NOVACARE EMPLOYEE SERVICES INC, S-1, 1997-09-05

NOVACARE EMPLOYEE SERVICES INC
S-1, 1997-09-05

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 5, 1997.

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM S-1

NOVACARE EMPLOYEE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7363 23-2866146
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NUMBER)
NUMBER)
</TABLE>

2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
(610) 650-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

LOREN J. HULBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOVACARE EMPLOYEE SERVICES, INC.
2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
(610) 650-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

Copies to:

<TABLE>
<S> <C> <C>
ANDREW J. BECK, ESQ. PETER D. BEWLEY, ESQ. FREDERICK W. KANNER, ESQ.
HAYTHE & CURLEY NOVACARE, INC. DEWEY BALLANTINE
237 PARK AVENUE 1016 WEST NINTH AVENUE 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10017 KING OF PRUSSIA, PENNSYLVANIA NEW YORK, NEW YORK 10019
19406
(212) 880-6000 (610) 992-7404 (212) 259-8000
</TABLE>

Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
($.01 par value)....................... 5,175,000 $13.00 $67,275,000.00 $20,387.00
===========================================================================================================
</TABLE>

(1) Includes 675,000 shares that the Underwriters have the option to purchase to
cover any over-allotments.

(2) Estimated solely for the purpose of calculating the registration fee.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 1997

[NOVACARE EMPLOYEE SERVICES LOGO]

4,500,000 SHARES

COMMON STOCK
ALL OF THE 4,500,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD
BY NOVACARE EMPLOYEE SERVICES, INC. (THE "COMPANY"). PRIOR TO THIS OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$11.00 AND $13.00 PER SHARE. SEE "UNDERWRITING" FOR INFORMATION RELATING TO THE
METHOD OF DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN
MADE FOR INCLUSION OF THE COMMON STOCK FOR QUOTATION ON THE NASDAQ STOCK
MARKET'S NATIONAL MARKET UNDER THE SYMBOL "NCES."
---------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses of the Offering payable by the Company estimated
at $750,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 675,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
---------------------

The Common Stock is offered by the Underwriters, as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC, 555 California Street,
Suite 2600, San Francisco, California 94104 on or about , 1997.

ROBERTSON, STEPHENS & COMPANY

The date of this Prospectus is , 1997
<PAGE> 3
[NOVACARE PHOTO OF INDIVIDUALS]

A BETTER WAY TO MANAGE HUMAN RESOURCES

NovaCare Employee Services offers small and medium-sized businesses a better way
to handle the management and administration of employee-related tasks. A way
that's better for employers and better for employees.

The idea is simple. NovaCare Employee Services allows small businesses to
outsource time consuming tasks--such as managing employee benefits, payroll, and
government compliance--to an organization with expertise in every facet of human
resources.

Our fundamental goal is to handle all the administrative details and provide the
peace of mind that comes from a company knowing its needs are being handled by
people with knowledge, experience and a commitment to caring.

CARING FOR AND ABOUT PEOPLE IS OUR BUSINESS

NovaCare Employee Services is one of the nation's largest and fastest growing
professional employer organizations, providing administration and management
services for over 35,000 employees in 45 states, across a wide array of
industries.

[NOVACARE EMPLOYEE SERVICES LOGO]
<PAGE> 4

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING (THE "OFFERING") OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 8
The Company........................................................................... 15
Use of Proceeds....................................................................... 16
Dividend Policy....................................................................... 16
Dilution.............................................................................. 17
Capitalization........................................................................ 18
Selected Financial and Statistical Data............................................... 19
Pro Forma Financial Information....................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 23
Business.............................................................................. 32
Management............................................................................ 49
Principal Shareholders................................................................ 55
Certain Transactions.................................................................. 56
Description of Capital Stock.......................................................... 56
Shares Eligible for Future Sale....................................................... 58
Underwriting.......................................................................... 59
Validity of Common Stock.............................................................. 60
Experts............................................................................... 60
Additional Information................................................................ 61
Index to Financial Statements......................................................... 62
</TABLE>

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

The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited consolidated
financial statements for each of the first three quarters of each fiscal year.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

3
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Unless otherwise indicated, information in this Prospectus
assumes no exercise of the Underwriters' option to purchase from the Company up
to 675,000 additional shares of the Company's common stock (the "Common Stock")
to cover over-allotments, if any. This Prospectus contains forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include the inability of the Company to carry
out its growth strategy and the other factors discussed under "Risk Factors."
Prospective investors should carefully consider the information set forth under
"Risk Factors."

THE COMPANY

NovaCare Employee Services, Inc. (the "Company") is one of the largest and
fastest growing professional employer organizations ("PEO"s) in the United
States. The Company is an employee services company which provides small to
medium-sized businesses with comprehensive, fully integrated outsourcing
solutions to human resource issues, including payroll management, risk
management, benefits administration, unemployment services and human resource
consulting services. The Company believes its services enable small and
medium-sized businesses to cost-effectively manage and enhance the employment
relationship by: (i) controlling the risks and costs associated with workers'
compensation, workplace safety and employee-related litigation; (ii) providing
employees with high quality health care coverage and related benefits; (iii)
managing the increasingly complex legal and regulatory environment affecting
employment; and (iv) achieving scale advantages typically available to larger
organizations. As of June 30, 1997, the Company served 1,742 clients and had
35,028 employees ("worksite employees") at over 3,000 worksites in 45 states,
principally in 10 different industries.

The Company was established in September 1996 by NovaCare, Inc. (the
"Parent") and began operations in October 1996 with the acquisition of Resource
One, Inc. ("Resource One"). Three additional acquisitions were completed in
February 1997. On July 1, 1997, the Company acquired the rehabilitation
temporary staffing division of the Parent. For the year ended June 30, 1997 the
Company had pro forma revenues of over $878 million. See "Pro Forma Financial
Information".

The National Association of Professional Employer Organizations ("NAPEO")
estimates the PEO industry has approximately $18 billion in annual revenues with
an historical growth rate over the last five years of approximately 30% per
year. According to the U.S. Small Business Administration, there are nearly six
million businesses in the United States with under 100 employees, employing over
52 million persons and with approximately $1.1 trillion in aggregate annual
payroll. The Company believes approximately 49 million of these employees are
currently unserved by the PEO industry.

The PEO industry is highly fragmented. NAPEO data suggest that there are at
least 2,400 PEOs currently in operation and that the ten largest PEOs account
for less than 10% of existing revenues in the industry. The Company believes
that significant consolidation opportunities exist within the PEO industry due
to increasing regulatory complexity and capital requirements associated with
developing larger service delivery infrastructures, more diversified services
and more sophisticated management information systems.

The Company's objective is to be the brand, service and performance leader
in the PEO industry by focusing on caring service, operational excellence and
growth. In addition to emphasizing cost-effectiveness and providing a breadth of
services, the Company creates relationships with both its clients and worksite
employees by contractually assuming certain administrative and financial
employer responsibilities with respect to worksite employees in a
"co-employment" relationship. By focusing on employee services, the Company
believes that it helps create a more profitable, more productive and more
satisfying relationship between clients and employees.

4
<PAGE> 6

The Company's operating and growth strategies are intended to leverage the
capabilities and expertise of the Parent. Through its relationship with the
Parent, the Company has access to: a large, stable and growing employee base;
sophisticated infrastructure resulting from investments made by the Parent in
human resource management and information technology; management control
systems; and workers' compensation risk management experience. At June 30, 1997,
the Company provided employee services to 15,072 employees of the Parent
pursuant to a five-year evergreen contract. In addition to leveraging its
relationship with the Parent, the Company plans to grow and operate its business
by: (i) increasing its sales force and marketing efforts; (ii) implementing its
sophisticated business model; (iii) focusing on geographic expansion; (iv)
targeting high potential industries; and (v) acquiring PEOs and other employee
service providers and entering into strategic alliances.

The Company is a Delaware corporation with executive offices at 2621 Van
Buren Avenue, Norristown, PA 19403, and its telephone number at that address is
(610) 650-4700. The Company transacts business directly and through its
subsidiaries. Unless the context otherwise requires, all references in this
Prospectus to the Company include its subsidiaries.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company(1)...................... 4,500,000 shares
Common Stock outstanding after the Offering(1)(2)........... 25,143,187 shares
Use of proceeds............................................. To repay certain indebtedness
and for general corporate
purposes
Proposed Nasdaq National Market symbol...................... NCES
</TABLE>

- ---------------
(1) Does not include up to 675,000 shares of Common Stock that may be sold
pursuant to the Underwriters' over-allotment option.

(2) Based on the number of shares of Common Stock outstanding at August 31,
1997. Does not include 625,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan. See "Management -- Stock Option Plan"
and Note 11 of Notes to the Company's Consolidated Financial Statements.

5
<PAGE> 7

SUMMARY FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA AS
------------------- ADJUSTED(2)
PERIOD FROM -------------
OCTOBER 1, 1996 YEAR ENDED
TO JUNE 30, 1997(1) JUNE 30, 1997
------------------- -------------
<S> <C> <C>
OPERATING RESULTS:
Revenues(3).............................................. $ 394,193 $ 878,097
Direct Costs:
Salaries, wages and employment taxes of worksite
employees........................................... 357,238 790,769
Health care, workers' compensation, state unemployment
taxes and other..................................... 24,717 62,825
-------- --------
Gross profit........................................ 12,238 24,503
Selling, general and administrative expenses............. 8,273 21,295
Amortization of excess cost of net assets acquired....... 1,034 2,268
-------- --------
Income from operations.............................. 2,931 940
Interest expense, net.................................... (697) (18)
-------- --------
Income before income taxes.......................... 2,234 922
Income taxes............................................. 1,542 1,366
-------- --------
Net income (loss)................................... $ 692 $ (444)
======== ========
Pro forma net income (loss) per share.................... $ .03 $ (.02)
======== ========
Weighted average number of shares outstanding............ 20,574 24,398
======== ========
STATISTICAL DATA:
EBITDA (in thousands)(4)................................. $ 4,217 $ 3,927
Number of clients at period end.......................... 1,742 1,742
Worksite employees paid at period end:
Third parties......................................... 18,634 19,956
Related party......................................... 16,394 15,072
-------- --------
Total............................................ 35,028 35,028
======== ========
Weighted average worksite employees paid during the
period:
Third parties......................................... 11,764 18,123
Related party......................................... 15,879 14,428
Weighted average................................. 18,582 32,551
Gross profit per weighted average worksite employee
(in whole $'s):
Third parties......................................... $ 665 $ 731
Related party......................................... 650 780
Weighted average................................. $ 659 $ 753
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(5)(6)
------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................. $39,879 $ 41,669 $ 44,787
Total assets................................... 95,998 98,330 100,871
Current liabilities............................ 88,721 91,178 45,296
Financing arrangements......................... 1,366 1,366 1,366
Mandatorily redeemable common stock............ 2,731 2,731 --
Shareholders' equity........................... 301 176 51,330
</TABLE>

6
<PAGE> 8

SUMMARY QUARTERLY FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED(2)
FOR THE QUARTER ENDED
---------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ --------- --------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues(3).................................................... $ 202,285 $219,367 $223,333 $233,112
Direct Costs:
Salaries, wages and employment taxes of worksite employees... 183,678 199,071 200,951 207,069
Health care, workers' compensation, state unemployment taxes
and other.................................................. 13,813 14,875 15,507 18,630
-------- -------- -------- --------
Gross profit............................................ 4,794 5,421 6,875 7,413
Selling, general and administrative expenses................... 4,956 6,088 5,184 5,067
Amortization of excess cost of net assets acquired............. 529 556 616 567
-------- -------- -------- --------
(Loss) income from operations........................... (691) (1,223) 1,075 1,779
Interest (expense) income, net................................. (8) (34) 36 (12)
-------- -------- -------- --------
(Loss) income before income taxes....................... (699) (1,257) 1,111 1,767
Income taxes................................................... 75 67 328 896
-------- -------- -------- --------
Net (loss) income....................................... $ (774) $ (1,324) $ 783 $ 871
======== ======== ======== ========
Pro forma net (loss) income per share.......................... $ (.03) $ (.05) $ .03 $ .03
======== ======== ======== ========
STATISTICAL DATA:
EBITDA (in thousands)(4)....................................... $ 53 $ (418) $ 1,810 $ 2,482
Number of clients at period end................................ 1,437 1,499 1,531 1,742
Worksite employees paid at period end:
Third parties................................................ 17,080 17,750 18,088 19,956
Related party................................................ 13,340 14,049 14,557 15,072
-------- -------- -------- --------
Total................................................... 30,420 31,799 32,645 35,028
======== ======== ======== ========
Weighted average worksite employees paid during the period:
Third parties................................................ 16,685 17,415 17,919 19,022
Related party................................................ 13,562 13,695 14,303 14,815
Weighted average........................................ 30,247 31,110 32,222 33,837
Gross profit per weighted average worksite employee per quarter
(in whole $'s):
Third parties................................................ $ 159 $ 164 $ 212 $ 208
Related party................................................ 158 187 216 234
Weighted average........................................ $ 159 $ 174 $ 213 $ 219
</TABLE>

- ---------------
(1) The Company commenced operations effective October 1, 1996, concurrent with
the acquisition of Resource One, which was accounted for as a purchase. The
computation of weighted average number of shares outstanding is consistent
with the computation of weighted average number of shares outstanding for
pro forma net income per share described in Note 1 of Notes to the Company's
Consolidated Financial Statements.

(2) Adjusted on a pro forma basis to give effect to the acquisitions of Resource
One, Inc., Employee Services of America, Inc., The TPI Group, Ltd., ProStaff
Human Resources, Inc., NovaPro and the Company's contract with the Parent
(the "NovaCare Contract") (see Note 2 of Notes to the Company's Consolidated
Financial Statements) as if they occurred on July 1, 1996. NovaPro, formerly
a business of the Parent, was acquired from the Parent effective July 1,
1997. The application of a portion of the proceeds of the Offering is
assumed to pay certain debt which reduces pro forma as adjusted interest
expense. Additionally, the pro forma adjusted worksite employee statistical
data reflect 1,322 worksite employees which became third party employees
upon the consummation of the NovaPro acquisition. The as adjusted pro forma
statement of operations does not purport to represent what the Company's
actual results of operations would have been if such acquisitions, the
NovaCare Contract and this offering had occurred on July 1, 1996, or to
project the Company's results of operations for any future period. See the
Consolidated Pro Forma Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus. The computation of weighted average numbers of
shares outstanding is consistent with the computation of weighted average
number of shares outstanding for supplemental pro forma net income per share
described in Note 1 of Notes to the Company's Consolidated Financial
Statements.

(3) Revenues include all amounts billed to clients for gross salaries and wages,
related employment taxes and health care and workers' compensation coverage
of worksite employees.

(4) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation or as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. Also, the EBITDA definition used herein may not be comparable to
similarly titled measures reported by other companies.

(5) Adjusted on a pro forma basis to include the assets and liabilities of
NovaPro as of June 30, 1997.

(6) Adjusted to give effect to the conversion of mandatorily redeemable Common
Stock into stockholders' equity and the Offering and the application of the
net proceeds therefrom, as if each of the foregoing had occurred as of June
30, 1997. See the Consolidated Pro Forma Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.

7
<PAGE> 9

RISK FACTORS

In addition to the other information contained elsewhere in this
Prospectus, prospective investors should consider carefully the factors listed
below before purchasing any of the Common Stock offered hereby. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below as well as those discussed
elsewhere in this Prospectus.

SHORT OPERATING HISTORY; NO ASSURANCE OF PROFITABLE OPERATIONS

The Company commenced operations in October 1996 with the acquisition of
Resource One. Prior to the acquisition of Resource One, the Company conducted no
significant operations. The Company has a limited operating history and is
subject to various uncertainties and risks characteristic of development stage
companies. In addition, there can be no assurance that the Company will be able
to integrate successfully the operations of its recently completed acquisitions.
The Company's success will depend, to a large degree, upon the successful
implementation of its business strategy. There can be no assurance that this
strategy will yield profitable operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 of Notes
to the Company's Consolidated Financial Statements.

