NOVACARE, INC. 1016 WEST NINTH AVENUE KING OF PRUSSIA, PA 19406

1
EXHIBIT 10(a)

NOVACARE, INC.
0000 XXXX XXXXX XXXXXX
XXXX XX XXXXXXX, XX 00000

November 4, 1996

PNC Bank, National Association,
as Agent
One PNC Plaza
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxx, Vice President

RE: Seventh Amendment to Credit Agreement (the "Seventh Amendment")

Dear Xxxxxx:

We refer to that certain Credit Agreement, dated as of May 27,
1994, as amended (the "Credit Agreement"), by and among NovaCare, Inc.
("NovaCare") and certain of its Subsidiaries, the Banks party thereto and PNC
Bank, National Association, as agent for the Banks ("Agent"). Defined terms
used herein, not otherwise defined herein, shall have the meanings given to
them under the Credit Agreement as amended hereby.

The Borrowers and Guarantors, the Banks and the Agent hereby
desire to amend the Credit Agreement, as hereinafter provided.

The parties hereto in consideration of their mutual covenants
and agreements hereinafter set forth, and intending to be legally bound hereby,
covenant and agree as follows:

AGREEMENT

1. Amendment and Restatement. Articles I through XI of the
Credit Agreement are hereby amended and restated in their entirety as of the
date hereof to read as set forth on Exhibit I hereto (The cover page, opening
paragraph and recitals to the Agreement are also included in Exhibit I for
convenience).
2

2. Amendment to Exhibits and Schedules.

(a) Exhibits. The following Exhibit to the Credit
Agreement is hereby amended and restated in its entirety in the form of such
Exhibit attached hereto:

Exhibit 8.01(m)(iii) Compliance Certificate

The following Exhibits are hereby deleted from the Credit
Agreement in their entirety:

Exhibit 1.01(P)(1)(E) Permitted Poolings Notice
Certificate
Exhibit 1.01(P)(1)(F) Permitted Poolings Approval
Certificate - Agent
Exhibit 1.01(P)(1)(G) Permitted Poolings Approval
Certificate - Required Banks
Exhibit 1.01(P)(2) Permitted Purchases Approval
Certificate - Required Banks

(b) Schedules. The following Schedules to the Credit
Agreement are hereby amended and restated in their entirety in the forms of
such Schedules attached hereto:

Schedule 1.01(B) List of Banks and
Commitments
Schedule 6.01(c) Subsidiaries

3. Closing Fees.

The Borrowers, jointly and severally, agree to pay to the Agent for
the account of each Bank, as consideration for this Seventh Amendment, a
nonrefundable fee equal to the amount set forth across from such Bank's name on
Exhibit II hereto, payable on or before the Seventh Amendment Effective Date.

4. Conditions of Effectiveness.

The effectiveness of this Seventh Amendment is expressly conditioned
upon the occurrence and completion of all of the following: (i) receipt by the
Agent of the nonrefundable fee set forth in that certain letter agreement among
the Agent and the Borrowers with respect to this Seventh Amendment; (ii)
receipt by the Agent on behalf of the Banks of the nonrefundable fees equal to
the aggregate of the amounts set forth on Exhibit II hereto; (iii) the Agent's
receipt of counterparts of this Seventh Amendment duly executed by the
Borrowers, the Guarantors and the Banks; (iv) the Agent's receipt of a
certificate signed by the Secretary or Assistant Secretary of the Borrowers and
Guarantors, certifying as to all action taken by the Borrowers and Guarantors
to authorize the execution, delivery and performance of this Seventh Amendment;
(v) an opinion of Xxxxx X. Xxxxxx, General Counsel of the Loan Parties,
reasonably satisfactory to the Agent regarding this Seventh Amendment, and (vi)
with respect to each new Guarantor or new Borrower (a "Joining Subsidiary")
documentation as required under Section 11.18 of the

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3

Credit Agreement, including without limitation the completion of the following:
(1) executing and delivering to the Agent (A) in the case of a Joining
Subsidiary which becomes a Borrower, a Revolving Credit Note in the form of
Exhibit 1.01(R) to the Credit Agreement, payable to each Bank, (B) a joinder to
the Credit Agreement in form satisfactory to the Agent, (C) a counterpart
signature page to the Guaranty Agreement executed by certain Loan Parties which
is in the form of Exhibit 1.01 (G)(1) to the Credit Agreement, in the case of a
Joining Subsidiary which becomes a Borrower, and Exhibit 1.01(G)(2) to the
Credit Agreement, in the case of a Joining Subsidiary which becomes a
Guarantor, (D) if it owns stock or other ownership interests in any Qualifying
Subsidiary, a joinder to the Pledge Agreement executed by certain Loan Parties
which is in the form of Exhibit 1.01(P)(4) to the Credit Agreement, 1.01(P)(5)
to the Credit Agreement, or 1.01(P)(6) to the Credit Agreement, as applicable,
and delivering, as applicable, the original certificates evidencing such stock
or other ownership interest if it is certificated with appropriate stock powers
or other assignments signed in blank and UCC-1 financing statements necessary
to perfect the security interests of the Agent for the benefit of the Banks
therein, (E) a joinder to the Subordination Agreement (Intercompany) executed
by certain Loan Parties which is in the form of Exhibit 1.01(S) to the Credit
Agreement, (F) a joinder to the Agency Agreement executed by certain Loan
Parties appointing NovaCare as agent; (2) delivering to the Agent an opinion of
Xxxxx X. Xxxxxx, General Counsel of the Loan Parties, reasonably satisfactory
to the Agent regarding such Joining Subsidiary and such joinder; (3) delivering
to the Agent certified copies of its organizational documents and other
documents as requested by the Agent; and (4) the Loan Party which owns the
stock or other ownership interest of the Joining Subsidiary shall execute and
deliver to the Agent for the benefit of the Banks a Pledge Agreement in the
form of Exhibit 1.01(P)(4), 1.01(P)(5) or 1.01(P)(6) to the Credit Agreement,
as applicable, and the original certificates evidencing such stock or other
ownership interest if it is certificated with appropriate stock powers or other
assignments signed in blank and UCC-1 financing statements necessary to perfect
the security interests of the Agent for the benefit of the Banks therein, and
(G) updated Schedules to the Credit Agreement and the other Loan Documents, if
any, to update such schedules with respect to each Joining Subsidiary, such
updated Schedules to be in form and substance satisfactory to the Required
Banks.

This Seventh Amendment shall be dated as of and shall be
effective as of the date and year first above written subject to satisfaction
of all conditions precedent to effectiveness as set forth in this Section 4,
which date shall be the Seventh Amendment Effective Date.

5. Consent of All Banks, Approval of Increase in Revolving Credit
Commitments.

Pursuant to Section 11.01(b) of the Credit Agreement, this
Seventh Amendment shall require the written consent of all of the Banks.

By executing this Seventh Amendment, the Agent, each Bank and
each Loan Party consents to the increase in the Revolving Credit Commitments
from $150 million to $175 million, with such increase expressly conditioned
upon the satisfactory completion of the syndication, on a best efforts basis by
the Agent of such increased Commitments, in accordance with the agreement among
the Agent and the Loan Parties with respect thereto.

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6. Full Force and Effect.

Each of the following documents shall remain in full force and
effect on and after the date of this Amendment:

(a) each of the Schedules attached to the Credit
Agreement except for Schedules which are being amended and restated hereby;

(ii) each of the Exhibits attached to the Credit
Agreement except for Exhibits which are being amended and restated hereby or
deleted; and

(iii) the Notes, the Guaranty Agreements, the
Pledge Agreements, the Agent's Fee Letter, the Subordination Agreement
(Intercompany), the Borrower Agency Agreement and all other Loan Documents
(except for Articles I through XI of the Credit Agreement and the Exhibits and
Schedules thereto listed in Paragraph 2 hereof, each of which are being amended
and restated hereby, and except for those Exhibits listed in Paragraph 2 hereof
as being deleted) remain in full force and effect on and after the date hereof.
On and after the date hereof, each reference in the Credit Agreement to "this
Agreement", "hereunder" or words of like import shall mean and be a reference
to the Credit Agreement, as amended by this Amendment, and each reference in
each other Loan Document to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement, as previously amended and as amended by this
Amendment. No novation is intended by this Seventh Amendment.

The parties hereto do not amend or waive any provisions of the
Agreement or the other Loan Documents except as expressly set forth herein.

7. Costs, Expenses, Disbursements.

The Borrowers hereby agree to reimburse the Agent and the
Banks on demand for all costs, expenses and disbursements relating to this
Seventh Amendment which are payable by the Borrowers as provided in Section
10.05 of the Credit Agreement.

8. Counterparts.

This Seventh Amendment may be executed by different parties
hereto in any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all of such counterparts shall
together constitute one and the same instrument.

9. Governing Law.

This Seventh Amendment shall be deemed to be a contract under
the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and

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enforced in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to its conflict of laws principles.

[INTENTIONALLY BLANK]

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6

[Signature Page 1 of 6 to Seventh Amendment]

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Seventh Amendment as of the day and year
first above written.

BORROWERS AND GUARANTORS:

ATTEST: NOVACARE, INC., a Delaware corporation,
and each of the other BORROWERS listed
on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit [III]) and each of
the GUARANTORS listed on Schedule
6.01(c) of the Credit Agreement (which
Schedule is attached hereto as Exhibit
[III]), other than those listed below

By:_______________________ By:______________________________
__________________________[Name],
[Seal] the________________________[Title] of
each Borrower and Guarantor listed on
Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit [III]), other than
those listed below, which is a
corporation and of each general partner
of each Borrower and Guarantor which is
a partnership

ATTEST: NACC, INC., a Delaware Corporation

By:_______________________ By:______________________________
__________________________[Name],
[Seal] the________________________[Title] of
NACC, Inc.

[Signature Page 2 of 6 to Seventh Amendment]

ATTEST CR SERVICES CORP., a Delaware corporation

By: By:
---------------------------- --------------------------------------
[Name],
----------------------------------
[Seal] the [Title] of
---------------------
CR Services Corp.

Address for Notices for each of the
foregoing Borrowers and Guarantors:

0000 Xxxx Xxxxx Xxxxxx
Xxxx xx Xxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Chief Financial Officer
Telephone No. (000) 000-0000

[Signature Page 3 of 6 to Seventh Amendment]

AGENT:

PNC BANK, NATIONAL ASSOCIATION, as
Agent

By:________________________________
Title:_____________________________

Address for Notices:

One PNC Plaza
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Regional Healthcare Group
Telephone No. (000) 000-0000

BANKS:

PNC BANK, NATIONAL ASSOCIATION

By:______________________________
Title:___________________________

Address for Notices:

One PNC Plaza
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Regional Healthcare Group
Telephone No. (000) 000-0000

[Signature Page 4 of 6 to Seventh Amendment]

CORESTATES BANK, N.A.

By:______________________________
Name:____________________________
Title:___________________________

Address for Notices:

0000 Xxxxxxxx Xxxxxx
X.X. Xxx 0000
FC 1-8-3-22
Xxxxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxxxx
Assistant Vice President
Telephone No. (000) 000-0000

FIRST UNION NATIONAL BANK
OF NORTH CAROLINA

By:______________________________
Name: Xxxxx X. Xxxxx
Title: Assistant Vice President

Address for Notices:

One First Union Center
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxxxx X. Xxxxx,
Assistant Vice President
Telephone No. (000) 000-0000

[Signature Page 5 of 6 to Seventh Amendment]

FLEET NATIONAL BANK

By:_____________________________
Name:___________________________
Title:__________________________

Address for Notices:

Health Care and Non Profit Group
Fleet Center MA BOF 00X
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxx Xxxxxxxxxx
Vice President
Telephone No. (000) 000-0000

MELLON BANK, N.A.

By:_____________________________
Name:___________________________
Title:__________________________

Address for Notices:

Healthcare Banking
Plymouth Meeting/Exec. Campus
000 X. Xxxxxxxxxx Xxxx
Xxxxx 000/XXX #00X-0000
Xxxxxxxx Xxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Xxxxx Xxxxx
Vice President
Telephone No. (000) 000-0000

[Signature Page 6 of 6 to Seventh Amendment]

NATIONSBANK, N.A.

By:______________________________
Name:____________________________
Title:___________________________
Address for Notices:

0000 Xxxxxxxxx Xxxxx
0xx Xxxxx
Xxxxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
Vice President
Telephone No. (000) 000-0000

EXHIBIT I

AMENDED AND RESTATED ARTICLES
I THROUGH XI OF CREDIT AGREEMENT

EXHIBIT II

FEE IN CONNECTION
BANK WITH SEVENTH AMENDMENT
---- ----------------------

PNC BANK, NATIONAL ASSOCIATION $118,750

MELLON BANK, N.A. $68,750

NATIONSBANK, N.A. $62,500

CORESTATES BANK, N.A. $50,000

FLEET NATIONAL BANK $37,500

FIRST UNION NATIONAL BANK OF NORTH CAROLINA $37,500
-------

$375,000

$150,000,000 REVOLVING CREDIT FACILITY

CREDIT AGREEMENT

by and among

NOVACARE, INC.,

and

CERTAIN of its SUBSIDIARIES

and

THE BANKS PARTY HERETO

and

PNC BANK, NATIONAL ASSOCIATION, as Agent

Dated as of May 27, 1994, as amended
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TABLE OF CONTENTS

Page
----

LIST OF SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

ARTICLE I - CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.01 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.02 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE II - REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

2.01 Revolving Credit Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

2.02 Nature of Banks' Obligations with Respect to Revolving Credit Loans . . . . . . . . . . . . . 25

2.03 Commitment Fees; Closing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

2.04 Voluntary Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2.05 Revolving Credit Loan Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2.06 Making Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2.07 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2.08 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.09 Letter of Credit Subfacility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.10 Extension by Banks of the Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE III - [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE IV - INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.01 Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

(a) Revolving Credit Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . 30

(i)
16

(i) Revolving Credit Base Rate Option . . . . . . . . . . . . . . . . . . . . . . 31

(ii) Revolving Credit Euro-Rate Option . . . . . . . . . . . . . . . . . . . . . . 31

(b) Rate Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4.02 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4.03 Interest After Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4.04 Euro-Rate Unascertainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4.05 Selection of Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE V - PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.02 Pro Rata Treatment of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.03 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.04 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

(A) Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

(B) Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5.05 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5.06 Additional Compensation in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . 39

(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . 39

(b) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE VI - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

(a) Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

(ii)
17

(b) Capitalization and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

(d) Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

(e) Validity and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

(f) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(i) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(A) Historical Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(B) Financial Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

(j) Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

(k) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

(l) Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

(m) No Event of Default; Compliance with Instruments . . . . . . . . . . . . . . . . . . . 44

(n) Patents, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 45

(o) Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

(p) Status of the Pledged Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

(q) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

(r) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

(s) Material Contracts, Licenses, Permits and Approvals . . . . . . . . . . . . . . . . . . 46

(t) Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

(iii)
18

(u) Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

(v) Plans and Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

(w) Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

(x) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

(y) Senior Debt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

(z) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

6.02 Updates to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE VII - CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

7.01 First Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

7.02 Each Additional Revolving Credit Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

ARTICLE VIII - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

8.01 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

(a) Preservation of Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

(b) Payment of Liabilities, Including Taxes, etc. . . . . . . . . . . . . . . . . . . . . 54

(d) Maintenance of Properties and Leases . . . . . . . . . . . . . . . . . . . . . . . . . 55

(e) Maintenance of Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . . . . . . . 55

(f) Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

(g) Keeping of Records and Books of Account . . . . . . . . . . . . . . . . . . . . . . . 55

(h) Plans and Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

(i) Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

(iv)
19

(j) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

(k) Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

(l) Subordination of Intercompany Indebtedness; Permitted Additional
Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

(A) Intercompany Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

(B) Permitted Additional Subordinated Indebtedness. . . . . . . . . . . . . . . . . . . 57

(m) Certificate of Borrowers; Other Reports and Information . . . . . . . . . . . . . . . . 58

(i) Quarterly Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 58

(ii) Annual Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 58

(iii) Certificate of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . 58

(iv) Separate Financial Information for Certain Excluded Entities . . . . . . . . . 59

(v) Management Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

(vi) Other Reports and Information. . . . . . . . . . . . . . . . . . . . . . . . . 59

8.02 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

(a) Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

(b) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

(d) Liquidations, Mergers, Consolidations, Acquisitions . . . . . . . . . . . . . . . . . . 62

(e) Dispositions of Assets or Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 64

(f) Joinder of Qualifying Subsidiaries; Excluded Entities . . . . . . . . . . . . . . . . . 64

(g) Continuation of or Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . 64

(h) Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

(v)
20

(i) Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

(j) Dividends and Related Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 66

(k) Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

(l) Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

(m) Funded Debt to Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

(n) Funded Debt to Cash Flow From Operations. . . . . . . . . . . . . . . . . . . . . . . . 67

(o) Minimum Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 67

(p) Changes in Subordinated Indebtedness Documents. . . . . . . . . . . . . . . . . . . . . 68

(q) Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

8.03 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

(a) Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

(b) Notice of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

ARTICLE IX - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

9.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

9.02 Consequences of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

9.03 Notice of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

ARTICLE X - THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

10.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

10.03 Nature of Duties; Independent Credit Investigation . . . . . . . . . . . . . . . . . . . . . . 75

10.04 Actions in Discretion of Agent; Instructions from the Banks . . . . . . . . . . . . . . . . . . 75

10.05 Reimbursement and Indemnification of Agent by the Borrowers . . . . . . . . . . . . . . . . . . 75

(vi)
21

10.06 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

10.07 Reimbursement and Indemnification of Agent by Banks . . . . . . . . . . . . . . . . . . . . . . 76

10.08 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

10.09 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

10.11 Banks in Their Individual Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

10.12 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

10.13 Equalization of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

10.14 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

10.15 Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

10.16 Availability of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

10.17 Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

10.18 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

11.01 Modifications, Amendments or Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

11.02 No Implied Waivers; Cumulative Remedies; Writing Required . . . . . . . . . . . . . . . . . . . 80

11.03 Reimbursement and Indemnification of Banks by the Borrowers; Taxes . . . . . . . . . . . . . . 80

11.04 Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

11.05 Funding by Branch, Subsidiary or Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 81

(a) National Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

(b) Actual Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

11.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

11.07 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

(vii)
22

11.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11.09 Prior Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11.10 Duration; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

11.14 Agent's or Bank's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

11.15 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

11.17 Tax Withholding Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

11.18 Joinder of Loan Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

(viii)
23

LIST OF SCHEDULES AND EXHIBITS

SCHEDULES
---------
SCHEDULE 1.01(B) LIST OF BANKS AND COMMITMENTS
SCHEDULE 1.01(E) EXCLUDED ENTITIES
SCHEDULE 1.01(P)(1) PERMITTED INVESTMENTS
SCHEDULE 1.01(P)(2) PERMITTED LIENS
SCHEDULE 2.09 EXISTING LETTERS OF CREDIT
SCHEDULE 6.01(a) ORGANIZATION AND QUALIFICATION
SCHEDULE 6.01(c) SUBSIDIARIES
SCHEDULE 6.01(l) CONSENTS AND APPROVALS
SCHEDULE 6.01(q) INSURANCE
SCHEDULE 6.01(s) MATERIAL CONTRACTS
SCHEDULE 6.01(v) PLANS AND BENEFIT ARRANGEMENTS
SCHEDULE 6.01(x) ENVIRONMENTAL MATTERS
SCHEDULE 8.02(a)(ii) EXISTING INDEBTEDNESS

EXHIBITS
--------
EXHIBIT 1.01(A) ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.01(G)(1) GUARANTY AND SURETYSHIP AGREEMENT (For NovaCare and Borrowing Subsidiaries)

EXHIBIT 1.01(G)(2) GUARANTY AND SURETYSHIP AGREEMENT (For Nonborrower Subsidiaries)

EXHIBIT 1.01(P)(1) INTENTIONALLY OMITTED
EXHIBIT 1.01(P)(2) INTENTIONALLY OMITTED
EXHIBIT 1.01(P)(3) TERMS FOR SUBORDINATED DEBT
EXHIBIT 1.01(P)(4) PLEDGE AGREEMENT - STOCK (For NovaCare and Borrowing Subsidiaries)

EXHIBIT 1.01(P)(5) PLEDGE AGREEMENT - STOCK (For Nonborrower Subsidiaries)

EXHIBIT 1.01(P)(6) PLEDGE AGREEMENT - PARTNERSHIP INTERESTS
EXHIBIT 1.01(R) REVOLVING CREDIT NOTE
EXHIBIT 1.01(S) SUBORDINATION AGREEMENT (INTERCOMPANY)
EXHIBIT 1.01(W) EXAMPLE OF WEIGHTED AVERAGE RATING COMPUTATION

EXHIBIT 2.05 REVOLVING CREDIT LOAN REQUEST
EXHIBIT 7.01(d) FORM OF OPINION OF BORROWERS' COUNSEL
EXHIBIT 8.01(m)(iii) COMPLIANCE CERTIFICATE

(ix)
24

CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of May 27, 1994, and is made
by and among NOVACARE, INC., a Delaware corporation ("NovaCare"), each
Subsidiary of NovaCare identified on Schedule 6.01(c) hereto as a "Borrower"
(collectively, the "Borrowing Subsidiaries" and together with NovaCare
sometimes collectively referred to as the "Borrowers" and individually as a
"Borrower"), each Subsidiary of NovaCare identified on Schedule 6.01(c) hereto
as a "Guarantor" (collectively, the "Guarantors" and, individually, a
"Guarantor"), the BANKS (as hereinafter defined), and PNC BANK, NATIONAL
ASSOCIATION in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent").

WITNESSETH:

WHEREAS, the Loan Parties (as hereinafter defined) have
requested the Banks to provide a revolving credit facility in an aggregate
principal amount not to exceed $150,000,000; and

WHEREAS, the revolving credit facility shall be used for (a)
the acquisition and development of health care related businesses and
facilities and (b) general corporate purposes; and

WHEREAS, the Banks are willing to provide such credit upon the
terms and conditions hereinafter set forth.

NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:

ARTICLE I
CERTAIN DEFINITIONS

1.01 Certain Definitions. In addition to words and terms
defined elsewhere in this Agreement, the following words and terms shall have
the following meanings, respectively, unless the context hereof clearly
requires otherwise:

Adjusted Commitment Fee shall have the meaning
assigned to that term in Section 2.03(b) hereof.

Affiliate as to any person shall mean any other
person (i) which directly or indirectly controls, is controlled by, or is under
common control with such person, (ii) which beneficially owns or holds 50% or
more of any class of the voting stock of any Loan Party, or

(iii) 50% or more of the voting stock (or in the case of a person which is not
a corporation, 50% or more of the equity interest) of which is beneficially
owned or held, directly or indirectly, by any Loan Party. Control, as used
herein, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
including the power to elect a majority of the directors or trustees of a
corporation or trust, as the case may be.

Agent shall mean PNC Bank, National Association and
its successors.

Agent's Fee shall mean the fee payable to the Agent
by Borrowers described in the Agent's Fee Letter.

Agent's Fee Letter shall mean the letter from the
Borrowers to the Agent dated the date hereof providing for the payment of fees
to the Agent for its services as Agent hereunder, as such letter may be
amended, modified or replaced from time to time.

Agreement shall mean this Credit Agreement as the
same may be supplemented or amended from time to time including all schedules
and exhibits hereto.

Annual Permitted Acquisition Amount shall have the
meaning given to such term in Section 8.02(d)(ii)(g).

Applicable Percentage over Euro-Rate shall have the
meaning given to such term in Section 4.01(a)(ii).

Approvals shall have the meaning given to such term
in Section 6.01(s).

Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among a Purchasing Bank, the
Transferor Bank and the Agent, as Agent and on behalf of the remaining Banks,
substantially in the form of Exhibit 1.01(A) hereto.

Authorized Officer shall mean those persons
designated by written notice to the Agent from each of the Loan Parties,
authorized to execute notices, reports and other documents required hereunder.
Any Loan Party may amend such list of persons from time to time by giving
written notice of such amendment to the Agent.

Available Revolving Credit Commitments for any date
of determination, shall mean, as to the Borrowers, an amount equal to the
excess, if any, of (A) the Revolving Credit Commitments, over (B) the sum of
(i) the aggregate outstanding Revolving Credit Loans and (ii) the aggregate
undrawn face amount of outstanding Letters of Credit issued pursuant to Section
2.09 hereof.

- 2 -
26

Bank to be Replaced shall have the meaning set forth
in Section 5.04(b).

Bank to be Terminated shall have the meaning set
forth in Section 5.04(b).

Banks shall mean the financial institutions named on
Schedule 1.01(B) hereto and their respective successors and assigns as
permitted hereunder, each of which is referred to herein as a Bank.

Base Rate shall mean the greater of (i) the Federal
Funds Effective Rate plus one-half percent (0.5%) per annum, or (ii) the
interest rate per annum announced from time to time by the Agent at its
Principal Office as its then prime rate, which rate may not necessarily be the
lowest rate then being charged commercial borrowers by the Agent.

Beneficial Interests shall have the meaning set
forth in Section 6.01(c).

Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan or a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to, by any member of the ERISA Group.

Borrower Agency Agreement shall mean that certain
agreement among the Borrowers, dated as of even date herewith, pursuant to
which the Borrowers authorize and appoint NovaCare to act on behalf of the
Borrowers to take any and all actions that may be required to be taken by any
Borrower or the Borrowers hereunder, including, without limitation, making
requests for and borrowing any Revolving Credit Loan.

Borrowers shall mean NovaCare and each Subsidiary of
NovaCare identified as a "Borrower" on Schedule 6.01(c) hereto and any person
subsequently becoming a party to the Loan Documents and assuming the
obligations of a Borrower thereunder.

Borrowing Date shall mean, with respect to any
Revolving Credit Loan, the date for the making thereof or the renewal thereof
or conversion thereof to the same or a different Interest Rate Option, which
shall be a Business Day.

Borrowing Tranche shall mean (i) with respect to the
Revolving Credit Euro-Rate Portion of the Revolving Credit Loans, Revolving
Credit Loans to which a Revolving Credit Euro-Rate Option applies by reason of
the selection of, conversion to or renewal of such Interest Rate Option on the
same day and having the same Euro-Rate Interest Period, and (ii) with respect
to the Revolving Credit Base Rate Portion of the Revolving Credit Loans,
Revolving Credit Loans to which the Revolving Credit Base Rate Option applies
by reason of the selection of or conversion to such Interest Rate Option.

- 3 -
27

Business Day shall mean a day on which commercial
banks are open for business in Pittsburgh, Pennsylvania and New York, New York.

Capitalization shall mean as of any date of
determination Consolidated Funded Debt plus Consolidated Net Worth.

Change in Ownership shall mean if, from and after
the Closing Date, any person or group within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules
and regulations promulgated thereunder (other than Xxxx X. Xxxxxx, the current
Chairman of the Board and Chief Executive Officer of NovaCare, or a person or
group directly or indirectly controlled by said Xxxx X. Xxxxxx) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the 1934
Act), directly or indirectly, of securities of NovaCare (or other securities
convertible into such securities) representing 50% or more of combined voting
power of all securities of NovaCare entitled to vote in the election of
directors (hereinafter called a "Controlling Person"). For purposes of this
definition, a person or group shall not be a Controlling Person if such person
or group holds voting power in good faith and not for the purpose of
circumventing this definition as an agent, bank, broker, nominee, trustee, or
holder of irrevocable proxies given in response to a solicitation pursuant to
the 1934 Act, for one or more beneficial owners who do not individually, or, if
they are a group acting in concert, as a group, have the voting power specified
in this definition.

Closing Date shall mean the Business Day on which
the first Revolving Credit Loan shall be made, which shall be May 27, 1994 or
such later date on which all requisite conditions have been satisfied. The
closing shall take place on the Closing Date at the offices of Xxxxxxxx
Xxxxxxxxx Professional Corporation, Pittsburgh, Pennsylvania, or at such other
time and place as the parties agree.

Closing Fee shall mean the non-refundable fee paid
to the Banks by the Borrowers on the Closing Date, as consideration for each
Bank's Revolving Credit Commitment, in the amount set forth on Schedule 1.01(B)
in effect on the Closing Date.

Commitment Fee for periods prior to the Sixth
Amendment Effective Date shall mean the Initial Commitment Fee and for the
period beginning on the Sixth Amendment Effective Date and thereafter shall
mean the Adjusted Commitment Fee.

Commitments shall mean Revolving Credit Commitments
and Commitment shall mean Revolving Credit Commitment.

Consideration shall mean with respect to any
Permitted Acquisition, the aggregate of (i) the cash paid by any of the Loan
Parties, directly or indirectly, to the seller in connection therewith, (ii)
the Indebtedness incurred or assumed by any of the Loan Parties (including,
without limitation, Indebtedness of a person becoming a Loan Party in
connection with

- 4 -
28

a Permitted Acquisition, which Indebtedness continues to exist following the
consummation of such Permitted Acquisition), whether in favor of the seller or
otherwise and whether fixed or contingent, in connection therewith, (iii) any
Guaranty given or incurred by any Loan Party in connection therewith, (iv) the
fair market value of any equity issued by any of the Loan Parties, in
connection therewith, and (v) any other consideration given or obligation
incurred by any of the Loan Parties in connection therewith, provided, however
that the amount of any deferred earn-out payments to any seller not required by
GAAP to be disclosed as a liability on the balance sheet of any Loan Party as
of the date of consummation of such Permitted Acquisition shall be excluded
from the determination under clauses (i) through (v) of this definition.

Consolidated Cash Flow from Operations for any
period of determination shall mean (i) the sum of net income, depreciation,
amortization, other non-cash charges, if any, deducted in the determination of
net income, interest expense and income tax expense, minus (ii) non-cash
credits, if any, included in the determination of net income, in each case of
NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP but without regard to net income and the other items
described in clauses (i) and (ii) of this sentence attributable to Restricted
Excluded Entities; provided that, if a Loan Party shall have made one or more
Permitted Acquisitions during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all
Permitted Acquisitions as if they had occurred at the beginning of such period;
and provided further that if any Loan Party shall have effected one or more
Permitted Asset Transfers during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all such
Permitted Asset Transfers as if they had occurred at the beginning of such
period. The pro forma adjustments described in the previous sentence shall be
made based upon historical financial statements for the four (4) fiscal
quarters prior to the date of such Permitted Acquisition or Permitted Asset
Transfer, as the case may be, which historical financial statements shall be
reasonably satisfactory to the Agent.

Consolidated Earnings Available for Fixed Charges
shall mean:

(A) for any period of determination from the
Closing Date through, but not including, the Sixth Amendment Effective Date,
the sum of net income, interest expense, income tax expense and expenses under
operating leases, in each case of NovaCare and its Subsidiaries for such period
determined and consolidated in accordance with GAAP, but without regard to net
income, interest expense, income tax expense and expenses under operating
leases attributable to Restricted Excluded Entities; and

(B) for any period of determination from the
Sixth Amendment Effective Date and thereafter, the sum of net income (excluding
non-cash credits, if any, included in the determination of net income),
interest expense, income tax expense, depreciation, amortization, other
non-cash charges, if any, deducted in the determination of net income and
expenses under operating leases, in each case of NovaCare and its Subsidiaries
for such period determined and consolidated in accordance with GAAP, but
without regard to net income,

- 5 -
29

interest expense, income tax expense, depreciation, amortization, other
non-cash charges and expenses under operating leases attributable to Restricted
Excluded Entities.

