter Park South
                  Birmingham, Alabama 35243
                  Attention:  William W. Horton, Esq.
                  Facsimile:  (205) 969-4732

                  and

                  J. Brooke Johnston, Jr., Esq.
                  Haskell Slaughter Young & Johnston,
                   Professional Association
                  1200 AmSouth/Harbert Plaza
                  1901 Sixth Avenue North
                  Birmingham, Alabama 35203
                  Facsimile:  (205) 324-1133


         Section 12.2  Attorneys'  Fees. In any  litigation or other  proceeding
relating to this Agreement,  including litigation with respect to any Agreement,
the  prevailing  party shall be  entitled  to recover  its costs and  reasonable
attorneys' fees. The term "prevailing party" shall mean the party in whose favor
final  judgment  after  appeal (if any) is rendered  with  respect to the claims
asserted in such litigation or other  proceeding.  "Reasonable  attorneys' fees"
are no greater  than those  attorneys'  fees  actually  incurred in  obtaining a
judgment or other determination in favor of the prevailing party.

         Section 12.3  Successors  and Assigns.  The rights under this Agreement
shall not be assignable or transferable nor the duties delegable by either party
without the prior written  consent of the other;  and nothing  contained in this
Agreement,  express or implied, is intended to confer upon any person or entity,
other than the parties  hereto and their  permitted  successors-in-interest  and
permitted assignees, any rights or remedies under or by reason of this Agreement
unless so stated to the contrary.

         Section 12.4  Counterparts.  This  Agreement  may be executed in one or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

         Section 12.5  Captions and Paragraph  Headings.  Captions and paragraph
headings  used  herein  are  for  convenience  only  and  are not a part of this
Agreement and shall not be used in construing it.

         Section  12.6  Entirety  of  Agreement;   Amendments.   This  Agreement
(including  the  Schedules  and  Exhibits  hereto) and the other  documents  and
instruments  specifically  provided  for in this  Agreement  contain  the entire
understanding  between  the  parties  concerning  the  subject  matter  of  this
Agreement and such other  documents  and  instruments  and,  except as expressly
provided for herein, supersede all prior understandings and agreements,  whether
oral or written,  between  them with  respect to the subject  matter  hereof and
thereof. There are no representations,  warranties, agreements,  arrangements or
under-  standings,  oral or written,  between the parties hereto relating to the
subject matter of this Agreement and such other documents and instruments  which
are not fully  expressed  herein or therein.  This  Agreement  may be amended or
modified only by an agreement in writing  signed by each of the parties  hereto.
All Exhibits and  Schedules  attached to or  delivered in  connection  with this
Agreement are integral parts of this Agreement as if fully set forth herein, and
all statements  appearing therein shall be deemed disclosed for all purposes and
not only in connection with the specific  provision in which they are explicitly
referenced.

         Section  12.7  Construction.   This  Agreement  and  any  documents  or
instruments  delivered  pursuant hereto shall be construed without regard to the
identity of the person who drafted the various  provisions of the same. Each and
every provision of this Agreement and such other documents and instruments shall
be construed as though the parties  participated  equally in the drafting of the
same.  Consequently,  the  parties  acknowledge  and  agree  that  any  rule  of
construction that a document is to be construed against the drafting party shall
not be  applicable  either  to  this  Agreement  or  such  other  documents  and
instruments.

         Section  12.8 Waiver.  The failure of a party to insist,  in any one or
more instances,  on performance of any of the terms, covenants and conditions of
this  Agreement  shall not be  construed  as a waiver or  relinquishment  of any
rights granted hereunder or of the future performance of any such term, covenant
or  condition,  but the  obligations  of the parties with respect  thereto shall
continue in full force and effect.  No waiver of any  provision  or condition of
this  Agreement by a party shall be valid unless in writing signed by such party
or  operational  by the  terms of this  Agreement.  A waiver by one party of the
performance of any covenant, condition,  representation or warranty of the other
party shall not invalidate this Agreement, nor shall such waiver be construed as
a waiver of any other covenant, condition,  representation or warranty. A waiver
by any party of the time for performing any act shall not constitute a waiver of
the time for  performing  any other act or the time for  performing an identical
act required to be performed at a later time.

         Section 12.9  Governing  Law. This  Agreement  shall be governed in all
respects,  including  validity,  interpretation  and effect,  by the laws of the
Commonwealth of  Pennsylvania,  without regard to the principles of conflicts of
law thereof.

         Section 12.10 Severability.  Whenever possible,  each provision of this
Agreement  shall be  interpreted  in such  manner  as to be valid,  binding  and
enforceable under applicable law, but if any provision of this Agreement is held
to be invalid,  void (or voidable) or  unenforceable  under applicable law, such
provision shall be ineffective  only to the extent held to be invalid,  void (or
voidable) or unenforceable, without affecting the remainder of such provision or
the remaining provisions of this Agreement.

         Section 12.11 Consents Not Unreasonably Withheld.  Wherever the consent
or approval  of any party is  required  under this  Agreement,  such  consent or
approval shall not be unreasonably withheld,  unless such consent or approval is
to be given by such party at the sole or absolute discretion of such party or is
otherwise similarly qualified.

         Section 12.12 Time Is of the Essence.  Time is hereby expressly made of
the essence with respect to each and every term and provision of this Agreement.
The parties acknowledge that each will be relying upon the timely performance by
the other of its obligations  hereunder as a material inducement to each party's
execution of this Agreement. Consequently, the parties agree that they are bound
strictly by the provisions  concerning  timely  performance of their  respective
obligations  contained  in this  Agreement  and that if any  attempt  is made by
either party to perform an obligation  required to be performed or comply with a
provision of this Agreement  required to be complied with in a manner other than
in strict  compliance  with the time  period  applicable  thereto,  even if such
purported  attempt  is  but  one  day  late,  then  such  purported  attempt  at
performance or compliance shall be deemed a violation of this Section,  shall be
deemed in  contravention  of the intention of the parties  hereto,  and shall be
null and void and of no force or effect.

     IN WITNESS  WHEREOF,  the parties have duly executed this  Agreement on the
date first above written.

                                      HEALTHSOUTH Corporation


                                     By: /s/ MICHEAL D. MARTIN
                                         _______________________________

                                     Its: Senior Vice President and Treasurer
                                         ______________________________


                                     NOVACARE, INC.
                                     By: /s/ TIMOTHY G. FOSTER
                                         _______________________________

                                     Its: President and Chief Operating Officer
                                         ______________________________


                                     NC RESOURCES, INC.
                                     By: /s/ JOSEPH C. O'NEILL
                                        _______________________________

                                     Its: President
                                         ______________________________