LIMITS ON ABILITY TO PASS THROUGH CERTAIN COSTS

Health insurance premiums, state unemployment taxes and workers'
compensation rates are in part determined by the Company's claims experience and
comprise a significant portion of the Company's direct costs. The Company
employs risk management procedures in an attempt to control its claims
incidences. However, should the Company experience a large increase in claims
activity, its unemployment taxes, health insurance premiums or workers'
compensation insurance rates may increase. The Company's ability to incorporate
such increases into service fees to clients is constrained by contractual
arrangements with clients and competitive factors. As a result, such increases
could have a material adverse effect on the Company's business, financial
condition, results of operations and liquidity.

SHORT-TERM NATURE OF PEO SERVICES AGREEMENTS; CLIENT ATTRITION

The Company's standard PEO services agreement provides for an initial
one-year term; thereafter, the agreement is renewed periodically. The agreement
is subject to termination without cause by the Company or the client upon 30
days' prior written notice. The Company experiences terminations and
non-renewals every quarter and there can be no assurance that the Company can
replace these clients. A significant number of terminations or non-renewals
could have a material adverse effect on the Company's business, financial
condition, results of operations and liquidity. See "Business -- Employee and
Client Services."

ADEQUACY OF RESERVES FOR WORKERS' COMPENSATION CLAIMS

The maintenance of a workers' compensation insurance plan that covers
worksite employees is a significant part of the Company's business. As part of
its standard PEO services agreement with its clients, the Company assumes the
financial obligations of its clients to pay workers' compensation claims of
worksite employees. Through June 30, 1997, certain of the Company's worksite
employees were covered by large deductible workers' compensation insurance
policies and certain other worksite employees were covered by guaranteed cost or
low deductible workers' compensation insurance policies. Consequently, the
Company is financially liable for substantially all of the workers' compensation
claims of these worksite employees that occurred on or before June 30, 1997 up
to the applicable deductible. The Company maintains reserves for the pre-July 1,
1997 workers' compensation claims based on periodic reviews of open claims as
well as past claims experience. The

8
<PAGE> 10

Company cannot predict with certainty the ultimate liability associated with
open claims, and past claims experience may not be indicative of future results.
Accordingly, if the ultimate liability with respect to these open claims proves
to be greater than estimated reserve amounts, the Company's business, financial
condition, results of operations and liquidity could be materially adversely
affected.

Effective July 1, 1997, the Company and the Liberty Mutual Group ("Liberty
Mutual") entered into a workers' compensation deductible program extending
through June 30, 2000 containing an aggregate stop-loss that limits the
liability of the Company to a capped percentage of the standard premium or a
fixed aggregate deductible, whichever is greater. There can be no assurance that
upon contract expiration a replacement contract will be secured on competitive
terms without causing significant disruption to the Company's business. See
"Business -- Workers' Compensation and Health care Program" and Notes 1 and 6 of
Notes to the Company's Consolidated Financial Statements.

ADEQUACY OF RESERVES FOR HEALTH CARE CLAIMS

As part of its standard PEO services agreement with its clients, the
Company also assumes the financial obligation to provide health care coverage
for worksite employees. While the Company has purchased certain insurance
coverage to limit this exposure, it has not purchased such insurance for the
worksite employees of the Parent, of which there were 15,027 at June 30, 1997.
As a result, the Company is self-insured with respect to health care coverage
for the Parent's worksite employees and, therefore, is financially liable for
any health care claims of such worksite employees. The Company maintains
reserves for health care claims based on periodic reviews of open claims as well
as past claims experience. However, the Company cannot predict with certainty
the ultimate liability associated with open claims, and past claims experience
may not be indicative of future results. Accordingly, if the ultimate liability
with respect to these open claims proves to be greater than estimated reserve
amounts, the Company's business, financial condition, results of operations and
liquidity could be materially adversely affected. See "Business -- Workers'
Compensation and Health Care Program" and Notes 1 and 6 of Notes to the
Company's Consolidated Financial Statements.

REGULATION OF PEOS

The Company's operations are affected by numerous federal, state and local
laws relating to insurance, tax and employment matters. By entering into a
co-employment relationship with clients, the Company assumes certain employer
obligations and responsibilities under these laws. The Company's business model
and services have been developed based on the premise that the Company is an
employer for certain purposes under common law. However, because many of the
laws related to the employment relationship were enacted prior to the
development of alternative employment arrangements, such as those provided by
PEOs and other staffing businesses, many of those laws do not specifically
address the obligations and responsibilities of non-traditional employers.
Interpretive issues concerning such relationships have arisen and remain
unsettled. Uncertainties arising under the Internal Revenue Code of 1986, as
amended (the "Code"), include, but are not limited to, the qualified tax status
and favorable tax status of certain benefit plans provided by the Company and
other alternative employers. See "Risk of Loss of Qualified Status for Certain
Tax Purposes" below. The unfavorable resolution of these unsettled issues could
have a material adverse effect on the Company's business, financial condition,
results of operations and liquidity.

There can be no assurance that existing laws and regulations which are not
currently applicable to the Company will not be interpreted more broadly in the
future so as to apply to the Company's existing activities, or that new laws and
regulations will not be enacted with respect to the Company's activities, either
of which could have a material adverse effect on the Company's business,
financial condition, results of operations and liquidity.

While many states do not explicitly regulate PEOs, approximately one-third
of the states (including Florida) have adopted licensing or registration
requirements for PEOs, and several additional states (including Pennsylvania)
are considering implementation of such requirements. Such

9
<PAGE> 11

laws vary from state to state but generally provide for monitoring the fiscal
responsibility of PEOs and specify the employer responsibilities assumed by
PEOs. There can be no assurance that the Company will be able to comply with any
licensing or registration requirements which may be imposed upon it in the
future. In addition, there can be no assurance that states will not pass laws
limiting the ability of PEOs to provide services which, if enacted, may impede
the Company's growth. See "Business -- Regulation."

RISK OF LOSS OF QUALIFIED STATUS FOR CERTAIN TAX PURPOSES

The Internal Revenue Service (the "IRS") is conducting a market segment
study of the PEO industry (the "Market Segment Study") focusing on selected PEOs
(not including the Company) in order to examine the relationship among PEOs,
their clients, worksite employees and the owners of clients. If the IRS
concludes that PEOs are not "employers" of certain worksite employees for
purposes of the Code, the tax-qualified status of the Company's 401(k) plans
could be revoked, its cafeteria plans may lose their favorable tax status, and
the Company may no longer be able to assume the client company's federal
employment tax withholding obligations. If the loss of qualified tax status for
the Company's 401(k) plans or cafeteria plans is applied retroactively,
employees' vested account balances would become taxable immediately to the
employees, the Company would lose its tax deduction to the extent the
contributions were not vested, the plans' trusts would become taxable trusts and
penalties could be assessed. In such a case, the Company would face the risk of
client dissatisfaction as well as potential litigation, and its business,
financial condition, results of operations and liquidity could be materially
adversely affected. In addition, if the Company is required to report and pay
employment taxes for the separate accounts of its clients rather than for its
own account as a single employer, the Company could incur increased
administrative burdens. The Company is unable to predict the timing or nature of
the findings of the Market Segment Study or the ultimate outcome of such
findings. See "Business -- Regulation."

LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS

A number of legal issues remain unresolved with respect to the
co-employment arrangements among PEOs, their clients and worksite employees,
including questions concerning the ultimate liability for violations of
employment and discrimination laws. The Company's standard PEO services
agreement establishes a contractual division of responsibilities between the
Company and each client for various human resource matters, including compliance
with and liability under various governmental regulations. However, as a result
of the Company's status as a co-employer, the Company may be subject to
liability for violations of these or other laws despite such contractual
provisions even if it does not participate in such violations. Although such PEO
services agreements generally provide that the client is to indemnify the
Company for any liability attributable to the client's failure to comply with
its contractual obligations and the requirements imposed by law, the Company may
not be able to collect on such a contractual indemnification claim and thus may
be responsible for satisfying such liabilities. In addition, worksite employees
may be deemed to be agents of the Company, subjecting the Company to liability
for the actions of such worksite employees. See "Business -- Employee and Client
Services" and "Business -- Regulation."

RISKS OF ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED BUSINESSES

One of the Company's principal strategies is to increase its revenues and
the markets it serves through the acquisition of PEOs and other employee
services companies. There can be no assurance that the Company will be able to
identify and acquire attractive acquisition candidates, profitably manage such
acquired companies or successfully integrate such acquired companies into the
Company without substantial costs, delays or other problems. Acquisitions may
involve a number of special risks, including, but not limited to, adverse
short-term effects on the Company's reported financial condition or results of
operations, diversion of management's attention, dependence on retention, hiring
and training of key personnel, risks associated with unanticipated problems or
liabilities and amortization

10
<PAGE> 12

of acquired intangible assets, some or all of which could have a material
adverse effect on the Company's business, financial condition, results of
operations or liquidity. In addition, there can be no assurance that companies
acquired in the future will be profitable at the time of acquisition or that the
companies recently acquired or acquired in the future will achieve sales and
profitability justifying the Company's investment therein or that the Company
will recognize the synergies expected from such acquisitions; the failure to
obtain any or all of which could have a material adverse effect on the Company's
business, financial condition, results of operations and liquidity. See
"Business -- Growth Strategy."

RISKS ASSOCIATED WITH FINANCIAL POSITION OF CLIENTS

In providing its services, the Company enters into a co-employment
relationship with worksite employees and assumes the obligations to pay the
wages and related benefit costs and payroll taxes of such worksite employees.
The Company's standard PEO services agreement with its clients obligates the
client to reimburse the Company for these payments. The Company's obligations
include responsibility for payroll for worksite employees and payment of payroll
withholding taxes, federal and state unemployment taxes, and taxes due under the
Federal Income Contribution Act ("FICA"). The Company assumes such obligations
as a principal, not merely as an agent of the client, and is therefore liable
for such obligations even if the client defaults in its payment to the Company.
Although the Company retains the right to terminate immediately its PEO services
agreement with the client, as well as its relationship with the worksite
employees, due to nonpayment by the client, the Company remains liable to
satisfy payroll obligations for services performed prior to such termination in
the event of a client default. The Company may require the owners of its clients
to guarantee personally the performance of the PEO services agreement. However,
there can be no assurance that such owners would be financially able to satisfy
such guarantee obligations. There can be no assurance that the Company's
ultimate liability for worksite employee payroll and related tax costs will not
have a material adverse effect on its business, financial condition, results of
operations or liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DEPENDENCE ON THE PARENT; POTENTIAL CONFLICTS WITH THE PARENT

The Company was established in September 1996 by the Parent. See "The
Company." Upon consummation of the Offering, the Parent will beneficially own
approximately 77% of the Company's Common Stock (75% if the Underwriters'
over-allotment option is exercised in full) and will, in effect, have the power
to elect all the directors of the Company and to control the Company's policies.
See "Principal Shareholders."

In February 1997, the Parent and the Company entered into the NovaCare
Contract whereby the Parent's employees are co-employed by the Company for a
five-year term, ending on December 31, 2001. Under the NovaCare Contract, the
Company provides traditional PEO services such as payroll administration,
worksite safety evaluation, employment-related risk management and benefits
consultation for substantially all of the Parent's employees. On a pro forma
basis, the Parent accounted for approximately 67% of the Company's revenues
during the quarter ended June 30, 1997 and approximately 65% of the Company's
revenues for the year ended June 30, 1997. No other client accounted for more
than 10% of the Company's revenues during that period or for calendar 1996 on a
pro forma basis. Any material reduction in the Parent's workforce or adverse
change in or termination of the NovaCare Contract would have a material adverse
effect on the Company's business, financial condition, results of operations and
liquidity. See "Business -- Employee and Client Services,"
"Business -- Relationship with the Parent" and "Certain Transactions."

Four directors of the Company are also directors of the Parent. One of
these directors is also Chairman of the Company and two others are officers of
the Parent. These directors may have conflicts of interest with respect to
matters concerning the Company and its relationship with the Parent. The Company
has not adopted any formal procedures regarding potential conflicts of interest
with the Parent. Except as contemplated by this Prospectus, the Company does not
currently intend to enter

11
<PAGE> 13

into material transactions with the Parent, but the Company may enter into
transactions with the Parent which may be more favorable to the Parent than to
the Company. See "Business -- Relationship with the Parent" and "Certain
Transactions."

The Company has entered into an agreement with the Parent pursuant to which
the Company purchases certain services from the Parent, including information
technology, finance, business development, regulatory and legal services. There
can be no assurance that circumstances will not arise between the Company and
the Parent as a result of which the Company would be required to obtain these
services from other third parties at significantly higher prices or develop
these capabilities internally. The unavailability of these services to the
Company for any reason could have a material adverse effect on the Company's
business, financial condition, results of operations and liquidity. See
"Business -- Relationship with the Parent" and "Certain Transactions."

RISKS ASSOCIATED WITH INTANGIBLE ASSETS

At June 30, 1997, the Company's total assets were approximately $96.0
million, of which approximately $53.7 million, or 56%, represented the excess of
cost over fair market value of net assets acquired relating to the acquisition
of businesses (intangible assets). The intangible assets consist of
approximately $45.9 million in goodwill which is being amortized over 40 years,
$5.2 million assigned to customer lists with an eight-year amortization period
and $2.6 million assigned to noncompete and workforce agreements with a
five-year and an eight-year amortization period, respectively. While the Company
believes the value represented by intangible assets will be realized through the
future contribution of the acquired businesses to earnings and cash flow of the
Company, there can be no assurance that such projected contribution to earnings
and cash flow will be realized. The amortization of such intangible assets,
substantially all of which is not deductible for income tax purposes, will
produce an annual charge to income from operations of approximately $1.7
million, which will adversely impact the Company's earnings. This charge could
be greater in future years as the Company pursues additional acquisitions. The
Company will evaluate on a regular basis whether events and circumstances have
occurred that indicate that the carrying amount of the intangible assets may
warrant revision or may not be recoverable. Any such future determination
requiring the write-off of a significant portion of unamortized intangible
assets could adversely affect the Company's financial position and results of
operations for the period in which any such write-offs occur.

OBLIGATIONS IN CONNECTION WITH ACQUISITIONS

In connection with acquisitions of businesses by the Company, the Company
is obligated to pay additional cash and stock consideration to sellers of
businesses, certain of which are contingent upon achievement of certain
operating objectives. The amount of cash to be paid and the number of shares of
the Company's Common Stock to be issued with respect to the contingent payments
cannot be determined until contingent payment periods terminate and achievement
of certain criteria is established. As of July 1, 1997, if the criteria for the
contingent payments with respect to each of the Company's acquisitions to date
were achieved, but not exceeded, the Company would be obligated to make future
cash payments of $2.5 million and issue 125,000 shares of its Common Stock over
the next three years. A lesser amount of cash would be payable and a lesser
number of shares of Common Stock would be issuable under certain acquisition
agreements if the operating objectives were not met, and a greater amount of
cash would be payable and a greater number of shares of Common Stock would be
issuable under certain acquisition agreements if the operating objectives were
exceeded. In certain of the acquisitions, there is no maximum as to the amount
such sellers may receive. For example, as of July 1, 1997, if the operating
objectives with respect to each of the acquisitions were to be exceeded by 20%,
the Company would be obligated to make cash payments of $2.9 million and issue
150,000 shares of Common Stock over the next three years. If, in each case, the
contingent payment goals were met, the acquired company would have achieved
operating income which the Company believes should generate earnings
significantly in excess of any incremental contingent payment due, although,
there can be no assurance that it will do so. In addition to the contingent
obligations, the Company is

12
<PAGE> 14

obligated in any event to make future cash payments of $1,797,000 and issue
341,063 shares of its Common Stock over the next three years as part of the
deferred purchase price for certain of the acquisitions. The Company believes
that it will be able to make such cash payments from internally generated funds
and, if necessary, proceeds of future borrowings. However, there can be no
assurance that the Company will generate or be able to borrow sufficient cash to
fund such obligations. The Company expects to continue to enter into acquisition
agreements providing for future contingent earn-out arrangements primarily based
on the achievement of financial criteria. The Company believes that it will
continue to be able to make such cash payments (as well as any payments to
repurchase Common Stock as described below) from cash on hand and, if necessary,
proceeds of future borrowings. However, there can be no assurance that the
Company will generate sufficient cash or obtain debt financing to fund such
payments or that future acquisitions will not adversely affect cash generated
from operations.