If a Loan Party shall have made one or more
Permitted Acquisitions during any such period, Consolidated Earnings Available
for Fixed Charges shall be adjusted on a pro forma basis to give effect to all
Permitted Acquisitions as if they had occurred at the beginning of such period;
and provided further that if any Loan Party shall have effected one or more
Permitted Asset Transfers during such period, Consolidated Earnings Available
for Fixed Charges shall be adjusted on a pro forma basis to give effect to all
such Permitted Asset Transfers as if they had occurred at the beginning of such
period. The pro forma adjustments described in the previous sentence shall be
made based upon historical financial statements for the four (4) fiscal
quarters prior to the date of such Permitted Acquisition or Permitted Asset
Transfer, as the case may be, which historical financial statements shall be
reasonably satisfactory to the Agent.

Consolidated Fixed Charges shall mean:

(A) for any period of determination from the
Closing Date through, but not including, the Sixth Amendment Effective Date,
the sum of interest expense plus expenses under operating leases, in each case
of NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP; and

(B) for any period of determination from the
Sixth Amendment Effective Date and thereafter, the sum of interest expense,
expenses under operating leases, income tax expense, current maturities of long
term Indebtedness, and current principal payments under capitalized leases (for
the twelve (12) month period following the date of determination), in each case
of NovaCare and its Subsidiaries for such period determined and consolidated
in accordance with GAAP.

If a Loan Party shall have made one or more
Permitted Acquisitions during any such period, Consolidated Fixed Charges shall
be adjusted on a pro forma basis to give effect to all Permitted Acquisitions
as if they had occurred at the beginning of such period; and provided further
that if any Loan Party shall have effected one or more Permitted Asset
Transfers during such period, Consolidated Fixed Charges shall be adjusted on a
pro forma basis to give effect to all such Permitted Asset Transfers as if they
had occurred at the beginning of such period. The pro forma adjustments
described in the previous sentence shall be made based upon historical
financial statements for the four (4) fiscal quarters prior to the date of such
Permitted Acquisition or Permitted Asset Transfer, as the case may be, which
historical financial statements shall be reasonably satisfactory to the Agent.

Consolidated Funded Debt shall mean any Indebtedness
of NovaCare and its Subsidiaries to persons other than NovaCare and its
Subsidiaries, determined and consolidated in accordance with GAAP. Any items
which are included in more than one clause of the

- 6 -
30

definition of Indebtedness shall not be counted more than one time in computing
the amount of Consolidated Funded Debt.

Consolidated Net Income shall mean for any period of
determination the net income of NovaCare and its Subsidiaries for such period
determined and consolidated in accordance with GAAP, except that there shall be
excluded from such net income any increases or decreases in income or expenses
resulting from changes in GAAP on and after the Closing Date.

Consolidated Net Worth shall mean as of any date of
determination total stockholders' equity of NovaCare and its Subsidiaries as of
such date determined and consolidated in accordance with GAAP.

Delivery Date shall mean the earlier of (A) the date
on which NovaCare delivers its consolidated financial statements pursuant to
Sections 8.01(m)(i) and (ii) or (B) one Business Day following the date on
which such financial statements are due to be delivered pursuant to such
Sections.

Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.

Effective Date shall mean, November 28, 1994, which
is the effective date of the second amendment to this Agreement.

Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property damage or
equitable relief, order, notice of violation, citation, request for information
issued pursuant to any Environmental Laws by an Official Body, subpoena or
other written notice of any type relating to, arising out of, or issued
pursuant to any of the Environmental Laws or any Environmental Conditions, as
the case may be, in each case with respect to any violation or alleged
violation of Environmental Laws or release or threatened release of a Regulated
Substance.

Environmental Conditions shall mean any conditions
of the environment, including, without limitation, the work place, the ocean,
natural resources (including flora or fauna), soil, surface water, ground
water, any actual or potential drinking water supply sources, substrata or the
ambient air, relating to or arising out of, or caused by the use, handling,
storage, treatment, recycling, generation, transportation, release, spilling,
leaking, pumping, emptying, discharging, injecting, escaping, leaching,
disposal, dumping, threatened release or other management or mismanagement of
Regulated Substances resulting from the use of, or operations on, the Property.

Environmental Laws shall mean all federal, state,
local and foreign laws and regulations, including permits, orders, judgments,
and consent decrees issued, or entered into,

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31

pursuant thereto, relating to pollution or protection of human health or the
environment or employee safety in the work place.

ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.

ERISA Group shall mean, at any time, NovaCare, its
Subsidiaries and all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control and all
other entities which, together with NovaCare, are treated as a single employer
under Section 414 of the Internal Revenue Code.

Euro-Rate shall mean with respect to the Revolving
Credit Loans comprising any Borrowing Tranche to which the Revolving Credit
Euro-Rate Option applies for any Interest Period, the interest rate per annum
determined by the Agent by dividing (the resulting quotient rounded upward to
the nearest 1/100 of 1% per annum) (i) the rate of interest determined by the
Agent in accordance with its usual procedures (which determination shall be
conclusive absent manifest error) to be the "offered" Euro-Rate evidenced by
Telerate page 4756 as quoted by Xxxxxx, Astley & Xxxxxx or such other display
page on the Telerate System as may replace such page (or appropriate successor
or, if Xxxxxx, Astley & Xxxxxx or its successors ceases to provide such quotes,
a comparable replacement as determined by the Agent) two (2) Business Days
prior to the first day of such Euro-Rate Interest Period for delivery on the
first day of such Interest Period in amounts comparable to such Borrowing
Tranche and having maturities comparable to such Interest Period by (ii) a
number equal to 1.00 minus the Euro- Rate Reserve Percentage. The Euro-Rate
may also be expressed by the following formula:

[Telerate page 4756 as Quoted by Xxxxxx,]
Euro-Rate = [Astley & Xxxxxx or appropriate successor]
1.00 - Euro-Rate Reserve Percentage

The Euro-Rate shall be adjusted with respect to any Revolving Credit Euro-Rate
Option outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to
the Borrowers of the Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.

Euro-Rate Interest Period shall have the meaning
assigned to that term in Section 4.02 hereof.

Euro-Rate Reserve Percentage shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%)
as determined by the Agent (which determination shall be conclusive absent
manifest error) which is in effect during any relevant period, as prescribed by
the Board of Governors of the Federal Reserve System (or any

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32

successor) for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "Eurocurrency
Liability") of a member bank in such System.

Event of Default shall mean any Event of Default
described in Section 9.01 of this Agreement.

Excluded Entities shall mean collectively (i) any
Minority Subsidiary or Unaffiliated Managed Company in which a Loan Party has
made a Restricted Investment permitted by Section 8.02(i)(v) and (ii) the
Excluded Qualifying Subsidiaries, and Excluded Entity shall mean separately any
of the Excluded Entities.

Excluded Qualifying Subsidiaries shall mean the
Qualifying Subsidiaries listed on Schedule 1.01(E) as of the Closing Date under
the heading "Excluded Qualifying Subsidiaries," as thereafter amended from time
to time with the approval of the Required Banks.

Existing Lines of Business shall mean the businesses
conducted by the Loan Parties on the Closing Date.

Expiration Date shall mean with respect to the
Revolving Credit Commitments, November 28, 1999.

Federal Funds Effective Rate for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve
Bank of New York (or any successor) on such day as being the weighted average
of the rates on overnight Federal funds transactions arranged by Federal funds
brokers on the previous trading day, as computed and announced by such Federal
Reserve Bank (or any successor) in substantially the same manner as such
Federal Reserve Bank computes and announces the weighted average it refers to
as the "Federal Funds Effective Rate" as of the date of this Agreement;
provided, if such Federal Reserve Bank (or its successor) does not announce
such rate on any day, the "Federal Funds Effective Rate" for such day shall be
the Federal Funds Effective Rate for the last day on which such rate was
announced.

First Amendment shall mean the first amendment to
this Agreement.

GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the provisions of
Section 1.03 hereof, and applied on a consistent basis (except for changes in
application in which the Borrowers' independent certified public accountants
concur) both as to classification of items and amounts.

Guaranty of any person shall mean any obligation of
such person guaranteeing or in effect guaranteeing any liability or obligation
of any other person in any

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33

manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any agreement to indemnify or hold harmless any
other person, any performance bond or other suretyship arrangement and any
other form of assurance against loss, except endorsement of negotiable or other
instruments for deposit or collection in the ordinary course of business.

Guaranty Agreements shall mean collectively, the
Guaranty and Suretyship Agreement in substantially the form attached hereto as
Exhibit 1.01(G)(1) executed and delivered by each of the Borrowers to the Agent
for the benefit of the Banks and the Guaranty and Suretyship Agreement in
substantially the form attached hereto as Exhibit 1.01(G)(2) executed and
delivered by each of the Guarantors to the Agent for the benefit of the Banks
and Guaranty Agreement shall mean separately any Guaranty Agreement.

Guarantors shall mean each Subsidiary of NovaCare
identified as a "Guarantor" on Schedule 6.01(c) and any person which hereafter
becomes a party to the Loan Documents and assumes the obligations of a
Guarantor thereunder. Each Qualifying Subsidiary of NovaCare which is not a
Borrower or an Excluded Qualifying Subsidiary is required to join the Credit
Agreement as a Guarantor.

Indebtedness shall mean as to any person at any
time, any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such person for or in respect of: (i)
borrowed money, (ii) amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility, (iii) reimbursement obligations under
any letter of credit, currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management device, (iv) any other
transaction (including without limitation forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the commercial
effect of a borrowing of money entered into by such person to finance its
operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note), or (v) any Guaranty of Indebtedness for
borrowed money.

Indenture shall mean that certain Indenture dated as
of January 15, 1993 between NovaCare and PNC Bank, as Trustee, as the same may
be amended, modified, supplemented, restated or replaced from time to time.

Initial Commitment Fee shall have the meaning
assigned to that term in Section 2.03(a) hereof.

Intercompany Indebtedness shall mean all
Indebtedness of NovaCare or any of its Subsidiaries to NovaCare or any other
Subsidiary.

Interest Payment Date shall mean each date specified
for the payment of interest in Section 5.03.

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34

Interest Rate Option shall mean the Revolving Credit
Euro-Rate Option or Revolving Credit Base Rate Option.

Internal Revenue Code shall mean the Internal
Revenue Code of 1986, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.

Investment shall mean all of the following with
respect to any Investment Entity (as hereinafter defined): (i) investments or
contributions by any other Loan Parties directly or indirectly to the capital
of or other payments to the Investment Entity; (ii) loans by any other Loan
Parties directly or indirectly to such Investment Entity; (iii) guaranties by
any other Loan Parties directly or indirectly of the obligations of the
Investment Entity; or (iv) other obligations, contingent or otherwise, of any
other Loan Parties, to or for the benefit of such Investment Entity. For
purposes of the definition of Investment, "Investment Entity" shall mean a Loan
Party with respect to which any of the Investments described in clauses (i)
through (iv) inclusive of this definition occurs.

Labor Contracts shall have the meaning assigned to
that term in Section 6.01(s).

Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.

Letter of Credit shall have the meaning assigned to
that term in Section 2.09.

Letter of Credit Fee shall have the meaning assigned
to that term in Section 2.09.

Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including
but not limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and any filed financing statement or other notice of any of the
foregoing (whether or not a lien or other encumbrance is created or exists at
the time of the filing).

Loan Documents shall mean this Agreement, the Notes,
the Guaranty Agreements, the Pledge Agreements, the Agent's Fee Letter, the
Subordination Agreement (Intercompany), the Borrower Agency Agreement and any
other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection

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35

herewith or therewith, as the same may be supplemented or amended from time to
time in accordance herewith or therewith, and Loan Document shall mean any of
the Loan Documents.

Loan Parties shall mean collectively the Borrowers,
the Guarantors, and each person which hereafter becomes a party to the Loan
Documents as a Borrower or Guarantor, and Loan Party shall mean any of the Loan
Parties. The term Loan Parties shall be deemed also to include all of the
Excluded Entities other than the Unaffiliated Managed Companies and the term
Loan Party shall be deemed to include any Excluded Entity other than any
Unaffiliated Managed Company, in each case, solely for purposes of the
representations and warranties contained in Article VI and the covenant
contained in Section 8.02(q).

Loans shall mean Revolving Credit Loans and Loan
shall mean Revolving Credit Loan.

Material Adverse Change shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of any one or more Loan Parties to duly and
punctually pay or perform Indebtedness in principal amount in excess of
$1,000,000 in the aggregate, or (d) impairs materially or could reasonably be
expected to impair materially the ability of the Agent or any of the Banks, to
the extent permitted, to enforce its legal remedies pursuant to this Agreement
or any other Loan Document.

Member Interests shall have the meaning set forth in
Section 6.01(c).

Minimum Net Worth Requirement shall mean:

(A) for any period of determination from the
Closing Date through, but not including, the Sixth Amendment Effective Date,
the sum of (i) $375,250,000, plus (ii) seventy-five percent (75%) of
Consolidated Net Income of NovaCare and its Subsidiaries for each fiscal
quarter in which net income was earned (as opposed to a net loss) plus the
proceeds received by NovaCare in connection with the sale of shares of its
capital stock after deducting any expenses associated with such sale including
proceeds from conversion of the Subordinated Debentures, during the period from
March 31, 1994 through (and including) the date of determination;

(B) for any period of determination on and
after the Sixth Amendment Effective Date through and including June 30, 1996,
the sum of (i) $487,635,000, plus (ii) the sum of (a) ninety-five percent (95%)
of Consolidated Net Income (before any deductions for non-cash extraordinary
items) of NovaCare and its Subsidiaries for each fiscal quarter after the
fiscal quarter ended June 30, 1995, in which net income was earned (as opposed
to a net loss) through

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36

(and including) the date of determination plus (b) the proceeds received by
NovaCare in connection with the sale of shares of its capital stock after
deducting any expenses associated with such sale including proceeds from
conversion of the Subordinated Debentures, reduced by the cash purchase price
of common stock of NovaCare repurchased by NovaCare up to an aggregate maximum
amount for the repurchase of such common stock of $55,000,000, as all items
under this clause (b) are determined during the period from July 1, 1995
through (and including) the date of determination, minus (iii) the aggregate
deductions from Consolidated Net Income for non-cash extraordinary items up to
an aggregate maximum amount of $83,000,000, during the period from July 1, 1995
through (and including) the date of determination; and

(C) for any period of determination from July
1, 1996 and thereafter, the sum of the amounts under the following clauses (i),
(ii), (iii) and (iv) reduced by the amount under the following clause (v): (i)
the amount determined under the preceding clause (B) as of June 30, 1996, plus
(ii) seventy-five percent (75%) of Consolidated Net Income of NovaCare and its
Subsidiaries for each fiscal quarter in which net income was earned (as opposed
to a net loss), plus (iii) to the extent not included in Consolidated Net
Income in the preceding clause (ii), one hundred percent (100%) of federal and
state income tax refunds (collectively the "Tax Refunds") received by NovaCare
or a Subsidiary of NovaCare during the period of determination relating to the
sale by them of their rehabilitation hospitals during the fiscal year ended
June 30, 1995, plus (iv) the proceeds received by NovaCare in connection with
the sale of shares of its capital stock after deducting any expenses associated
with any sale including proceeds from conversion of the Subordinated
Debentures, during the period from July 1, 1996 through (and including) the
date of determination, minus (v) the cash purchase price of common stock of
NovaCare repurchased by NovaCare during the period of determination, up to an
aggregate maximum amount for the repurchase of such common stock of $70,000,000
plus the portion of the Tax Refunds used to repurchase such common stock, for
all periods after July 1, 1995.

Minority Subsidiary of any person at any time shall
mean (i) any corporation or trust of which more than 5% and not more than 50%
(by number of shares or number of votes) of the outstanding capital stock or
shares of beneficial interest normally entitled to vote for the election of one
or more directors or trustees (regardless of any contingency which does or may
suspend or dilute the voting rights) is at such time owned directly or
indirectly by such person or one or more of such person's Subsidiaries, (ii)
any partnership (other than a limited partnership of which such person is a
general partner) of which more than 5% and not more than 50% of the partnership
interests is at the time directly or indirectly owned by such person or one or
more of such person's Subsidiaries or (iii) any other entity of which such
person owns not more than 50% but more than 5% of the ownership interests
directly or indirectly.

Month, with respect to a Euro-Rate Interest Period,
shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. The last
day of a calendar month shall be deemed to be such numerically

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37

corresponding day for such calendar month (i) if there is no such numerically
corresponding day in such calendar month, or (ii) if the first day of such
Interest Period is the last Business Day of a calendar month.

Multiemployer Plan shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA and to which NovaCare, its Subsidiaries or any member of the ERISA
Group is then making or accruing an obligation to make contributions or, within
the preceding five Plan years, has made or had an obligation to make such
contributions.

Multiple Employer Plan shall mean a Plan which has
two or more contributing sponsors (including any Borrower or any member of the
ERISA Group) at least two of whom are not under common control, as such a plan
is described in Sections 4063 and 4064 of ERISA.

Notes shall mean Revolving Credit Notes and Note
shall mean any Revolving Credit Note.

Official Body shall mean any national, federal,
state, local or other government or political subdivision thereof, or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any government or political subdivision thereof, or any
court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.

PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.

Permitted Acquisition shall have the meaning
assigned to that term in Section 8.02(d)(ii).

Permitted Additional Institutional Indebtedness
shall mean Indebtedness to a Qualified Lender provided that (A) such
Indebtedness is unsecured; (B) the agreements governing such Indebtedness shall
not contain any provisions which are more restrictive than the provisions of
this Agreement and such Indebtedness shall not be senior in priority of payment
to the Indebtedness hereunder; and (C) the Loan Parties shall deliver to the
Agent on behalf of the Banks drafts of the agreement described in clause (B) at
least five (5) Business Days before they incur such Indebtedness.

Permitted Additional Subordinated Indebtedness shall
mean Indebtedness which meets each of the following conditions: (A) the
documentation governing such Indebtedness shall provide that the rights of the
holders thereof shall be subordinate to the rights of the Agent and the Banks
with respect to the Indebtedness under the Loan Documents in accordance with
the subordination provisions contained in Exhibit 1.01(P)(3), (B) the
agreements governing such Indebtedness shall not contain any provisions which
are more restrictive than the provisions of this Agreement, and (C) the Loan
Parties shall deliver to the Agent on behalf of the

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38

Banks copies of drafts of the agreements described in clauses (A) and (B) at
least five (5) Business Days before they incur such Indebtedness if the amount
of such Indebtedness shall exceed $5,000,000.

Permitted Asset Transfer shall mean any sale,
conveyance, assignment, lease, abandonment or other transfer or disposition of
assets of any Loan Party, permitted by Sections 8.02(e)(i) or (iv) hereof.

Permitted Intercompany Indebtedness shall mean
Intercompany Indebtedness, provided that such Indebtedness is subordinated
pursuant to the Subordination Agreement (Intercompany).

Permitted Investments shall mean investments by the
Loan Parties in any of the following:

(i) direct obligations of the United States of
America ("U.S.A.") or any agency or instrumentality thereof or obligations
backed by the full faith and credit of the U.S.A. maturing within two (2)
years;

(ii) any obligation of any state which is part
of the U.S.A. or any obligation of any county or local governmental body of any
such state provided that each of the following criteria are met: (A) such
obligation matures within five (5) years; (B) the weighted average of the
maturities (measured in numbers of years including fractions thereof) of all
such obligations held by the Loan Parties is equal to or less than three (3)
years; (C) such obligation is rated not lower than Baa-2 by Xxxxx'x Investors
Service Inc. or BBB by Standard & Poor's Corporation (or equivalent rating) and
so long as the uninsured and unguaranteed general obligation debt of such
state, county or local governmental body is rated, at the time of purchase and
thereafter, not lower than Baa-2 by Xxxxx'x Investors Service Inc. or BBB by
Standard & Poor's Corporation (or equivalent rating); (D) the Weighted Average
Rating of all such obligations held by the Loan Parties is Aa-2 by Xxxxx'x
Investors Service Inc. or AA by Standard & Poor's Corporation (or equivalent
rating); and (E) so long as the uninsured and unguaranteed general obligation
debt of each state, county or local governmental body relating to each such
obligation of the Loan Parties is rated, the Weighted Average Rating of all
such debt at the time of purchase and thereafter shall not be lower than Aa-2
by Xxxxx'x Investors Service Inc. or AA by Standard & Poor's Corporation (or
equivalent rating);

(iii) commercial paper maturing in two hundred
and seventy (270) days or less rated not lower than A-1 by Standard & Poor's
Corporation or P-1 by Xxxxx'x Investors Service Inc. on the date of
acquisition;

(iv) demand deposits, time deposits or
certificates of deposit maturing within six (6) months in (A) any U.S.
financial institution which is a member of the Federal Reserve System, or (B)
any non-U.S. financial institution ranked among the fifty (50)

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39

largest in the world by assets (as listed by the American Banker Journal) or a
non-U.S. financial institution with a net worth of at least $750 million, which
institution described in this clause (B) has a credit quality rated at least
A-1 or A by Standard & Poor's Corporation (or equivalent rating);

(v) investments in money-market funds rated
AAm or AAm-G or higher by Standard & Poor's Corporation (or equivalent rating)
whose net asset value remains a constant $1.00 per share; and

(vii) other investments existing on the Closing
Date listed on Schedule 1.01(P)(1) (except for repurchase agreements which are
addressed in clause (v) above).

Permitted Investment in Excluded Entities shall mean
Restricted Investments in Excluded Entities which do not exceed in the
aggregate $50,000,000 for all Excluded Entities or the following amount as to
any individual Excluded Entity: (i) $5,000,000, in the case of a Restricted
Investment in an Excluded Entity which is a Minority Subsidiary; (ii)
$10,000,000, in the case of a Restricted Investment in an Excluded Entity which
is a Subsidiary; and (iii) $1,000,000, in the case of a Restricted Investment
in either an Unaffiliated Managed Company or an entity which is neither a
Subsidiary nor a Minority Subsidiary. In addition, the aggregate Restricted
Investments in Excluded Entities of the type described in clause (iii) of the
preceding sentence shall not exceed $5,000,000.

Permitted Liens shall mean:

(i) Liens for taxes, assessments, or similar
charges, incurred in the ordinary course of business and which are not yet due
and payable;

(ii) Pledges or deposits made in the ordinary
course of business to secure payment of workers' compensation, or to
participate in any fund in connection with workers' compensation, unemployment
insurance, old-age pensions or other social security programs or pledges,
deposits or contributions under trust agreements to secure obligations with
respect to employee benefit plans;

(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;

(iv) Good faith pledges or deposits made in the
ordinary course of business to secure performance of bids, tenders, progress or
advance payments, contracts (other than for the repayment of borrowed money) or
leases, not in excess of the aggregate amount due thereunder, or to secure
statutory obligations, or surety, appeal, indemnity, performance or other

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40

similar bonds required in the ordinary course of business (except that appeal
bonds shall be permitted even if they are required outside of the ordinary
course of business);

(v) Encumbrances consisting of zoning
restrictions, easements, reservations or other restrictions on the use of real
property, none of which materially impairs the use of such property as
currently used or the present value thereof, and none of which is violated in
any material respect by existing or proposed structures or land use;

(vi) Liens in favor of the Agent for the
benefit of the Banks;

(vii) Liens securing obligations under leases
permitted in Section 8.02(a)(iii) provided that such Liens are limited to the
property under lease;

(viii) Any Lien existing on the date of this
Agreement, which if securing Indebtedness in excess of $1,000,000 individually
or $3,000,000 in the aggregate, is described on Schedule 1.01(P)(2) hereto,
provided that the principal amount secured thereby is not hereafter increased
and no additional assets become subject to such Lien (other than with respect
to after-acquired property clauses in effect on the date hereof);

(ix) Liens described in Sections
8.02(a)(v)(A)(2) and 8.02(a)(vi) on assets (A) acquired in Permitted
Acquisitions securing Indebtedness assumed in connection therewith or (B) of a
person the ownership interests of which are acquired by a Loan Party in a
Permitted Acquisition securing Indebtedness of such person existing prior to
the date of such acquisition;

(x) Purchase Money Security Interests securing
Indebtedness permitted under Section 8.02(a)(v)(A)(1); and

(xi) The following, (A) if the validity or
amount thereof is being contested in good faith by appropriate and lawful
proceedings diligently conducted so long as levy and execution thereon have
been stayed and continue to be stayed or (B) if a final judgment is entered and
such judgment is discharged within thirty (30) days of entry, and in either
case they do not affect the Pledged Collateral (or, in the event that they do
affect the Pledged Collateral, the Loan Parties have provided adequate security
satisfactory to the Banks', in the Banks' sole discretion) or, in the
aggregate, materially impair the ability of the Loan Parties to perform their
obligations hereunder or under the other Loan Documents:

(1) Claims or Liens for taxes,
assessments or charges due and payable and subject to interest
or penalty, provided that the applicable Loan Party maintains
such reserves or other appropriate provisions as shall be
required by GAAP and pays all such taxes, assessments or charges
forthwith upon the commencement of proceedings to foreclose any
such Lien;

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41

(2) Claims, Liens or encumbrances
upon, and defects of title to, real or personal property other
than the Pledged Collateral (or, in the event that they do
affect the Pledged Collateral, the Loan Parties have provided
adequate security satisfactory to the Banks, in the Banks' sole
discretion), including any attachment of personal or real
property or other legal process prior to adjudication of a
dispute on the merits; or

(3) Claims or Liens of mechanics,
materialmen, warehousemen, carriers, or other statutory
nonconsensual Liens.

Permitted Line of Business shall mean, for
the period commencing on the Closing Date through the Sixth Amendment Effective
Date, the Existing Lines of Business, and for the period commencing on the
Sixth Amendment Effective Date and thereafter, the business substantially
engaged in by NovaCare and its Subsidiaries on the Sixth Amendment Effective
Date, rehabilitation and subacute care management and consulting businesses,
the ownership and operation of physician practice groups specializing in
occupational medicine and the ownership and operation of Professional
Employment Organizations.

Permitted NovaCare Guaranty shall have the
meaning set forth in Section 8.02(a)(vi)(D).

Person shall mean any individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.

Plan shall mean at any time an employee
pension benefit plan (including a Multiple Employer Plan but not a
Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained by any member of the ERISA Group for employees of any
member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained by any entity which was at such time a member of the
ERISA Group for employees of any entity which was at such time a member of the
ERISA Group.

Pledge Agreements shall mean the Pledge
Agreement in substantially the form attached hereto as Exhibit 1.01(P)(4)
executed and delivered by NovaCare and each other Borrower which owns stock in
any other Loan Party, Exhibit 1.01(P)(5) executed and delivered by each
Guarantor which owns stock in any other Loan Party, Exhibit 1.01(p)(6) executed
and delivered by each Borrower or Guarantor which owns any partnership
interests in any other Loan Party, and any other form of agreement, in form and
substance acceptable to the Agent, pledging any interests in a Loan Party
(including, without limitation, ownership interests in any Loan Party which is
a limited liability company) or the equity interests in an Excluded Entity
owned by any Loan Party executed and delivered by the holders of such
interests, in each instance

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42

to the Agent for the benefit of the Banks, and Pledge Agreement shall mean
separately any Pledge Agreement.

Pledged Collateral shall have the meaning assigned
to that term in the Pledge Agreements.

PNC Bank shall mean PNC Bank, National Association.

Pooling Consideration shall mean with respect to any
Permitted Acquisition which would be accounted for as a "pooling of interests"
under GAAP, the sum of:

(i) the fair market value (determined as of
the date of the signing of the definitive acquisition agreement, provided that
such Permitted Acquisition shall close within one hundred and twenty (120) days
following such signing) of any stock issued by NovaCare in connection with such
merger; and

(ii) cash paid in lieu of fractional shares or
with respect to dissenters' rights to the extent that the amount thereof can be
ascertained on or before the date which is fifteen (15) Business Days prior to
the date on which the closing of such Permitted Acquisition is scheduled to
occur.

Pooling Partner shall mean a person, which is not a
Subsidiary or Minority Subsidiary of NovaCare, engaged in a merger or other
transaction with a Loan Party which is accounted for under GAAP as a "pooling
of interests" and as a result of which a Loan Party acquires all of the assets
of such person or at least ninety percent of each class of voting capital stock
of such person.

Potential Default shall mean any event or condition
which with notice, passage of time or a determination by the Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.

Principal Office shall mean the main banking office
of the Agent, Xxxxx Xxxxxx xxx Xxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000.

Prior Security Interest shall mean a valid and
enforceable perfected first priority security interest under the Uniform
Commercial Code in the Pledged Collateral.

Professional Employment Organization shall mean a
Person who through contractual arrangements provides the service of payroll and
human resource functions to non-affiliated businesses.

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43

Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA for which neither an individual nor a class exemption has been
issued by the United States Department of Labor.

Property shall mean all real property, both owned
and leased, of the Loan Parties.

Purchase Money Security Interest shall mean Liens
upon tangible personal property securing loans to any Loan Party or deferred
payments by a Loan Party for the purchase of such tangible personal property.

Purchasing Bank shall mean a Bank which becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.

Qualified Lender shall mean any person or persons,
other than a commercial bank or any other organization which provides revolving
credit loans to third parties in the ordinary course of its business.

Qualifying Subsidiary at any time shall mean (i) any
corporation or trust of which more than 80% (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by NovaCare or one or more
of NovaCare's Subsidiaries, (ii) any limited partnership of which NovaCare is a
general partner or of which more than 80% of the partnership interests is at
the time directly or indirectly owned by NovaCare or one or more of NovaCare's
Subsidiaries, (iii) any general partnership of which NovaCare or one or more of
NovaCare's Subsidiaries owns directly or indirectly more than 80% of the
general partnership interests, or (iv) any other entity of which NovaCare or
one or more of its Subsidiaries owns directly or indirectly more than 80% of
the ownership interests.

Ratable Share shall mean the proportion that a
Bank's Revolving Credit Commitment bears to the Revolving Credit Commitments of
all of the Banks.

Regulated Substances shall mean any substance,
including without limitation any solid, liquid, gaseous, thermal or thoriated
material, refuse, garbage, wastes, chemicals, petroleum products or
by-products, dust, scrap, PCB's, heavy metals, any substances defined as
"hazardous substances," "pollutants," "pollution," "contaminant," "hazardous or
toxic substances," "toxic wastes," "regulated substances," "industrial waste,"
"residual waste," "solid wastes," "municipal wastes," "infectious waste,"
"chemotherapeutic waste," "medical waste" or any related materials or
substances as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules or directives of any Official Body, the generation,
manufacture,

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44

processing, distribution, treatment, storage, disposal, transport, recycling,
reclamation, use, reuse or other management or mismanagement of which is
regulated by the Environmental Laws.

Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.

Remaining Banks shall have the meaning set forth in
Section 5.04(b).

Reportable Event means a reportable event described
in Section 4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.

Required Banks shall mean (i) if there are no
Revolving Credit Loans outstanding, Banks whose Revolving Credit Commitments
aggregate at least 66-2/3% of the Revolving Credit Commitments of all of the
Banks, or (ii) if there are Revolving Credit Loans outstanding, Banks whose
Revolving Credit Loans outstanding aggregate at least 66-2/3% of the total
principal amount of the Revolving Credit Loans outstanding hereunder.