In addition, in connection with certain acquisitions, the Company granted
to the sellers the right to require the Company to repurchase, at prices of up
to $16 per share, all shares of the Company's Common Stock received by such
sellers (up to 1,298,000 shares in the aggregate), as consideration for the
acquisitions, including those shares of the Company's Common Stock received
pursuant to contingent payments, in the event that the Company's Common Stock is
not, by specific dates, (i) listed or traded on a national securities exchange,
(ii) listed on the Nasdaq National Market or (iii) traded in the Nasdaq SmallCap
Market. Moreover, in the event that (i) a change in control of the Company
occurs, (ii) the Company has not effected an initial public offering of its
Common Stock by specific dates at certain minimum offering prices, or (iii) the
closing price of the Company's Common Stock does not exceed certain targets as
of December 31, 1998, the Company may be required to repurchase all such shares
of its Common Stock.

In addition to cash payments, the Company expects that it will continue to
issue shares of Common Stock in connection with future acquisitions both at the
time of closing and as earn-out payments. No predictions can be made as to the
timing or amount of any such future issuances of Common Stock.

In addition to the above payments, the Company is obligated to make
additional cash payments upon the consummation of the Offering to the sellers of
certain of the businesses acquired by the Company. As of July 1, 1997, the
Company is obligated to make cash payments of $17.5 million upon the
consummation of the Offering. See "Use of Proceeds."

UNCERTAINTY OF IMPACT OF HEALTH CARE AND WORKERS' COMPENSATION REFORM

Regulation in the health care and workers' compensation fields continues to
evolve, and the Company is unable to predict what additional government
regulations, if any, that affect its business may be adopted in the future. In
addition, health care reform and/or specific changes in laws or regulations may
affect demand for the Company's services, require the Company to develop new or
modified services to meet the demands of the marketplace, or modify the fees
that the Company may charge for its services. See "Business -- Regulation."

RISKS ASSOCIATED WITH GEOGRAPHIC MARKET CONCENTRATION AND EXPANSION INTO
ADDITIONAL STATES

The Company operates primarily in Florida, Pennsylvania and New York, with
such states accounting for approximately 29%, 10% and 9%, respectively, of the
Company's revenues for fiscal 1997 on a pro forma basis. As a result, for the
foreseeable future, a significant portion of the Company's revenues will be
subject to economic factors specific to those states. No other state accounted
for more than 5% of the Company's revenues for fiscal 1997. Because the
Company's expansion plans target markets in states with high existing worksite
employee populations, growth is likely to increase the Company's exposure to
market-specific economic risks in the near term. Future growth of the Company's
operations depends, in part, on its ability to offer its services to prospective
clients in additional states. Currently, approximately one-third of the states
require the licensing or registration

13
<PAGE> 15

of PEOs. The Company is licensed in seven states and has begun the licensing
process in eight states. In order to operate effectively in a new state that has
licensing regulations, the Company must obtain all necessary regulatory
approvals, achieve acceptance in the local market, adapt its procedures to that
state's regulatory requirements and local market conditions and establish
internal controls that enable it to conduct operations in several locations. The
length of time required to obtain regulatory approval to begin operations will
vary from state to state. There can be no assurance that the Company will be
able to satisfy licensing requirements or other applicable regulations of any
particular state, that it will be able to provide the full range of services
currently offered in the states where it currently conducts business, or that it
will be able to operate profitably within the regulatory environment of any
state in which it does obtain regulatory approval. The absence of required
licenses would require the Company to restrict the services it offers. See
"Business -- Regulation." Moreover, as the Company expands into additional
states, there can be no assurance that the Company will be able to duplicate in
other markets the revenue growth and operating results experienced in its
current markets.

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

The Company's quarterly results of operations are subject to a number of
seasonal variations, including seasonal variations in employment levels and
patterns and the effect of employment tax limits, none of which can be predicted
with any degree of certainty.

COMPETITION

The PEO industry is highly fragmented, with at least 2,400 companies
(according to an estimate by NAPEO) providing PEO services. The Company
encounters competition from other national and regional PEOs and single-service
and "fee for service" companies such as payroll processing firms, insurance
companies, workers' compensation safety consultants and human resource
consultants. In addition, the Company may encounter substantial competition from
new national market entrants. Some of the Company's current and future
competitors may be significantly larger, have greater name recognition and have
greater financial, marketing and other resources than the Company. There can be
no assurance that the Company will be able to compete effectively against such
competitors in the future. There are low barriers to entry into the PEO business
in most states where the Company operates and competitive pricing may adversely
affect growth and/or margins. See "Business -- Competition."

DEPENDENCE ON KEY MANAGEMENT

The success of the Company is highly dependent on the services of current
management. The loss of key management personnel or an inability to attract,
retain and motivate sufficiently experienced management could adversely affect
the Company's operations.

SUBSTANTIAL AND IMMEDIATE DILUTION

Investors in the Offering will experience immediate and substantial
dilution in net tangible book value (deficit) per share of Common Stock. Based
upon an assumed offering price of $12.00 per share, dilution to investors in the
Offering will be $12.10 per share and the net tangible book value (deficit) of
the shares held by all stockholders will be $(.10) per share. See "Dilution."

ABSENCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active trading market will
develop or be sustained upon the completion of the Offering, or that the market
price of the Common Stock will not decline below the initial offering price. The
initial public offering price of the Company's Common Stock offered hereby has
been determined by negotiations between the Company and the Underwriters. The
market price for shares of the Company's Common Stock may be highly volatile
depending on news announcements

14
<PAGE> 16

of the Company related to quarterly operating results or other matters, general
trends in the Company's industry, changes in general market conditions and other
factors. In recent years the stock market has experienced extreme price and
volume fluctuations.

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, there will be outstanding 25,143,187
shares of Common Stock. The 4,500,000 shares sold in the Offering will be freely
tradable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except to the extent acquired by affiliates of the Company.
The Company, its officers and directors and all other holders of Common Stock
and securities convertible into or exercisable or exchangeable for Common Stock
have agreed that for a period of 180 days after the date of this Prospectus (the
"Lockup Period") they will not, without the prior written consent of Robertson,
Stephens & Company LLC, offer, sell, contract to sell or otherwise dispose of
any Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock except, in the case of the Company, in certain
limited circumstances. Upon expiration of the 180-day period, at least 1,012,687
shares of Common Stock will be eligible for sale pursuant to Rule 144 under the
Securities Act, subject in some cases to compliance with Rule 144 volume
limitations, of which 287,008 shares are held by officers, directors and
affiliates of the Company. Sales of a substantial amount of such shares could
have a significant adverse effect on the market price of the Common Stock. See
"Shares Eligible for Future Sale."

NO DIVIDENDS

The Company intends to retain all of its earnings to finance the expansion
of its business and for general corporate purposes and does not anticipate
paying any cash dividends on its Common Stock for the foreseeable future. See
"Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

THE COMPANY

The Company was established by the Parent in September 1996 to enter the
employee services business. It began operations as of October 1, 1996 with the
acquisition of Resource One, a PEO based in Maitland, Florida. In February 1997,
the Company acquired three additional PEOs -- Employee Services of America, Inc.
("ESA"), The TPI Group, Ltd. ("TPI") and Prostaff Human Resources, Inc.
("Prostaff") -- and entered into the NovaCare Contract with the Parent to
co-employ the Parent's workforce. On July 1, 1997, the Company acquired from the
Parent the assets of the Parent's NovaPro rehabilitation temporary staffing
division.

15
<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,500,000 shares of
Common Stock offered hereby, assuming an offering price of $12.00 per share, and
after deducting estimated underwriting discounts and commissions and offering
expenses, are estimated to be $49.5 million ($57.0 million if the Underwriters'
over-allotment option is exercised in full).

The Company intends to use approximately $45.9 million of the net proceeds
from the Offering to retire certain outstanding indebtedness as follows: (i) to
repay the Company's outstanding revolving credit loan of $28.4 million from the
Parent, at an interest rate equal to the EuroDollar rate plus 0.5% to 1.125%
depending on certain cash flow calculations, which was incurred to finance the
Company's acquisitions and to provide the Company with working capital and which
is due upon the earlier of November 28, 1999 and the consummation of the
Offering, and (ii) to satisfy $17.5 million of deferred purchase price
obligations incurred in connection with the Company's acquisitions. The
approximately $3.6 million of remaining net proceeds will be used for working
capital and general corporate purposes. Pending such uses, the Company intends
to invest the net proceeds of the Offering in short-term, interest-bearing
investment grade debt securities, certificates of deposit or direct or
guaranteed obligations of the United States.

DIVIDEND POLICY

The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The payment of
cash dividends in the future will depend on the Company's earnings, financial
condition and capital needs and on other factors deemed pertinent by the
Company's Board of Directors. It is the current policy of the Company's Board of
Directors to retain earnings to finance the operations and expansion of the
Company's business.

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<PAGE> 18

DILUTION

The Company had a net tangible book value (deficit) of $(54,061,000), or
$(2.78) per share of the Common Stock at June 30, 1997. Giving effect to the
sale of the Common Stock offered hereby at an assumed public offering price of
$12.00 per share, and after deducting assumed underwriting discounts and
commissions and offering expenses, such net tangible book value (deficit) would
have been $(2,330,000), or $(.10) per common share. This represents an immediate
increase in net tangible book value of $2.54 per common share to existing
stockholders and an immediate dilution of $12.10 per common share to purchasers
of shares in the Offering. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock(1)........ $ 12.00
Net tangible book value (deficit) per share of Common Stock before
the Offering(2)................................................. $(2.78)
Decrease in net tangible book value (deficit) attributable to the
conversion of mandatorily redeemable Common Stock(3)............ .14
Decrease in net tangible book value (deficit) attributable to new
investors....................................................... 2.54
------
Net tangible book value (deficit) per share of Common Stock after
the Offering.................................................... (.10)
-------
Dilution of net tangible book value per share to new
investors(4).................................................... $(12.10)
=======
</TABLE>

- ---------------
(1) Assumed public offering price before deduction of assumed underwriting
discounts and commissions and estimated offering expenses.

(2) Negative net tangible book value (deficit) per share of Common Stock without
considering the purchase of shares of Common Stock by new investors is
determined by dividing the number of shares of Common Stock outstanding into
the tangible net worth (deficit) of the Company (tangible assets less
liabilities). Net tangible book value (deficit) per share of Common Stock
excludes intangibles of $2.79 per share.

(3) The effect of the conversion of the mandatorily redeemable Common Stock upon
consummation of this Offering represents a decrease in negative tangible net
worth (deficit) of $2,731,000, or $.14 per share.

(4) Dilution is determined by subtracting net tangible book value (deficit) per
share of Common Stock after the Offering from the assumed public offering
price paid by new investors for a share of Common Stock.

Based on the same assumptions utilized in the table set forth above, the
following table summarizes, as of June 30, 1997, the difference between existing
stockholders and new investors with respect to the number of shares of Common
Stock purchased from the Company, the consideration paid and the average price
paid per share.

<TABLE>
<CAPTION>
AVERAGE PRICE
PER SHARE
-------------
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- -----------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)....... 19,443,187 81.2% $ 2,450,000 4.3% $ .13
New Investors.................. 4,500,000 18.8 $54,000,000 95.7 12.00
---------- --- ------- ---
Total.......................... 23,943,187 100.0% $56,450,000 100.0%
========== === ======= ===
</TABLE>

- ---------------
(1) Does not include 1,200,000 shares issued to a subsidiary of the Parent on
July 1, 1997 in connection with the acquisition of NovaPro. See "Certain
Transactions."

17
<PAGE> 19

CAPITALIZATION

The following table sets forth certain current debt obligations and the
capitalization of the Company as of June 30, 1997, the pro forma capitalization
of the Company at June 30, 1997 assuming the acquisition of NovaPro as if it had
occurred at June 30, 1997 and pro forma as adjusted capitalization to reflect
the issuance and sale by the Company of the 4,500,000 shares of Common Stock
offered hereby, the conversion of the mandatorily redeemable Common Stock into
stockholders' equity and the application by the Company of the estimated net
proceeds therefrom as described under "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1997
(IN THOUSANDS)
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
<S> <C> <C> <C>
Current note payable, current portion of financing
arrangements and deferred purchase price
obligations(3)(4)................................ $47,585 $ 47,585 $ 1,703
======= ======= =======
Financing arrangements, net of current
portion(3)....................................... $ 1,068 $ 1,068 $ 1,068
Deferred purchase price obligations, net of current
portion(4)....................................... 856 856 856
Mandatorily redeemable Common Stock(5)............. 2,731 2,731 --
Stockholders' Equity
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or
outstanding(6)................................ -- -- --
Common stock, $.01 par value; authorized
60,000,000 shares, issued 19,193,187 actual,
20,393,187 pro forma, and 25,419,840 pro forma
as adjusted(7)................................ 192 204 254
Additional paid-in capital....................... 1,189 1,052 49,615
Retained earnings................................ -- -- --
------- ------- -------
1,381 1,256 49,869
Less: Common stock in treasury (at cost) 563,000
shares........................................ (1,080) (1,080) (1,080)
------- ------- -------
Total stockholder's equity.................... 301 176 48,789
------- ------- -------
Total capitalization..................... $ 4,956 $ 4,831 $ 50,713
======= ======= =======
</TABLE>

- ---------------
(1) Gives effect to the acquisition of NovaPro as if it had occurred at June 30,
1997. See "Certain Transactions" and Note 3 of Notes to the Company's
Consolidated Financial Statements.

(2) Gives effect to the conversion of the Common Stock, and adjusted for the
sale of shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds" based
upon an assumed offering price of $12.00 per share. See "Pro Forma Financial
Information."

(3) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 of Notes to the Company's Consolidated Financial
Statements for information concerning the Company's long-term debt.

(4) See Note 3 of Notes to the Company's Consolidated Financial Statements.

(5) See "Description of Capital Stock" and Note 10 of Notes to the Company's
Consolidated Financial Statements concerning the mandatorily redeemable
Common Stock.

(6) See "Description of Capital Stock" and Note 9 of Notes to the Company's
Consolidated Financial Statements for information concerning the Preferred
Stock.

(7) Does not include 625,000 shares reserved for issuance under the Company's
Stock Option Plan. See "Management -- Stock Option Plan" and Note 11 of
Notes to the Company's Consolidated Financial Statements.

18
<PAGE> 20

SELECTED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)

The selected historical financial data presented below has been derived
from the consolidated financial statements of the Company and of its predecessor
company, Resource One, which financial statements are included elsewhere in this
Prospectus. The reports of Price Waterhouse LLP, independent accountants, on the
consolidated financial statements of the Company as of and for the period from
inception to June 30, 1997 and of Brewer, Beemer, Kuehnhackl and Koon, P.A.,
independent accountants, on the consolidated financial statements of Resource
One at December 31, 1994 and 1995 and at September 30, 1996 and the periods then
ended appear elsewhere in this Prospectus.

The selected pro forma financial data have been taken from the pro forma
financial information appearing elsewhere in this Prospectus and give effect to
acquisitions and the NovaCare Contract as if such acquisitions occurred as of
July 1, 1996. Selected historical financial data of the Company and its
predecessor should be read in conjunction with the Company's consolidated
financial statements and related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
------------------------------------------ ---------------------------------
HISTORICAL PRO FORMA(2)
FOR THE YEAR ENDED FOR THE NINE -------- ------------
DECEMBER 31, MONTHS ENDED PERIOD FROM YEAR ENDED
-------------------------- SEPTEMBER 30, OCTOBER 1, 1996 TO JUNE 30,
STATEMENT OF OPERATIONS DATA: 1993 1994 1995 1996 JUNE 30, 1997(1) 1997
------ ------- ------- ------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues(3).................................... $7,780 $11,987 $18,749 $23,465 $394,193 $878,097
Direct Costs:
Salaries, wages and employment taxes of
worksite employees......................... 5,283 9,427 16,118 21,224 357,238 790,769
Health care, workers' compensation, state
unemployment taxes and other............... 654 555 535 403 24,717 62,825
------ ------- ------- ------- -------- --------
Gross profit............................. 1,843 2,005 2,096 1,838 12,238 24,503
Selling, general and administrative expenses... 1,704 1,683 1,763 1,767 8,273 21,295
Amortization of excess cost of net assets
acquired..................................... -- -- -- -- 1,034 2,268
------ ------- ------- ------- -------- --------
Income from operations................... 139 322 333 71 2,931 940
Interest (expense) income, net................. (2) 1 (5) 6 (697) (1,627)
------ ------- ------- ------- -------- --------
Income (loss) before income taxes........ 137 323 328 77 2,234 (687)
Income taxes................................... -- 94 64 21 1,542 734
------ ------- ------- ------- -------- --------
Net income (loss)........................ $ 137 $ 229 $ 264 $ 56 $ 692 $ (1,421)
====== ======= ======= ======= ======== ========
Unaudited pro forma net income (loss) per
common share................................. $ .03 $ (.07)
======== ========
Unaudited pro forma weighted average number of
common shares outstanding.................... 20,574 20,574
======== ========
</TABLE>

<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR COMPANY -------------------------------------
--------------------------------------
AS OF JUNE 30, 1997
AS OF DECEMBER 31, AS OF -------------------------------------
---------------------- SEPTEMBER 30, PRO FORMA AS
1993 1994 1995 1996 ACTUAL PRO FORMA(4) ADJUSTED(4)(5)
---- ------ ------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $573 $ 821 $ 986 $ 1,320 $39,879 $ 41,669 $ 44,787
Total assets..................................... 828 1,006 1,241 1,544 95,998 98,330 100,871
Current liabilities.............................. 285 591 748 1,087 88,721 91,178 45,296
Financing arrangements........................... 18 164 101 8 1,366 1,366 1,366
Mandatorily redeemable common stock.............. -- -- -- -- 2,731 2,731 --
Shareholders' equity............................. 530 345 393 449 301 176 51,330
</TABLE>

- ---------------
(1) The Company commenced operations effective October 1, 1996, concurrent with
the acquisition of Resource One, which was accounted for as a purchase. The
computation of unaudited pro forma weighted average number of shares
outstanding is consistent with the computation of unaudited pro forma
weighted average number of shares outstanding for pro forma Net Income Per
Share described in Note 1 of Notes to the Company's Consolidated Financial
Statements.

(2) Adjusted on a pro forma basis to give effect to the acquisitions of Resource
One, Inc., Employee Services of America, Inc., The TPI Group, Ltd., ProStaff
Human Resources, Inc., NovaPro and the NovaCare Contract (see Note 2 of
Notes to the Company's Consolidated Financial Statements) as if they
occurred on July 1, 1996. NovaPro, formerly a business of the Parent, was
acquired from the Parent effective July 1, 1997. The pro forma statement of
operations does not purport to represent what the Company's actual results
of operations would have been if such acquisitions and the NovaCare Contract
occurred on July 1, 1996, or to project the Company's results of operations
for any future period. See the Consolidated Pro Forma Financial Statements
and the Notes thereto appearing elsewhere in this Prospectus. The
computation of unaudited pro forma weighted average numbers of shares
outstanding is consistent with the computation of unaudited pro forma
weighted average number of shares outstanding for unaudited pro forma net
income per share described in Note 1 of Notes to the Company's Consolidated
Financial Statements.

(3) Revenues include all amounts billed to clients for gross salaries and wages,
related employment taxes and health care and workers' compensation coverage
of worksite employees.

(4) Adjusted on a pro forma basis to include the assets and liabilities of
NovaPro as of June 30, 1997.

(5) Adjusted to give effect to the conversion of mandatorily redeemable Common
Stock into stockholders' equity and the Offering and the application of the
net proceeds therefrom, as if each of the foregoing had occurred as of June
30, 1997. See the Consolidated Pro Forma Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.

19
<PAGE> 21

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The following unaudited pro forma Combined Statement of Operations for the
year ended June 30, 1997 is based on the historical consolidated financial
statements of NovaCare Employee Services, Inc. (the "Company") for the period
from October 1, 1996 (commencement of operations) to June 30, 1997, adjusted to
give effect to the acquisition of Resource One, Inc. ("Resource One"), the
predecessor company, Employee Services of America, ("ESA"), The TPI Group, Ltd.,
("TPI"), ProStaff Human Resources, Inc. ("Prostaff"), and NovaPro. Resource One,
ESA, TPI and Prostaff were acquired prior to June 30, 1997 and are included in
the historical results of operations from their respective dates of acquisition.
The historical financial information is also adjusted to give effect to the full
year impact of the contract between the Company and the Parent (the "NovaCare
Contract") (further described in Note 2 of Notes to the Company's Consolidated
Financial Statements contained elsewhere in this Prospectus). The pro forma
Combined Statement of Operations has been prepared assuming the above
acquisitions and the NovaCare Contract occurred as of July 1, 1996. The
acquisitions and the related adjustments are described in the notes thereto.

The financial information is based on certain assumptions and estimates
that management believes are reasonable in the circumstances and does not
purport to be indicative of the results which actually would have been attained
had the above transaction occurred as of the dates indicated, or to project the
Company's results of operations or financial position for any future period or
date. This information should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
prospectus.

PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)
<TABLE>
<CAPTION>
HISTORICAL RESULTS
FOR THE PERIOD
OCTOBER 1, 1996
(INCEPTION) TO ACQUIRED NOVACARE PRO FORMA
JUNE 30, 1997 COMPANIES(1) CONTRACT(2) ADJUSTMENTS
------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Related party............................................ $255,289 $ -- $ 326,395 $ --
Third parties............................................ 138,904 157,509 -- --
--------- --------- -------- -------
Total revenues......................................... 394,193 157,509 326,395 --
Direct costs:
Related Party:
Salaries, wages and employment taxes of worksite
employees............................................ 234,182 -- 298,610 --
Health care and workers' compensation state
unemployment taxes and other......................... 15,368 -- 22,334 --
Third Parties:
Salaries, wages and employment taxes of worksite
employees.............................................. 123,056 134,921 -- --
Health care and workers' compensation state unemployment
taxes and other........................................ 9,349 15,774 -- --
--------- --------- -------- -------
Gross profit.............................................. 12,238 6,814 5,451 --
Selling, general and administrative expenses.............. 8,247 8,689 2,848 1,212(3)
Provision for uncollectible accounts...................... 26 273 -- --
Amortization of excess cost of net assets acquired........ 1,034 -- -- 1,234(4)
--------- --------- -------- -------
Income (loss) from operations............................. 2,931 (2,148) 2,603 (2,446)
Investment income......................................... 52 20 -- --
Interest expense.......................................... (56) (774) -- 740(5)
Interest expense -- related party......................... (693) -- -- (916)(6)
--------- --------- -------- -------
Income (loss) before income taxes......................... 2,234 (2,902) 2,603 (2,622)
Income taxes.............................................. 1,542 -- -- (808)(7)
--------- --------- -------- -------
Net income (loss)........................................ $ 692 $ (2,902) $ 2,603 $(1,814)
========= ========= ======== =======
Unaudited pro forma net income (loss) per share(10)...... $ .03
=========
Unaudited pro forma weighted average number of shares.... 20,574
=========

<CAPTION>
PRO FORMA
RESULTS FOR
THE PERIOD
FROM
JULY 1, 1996 OFFERING PRO FORMA
TO PRO FORMA AS
JUNE 30, 1997 ADJUSTMENTS ADJUSTED
-------------- ----------- ---------
<S> <<C> <C> <C>
Revenues:
Related party............................................ $581,684 $ -- $581,684
Third parties............................................ 296,413 -- 296,413
--------- ------ --------
Total revenues......................................... 878,097 -- 878,097
Direct costs:
Related Party:
Salaries, wages and employment taxes of worksite
employees............................................ 532,792 -- 532,792
Health care and workers' compensation state
unemployment taxes and other......................... 37,702 -- 37,702
Third Parties:
Salaries, wages and employment taxes of worksite
employees.............................................. 257,977 -- 257,977
Health care and workers' compensation state unemployment
taxes and other........................................ 25,123 -- 25,123
--------- ------ --------
Gross profit.............................................. 24,503 -- 24,503
Selling, general and administrative expenses.............. 20,996 -- 20,996
Provision for uncollectible accounts...................... 299 -- 299
Amortization of excess cost of net assets acquired........ 2,268 -- 2,268
--------- ------ --------
Income (loss) from operations............................. 940 -- 940
Investment income......................................... 72 -- 72
Interest expense.......................................... (90) -- (90)
Interest expense -- related party......................... (1,609) 1,609(8) --
--------- ------ --------
Income (loss) before income taxes......................... (687) 1,609 922
Income taxes.............................................. 734 632(9) 1,366
--------- ------ --------
Net income (loss)........................................ $ (1,421) $ 977 $ (444)
========= ====== ========
Unaudited pro forma net income (loss) per share(10)...... $ (.07) $ (.02)
========= ========
Unaudited pro forma weighted average number of shares.... 20,574 24,398 (11)
========= ========
</TABLE>

20
<PAGE> 22

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

(1) The Acquired Companies' adjustments represent the historical results of
operations of Resource One, ESA, TPI, Prostaff and NovaPro (collectively,
the "Acquired Companies") from July 1, 1996 to their respective dates of
acquisition, as noted below, and to June 30, 1997 for NovaPro,
respectively. Each of the acquisitions has been accounted for as a
purchase. Accordingly, the results of operations of each of the Acquired
Companies are included in the historical results of operations of the
Company since the date of acquisition.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY
1, 1996 TO THE DATE OF THE
ACQUISITION
--------------------------
INCOME (LOSS)
BEFORE INCOME
COMPANY ACQUIRED AS OF REVENUE TAXES
------------------------------------- ---------------- -------- -------------
<S> <C> <C> <C>
Resource One......................... October 1, 1996 $ 9,068 $ 43
ESA.................................. February 1, 1997 87,046 67
TPI.................................. February 1, 1997 51,206 (2,842)
Prostaff............................. February 1, 1997 2,565 (48)
NovaPro.............................. July 1, 1997 7,624 (122)
-------- -------
Total........................... $157,509 $(2,902)
======== =======
</TABLE>

The income tax effect of the Acquired Companies' adjustment is considered
in Note 7.

(2) In February 1997, the Parent and the Company entered into the NovaCare
Contract whereby the Parent's employees are co-employed by the Company for
a five-year term with automatic annual renewals. Under the NovaCare
Contract, the Company provides traditional PEO services such as payroll and
benefits administration, worksite safety evaluation, employment-related
risk management and benefits consultations. The Parent pays the Company a
fee for its services currently equal to the salary and federal payroll tax
costs plus 9.7% of gross earnings of employees, or approximately 117% of
the gross earnings of the employees covered by the NovaCare Contract. The
Parent may not terminate the NovaCare Contract except in the event of: (i)
the breach of any of the Company's agreements, duties or performance
standards under the NovaCare Contract; (ii) the making of false or
misleading representations, warranties, or statements of material fact in
documents submitted by or on behalf of the Company to the Parent; or (iii)
insolvency, bankruptcy or receivership of the Company.

The NovaCare Contract adjustment for the year ended June 30, 1997,
reflects the pro forma results of operations related to the NovaCare
Contract from July 1, 1996 to January 31, 1997. Results of operations from
the NovaCare Contract for the period from February 1, 1997 to June 30,
1997 are included in the historical results.

The income tax effect of the NovaCare Contract adjustment is considered in
Note 7 below.

(3) Includes adjustments representing net increases in selling, general, and
administrative expenses in support of the combined businesses.

<TABLE>
<CAPTION>
EXPENSE CATEGORY EXPENSE AMOUNT
-------------------------------------------------------------------- --------------
<S> <C>
Salaries, wages and benefits........................................ $ 736
Rental lease agreements............................................. 180
Other............................................................... 296
------
Selling, general and administrative expenses adjustment........ $1,212
======
</TABLE>

(4) Reflects additional amortization of the excess of the purchase price over
the fair value of net assets acquired. The additional amortization consists
of non-compete agreements, customer lists,

21
<PAGE> 23

assembled workforce, and goodwill, amortized on a straight-line basis over the
estimated useful lives of the assets which range from five to 40 years, as if
the businesses were acquired as of July 1, 1996.

(5) Represents the reduction of expense assuming that late payment penalties
and interest due to the Internal Revenue Service for late payment of
federal withholding taxes incurred by a subsidiary would not have been
incurred given the Company's availability of financing from the Parent, as
described in Note 6 below. An additional $53 of interest expense has been
recorded to reflect the borrowing from the Parent for the timely payment of
the federal withholding taxes.

(6) Represents interest due to the Parent (See Note 2 of Notes to the Company's
Consolidated Financial Statements) for money borrowed by the Company to
finance the acquisition of the Acquired Companies. The Company entered into
a loan agreement where the Parent charges interest to the Company at the
EuroDollar rate plus 0.5% to 1.125%. The weighted average interest rate was
6.6%.

(7) Represents an adjustment to income taxes to reflect the state and federal
income tax liability which would have been provided on pro forma adjusted
income before income taxes for the period from July 1, 1996 to June 30,
1997. State taxes were computed on a legal entity basis dependent upon the
income subject to income tax for the same period. Federal income tax was
computed on consolidated income before income taxes adjusting for the
non-deductible portion of the amortization of excess cost of net assets
acquired.

(8) Represents the reduction of interest expense resulting from the partial use
of the portion of the proceeds to pay certain indebtedness to the Parent
(see Note 2 of Notes to the Company's Consolidated Financial Statements).

(9) Represents an adjustment to state and federal income taxes which would have
been provided on the reduction of interest expense discussed in Note 8
above.

(10) The put option associated with the mandatorily redeemable common stock is
rendered inoperative if the Company files an initial public offering of its
common stock prior to two years from the date of acquisition and, in one
case, the Company is publicly trading on December 31, 1998 (see Note 10 of
Notes to the Company's Consolidated Financial Statements); such an event
will have a significant impact on the Company's net income per share
computation. Given the Company's plans to file a registration statement
with the Securities and Exchange Commission, (see Note 13 of Notes to the
Consolidated Financial Statements), historical income per share has been
excluded from the accompanying financial statements. Unaudited Pro Forma
Net Income Per Share is computed by dividing net income, without
consideration for the accretion of shares of the mandatorily redeemable
common stock (see Note 10 of Notes to the Company's Consolidated Financial
Statements) by the number of shares of common stock and common stock
equivalents outstanding as of July 31, 1997. Given that all shares issued
prior to July 31, 1997 were issued at prices significantly below the
estimated offering price in the Company's initial public offering (see Note
13 of Notes to the Company's Consolidated Financial Statements), all shares
and options issued are considered to be outstanding since inception of the
Company, using the treasury stock method, for the purposes of calculating
the Unaudited Pro Forma Net Income per Share.