Restricted Excluded Entities shall mean collectively
the Excluded Entities which have incurred Restricted Indebtedness, and
Restricted Excluded Entity shall mean separately any of the Restricted Excluded
Entities.

Restricted Indebtedness shall mean with respect to
any Excluded Entity, Indebtedness incurred by such Excluded Entity.

Restricted Investments shall mean all of the
following with respect to any one or more of the Excluded Entities: (i)
investments or contributions by any of the Loan Parties directly or indirectly
in or to the capital of or other payments to (except in connection with
transactions for fair value in the ordinary course of business) such Excluded
Entities, (ii) loans by any of the Loan Parties directly or indirectly to such
Excluded Entities, (iii) guaranties by any of the Loan Parties directly or
indirectly of the obligations of such Excluded Entities, or (iv) other
obligations, contingent or otherwise, of any of the Loan Parties to or for the
benefit of such Excluded Entities. If the nature of a Restricted Investment is
tangible property then the amount of such Restricted Investment shall be
determined by valuing such property at fair value in accordance with the past
practice of the Loan Parties and such fair values shall be satisfactory to the
Agent, in its sole discretion.

Revolving Credit Base Rate Option shall have the
meaning assigned to that term in Section 4.01(a)(i).

Revolving Credit Base Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time under the
Revolving Credit Base Rate Option.

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45

Revolving Credit Commitment shall mean as to any
Bank at any time, the amount initially set forth opposite its name on Schedule
1.01(B) hereto in the column labeled "Amount of Commitment for Revolving Credit
Loans," and thereafter on Schedule 1 to the most recent Assignment and
Assumption Agreement, and Revolving Credit Commitments shall mean the aggregate
Revolving Credit Commitments of all of the Banks.

Revolving Credit Euro-Rate Option shall have the
meaning assigned to that term in Section 4.01(a)(ii).

Revolving Credit Euro-Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time under the
Revolving Credit Euro-Rate Option.

Revolving Credit Loan Request shall mean a request
for Revolving Credit Loans made in accordance with Section 2.05 hereof.

Revolving Credit Loans shall mean collectively and
Revolving Credit Loan shall mean separately all Revolving Credit Loans or any
Revolving Credit Loan made by the Banks or one of the Banks to the Borrowers
pursuant to Section 2.01 hereof.

Revolving Credit Notes shall mean the Revolving
Credit Notes of the Borrowers in the form of Exhibit 1.01(R) hereto evidencing
the Revolving Credit Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in part.

Sale Price shall mean, with respect to any sale by
any of the Loan Parties of its assets, the sum of (i) cash paid by the buyer at
closing, (ii) the face amount of any deferred payments to be paid by the buyer
after closing, (iii) the amount of any debt assumed or guaranteed by the buyer,
plus (iv) the fair market value of any other consideration given by the buyer
in connection therewith.

Selected Banks shall have the meaning given to such
term in Section 5.04(b).

Seventh Amendment Effective Date shall mean November
4, 1996.

Sixth Amendment Effective Date shall mean June 30,
1996.

Solvent shall mean, with respect to any person on a
particular date, that on such date (i) the fair value of the property of such
person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such person, (ii) the present fair
saleable value of the assets of such person is not less than the amount that
will be required to pay

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46

the probable liability of such person on its debts as they become absolute and
matured, (iii) such person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
person's ability to pay as such debts and liabilities mature, and (v) such
person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.

Subordinated Debentures shall mean the $175 million
in original principal amount of 5-1/2% Convertible Subordinated Debentures Due
2000 issued by NovaCare pursuant to the Indenture.

Subordinated Indebtedness shall mean the
Indebtedness of NovaCare or the other Loan Parties under the Subordinated
Indebtedness Documents.

Subordinated Indebtedness Documents shall mean the
Indenture and other documents evidencing Indebtedness which is subordinated to
the Indebtedness of the Loan Parties to the Banks pursuant to Section 8.01(l),
and all other instruments, certificates or documents delivered or contemplated
to be delivered in connection therewith, as any of the foregoing may be
supplemented or amended from time to time in accordance herewith.

Subordination Agreement (Intercompany) shall mean
the Subordination Agreement in the form of Exhibit 1.01(S) hereto pursuant to
which the Loan Parties subordinate their rights to collect loans made to other
Loan Parties to the rights of the Banks to collect Indebtedness of the Loan
Parties to the Banks under the Loan Documents.

Subsidiary of any person at any time shall mean (i)
any corporation or trust of which more than 50% (by number of shares or number
of votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such person or one or
more of such person's Subsidiaries, or any limited partnership of which such
person is a general partner or any partnership of which more than 50% of the
partnership interests is at the time directly or indirectly owned by such
person or one or more of such person's Subsidiaries or (ii) any other entity of
which such person owns more than 50% of the ownership interests, directly or
indirectly, and (iii) any corporation, trust, partnership or other entity which
is controlled or capable of being controlled by such person or one or more of
such person's Subsidiaries.

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47

Subsidiary Shares shall have the meaning assigned to
that term in Section 6.01(c).

Termination Date shall have the meaning set forth in
Section 5.04(b).

Transferor Bank shall mean the selling Bank pursuant
to an Assignment and Assumption Agreement.

Unaffiliated Managed Company shall mean a person
which is not an Affiliate, Subsidiary or Minority Subsidiary of NovaCare and
with which any of the Loan Parties have entered into a

contract providing for the management by one or more of the Loan Parties of one
or more businesses owned by such person; provided that such businesses would be
permitted under Section 8.02(g) if they were owned by the Loan Parties.

Uniform Commercial Code shall have the meaning
assigned to that term in Section 6.01(o).

Weighted Average Rating shall mean with respect to
obligations of states, counties or local governmental bodies held by the Loan
Parties, or with respect to the general obligation debt of each state, county
or local government body which issued such obligations, a weighted average
determined by (1) first, converting the rating of each such obligation or such
debt, as the case may be, to a whole number based on the table set forth below,
(2) second, computing a weighted average of such whole numbers, with weighting
based on the amount of such obligations, and rounding such average to the next
lowest whole number, and (3) third, converting the whole number determined in
the second step above back to a rating based on the table.

Rating
---------------------------------------------
Equal to Number Assigned
or greater than But less than To Such Rating
--------------- ------------- --------------

Aaa-1 or AAA 4
Aa-2 or AA Aaa-1 or AAA 3
A-2 or A Aa-2 or AA 2
Baa-2 or BBB A-2 or A 1

Exhibit 1.01(W) sets forth an example of such computation.

1.02 Construction. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole, "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has the meaning represented
by the phrase "including without limitation." References in this Agreement to
"determination" of or by the Agent or the Banks shall be deemed to include good
faith

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48

estimates by the Agent or the Banks (in the case of quantitative
determinations) and good faith beliefs by the Agent or the Banks (in the case
of qualitative determinations). Whenever the Agent or the Banks are granted
the right herein to act in its or their sole discretion or to grant or withhold
consent such right shall be exercised in good faith. The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
The section and other headings contained in this Agreement and the Table of
Contents preceding this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references
are to this Agreement unless otherwise specified.

1.03 Accounting Principles. Except as otherwise provided
in this Agreement, all computations and determinations as to accounting or
financial matters and all financial statements to be delivered pursuant to this
Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), and all accounting or financial
terms shall have the meanings ascribed to such terms by GAAP. The Loan Parties
and the Banks will in good faith attempt to agree upon appropriate changes to
the financial covenants hereunder if GAAP changes after the Closing Date and
such change materially changes the application of such covenants to the
business of NovaCare and its Subsidiaries.

ARTICLE II
REVOLVING CREDIT FACILITY

2.01 Revolving Credit Borrowing. Subject to the terms
and conditions hereof and relying upon the representations and warranties
herein set forth, each Bank severally agrees to make revolving credit loans
(the "Revolving Credit Loans") to any of the Borrowers at any time or from time
to time on or after the date hereof to, but not including, the Expiration Date,
in an aggregate principal amount not to exceed at any one time such Bank's
Revolving Credit Commitment minus such Bank's Ratable Share of the aggregate
undrawn face amount of outstanding Letters of Credit issued pursuant to Section
2.09. Within such limits of time and amount and subject to the other
provisions of this Agreement, the Borrowers may borrow, repay and reborrow
pursuant to this Section 2.01.

2.02 Nature of Banks' Obligations with Respect to
Revolving Credit Loans. Each Bank shall be obligated to participate in each
request for Revolving Credit Loans pursuant to Section 2.05 hereof in
accordance with its Ratable Share. The aggregate of each Bank's Revolving
Credit Loans outstanding hereunder to the Borrowers at any time shall never
exceed its Revolving Credit Commitment minus its Ratable Share of the aggregate
undrawn face amount of outstanding Letters of Credit. The obligations of each
Bank hereunder are several. The failure of any Bank to perform its obligations
hereunder shall not affect the obligations of the Borrowers to any other party
nor shall any other party be liable for the failure of such Bank to perform its
obligations hereunder. The Banks shall have no obligation to make Revolving
Credit Loans hereunder on or after the Expiration Date.

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49

2.03 Commitment Fees; Closing Fees.

(a) Accruing from the date hereof until the
Sixth Amendment Effective Date, the Borrowers, jointly and severally, agree to
pay to the Agent for the account of each Bank, as consideration for such Bank's
Revolving Credit Commitment hereunder, a commitment fee (the "Initial
Commitment Fee") equal to one-fourth of one percent (0.25%) per annum (computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) on the average daily difference between the unborrowed amount of such
Bank's Revolving Credit Commitment as the same may be constituted from time to
time and such Bank's Ratable Share of Letters of Credit outstanding. All
Initial Commitment Fees shall be payable in arrears on the first Business Day
of each July, October, January and April after the date hereof and on the Sixth
Amendment Effective Date or upon acceleration of the Revolving Credit Notes.

(b) Accruing beginning on the Sixth Amendment
Effective Date and thereafter until the Expiration Date, the Borrowers, jointly
and severally, agree to pay to the Agent for the account of each Bank, as
consideration for such Bank's Revolving Credit Commitment hereunder, a
commitment fee (the "Adjusted Commitment Fee") equal to the per annum rate
(computed on the basis of a year of 365 days or 366 days, as the case may be,
and actual days elapsed) set forth below as the "Applicable Adjusted Commitment
Fee", on the average daily difference between the unborrowed amount of such
Bank's Revolving Credit Commitment as the same may be constituted from time to
time and such Bank's Ratable Share of Letters of Credit outstanding. The
Applicable Adjusted Commitment Fee shall be calculated and determined based
upon the ratio of (a) Consolidated Funded Debt to (b) Consolidated Cash Flow
from Operations. Such ratio shall be computed as of the end of each quarter.
Consolidated Cash Flow from Operations shall be computed at the end of each
quarter for the four fiscal quarters then ended. Adjustments to the Adjusted
Commitment Fee attributable to a change in such ratio shall be effective (a) on
the Delivery Date for the Borrower's consolidated financial statements for such
quarter if the Applicable Adjusted Commitment Fee is to be increased and (b) on
the later of the Delivery Date for such financial statements or the date on
which such financial statements are actually delivered to the Agent and the
Banks if the Applicable Adjusted Commitment Fee is to be decreased.

Ratio of Consolidated
Funded Debt to Consolidated Applicable
Cash Flow from Operations Adjusted Commitment Fee Per Annum
--------------------------- --------

Greater than or equal to .25%
2.00 to 1.0

Less than 2.00 to 1.0 .20%

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50

The Adjusted Commitment Fees shall be payable in
arrears on the first Business Day of each July, October, January and April
after the date hereof and on the Expiration Date or upon acceleration of the
Revolving Credit Notes.

2.04 Voluntary Reduction of Commitment. The Borrowers
shall have the right at any time and from time to time upon five (5) Business
Days' prior written notice to the Agent to permanently reduce, in minimum
amount of $5,000,000 and whole multiples of $1,000,000 of principal, or
terminate the Revolving Credit Commitments without penalty or premium, except
as hereinafter set forth, provided that any such reduction or termination shall
be accompanied by (a) the payment in full of any Commitment Fee then accrued on
the amount of such reduction or termination and (b) prepayment of the Revolving
Credit Notes, together with the full amount of interest accrued on the
principal sum to be prepaid (and all amounts referred to in Section 5.06
hereof), to the extent that the aggregate amount thereof then outstanding
exceeds the Revolving Credit Commitments as so reduced or terminated. Except
as provided in Section 5.04(b) each Bank's Revolving Credit Commitment shall be
reduced by its Ratable Share of the reduction in the Revolving Credit
Commitments. From the effective date of any such reduction or termination, the
obligations of the Borrowers to pay the Commitment Fee pursuant to Section 2.03
shall correspondingly be reduced or cease.

2.05 Revolving Credit Loan Requests. Except as otherwise
provided herein, the Borrowers, through NovaCare as their agent pursuant to the
Borrower Agency Agreement, may from time to time prior to the Expiration Date
request the Banks to make Revolving Credit Loans, or renew or convert the
Interest Rate Option applicable to existing Revolving Credit Loans, by the
delivery to the Agent, not later than 10:00 a.m. Pittsburgh time (i) three (3)
Business Days prior to the proposed Borrowing Date with respect to the making
of Revolving Credit Loans to which the Revolving Credit Euro-Rate Option
applies or the conversion to or the renewal of the Revolving Credit Euro-Rate
Option for any Revolving Credit Loans; and (ii) one (1) Business Day prior to
either the proposed Borrowing Date with respect to the making of a Revolving
Credit Loan to which the Revolving Credit Base Rate Option applies or the last
day of the preceding Euro-Rate Interest Period with respect to the conversion
to the Revolving Credit Base Rate Option for any Revolving Credit Loan, of a
duly completed request therefor substantially in the form of Exhibit 2.05 or a
request by telephone immediately confirmed in writing by letter, facsimile or
telex in such form (each, a "Revolving Credit Loan Request"), it being
understood that the Agent may rely in good faith on the authority of any person
making such a telephonic request and purporting to be an Authorized Officer.
Each Revolving Credit Loan Request shall be irrevocable and shall (i) specify
the proposed Borrowing Date; (ii) specify the aggregate amount of the proposed
Revolving Credit Loans comprising the Borrowing Tranche, which shall be in
integral multiples of $500,000 and not less than $1,500,000 for Revolving
Credit Loans to which the Revolving Credit Euro-Rate Option applies and not
less than the lesser of $500,000 or the maximum amount available for Revolving
Credit Loans to which the Revolving Credit Base Rate Option applies; (iii)
specify whether the Revolving Credit Euro-Rate Option or Revolving Credit Base
Rate Option shall apply to the proposed Revolving

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51

Credit Loans comprising the Borrowing Tranche; (iv) in the case of Revolving
Credit Loans to which the Revolving Credit Euro-Rate Option applies, specify an
appropriate Euro-Rate Interest Period for the proposed Revolving Credit Loans
comprising the Borrowing Tranche; (v) specify the Borrower to which each
Borrowing Tranche is to apply and the amount of such Borrowing Tranche
allocable to such Borrower; (vi) certify that the use by the Borrower of the
Revolving Credit Loan proceeds is a use permitted by Section 2.08; and (vii)
certify that no Event of Default or Potential Default has occurred and is
continuing after giving effect to the proposed Revolving Credit Loan.

2.06 Making Revolving Credit Loans. The Agent shall,
promptly after receipt by it of a Revolving Credit Loan Request pursuant to
Section 2.05, notify the Banks of its receipt of such Revolving Credit Loan
Request specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loan; (ii) the amount and type of such
Revolving Credit Loan and the applicable Euro-Rate Interest Period (if any);
(iii) the apportionment among the Banks of the Revolving Credit Loans as
determined by the Agent in accordance with Section 2.02 hereof; and (iv) the
Borrower to which each Borrowing Tranche is to apply and the amount of such
Borrowing Tranche allocable to such Borrower. Each Bank shall remit the
principal amount of each Revolving Credit Loan to the Agent such that the Agent
is able to, and the Agent shall, to the extent the Banks have made funds
available to it for such purpose, fund such Revolving Credit Loan to the
Borrower or Borrowers in U.S. Dollars and immediately available funds at the
Principal Office prior to 2:00 P.M. Pittsburgh time on the Borrowing Date,
provided that if any Bank fails to remit such funds to the Agent in a timely
manner the Agent may elect in its sole discretion to fund with its own funds
the Revolving Credit Loan of such Bank on the Borrowing Date.

2.07 Revolving Credit Notes. The obligation of each
Borrower to repay the aggregate unpaid principal amount of the Revolving Credit
Loans made to it by each Bank, together with interest and fees thereon, shall
be evidenced by a Revolving Credit Note dated the Closing Date in substantially
the form attached hereto as Exhibit 1.01(R) payable to the order of such Bank.
Each such note shall be in a face amount equal to the Revolving Credit
Commitment of such Bank. Notwithstanding that NovaCare may request Revolving
Credit Loans on behalf of a Borrower or Borrowers in accordance with Section
2.05, the Borrowers shall internally account on an individual Borrower basis
for the use of the proceeds of the Revolving Credit Loans by each Borrower, and
further the Borrowers warrant that they have customary and sufficient
accounting procedures in order to accomplish such accounting.

2.08 Use of Proceeds. The proceeds of the Revolving
Credit Loans shall be used by the Borrowers only for: (i) Permitted
Acquisitions and the refinancing of Indebtedness assumed in connection
therewith , (ii) the development of health care related businesses and
facilities and Professional Employment Organizations, each as permitted under
this Agreement and (iii) general corporate purposes, provided, however, that no
portion of the Revolving Credit Loans shall be used directly or indirectly for
the purpose of repaying or redeeming the Subordinated Debentures.

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52

2.09 Letter of Credit Subfacility.

(a) At the request of NovaCare as agent for the
Borrowers, the Agent will issue, on the terms and conditions hereinafter set
forth, standby letters of credit on behalf of any Borrower (collectively,
"Letters of Credit"); provided, however, that each Letter of Credit shall have
a maximum maturity of twelve (12) months from the date of issuance and shall in
no event expire later than one Business Day prior to the Expiration Date;
provided, further, however, that in no event shall (i) the aggregate undrawn
face amount of the Letters of Credit issued to all of the Borrowers pursuant to
this Section 2.09 exceed, at any one time, $15,000,000; or (ii) the aggregate
outstanding principal balance of the Revolving Credit Loans made to the
Borrowers pursuant to Section 2.01 and the aggregate undrawn face amount of the
Letters of Credit issued by the Agent under this Section 2.09 exceed, at any
one time, the Revolving Credit Commitments. Schedule 2.09 hereto lists letters
of credit issued by PNC Bank prior to the date hereof and which shall remain
outstanding on and after the Closing Date (the "Existing Letters of Credit").
Each of the Existing Letters of Credit shall be a Letter of Credit hereunder on
and after the Closing Date and the provisions of this Section 2.09 shall apply
to such Existing Letter of Credit.

(b) The Borrowers shall pay (i) to the Agent
for the ratable account of the Banks a fee (the "Letter of Credit Fee") equal
to the Applicable Percentage Over Euro-Rate which is then in effect, and (ii)
to the Agent for its own account a fronting fee equal to 1/16% per annum, which
fees shall be computed on the face amount of each Letter of Credit and shall be
payable quarterly in arrears commencing with the first Business Day of each
July, October, January and April following issuance of each Letter of Credit
and on the expiration date for each Letter of Credit. The Borrowers shall also
pay to the Agent the Agent's then in effect customary documentation fee payable
with respect to the Letters of Credit as the Agent may generally charge from
time to time.

(c) Any and all amounts which the Agent is
required to advance pursuant to the Letters of Credit shall become, at the time
the amounts are advanced, Revolving Credit Loans from the Banks and shall bear
interest initially at the Base Rate and thereafter at the rate set forth in,
and in accordance with the provisions contained in, Section 4.01. The Agent
will promptly notify the Banks of the amount required to be advanced pursuant
to the Letters of Credit. Before 10:00 A.M. (Pittsburgh time) on the date of
any advance the Agent is required to make pursuant to the Letters of Credit,
each Bank shall make available such Bank's Ratable Share of such advance in
immediately available funds to the Agent.

(d) The Borrowers, jointly and severally, agree
to be bound by the terms of the Agent's application and/or agreement for
Letters of Credit and the Agent's written regulations and customary practices
relating to Letters of Credit, though such interpretation may be different from
the Borrowers' own, and it is understood and agreed that, except in the case of
gross negligence or willful misconduct, the Agent shall not be liable for any
error, negligence

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53

and/or mistakes, whether of omission or commission, in following the Borrowers'
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.

2.10 Extension by Banks of the Expiration Date. Upon or
promptly after delivery by NovaCare of the annual financial statements to be
provided under Section 8.01(m)(ii) hereof for the fiscal year ending June 30,
1995 or any subsequent fiscal year, NovaCare, as agent for the Borrowers, may
request an extension of the Expiration Date by written notice to the Agent who
shall promptly deliver such notice to the Banks, and the Banks agree to respond
to such request to the Agent who shall promptly deliver such response to
NovaCare within sixty (60) days following NovaCare's delivery of such request.
All Banks must consent to any extension of the Expiration Date in order for the
extension to be effective and the failure of the Banks to respond within such
time period shall not in any manner constitute consent to an extension of the
Expiration Date. Borrowers may request that the Expiration Date be extended
(i) until November 28, 2000 in their first request for an extension hereunder,
and (ii) for one-year periods beyond the Expiration Date then in effect in any
subsequent request for an extension hereunder.

ARTICLE III
[RESERVED]

ARTICLE IV
INTEREST RATES

4.01 Interest Rate Options. Each Borrower shall pay
interest in respect of the outstanding unpaid principal amount of the Revolving
Credit Loans as selected by NovaCare, as agent for such Borrower, from the
Revolving Credit Base Rate Option or Revolving Credit Euro-Rate Option set
forth below applicable to the Revolving Credit Loans, it being understood that,
subject to the provisions of this Agreement, NovaCare, as such agent, may
select different Interest Rate Options and different Euro-Rate Interest Periods
to apply simultaneously to the Revolving Credit Loans comprising different
Borrowing Tranches and may convert to or renew one or more Interest Rate
Options with respect to all or any portion of the Revolving Credit Loans
comprising any Borrowing Tranche provided that there shall not be at any one
time outstanding more than ten (10) Borrowing Tranches in the aggregate among
all the Revolving Credit Loans. The Agent's determination of a rate of
interest and any change therein shall in the absence of manifest error be
conclusive and binding upon all parties hereto. If at any time the designated
rate applicable to any Revolving Credit Loan made by any Bank exceeds such
Bank's highest lawful rate, the rate of interest on such Bank's Revolving
Credit Loan shall be limited to such Bank's highest lawful rate.

(a) Revolving Credit Interest Rate Options.
NovaCare, as agent for the Borrowers, shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans.

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(i) Revolving Credit Base Rate
Option: A fluctuating rate per annum (computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed) equal to the Base
Rate, such interest rate to change automatically from time to time effective as
of the effective date of each change in the Base Rate.

(ii) Revolving Credit Euro-Rate
Option: A rate per annum (computed on the basis of a year of 360 days and
actual days elapsed), for each period specified below, equal to the Euro-Rate
plus the applicable percentage (the "Applicable Percentage Over Euro-Rate") set
forth below, based upon the ratio of (a) Consolidated Funded Debt to (b)
Consolidated Cash Flow from Operations. Such ratio shall be computed as of the
end of each quarter. Consolidated Cash Flow from Operations shall be computed
at the end of each quarter for the four fiscal quarters then ended.
Adjustments to interest attributable to a change in such ratio shall be
effective (a) on the Delivery Date for the Borrower's consolidated financial
statements for such quarter if the applicable interest rate is to be increased
and (b) on the later of the Delivery Date for such financial statements or the
date on which such financial statements are actually delivered to the Agent and
the Banks if the applicable interest rate is to be decreased.

(A) For the period commencing on the Closing Date through,
but not including, the Effective Date:

Ratio of Consolidated
Funded Debt to Consolidated
Cash Flow from Operations Applicable Interest Rate
--------------------------- ------------------------

Greater than or equal to
3.50 to 1.0 Euro-Rate plus 1-1/16%

Greater than or equal to
2.50 to 1.0 but less than
3.50 to 1.0 Euro-Rate plus 7/8%

Greater than or equal to
1.50 to 1.0 but less than
2.50 to 1.0 Euro-Rate plus 11/16%

Less than 1.50 to 1.0 Euro-Rate plus 1/2%

(B) For the period commencing on the Effective Date
through, but not including the Sixth Amendment Effective Date:

Ratio of Consolidated
Funded Debt to Consolidated

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55

Cash Flow from Operations Applicable Interest Rate
--------------------------- ------------------------

Greater than or equal to
2.50 to 1.0 but less than
3.00 to 1.0 Euro-Rate plus 1-1/8%

Greater than or equal to
2.00 to 1.0 but less than
2.50 to 1.0 Euro-Rate plus 1-1/16%

Greater than or equal to
1.50 to 1.0 but less than
2.00 to 1.0 Euro-Rate plus 7/8%

Greater than or equal to
1.00 to 1.0 but less than
1.50 to 1.0 Euro-Rate plus 11/16%

Less than 1.0 to 1.0 Euro Rate plus 1/2%

Ratio of Consolidated
Funded Debt to Consolidated
Cash Flow from Operations Applicable Interest Rate
------------------------- ------------------------

Greater than or equal to
2.50 to 1.0 but less than
3.0 to 1.0 Euro-Rate plus 1-1/8%

Greater than or equal to Euro-Rate plus 1-1/16%
2.00 to 1.0 but less than
2.50 to 1.0

Greater than or equal to Euro-Rate plus 7/8%
1.50 to 1.0 but less than
2.00 to 1.0

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56

Greater than or equal to Euro-Rate plus 11/16%
1.00 to 1.0 but less than
1.50 to 1.0

Less than 1.00 to 1.0 Euro-Rate plus 1/2%

(b) Rate Quotations. NovaCare, as agent for
the Borrowers, may call the Agent on or before the date on which a Revolving
Credit Loan Request is to be delivered to receive an indication of the rates
then in effect, but it is acknowledged that such projection shall not be
binding on the Agent or the Banks nor affect the rate of interest which
thereafter is actually in effect when the election is made.

4.02 Interest Periods. At any time when NovaCare, as
agent for the Borrowers, shall select, convert to or renew a Revolving Credit
Euro-Rate Option, NovaCare shall notify the Agent thereof at least three (3)
Business Days prior to the effective date of such Revolving Credit Euro-Rate
Option by delivering a Revolving Credit Loan Request. The notice shall specify
an interest period during which such Interest Rate Option shall apply, such
periods to be one, two, three or six months ("Euro-Rate Interest Period"),
provided, that:

(a) any Euro-Rate Interest Period which would
otherwise end on a date which is not a Business Day shall be extended to the
next succeeding Business Day unless such Business Day falls in the next
calendar month, in which case such Euro-Rate Interest Period shall end on the
next preceding Business Day;

(b) any Euro-Rate Interest Period which begins
on the last day of a calendar month for which there is no numerically
corresponding day in the subsequent calendar month during which such Interest
Period is to end shall end on the last Business Day of such subsequent month;

(c) Revolving Credit Euro-Rate Portion for each
Euro-Rate Interest Period shall be in integral multiples of $500,000 and not
less than $1,500,000;

(d) NovaCare shall not select, convert to or
renew a Euro-Rate Interest Period for any portion of the Revolving Credit Loans
that would end after the Expiration Date; and

(e) in the case of the renewal of a Revolving
Credit Euro-Rate Option at the end of a Euro-Rate Interest Period, the first
day of the new Interest Period shall be the last day of the preceding Interest
Period, without duplication in payment of interest for such day.

4.03 Interest After Default. To the extent permitted by
Law, upon the occurrence and during the continuation of an Event of Default,
any principal, interest, fee or other

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amount payable hereunder shall bear interest for each day thereafter until paid
in full (before and after judgment) at a rate per annum which shall be equal to
two hundred (200) basis points (2% per annum) above the rate of interest
otherwise applicable with respect to such amount or two hundred (200) basis
points (2% per annum) above the Base Rate if no rate of interest is otherwise
applicable. Each Borrower acknowledges that such increased interest rate
reflects, among other things, the fact that such Revolving Credit Loans or
other amounts have become a substantially greater risk given their default
status and that the Banks are entitled to additional compensation for such
risk.

4.04 Euro-Rate Unascertainable.

(a) If on any date on which a Euro-Rate would
otherwise be determined, the Agent shall have determined (which determination
shall be conclusive absent manifest error) that:

(i) adequate and reasonable means do
not exist for ascertaining such Euro-Rate, or

(ii) a contingency has occurred which
materially and adversely affects the secondary market for negotiable
certificates of deposit maintained by dealers of recognized standing relating
to the London interbank market relating to the Euro- Rate, or

(b) if at any time any Bank shall have
determined (which determination shall be conclusive absent manifest error)
that:

(i) the making, maintenance or
funding of any Revolving Credit Loan to which a Revolving Credit Euro- Rate
Option applies has been made impracticable or unlawful by compliance by such
Bank in good faith with any Law or any interpretation or application thereof by
any Official Body or with any request or directive of any such Official Body
(whether or not having the force of Law), or

(ii) such Revolving Credit Euro-Rate
Option will not adequately and fairly reflect the cost to such Bank of the
establishment or maintenance of any such Revolving Credit Loan, or

(iii) after making all reasonable
efforts that deposits of the relevant amount in Dollars for the relevant
Euro-Rate Interest Period for a Revolving Credit Loan to which a Revolving
Credit Euro-Rate Option applies, respectively, are not available to such Bank
at the effective cost of funding a proposed Revolving Credit Loan to which the
Revolving Credit Euro-Rate Option applies in the London interbank market,

then, in the case of any event specified in subsection (a) above, the Agent
shall promptly so notify NovaCare, as agent for the Borrowers, and the Banks
thereof and in the case of an event specified

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58

in subsection (b) above, such Bank shall promptly so notify the Agent in such
capacity and endorse a certificate to such notice as to the specific
circumstances of such notice and the Agent shall promptly send copies of such
notice and certificate to the other Banks and NovaCare, as agent for the
Borrowers. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of (A) the
Banks in the case of such notice given by the Agent or (B) such Bank in the
case of such notice given by such Bank to allow NovaCare, as agent for the
Borrowers, to select, convert to or renew a Revolving Credit Euro-Rate Option
shall be suspended until the Agent shall have later notified NovaCare, in such
capacity, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination (which determination shall be
conclusive absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Agent makes a
determination under subsection (a) or (b) of this Section 4.04 and NovaCare has
previously notified the Agent of its selection of, conversion to or renewal of
a Revolving Credit Euro-Rate Option and such Interest Rate Option has not yet
gone into effect, such notification shall be deemed to provide for selection
of, conversion to or renewal of the Revolving Credit Base Rate Option otherwise
available with respect to such Revolving Credit Loans. If any Bank notifies
the Agent of a determination under subsection (b) of this Section 4.04, the
Borrowers shall, subject to the Borrowers' indemnification obligations under
Section 5.06(b), as to any Revolving Credit Loan of such Bank to which a
Revolving Credit Euro-Rate Option applies, on the date specified in such notice
either convert such Revolving Credit Loan to the Revolving Credit Base Rate
Option otherwise available with respect to such Revolving Credit Loan or prepay
such Revolving Credit Loan in accordance with Section 5.04 hereof. Absent due
notice from NovaCare of conversion or prepayment, such Revolving Credit Loan
shall automatically be converted to the Revolving Credit Base Rate Option
otherwise available with respect to such Revolving Credit Loan upon such
specified date.