(11) The Company intends to use a portion of the net proceeds from offering
4,500,000 shares of its Common Stock to retire certain indebtedness (see
Note 13 of Notes to the Company's Consolidated Financial Statements).
Unaudited pro forma net income per share as adjusted is computed by
dividing net income, adjusted for the elimination of applicable interest
expense, net of the related income tax effect, by total outstanding shares
as of July 31, 1997 plus estimated additional shares required to be sold to
retire outstanding debt.

22
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. Historical results are
not necessarily indicative of trends in operating results for any future period.

OVERVIEW

NovaCare Employee Services, Inc. (the "Company") is one of the largest and
fastest growing professional employer organizations ("PEO"s) in the United
States. The Company commenced operations on October 1, 1996, concurrent with the
acquisition of Resource One, Inc. ("Resource One"). Results for the quarter
ended December 31, 1996 primarily represent the results of operations of
Resource One. In February, 1997, the Company acquired three additional
PEOs -- Employee Services of America, Inc. ("ESA"); The TPI Group, Ltd. ("TPI");
and Prostaff Human Resources, Inc. ("Prostaff") and signed an agreement with
NovaCare, Inc. ( the "Parent") to provide traditional PEO services to
principally all of the Parent's worksite employees (the "NovaCare Contract"). As
of June 30, 1997, the Company served 1,742 client organizations with 35,028
employees at over 3,000 worksites in 45 states, principally in 10 different
industries. On July 1, 1997, the Company acquired NovaPro, a rehabilitation
temporary staffing company, from the Parent. The Company is an employee services
company which provides small and medium-sized businesses with comprehensive,
fully integrated outsourcing solutions to human resource issues, including
payroll management, risk management, benefits administration, unemployment
services and human resource consulting services.

The Company was established by the Parent primarily to leverage the
Parent's core competencies and investments in human resource management,
information systems, outsourcing, relationship selling, workers' compensation,
risk management and management of a dispersed workforce. These competencies are
highly correlated with success in the PEO business. The Parent is a leading
provider of medical rehabilitation services. Its services, delivered in over
2,000 facilities nationwide, include worksite evaluation, injury prevention and
work injury rehabilitation. The ability to deliver employment-related services
to small, widely dispersed groups of employees and to manage effectively
workers' compensation risk are central to a PEO.

Revenues

The Company enters into a PEO services agreement with its clients,
establishing a three-party relationship among the Company, the client and the
worksite employees. The agreement generally provides for an initial one-year
term, subject to cancellation without cause on 30 days' notice by either the
Company or the client, and sets forth the service fee payable to the Company.
Such service fee, which constitutes the Company's revenues, is based on the
gross earnings of each employee plus the estimated costs of employment-related
taxes, providing human resource services, performing administrative functions,
providing insurance coverages and benefit plans and performing other services
offered by the Company. This structure yields a comprehensive service fee
percentage to be applied to each employee's gross pay. These fees are invoiced
along with each periodic payroll.

Pursuant to the PEO services agreement, the Company has the obligation to
provide the benefits and services enumerated in that agreement as well as to pay
the direct costs associated with such services, regardless of whether the client
company makes timely payment to the Company of the associated service fee. The
most significant direct costs associated with each PEO services agreement are
the worksite employees' salaries and wages, which generally are disbursed
promptly after the applicable client service fee is received. For a description
of additional costs of services, see "Direct Costs" below.

23
<PAGE> 25

The Company's revenues are dependent on the number of clients enrolled, the
resulting number of employees paid each period, the gross earnings of such
employees and the number of employees enrolled in benefit plans.

Direct Costs

The Company's primary direct costs are: (i) the salaries and wages of
worksite employees (gross earnings), the employer's portion of Social Security,
Medicare premiums and federal unemployment taxes; (ii) employee benefit plan
costs; (iii) workers' compensation costs; and (iv) state unemployment taxes.
Salaries and wages of worksite employees are affected by the inflationary
effects on wage levels and by differences in the local economies of the
Company's markets. Changes in gross earnings have a proportionate impact on the
Company's revenues. The Company can significantly impact its gross profit margin
by actively managing the direct costs described in clauses (ii), (iii) and (iv)
(hereinafter referred to as "controllable direct costs").

Employment-related taxes consist of the employer's portion of payroll taxes
required under FICA, which includes Social Security and Medicare, and federal
and state unemployment taxes. The federal tax rates are defined by the
appropriate federal regulations. State unemployment rates are subject to claims
histories and vary from state to state.

Employee benefit plan costs consist of medical insurance premiums, payments
of and reserves for claims subject to deductibles and the costs of dental care,
vision care, disability, employee assistance and other similar benefit plans.
The Company's health care benefit plans consist of self-insured plans and
guaranteed cost programs. Liabilities for health care self-insured claims are
recorded based on the Company's evaluation of the nature and severity of
individual claims and past claims experience.

Workers' compensation costs include premiums, administrative costs and
claims-related expenses under the Company's workers' compensation program.
Currently, the coverage is provided under a workers' compensation deductible
program with an aggregate stop loss that limits the liability to the Company at
a capped percentage of the standard premium or a fixed aggregate deductible,
whichever is higher. Through June 30, 1997, certain of the Company's worksite
employees were covered by large deductible workers' compensation policies and
certain other worksite employees were covered by guaranteed cost or low
deductible worker's compensation insurance policies. Costs related to these
prior plans include estimates of ultimate claims amounts that are recorded as
accrued workers' compensation claims. Changes in these estimates are reflected
as a component of direct costs in the period of the change.

State unemployment taxes are based on rates which vary from state to state.
Generally they are subject to certain minimum rates, but the aggregate rates
payable by an employer are affected by the employer's claims history. The
Company controls unemployment claims by aggressively contesting unfounded claims
and, when possible, quickly returning employees to work by reassigning them to
other worksites.

Selling, General and Administrative Expenses

The Company's principal selling, general and administrative expenses are
salaries, wages, benefits and other personnel expenses of administrative
employees and sales associates, general and administrative expenses and sales
and marketing expenses.

Income Taxes

The Company's provision for income taxes typically differs from the U.S.
statutory rate of 35% due primarily to state income taxes and non-deductible
goodwill amortization.

24
<PAGE> 26

Operating Income

The Company's operating income is determined in part by its ability to
manage controllable direct costs and its ability to incorporate such costs into
the service fees charged to clients. The Company attempts to reflect changes in
the controllable direct costs through adjustments in service fees charged to
clients, subject to contractual arrangements.

RESULTS OF OPERATIONS

The following table sets forth certain income statement and statistical
data for each of the quarters and in total for the period from the inception of
the Company, October 1, 1996, to June 30, 1997, the Company's fiscal year end.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
(UNAUDITED, IN THOUSANDS, EXCEPT FOR STATISTICAL DATA):
----------------------------------------------------------
OCTOBER 1,
OCTOBER 1, JANUARY 1, APRIL 1, 1996 TO
TO DECEMBER TO MARCH TO JUNE JUNE 30,
31, 1996 31, 1997 30, 1997 1997
------------ ----------- -------- ----------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues............................................... $ 10,894 $ 151,076 $232,223 $394,193
Direct costs:
Salaries, wages and employment taxes of worksite
employees.......................................... 9,082 136,731 211,425 357,238
Health care, workers' compensation, state
unemployment taxes and other....................... 970 9,617 14,130 24,717
------- -------- -------- --------
Gross profit..................................... 842 4,728 6,668 12,238
Selling, general and administrative expenses........... 661 3,215 4,397 8,273
Amortization of excess cost of net assets acquired..... 27 440 567 1,034
------- -------- -------- --------
Income from operations........................... 154 1,073 1,704 2,931
Interest expense, net.................................. (30) (262) (405) (697)
------- -------- -------- --------
Income before income taxes....................... 124 811 1,299 2,234
Income taxes........................................... 63 591 888 1,542
------- -------- -------- --------
Net income....................................... $ 61 $ 220 $ 411 $ 692
======= ======== ======== ========
STATISTICAL DATA:
EBITDA (in thousands)(1)............................... $ 202 $ 1,608 $ 2,407 $ 4,217
Number of clients at period end........................ 110 1,531 1,742 1,742
Worksite employees at period end:
Third parties........................................ 1,958 16,917 18,634 18,634
Related party........................................ -- 15,728 16,394 16,394
------- -------- -------- --------
Total............................................ 1,958 32,645 35,028 35,028
======= ======== ======== ========
Weighted average worksite employees paid during the
period:
Third parties.......................................... 1,757 11,860 16,656 11,764
Related party.......................................... -- 15,546 16,061 15,879
Weighted average................................. 1,757 22,285 32,717 18,582
Quarterly and year-to-date gross profit per weighted
average worksite employee (in whole $'s):
Third parties.......................................... $ 479 $ 210 $ 190 $ 665
Related party.......................................... -- 216 218 650
Weighted average................................. $ 479 $ 212 $ 204 $ 659
</TABLE>

25
<PAGE> 27

The following table sets forth, as a percentage of revenues, certain
statements of operations data for each of the quarters for the period from the
inception of the Company, October 1, 1996, to June 30, 1997, the Company's
fiscal year end.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM:
(UNAUDITED, % OF REVENUES)
-------------------------------------------------
OCTOBER 1, JANUARY 1, APRIL 1, OCTOBER 1,
TO TO TO 1996 TO
DECEMBER 31, MARCH 31, JUNE 30, JUNE 30,
1996 1997 1997 1997
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues.......................................................... 100.0% 100.0% 100.0% 100.0%
Direct costs:
Salaries, wages and employment taxes of worksite employees...... 83.4 90.5 91.0 90.6
Health care, workers' compensation, state unemployment taxes and
other......................................................... 8.9 6.4 6.1 6.3
----- ----- ----- -----
Gross profit................................................ 7.7 3.1 2.9 3.1
Selling, general and administrative expenses...................... 6.1 2.1 1.9 2.1
Amortization of excess cost of net assets acquired................ 0.2 0.3 0.2 0.3
----- ----- ----- -----
Income from operations...................................... 1.4 0.7 0.8 0.7
Interest expense, net............................................. (0.3) (0.2) (0.2) (0.2)
----- ----- ----- -----
Income before income taxes.................................. 1.1 0.5 0.6 0.5
Income taxes...................................................... 0.6 0.4 0.4 0.4
----- ----- ----- -----
Net income.................................................. 0.5% 0.1% 0.2% 0.1%
===== ===== ===== =====
</TABLE>

- ---------------
(1) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation or as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.

HISTORICAL RESULTS OF OPERATIONS FOR THE PERIOD FROM OCTOBER 1, 1996 TO JUNE 30,
1997

Revenues increased from quarter to quarter, as reflected in the table
above, primarily from an increase in the number of clients and worksite
employees. The number of clients increased from 110 to 1,531 to 1,742 over the
respective quarterly periods and the weighted average number of worksite
employees increased from 1,757 to 22,285 to 32,717, over the same periods,
respectively. These increases were due primarily to: (i) the NovaCare Contract,
with approximately 14,400 employees at the contract date; (ii) the acquisition
of ESA, with 8,037 worksite employees at the acquisition date; (iii) the
acquisition of TPI, with 6,029 worksite employees at the acquisition date; (iv)
the acquisition of Prostaff, with 346 worksite employees at the acquisition
date; and (v) 11.3% internal growth in the number of worksite employees since
the acquisition or contract dates (27% annualized growth rate).

Salaries, wages and employment taxes of worksite employees increased from
$9,082 for the quarter ended December 31, 1996 to $136,731 for the quarter ended
March 31, 1997 to $211,425 for the quarter ended June 30, 1997 as a result of
businesses acquired in February 1997 and the NovaCare Contract. As a percentage
of revenues, salaries, wages and employment taxes of worksite employees
increased from 83.4% to 90.5% to 91.0% for the same periods, respectively. The
primary reason for the increase as a percentage of revenues from the quarter
ended December 31, 1996 to the quarter ended March 31, 1997 is the impact of the
acquired businesses and the NovaCare Contract, both of which have a higher cost
to revenue ratio than that of the predecessor company.

Health care, workers' compensation, state unemployment taxes and other were
$24,717 for the period from inception to June 30, 1997, increasing from $970 for
the quarter ended December 31, 1996 to $9,617 for the quarter ended March 31,
1997 to $14,130 for the quarter ended June 30, 1997 as a result of the acquired
businesses and the NovaCare Contract. As a percentage of revenues, health care,

26
<PAGE> 28

workers' compensation, state unemployment taxes and other decreased from 8.9% to
6.4% to 6.1% over the respective quarterly periods. The primary reasons for the
decrease as a percentage of revenues are the cost structure of the acquired
companies in successive quarters and the NovaCare Contract.

Gross profit as a percentage of revenues declined from 7.7% during the
quarter ended December 31, 1996 to 3.1% for the quarter ended March 31, 1997 to
2.9% for the quarter ended June 30, 1997. The primary reasons for the decrease
in the gross profit percentage are the increased salaries, wages and employment
taxes per worksite employee, which increased revenues but not gross profit
dollars, and the relative impact of the NovaCare Contract, which has a lower
gross profit percentage (2.0%) due to a more highly compensated employee
population. In addition, state unemployment tax gross profit is typically higher
in the first quarter of a calendar year than in other quarters.

Selling, general and administrative expenses increased from $661 for the
quarter ended December 31, 1996 to $4,397 for the quarter ended June 30, 1997 as
a result of businesses acquired and the NovaCare Contract. As a percentage of
revenues, selling, general and administrative expenses were 6.1%, 2.1% and 1.9%
for the three quarters of fiscal 1997 since commencement of operations. The
decrease from the quarter ended December 31, 1996 to the quarter ended March 31,
1997 is primarily a result of the acquisitions and the NovaCare Contract, all of
which have lower selling, general and administrative cost structures.

Amortization of excess cost of net assets acquired increased from $27 for
the quarter ended December 31, 1996 to $440 for the quarter ended March 31, 1997
to $567 for the quarter ended June 30, 1997 as a result of the acquired
businesses during the period.

Interest expense, net was $697 for the period from October 1, 1996 to June
30, 1997 resulting primarily from interest due to the Parent for amounts loaned
to the Company to finance the acquisition of the four businesses acquired during
the same periods. Interest is charged to the Company at the Parent's borrowing
rate (EuroDollar rate plus a range of 0.5% to 1.125%). The weighted average rate
for the period from October 1, 1996 to June 30, 1997 was 6.6%.

Income taxes as a percentage of pretax income were 69.0% for the period
from October 1, 1996 to June 30, 1997. The principal reasons for the effective
rate being higher than the statutory federal rate were nondeductible
amortization of excess cost of net assets acquired and state income taxes.

PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 COMPARED WITH
THE YEAR ENDED
JUNE 30, 1996

The following pro forma consolidated results of operations give effect to
each of the acquisitions as well as the NovaCare Contract as if they occurred on
July 1, 1995 or the inception of the business acquired if the inception had been
subsequent to July 1, 1995. In addition, it assumes that the sale of NovaPro
(see Note 13 of Notes to the Company's Consolidated Financial Statements
contained elsewhere in this Prospectus) from the Parent to the Company occurred
as of the inception of NovaPro on July 1, 1996. The following discussion should
be read in conjunction with, and is qualified in its entirety by, the Company's
Consolidated Pro Forma Financial Statements and the Notes thereto appearing
elsewhere herein.

27
<PAGE> 29

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
(UNAUDITED)
-----------------------------------------
DOLLARS
(IN THOUSANDS, EXCEPT
FOR STATISTICAL DATA) % OF REVENUES
--------------------- ---------------
1996 1997 1996 1997
-------- -------- ----- -----
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues...................................................... $753,311 $878,097 100.0% 100.0%
Direct costs:
Salaries, wages and employment taxes of worksite
employees................................................. 683,772 790,769 90.8 90.0
Health care, workers' compensation, state unemployment taxes
and other................................................. 54,446 62,825 7.2 7.2
-------- -------- ----- -----
Gross profit........................................... 15,093 24,503 2.0 2.8
Selling, general and administrative expenses.................. 16,727 21,295 2.2 2.4
Amortization of excess cost of net assets acquired............ 2,161 2,268 0.3 0.3
-------- -------- ----- -----
(Loss) income from operations.......................... (3,795) 940 (0.5) 0.1
Interest expense, net......................................... (3,304) (1,627) (0.5) (0.2)
-------- -------- ----- -----
(Loss) before income taxes............................. (7,099) (687) (1.0) (0.1)
Income taxes.................................................. 97 734 0.0 0.1
-------- -------- ----- -----
Net (loss)............................................. $ (7,196) $ (1,421) (1.0%) (0.2%)
======== ======== ===== =====
STATISTICAL DATA:
EBITDA (in thousands)......................................... $ (1,087) $ 3,927
Number of clients at period end............................... 1,395 1,742
Worksite employees at period end:
Third parties............................................... 15,589 19,956
Related party............................................... 13,322 15,072
-------- --------
Total.................................................. 28,911 35,028
======== ========
Weighted average worksite employees paid during the period:
Third parties............................................... 13,949 18,123
Related party............................................... 12,429 14,428
Weighted average............................................ 26,611 32,551
Gross profit per weighted average worksite employee (in whole
$'s):
Third parties............................................... $ 704 $ 731
Related party............................................... 424 780
Weighted average............................................ $ 567 $ 753
</TABLE>

Revenues, on a pro forma basis, were $753,311 for the year ended June 30,
1996 compared with $878,097 for the year ended June 30, 1997, representing an
increase of $124,786, or 16.6%. The increase was due primarily to an increased
number of PEO clients and worksite employees. Between June 30, 1996 and June 30,
1997, the number of clients increased 24.9% from 1,395 to 1,742. The average
number of worksite employees increased 22.3% over the same period from 26,611 to
32,551.

Salaries, wages and employment taxes of worksite employees increased 15.6%
from $683,772 for fiscal 1996 to $790,769 for fiscal 1997. As a percentage of
revenues, salaries, wages and employment taxes for worksite employees decreased
from 90.8% for the fiscal year ended June 30, 1996 to 90.0% for the fiscal year
ended June 30, 1997.

Health care, workers' compensation, state unemployment taxes and other
increased from $54,446 for the fiscal year ended June 30, 1996 to $62,825 for
the fiscal year ended June 30, 1997. As a percentage of revenues, health care,
workers' compensation, state unemployment and other remained constant at 7.2%
for each of the fiscal years ended June 30, 1996 and 1997.

Gross profit as a percentage of revenues increased from 2.0% to 2.8% for
the fiscal years ended June 30, 1996 and 1997, respectively. Without the
NovaCare Contract, gross profit as a percentage of revenues would have been 4.3%
and 4.5% for the same periods, respectively.

Selling, general and administrative expenses increased 27.3% from $16,727
for the year ended June 30, 1996 to $21,295 for the year ended June 30, 1997 due
to increased administrative staff in support of the Company's growth in worksite
employees and number of clients. Selling, general and administrative expenses as
a percentage of revenues was 2.4% and 2.2% in fiscal 1997 and 1996,
respectively.

28
<PAGE> 30

Amortization of excess cost of net assets acquired remained approximately
the same for the fiscal years ended June 30, 1996 and June 30, 1997.

Interest expense, net decreased 50.8% from $3,304 for fiscal 1996 compared
with $1,627 for fiscal 1997. This decrease was primarily a result of decreased
outstanding indebtedness from fiscal 1996 compared with fiscal 1997 and a
reduction in the weighted average interest rate for the same periods,
respectively.

Income taxes were computed on a legal entity basis using the income subject
to income tax, adjusting for the non-deductible portion of the amortization of
excess costs of net assets acquired for both state and federal income taxes.

PRO FORMA QUARTERLY FINANCIAL RESULTS -- FISCAL 1997

The following table presents certain unaudited pro forma results of
operations data for the interim quarterly periods of the Company since
inception. The Company believes that all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the results of operations in
accordance with generally accepted accounting principles, have been made. The
results of operations for any interim period are not necessarily indicative of
the operating results for a full year or any future period.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM:
(UNAUDITED, IN THOUSANDS, EXCEPT FOR STATISTICAL DATA)
-------------------------------------------------------------
OCTOBER 1,
JULY 1, TO TO
SEPTEMBER 30, DECEMBER 31, JANUARY 1, TO APRIL 1, TO
1996 1996 MARCH 31, 1997 JUNE 30, 1997
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues......................................... $ 202,285 $219,367 $223,333 $ 233,112
Direct costs:
Salaries, wages and employment taxes of
worksite employees........................... 183,678 199,071 200,951 207,069
Health care, workers' compensation, state
unemployment taxes and other................. 13,813 14,875 15,507 18,630
-------- -------- -------- --------
Gross profit.............................. 4,794 5,421 6,875 7,413
Selling, general and administrative expenses..... 4,956 6,088 5,184 5,067
Amortization of excess cost of net assets
acquired....................................... 529 556 616 567
-------- -------- -------- --------
(Loss) income from operations............. (691) (1,223) 1,075 1,779
Interest expense, net............................ (410) (403) (395) (419)
-------- -------- -------- --------
(Loss) income before income taxes......... (1,101) (1,626) 680 1,360
Income taxes..................................... 42 38 94 560
-------- -------- -------- --------
Net (loss) income......................... $ (1,143) $ (1,664) $ 586 $ 800
======== ======== ======== ========
STATISTICAL DATA:
EBITDA (in thousands)............................ $ 53 $ (418) $ 1,810 $ 2,482
Number of clients at period end.................. 1,437 1,499 1,531 1,742
Worksite employees at period end:
Third parties.................................. 17,080 17,750 18,088 19,956
Related party.................................. 13,340 14,049 14,557 15,072
-------- -------- -------- --------
Total..................................... 30,420 31,799 32,645 35,028
======== ======== ======== ========
Weighted average worksite employees paid during
the period:
Third parties.................................. 16,685 17,415 17,919 19,022
Related party.................................. 13,562 13,695 14,303 14,815
Weighted average............................... 30,247 31,110 32,222 33,837
Quarterly gross profit per weighted average
worksite employee (in whole $'s):
Third parties.................................. $ 159 $ 164 $ 212 $ 208
Related party.................................. 158 187 216 234
Weighted average............................... $ 159 $ 174 $ 213 $ 219
</TABLE>

29
<PAGE> 31

LIQUIDITY AND CAPITAL RESOURCES

The Company periodically evaluates its liquidity requirements, capital
needs and availability of capital resources in view of, among other things,
expansion plans, accrued workers' compensation insurance claims liabilities,
debt service requirements and other operating cash needs. As a result of this
process, the Company has sought and may seek to raise additional capital or take
other steps to increase or manage its liquidity and capital resources.
Historically, these funds have been raised from the Parent. The Company believes
that the proceeds from the Offering and cash flow from operations will be
adequate to meet its liquidity requirements through at least fiscal 1998. As an
additional liquidity source, the Company is presently negotiating a revolving
credit facility with a syndicate of banks. The Company will rely on these
sources, as well as public and private debt and equity financing, to meet its
long-term liquidity needs.

The Company had $1.8 million in cash and cash equivalents as of June 30,
1997. As of the same date, the Company had negative working capital of $48.8
million, primarily as a result of $28.4 million due to the Parent for amounts
borrowed under the line of credit due at the earlier of an initial public
offering or November 1999 (See Note 2 of Notes to the Company's Consolidated
Financial Statements) and $18.9 million deferred purchase price obligations
incurred in connection with the Company's acquisitions, of which $17.5 million
is due upon the earlier of an initial public offering or December 31, 1997. The
Company's primary short-term liquidity requirements relate to the payment of
accrued payroll and payroll taxes of its internal and worksite employees,
accounts payable and the payment of accrued workers' compensation expense and
health benefit plan premiums.

The Company's cash flows from operating activities for the period from
October 1, 1996 (inception) to June 30, 1997 was $0.1 million resulting
primarily from: (i) a $4.1 million increase in the accrual for workers'
compensation and health claims; (ii) a $1.3 million depreciation and
amortization non-cash charge; and (iii) a $1.7 million increase in accrued
interest-related party and income taxes payable, offset by a $7.0 million net
cash use for increases in accounts receivable and accrued salaries, wages and
payroll taxes. Accounts receivable and accrued salaries, wages and payroll are
subject to fluctuations depending on the proximity of the financial reporting
cycle to that of the payroll cycle.

Cash expended for investing activities during the same period was $25.0
million, primarily resulting from payments for businesses acquired during the
period. The Company also expended $1.1 million to repurchase shares of the
Company's common stock. These investing activities were financed primarily
through a loan from the Parent (see Note 2 of Notes to the Company's
Consolidated Financial Statements). Although the Company currently has no
significant capital commitments, the Company anticipates investing significant
cash to acquire PEOs and other employee services businesses in strategic markets
during fiscal 1998.

INFLATION

A significant portion of the Company's operating expenses and revenues are
subject to inflationary increases, particularly worksite employees salary
increases. The Company believes the effects of inflation have not had a
significant impact on its results of operations or its financial condition.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125") as amended
by the December 1996 issuance of Statement of Financial Accounting Standards No.
127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125"
("SFAS 127"). SFAS 125, as amended, provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. The Company does not believe the adoption of SFAS 125, as amended,
will have a material effect on the Company's financial position or results of
operations.

30
<PAGE> 32

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which the Company is required to adopt no later than the second quarter of
fiscal year 1998. SFAS 128 establishes accounting standards for computing and
presenting earnings per share by replacing the presentations of weighted average
shares outstanding, inclusive of common stock equivalents with a dual
presentation of basic earnings per share which excludes dilution ("earnings per
share") and diluted earnings per share ("earnings per share -- assuming
dilution") which includes the dilutive effect of all potentially exercisable or
convertible stock. SFAS 128 requires restatement once adopted of all prior
period earnings per share data.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards of disclosure and financial statement
display for reporting total comprehensive income and the individual components
thereof. The Company does not believe that the adoption of SFAS 130 will have a
material effect on the Company's financial position or results of operations.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes new
standards for determining a reportable segment and for disclosing information
regarding each such segment. The Company does not believe that the adoption of
SFAS 131 will have a material effect on the Company's financial position or
results of operations.

31
<PAGE> 33

BUSINESS

GENERAL

The Company is one of the largest and fastest growing PEOs in the United
States. The Company is an employee services company which provides small to
medium-sized businesses with comprehensive, fully integrated outsourcing
solutions to human resource issues, including payroll management, workers'
compensation risk management, benefits administration, unemployment services and
human resource consulting services. The Company believes its services enable
small and medium-sized businesses to cost-effectively manage and enhance the
employment relationship by: (i) controlling the risks and costs associated with
workers' compensation, workplace safety and employee-related litigation; (ii)
providing employees with high quality health care coverage and related benefits;
(iii) managing the increasingly complex legal and regulatory environment
affecting employment; and (iv) achieving scale advantages typically available to
larger organizations. As of June 30, 1997, the Company served 1,742 clients with
35,028 employees at over 3,000 worksites in 45 states, primarily in 10 different
industries.

The Company was established by its Parent in September 1996 and began
operation in October 1996 with the acquisition of Resource One. In February
1997, the Company acquired three additional PEOs. On July 1, 1997, the Company
acquired the rehabilitation temporary staffing business of its Parent.

PROFESSIONAL EMPLOYER ORGANIZATION INDUSTRY

According to NAPEO, the PEO industry has approximately $18 billion in
annual revenues with an historical growth rate over the last five years of
approximately 30% per year. According to the U.S. Small Business Administration,
there are nearly six million businesses in the United States with under 100
employees, employing over 52 million persons and with $1.1 trillion in aggregate
annual payroll. The Company believes approximately 49 million of these employees
are currently unserved by the PEO industry.

The PEO industry is highly fragmented. NAPEO data suggest that there are at
least 2,400 PEOs currently in operation and that the ten largest PEOs account
for less than 10% of existing revenues in the industry. The Company believes
that significant consolidation opportunities exist within the PEO industry due
to increasing industry regulatory complexity and capital requirements associated
with developing larger service delivery infrastructures, more diversified
services and more sophisticated management information systems.

Demand for Services. The PEO industry evolved in the early 1980's in
response to increasing employment and benefit costs, and the complexities of the
legal and regulatory environment for the rapidly expanding small to medium-sized
business sector. The Company believes demand for PEO services will continue to
increase as (i) employment-related governmental regulation grows more complex,
(ii) growth continues within the small to medium-sized business community, (iii)
the need to provide health and retirement benefits in a cost-effective
convenient manner increases and (iv) the business and regulatory communities
accept and recognize the PEO industry. While various service providers, such as
payroll processing firms, benefits and safety consultants and temporary services
firms, are available to assist these businesses with specific tasks, such
organizations do not typically provide the more comprehensive range of services
generally offered by PEOs. PEOs enter into agreements with numerous small to
medium-sized employers, and can, therefore, achieve economies of scale as
professional employers and offer benefits packages and human resource services
at a level typically available only to larger corporations which have greater
resources to devote to human resources management. The Company believes PEO
services will continue to experience growing demand because of the growing trend
among small to medium-sized employers to: (i) outsource non-core competencies;
(ii) seek to reduce employee benefit costs; (iii) avoid employee-related risks
and

32
<PAGE> 34

regulatory complexities, and (iv) attract better employees and retain them
through improved benefit plans.

Effectiveness of Services. According to estimates by the U.S. Small
Business Administration, the management of an average small to medium-sized
business devotes from 7% to 25% of its time to employee-related matters, leaving
management with less time to focus on core competencies. A National Federation
of Independent Business survey of small businesses in 1996 showed that six of
the top 13 major problem areas for small business are issues that can be
addressed by PEOs. These include (with their rank in importance according to the
survey) cost of health insurance (1), workers' compensation costs (3), federal
paperwork (7), frequent changes in federal tax laws (9), finding qualified
employees (11) and state/local paperwork (13). Work-related injuries cost
employers over $53 billion in medical expenses and employee productivity each
year according to industry estimates. Employees are typically attracted to small
and medium-sized businesses that provide employees with human resources services
characteristic of large employers. An industry analyst's study indicated that
40% of the clients that outsourced services with a PEO were able to upgrade
their employee benefits offerings and one-fourth of those clients were able to
offer health care and other benefits for the first time.

SERVICES

PEOs typically take a transaction processing approach to their services and
do not emphasize other benefits such as the improved workforce performance that
can be associated with satisfied employees. The Company believes that small to
medium-sized businesses will increase their emphasis on cost-effectiveness,
service excellence and the breadth of services provided in selecting PEO
providers.

The Company contractually assumes certain administrative and financial
employer responsibilities with respect to worksite employees in a
"co-employment" relationship. The Company believes its clients benefit from the
Company's services by: (i) improving profitability through lowering or
controlling costs associated with workers' compensation, health insurance, other
benefit coverage and regulatory compliance; (ii) improving productivity through
reducing the time and effort expended by business owners and executives to deal
with the complexities of employment management, enabling them to focus on their
business core competencies and growth; and (iii) improving employee satisfaction
and performance. The Company helps employers improve job satisfaction and
performance of their employees by: (i) providing improved health care and
related benefits; (ii) delivering training programs; and (iii) delivering
dependable payroll and benefits administration.