4.05 Selection of Interest Rate Options. If NovaCare, as
agent for the Borrowers, fails to select a Euro-Rate Interest Period in
accordance with the provisions of Section 4.02 in the case of renewal of the
Revolving Credit Euro-Rate Portion, NovaCare shall be deemed to have converted
such Revolving Credit Loan or portion thereof to the Revolving Credit Base Rate
Option otherwise available with respect to such Revolving Credit Loans,
commencing upon the last day of that Euro-Rate Interest Period.

ARTICLE V
PAYMENTS

5.01 Payments. All payments and prepayments to be made
in respect of principal, interest, Commitment Fees, Closing Fees, Letter of
Credit Fees, Agent's Fee or other fees or amounts due from the Borrowers
hereunder shall be payable prior to 11:00 A.M. (Pittsburgh time) on the date
when due without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrowers, and without setoff,
counterclaim or other deduction of any nature, and an action therefor shall
immediately accrue. Such payments

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59

shall be made to the Agent at its Principal Office for the ratable accounts of
the Banks with respect to the Revolving Credit Loans in U.S. Dollars and in
immediately available funds and the Agent shall promptly distribute such
amounts to the Banks in immediately available funds, provided that in the event
payments are received by 11:00 A.M. (Pittsburgh time) by the Agent with respect
to the Revolving Credit Loans and such payments are not distributed to the
Banks on the same day such payments are received by the Agent, the Agent shall
pay the Banks the Federal Funds Effective Rate with respect to the amount of
such payments for each day held by the Agent and not distributed to the Banks.
The Agent's and each Bank's statement of account, ledger or other relevant
record shall, in the absence of manifest error, be conclusive as the statement
of the amount of principal of and interest on the Revolving Credit Loans and
other amounts owing under this Agreement and shall be deemed an "account
stated."

5.02 Pro Rata Treatment of Banks. Each borrowing, and
each selection of, conversion to or renewal of any Interest Rate Option and
each payment or prepayment by the Borrower with respect to principal, interest,
Commitment Fees, Closing Fees, Letter of Credit Fees, or other fees or amounts
due from the Borrowers hereunder to the Banks with respect to the Revolving
Credit Loans, shall (except as provided in Section 4.04(b) [Euro-Rate
Unascertainable], 5.04(b) [Voluntary Prepayments] or 5.06(a) [Additional
Compensation in Certain Circumstances] hereof) be made in proportion to the
Revolving Credit Loans outstanding from each Bank and if no such Revolving
Credit Loans are then outstanding, in proportion to the Ratable Share of each
Bank.

5.03 Interest Payment Dates. Interest on Revolving
Credit Loans to which the Revolving Credit Base Rate Option applies shall be
due and payable in arrears on the first Business Day of each July, October,
January and April after the date hereof and on the Expiration Date or upon
acceleration of the Revolving Credit Notes. Interest on Revolving Credit Loans
to which a Revolving Credit Euro-Rate Option applies shall be due and payable
on the last day of each Euro-Rate Interest Period for those Revolving Credit
Loans, and if any such Euro-Rate Interest Period is longer than three Months,
also on the last day of every third Month during such period.

5.04 Voluntary Prepayments.

(a) Each Borrower shall have the right at its
option from time to time to prepay the Revolving Credit Loans in whole or part
without premium or penalty (except as provided in subsection (b) below or in
Section 5.06 hereof):

(i) at any time with respect to any
Revolving Credit Loan to which the Revolving Credit Base Rate Option applies,

(ii) on the last day of the applicable
Euro-Rate Interest Period with respect to Revolving Credit Loans to which a
Revolving Credit Euro-Rate Option applies, or

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60

(iii) on the date specified in a notice
by any Bank pursuant to Section 4.04(b) [Euro-Rate Unascertainable] hereof with
respect to any Revolving Credit Loan to which a Revolving Credit Euro-Rate
Option applies.

Whenever a Borrower desires to prepay any part of the Revolving
Credit Loans, it shall cause NovaCare, as its agent, to provide a prepayment
notice to the Agent at least one (1) Business Day prior to the date of
prepayment of Revolving Credit Loans setting forth the following information:

(x) the date, which shall be a Business
Day, on which the proposed prepayment is to be made; and

(y) the total principal amount of such
prepayment, which shall not be less than $500,000.

All prepayment notices shall be irrevocable. The principal
amount of the Revolving Credit Loans for which a prepayment notice is given,
together with interest on such principal amount except with respect to
Revolving Credit Loans to which the Revolving Credit Base Rate Option applies,
shall be due and payable on the date specified in such prepayment notice as the
date on which the proposed prepayment is to be made. Unless otherwise
specified by NovaCare on behalf of such Borrower with respect to prepayments of
the Revolving Credit Euro-Rate Portion of the Revolving Credit Loans permitted
under (ii) or (iii) above, all prepayments shall be applied first to the
Revolving Credit Base Rate Portion of such Revolving Credit Loans, as the case
may be, and then to the Revolving Credit Euro-Rate Portion of such Revolving
Credit Loans, subject to Section 5.06(b) hereof.

(b) In the event (i) any Bank gives notice
under Section 4.04(b) [Euro-Rate Unascertainable] or Section 5.06(a)
[Additional Compensation in Certain Circumstances] hereof, or (ii) any Bank
does not approve any action as to which consent of the Required Banks is
requested by the Borrowers and obtained hereunder, NovaCare may request either
that such Bank's Revolving Credit Commitment be terminated pursuant to the
procedures set forth in clause (A) below or that such Bank be replaced by a new
bank pursuant to the procedures set forth in clause (B) below. If NovaCare
desires to request that a Bank's Commitment be terminated or a Bank be replaced
pursuant to this Section 5.04(b), NovaCare shall deliver to the Agent notice of
such request within thirty (30) days after NovaCare receives such Bank's notice
in the case of clause (i) of this Section 5.04(b), or within thirty (30) days
after the Required Banks have consented to a matter with respect to which such
Bank has not consented in the case of clause (ii) of this Section 5.04(b).
NovaCare may request that the Commitment of a Bank be terminated or a Bank be
replaced pursuant to clause (ii) of the first sentence of this Section 5.04(b)
only if there exists no Event of Default or Potential Default on the date of
such request.

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(A) Termination of Commitment. If
NovaCare requests that the Commitment of a Bank be terminated (the "Bank to be
Terminated") pursuant to this Section 5.04(b), such Commitment shall be
terminated pursuant to the procedures set forth below if each of the Banks
other than the Bank to be Terminated (the "Remaining Banks") agrees to such
request. The Remaining Banks shall not unreasonably withhold such consent if
NovaCare is requesting a termination pursuant to clause (i) of the first
paragraph of Section 5.04(b). If the Remaining Banks agree to such
termination, NovaCare shall notify all of the Banks of the date on which such
termination shall be effective (the "Termination Date"). Such notice must be
delivered at least three Business Days prior to the Termination Date and no
more than thirty (30) days following NovaCare's receipt of approval from the
Remaining Banks to terminate the Bank to be Terminated. The Borrowers shall
repay all outstanding Loans of the Bank to be Terminated on the Termination
Date and shall pay any amounts required under Section 5.06 and any accrued
Commitment Fees due to such Bank to be Terminated. The Borrowers also shall
repay the Loans of the Remaining Banks outstanding on the Termination Date if
such reduction is necessary to cause the sum of Loans and Letters of Credit
outstanding on such date not to exceed the Commitments (as reduced). The
following shall occur upon delivery of the foregoing payment:

(1) the Commitment of the Bank to
be Terminated and its obligation under outstanding Letters of Credit shall
terminate and such Bank shall cease to be a Bank hereunder;

(2) the aggregate Commitments of
the Banks hereunder shall be reduced by an amount equal to the amount of the
Commitment which is being terminated pursuant to clause (1) above; and

(3) the contingent obligation of
each of the Remaining Banks in outstanding Letters of Credit shall be increased
so that its share therein shall equal its Ratable Share of such Letters of
Credit after giving effect to the termination of the Commitment of the Bank to
be Terminated.

It is acknowledged that the effect of the termination of the Commitment of the
Bank to be Terminated pursuant to clause (1) above and the reduction of the
Commitments pursuant to clause (2) above includes, without limitation, that the
Ratable Shares of each of the Remaining Banks shall increase ratably and the
aggregate of such increases will equal the Ratable Share of the Bank to be
Terminated immediately prior to the Termination Date. PNC Bank may not be
terminated under this Section unless on or before the Termination Date all
Letters of Credit have been terminated or replaced by an issuing bank other
than PNC Bank. If PNC Bank is the Bank to be Terminated, PNC Bank may, at its
option, require that a successor Agent replace PNC Bank as Agent on or before
the Termination Date.

(B) Replacement. If NovaCare requests that a
Bank be replaced (the "Bank to be Replaced") pursuant to this Section 5.04(b),
such request shall be accompanied by a proposed list of banks designated by
NovaCare as acceptable replacement Banks. Selection of the

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proposed replacement bank is subject to the approval of the Agent. If the
Agent approves one of the proposed banks (the "Selected Bank"), the Bank to be
Replaced shall assign its Commitment and all of its other rights as a Bank
hereunder to the Selected Bank, and the Selected Bank shall purchase the Loans
and the rights of the Bank to be Replaced and assume such Bank's obligations
under Section 2.09 in respect of outstanding Letters of Credit pursuant to an
Assignment and Assumption Agreement and subject to the limitations contained in
Section 11.11. If the Bank to be Replaced is PNC Bank (1) PNC Bank, may at its
option, require that a successor Agent replace PNC Bank as Agent on the date of
such replacement, and (2) such replacement shall not be effective until all
outstanding Letters of Credit have been replaced or terminated so that such
Agent is no longer the issuer of or obligated under such Letters of Credit.

5.05 [RESERVED]

5.06 Additional Compensation in Certain Circumstances.

(a) Increased Costs or Reduced Return Resulting
From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. If any
Law, guideline or interpretation or any change in any Law, guideline or
interpretation or application thereof by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or other
Official Body:

(i) subjects any Bank to any tax or
changes the basis of taxation with respect to this Agreement, the Revolving
Credit Notes, the Revolving Credit Loans or payments by any Borrower of
principal, interest, or other amounts due from any Borrower hereunder or under
the Revolving Credit Notes (except for taxes on the net income of such Bank),

(ii) imposes, modifies or deems
applicable any reserve, special deposit or similar requirement against credits
or commitments to extend credit extended by, or assets (funded or contingent)
of, deposits with or for the account of, or other acquisitions of funds by, any
Bank, or

(iii) imposes, modifies or deems
applicable any capital adequacy or similar requirement (A) against assets
(funded or contingent) of, or letters of credit, other credits or commitments
to extend credit extended by, any Bank, or (B) otherwise applicable to the
obligations of any Bank under this Agreement,

and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank or its parent with respect to this Agreement, the Revolving Credit Notes
or the making, maintenance or funding of any part of the Revolving Credit Loans
(or, in the case of any capital adequacy or similar requirement, to have the
effect of reducing the rate of return on the capital of any Bank or its parent,
taking into consideration such Bank's customary policies with respect to
capital adequacy) by an amount

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63

which such Bank in its sole discretion deems to be material, such Bank shall
from time to time notify the Borrowers and the Agent of the amount determined
in good faith (using any averaging and attribution methods employed in good
faith) by such Bank (which determination shall be conclusive absent manifest
error) to be necessary to compensate such Bank for such increase in cost,
reduction of income or additional expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due
and payable by the Borrowers, jointly and severally, to such Bank ten (10)
Business Days after such notice is given. For purposes of this Section
5.06(a), in calculating the amount necessary to compensate such Bank for any
such increase in cost, reduction of income or additional expense, such Bank
shall calculate the amount payable to it in a manner consistent with the manner
in which it shall calculate similar compensation payable to it by other
borrowers in the industry of the Borrowers having provisions in their credit
agreements comparable to this Section 5.06(a).

(b) Indemnity. In addition to the compensation
required by subsection (a) of this Section 5.06, the Borrowers, jointly and
severally, shall indemnify each Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by a Bank to fund or maintain Revolving Credit
Loans subject to the Revolving Credit Euro-Rate Option) which such Bank
sustains or incurs as a consequence of any

(i) payment, prepayment, conversion
or renewal of any Revolving Credit Loan to which the Revolving Credit Euro-Rate
Option applies on a day other than the last day of the corresponding Euro-Rate
Interest Period (whether or not such payment or prepayment is mandatory,
voluntary or automatic and whether or not such payment or prepayment is then
due),

(ii) attempt by the Borrowers to
revoke (expressly, by later inconsistent notices or otherwise) in whole or part
any notice relating to Revolving Credit Loan Requests under Section 2.05 or
Section 4.02 or prepayments under Section 5.04, or

(iii) default by any Borrower in the
performance or observance of any covenant or condition contained in this
Agreement or any other Loan Document, including without limitation any failure
of any Borrower to pay when due (by acceleration or otherwise) any principal,
interest, or any other amount due hereunder.

If any Bank sustains or incurs any such loss or expense it shall
from time to time notify the Borrowers of the amount determined in good faith
by such Bank (which determination shall be conclusive absent manifest error and
may include such assumptions, allocations of costs and expenses and averaging
or attribution methods as such Bank shall deem reasonable) to be necessary to
indemnify such Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due
and payable by the Borrowers, jointly and severally, to such Bank ten (10)
Business Days after such notice is given.

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ARTICLE VI
REPRESENTATIONS AND WARRANTIES

6.01 Representations and Warranties. Each Loan Party
represents and warrants to the Agent and each of the Banks as follows:

(a) Organization and Qualification. Each of
the Loan Parties is a corporation, partnership, limited liability company or
business trust, duly organized, validly existing and, except as set forth on
Schedule 6.01(a), in good standing under the laws of its respective
jurisdiction of organization; each Loan Party has the corporate, partnership,
limited liability company or trust (as the case may be) power to own or lease
its respective properties and to engage in the business it presently conducts
or proposes to conduct; and each Loan Party is duly qualified and in good
standing in each jurisdiction where the property owned or leased by it or the
nature of the business transacted by it or both makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified would not constitute a Material Adverse Change.

(b) Capitalization and Ownership. All of the
issued and outstanding shares of authorized capital stock of NovaCare have been
validly issued and are fully paid and nonassessable.

(c) Subsidiaries; Excluded Entities. Schedule
6.01(c) attached hereto states the name of each Subsidiary of NovaCare, its
jurisdiction of organization, its authorized capital stock and the issued and
outstanding shares (referred to herein collectively as the "Subsidiary Shares")
and the owners thereof if it is a corporation, its outstanding partnership
interests (the "Partnership Interests") and the owners thereof if it is a
partnership, its outstanding equity interests (the "Member Interests") and the
owners thereof if it is a limited liability company, and the trustee and
holders of its beneficial interests (the "Beneficial Interests") if it is a
business trust. NovaCare has good and marketable title to all of the
Subsidiary Shares, Partnership Interests, Member Interests and Beneficial
Interests it purports to own, free and clear in each case of any Lien, except
for Liens in favor of the Agent for the benefit of the Banks, and each other
Loan Party has good and marketable title to all of the Subsidiary Shares,
Partnership Interests, Member Interests and Beneficial Interests it purports to
own, free and clear of any Lien, except for Liens in favor of the Agent for the
benefit of the Banks. All Subsidiary Shares, Partnership Interests, Member
Interests and Beneficial Interests have been validly issued. All Subsidiary
Shares are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of
the Partnership Interests, Member Interests or Beneficial Interests have been
made or paid, as the case may be. Except as set forth on Schedule 6.01(c),
there are no options, warrants or other rights outstanding to purchase any such
Subsidiary Shares, Partnership Interests, Member Interests or Beneficial
Interests. Each Subsidiary, other than the Excluded Qualifying Subsidiaries,
is a Loan Party

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65

hereunder and is listed on the signature lines or Schedule 6.01(c), as the case
may be as a Guarantor or a Borrower. Schedule 1.01(E) lists each Subsidiary,
Minority Subsidiary or Unaffiliated Managed Company which is not a Loan Party.

(d) Power and Authority. Each Loan Party has
full corporate, partnership, limited liability company or trust (as the case
may be) power to enter into, execute, deliver and carry out this Agreement and
the other Loan Documents to which it is a party, to incur the Indebtedness
contemplated by the Loan Documents and to perform its obligations under the
Loan Documents to which it is a party and all such actions have been duly
authorized by all necessary proceedings on its part.

(e) Validity and Binding Effect. This
Agreement has been duly and validly executed and delivered by each Loan Party
(except for Excluded Entities), and each other Loan Document, when duly
executed and delivered by each respective Loan Party thereto, will have been
duly and validly executed and delivered by such Loan Parties. This Agreement
and each other Loan Document delivered by the Loan Parties pursuant to the
provisions hereof will constitute legal, valid and binding obligations of the
Loan Parties thereto, enforceable against each respective Loan Party in
accordance with their respective terms, except to the extent that
enforceability of any of the foregoing Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance or by general equitable principles.

(f) No Conflict. Neither the execution and
delivery of this Agreement or the other Loan Documents by the Loan Parties nor
the consummation of the transactions herein or therein contemplated or
compliance with the terms and provisions hereof or thereof by them will
conflict with, constitute a default under or result in any breach of (i) the
terms and conditions of the certificate of incorporation, by-laws or other
organizational documents of any Loan Party, or (ii) any Law or any material
agreement or instrument or order, writ, judgment, injunction or decree to which
any Loan Party is a party or by which it is bound or to which it is subject, or
result in the creation or enforcement of any Lien, charge or encumbrance
whatsoever upon any property (now or hereafter acquired) of any Loan Party
(other than Liens granted under the Loan Documents).

(g) Litigation. There are no actions, suits,
proceedings or investigations pending or, to the knowledge of any Loan Party,
threatened against any Loan Party at law or equity before any Official Body
which individually or in the aggregate would constitute a Material Adverse
Change including, without limitation, any actions, suits or proceedings by any
Official Body to recover any Medicare or Medicaid payments from any Loan Party
or to otherwise exclude any Loan Party from participation in any Medicare,
Medicaid or similar program. No Loan Party is in violation of any order, writ,
injunction or any decree of any Official Body which would constitute a Material
Adverse Change.

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66

(h) Title to Properties. Each of the Loan
Parties has good and marketable title to or valid leasehold interest in all
properties, assets and other rights which it purports to own or lease or which
are reflected as owned or leased on its books and records, free and clear of
all Liens and encumbrances except Permitted Liens. All leases of property are
in full force and effect without the necessity for any consent which has not
previously been obtained upon consummation of the transactions contemplated
hereby.

(i) Financial Statements.

(A) Historical Statements. NovaCare
has delivered to the Agent copies of its audited consolidated year-end
financial statements for and as of the end of the fiscal year ended June 30,
1993 (the "Annual Statements"). In addition, NovaCare has delivered to the
Agent copies of its unaudited consolidated interim financial statements for the
fiscal year to date and as of the end of the fiscal quarter ended March 31,
1994 (the "Interim Statements") (the Annual and Interim Statements being
collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by NovaCare's
management, fairly present the consolidated financial condition of NovaCare and
its Subsidiaries as of their dates and the results of operations for the fiscal
periods then ended and have been prepared in accordance with GAAP consistently
applied, subject (in the case of the Interim Statements) to normal year-end
audit adjustments.

(B) Financial Projections. NovaCare
has delivered to the Agent financial projections of NovaCare and its
Subsidiaries through June 30, 1998 derived from various assumptions of
NovaCare's management (the "Financial Projections"). The Financial Projections
represent a reasonable range of possible results in light of the history of the
business, present and reasonably foreseeable conditions and the intentions of
NovaCare's management. The Financial Projections reasonably reflect the
liabilities of NovaCare and its Subsidiaries upon consummation of the
transactions contemplated hereby as of the Closing Date.

(C) Accuracy of Financial Statements.
Neither NovaCare nor any Subsidiary has any liabilities, contingent or
otherwise, or material forward or long-term commitments that are not disclosed
in the Historical Statements or in the notes thereto and are required to be
disclosed, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of NovaCare or any Subsidiary which
would constitute a Material Adverse Change. Since March 31, 1994 no Material
Adverse Change has occurred.

(j) Full Disclosure. Neither this Agreement
nor any other Loan Document, nor any certificate, statement, agreement or other
documents furnished to the Agent or any Bank in connection herewith or
therewith, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading.

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67

(k) Taxes. All material federal, state, local
and other tax returns required to have been filed with respect to each Loan
Party have been filed and payment or adequate provision has been made for the
payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall
be required by GAAP shall have been made. There are no agreements or waivers
extending the statutory period of limitations applicable to any federal income
tax return of any Loan Party.

(l) Consents and Approvals. No consent,
approval, exemption, order or authorization of, or a registration or filing
with any Official Body or any other person is required by any Law or any
agreement in connection with the execution, delivery and carrying out of this
Agreement and the other Loan Documents by any Loan Party, except as listed on
Schedule 6.01(l) attached hereto, all of which shall have been obtained or made
on or prior to the Closing Date except as otherwise indicated on Schedule
6.01(l); provided, however, that it is acknowledged that consent of health care
regulatory authorities issuing any licenses or regulating any health care
facilities may be required if the Agent on behalf of the Banks exercises the
rights and remedies in respect of the Pledged Collateral and such exercise of
remedies results in or constitutes an assignment of any health care license
issued by a health care regulatory authority or constitutes a change of control
with respect to the ownership of a health care facility.

(m) No Event of Default; Compliance with
Instruments. No event has occurred and is continuing and no condition exists
or will exist after giving effect to the borrowings to be made on the Closing
Date under the Loan Documents which constitutes an Event of Default or
Potential Default. No Loan Party is in violation of (i) any term of its
certificate of incorporation, by-laws, or other organizational documents or
(ii) any material agreement or instrument to which it is a party or by which it
or any of its properties may be subject or bound where such violation would
constitute a Material Adverse Change.

(n) Patents, Trademarks, Copyrights, Etc. Each
Loan Party owns or possesses all the material patents, trademarks, service
marks, tradenames, copyrights and other intellectual property rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party without known conflict
with the rights of others.

(o) Security Interests. The Liens and security
interests granted to the Agent for the benefit of the Banks pursuant to the
Pledge Agreements in the Pledged Collateral constitute and the Loan Parties
shall not take any action that would cause them not to continue to constitute
Prior Security Interests under the Uniform Commercial Code as in effect in each
applicable jurisdiction (the "Uniform Commercial Code") or other applicable Law
entitled to all the rights, benefits and priorities provided by the Uniform
Commercial Code or such Law. Upon taking possession of any stock certificates,
certificates of Beneficial Interests or certificates of

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68

Member Interests, evidencing the Pledged Collateral which consists of stock,
certificated Beneficial Interests or certificated Member Interests, as the case
may be, and the filing of UCC-1 financing statements with respect to any
Pledged Collateral which consists of Partnership Interests, uncertificated
Beneficial Interests or uncertificated Member Interests, all such action as is
necessary or advisable to establish such rights of the Agent will have been
taken, and there will be upon execution and delivery of the Pledge Agreement
and such taking of possession and such filing, no necessity for any further
action in order to preserve, protect and continue such rights.

(p) Status of the Pledged Collateral. All the
shares of capital stock, Member Interests, or Beneficial Interests included in
the Pledged Collateral to be pledged pursuant to the Pledge Agreements are or
will be upon issuance duly authorized, validly issued, fully paid,
nonassessable and owned beneficially and of record by the pledgor free and
clear of any Lien or restriction on transfer, except as otherwise provided by
the Pledge Agreements and except as the right of the Banks or the Agent to
dispose of such shares, Member Interests, or Beneficial Interests may be
limited by the Securities Act of 1933, as amended, and the regulations
promulgated by the Securities and Exchange Commission thereunder and by
applicable state securities laws. There are no shareholder or other agreements
or understandings with respect to the shares of capital stock, Member
Interests, or Beneficial Interests included in the Pledged Collateral.

(q) Insurance. Schedule 6.01(q) hereto lists
all insurance policies and other bonds to which each Loan Party is a party on
the date hereof, all of which are valid and in full force and effect. No
notice has been given or claim made and no grounds exist to cancel or avoid any
of such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each
Loan Party in accordance with prudent business practice in the industry of each
Loan Party.

(r) Compliance with Laws. All Loan Parties are
in compliance in all material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in subsection (x)) in all
jurisdictions in which such Loan Party is presently doing business except where
the failure to do so would not constitute a Material Adverse Change.

(s) Material Contracts, Licenses, Permits and Approvals.

(A) As of the date hereof, Schedule
6.01(s) hereto lists the following contracts relating to the business
operations of the Loan Parties: (i) all employee benefit plans, material
employment agreements, collective bargaining agreements and labor contracts
(the "Labor Contracts"), (ii) all written provider or similar agreements
pursuant to which the Loan Parties have received or may claim any entitlement
to receive reimbursement from or as a result of any public or private
reimbursement programs where the payments received by any Loan Party exceeded
or are expected to

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69

exceed $3,000,000 in the current fiscal year, (iii) all leases of real property
where the payments made by any Loan Party exceeded or are expected to exceed
$250,000 in the current fiscal year, (iv) any contract or series of contracts
with the same person for the furnishing or purchase of machinery, equipment,
goods or services, where the payments made by any Loan Party exceeded or are
expected to exceed $250,000 in the aggregate in the current fiscal year; (v)
all management contracts pursuant to which any Loan Party provides management
services to any other person where the payments received by any Loan Party
exceeded or are expected to exceed $3,000,000 in the current fiscal year; and
(vi) all other material contracts filed as exhibits to any report filed by
NovaCare with the Securities and Exchange Commission during the past twelve
months. All such material contracts are valid, binding and enforceable upon
the Loan Party which is a party to such contract, as the case may be, and, to
the best knowledge of each Loan Party, each of the other parties thereto in
accordance with their respective terms, and there is no material default
thereunder, to the knowledge of the Loan Parties, with respect to parties other
than the Loan Parties.

(B) Except as set forth on Schedule
6.01(s), each Loan Party has all material accreditations, authorizations,
approvals, certificates of need, consents, licenses, permits and qualifications
(collectively, "Approvals") required (i) for them to construct, acquire, own,
manage, lease and/or operate their facilities and provide services, or (ii) for
them to receive payment and reimbursement from any patient or third party
payor, to the extent in the case of (i) and (ii) such Approvals are presently
required. There are no actions, suits, proceedings or investigations pending
or, to the knowledge of any Loan Party, threatened against any Loan Party at
law or in equity before any Official Body to modify, rescind or revoke any of
the Approvals. The Loan Parties have all other material Approvals required for
the lawful operation of their businesses, except for any violations which would
not result in a Material Adverse Change. All material Approvals of the Loan
Parties are in full force and effect and have not been amended or otherwise
modified (except for modifications which would not constitute a Material
Adverse Change), rescinded, revoked or assigned, and no notice has been
received of any violation of applicable Laws or any refusal to renew any
Approval which could reasonably be expected to cause any of such Approvals to
be modified, rescinded or revoked (except for modifications, rescissions or
revocations which would not constitute a Material Adverse Change). The
continuation, validity and effectiveness of all such Approvals will in no way
be adversely affected by the transactions contemplated by this Agreement. No
Loan Party knows of any reason why any of them will not be able to maintain,
after the Closing Date, all material Approvals necessary or appropriate to
construct, own, lease, manage and operate all of their facilities and to
otherwise conduct their businesses as now conducted and presently proposed to
be conducted. There are no deficiencies to the conditions for participation by
any Loan Party in any Medicare, Medicaid or other reimbursement programs which
would preclude such participation, nor, other than routine, scheduled audits,
is there any pending or, to the knowledge of the Borrowers, threatened
investigation, proceeding or other action by Medicare or Medicaid to exclude
any Loan Party from participation in such programs.

(t) Investment Companies. No Loan Party is an
"investment company" registered or required to be registered under the
Investment

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70

Company Act of 1940 or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940 and shall not become
such an "investment company" or under such "control."

(u) Margin Stock. Neither NovaCare nor any of
its Subsidiaries is engaged or intends to engage principally, or as one of its
important activities, in the business of extending credit for the purpose,
immediately, incidentally or ultimately, of purchasing or carrying margin stock
(within the meaning of Regulation U). No part of the proceeds of any Revolving
Credit Loan has been or will be used, immediately, incidentally or ultimately,
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock or to refund Indebtedness
originally incurred for such purpose, or for any purpose which entails a
violation of or which is inconsistent with the provisions of the regulations of
the Board of Governors of the Federal Reserve System.

(v) Plans and Benefit Arrangements. Except as
set forth on Schedule 6.01(v) hereto:

(i) NovaCare, its Subsidiaries and
each member of the ERISA Group are in compliance in all material respects with
any applicable provisions of ERISA with respect to all Benefit Arrangements,
Plans and Multiemployer Plans and each Benefit Arrangement and Plan has been
administered in all material respects in accordance with its terms and ERISA.
There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of NovaCare and its
Subsidiaries, with respect to any Multiemployer Plan or Multiple Employer Plan,
which could result in any material liability of NovaCare, its Subsidiaries or
any other member of the ERISA Group. NovaCare, its Subsidiaries and all
members of the ERISA Group have made when due any and all payments required to
be made under any agreement relating to a Multiemployer Plan or a Multiple
Employer Plan or any Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, NovaCare, its Subsidiaries and each member of the ERISA
Group (i) have fulfilled in all material respects their obligations under the
minimum funding standards of ERISA, (ii) have not incurred any liability to the
PBGC other than for the payment of required premiums and (iii) have not had
asserted against them any penalty for failure to fulfill the minimum funding
requirements of ERISA.

(ii) To the best knowledge of each
Loan Party, each Multiemployer Plan and Multiple Employer Plan is able to pay
benefits thereunder when due.

(iii) Neither NovaCare, its
Subsidiaries nor any other member of the ERISA Group has instituted or intends
to institute proceedings to terminate any Plan, which termination resulted or
will directly or indirectly result in any material liability to any Loan Party.

(iv) No event requiring notice to the
PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected
to occur with respect to any Plan,

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71

and no amendment with respect to which security is required under Section 307
of ERISA has been made or is reasonably expected to be made to any Plan.

(v) The aggregate actuarial present
value of all benefit liabilities (whether or not vested) under each Plan,
determined on a plan termination basis, as disclosed in, and as of the date of,
the most recent actuarial report for such Plan, does not exceed the aggregate
fair market value of the assets of such Plan by a material amount.

(vi) Neither NovaCare, its
Subsidiaries nor any other member of the ERISA Group has incurred or reasonably
expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan or Multiple Employer Plan. Neither NovaCare, its
Subsidiaries nor any other member of the ERISA Group has been notified by any
Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or
Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of NovaCare and its Subsidiaries, no
Multiemployer Plan or Multiple Employer Plan is reasonably expected to be
reorganized or terminated, within the meaning of Title IV of ERISA.

(vii) To the extent that any Benefit
Arrangement is insured, NovaCare, its Subsidiaries and all members of the ERISA
Group have paid when due all premiums required to be paid for all periods
through and including the Closing Date. To the extent that any Benefit
Arrangement is funded other than with insurance, NovaCare, its Subsidiaries and
all members of the ERISA Group have made when due all contributions required to
be paid for all periods through and including the Closing Date.

(w) Employment Matters. Each Loan Party is in
compliance with its labor contracts and all applicable federal, state and local
labor and employment Laws including, but not limited to, those related to equal
employment opportunity and affirmative action, labor relations, minimum wage,
overtime, child labor, medical insurance continuation, worker adjustment and
relocation notices, immigration controls and worker and unemployment
compensation, except for any failure to comply which would not constitute a
Material Adverse Change. There are no outstanding grievances, arbitration
awards or appeals therefrom arising out of any Loan Party's labor contracts or
current or threatened strikes, picketing, handbilling or other work stoppages
or slowdowns at facilities of any Loan Party which in any case would constitute
a Material Adverse Change. NovaCare has delivered to the Agent true and
correct copies of each of the Labor Contracts in effect as of the date hereof.

(x) Environmental Matters. Except as disclosed
on Schedule 6.01(x) hereto:

(i) Neither NovaCare nor any of its
Subsidiaries has received any Environmental Complaint from any Official Body or
private person alleging that NovaCare, any of its Subsidiaries or any prior or
subsequent owner of the Property is a potentially responsible party under the
Comprehensive Environmental Response, Cleanup and Liability Act,

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72

("CERCLA") 42 U.S.C. Section 9601, et seq., or is potentially liable under the
Solid Waste Disposal Act, as amended, ("SWDA") 42 U.S.C. Section 6901, et.
seq., or any comparable state or foreign law, statute or regulation of either
CERCLA or SWDA and NovaCare has no reason to believe that such an Environmental
Complaint might be received. There are no pending or, to any Loan Party's
actual knowledge, threatened Environmental Complaints relating to NovaCare, any
of its Subsidiaries or, to any Loan Party's knowledge, any prior or subsequent
owner of the Property pertaining to, or arising out of, any Environmental
Conditions which, individually or in the aggregate, if adversely determined
could reasonably be expected to constitute a Material Adverse Change.

(ii) Except for conditions, violations
or failures which individually and in the aggregate are not reasonably likely
to result in a Material Adverse Change, (i) there are no circumstances at, on
or, to the best knowledge of each Loan Party, under the Property that
constitute a breach of or non-compliance with any of the Environmental Laws,
and (ii) there are, to the best knowledge of each Loan Party, no past or
present Environmental Conditions at, on or under the Property or, to each Loan
Party's actual knowledge, at, on or under adjacent property, that prevent
compliance with the Environmental Laws at the Property.

(iii) Neither the Property nor any
structures, improvements, equipment, fixtures, activities or facilities thereon
or thereunder contain or use Regulated Substances except in compliance in all
material respects with Environmental Laws (other than any noncompliance which
individually and in the aggregate is not reasonably likely to result in a
Material Adverse Change). There are no processes, facilities, operations,
equipment or any other activities at, on or, to the best knowledge of each Loan
Party, under the Property, or, to each Loan Party's actual knowledge, at, on or
under adjacent property, that currently result in the release or threatened
release of Regulated Substances onto the Property, except to the extent that
such releases or threatened releases are not a material breach of or otherwise
not a material violation of the Environmental Laws, or are not likely to result
in a Material Adverse Change.

(iv) There are no above ground storage
tanks, underground storage tanks, or underground piping associated with such
tanks, used for the management of Regulated Substances at, on or under the
Property that (a) do not have, to the extent required by applicable
Environmental Laws, a full operational secondary containment system in place,
and (b) are not otherwise in compliance in all material respects with all
Environmental Laws (other than any noncompliance which individually or in the
aggregate is not reasonably likely to result in a Material Adverse Change). To
the best knowledge of each Loan Party, there are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under the Property that
have not been either abandoned in place, or removed, in accordance with the
Environmental Laws (other than any noncompliance which individually or in the
aggregate is not reasonably likely to result in a Material Adverse Change).

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73

(v) Each Loan Party has all material
permits, licenses, authorizations, plans and approvals necessary under the
Environmental Laws for the conduct of the business of each Loan Party as
presently conducted (except where the failure to hold any such permit, license,
authorization or approval is not reasonably likely to result in a Material
Adverse Change). Each Loan Party has submitted all material notices, reports
and other filings required by the Environmental Laws to be submitted to an
Official Body which pertain to past and current operations on the Property
(except where the failure to make any such submission is not reasonably likely
to result in a Material Adverse Change).

(vi) Except for violations which
individually and in the aggregate are not likely to result in a Material
Adverse Change, (i) all present and, to the actual knowledge of each Loan
Party, past on-site generation, storage, processing, treatment, recycling,
reclamation or disposal of Regulated Substances at, on, or, to the best
knowledge of each Loan Party, under the Property and, (ii) to the best
knowledge of each Loan Party, all off-site transportation, storage, processing,
treatment, recycling, reclamation or disposal of Regulated Substances by any
Loan Party, and to the actual knowledge of each Loan Party, by any other party,
relating to the activities on the Property has been done in accordance with the
Environmental Laws.

(y) Senior Debt Status. The obligations of the
Loan Parties under this Agreement, the Revolving Credit Notes or the
Guaranties, as the case may be, do rank and will rank at least pari passu in
priority of payment with all other indebtedness of the Loan Parties except
indebtedness of the Loan Parties to the extent secured by Permitted Liens.
There is no Lien upon or with respect to any of the properties or income of any
Loan Party which secures indebtedness or other obligations of any person except
for Permitted Liens. The obligations of the Loan Parties hereunder, under the
Revolving Credit Notes, or under the Guaranties constitute and will constitute
"Senior Indebtedness" as defined under the Indenture.

(z) Solvency. Each Loan Party is Solvent and
after giving effect to the transactions contemplated by the Loan Documents,
including all Indebtedness incurred thereby, and the payment of all fees
related thereto, each Loan Party will be Solvent, determined as of the Closing
Date and as of each Borrowing Date, except to the extent that any failure to
comply with the foregoing would not result in a Material Adverse Change.

6.02 Updates to Schedules. Should any of the information
or disclosures provided on any of the Schedules attached hereto become outdated
or incorrect in any material respect, the Loan Parties shall promptly provide
the Agent in writing with such revisions or updates to such Schedule as may be
necessary or appropriate to update or correct same; provided, however that no
Schedule shall be deemed to have been amended, modified or superseded by any
such correction or update, nor shall any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule be deemed
to have been cured thereby, unless and until the Required Banks, in their sole
and absolute discretion, shall have accepted in writing such revisions or
updates to such Schedule.

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74

ARTICLE VII
CONDITIONS OF LENDING

The obligation of each Bank to make Revolving Credit Loans or to
issue any Letters of Credit hereunder is subject to the performance by each
Loan Party of its obligations to be performed hereunder at or prior to the
making of any such Revolving Credit Loans or the issuing of such Letters of
Credit and to the satisfaction of the following further conditions:

7.01 First Revolving Credit Loans. On the Closing Date:

(a) The representations and warranties of each
Loan Party contained in Article VI hereof shall be true and accurate on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date (except representations and
warranties which relate solely to an earlier date or time, which
representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and each Loan Party shall have
performed and complied with all covenants and conditions hereof; no Event of
Default or Potential Default under this Agreement shall have occurred and be
continuing or shall exist; and there shall be delivered to the Agent for the
benefit of each Bank a certificate of NovaCare, dated the Closing Date and
signed by the Chief Executive Officer, President or Chief Financial Officer of
NovaCare, to each such effect.

(b) There shall be delivered to the Agent for
the benefit of each Bank a certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of each Loan Party, certifying as
appropriate as to:

(i) all action taken by such Loan
Party in connection with this Agreement and the other Loan Documents;

(ii) the names of the officer or
officers authorized to sign this Agreement and the other Loan Documents and the
true signatures of such officer or officers and, in the case of each Borrower,
specifying the Authorized Officers permitted to act on behalf of each Borrower
for purposes of this Agreement and the true signatures of such officers, on
which the Agent and each Bank may conclusively rely; and

(iii) copies of its organizational
documents, and, if it is a partnership, the organizational documents of its
general partner, including the certificate of incorporation, bylaws,
certificate of limited partnership and partnership agreement, as applicable and
as in effect on the Closing Date, which in the case of the Borrowers shall be
certified by the appropriate state official where such documents are filed in a
state office together with certificates from the appropriate state officials as
to the continued existence and good standing of each of the Borrowers in each
state where organized or qualified to do business.

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75

(c) Guaranty Agreements, Revolving Credit
Notes, Pledge Agreements and the Subordination Agreement (Intercompany) shall
have been duly executed and delivered to the Agent for the benefit of the
Banks, together with all appropriate financing statements and appropriate stock
powers and certificates evidencing the Pledged Collateral.

(d) There shall be delivered to the Agent for
the benefit of each Bank a written opinion of Xxxxxx & Xxxxxx, counsel for the
Loan Parties (who may rely on the opinions of such other counsel as may be
acceptable to the Agent), and the Loan Parties' local counsel, all dated the
Closing Date and in the form of Exhibit 7.01(d) attached hereto.

(e) All legal details and proceedings in
connection with the transactions contemplated by this Agreement and the other
Loan Documents shall be in form and substance satisfactory to the Agent, and
the Agent shall have received all such other counterpart originals or certified
or other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent, as the Agent may
reasonably request.

(f) The Borrowers shall pay or cause to be paid
to the Agent for itself and for the account of the Banks to the extent not
previously paid the Closing Fee and all other commitment and other fees accrued
through the Closing Date and the costs and expenses for which the Agent and the
Banks are entitled hereunder to be reimbursed.

(g) All material consents required to
effectuate the transactions contemplated hereby as set forth on Schedule
6.01(l) shall have been obtained.

(h) Since March 31, 1994, no Material Adverse
Change shall have occurred; prior to the Closing Date, there shall be no
material change in the management of NovaCare; and there shall be delivered to
the Agent for the benefit of each Bank a certificate dated the Closing Date and
signed by the Chief Executive Officer, President or Chief Financial Officer of
NovaCare to each such effect.

(i) The making of the Revolving Credit Loans
shall not contravene any Law applicable to any Loan Party or any of the Banks.

(j) No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain
or prohibit, or to obtain damages in respect of this Agreement or the
consummation of the transactions contemplated hereby or which, in the Agent's
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.

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76

(k) The Loan Parties shall deliver evidence
acceptable to the Agent that adequate insurance in compliance with Section
8.01(c) is in full force and effect and that all premiums then due thereon have
been paid.

(l) The Loan Parties shall have executed and
delivered to the Agent amendments or supplements to the application and other
documentation relating to the Existing Letters of Credit as appropriate to
reflect that they shall constitute Letters of Credit hereunder on the Closing
Date.

(m) The Borrowers shall have executed and
delivered to the Agent the Agent's Fee Letter and paid all fees due and payable
thereunder.

(n) The Loan Parties shall have executed and
delivered to the Agent for the benefit of the Banks the Borrower Agency
Agreement.

7.02 Each Additional Revolving Credit Loan. At the time
of making any Revolving Credit Loans or issuing any Letters of Credit other
than the Revolving Credit Loan made or Letters of Credit issued on the Closing
Date hereunder and after giving effect thereto: the representations and
warranties of the Loan Parties contained in Article VI hereof shall be true on
and as of the date of such additional Revolving Credit Loan or Letter of Credit
with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied
with all covenants and conditions hereof; no Event of Default or Potential
Default shall have occurred and be continuing or shall exist; the making of the
Revolving Credit Loans or issuance of the Letters of Credit shall not
contravene any Law applicable to any Loan Party or any of the Banks; and
NovaCare, for itself or as agent for another Borrower or Borrowers, shall have
delivered to the Agent a duly executed and completed Revolving Credit Loan
Request or request for Letters of Credit.

ARTICLE VIII
COVENANTS

8.01 Affirmative Covenants. Each Loan Party covenants
and agrees that until payment in full of the Revolving Credit Loans and
interest thereon, expiration or termination of all Letters of Credit,
satisfaction of all of the Loan Parties' other obligations hereunder and
termination of the Revolving Credit Commitment, each Loan Party shall comply at
all times with the following affirmative covenants:

(a) Preservation of Existence, etc. Except as
specifically permitted by Section 8.02(d), each Loan Party shall maintain its
corporate existence and its qualification and

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good standing in each jurisdiction in which its ownership or lease of property
or the nature of its business makes such license or qualification necessary,
except where the failure to be so licensed or qualified would not constitute a
Material Adverse Change.

(b) Payment of Liabilities, Including Taxes,
etc. Each Loan Party shall duly pay and discharge all material liabilities to
which it is subject or which are asserted against it, promptly as and when the
same shall become due and payable, including all taxes, assessments and
governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are
being contested in good faith and by appropriate and lawful proceedings
diligently conducted and for which such reserve or other appropriate
provisions, if any, as shall be required by GAAP shall have been made, but only
to the extent that failure to discharge any such liabilities would not result
in any Material Adverse Change or adversely affect the Pledged Collateral,
provided that such Loan Party will pay all such liabilities forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor.

(c) Maintenance of Insurance. Each Loan Party
shall insure its properties and assets against loss or damage by fire and such
other insurable hazards as such assets are commonly insured (including fire,
extended coverage, property damage, worker's compensation, public liability and
business interruption insurance) and against other risks in such amounts as
similar properties and assets are insured by prudent companies in similar
circumstances carrying on similar businesses, and with reputable and
financially sound insurers, including self-insurance to the extent customary.
At the request of the Agent, each Loan Party shall deliver on the Closing Date
and annually thereafter a certificate signed by such Loan Party's independent
insurance broker certifying as to all insurance then in force with respect to
such Loan Party.

(d) Maintenance of Properties and Leases. Each
Loan Party shall maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size, all of those material properties
useful or necessary to its business, and from time to time, each Loan Party
will make or cause to be made all appropriate repairs, renewals or replacements
thereof.

(e) Maintenance of Patents, Trademarks, etc.
Each Loan Party shall maintain in full force and effect all patents,
trademarks, trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a Material
Adverse Change.

(f) Visitation Rights. Each Loan Party shall
permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records or discuss its

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business affairs, finances and accounts with its officers, all in such detail
and at such times during normal business hours and as often as any of the Banks
may reasonably request, provided that each Bank shall provide such Loan Party
and the Agent with reasonable notice prior to any visit or inspection. In the
event that any Bank desires to conduct an inspection of a Loan Party, such Bank
shall make a reasonable effort to conduct such audit contemporaneously with any
audit to be performed by the Agent.

(g) Keeping of Records and Books of Account.
The Loan Parties shall maintain and keep proper books of record and account
which enable the Loan Parties to issue financial statements in accordance with
GAAP and as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Loan Parties, and accurately and fairly reflect the
transactions and dispositions of the assets of the Loan Parties.

(h) Plans and Benefit Arrangements.

(i) NovaCare shall, and shall cause
each member of the ERISA Group to, comply with ERISA, the Internal Revenue Code
and other Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing,
NovaCare shall cause all of its Plans and all Plans maintained by any member of
the ERISA Group to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each member of the ERISA Group
to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.

(ii) Promptly upon becoming aware of
the occurrence thereof, NovaCare shall furnish to the Banks notice (including
the nature of the event and, when known, any action taken or threatened by the
Internal Revenue Service or the PBGC with respect thereto) of:

(A) any Reportable Event with
respect to NovaCare or any member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has been waived),

(B) any Prohibited Transaction
which could subject NovaCare or any member of the ERISA Group to a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in connection with any Plan, Benefit
Arrangement or any trust created thereunder,

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(D) any partial or complete
withdrawal from a Multiemployer Plan by NovaCare or any member of the ERISA
Group under Title IV of ERISA (or assertion thereof), where such withdrawal is
likely to result in material withdrawal liability,

(E) any cessation of operations
(by NovaCare or any member of the ERISA Group) at a facility in the
circumstances described in Section 4062(e) of ERISA,

(F) withdrawal by NovaCare or any
member of the ERISA Group from a Multiple Employer Plan where such withdrawal
is likely to result in a material liability,

(G) a failure by NovaCare or any
member of the ERISA Group to make a payment to a Plan required to avoid
imposition of a lien under Section 302(f) of ERISA,

(H) the adoption of an amendment
to a Plan requiring the provision of security to such Plan pursuant to Section
307 of ERISA, or

(I) any change in the actuarial
assumptions or funding methods used for any Plan, where the effect of such
change is to materially increase or materially reduce the unfunded benefit
liability or obligation to make periodic contributions.

(iii) Promptly after receipt thereof,
NovaCare shall furnish to the Banks copies of (a) all notices received by
NovaCare or any member of the ERISA Group of the PBGC's intent to terminate any
Plan administered or maintained by NovaCare or any member of the ERISA Group,
or to have a trustee appointed to administer any such Plan, and (b) at the
request of the Agent or any Bank the three most recent annual reports (IRS Form
5500 series) and all accompanying schedules, the most recent actuarial reports,
the most recent financial information concerning the financial status of each
Plan administered or maintained by NovaCare or any member of the ERISA Group,
and schedules showing the amounts contributed within the last year to each such
Plan by or on behalf of NovaCare or any member of the ERISA Group in which any
of their personnel participate or from which such personnel may derive a
benefit.

(iv) Promptly upon the filing thereof,
NovaCare shall furnish to the Banks copies of any Form 5310, or any successor
or equivalent form to Form 5310, filed with the PBGC in connection with the
termination of any Plan.

(i) Compliance With Laws. Each Loan Party
shall comply with all applicable Laws, including all Environmental Laws, in all
respects provided that it shall not be deemed to be a violation of this Section
8.01(i) if any failure to comply with any Law would not result in or constitute
a Material Adverse Change.

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(j) Use of Proceeds. The Borrowers will use
the proceeds of the Revolving Credit Loans only for lawful purposes in
accordance with Section 2.08 hereof as applicable and such uses shall not
contravene any applicable Law or any other provision hereof.

(k) Further Assurances. Each Loan Party shall,
from time to time, at its expense, faithfully preserve and protect the Agent's
Lien on and Prior Security Interest in the Pledged Collateral as a continuing
first priority perfected Lien, and shall do such other acts and things as the
Agent in its sole discretion reasonably may deem necessary or advisable from
time to time in order to preserve, perfect and protect the Liens granted under
the Loan Documents and to exercise and enforce its rights and remedies
thereunder with respect to the Pledged Collateral.

(l) Subordination of Intercompany Indebtedness;
Permitted Additional Subordinated Indebtedness.

(A) Intercompany Indebtedness. Each
Loan Party shall enter into and be bound by the Subordination Agreement
(Intercompany) and shall cause all Intercompany Indebtedness to be subordinated
to the obligations of the Loan Parties to the Agent and the Banks pursuant to
the terms of such Subordination Agreement (Intercompany).

(B) Permitted Additional Subordinated
Indebtedness. The Loan Parties shall cause to be subordinated pursuant to the
provisions of Exhibit 1.01(P)(3) hereof all Indebtedness and Guaranties of
Indebtedness of the Loan Parties except for Indebtedness expressly permitted
under clauses (i) through (viii) of Section 8.02(a). Without limiting the
foregoing, the Loan Parties shall cause to be subordinated pursuant to such
provisions all Indebtedness and Guaranties of Indebtedness (i) incurred by any
Loan Party in connection with a Permitted Acquisition, or (ii) incurred by a
corporation (or its Subsidiaries) whose shares or other equity interests are
acquired by a Loan Party in a Permitted Acquisition, unless such Indebtedness
is permitted under clauses (i) through (viii) of Section 8.02(a).

(m) Certificate of Borrowers; Other Reports and
Information. NovaCare shall furnish or cause to be furnished to the Banks:

(i) Quarterly Financial Statements.
As soon as available and in any event within forty-five (45) calendar days
after the end of each of the first three fiscal quarters in each fiscal year,
financial statements of NovaCare and its consolidated Subsidiaries, consisting
of a balance sheet as of the end of such fiscal quarter, related statements of
income for the fiscal quarter then ended and the fiscal year through such date
and related statements of cash flows, for the fiscal year through such date,
all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of NovaCare as having been prepared in accordance with GAAP,
consistently applied, and setting forth in comparative form the respective
financial statements (except for the balance sheets) for the corresponding date
and period in the previous fiscal year. NovaCare may comply with this Section
8.01(m)(i) by delivering to the Banks certified copies of its Form 10-Q filed
with the

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Securities and Exchange Commission provided that the financial statements
contained therein comply with the foregoing requirements.

(ii) Annual Financial Statements. As
soon as available and in any event within ninety (90) days after the end of
each fiscal year, financial statements of NovaCare and its consolidated
Subsidiaries consisting of a balance sheet as of the end of such fiscal year,
and related statements of income, stockholders' equity and cash flows for the
fiscal year then ended, all in reasonable detail and setting forth in
comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by Price Waterhouse or other independent
certified public accountants of nationally recognized standing reasonably
satisfactory to the Agent. The certificate or report of accountants shall be
free of qualifications (other than any consistency qualification that may
result from a change in the method used to prepare the financial statements as
to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of
the Loan Parties under any of the Loan Documents. NovaCare may comply with
this Section 8.01(m)(ii) by delivering to the Banks copies of its Form 10-K
filed with the Securities and Exchange Commission, provided that the financial
statements and report of accountants contained therein comply with the
foregoing requirements.

(iii) Certificate of the Borrower. No
later than ten (10) Business Days following the due date of the financial
statements of NovaCare and its Subsidiaries furnished to the Agent and to the
Banks pursuant to Sections 8.01(m)(i) and (ii) hereof, a certificate of
NovaCare signed by the Chief Executive Officer, President or Chief Financial
Officer of NovaCare, in the form of Exhibit 8.01(m)(iii) hereto, to the effect
that, except as described pursuant to Section 8.03(a) below, (i) the
representations and warranties of the Loan Parties contained in Article VI
hereof are true on and as of the date of such certificate with the same effect
as though such representations and warranties had been made on and as of such
date (except representations and warranties which expressly relate solely to an
earlier date or time) and the Loan Parties have performed and complied with all
covenants and conditions hereof, and (ii) no Event of Default or Potential
Default exists and is continuing on the date of such certificate. The
certificate also shall contain calculations in sufficient detail to demonstrate
compliance as of the date of the financial statements with all financial
covenants contained in Section 8.02 hereof.

(iv) Separate Financial Information
for Certain Excluded Entities. As soon as available, quarterly and annual
financial statements with respect to each Excluded Entity in which a Restricted
Investment of more than $1 million has been made by a Loan Party.

(v) Management Letters. Concurrently
with the annual financial statements described in Section 8.01(m)(ii), any
reports including management letters submitted to any Loan Party by independent
accountants in connection with any annual, interim or special audit.

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(vi) Other Reports and Information.
Promptly upon their becoming available to NovaCare or as otherwise specified
below:

(A) the annual consolidated budget
and any accompanying forecasts or projections of NovaCare and its Subsidiaries
submitted to NovaCare's Board of Directors which shall project the operations
of NovaCare and its Subsidiaries on a consolidated basis and separately for
each of their lines of business. NovaCare shall deliver such budget, forecasts
and projections to the Banks not later than forty-five (45) days following the
commencement of the fiscal year to which such budget, forecasts and projections
may be applicable. In the event that as a result of a Permitted Acquisition,
NovaCare updates any budget, forecasts or projections to give effect to such
Permitted Acquisition, NovaCare shall promptly deliver to the Banks such
updated budget, forecasts or projections as they become available.

(B) any reports, notices or proxy
statements generally distributed by NovaCare to its stockholders on a date no
later than the date supplied to the stockholders,

(C) regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses
(except for registration statements on Form S-8), filed by NovaCare with the
Securities and Exchange Commission,

(D) a copy of any order in any
proceeding to which NovaCare or any of its Subsidiaries is a party issued by
any Official Body, which order is other than in the ordinary course of business
in the case of an order issued by an Official Body other than a court, a
tribunal, a grand jury or arbitrator or which order is reasonably likely to
result in a Material Adverse Change,

(E) a copy of any notice regarding
the occurrence of an event of default or event which with the passage of time
or giving of notice or both would cause an event of default in respect of any
lease to which NovaCare or any of its Subsidiaries is a party or by which
NovaCare or any of its Subsidiaries is bound, pursuant to which lease NovaCare
or any of its Subsidiaries makes payments equal to or in excess of $250,000 in
any fiscal year, such notice to be delivered to the Banks upon receipt thereof
by NovaCare or any of its Subsidiaries,

(F) upon the request of the Agent
or any Bank, a copy of the purchase agreement and all documents and financial
statements and information in connection with each Permitted Acquisition, and

(G) such other reports and
information as the Banks may from time to time reasonably request. NovaCare
shall also notify the Banks promptly after it

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obtains knowledge of the enactment or adoption of any Law which may result in a
Material Adverse Change.

8.02 Negative Covenants. NovaCare covenants and agrees
that until payment in full of the Revolving Credit Loans and interest thereon,
expiration or termination of all Letters of Credit and satisfaction of all of
the Borrowers' other obligations hereunder and termination of the Revolving
Credit Commitment, NovaCare shall, and shall cause each Loan Party to, comply
at all times with the following negative covenants (and insofar as the
following are applicable to any Borrower, such Borrower also covenants and
agrees as follows):

(a) Indebtedness. Each Loan Party shall not at
any time create, incur, assume or suffer to exist any Indebtedness, except:

(i) Indebtedness under the Loan
Documents;

(ii) Indebtedness existing on the date
hereof as set forth on Schedule 8.02(a)(ii), (other than Indebtedness under the
Indenture which is addressed in clause (iv) below), including any extensions or
renewals thereof provided there is no increase in the amount thereof or other
significant change in the terms thereof adverse to any Loan Party;

(iii) Capitalized leases entered into
in the ordinary course of business consistent with past practice;

(iv) Indebtedness under the Indenture
provided that the subordination provisions contained in the Indenture shall not
be amended after the Closing Date and that the Indenture is not otherwise
amended after the Closing Date if the effect thereof would (i) accelerate the
due date or increase the amount of any payment due from the Loan Parties
thereunder, (ii) change the rate at which interest is charged thereunder, or
(iii) impose restrictions or obligations on the Loan Parties which are not
imposed thereunder on the Closing Date or add any term thereto which is less
favorable in any material respect to the Loan Parties than the terms of the
Indenture on the Closing Date or which is more restrictive to any of the Loan
Parties than the terms of the Credit Agreement;

(v) (A) Up to $20,000,000 in
aggregate principal amount collectively for all Loan Parties, at any one time
outstanding, of (1) Indebtedness incurred or assumed on or after the Closing
Date secured by Purchase Money Security Interests entered into in the ordinary
course of business consistent with past practice; and (2) in connection with a
Permitted Acquisition which would be accounted for as a "purchase" transaction
under GAAP, Indebtedness assumed by Loan Parties pursuant to mergers of persons
into Loan Parties or Indebtedness of persons whose stock (or other ownership
interests) or assets are acquired by Loan Parties in a Permitted Acquisition
(whether by merger or otherwise and only to the extent the Indebtedness of a
person is assumed by Loan Parties in the case of the acquisition of the assets
of such person by a Loan Party) provided that with respect to each such
Permitted Acquisition

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such persons referred to above are not Affiliates of any Loan Parties prior to
such Permitted Acquisition and provided that such Indebtedness (i) existed
before the date of such Permitted Acquisition; (ii) does not exceed the
purchase price (determined in accordance with GAAP) in connection with such
Permitted Acquisition; and (iii) is secured only by the assets acquired if the
Permitted Acquisition is an asset acquisition, or is secured only by the assets
of the person whose stock or other ownership interests are being acquired if
the Permitted Acquisition is an acquisition of stock or other ownership
interests;

(B) Any extensions or renewals of
Indebtedness described in clause (A) above provided there is no increase in the
amount thereof or other significant change in the terms thereof adverse to any
Loan Party;

(vi) Indebtedness assumed by an
acquiring Loan Party in an asset acquisition which would be accounted for as a
"pooling of interests" transaction under GAAP, or Indebtedness of a Pooling
Partner which remains outstanding following the acquisition, directly or
indirectly, of such Pooling Partner's stock or other ownership interests in
connection with a stock acquisition (which is accounted for as a "pooling of
interests under GAAP"), provided that, in either case: (A) such transaction is
a Permitted Acquisition and such Indebtedness existed before the date of such
Permitted Acquisition; (B) the aggregate amount of such Indebtedness does not
exceed the Pooling Consideration in connection with such Permitted Acquisition;
(C) the aggregate amount of such Indebtedness together with all other
Indebtedness previously incurred under this Section 8.02(a)(vi) during the then
current fiscal year does not exceed $100,000,000; (D) no Loan Party shall issue
any Guaranty in respect of, grant any Lien in any of its assets as security
for, or otherwise become liable to repay, such Indebtedness except (1) if the
Permitted Acquisition is an asset acquisition which would be accounted for as a
"pooling of interests" transaction under GAAP, the acquiring Loan Party may
assume such Indebtedness and may confirm the continued existence of Liens in
the assets which it acquires from the Pooling Partner securing such
Indebtedness, provided that such Loan Party shall have been inactive prior to
such Permitted Acquisition so that its assets shall consist solely of the
assets which it has acquired pursuant to such Permitted Acquisition, (2) if the
Permitted Acquisition is a stock acquisition which is accounted for under GAAP
as a "pooling of interests", the Pooling Partner may remain liable on such
Indebtedness and may confirm its prior grant of Liens in its assets securing
such Indebtedness, and (3) NovaCare may execute a Guaranty guaranteeing such
Indebtedness provided that such Guaranty shall be subordinated in accordance
with the provisions of Exhibit 1.01(P)(3) (a "Permitted NovaCare Guaranty");
(E) the amount of such Indebtedness (or committed amount if the Indebtedness is
a revolving credit facility) shall not be increased after such Permitted
Acquisition; and (F) the agreements governing such Indebtedness may not be
amended or modified in any material respect, extended, renewed or replaced
after such Permitted Acquisition;

(vii) Permitted Intercompany
Indebtedness;

(viii) Permitted Additional
Institutional Indebtedness; and

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(ix) Permitted Additional Subordinated
Indebtedness.

(b) Liens. Each Loan Party shall not at any
time create, incur, assume or suffer to exist any Lien on any of its property
or assets, tangible or intangible, now owned or hereafter acquired, or agree or
become liable to do so, except Permitted Liens. None of the Loan Parties shall
enter into any agreement or covenant with any person other than the Agent or
the Banks which in any manner limits the right of any of the Loan Parties to
incur any Lien on any of their assets, except that the Loan Parties may enter
into agreements granting Permitted Liens to third parties.

(c) Guaranties. Each Loan Party shall not at
any time, directly or indirectly, become or be liable in respect of any
Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree,
become or remain directly or contingently liable upon or with respect to any
obligation or liability of any other person which obligation or liability would
be required to be reported or noted in the financial statements of such Loan
Party in accordance with GAAP, except pursuant to (u) Guaranties of contractual
obligations of the Loan Parties not constituting Indebtedness; (v) Permitted
NovaCare Guaranties; (w) Guaranties listed on Schedule 8.02(a)(ii); (x) the
Guaranty Agreements; (y) guaranties subordinated in accordance with the
provisions of Exhibit 1.01(P)(3) guaranteeing Permitted Additional Subordinated
Indebtedness or (z) guaranties of the obligations described in Sections
8.02(a)(iii), (v) and (viii).