As co-employer of worksite employees, the Company assumes responsibility
for and manages the risks associated with: (i) worksite employee payroll; (ii)
employee-related benefits, such as workers' compensation and health care
insurance coverage; and (iii) compliance with certain employment-related
governmental regulations that can be effectively managed away from the client's
business. See "Risk Factors." The client retains responsibility for supervision
and direction of the worksite employees' services in its business and generally
remains responsible for compliance with other employment-related governmental
regulations that are more closely related to worksite employee supervision. The
service fee charged by the Company to its clients covers the cost of certain
employment-related taxes, workers' compensation insurance coverage,
administrative and field services, wages of worksite employees and the client's
portion of health and retirement benefit plan costs. The Company also provides
other value-added services such as rehabilitation temporary staffing, training
and human resource consulting.

STRATEGY

The Company's objective is to be the brand, service and performance leader
in the PEO industry by creating a more profitable, more productive and more
satisfying relationship between employers and employees and enabling its clients
to focus on their business core competencies and growth.

33
<PAGE> 35

Supporting this purpose are the Company's beliefs, respect for the individual,
service to the client, pursuit of excellence and commitment to personal
integrity. For this reason, the Company seeks to create a values-based culture.
Relying on these values, the Company will implement a strategy focusing on
growth and operational excellence.

It is the Company's belief that a strong commitment to these values and a
philosophy oriented toward "caring for and about people," will enable the
Company to provide a level of service that will build the businesses of its
clients and itself and enhance the careers of its clients' employees.

GROWTH STRATEGY

The Company intends to grow through: (i) increasing investment in sales and
marketing; (ii) focusing on geographic expansion; (iii) targeting high potential
industries; (iv) acquiring PEOs and other employee service providers and
entering into strategic alliances; and (v) leveraging the growth in the Parent's
employee base.

Increasing Investment in Sales and Marketing. The Company's management is
experienced in building businesses utilizing professional sales forces and
focused marketing strategies. The Company believes that it has substantially
improved the productivity of the Company's sales force from that existing at the
time the Company acquired its constituent organizations by replacing 25% of the
existing salespersons with strong professional sales people and sales management
from both inside and outside the PEO industry. A significant part of the
Company's marketing strategy is the development of a brand identity. A
recognized brand name is a valuable marketing tool. By utilizing the nationally
advertised brand name of the Parent, the Company believes it will achieve a
strong brand identity at lower cost. The Company believes that its marketing
efforts will benefit from its brand strategy. The Company's brand promise is to
create a more satisfying and more productive relationship between its worksite
employees and clients by "caring for and about people." By cost effectively and
consistently delivering against this service commitment, the Company believes it
will attain a brand name reputation for service excellence among existing and
potential clients.

Focusing on Geographic Expansion. The Company has identified key
attractive geographic target markets and has established a plan for entering
those markets in a disciplined manner. The target markets are primarily those
markets in which the relationship with the Parent provides existing employee and
potential new client base density. The Company believes that the Parent's
clients and other extensive business-to-business relationships represent
significant opportunities to grow in these target markets. By concentrating on
markets where the Parent has achieved density, the Company will seek to have
scale immediately because it already co-employs the Parent's employees. The
Company believes its market development model will enable it to penetrate new
markets quickly. This market development model consists of a highly structured
sales management control system and efficient selling process. The model
includes market research to identify potential client businesses and a direct
mail campaign staged over a 10-week period to reach those businesses. In the
Company's first target market, approximately 12,000 candidates have been
identified and the direct mail program has been commenced. In certain cases, the
Company may rely on platform acquisitions to achieve scale in a market. In
either case, the Company's strategy is to leverage the Parent's customer
referral sources and provider relationships.

Targeting High Potential Industries. Targeted industries will vary from
market to market depending on economic characteristics and business demographics
of each geographic location. The Company intends to focus on industries with
high gross profit per worksite employee and significant workers' compensation
profit opportunities. The sales force is expected to utilize the key industry
strategy and become expert in one or more select industries in the markets in
which they are operating. The relationship with the Parent brings a large
potential client base of small to medium-sized long-term care providers and
other health care customers who are currently obtaining outsourced contract
rehabilitation from the Parent or who are referring patients to the Parent.
Because of the compatibility of the Company's information systems related to
payroll processing, the Company

34
<PAGE> 36

believes that the most attractive candidates in this group in the near term are
assisted living facilities and continuing care retirement communities. After
creating the appropriate systems interfaces, the Company will seek to expand its
efforts to the skilled nursing facility market. The Company regards those
businesses as likely candidates for the Company's sales efforts because of their
existing relationships with the Parent.

Acquiring PEOs and Other Employee Service Providers and Entering into
Strategic Alliances. The Company believes that the opportunities for PEO
consolidation are substantial with at least 2,400 PEOs (according to a NAPEO
estimate) operating in a highly fragmented industry. The Company believes that
industry consolidation will be driven by increasing industry and regulatory
complexity, increasing capital requirements and the significant economies of
scale available to PEOs with a concentration of clients and employees in target
markets. The Company intends to make opportunistic acquisitions where
appropriate to achieve greater density in targeted geographic markets.

The Parent is highly experienced in acquiring service businesses. It has
successfully created and integrated four different nationwide health care
service businesses through acquisitions in the last 12 years. The Company
believes it will be able to benefit from the Parent's experience as a
consolidator and integrator in support of the Company's growth objective for
acquisitions. Pursuant to the Company's management services agreement with the
Parent, the Parent has agreed to make available to the Company the financial,
legal, business development and information technology resources necessary to
pursue the Company's acquisition and integration goals. Under the agreement,
these resources are provided at the Parent's cost when reasonably required,
consistent with the Company's and the Parent's business objectives.

The Company is creating strategic alliances with service providers to small
and medium-sized businesses. For example, the Florida Home Builders Association,
an organization that has 17,000 members with 450,000 employees, has endorsed the
Company as the PEO of choice for its members. With the trend toward outsourcing
non-core competencies, small and medium-sized businesses typically have service
relationships with accountants, attorneys, banks, trade associations and other
business advisors. Alliances with these service providers offer a cross-selling
opportunity for the Company's employee services. The Company intends to develop
such referral opportunities as an extension of its sales and marketing
capability.

Leveraging the Parent's Growth. The Company believes that its Parent is
the PEO industry's largest client. During fiscal year 1997, the Parent's
worksite employee population grew by 23% (16% excluding NovaPro). Growth in the
Parent's worksite employee base directly increases the Company's worksite
employee population and revenue without the need for additional sales and
marketing expenditures or client start-up costs.

OPERATING STRATEGY

The Company has developed an operating strategy designed to control costs
while supporting growth. The operating strategy encompasses leveraging the
Parent's existing infrastructure and implementing a sophisticated business
model.

Leveraging the Parent's Existing Infrastructure. As a national provider of
medical rehabilitation services, the Parent has developed the core competencies
for: (i) managing a dispersed workforce in third-party worksites; (ii)
establishing and maintaining national information systems networks connecting
clients, worksite employees and service providers; (iii) developing and
implementing workplace safety and injury prevention programs; and (iv) managing
regulatory change. This infrastructure is available to the Company pursuant to
its management services agreement with the Parent. The agreement permits the
Company to purchase access to the infrastructure at the Parent's out-of-pocket
cost excluding depreciation and amortization. The relationship with the Parent
also brings: (i) leverage to negotiate advantageous health care, workers'
compensation and other benefit program costs given the Parent's status as a
large employer in many geographic markets in which the Company operates, and
(ii) the availability of health care services for Company employees from the

35
<PAGE> 37

Parent and other health care providers in the Parent's integrated delivery
systems in the Company's target markets. See "Relationship with the Parent"
below and "Risk Factors -- Dependence on the Parent; Potential Conflicts With
the Parent."

The Company intends to leverage the Parent's experience and business
synergies to reduce costs by utilizing the Parent's integrated delivery system
network of health care providers. Integrated delivery systems comprise health
care providers that are networked as referral sources to facilitate integrated
patient care and to ease administration for payors and providers. The Parent has
established, and continues to develop, networks of rehabilitation providers,
principally outpatient and occupational health providers, in targeted geographic
markets. These networks can be used to provide rehabilitation to the Company's
injured worksite employees, allowing the Company to benefit from the skill and
expertise of the Parent in rehabilitating and returning to work injured
employees.

As a health care provider, the Parent has been an industry leader in
responding to regulatory and legislative change in a highly regulated market.
The Parent's experience in the regulatory environment will be a valuable
resource to the Company as states and the federal government seek to implement
new approaches to regulating the PEO industry. The Parent's regulatory
compliance experience is available to the Company under the management services
agreement between the Company and the Parent.

Implementing a Sophisticated Business Model. The Company's business model
includes a portfolio management system and an efficient operating model.

Portfolio Management System. The Company has implemented a portfolio
management system designed to control and improve its performance in the
selection of new business, meeting its brand promise with respect to existing
customers and analyzing lapsed business. The new business criteria orient
marketing to potential clients in target industries with high gross profit per
worksite employee and acceptable underwriting risk. The criteria include number
of worksite employees, credit rating, three-year workers' compensation loss
ratios, shock losses, workers' compensation insurance premium modification rate,
state unemployment experience, expected administrative fee and predicted gross
profit per employee.

The current business portfolio component of the control system enables
management to monitor new client start-ups, client specific financial and risk
performance and employee and employer satisfaction. By focusing management
attention on key business variables, the system permits day-to-day management to
direct actions consistent with the Company's strategy and business plan. The
business variables measured are the same as those used to access new business,
and additionally include accounts receivable, health claims filed, at risk
clients, employer and employee satisfaction. The Company believes that attention
to these variables on a weekly basis increases gross profit per worksite
employee. Lapsed business is analyzed by reason to facilitate identification of
service delivery system issues and to improve future client retention.

Operating Model. The Company has established an operating model that
delivers services from two different locations. The Company's local service
center places an emphasis on servicing the customer through local front-line
activities. The local service center conducts enrollment and orientation of new
employees and clients and worksite safety evaluation and monitoring. Sales
activity and customer service will also be performed locally. Local activities
relative to risk management promote safety, early intervention of workers'
compensation reported claims and early return to work. Centralized activity
includes nationally directed telemarketing, standard development of marketing
materials, a national accounts sales force, and regional payroll processing,
benefits administration and claims management. The major elements of finance,
procurement and compliance will also be centralized.

Staffing of the local centers and the centralized regional centers is based
on a metric identifying the number of worksite employees or other applicable
customers who can be adequately serviced by each kind of service representative,
including customer care representatives, payroll technicians,

36
<PAGE> 38

benefits specialists, human resources consultants, workers' compensation
specialists, safety engineers and underwriters. This staffing metric is designed
to provide efficient service at carefully controlled cost.

The Company believes it can achieve its strategic objectives by adopting
the local services model in each of the strategic markets it enters. This model
can be replicated in each key market. It also enables responsiveness to the
client while maximizing administrative support productivity. The operating model
provides the Company with transaction scale advantages while maintaining
customer intimacy through localized service centers that are easily replicated.

EMPLOYEE AND CLIENT SERVICES

In order to implement its strategy to create a more satisfying and more
productive relationship between employers and employees, the Company provides
six primary categories of employee services: (i) workers' compensation cost
containment and safety management; (ii) unemployment insurance cost containment;
(iii) employee benefits administration; (iv) human resources and compliance
management; (v) payroll management; and (vi) value added services. By engaging
the Company to provide these services, clients can focus on their core
competencies.

These services are provided under the Company's PEO services agreement
which has an initial one year term; thereafter, the agreement is renewed
periodically. The agreement is subject to termination by the Company or the
client upon 30 days' prior written notice. Service revenues, billed to clients
along with each periodic payroll, are based on a pricing model that takes into
account the gross pay of each employee and a mark-up which includes the
estimated costs of employment-related taxes, providing insurance coverage and
benefit plans, performing human resources, payroll, benefits and compliance
management and other services and an administration fee. The specific mark-up
varies by client based principally on the workers' compensation classification
of the worksite employees, their eligibility for health care benefits and the
size of the client. Accordingly, the Company's average mark-up percentage will
fluctuate based on client mix, which cannot be predicted with any degree of
certainty.

Clients are required to pay the Company its total fee concurrent with the
applicable payroll date and receipt of funds is verified prior to the release of
payroll. Although the Company is ultimately liable as employer to pay employees
for work previously performed, it retains the right to terminate the PEO
services agreement as well as the employees upon non-payment by a client. This
right and the periodic nature of payroll, combined with client credit
verifications and the Company's client selection process, are used to control
this exposure. Bad debt expense was $26,000 for the period from October 1, 1996
to June 30, 1997.

Workers' Compensation Cost Containment and Safety Management. Workers'
compensation is a state-mandated, comprehensive insurance program that requires
employers to fund medical expenses, lost wages and other costs that result from
work-related injuries and illnesses, regardless of fault and without any
co-payment by the employees. See "Regulation" below. Pursuant to the Company's
PEO services agreement, the Company assumes the obligations of its clients to
pay workers' compensation claims. See "Risk Factors -- Adequacy of Reserves for
Workers' Compensation Claims." The Company seeks to control its workers'
compensation costs through comprehensive risk evaluation of prospective clients,
the prevention of workplace injuries, timely intervention with employee
injuries, aggressive management of the medical costs related to such injuries
and the prompt return of employees to work. The Company seeks to prevent
workplace injuries by implementing a wide variety of training and safety
programs. The Company's efforts to return employees to work quickly involve both
rehabilitation services and the placement of employees in transitional,
light-duty positions until they are able to resume their former positions.

Unemployment Insurance Cost Containment. Pursuant to the Company's PEO
services agreement, the Company also assumes the obligation of its clients to
pay unemployment insurance costs. The Company manages its unemployment insurance
costs by establishing employee termination

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<PAGE> 39

procedures, timely responding to unemployment claims, attending unemployment
hearings and attempting to reassign employees to other worksites when a
reduction in force occurs at any one worksite location.

Employee Benefits Administration. Pursuant to the Company's PEO services
agreement, the Company is required to offer employee benefits to the worksite
employees. The Company offers worksite employees a benefits package which
includes several health care options, such as point-of-service ("POS"), HMOs and
indemnity plans. Supplemental benefit programs offer dental care, prescription
drugs, and life and disability insurance options. The Company also offers 401(k)
retirement savings and cafeteria style plans to its eligible employees. The
Company delivers participant benefits to worksite employees and monitors and
reviews claims for loss control purposes. The Company believes that its ability
to provide and administer a wide variety of employee benefits on behalf of its
clients tends to mitigate the competitive disadvantage small and medium-sized
businesses normally face in the areas of employee benefit cost control and
employee recruiting and retention.

Human Resources and Compliance Management. Pursuant to the Company's PEO
services agreement, the Company provides comprehensive human resources services
to its clients. These services reduce the employment-related administrative
burdens faced by its clients, and provide worksite employees with a wide array
of benefits typically offered by large employers. The Company develops and
administers personnel policies and procedures for each of its clients, relating
to, among other things, recruiting, retention programs, performance management,
discipline and terminations. The Company also provides orientation, training and
development, counseling and substance abuse awareness for worksite employees.

By contract, the Company generally assumes responsibility for complying
with many employment-related regulatory requirements. In addition, the Company
assists its clients in understanding and complying with other employment-related
requirements for which the Company does not assume responsibility. Laws and
regulations applicable to employers include state and federal tax laws, state
workers' compensation laws, state unemployment laws, occupational safety laws,
immigration laws, and discrimination, sexual harassment and other civil rights
laws.

Payroll Management and Reporting. Pursuant to the PEO services agreement,
the Company is responsible for payroll processing, check preparation,
distribution and recordkeeping, payroll tax deposits, payroll tax reporting,
employee file maintenance, unemployment claims and monitoring and responding to
changing regulatory requirements. The Company indemnifies the client against the
Company's failure to comply with regulatory requirements. Payroll reports are
prepared for clients for financial and other recordkeeping purposes. The
providing of these services by the Company reduces the client's employment
liabilities and allow clients to focus on their core business.