(d) Liquidations, Mergers, Consolidations,
Acquisitions. Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a
party to any merger or consolidation, or acquire by purchase, lease or
otherwise all or substantially all of the assets or capital stock or other
ownership interests of any other person, provided that

(i) any wholly-owned Subsidiary of
NovaCare may consolidate or merge into another Loan Party which is wholly-owned
by one or more of the other Loan Parties, and

(ii) any Loan Party may acquire, whether
by purchase or by merger, (A) all of the ownership interests of another Person
or (B) substantially all of the assets of another Person or of a business or
division of another Person (each a "Permitted Acquisition"), provided that each
of the following requirements is met:

(a) such Person shall be a
corporation, limited liability company or other entity with respect to
applicable state law provided that the owners of all stock or other ownership
interests in such entity shall not be liable for any obligations of such entity
or for the claims of any creditors thereof,

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(b) if the Loan Parties are
acquiring the ownership interests in such Person, such Person shall join this
Agreement as a Borrower or a Guarantor pursuant to Section 11.18 hereof and the
owners of such acquired Person shall grant Liens in the stock or other
ownership interests in such Person and otherwise comply with Section 11.18 on
or before the date of such Permitted Acquisition,

(c) the board of directors or
other equivalent governing body of such Person shall have approved such
Permitted Acquisition,

(d) the business acquired, or the
business conducted by the Person whose ownership interests are being acquired,
as applicable, shall be a Permitted Line of Business,

(e) no Potential Default or Event
of Default shall exist immediately prior to and after giving effect to such
Permitted Acquisition,

(f) after giving effect to such
Permitted Acquisition there shall be Available Revolving Credit Commitments of
at least Five Million Dollars ($5,000,000), and

(g) the Consideration paid by the
Loan Parties for each Permitted Acquisition shall not exceed Thirty Million
Dollars ($30,000,000), and after giving effect to such Permitted Acquisition,
the Consideration paid by the Loan Parties for all Permitted Acquisitions made
during the current fiscal year of the Loan Parties shall not exceed One Hundred
Fifty Million Dollars ($150,000,000) (the "Annual Permitted Acquisition
Amount") provided that in no event shall the portion of the Annual Permitted
Acquisition Amount utilized to make Permitted Acquisitions of physician
practices in the specialty of occupational medicine exceed Forty Million
Dollars ($40,000,000) in any fiscal year and in no event shall the portion of
the Annual Permitted Acquisition Amount utilized to make Permitted Acquisitions
of Professional Employment Organizations exceed Forty Million Dollars
($40,000,000) in any fiscal year.

(e) Dispositions of Assets or Subsidiaries.
Each Loan Party shall not sell, convey, assign, lease, abandon or otherwise
transfer or dispose of, voluntarily or involuntarily, any of its properties or
assets, tangible or intangible (including but not limited to sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
equipment or general intangibles with or without recourse or of capital stock,
shares of beneficial interest or partnership interests of a Subsidiary), except
transactions involving (i) any sale, abandonment, transfer or lease of assets
in the ordinary course of business which are no longer necessary or required in
the conduct of such Loan Party's business; (ii) any sale, transfer, abandonment
or lease of assets by any Loan Party which is a wholly owned Subsidiary of
NovaCare to NovaCare or any other Loan Party which is a wholly owned Subsidiary
of NovaCare; (iii) any sale, abandonment, transfer or lease of assets in the
ordinary course of business which are replaced by substitute assets; or (iv) a
sale of assets provided that the sum of

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the Sale Price received from such sale and from all prior sales permitted under
this clause (iv) does not exceed 5% of Consolidated Net Worth as of the end of
the fiscal quarter of NovaCare preceding the date of such sale and provided
that the Loan Parties deliver to the Banks evidence of compliance with this
clause (iv) before making such sale.

(f) Joinder of Qualifying Subsidiaries;
Excluded Entities. NovaCare shall not and shall not permit any other Loan
Party to own, create or acquire any Qualifying Subsidiary except for the
Excluded Qualifying Subsidiaries unless such Qualifying Subsidiary joins this
Agreement as either a Borrower or Guarantor pursuant to Section 11.18 hereof.
The Loan Parties shall not permit their Restricted Investments in Excluded
Entities to exceed the Permitted Investment in Excluded Entities.

(g) Continuation of or Change in Business.
Each Loan Party shall not engage in any business other than a Permitted Line of
Business. NovaCare shall not change its business materially after the Closing
Date.

(h) Plans and Benefit Arrangements. Each Loan
Party shall not:

(i) fail to satisfy the minimum
funding requirements of ERISA and the Internal Revenue Code with respect to any
Plan;

(ii) request a minimum funding waiver
from the Internal Revenue Service with respect to any Plan;

(iii) engage in a Prohibited
Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which,
alone or in conjunction with any other circumstances or set of circumstances
resulting in liability under ERISA, would constitute a Material Adverse Change;

(iv) permit the aggregate actuarial
present value of all benefit liabilities (whether or not vested) under each
Plan, determined on a plan termination basis, as disclosed in the most recent
actuarial report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such Plan;

(v) fail to make when due any
contribution to any Multiemployer Plan that NovaCare or any member of the ERISA
Group may be required to make under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto;

(vi) withdraw (completely or
partially) from any Multiemployer Plan or withdraw (or be deemed under Section
4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such
withdrawal is likely to result in a material liability of NovaCare or any
member of the ERISA Group;

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(vii) terminate, or institute
proceedings to terminate, any Plan, where such termination is likely to result
in a material liability to NovaCare or any member of the ERISA Group;

(viii) make any amendment to any Plan
with respect to which security is required under Section 307 of ERISA; or

(ix) fail to give any and all notices
and make all disclosures and governmental filings required under ERISA or the
Internal Revenue Code, where such failure is likely to result in a Material
Adverse Change.

(i) Loans and Investments. The Loan Parties
shall not, and shall not permit any of their Subsidiaries to, at any time make
or suffer to remain outstanding any loan or advance to, or purchase, acquire or
own any stock, bonds, notes or securities of, or any partnership interest
(whether general or limited) in or any other investment or interest in, or make
any capital contribution to, any other person, or agree, become or remain
liable to do any of the foregoing, except:

(i) trade credit extended on usual
and customary terms in the ordinary course of business including any such
credit which may be evidenced from time to time by promissory notes;

(ii) advances to employees to meet
expenses incurred by such employees in the ordinary course of their employment
and short-term or relocation loans to new executives to induce them to enter
into the employ of NovaCare or any of its Subsidiaries, consistent with past
practices;

(iii) Permitted Investments;

(iv) Permitted Intercompany
Indebtedness, and Investments by the Loan Parties in other Loan Parties; and

(v) the Permitted Investment in
Excluded Entities so long as: (a) the Excluded Entity in which the Restricted
Investment is made is engaged in either a Permitted Line of Business, the
ownership of real property, or operation of a physician practice group; (b) if
a Loan Party is a general partner of an Excluded Entity in which a Restricted
Investment is made, the Restricted Investment in such general partner shall not
exceed the amount of the Permitted Investment in Excluded Entity for such
Excluded Entity; (c) the Loan Party making a Restricted Investment in an
Excluded Entity gives notice to the Agent, including a brief description of the
nature, type and amount of the Restricted Investment, description of the
Excluded Entity, and if the nature of a Restricted Investment is tangible
property then the fair value of such tangible property (including a detailed
calculation and summary of the method of such valuation) together with such
other information regarding the Restricted Investment as the

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Agent or any Bank may reasonably request, such notice to be delivered to the
Agent no later than ten (10) Business Days prior to the making of such
Restricted Investment, (d) the Loan Party making the Permitted Investment in
Excluded Entities is a Loan Party other than NovaCare, and (e) a Prior Security
Interest in the stock, partnership interests or other equity interests of the
Excluded Entity owned by any Loan Party are pledged to the Agent, for the
benefit of the Banks, pursuant to a Pledge Agreement in form and substance
satisfactory to the Agent.

(j) Dividends and Related Distributions. The
Loan Parties shall not make or pay, or agree to become or remain liable to make
or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock or on account of the purchase, redemption, retirement or
acquisition of its shares of capital stock (or warrants, options or rights
therefor), except (i) dividends payable by any Subsidiary of NovaCare to
NovaCare or to any other Loan Party, or (ii) dividends paid by NovaCare or
payments by NovaCare for stock repurchases or redemptions not exceeding
twenty-five percent (25%) of consolidated net income earned in respect of any
fiscal year provided that such dividends (A) may not be made until at least
four (4) Business Days have elapsed following the delivery by NovaCare of its
financial statements to the Banks pursuant to Section 8.01(m)(ii) hereof for
such fiscal year, and (B) may be made in subsequent fiscal years if they are
not made during the fiscal year in which such financial statements are
delivered.

(k) Minimum Current Ratio. The Loan Parties
shall not permit the ratio of consolidated current assets of NovaCare and its
Subsidiaries to consolidated current liabilities of NovaCare and its
Subsidiaries, calculated as of the end of each fiscal quarter, to be less than
the ratio set forth below for the period specified below:

Ratio of Consolidated
Current Assets to
Consolidated Current
Period Liabilities
------ ---------------------------

Closing Date through 6/30/1997 2.0 to 1.0
7/1/1997 and thereafter 1.75 to 1.0

(l) Minimum Net Worth. The Loan Parties shall
not permit Consolidated Net Worth, calculated as of the end of each fiscal
quarter, to be less than the Minimum Net Worth Requirement.

(m) Funded Debt to Capitalization. The Loan
Parties shall not permit the ratio of Consolidated Funded Debt to
Capitalization, calculated as of the end of each fiscal quarter, to exceed the
ratio set forth below during the period specified below:

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Ratio of Consolidated
Funded Debt to
Period Capitalization
------ ------------------

Closing Date through 6/30/1996 .50 to 1.0
7/1/1996 and thereafter .45 to 1.0

(n) Funded Debt to Cash Flow From Operations.
The Loan Parties shall not permit the ratio of Consolidated Funded Debt to
Consolidated Cash Flow from Operations, calculated as of the end of each fiscal
quarter for the four fiscal quarters then ended, to exceed the ratio set forth
below during the period specified below:

Ratio of Consolidated
Funded Debt to Consolidated
Period Cash Flow from Operations
------ -------------------------

Closing Date through 6/30/1995 3.00 to 1.00
7/1/1995 through 12/31/1995 2.75 to 1.00
1/1/1996 through 6/30/1996 2.50 to 1.00
7/1/1996 through 12/31/1996 3.00 to 1.00
1/1/1997 and thereafter 2.50 to 1.00

(o) Minimum Fixed Charge Coverage Ratio. The Loan
Parties shall not permit the ratio of Consolidated Earnings Available for Fixed
Charges to Consolidated Fixed Charges, calculated as of the end of each fiscal
quarter for the four fiscal quarters then ended, to be less than the ratio set
forth below during the period specified below:

Ratio of Consolidated
Earnings Available for
Fixed Charges to
Period Consolidated Fixed Charges
------ --------------------------

Closing Date through 3/31/1997 1.5 to 1.0

4/1/1997 and thereafter 1.40 to 1.0

(p) Changes in Subordinated Indebtedness
Documents. NovaCare shall not, and shall not permit any Subsidiary to, amend
or modify any provisions of the Subordinated Indebtedness Documents without
providing at least five (5) Business Days' prior written notice to the Agent
and the Banks, and obtaining the prior written consent of the Required Banks.
The Loan Parties shall not directly or indirectly make any payment or other
distribution directly or indirectly to the obligees under the Subordinated
Indebtedness, except for (i) regularly

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scheduled mandatory payments under the Subordinated Indebtedness Documents
excluding any mandatory payments required by reason of acceleration, or (ii)
prepayments of Indebtedness described in Section 8.02(a)(v)(A)(2); provided,
that, no portion of the Revolving Credit Loans shall be used directly or
indirectly for the purpose of repaying or redeeming the Subordinated
Indebtedness.

(q) Affiliate Transactions. NovaCare shall
not, and shall not permit any of its Subsidiaries to, enter into or carry out
any transaction (including, without limitation, purchasing property or services
or selling property or services) with any Affiliate (other than the Loan
Parties) unless such transaction is not otherwise prohibited by this Agreement,
is entered into in the ordinary course of business upon fair and reasonable
arm's-length terms and conditions which are fully disclosed to the Agent and is
in accordance with all applicable Law.

8.03 Reporting Requirements. The Borrowers jointly and
severally covenant and agree that until payment in full of the Revolving Credit
Loans and interest thereon, and termination of the Revolving Credit Commitment
and satisfaction of all of the Borrowers' other obligations hereunder, the
Borrowers shall furnish or cause to be furnished to the Agent and each of the
Banks:

(a) Notice of Default. Promptly after any
officer of any Loan Party has learned of the occurrence of an Event of Default
or Potential Default, a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer of NovaCare setting forth the details of
such Event of Default or Potential Default and the action which such Loan Party
proposes to take with respect thereto.

(b) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, proceedings or
investigations before or by any Official Body or any other person against any
Loan Party involving a claim or series of claims in excess of $2,500,000 or
which if adversely determined would constitute a Material Adverse Change.

ARTICLE IX
DEFAULT

9.01 Events of Default. An Event of Default shall mean
the occurrence or existence of any one or more of the following events or
conditions (whatever the reason therefor and whether voluntary, involuntary or
effected by operation of Law):

(a) Any Loan Party shall fail to pay any
principal of any Revolving Credit Loan (including scheduled installments,
mandatory prepayments or the payment due at maturity), fees or any other amount
owing hereunder or under the other Loan Documents after such principal, fees or
other amount becomes due in accordance with the terms hereof or thereof

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92

or shall fail to pay any interest on any Revolving Credit Loan within five (5)
days of the due date for payment of interest;

(b) Any representation or warranty made at any
time by any Loan Party herein or in any other Loan Document, or in any
certificate, other instrument or statement furnished pursuant to the provisions
hereof or thereof, shall prove to have been false or misleading in any material
respect as of the time it was made or furnished;

(c) Any Loan Party shall breach or default in
the observance or performance of any covenant contained in (i) Section 8.01(f),
(ii) Section 8.02 (except for breaches of covenants contained in Sections
8.02(b), (h) and (i); such breaches are addressed in clause (iii) below), or
(iii) Section 8.02(b), (h) or (i) when the performance or observance of such
covenant is within the control of such Loan Party;

(d) Any Loan Party shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of twenty (20) Business Days after any officer of such Loan Party
becomes aware of the occurrence thereof (such grace period to be applicable
only in the event such default can be remedied by corrective action of NovaCare
or such Loan Party as determined by the Agent in its sole discretion);

(e) A default or event of default shall occur
at any time under the terms of (i) Subordinated Indebtedness Documents
evidencing Subordinated Indebtedness in excess of $1,000,000 (or any agreement
to subordinate the right of payment in respect of Subordinated Indebtedness in
excess of $1,000,000 to the Indebtedness arising out of or under the Loan
Documents, at any time and for any reason, ceases to be in full force and
effect or is declared to be null and void or unenforceable in part); (ii) any
lease by a Loan Party under which such Loan Party may be obligated as lessee or
sublessee in excess of $1,000,000 in the aggregate over the lease term and such
Loan Party fails to make a payment thereunder when due or a default thereunder
shall occur which permits the lessor or sublessor to terminate the lease,
retake possession of the leased property or assert a claim for damages; or
(iii) any other agreement involving borrowed money or the extension of credit
or any other Indebtedness under which any Loan Party may be obligated as
borrower or guarantor in excess of $1,000,000 in the aggregate, and with
respect to such other agreement described in this clause (iii) either (A) such
breach, default or event of default consists of the failure to pay (beyond any
period of grace permitted with respect thereto, whether waived or not) any
indebtedness when due (whether at stated maturity, by acceleration or
otherwise) or (B) such breach or default permits or causes the acceleration of
any indebtedness (whether or not such right shall have been waived) or the
termination of any commitment to lend;

(f) Any final judgments or orders for the
payment of money in excess of $2,500,000 in the aggregate shall be entered
against any Loan Party by a court having

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93

jurisdiction in the premises which judgment is not discharged, vacated, bonded
or stayed pending appeal within a period of thirty (30) days from the date of
entry;

(g) Any of the Loan Documents shall cease to be
legal, valid and binding agreements enforceable against the Loan Party
executing the same or such party's successors and assigns (as permitted under
the Loan Documents) in accordance with the respective terms thereof or shall in
any way be terminated (except in accordance with its terms) or become or be
declared ineffective or inoperative or shall cease to give or provide the
respective Liens, security interests, rights, titles, interests, remedies,
powers or privileges intended to be created thereby;

(h) There shall occur any material uninsured
(except to the extent of self-insurance for which adequate reserves have been
made) damage to or loss, theft or destruction of any of the Property in excess
of $2,500,000 or any other of any Loan Party's assets are attached, seized,
levied upon or subjected to a writ or distress warrant; or such come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors and the same is not cured within thirty (30) days thereafter;

(i) A notice of lien or assessment in excess of
$2,500,000 is filed of record with respect to all or any part of any Loan
Party's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the PBGC, or if any taxes
or debts owing at any time or times hereafter to any one of these become
payable and the same are not paid within thirty (30) days after the same become
payable unless the same are being contested in good faith and either a stay of
execution is in effect or the Banks are provided with adequate security
satisfactory to the Banks in their sole discretion;

(j) Any Loan Party is enjoined, restrained or
in any way prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventive order is not
dismissed within thirty (30) days after the entry thereof;

(k) A Change in Ownership occurs;

(l) A proceeding shall have been instituted in
a court having jurisdiction in the premises seeking a decree or order for
relief in respect of any Loan Party in an involuntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, or for the appointment or the taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar
official) of any Loan Party or for any substantial part of any Loan Party's
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
thirty (30) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding;

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(m) Any Loan Party shall commence a voluntary
case under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or other similar official) of
itself or for any substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action in furtherance of any of the
foregoing; or

(n) Any event, condition, violation, failure or
circumstance shall occur or exist of which the Loan Parties are not aware but
which would constitute a breach of Section 6.01(x) if one or more of the Loan
Parties were aware of such event, condition, violation, failure or
circumstance.

9.02 Consequences of Event of Default.

(a) If an Event of Default specified under
subsections (a) through (k) or (n) of Section 9.01 hereof shall occur and be
continuing, the Banks shall be under no further obligation to make Revolving
Credit Loans or issue any Letters of Credit hereunder and the Agent may, and
upon written request of the Required Banks shall, (i) by written notice to the
Loan Parties, declare the unpaid principal amount of the Revolving Credit Notes
then outstanding and all interest accrued thereon, any unpaid fees and all
other Indebtedness of the Loan Parties to the Banks hereunder and thereunder to
be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived; and (ii) require each Borrower to, and each Borrower
shall thereupon, deposit in a non- interest bearing account with the Agent, as
cash collateral for its obligations under the Loan Documents, an amount equal
to the maximum amount currently or at any time thereafter available to be drawn
on all outstanding Letters of Credit issued on its account, and each Borrower
hereby pledges to the Agent and the Banks, and grants to the Agent and the
Banks a security interest in, all such cash as security for such obligations.
Upon the curing of all existing Events of Default to the satisfaction of the
Required Banks, the Agent shall return such cash collateral to the applicable
Borrower. It is acknowledged that the authority given to the Agent to take the
actions set forth in clauses (i) and (ii) above without first obtaining the
written request of the Required Banks is intended primarily to enable the Agent
to act on behalf of the Banks when obtaining such written request is not
feasible or practical or would result in unacceptable delays as determined by
the Agent in its sole discretion; and

(b) If an Event of Default specified under
subsections (l) or (m) of Section 9.01 hereof shall occur, the Banks shall be
under no further obligations to make Revolving Credit Loans or issue any
Letters of Credit hereunder and the unpaid principal amount of the Revolving
Credit Notes then outstanding and all interest accrued thereon, any unpaid fees
and all other Indebtedness of the Loan Parties to the Banks hereunder and
thereunder shall be

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95

immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and

(c) If an Event of Default shall occur and be
continuing, any Bank to whom any obligation is owed by any Loan Party hereunder
or under any other Loan Document or any participant of such Bank which has
agreed in writing to be bound by the provisions of Section 10.13 hereof and any
branch, subsidiary or affiliate of such Bank or participant anywhere in the
world shall have the right, in addition to all other rights and remedies
available to it, without notice to the Loan Parties, to set-off against and
apply to the then unpaid balance of all the Revolving Credit Loans and all
other obligations of such Loan Party hereunder or under any other Loan Document
any debt owing to, and any other funds held in any manner for the account of,
such Loan Party by such Bank or participant or by such branch, subsidiary or
affiliate, including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by such Loan Party for its
own account (but not including funds held in custodian or trust accounts) with
such Bank or participant or such branch, subsidiary or affiliate. Such Bank
agrees promptly to notify NovaCare on behalf of the Loan Parties after any such
set-off and application made by such Bank; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. Such right shall exist whether or not any Bank or the Agent shall
have made any demand under this Agreement or any other Loan Document, whether
or not such debt owing to or funds held for the account of such Loan Party is
or are matured or unmatured and regardless of the existence or adequacy of any
collateral, Guaranty or any other security, right or remedy available to any
Bank or the Agent; and

(d) If an Event of Default shall occur and be
continuing, and provided that the Agent shall have accelerated the maturity of
Revolving Credit Loans of the Borrowers or such Loans otherwise shall have been
accelerated or come due pursuant to any of the foregoing provisions of this
Section 9.02, the Agent or any Bank, if owed any amount with respect to the
Revolving Credit Notes, may proceed to protect and enforce its rights by suit
in equity, action at law and/or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement
or the Revolving Credit Notes, including as permitted by applicable Law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right of the Agent or such Bank; and

(e) Following the occurrence and during the
continuance of an Event of Default, each Loan Party, at the cost and expense of
the Loan Parties (including the cost and expense of obtaining any of the
following referenced consents, approvals, etc.) will promptly execute and
deliver or cause the execution and delivery of all applications, certificates,
instruments, registration statements, and all other documents and papers the
Agent or any Bank may request in connection with the obtaining of any consent,
approval, registration, qualification, permit, license, accreditation, or
authorization of any Official Body or other person necessary or appropriate for
the effective exercise of any rights hereunder or under the other Loan
Documents.

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96

Without limiting the generality of the foregoing, each Loan Party agrees that
in the event the Agent or any Bank shall exercise its rights, hereunder or
pursuant to the other Loan Documents, to sell, transfer, or otherwise dispose
of, or vote, consent, operate, or take any other action in connection with any
of the Pledged Collateral, each Loan Party shall execute and deliver (or cause
to be executed and delivered) all applications, certificates, assignments, and
other documents that the Agent or any Bank requests to facilitate such actions
and shall otherwise promptly, fully, and diligently cooperate with the Agent or
any Bank and any other necessary persons in making any application for the
prior consent or approval of any Official Body or any other person to the
exercise by the Agent or any Bank of any of such rights relating to all or any
of the Pledged Collateral. Furthermore, because the Loan Parties agree that
the remedies of the Agent and the Banks at law for failure of the Loan Parties
to comply with the provisions of this Section 9.02(e) would be inadequate and
that any such failure would not be adequately compensable in damages, the Loan
Parties agree that the covenants of this Section 9.02(e) may be specifically
enforced; and

(f) [RESERVED]

(g) From and after the date on which the Agent
has taken any action pursuant to this Section 9.02 and until all obligations of
the Loan Parties have been paid in full, any and all proceeds received by the
Agent from any sale or other disposition of the Pledged Collateral, or any part
thereof, or the exercise of any other remedy by the Agent, shall be applied as
follows:

(i) first, to reimburse the Agent and
the Banks for out-of-pocket costs, expenses and disbursements, including
without limitation reasonable attorneys' fees and legal expenses, incurred by
the Agent or the Banks in connection with realizing on the Pledged Collateral
or collection of any obligations of the Loan Parties under any of the Loan
Documents, including advances made by the Banks or any one of them or the Agent
for the reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Pledged Collateral, including without limitation,
advances for taxes, insurance, repairs and the like and reasonable expenses
incurred to sell or otherwise realize on, or prepare for sale or other
realization on, any of the Pledged Collateral;

(ii) second, to the repayment of all
Indebtedness then due and unpaid of the Loan Parties to the Banks incurred
under this Agreement or any of the Loan Documents, provided that such proceeds
shall be applied first to interest, fees, expenses and other Indebtedness other
than principal, in such manner as the Agent may reasonably determine, and then
to principal;

(iii) the balance, if any, as required
by Law; and

(h) In addition to all of the rights and
remedies contained in this Agreement or in any of the other Loan Documents, the
Agent shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code or other applicable Law, all of

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which rights and remedies shall be cumulative and nonexclusive, to the extent
permitted by Law. The Agent may exercise all post-default rights granted to
the Agent and the Banks under the Loan Documents or applicable Law.

9.03 Notice of Sale. Any notice required to be given by
the Agent of a sale, lease, or other disposition of the Pledged Collateral or
any other intended action by the Agent, if given ten (10) days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to the Loan Parties.

ARTICLE X
THE AGENT

10.01 Appointment. Each Bank hereby irrevocably
designates, appoints and authorizes PNC Bank to act as Agent for such Bank
under this Agreement to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Note by the acceptance of a Note shall be deemed irrevocably
to authorize, the Agent to take such action on its behalf under the provisions
of this Agreement and the other Loan Documents and any other instruments and
agreements referred to herein, and to exercise such powers and to perform such
duties hereunder as are specifically delegated to or required of the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto. PNC Bank agrees to act as the Agent on behalf of the Banks to the
extent provided in this Agreement.

10.02 Delegation of Duties. The Agent may perform any of
its duties hereunder by or through agents or employees (provided such
delegation does not constitute a relinquishment of its duties as Agent) and,
subject to Sections 10.05 and 10.06 hereof, shall be entitled to engage and pay
for the advice or services of any attorneys, accountants or other experts
concerning all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.

10.03 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and no implied covenants, functions, responsibilities,
duties, obligations, or liabilities shall be read into this Agreement or
otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement
a fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the
Agent has not made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of the Loan
Parties, shall be deemed to constitute any representation or warranty by the
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Agent, its own independent investigation of the financial
condition and affairs and its own appraisal of the creditworthiness of the Loan
Parties in connection with this

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Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times
thereafter.

10.04 Actions in Discretion of Agent; Instructions from
the Banks. The Agent agrees, upon the written request of the Required Banks,
to take or refrain from taking any action of the type specified as being within
the Agent's rights, powers or discretion herein, provided that the Agent shall
not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or any other Loan Document or
applicable Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks or all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.06 hereof. Subject to the provisions of Section 10.06, no Bank shall have
any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting hereunder in accordance with the instructions
of the Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.

10.05 Reimbursement and Indemnification of Agent by the
Borrowers. The Borrowers, jointly and severally, unconditionally agree to pay
or reimburse the Agent and save the Agent harmless against (a) liability for
the payment of all reasonable out-of-pocket costs, expenses and disbursements,
including but not limited to fees and expenses of counsel, appraisers and
environmental consultants, incurred by the Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other
Loan Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising
under this Agreement or any other Loan Document, whether in bankruptcy or
receivership proceedings or otherwise, and (iv) in any workout, restructuring
or in connection with the protection, preservation, exercise or enforcement of
any of the terms hereof or of any rights hereunder or under any other Loan
Document or in connection with any foreclosure, collection or bankruptcy
proceedings, and (b) all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or omitted by the
Agent hereunder or thereunder, provided that the Borrowers shall not be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements if the same results
from the Agent's gross negligence or willful misconduct, or if NovaCare was not
given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense, or if the same results from a compromise or
settlement agreement entered into

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without the consent of NovaCare. In addition, the Borrowers agree to reimburse
and pay all reasonable out-of-pocket expenses of the Agent's regular employees
and agents engaged periodically to perform audits or inspection of NovaCare and
its Subsidiaries' books, records and business properties.

10.06 Exculpatory Provisions. Neither the Agent nor any
of its directors, officers, employees, agents, attorneys or affiliates shall
(a) be liable to any Bank for any action taken or omitted to be taken by it or
them hereunder, or in connection herewith including without limitation pursuant
to any Loan Document, unless caused by its or their own gross negligence or
willful misconduct, (b) be responsible in any manner to any of the Banks for
the effectiveness, enforceability, genuineness, validity or the due execution
of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or
to inquire as to the performance or observance of any of the terms, covenants
or conditions hereof or thereof on the part of the Loan Parties, or the
financial condition of NovaCare and its Subsidiaries, or the existence or
possible existence of any Event of Default or Potential Default. Neither the
Agent nor any Bank nor any of their respective directors, officers, employees,
agents, attorneys or affiliates shall be liable to the Loan Parties or their
Subsidiaries for consequential damages resulting from any breach of contract,
tort or other wrong in connection with the negotiation, documentation,
administration or collection of the Loans or any of the Loan Documents.

10.07 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrowers and without limiting the obligation of the
Borrowers to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent, in its capacity
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (a) if the same results from the
Agent's gross negligence or willful misconduct, or (b) if such Bank was not
given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense, or (c) if the same results from a compromise
and settlement agreement entered into without the consent of such Bank. In
addition, each Bank agrees promptly upon demand to reimburse the Agent (to the
extent not reimbursed by the Borrowers and without limiting the obligation of
the Borrowers to do so) in proportion to its Ratable Share for all amounts due
and payable by the Borrowers to the Agent in connection with the Agent's
periodic audit of books, records and business properties of NovaCare and its
Subsidiaries.

10.08 Reliance by Agent. The Agent shall be entitled to
rely upon any writing, telegram, telex or teletype message, resolution, notice,
consent, certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be

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genuine and correct and to have been signed, sent or made by the proper person
or persons, and upon the advice and opinions of counsel and other professional
advisers selected by the Agent. The Agent shall be fully justified in failing
or refusing to take any action hereunder unless it shall first be indemnified
to its satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.

10.09 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Potential Default or Event of
Default unless the Agent has received written notice from a Bank or NovaCare
referring to this Agreement, describing such Potential Default or Event of
Default and stating that such notice is a "notice of default."

10.10 Notices. The Agent shall promptly send to each Bank
a copy of all notices received from the Loan Parties pursuant to the provisions
of this Agreement or the other Loan Documents promptly upon receipt thereof.
The Agent shall promptly notify NovaCare and the other Banks of each change in
the Base Rate and the effective date thereof.

10.11 Banks in Their Individual Capacities. With respect
to its Revolving Credit Commitments and the Revolving Credit Loans made by it,
the Agent shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not the Agent, and the term "Banks"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. PNC Bank and its affiliates and each of the Banks and
their respective affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of banking
or trust business with, the Loan Parties and their Subsidiaries, in the case of
the Agent, as though it were not acting as Agent hereunder and in the case of
each Bank, as though such Bank were not a Bank hereunder.

10.12 Holders of Notes. The Agent may deem and treat any
payee of any Note as the owner thereof for all purposes hereof unless and until
written notice of the assignment or transfer thereof shall have been filed with
the Agent. Any request, authority or consent of any person who at the time of
making such request or giving such authority or consent is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.

10.13 Equalization of Banks. The Banks and the holders of
any participations in any Notes agree among themselves that, with respect to
all amounts received by any Bank or any such holder for application on any
obligation hereunder or under any Note or under any such participation, whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any other non-pro
rata source, equitable adjustment will be made in the manner stated in the
following sentence so that, in effect, all such excess amounts will be shared
ratably among the Banks and such holders in proportion to their interests in
payments under the Notes, except as otherwise provided in Sections 4.04(b),
5.04(b) or 5.06(a) hereof. The Banks or any such holder receiving any such
amount shall

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purchase for cash from each of the other Banks a participation in such Bank's
Loans in such amount as shall result in a ratable participation by the Banks
and each such holder in the aggregate unpaid amount under the Notes, provided
that if all or any portion of such excess amount is thereafter recovered from
the Bank or the holder making such purchase, such purchase shall be rescinded
and the purchase price restored to the extent of such recovery, together with
interest or other amounts, if any, required by law (including court order) to
be paid by the Bank or the holder making such purchase.

10.14 Successor Agent. The Agent may resign as Agent upon
not less than thirty (30) days' prior written notice to NovaCare for the
benefit of the Loan Parties and the Banks. If the Agent shall resign under
this Agreement, then either (a) the Required Banks shall appoint from among the
Banks a successor agent for the Banks, or (b) if a successor agent shall not be
so appointed and approved within the thirty (30) day period following the
Agent's notice to the Banks of its resignation, then the Agent shall appoint,
with the consent of NovaCare on behalf of the Loan Parties, such consent not to
be unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Required Banks appoint a successor agent. Upon its appointment
pursuant to either clause (a) or (b) above, such successor agent shall succeed
to the rights, powers and duties of the Agent and the term "Agent" shall mean
such successor agent, effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the resignation of any Agent hereunder, the provisions
of this Article X shall inure to the benefit of such former Agent and such
former Agent shall not by reason of such resignation be deemed to be released
from liability for any actions taken or not taken by it while it was an Agent
under this Agreement.

10.15 Agent's Fee. The Borrowers shall pay the Agent's
Fee to Agent until the Commitments have terminated and the Loans have been paid
in full or until the Agent shall have resigned.

10.16 Availability of Funds. Unless the Agent shall have
been notified by a Bank prior to the date upon which a Loan is to be made that
such Bank does not intend to make available to the Agent such Bank's portion of
such Loan, the Agent may assume that such Bank has made or will make such
proceeds available to the Agent on such date and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to the
applicable Borrowers a corresponding amount. If such corresponding amount is
not in fact made available to the Agent by such Bank, the Agent shall be
entitled to recover such amount on demand from such Bank (or, if such Bank
fails to pay such amount forthwith upon such demand from NovaCare as agent for
such Borrowers) together with interest thereon, in respect of each day during
the period commencing on the date such amount was made available to such
Borrowers and ending on the date the Agent recovers such amount, at a rate per
annum equal to (i) the Federal Funds Effective Rate for the first Business Day
during which such interest shall accrue, and (ii) the applicable interest rate
in respect of the Loan for each day thereafter.

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10.17 Calculations. In the absence of gross negligence or
willful misconduct, the Agent shall not be liable for any error in computing
the amount payable to any Bank whether in respect of the Loans, fees or any
other amounts due to the Banks under this Agreement. In the event an error in
computing any amount payable to any Bank is made, the Agent, the Borrowers and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Federal Funds Effective Rate.

10.18 Beneficiaries. Except as expressly provided herein,
the provisions of this Article X are solely for the benefit of the Agent and
the Banks, and the Loan Parties shall not have any rights to rely on or enforce
any of the provisions hereof. In performing its functions and duties under
this Agreement, the Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Loan Parties.

ARTICLE XI
MISCELLANEOUS

11.01 Modifications, Amendments or Waivers. With the
written consent of the Required Banks, the Agent, acting on behalf of all the
Banks, and the Loan Parties (or NovaCare on behalf of the Loan Parties) may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the obligations of the
Loan Parties hereunder or thereunder. Any such agreement, waiver or consent
made with such written consent shall be effective to bind all the Banks;
provided, that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will do any of the following,
except if this Agreement expressly provides that the consent of a fraction of
the Banks which is less than 100% may bind all of the Banks with respect
thereto:

(a) Reduce the amount of the Commitment Fee,
Letter of Credit Fee or any other fees payable to any Bank hereunder, or amend
Sections 5.02 [Pro Rata Treatment of Banks], 10.06 [Exculpatory Provisions] and
10.13 [Equalization of Banks] hereof;

(b) Increase or reduce the amount of any
Commitment, increase the dollar limitation set forth in Section 2.09(a)(i) or
whether or not any Revolving Credit Loans are outstanding, extend the time for
payment of principal or interest of any Revolving Credit Loan, or reduce the
principal amount of or the rate of interest borne by any Revolving Credit Loan,
or otherwise affect the terms of payment of the principal of or interest of any
Revolving Credit Loan or the obligation in Section 2.09 to reimburse the Agent
pursuant to advances under Letters of Credit;

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(c) Except for sales of assets permitted by
Section 8.02(e), release any collateral or other security, including, without
limitation, the Guaranties, if any, for the Borrowers' obligations hereunder;
or

(d) Amend this Section 11.01, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder.

11.02 No Implied Waivers; Cumulative Remedies; Writing
Required. No course of dealing and no delay or failure of the Agent or any
Bank in exercising any right, power, remedy or privilege under this Agreement
or any other Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof; nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other
right, power, remedy or privilege. The rights and remedies of the Agent and
the Banks under this Agreement and any other Loan Documents are cumulative and
not exclusive of any rights or remedies which they would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of any
Bank of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing.

11.03 Reimbursement and Indemnification of Banks by the
Borrowers; Taxes. The Borrowers jointly and severally agree unconditionally
upon demand to pay or reimburse to each Bank (other than the Agent as to which
the Borrowers' obligations are set forth in Section 10.05) and to save such
Bank harmless against (i) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements (including fees and expenses of
counsel for such Bank), incurred by such Bank (a) in connection with the
administration and interpretation of this Agreement, the other Loan Documents
and other instruments and documents to be delivered hereunder, (b) relating to
any amendments, waivers or consents pursuant to the provisions hereof or
thereof, (c) in connection with the enforcement of this Agreement or any other
Loan Document, or collection of amounts due hereunder or thereunder or the
proof and allowability of any claim arising under this Agreement or any other
Loan Document, whether in bankruptcy or receivership proceedings or otherwise,
and (d) in any workout, restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or
omitted by such Bank hereunder or thereunder, provided that the Borrowers shall
not be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(A) if the same results from such Bank's gross negligence or willful
misconduct, or (B) if the Borrowers were not given notice of the subject claim
and the

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opportunity to participate in the defense thereof, at their expense, or (C) if
the same results from a compromise or settlement agreement entered into without
the consent of the Borrowers. The Borrowers jointly and severally agree
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the Agent or any
Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrowers jointly and severally agree unconditionally to save
the Agent and the Banks harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions.

11.04 Holidays. Whenever any payment or action to be made
or taken hereunder shall be stated to be due on a day which is not a Business
Day, such payment or action shall be made or taken on the next following
Business Day (except as provided in Section 4.02(a)), and such extension of
time shall be included in computing interest or fees, if any, in connection
with such payment or action.

11.05 Funding by Branch, Subsidiary or Affiliate.

(a) Notional Funding. Each Bank shall have the
right from time to time, without notice to the Loan Parties, to deem any
branch, subsidiary or affiliate (which for the purposes of this Section 11.05
shall mean any corporation or association which is directly or indirectly
controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Revolving Credit Loan to which
the Revolving Credit Euro-Rate Option applies at any time, provided that
immediately following (on the assumption that a payment were then due from the
Borrowers to such other office) and as a result of such change the Borrowers
would not be under any greater financial obligation pursuant to Section 5.06
hereof than they would have been in the absence of such change. Notional
funding offices may be selected by each Bank without regard to the Bank's
actual methods of making, maintaining or funding the Loans or any sources of
funding actually used by or available to such Bank.

(b) Actual Funding. Each Bank shall have the
right from time to time to make or maintain any Loan by arranging for a branch,
subsidiary or affiliate of such Bank to make or maintain such Loan subject to
the last sentence of this Section 11.05(b). If any Bank causes a branch,
subsidiary or affiliate to make or maintain any part of the Loans hereunder,
all terms and conditions of this Agreement shall, except where the context
clearly requires otherwise, be applicable to such part of the Revolving Credit
Loans to the same extent as if such Revolving Credit Loans were made or
maintained by such Bank but in no event shall any Bank's use of such a branch,
subsidiary or affiliate to make or maintain any part of the Revolving Credit
Loans hereunder cause such Bank or such branch, subsidiary or affiliate to
incur any cost or expenses payable by any Borrower hereunder or require any
Borrower to pay any other compensation to any Bank (including, without
limitation, any expenses incurred or payable pursuant to Section 5.06 hereof)
which would otherwise not be incurred.

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11.06 Notices. All notices, requests, demands, directions
and other communications (collectively "notices") given to or made upon any
party hereto under the provisions of this Agreement shall be by telephone, in
person or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages hereof, provided, that, all
notices to the Loan Parties shall be sent in care of NovaCare, unless written
direction is given by a Borrower to the Banks to send notices to a different
party and address. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received,
(b) in the case of hand-delivered notice, when hand delivered, (c) in the case
of telephone, when telephoned, provided, however, that in order to be
effective, telephonic notices must be confirmed in writing no later than the
next day by letter, facsimile or telex, and (d) if given by any other means
(including by air courier), when delivered; provided, that notices to the Agent
shall not be effective until received. Any Bank giving any notice to the Loan
Parties (or to NovaCare on their behalf) shall simultaneously send a copy
thereof to the Agent, and the Agent shall promptly notify the other Banks of
the receipt by it of any such notice.

11.07 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.

11.08 Governing Law. This Agreement shall be deemed to be
a contract under the laws of the Commonwealth of Pennsylvania and for all
purposes shall be governed by and construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.

11.09 Prior Understanding. This Agreement supersedes all
prior understandings and agreements, whether written or oral, between the
parties hereto relating to the transactions provided for herein, including any
prior confidentiality agreements and commitments.

11.10 Duration; Survival. All representations and
warranties of the Borrowers contained herein or made in connection herewith
shall survive the making of Revolving Credit Loans and shall not be waived by
the execution and delivery of this Agreement, any investigation by the Agent or
the Banks, the making of Revolving Credit Loans, or payment in full of the
Revolving Credit Loans. All covenants and agreements of the Borrowers
contained in Sections 8.01, 8.02 and 8.03 herein shall continue in full force
and effect from and after the date hereof so long as the Borrowers may borrow
hereunder and until termination of the Revolving Credit Commitment. All
covenants and agreements of the Borrowers contained herein relating to the
payment of principal, interest, premiums, additional compensation or expenses
and indemnification, including those set forth in the Revolving Credit Notes,
Article V and Sections 10.05, 10.07 and 11.03 hereof, and relating to
confidentiality shall survive payment in full of the

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Revolving Credit Loans, termination or expiration of all Letters of Credit and
termination of the Revolving Credit Commitment.

11.11 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the Banks, the Agent, the Loan
Parties and their respective successors and assigns, except that the Loan
Parties may not assign or transfer any of their rights and obligations
hereunder or any interest herein. Each Bank may, at its own cost, make
assignments of or sell participations in all or any part of its Revolving
Credit Commitment and the Loans made by it to one or more banks or other
entities, subject to the consent of NovaCare on behalf of the Loan Parties and
the Agent with respect to any assignee (but not with respect to a participant),
such consent not to be unreasonably withheld; provided that assignments may not
be made in amounts less than $5,000,000 and provided that participations may be
sold only to banks or other financial institutions. In the case of an
assignment, upon receipt by the Agent of the Assignment and Assumption
Agreement, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it had been a signatory Bank hereunder, the Revolving Credit
Commitments in Section 2.01 shall be adjusted accordingly, and upon surrender
of any Revolving Credit Note subject to such assignment, the Borrowers shall
execute and deliver new Notes to the assignee in an amount equal to the amount
of the Revolving Credit Commitment assumed by it and a new Revolving Credit
Note to the assigning Bank in an amount equal to the Revolving Credit
Commitment retained by it hereunder. The assigning Bank shall pay to Agent a
service fee of $2,000. In the case of a participation, the participant shall
only have the rights specified in Section 9.02(c) (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto
and not to include any voting rights except with respect to changes of the type
referenced in clauses (a), (b), or (c) under Section 11.01 hereof), all of such
Bank's obligations under this Agreement or any other Loan Document shall remain
unchanged and all amounts payable by the Borrowers hereunder or thereunder
shall be determined as if such Bank had not sold such participation. Each Bank
may furnish any publicly available information concerning the Borrowers and any
other information concerning the Borrowers in the possession of such Bank from
time to time to assignees and participants (including prospective assignees or
participants) provided such assignees and participants agree to be bound by the
provisions of Section 11.12 hereof.

11.12 Confidentiality. The Agent and the Banks each agree
to keep confidential all information obtained from the Borrowers which is
nonpublic and confidential or proprietary in nature (including any information
the Borrowers specifically designate as confidential), except as provided
below, and to use such information only in connection with its capacity under
this Agreement and for the purposes contemplated hereby. The Agent and the
Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement, subject to agreement of such persons to maintain the confidentiality
thereof, (ii) to assignees and participants as contemplated by Section 11.11
(subject to the agreement of such persons to maintain the confidentiality
thereof), (iii) to the extent

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requested by any bank regulatory authority or, with notice to the Borrowers, as
otherwise required by applicable Law or by any subpoena or similar legal
process, or in connection with any investigation or proceeding arising out of
the transactions contemplated by this Agreement, (iv) if it becomes publicly
available other than as a result of a breach of this Agreement or becomes
available from a source not subject to confidentiality restrictions, or (v) if
NovaCare shall have consented to such disclosure.

11.13 Counterparts. This Agreement may be executed by
different parties hereto on any number of separate counterparts, each of which,
when so executed and delivered, shall be an original, and all such counterparts
shall together constitute one and the same instrument.

11.14 Agent's or Bank's Consent. Whenever the Agent's or
any Bank's consent is required to be obtained under this Agreement or any of
the other Loan Documents as a condition to any action, inaction, condition or
event, the Agent and each Bank shall be authorized to give or withhold such
consent in its sole and absolute discretion (unless otherwise specifically
provided herein) and to condition its consent upon the giving of additional
collateral, the payment of money or any other matter.

11.15 Exceptions. The representations, warranties and
covenants contained herein shall be independent of each other and no exception
to any representation, warranty or covenant shall be deemed to be an exception
to any other representation, warranty or covenant contained herein unless
expressly provided, nor shall any such exceptions be deemed to permit any
action or omission that would be in contravention of applicable Law.

11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. EACH
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE
COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE UNITED STATES
DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH BORROWER AT
THE ADDRESSES PROVIDED FOR IN SECTION 11.06 HEREOF AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH BORROWER WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH BORROWER AND THE BANKS HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE PLEDGED COLLATERAL TO
THE FULL EXTENT PERMITTED BY LAW.

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11.17 Tax Withholding Clause. At least five (5) Business
Days prior to the first date on which interest or fees are payable hereunder
for the account of any Bank, each Bank that is not incorporated under the laws
of the United States of America or a state thereof agrees that it will deliver
to the Borrowers and to the Agent two (2) duly completed copies of (i) Internal
Revenue Service Form W-9, 4224 or 1001, or other applicable form prescribed by
the Internal Revenue Service, certifying in either case that such Bank is
entitled to receive payments under this Agreement and the other Loan Documents
without deduction or withholding of any United States federal income taxes, or
is subject to such tax at a reduced rate under an applicable tax treaty, or
(ii) Form W-8 or other applicable form or a certificate of such Bank indicating
that no such exemption or reduced rate is allowable with respect to such
payments. Each Bank which so delivers a Form W-8, W-9, 4224 or 1001 further
undertakes to deliver to the Borrowers and to the Agent two (2) additional
copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the
Borrowers or the Agent, either certifying that such Bank is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes or is subject to such tax
at a reduced rate under an applicable tax treaty or stating that no such
exemption or reduced rate is allowable. The Agent shall be entitled to
withhold United States federal income taxes at the full withholding rate unless
a Bank establishes an exemption or that it is subject to a reduced rate as
established pursuant to the above provisions.

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11.18 Joinder of Loan Parties.

(i) All Subsidiaries (other than those which
are Excluded Qualifying Subsidiaries) of NovaCare acquired or created on or
after the Closing Date shall join this Agreement as a Guarantor or a Borrower
(a "Joining Subsidiary") on the date of their acquisition or creation by
completing all of the following by such date: (1) executing and delivering to
the Agent (A) in the case of a Joining Subsidiary which becomes a Borrower, a
Revolving Credit Note in the form of Exhibit 1.01(R) payable to each Bank, (B)
a joinder to this Agreement in form satisfactory to the Agent, (C) a Guaranty
Agreement in the form of Exhibit 1.01(G)(1), in the case of a Joining
Subsidiary which becomes a Borrower and Exhibit 1.01(G)(2), in the case of a
Joining Subsidiary which becomes a Guarantor, and (D) if it owns stock or other
ownership interests in any Subsidiary, a Pledge Agreement in the form of
Exhibit 1.01(P)(4), 1.01(P)(5) or 1.01(P)(6) or other appropriate form
acceptable to the Agent if such Subsidiary is not a partnership or corporation,
as applicable, and delivering, as applicable, the original certificates
evidencing such stock or other ownership interest if it is certificated with
appropriate stock powers or other assignments signed in blank and UCC-1
financing statements necessary to perfect the security interests of the Agent
for the benefit of the Banks therein; (2) delivering to the Agent an opinion of
counsel reasonably satisfactory to the Agent regarding such Joining Subsidiary
and such joinder; and (3) delivering to the Agent certified copies of its
organizational documents and other documents as requested by the Agent. The
Loan Party which owns the stock or other ownership interest of the Joining
Subsidiary shall execute and deliver to the Agent for the benefit of the Banks
a Pledge Agreement in the form of Exhibit 1.01(P)(4), 1.01(P)(5) or 1.01(P)(6)
or other appropriate form acceptable to the Agent if such Subsidiary is not a
partnership or corporation, as applicable, and the original certificates
evidencing such stock or other ownership interest if it is certificated with
appropriate stock powers or other assignments signed in blank and UCC-1
financing statements necessary to perfect the security interests of the Agent
for the benefit of the Banks therein.

(ii) The Agent shall acknowledge any joinders
delivered pursuant to this Section 11.18 and provide copies thereof to the
Banks and the Loan Parties. All joinders by a new Loan Party shall be
effective and binding upon all Banks and each of the other Loan Parties without
any requirement that the Banks or such other Loan Parties execute such joinder.

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[Signature Page 1 of 6 to Credit Agreement]

IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.

BORROWERS AND GUARANTORS:

ATTEST: NOVACARE, INC., a Delaware corporation, and
each of the other BORROWERS listed on
Schedule 6.01(c) and each of the GUARANTORS
listed on Schedule 6.01(c), other than
those listed below

By: By:
------------------------------ ----------------------------------------
[Name],
------------------------------------
[Seal] the [Title] of each
-------------------------
Borrower and Guarantor listed on Schedule
6.01(c), other than those listed below,
which is a corporation and of each general
partner of each Borrower and Guarantor
which is a partnership

ATTEST: NACC, INC., a Delaware Corporation

By: By:
------------------------------ ----------------------------------------
[Name],
------------------------------------
[Seal] the [Title] of NACC,
------------------------
Inc.
111

[Signature Page 2 of 6 to Credit Agreement]

ATTEST CR SERVICES CORP., a Delaware corporation

By: By:
------------------------------ --------------------------------------
[Name],
[Seal] ----------------------------------
the [Title] of
----------------------
CR Services Corp.

Address for Notices for each of the
foregoing Borrowers and Guarantors:

0000 Xxxx Xxxxx Xxxxxx
Xxxx xx Xxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Chief Financial Officer
Telephone No. (000) 000-0000

112

[Signature Page 3 of 6 to Credit
Agreement]

AGENT:

PNC BANK, NATIONAL ASSOCIATION, as
Agent

By:________________________________
Title:_____________________________

Address for Notices:

One PNC Plaza
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Regional Healthcare Group
Telephone No. (000) 000-0000

BANKS:

PNC BANK, NATIONAL ASSOCIATION

By:______________________________
Title:___________________________

Address for Notices:

One PNC Plaza
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Regional Healthcare Group
Telephone No. (000) 000-0000

113

[Signature Page 4 of 6 to Credit Agreement]

CORESTATES BANK, N.A.

By:______________________________
Name:____________________________
Title:___________________________

Address for Notices:

0000 Xxxxxxxx Xxxxxx
X.X. Xxx 0000
FC 1-8-3-22 Xxxxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxxxx
Assistant Vice President
Telephone No. (000) 000-0000

FIRST UNION NATIONAL BANK
OF NORTH CAROLINA

By:______________________________
Name: Xxxxx X. Xxxxx
Title: Assistant Vice President

Address for Notices:

One First Union Center
000 X. Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxxxx X. Xxxxx,
Assistant Vice President
Telephone No. (000) 000-0000

114

[Signature Page 5 of 6 to Credit Agreement]

FLEET NATIONAL BANK

By:_____________________________
Name:___________________________
Title:__________________________

Address for Notices:

Health Care and Non Profit Group
Fleet Center MA BOF 00X
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxx Xxxxxxxxxx
Vice President
Telephone No. (000) 000-0000

MELLON BANK, N.A.

By:_____________________________
Name:___________________________
Title:__________________________

Address for Notices:

0000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, XX 00000

Telecopier No. (000) 000-0000
Attention: Xxxxxxx X. Means
Vice President
Telephone No. (000) 000-0000

115

[Signature Page 6 of 6 to Credit Agreement]

NATIONSBANK N.A.

By:______________________________
Name:____________________________
Title:___________________________
Address for Notices:

0000 Xxxxxxxxx Xxxxx
0xx Xxxxx
Xxxxxxxx, XX 00000-0000

Telecopier No. (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
Vice President
Telephone No. (000) 000-0000

116
EXHIBIT 8.01(m)(iii)

COMPLIANCE CERTIFICATE

____________________, 19__

PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Xxxxx Xxxxxx xxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000

Ladies and Gentlemen:

I refer to the Credit Agreement dated as of May 27, 1994 (as
amended, supplemented or modified from time to time, the "Credit Agreement")
among NOVACARE, INC., a Delaware corporation ("NovaCare"), and the other
Borrowers and the Guarantors under such Credit Agreement (collectively, the
"Loan Parties"), the Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as
Agent for such Banks. Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein with the same meanings.

I, ______________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify pursuant to
Section 8.01(m)(iii) of the Credit Agreement on behalf of NovaCare as of the
[fiscal quarter/year ended _______________, 19___] the "Report Date"), as
follows:

(1) Minimum Current Ratio. (Section 8.02(k)). The ratio
of (i) consolidated current assets of NovaCare and its
Subsidiaries to (ii) consolidated current liabilities
of NovaCare and its Subsidiaries calculated as of the
Report Date is __________ to 1.0 which is not less
than the following ratios for the following periods:

Period Ratio
------ -----

Closing Date through
6/30/1997 2.0 to 1.0

7/1/1997 and
thereafter 1.75 to 1.0

(2) Minimum Net Worth. (Section 8.02(l)). As of the
Report Date, the Consolidated Net Worth is $_________
which is not less than the Minimum Net Worth
Requirement which is $__________. Such amounts are
computed as follows:

117
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2

(A) Consolidated Net Worth as of the Report Date:

Total stockholders' equity of NovaCare and
its Subsidiaries $_______

(B-1) Minimum Net Worth Requirement as of the Report Date
for any Report Date occurring between the Closing Date
through, but not including, the Sixth Amendment
Effective Date:

(i) $375,250,000

(ii) Seventy-five percent (75%) of Consolidated Net
Income of NovaCare and its Subsidiaries for each
fiscal quarter in which net income was earned
(as opposed to a net loss) from March 31, 1994
through (and including) the Report Date computed
as follows:

(a) consolidated net income $_______

(b) Less: increases in net
income resulting from
changes in GAAP after
Closing Date <$_______>

(d) Subtotal sum of (a),
(b) and (c) $_______

(e) Line (d) times 75% $_______

(iii) One hundred percent (100%) of all proceeds
received by NovaCare in connection with the sale
of shares of its capital stock after deducting
any expenses associated with such sale
(including proceeds from conversion of the
Subordinated Debentures) during the

118
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3

period from March 31, 1994 through (and including) the Report Date $_______

Sum of (i), (ii) and (iii) equals Minimum Net Worth Requirement $_______

(B-2) Minimum Net Worth Requirement as of the Report Date. For any Report Date occurring on and after
the Sixth Amendment Effective Date through and including June 30, 1996:

(i) $487,635,000

(ii) Ninety-five percent (95%) of Consolidated Net Income of NovaCare and its Subsidiaries for
each fiscal quarter after the fiscal quarter ended June 30, 1995 in which net income was
earned (as opposed to a net loss) from July 1, 1995 through (and including) the Report
Date computed as follows:

(a) consolidated net income $
-------

(b) Less: increases in net income
resulting from changes in GAAP
after Closing Date <$ >
---------------

(d) Subtotal sum of (a), (b)
and (c) $
------------

(e) Line (d) times 95% $
--------------

(iii) One hundred percent (100%) of all proceeds
received by NovaCare in connection with
the sale of shares of its capital stock after
deducting any expenses associated with such
sale (including proceeds from conversion of
the Subordinated Debentures) during the

119
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4

period from July 1, 1995 through (and
including) the Report Date $
------------------

(iv) One hundred percent (100%) of the cash
purchase price of common stock of
NovaCare repurchased by NovaCare,
up to an aggregate maximum
amount of $55,000,000 during the
period from July 1, 1995 through (and
including) the Report Date $
------------------

(v) Aggregate deductions from Consolidated
Net Income for non-cash extraordinary
items, up to an aggregate maximum
amount of $83,000,000 during the period
from July 1, 1995 through (and
including) the Report Date $
------------------

(vi) Sum of amounts under clauses (i), (ii) and
(iii) reduced by amounts under clauses (iv)
and (v) equals Minimum Net Worth
Requirement $
------------------

(B-3) Minimum Net Worth Requirement as of the Report
Date for any Report Date occurring on or after
July 1, 1996:

(i) Amount determined under item (vi) of
clause (B-2) above as of June 30, 1996 $
------------------

(ii) Seventy-five percent (75%) of
Consolidated Net Income of NovaCare
and its Subsidiaries for each fiscal
quarter in which net income was earned (as
opposed to a net loss) from July 1, 1996
through (and including) the Report Date
computed as follows:

(a) consolidated net income $
-----------

120
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5

(b) Less: increases in net income
resulting from changes in
GAAP after Closing Date <$ >
----------

(d) Subtotal sum of (a),
(b) and (c) $
-----------

(e) Line (d) times 75% $
-------------

(iii) To the extent not included in Item (ii)(e)
above, One Hundred Percent (100%) of all
federal and state income tax refunds
(collectively, the "Tax Refunds") received
by NovaCare or a Subsidiary of NovaCare
during the period of determination relating
to the sales by them of their rehabilitation
hospitals during the fiscal year ended
June 30, 1995 $________

(iv) One hundred percent (100%) of all proceeds
received by NovaCare in connection with the
sale of shares of its capital stock after
deducting any expenses associated with
such sale (including proceeds from
conversion of the Subordinated Debentures)
during the period from July 1, 1996 through
(and including) the Report Date $
-------------

(v) The Cash Purchase Price of common stock of
NovaCare repurchased by NovaCare during the
period of determination (not to exceed an
aggregate of $70,000,000 plus the portion of
the Tax Refunds used for such repurchases for
all periods after July 1, 1995) $________

121
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6

(vi) Sum of (i), (ii), (iii) and (iv)
reduced by (v) equals Minimum
Net Worth Requirement $
-------------

(3) Funded Debt to Capitalization. (Section 8.02(m)). As of the Report Date, the ratio of (i) Consolidated Funded
Debt to (ii) Capitalization is __________ to 1.0. Such ratio must not be more than the following ratios for the
following periods:

Period Ratio
------ -----

Closing Date through
June 30, 1996 .50 to 1.0

July 1, 1996 and
thereafter .45 to 1.0

(A) Consolidated Funded Debt, the numerator of the foregoing ratio, is determined as follows:

Indebtedness of NovaCare and its Subsidiaries on the Report Date to persons other than NovaCare
and its Subsidiaries in respect of, without duplication:

(i) Borrowed money $_______

(ii) Amounts raised under or liabilities in respect of any note purchase or acceptance credit
facility $_______

(iii) Reimbursement obligations under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device
$_______

(iv) Other transactions (including without limitation forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the commercial effect of
a borrowing of money

122
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7

entered into to finance operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are not represented by a
promissory note) $_______

(v) any guaranty of indebtedness for borrowed money $_______

(vi) Sum of (i) through (v) equals Consolidated Funded Debt $_______

(B) Capitalization, the denominator of the foregoing ratio, is determined as follows:

(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph (A) above)
$_______

(ii) Consolidated Net Worth, which is total stockholders' equity of NovaCare and its Subsidiaries
as of the Report Date $_______

(iii) Sum of (i) and (ii) equals Capitalization $_______

Funded Debt to Cash Flow From Operations. (Section 8.02(n)). The ratio of (i) Consolidated Funded Debt on the
Report Date to (ii) Consolidated Cash Flow from Operations for the four fiscal quarters ending on the Report Date
is __________ to 1.0. Such ratio must not be more than the following ratios for the following periods:

Period Ratio
------ -----

July 1, 1994 through
June 30, 1995 3.00 to 1.00

July 1, 1995 through
December 31, 1995 2.75 to 1.00

January 1, 1996 through
June 30, 1996 2.50 to 1.00

123
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8

July 1, 1996 through
December 31, 1996 3.00 to 1.00

January 1, 1997 and
thereafter 2.50 to 1.00

(A) Consolidated Funded Debt, the numerator of the
foregoing ratio (amount from Paragraph 3(A) above)
$_______

(B) Consolidated Cash Flow from Operations(1), the denominator of the
foregoing ratio, for the four fiscal quarters ending on the Report
Date is determined as follows:

(i) Net Income $_______

(ii) Depreciation $_______

(iii) Amortization $_______

(iv) Other non-cash charges to net income $_______

(v) Interest Expense $_______

(vi) Income Tax Expense $_______

(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $_______

(viii) Non-cash credits to net income $_______

(ix) Item (vii) reduced by item (viii) equals
Consolidated Cash Flow from Operations $_______

(5) Minimum Fixed Charge Coverage Ratio(2). (Section 8.02(o)). The ratio of
(i) Consolidated Earnings Available for Fixed Charges to (ii) Consolidated

__________________________________

(1) To be adjusted in accordance with the definition of Consolidated Cash Flow
from Operations set forth in the Credit Agreement (a) to give effect to
Permitted Acquisitions and Permitted Asset Transfers during the four fiscal
quarters ending on the Report Date; and (b) to exclude the net income and other
items described in Clauses (ii) through (viii) attributable to Restricted
Excluded Entities. 2 To be adjusted in accordance with the definitions of
Consolidated Earnings Available for Fixed Charges and Consolidated Fixed
Charges set forth in the Credit Agreement (a) to give effect to Permitted
Acquisitions which occur during the four fiscal quarters ending on the Report
Date; and (b) to exclude the net income and certain items of expense as
provided in such definition attributable to Restricted Excluded Entities.

124
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 9

Fixed Charges for the four fiscal quarters ending on the Report
Date is __________ to 1.0. Such ratio must not be less than the
following ratios for the following periods:

Period Ratio
------ -----

Closing Date through
March 31, 1997 1.5 to 1.0

April 1, 1997 and
thereafter 1.40 to 1.0

(A-1) For any Report Date occurring between the Closing Date through,
but not including the Sixth Amendment Effective Date,
Consolidated Earnings Available for Fixed Charges, the numerator
of the foregoing ratio is determined as follows:

(i) Net income $_______

(ii) Interest expense $_______

(iii) Income tax expense $_______

(iv) Operating lease expense $_______

(v) The sum of (i) through (iv) $_______

(A-2) For any Report Date occurring between the Closing Date through,
but not including the Sixth Amendment Effective Date,
Consolidated Fixed Charges, the denominator of the foregoing
ratio, for the four fiscal quarters ending on the Report Date, is
determined as follows:

(vi) Interest expense $_______

(vii) Operating lease expense $_______

_____________

(2) To be adjusted in accordance with the definitions of Consolidated Earnings
Available for Fixed Charges and Consolidated Fixed Charges set forth in the
Credit Agreement (a) to give effect to Permitted Acquisitions which occur during
the four fiscal quarters ending on the Report Date; and (b) to exclude the net
income and certain items of expense as provided in such definition attributable
to Restricted Excluded Entities.
125
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 10

The sum of (i) and (ii) $_______

(B-1) For any Report Date occurring on or after the
Sixth Amendment Effective Date, Consolidated
Earnings Available for Fixed Charges, the
numerator of the foregoing ratio is
determined as follows:

(i) Net Income $_______

(ii) Interest Expense $_______

(iii) Income Tax Expense $_______

(iv) Depreciation $_______

(v) Amortization $_______

(vi) Other non-cash charges to net income $_______

(vii) Expenses under operating leases $_______

(viii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $_______

(ix) Non-cash credits to net income $_______

(x) Item (viii) reduced by item (ix) equals
Consolidated Earnings Available for Fixed Charges $_______

(B-2) For any Report Date occurring on or after the
Sixth Amendment Effective Date, Consolidated
Fixed Charges, the denominator of the
foregoing ratio is determined as follows:

(i) Interest Expense $_______

(ii) Expenses under operating leases $_______

(iii) Income Tax Expense $_______

(iv) Current maturities of long-term Indebtedness $_______

126
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 11

(v) Current principal payments under capitalized leases
(for the twelve (12) month period following
the Report Date) $_______

(vi) The sum of (i) through (v) $_______

(6) [INTENTIONALLY OMITTED]

(7) Indebtedness Assumed in Permitted Acquisitions; Purchase Money
Security Interests (Sections 8.02(a)(v) and (vi)).

(a) Permitted Acquisitions and Purchase Money Security Interests
(Section 8.02(a)(v)). The amount of Indebtedness of the Loan
Parties described in Section 8.02(a)(v) of the Credit Agreement is
$__________ on the Report Date which is less than $20,000,000,
the maximum permitted amount. The amount of such Indebtedness
is computed as follows:

(i) Purchase Money Security Interests entered
into in the ordinary course of business $_______

(ii) Permitted Acquisitions (accounted for as a "purchase"
under GAAP) - Indebtedness (including extensions and
renewals thereof) either (1) assumed by Loan Parties
pursuant to acquisitions of the assets of other persons (by
purchase, merger or otherwise) in Permitted Acquisitions
(accounted for as a "purchase" under GAAP) between the
Closing Date and the Report Date or (2) of corporations,
partnerships or other entities whose stock, partnership
interests or other ownership interests were acquired by
Loan Parties (by purchase, merger or otherwise) in
Permitted Acquisitions (accounted for as a purchase under
GAAP) between the Closing Date and the Report Date,
which in the case of either (1) or (2) above remains
outstanding on the Report Date:

127
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 12

Loan Party Collateral
which is securing
now liable Date of the
on the Permitted Indebtedness Indebtedness
Indebtedness Acquisition (if any) Outstanding
------------ ----------- -------- -----------

$
---------------- ------------ ------------- ---------------
$
---------------- ------------ ------------- ---------------
$
---------------- ------------ ------------- ---------------

Total $
---------------

(iii) Sum of Lines (i) and (ii) (may not exceed $
$20,000,000) ---------------

(b) Permitted Acquisitions (accounted for as a "pooling of interests"
under GAAP)(Section 8.02(a)(vi)). The amount of Indebtedness of
the Loan Parties described in Section 8.02(a)(vi) of the Credit
Agreement incurred during the current fiscal year was
$__________ which is less than $100,000,000, the maximum
amount permitted to be incurred during the current fiscal year. The
amount of such Indebtedness is computed as follows:

Indebtedness either (1) assumed by acquiring Loan Parties in
Permitted Acquisitions (accounted for as a "pooling of interests"
under GAAP) during the current fiscal year, or (2) of Pooling
Partners and their Subsidiaries whose stock or other ownership
interests were acquired in Permitted Acquisitions (accounted for as
a "pooling of interests" under GAAP) during the current fiscal year,
including in the case of both (1) and (2) any Indebtedness which has
been repaid since the date of the pooling as well as Indebtedness
which remains outstanding on the date of this certificate.

128
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 13

Loan Party which
assumed Indebtedness Collateral securing
or Pooling Partner whose Date of the Indebtedness Amount of
stock was acquired Pooling (if any) Indebtedness
------------------ ------- -------- ------------

$
---------------- ---------- ------------- -------------
$
---------------- ---------- ------------- -------------
$
---------------- ---------- ------------- -------------

Total (may not exceed $100,000,000) $
-------------

(8) Permitted Additional Institutional Indebtedness (Section
8.02(a)(viii) and definition of "Permitted Additional
Institutional Indebtedness"). The following is a
list of Permitted Additional Institutional
Indebtedness outstanding on the Report Date:

Documentation governing
has been delivered
Loan to Agent**
Lender Party Amount (yes/no)
------ ----- ------ --------

$
--------------- ------------ ------------- --------------

**Documentation governing Indebtedness should be enclosed with
the certificate if it has not previously been delivered to
Agent

(9) Permitted Additional Subordinated Indebtedness (Section
8.02(a)(ix) and definition of "Permitted Additional
Subordinated Indebtedness"). The following is a list
of all Permitted Additional Subordinated Indebtedness
outstanding on the Report Date:

129
PNC BANK, NATIONAL ASSOCIATION
Page 14

Documentation governing
debt has been delivered to
Loan Agent **
Lender Party Amount (yes/no)
------ ----- ------ --------

$
--------------- ------------ ------------- ------------

**Documentation governing Indebtedness should be enclosed with
the certificate if it has not previously been
delivered to Agent

(10) Permitted Acquisitions.(3) (Section 8.02(d)) The Loan Parties
made the following Permitted Acquisitions during the
quarter ending on the Report Date:

Type of
Transaction
(Purchase or
Seller/ Pooling under Date of
Pooling Partner GAAP) Closing Consideration
--------------- ------ ------- -------------

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

The aggregate Consideration with respect to the
Permitted Acquisitions made during the quarter ending
on the Report Date together with the aggregate
Consideration for all other Permitted Acquisitions
during the current fiscal year is $_____________,
which does not exceed the permitted amount of
$150,000,000.

(11) Permitted Investment in Excluded Entities; (Sections 8.02(f)
and (i)). The Loan Parties' Restricted Investments:
(a) of the type described in clause (i) of the
definition of Permitted Investment in Excluded
Entities collectively are $_______; (b) of the type
described in clause (ii) of the definition of
Permitted Investment in Excluded Entities
collectively are $_______; and

__________________________________

(3) Limitations on Consideration per Permitted Acquisition and in the aggregate
for all Permitted Acquisitions in each fiscal year not to exceed amounts set
forth in Section 8.02(d)

130
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 15

(c) of the type described in clause (iii) of
the definition of Permitted Investment in
Excluded Entities collectively are $________.
In the aggregate, the Permitted Investment in
Excluded Entities described in the preceding
clauses (a), (b), and (c) is $________ which
is less than $50,000,000. The foregoing is
computed below. The table below lists as of
the Report Date each Subsidiary and Minority
Subsidiary which is not a Borrower or
Guarantor (whether or not the Loan Parties
have made a Restricted Investment therein),
each Unaffiliated Managed Company in which the
Loan Parties have made a Restricted Investment
and each other entity in which the Loan
Parties have made a Permitted Investment in
Excluded Entities.

(iv)
(i) Other Total
Investments(4) (iii) obligations Restricted
in or (ii) Guaranties to or for Investments
contributions Loans to on behalf of the benefit (Sum of
Excluded to Excluded Excluded Excluded of Excluded columns (i)
Entity Entity Entity Entity Entity thru (iv))
------ ------ ------ ------ ------ ----------

$
-------- --------- ------- -------- ----------- ---------
$
-------- --------- ------- -------- ----------- ---------

Total (must be less than $50,000,000) $
---------

(12) Events of Default or Potential
Default. No event has occurred and
is continuing which constitutes an
Event of Default or Potential
Default.

(13) Representations and Warranties. The
representations and warranties
contained in Article VI of the
Credit Agreement are true on and as
of the date hereof with the same
effect as though such
representations and warranties had
been made on and as of the date
hereof (except representations and
warranties which expressly relate
solely to an earlier date or time,
which representations and warranties
shall have been true and correct on
and as of the specific dates or
times referred to therein) and the

__________________________________

(4) Indicate if nature of Restricted Investment is tangible property. Restricted
Investment in certain Excluded Entities is limited to the per entity amount and
certain aggregate sublimits specified in the definition of Permitted Investment
in Excluded Entities.

131
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 16

Loan Parties have performed and complied with all covenants
and conditions hereof.

IN WITNESS WHEREOF, the undersigned has
executed this Certificate this _____ day of _____________,
19_____.

By:_____________________________________

Name:___________________________________

Title:__________________________________

132

SCHEDULE 1.01(B)

COMMITMENTS OF BANKS

Revolving
Participation Credit
Bank Percentage Commitment
---- ---------- ----------

PNC Bank, National Association 31.666667% $47,500,000

Mellon Bank, N.A. 18.333333% $27,500,000

NationsBank, N.A. 16.666667% $25,000,000

CoreStates Bank, N.A. 13.333333% $20,000,000

Fleet National Bank 10.000000% $15,000,000

First Union National Bank of
North Carolina 10.000000% $15,000,000

TOTAL 100.000000% $150,000,000

133

SCHEDULE 6.01(C)
REVISED SEPTEMBER 30,1996
SUBSIDIARIES
I. SUBSIDIARY CORPORATIONS

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Advance Orthotics, Inc. Texas G 50,000 common shares, 50,000 NovaCare Orthotics &
no par value Prosthetics West, Inc.

Affiliated Physical Therapists, Ltd. Arizona G 120,091 common shares, 35,600 RehabClinics, Inc.
$1 par value 83,067
preferred shares,
$1 par value

Artificial Limb and Brace Center Arizona G 1,000,000 common shares, 1,066 NovaCare Orthotics &
$1 par value Prosthetics West, Inc.

Atlantic Rehabilitation Services, Inc. New Jersey G 1,000 common shares, 20 RehabClinics, Inc.
no par value

Boca Rehab Agency, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Xxxxxx-Xxxxxxx Orthopedic Service, Oklahoma G 3,000 common shares, 3,000 NovaCare Orthotics &
Incorporated $1.00 par value Prosthetics West, Inc.

Buendel Physical Therapy, Inc. Florida G 750 common shares, 100 RehabClinics, Inc.
10.00 par value

Xxxxxx & Associates, Inc. Delaware G 10,000 common shares, 3,000 NovaCare, Inc. (PA)
no par value
1,286 cumulative
redeemable preferred
shares, $.01 par value

134

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Cenla Physical Therapy & Rehabilitation Louisiana G 10,000 common shares, 2,000 RehabClinics, Inc.
Agency Inc. no par value

Center for Physical Therapy and Sports New Mexico G 500,000 common shares, 1,000 RehabClinics, Inc.
Rehabilitation, Inc. no par value

CenterTherapy, Inc. Minnesota G 50,000 Class A voting 475 Class A RehabClinics, Inc.
shares, $.01 par value, voting
50,000 Class B non-
voting shares, $.01 par
value

Certified Orthopedic Appliance Co., Arizona G 10,000 common shares, 150 NovaCare Orthotics &
Inc. $100 par value Prosthetics West, Inc.

Xxxxxx Physical Therapy Associates, Minnesota G 2,500 common shares, 100 RehabClinics, Inc.
Inc. no par value

CR Services Corp. Delaware G 1,000 common shares, 100 NovaCare, Inc. (DE)
$.01 par value

Xxxxxxx Physical Therapy Clinic, Inc. Louisiana G 10,000 common shares, 500 RehabClinics, Inc.
no par value

Xxxxxxx Xxxxx and Associates, Ltd. Virginia G 500 Series A Voting 100 RehabClinics, Inc.
Common Shares, $10.00
par value
300 Series B Non-Voting
Common Shares, $.01
par value

Xxxxxxx X. Xxxxxxxx, R.P.T., Physical California G 50,000 common shares, 10,187 RehabClinics, Inc.
Therapy, Inc. no par value

2
135

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Xxxxxxx Xxxxxxx, Xx. & Xxxxxxx Xxxx Pennsylvania G 1,000 common shares, 1,000 RehabClinics, Inc.
Physical Therapists, Inc. no par value

Galaxy Service Corporation Illinois -- 1,200 Class A common RCI (S.P.O.R.T.), Inc.
shares, no par value (60%)

Gallery Physical Therapy Minnesota G 1,048.85 common shares, 1,048.85 RehabClinics, Inc.
Center, Inc. no par value

Georgia Physical Therapy of West Georgia G 5,000,000 common share 1,000,200 RehabClinics, Inc.
Georgia, Inc. $.01 par value

Georgia Physical Therapy, Inc. Georgia G 100,000 common shares, 1,000 RehabClinics, Inc.
$.50 par value

Greater Sacremento Physical Therapy California G 100,000 common shares, 38,250 RehabClinics, Inc.
Associates, Inc. no par value 11,250 Xxxxxx, Xxxxxxx &
Todrank Physical
Therapy Corporation

Gulf Breeze Physical Therapy, Inc. Florida G 7,500 common shares, 200 RehabClinics, Inc.
$1.00 par value

Gulf Coast Hand Specialists, Inc. Florida G 7,500 common shares, 100 RehabClinics, Inc.
$1.00 par value

Hand Therapy and Rehabilitation California G 10,000 common shares, 6,000 RehabClinics, Inc.
Associates, Inc. no par value

Hand Therapy Associates, Inc. Arizona G 1,000,000 common 250 RehabClinics, Inc.
shares, $10 par value

Xxxxxx Physical Therapy, Inc. California G 100,000 common shares, 20,000 NovaCare, Inc. (PA)
no par value

3
136

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Heartland Rehabilitation, Inc. Indiana G 1,000 common shares, 100 NovaCare, Inc. (PA)
no par value

Indianapolis Physical Therapy and Sports Indiana G 400,000 common shares, 267,808 RehabClinics, Inc.
Medicine, Inc. no par value

Industrial Health Care Company, Inc. Connecticut G 20,000 common shares, 919 NC Resources, Inc.
$1.00 par value

Xxx All, Inc. Texas -- 1,000,000 common shares, 1,000 NovaCare Orthotics &
$1.00 par value Prosthetics West Inc.

Xxxxxxxx Physical Therapy, Inc. California G 10,000 common shares, 1,000 RehabClinics, Inc.
no par value

Life Dimensions of California, Inc. California G 1,000 common shares, 50 NovaCare, Inc. (PA)
no par value

Xxxx X. Xxxxxxx, Inc. Arizona G 1,000,000 common shares, 6,400 RehabClinics, Inc.
$1 par value

XxXxxxxx & Associates, Inc. Texas -- 100,000 common shares, 1,000 NovaCare Orthotics &
$.10 par value Prosthetics West Inc.

Michigan Therapy Centre, Inc. Michigan G 50,000 common shares, 11,765 RehabClinics, Inc.
$.01 par value

Mill River Management, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Xxxxxxxx Xxxxxxxxxx I, Inc. Illinois G 1,000 common shares, 100 RCS (S.P.O.R.T.), Inc.
no par value

Xxxxxxxx Xxxxxxxxxx XX, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.), Inc.
no par value

4
137

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Xxxxxxxx Xxxxxxxxxx III, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T), Inc.
no par value

Monmouth Rehabilitation, Inc. New Jersey G 100 common shares, 80 RehabClinics, Inc.
no par value

NACC, Inc. Delaware B 1,000 common shares, 25 RehabClinics, Inc.
$.01 par value 25 NocaCare Orthotics &
Prosthetics, Inc.
125 NovaCare, Inc. (PA)

National Rehab Services California G 1,000,000 common shares, 5,000 NovaCare, Inc. (PA)
no par value

NC Cash Management, Inc. Delaware G 1,000 common shares, 100 NC Resources, Inc.
$.01 par value

NC Resources, Inc. Delaware G 1,000 common shares, 100 NovaCare, Inc. (DE)
$.01 par value

New Mexico Physical Therapists, Inc. New Mexico G 50,000 common shares, 559 RehabClinics, Inc.
$1.00 par value

Northland Regional Orthotic and Minnesota G 25,000 common shares, 12 NoCare Orthotics &
Prosthetic Center, Inc. no par value Prosthetics East, Inc.

Northside Physical Therapy, Inc. Ohio G 500 common shares, 100 RehabClinics, Inc.
without par value

NovaCare (Arizona), Inc. Arizona G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
no par value

NovaCare (Colorado), Inc. Delaware G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
$.01 par value

5
138

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

NovaCare (Illinois), Inc. Illinois G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
no par value

NovaCare (Texas), Inc. Texas G 100 common shares, 100 NovaCare, Inc. (PA)
$.01 par value

NovaCare, Inc. Pennsylvania G 5,000 common shares, 1,000 NC Resources, Inc.
no par value

NovaCare Management Company, Inc. Delaware G 1,000 common shares, 100 NovaCare Orthotics &
$.01 par value Prosthetics, Inc.

NovaCare Management Services, Inc. Delaware G 1,000 common shares, 100 NovaCare, Inc. (DE)
$.01 par value

NovaCare Northside Therapy, Inc. Minnesota G 2,500 common shares, 100 NovaCare, Inc. (PA)
$10.00 par value

NovaCare Orthotics & Prosthetics East, Delaware G 1,000 common shares, 1,000 NovaCare Orthotics &
Inc. $.01 par value Prosthetics, Holdings,
Inc.

NovaCare Orthotics & Prosthetics Delaware G 1,000 common shares, 1,000 NovaCare Orthotics &
Holdings, Inc. $.01 par value Prosthetics, Inc.

NovaCare Orthotics & Prosthetics West, California G 5,000,000 common 689,681 NovaCare Orthotics &
Inc. shares, $.10 par value Prosthetics, Holdings,
Inc.

NovaCare Orthotics & Prosthetics, Inc. Delaware G 1,000 common shares, 1,000 NC Resources, Inc.
$.01 par value

NovaCare Outpatient Rehabilitation I, Kansas G 100,000 common shares, 1,250 RehabClinics, Inc.
Inc. no par value

6
139

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

NovaCare Outpatient Rehabilitation, Kansas G 500,000 common shares, 10,851 RehabClinics, Inc.
Inc. $1 par value

NovaCare Outpatient Rehabilitation Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
East, Inc. $.01 par value

NovaCare Outpatient Rehabilitation Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
West, Inc. $.01 par value

NovaCare Rehab Agency of Alabama, Alabama G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Florida, Florida G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Georgia, Georgia G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Illinois, Illinois G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of North North Carolina G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Carolina, Inc. $.01 par value

NovaCare Rehab Agency of Northern California G 9,000 common shares, 100 NovaCare, Inc. (PA)
California, Inc. $1.00 par value

NovaCare Rehab Agency of Ohio, Inc. Ohio G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
$.01 par value

NovaCare Rehab Agency of Oklahoma, Oklahoma G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Oregon, Oregon G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

7
140

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

NovaCare Rehab Agency of Pennsylvania G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Pennsylvania, Inc. $.01 par value

NovaCare Rehab Agency of Southern California G 9,000 common shares, 100 NovaCare, Inc. (PA)
California, Inc. $1.00 par value

NovaCare Rehab Agency of South South Carolina G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Carolina, Inc. $.01 par value

NovaCare Rehab Agency of Tennessee, Tennessee G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Virginia, Virginia G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Inc. $.01 par value

NovaCare Rehab Agency of Washington G 1,000 common shares, 1,000 NovaCare, Inc. (PA)
Washington, Inc. $.01 par value

NovaCare Rehabilitation Agency of Wisconsin G 9,000 common shares, 10 NovaCare, Inc. (PA)
Wisconsin, Inc. $1.00 par value

NovaCare Rehabilitation, Inc. Minnesota G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

NovaCare Service Corp. Delaware G 1,000 common shares, 1,000 NovaCare, Inc. (DE)
$.01 par value

Ortho Rehab Associates, Inc. Florida G 1,000 common shares, 100 RehabClinics, Inc.
$1.00 par value

Orthopedic and Sports Physical Therapy California G 100,000 common shares, 3,000 RehabClinics, Inc.
of Cupertino, Inc. no par value

OSI Midwest, Inc. Nebraska -- 10,000 common shares, 7,651 NovaCare Orthotics &
$1.00 par value Prosthetics Holdings,
Inc.

8
141

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Xxxxxx, Xxxxxxx & Xxxxxxx Physical California G 50,000 common shares, 91 RehabClinics, Inc.
Therapy Corporation no par value

Physical Focus Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Physical Rehabilitation Partners, Inc. Louisiana G 5,000 common shares, 106.12 RehabClinics, Inc.
no par value

Physical Therapy Institute, Inc. Louisiana G 500 common shares, 500 RehabClinics, Inc.
no par value

Quad City Management, Inc. Iowa G 100,000 common shares, 1,000 RehabClinics, Inc.
no par value

RCI (Colorado), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RCI (Exertec), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RCI (Illinois), Inc. Delaware G 100 common shares, 100 RehabClinics, Inc.
no par value

RCI (Michigan), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RCI (S.P.O.R.T.), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RCI (WRS), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RCI Nevada, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

9
142

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Rebound Oklahoma, Inc. Oklahoma G 500 common shares, 500 RehabClinics, Inc.
$1.00 par value

Redwood Pacific Therapies,Inc. California G 100,000 common share, 15,120 RehabClinics, Inc.
no par value

Rehab Managed Care of Arizona, Inc. Delaware B 1,000 common shares, 100 RehabClinics, Inc.
$.01 par value

Rehab Provider Network Florida G 1,000 common shares, 1,000 RehabClinics, Inc.
of Florida, Inc. $.01 par value

Rehab Provider Network - California, California G 100 common shares, 100 RehabClinics, Inc.
Inc. $.10 par value

Rehab Provider Network - Delaware, Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network - Georgia, Inc. Georgia G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Rehab Provider Network - Illinois, Inc. Illinois G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Rehab Provider Network - Indiana, Inc. Indiana G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Rehab Provider Network - Maryland, Maryland G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network - Michigan, Michigan G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network - New Jersey, New Jersey G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

10
143

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Rehab Provider Network - Ohio, Inc. Ohio G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Rehab Provider Network - Oklahoma, Oklahoma G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network - Pennsylvania G 1,000 common shares, 1,000 RehabClinics, Inc.
Pennsylvania, Inc. $.01 par value

Rehab Provider Network - Virginia, Inc. Virginia G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

Rehab Provider Network - Washington, District of G 1,000 common shares, 1,000 RehabClinics, Inc.
D.C., Inc. Columbia $.01 par value

Rehab Provider Network of Colorado G 100 common shares, 100 RehabClinics, Inc.
Colorado, Inc. $.01 par value

Rehab Provider Network of Nevada, Nevada G 100 common shares, 100 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network of New New Mexico G 1,000 common shares, 1,000 RehabClinics, Inc.
Mexico, Inc. $.01 par value

Rehab Provider Network of Texas, Texas G 1,000 common shares, 1,000 RehabClinics, Inc.
Inc. $.01 par value

Rehab Provider Network of Wisconsin G 1,000 common shares, 1,000 RehabClinics, Inc.
Wisconsin, Inc. $.01 par value

Rehab/Work Hardening Management Pennsylvania G 500 common shares, 500 RehabClinics, Inc.
Associates, Ltd. no par value

Rehab World, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

11
144

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

RehabClinics (COAST), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics (New Jersey), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics (PTA), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics (SPT), Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics Abilene, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics Dallas, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value

RehabClinics Pennsylvania, Inc. Pennsylvania G 1,000 common shares, 1,000 RehabClinics (SPT)
no par value Inc.

RehabClinics, Inc. Delaware G 1,000 common shares, 1,000 NC Resources, Inc.
$.01 par value

Xxxxxx X. Xxxxx, R.P.T. Physical California G 100,000 common shares, 5,000 RehabClinics, Inc.
Therapy, Inc. no par value

Xxxxx Aids Prosthetics, Inc. California G 50,000 common shares, 50,000 NovaCare Orthotics &
no par value Prosthetics West, Inc.

S.T.A.R.T., Inc. Massachusetts G 12,500 common shares, 200 RehabClinics, Inc.
no par value

SG Rehabilitation Agency, Inc. Pennsylvania G 100,000 common shares 100 NovaCare, Inc. (PA)
$10.00 par value

12
145

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

SG Speech Associates, Pennsylvania G 100,000 common shares, 100 NovaCare, Inc. (PA)
Inc. $10.00 par value

Southwest Medical Supply Company New Mexico G 10,000 common shares, 10,000 RehabClinics, Inc.
$1.00 par value

Southwest Physical Therapy, Inc. New Mexico G 500,000 common shares, 12,500 RehabClinics, Inc.
no par value

Southwest Therapists, Inc. New Mexico G 5 common common shares, 5 RehabClinics, Inc.,
no par value

Sporthopedics Sports and Physical California G 10,000 common shares, 8,000 RehabClinics, Inc.
Therapy Centers, Inc. no par value

Sports Therapy and Arthritis Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
Rehabilitation, Inc. $.01 par value

Star Physical Therapy Inc. Florida G 1,000 common shares, 60 RehabClinics, Inc.
$1.00 par value

Xxxxxxxxxx-Xxxxx, Inc. California G 100,000 common shares, 10,000 RehabClinics, Inc.
no par value

The Center for Physical Therapy and New Mexico G 500,000 common shares, 1,000 RehabClinics, Inc.
Rehabilitation, Inc. no par value

Xxxxxxxx Xxxxxxx Physical Therapy, California G 100 common shares, 30 RehabClinics, Inc.
Inc. no par value

Union Square Center for Rehabilitation California G 1,000 common shares, 500 RehabClinics, Inc.
& Sports Medicine, Inc. no par value

Vanguard Rehabilitation, Inc. Arizona G 1,000,000 common 64,500 RehabClinics, Inc.
shares, $1.00 par value

13
146

Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------

Wayzata Physical Therapy Center, Inc. Minnesota G 2,500 common shares, 1,000 RehabClinics, Inc.
no par value

West Suburban Health Partners, Inc. Minnesota G 25,000 common shares, 990 RehabClinics, Inc.
$1.00 par value

Western Rehab Services, Inc. Arizona G 100,000 common shares, 1,000 NovaCare, Inc. (PA)
no par value

Workers Rehabilitation Services, Inc. Illinois -- 10,000 common shares, RCI (WRS), Inc. (60%)
np par value

14
147

II. PARTNERSHIP INTERESTS

Name Jurisdiction Partnership Interest
---- ------------ --------------------

Advanced Orthopedic Services, Ltd. Texas 99% limited partnership interest owned by RehaClinics
Dallas, Inc. who is also the general partner
1% limited partnership interest owned by RehabClinics,
Inc.

Galaxy North Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.

Galaxy West Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.

Land Park Physical Therapy California 50% owned by RehabClinics, Inc.
50% owned by Union Square Center for Rehabilitation &
Sports Medicine, Inc.

XxXxxxxx & Associates I Texas 99.9% owned by OSI Midwest, Inc.

XxXxxxxx & Associates II Texas 99.9% owned by OSI Midwest, Inc.

XxXxxxxx & Associates III Texas 99.9% owned by OSI Midwest, Inc.

XxXxxxxx & Associates IV Texas 99.9% owned by OSI Midwest, Inc.

Northwest Suburban Worker Rehabilitation Services Illinois 66-2/3% owned by RCI (WRS), Inc.
Limited Partnership

Orthomedics - Xxxxx (Rancho) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.

Orthomedics - Xxxxx (Whittier) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.

T.J. Partnership Delaware 75% owned by RehabClinics (PTA), Inc.

West Suburban Worker Rehabilitation Illinois 66-2/3% owned by RCI (WRS), Inc.
Services Limited Partnership

15
148

III. LIMITED LIABILITY CORP.

Name Jurisdiction Partnership Interest
---- ------------ --------------------

TJ Corporation I, L.L.C. Delaware RCI (Illinois), Inc. - 75% interest
WorkCare, L.L.C. Delaware NovaCare, Inc. - 88% interest

IV. OPTIONS TO PURCHASE

1. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS"). WRS
is a general and limited partner of Northwest Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc. will
acquire the remaining corporate and partnership interests on December
30, 1994 and December 30, 1995 in the amount of 16 2/3% and 16 2/3%
each year.

2. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS"). WRS
is a general and limited partner of West Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc. will
acquire the remaining corporate and partnership interests on December
30, 1994 and December 30, 1995 in the amount of 16 2/3% and 16 2/3%
each year.

3. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a 75%
participating general partnership interest in Galaxy North Limited
Partnership, an Illinois limited partnership (the "Partnership"). GSC
will acquire the remaining 40% interest in GSC on December 31, 1994
and December 31, 1995 in the amount of 20% each year and the remaining
10% limited partnership interests in the Partnership December 31, 1994
and December 31, 1995 in amount of 5% per year.

4. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a 75%
participating general partnership interest in Galaxy Worth Limited
Partnership, an Illinois limited partnership (the "Partnership"). GSC
will acquire the remaining 40% interest in GSC on December 31, 1994
and December 31, 1995 in the amount of 20% each year and the remaining
10% limited partnership interests in the Partnership December 31, 1994
and December 31, 1995 in amount of 5% per year.

5. Orthomedics - Xxxxx (Rancho), a California general partnership. A 50%
interest is held NovaCare Orthotics & Prosthetics Holdings, a Delaware
wholly owned subsidiary of NovaCare Orthotics & Prosthetics, Inc., a
Delaware wholly owned subsidiary of NovaCare, Inc. (Delaware). The
remaining 50% is owned by Xx. Xxxxx.

16
149

6. Orthomedics - Xxxxx (Whittier), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics & Prosthetics,
Inc., a Delaware wholly owned subsidiary of NovaCare, Inc.
(Delaware). The remaining 50% is owned by Xx. Xxxxx.

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NOVACARE, INC. 1016 WEST NINTH AVENUE KING OF PRUSSIA, PA 19406

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