Other Value-Added Services. Since the acquisition of NovaPro on July 1,
1997, the Company has offered rehabilitation temporary staffing in the long-term
care industry. The rehabilitation temporary staffing service currently can draw
on a pool of over 6,000 rehabilitation clinicians to provide staff to skilled
nursing facility clients, at which over 1,300 worksite employees were performing
services as of July 1, 1997. This business is supported by technology which
provides detailed recruitment and sales productivity information for management
purposes. It also generates billing and utilization reports for clients.

The Company also plans to offer additional value-added services to clients
and worksite employees. Such services may include such things as employee
recognition programs, travel discount arrangements, vision care, credit union
membership, smart cards, warehouse club memberships and various financial
services. Some of these services may generate fee income or commissions for the
Company.

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<PAGE> 40

The Company's standard PEO services agreement also establishes the division
of responsibilities between the Company and the client as co-employers. The
division of responsibilities is generally as follows:

<TABLE>
<CAPTION>
THE COMPANY CLIENT JOINT
- -------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C>
- - Payment of payroll - Supervision of job-specific - Implementation of policies
activities of worksite and practices relating to
- - Tax reporting and payment (state and employees, including the employer-employee
federal withholding, Federal Insurance designation of job relationship
Contributions Act ("FICA"), Federal descriptions and duties and
Unemployment Tax Act ("FUTA"), and state responsibilities - Selection of fringe
unemployment) benefits, including employee
- Assignment to, and ownership leave policies (other than
- - Workers' compensation compliance, of, all intellectual as controlled by the Family
procurement, management, payment and property rights and Medical Leave Act of
reporting 1993 or other laws)
- Product liability
- - Employee benefit procurement, - Compliance with Code
administration and payment - Professional liability or provisions regarding
malpractice benefits discrimination
- - Compliance with Immigration Reform and
Control Act and Consumer Credit Protection - Compliance with OSHA - Hiring, terminating and
Act, as well as monitoring changes in regulations, state and local disciplining worksite
other government regulations governing the government contracting employees
employer-employee relationship and provisions, professional
updating the client when necessary licensing requirements and - Compliance with Title VII of
fidelity bonding the Civil Rights Act of
requirements 1964, the Age Discrimination
in Employment Act, the
- Negligent or tortious Americans with Disabilities
conduct of worksite employees Act, the Fair Labor
acting under the direction Standards Act and similar
and control of the client state or local legislation

- Determination of
compensation of worksite
employees
</TABLE>

RELATIONSHIP WITH THE PARENT

The Parent is the founder of the Company and will beneficially own
approximately 77% of the Common Stock after the Offering. The Parent established
the Company and entered into the NovaCare Contract primarily for four reasons.
The Company is intended to enable the Parent to leverage its core competencies
and investments in human resource management, information systems, relationship
selling, workers' compensation risk management, outsourcing and management of a
dispersed workforce. By leveraging the investments already made in its core
competencies, the Parent expects to increase the return to its shareholders from
those investments. The Parent believes its shareholders will benefit from its
relationship with the Company through appreciation in the value of the Parent's
investment in the Company. For that reason, the Parent has issued a line of
credit to the Company and provided services to the Company at the Parent's cost.
See "Certain Transactions."

In its purchase of health care and workers' compensation insurance coverage
for its worksite employees, the Company represents a substantial customer of
health care payors who, in turn, are major customers for the Parent's
rehabilitation services. Accordingly, the Parent believes that its relationship
with the Company will make it more likely for these health care payors to
utilize the Parent's rehabilitation services.

In addition, the Company allows the Parent to offer a broader array of
services to its existing customers. Through the Company, the Parent can address
all of its customers' human resource needs,

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<PAGE> 41

rather than limiting its services to rehabilitation staffing only. Providing a
broader array of services strengthens the Parent's relationship with its
customers.

Finally, the Company is a customer for the Parent's rehabilitation
services. As the Company grows, it will add non-Parent clients and employees who
will become new customers for the Parent's workers' compensation risk management
and rehabilitation services.

As part of its strategy to leverage its employee services expertise, in
February 1997, the Parent transferred to the Company 60 of its employees who
were performing most of the Parent's employee services functions, including
payroll, benefits administration and information systems, as well as the
Parent's employee services center.

In addition, in February 1997, the Parent entered into the NovaCare
Contract, a five-year evergreen contract to provide the Parent with the services
previously carried out for the Parent by the transferred staff. As part of the
NovaCare Contract, as of June 30, 1997, 15,072 of the Parent's employees have
become co-employees of the Company. For those employees, the Company provides
typical PEO services, including payroll and benefits administration, worksite
safety evaluation, employment-related risk management and compensation and
benefits consultation. The Parent pays the Company a fee for its services
currently equal to approximately 117% of the gross earnings of the employees
covered by the NovaCare Contract. The Parent may not terminate the NovaCare
Contract except in the event of: (i) the breach of any of the Company's
agreements, duties, or performance standards under the NovaCare Contract; (ii)
the making of false or misleading representations, warranties, or statements of
material fact in documents submitted by or on behalf of the Company to the
Parent; or (iii) insolvency, bankruptcy, or receivership of the Company. On a
pro forma basis, the Company would have recorded approximately $582 million of
aggregate fee revenue for the 12 months ended June 30, 1997 under the NovaCare
Contract.

By benefitting from the scale at which the Company is now operating, the
Company seeks to improve the efficiency of delivery of employee services to the
Parent and reduce the cost of those services. In recognition of these
cost-saving opportunities, the Company has agreed to reduce its fee under the
NovaCare Contract by 0.1% each year during the first five years of the term of
the contract. See "Certain Transactions."

INFORMATION TECHNOLOGY

The Company intends to leverage the Parent's nationwide information systems
network to connect its local customer service centers, regional processing
centers, worksite employees, clients and service providers. Through this
relationship with the Parent, the Company believes it will benefit from the
technological advances the Parent deploys in its business to provide value, help
reduce costs and provide operating efficiencies. These technologies include, but
are not limited to, a combined Internet/Intranet electronic mail system, client
server based expertise which provides distributed processing and rapid
implementation of business changes, Internet/Intranet access, telecopier to data
technology (which eliminates the need for manual data entry), and a
state-of-the-art nursing home management system. The Company intends to
establish regional processing centers which will utilize the Parent's network to
meet the processing requirements of the Company's clients. The Company has
completed the centralization of its information systems operations into its
first regional processing center in Bradenton, Florida. By utilizing the
Parent's network, the regional processing centers can serve as disaster recovery
backup sites, having the capability to handle the Company's operations for a
short period of time.

The Company currently uses commercially available software to manage
information related to payroll processing, benefits administration, human
resource management and employee enrollment. The Company has also developed the
requirements and key vendor relationships to create a proprietary information
management system to handle the expected growth in worksite employees. The
Company intends to follow the Parent's information technology strategy of
creating relational databases on state-of-the-art client server development
systems.

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<PAGE> 42

SALES AND MARKETING

The Company's client base as of June 30, 1997 consists of 1,742 client
companies, representing 35,028 worksite employees. The Parent represented 65% of
the Company's fiscal 1997 revenues, on a pro forma basis. See "Relationship with
the Parent" above, "Certain Transactions" and "Risk Factors." The Company's
clients, excluding the Parent, have an average of 11 employees. As of June 30,
1997, the Company's approximate distribution of worksite employees by major
Standard Industrial Classification ("SIC") code industry grouping was:

<TABLE>
<CAPTION>
WITHOUT WITH
THE PARENT THE PARENT
---------- ----------
<S> <C> <C>
Wholesale/Retail Trade....................................... 31% 18%
Construction................................................. 15% 8%
Hospitality.................................................. 15% 8%
Restaurants.................................................. 10% 6%
Transportation............................................... 8% 4%
Manufacturing................................................ 6% 3%
Automotive................................................... 6% 3%
Finance, Insurance and Real Estate........................... 4% 2%
Agriculture.................................................. 4% 2%
Health care.................................................. 1% 46%
</TABLE>

The Company is focused on serving clients in targeted industries that
generate high gross profit per worksite employee. See "Strategy -- Growth
Strategy" above. All prospective clients are evaluated individually on the basis
of workers' compensation risk, group medical history, unemployment history and
operating stability.

The Company's sales and marketing efforts are focused on the Company's
target markets and industries. The Company markets its services through 40 sales
professionals, 33 of which are direct employees and seven of which are dedicated
independent contractors who work exclusively for the Company and who specialize
in one or more of the Company's target industries. The Company's sales materials
are client specific and communicate its broad range of high quality services and
the potential benefits to employers and employees.

The Company will seek to utilize professional marketing tools and
strategies to communicate its brand promise and performance to target audiences.
First, the Company will seek to identify target audiences through market
research. The Company has commissioned an opinion survey to assist in designing
the messages to be delivered to the target audiences. The Company intends to
utilize public relations and advertising to communicate its brand promise and
its performance to the target audiences. Direct mail, referrals from the Parent
and other clients and telemarketing will be used to generate qualified customer
leads. The sales force will then deliver targeted presentations to qualified
prospects using industry- and customer-specific marketing materials. The Company
expects to benefit from joint public relations and advertising with the Parent.
These media are intended to supplement and enhance the effectiveness of the
Company's marketing efforts and reinforce brand loyalty on the part of employees
and clients. Brand loyalty is expected to generate referrals, improve client
retention and thereby improve profitability. The Company plans to survey the
marketplace, its worksite employees and potential clients on a continuous basis
to measure satisfaction and the effectiveness of its marketing efforts.

For its worksite employees, the Company believes the brand promise is
fulfilled by: (i) establishing a respectful and trusting relationship between
the Company and its worksite employees through clearly defined policies and
procedures, and competitive health care and related benefits; (ii) providing a
positive work environment by way of risk prevention and safety programs and
recognition programs; (iii) consistently rendering dependable and responsive
employee services, most

41
<PAGE> 43

notably payroll and benefits administration; and (iv) providing training and
placement during cyclical changes in its client businesses.

For its clients, the Company seeks to: (i) improve employee satisfaction
and thereby improve workforce performance and productivity; (ii) reduce the time
and effort required by business owners and executives to deal with the
complexities of employment and payroll management; (iii) improve client business
performance by enabling management to focus on core competencies, increasing
workforce productivity through training, recognition, risk prevention and safety
programs, and lowering costs associated with workers' compensation, health
insurance, other benefit coverage and regulatory compliance; and (iv) establish
a respectful and trusting relationship between the Company and its clients
through expert, responsive and dependable service and accountability for
performance.

The Company has benefited from a high level of client retention, resulting
in a significant recurring revenue stream. The Company believes its client
attrition is attributable to a variety of factors, including: (i) client
business failure or downsizing; (ii) sale or acquisition of the client company;
(iii) termination by the Company resulting from the client's inability to make
timely payments, and (iv) client nonrenewal due to price or dissatisfaction with
service. The Company believes that only a small percentage of nonrenewing
clients withdrew due to dissatisfaction with service or to retain the services
of a competitor. The Company's portfolio management approach, utilizing a
management control system focused on key operating variables, is designed to
reduce further the incidence of non-renewal.

The Company plans to enter new geographic markets on a regular basis. The
Company believes its market development model, which consists of a structured
sales management control system and selling process, will enable it to penetrate
new markets quickly.

The Company provides at least two weeks of training for each new sales
person to familiarize them with the Company's services, policies and procedures.
The training focuses on the Company's values, business model and target market
approach. The sales force is expected to utilize the key industry strategy and
become expert in one or more select industries in the markets in which they are
operating. The composition of the sales force to be assigned to each target
market will be determined by business objectives related to worksite employees,
profit, client growth and individual sales productivity.

The Company's sales management control system, which monitors activity both
on an individual and a consolidated basis, is designed to ensure an efficient
sales process in support of the Company's objectives. The measurement criteria
used in the sales management process include the tracking of qualified sales
lead generation, proposal presentation, close ratio, profit per worksite
employee and retention trends.

Referrals from existing clients and professionals (such as accountants,
bankers and lawyers) are a primary source of sales leads. Each sales person is
required to visit his or her clients periodically in order to maintain an
ongoing relationship and to benefit from referrals. Referrals are also expected
to result from the Company's brand recognition and the Company's strategic
alliances with other outsourcing service providers to small and medium-sized
businesses, including the Company's relationship with the Parent.

The sales leads result in initial presentations to prospective clients. The
Company's sales executives then gather information about the prospective client,
employees, workers' compensation job classifications and claims history, health
insurance claims history, compatibility with the Company's workplace safety
program philosophy, salary and the desired level of employee benefits and credit
history. These various factors are reviewed in the context of the Company's
pricing model and client selection profile. A client proposal is prepared for
potential clients. This prospective client screening process plays a vital role
in controlling the Company's cost and limiting exposure to liability.

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<PAGE> 44

Once a prospective client accepts the Company's proposal, the new client is
incorporated into the Company's system by a new account start-up team. A Company
customer service manager then assumes responsibility for ensuring service
performance for the client and its employees.

WORKERS' COMPENSATION AND HEALTH CARE PROGRAM

Historically, the majority of the Company's controllable direct costs
relate to workers' compensation benefits and health care. Consequently, the
Company's ability to manage the workers' compensation and health care costs of
its worksite employees is critical to its success and profitability. To manage
effectively its workers' compensation and health care costs, the Company intends
to utilize: (i) careful underwriting and selection of new clients; (ii) the
Parent's experience in implementing effective workers' compensation injury
prevention, medical management, rehabilitation and return to work techniques;
(iii) the health care services of the Parent and other health care providers in
the Parent's health care networks in key markets; and (iv) effective July 1,
1997, a fixed cost workers' compensation program.

If an injury occurs, the Company's goal is to take control of the claim
within 24 hours after receipt of the injury report, aggressively medically
manage the injury by coordinating with the employer, employee and provider, and
return the employee to work as early as is safe and feasible. This approach
substantially lowers injury-related costs, particularly the most expensive cost
component, lost workdays. Temporarily placing injured employees in light duty
positions until they are able to return to their previous duties is an
opportunity afforded the Company in its dense markets.

The Company's workers' compensation insurance coverage is currently
provided by Liberty Mutual, the largest workers' compensation insurance carrier
in the United States. The coverage is provided under a workers' compensation
deductible program with an aggregate stop loss that limits the liability to the
Company to a capped percentage of the standard premium or a fixed aggregate
deductible, whichever is greater. Under this program, the Company receives the
benefit of reducing actual claims experience below the cap. The Company accrues
workers' compensation expense based on management's evaluation of the nature and
severity of individual claims and past claims experience. Actual claims
experience is then recognized against the amount accrued. The Liberty Mutual
arrangement extends through June 30, 2000 and provides for: (i) a dedicated
claims processing unit; (ii) intensive training of the Company's safety
consultants and risk assessors; and (iii) favorable rates and payment terms.

The Parent has reduced its workers' compensation costs by 38% as a
percentage of employee earnings over the prior three calendar years. The
Parent's program has proven to be cost-effective in the health care industry.
The Parent's worksite employees will be self-insured by the Company.

Finally, when buying health care coverage for its employees, the Company
believes it is in a strong position with insurers, as a result of the
participation of the Parent in local market integrated health care delivery
systems as well as the leverage that the Company's scale provides. Accordingly,
the Company believes that it will be able to achieve favorable health care rates
by forming strategic partnerships with national and regional providers.

COMPETITION

The PEO industry consists of at least 2,400 companies (according to an
estimate by NAPEO), most of which serve a single market or region. The Company
is one of the largest PEOs in the United States. The Company considers its
primary competition to include: (i) traditional in-house human resources
departments; (ii) other PEOs, and (iii) providers of unbundled employment
related services such as payroll processing firms, temporary employment firms,
commercial insurance brokers, human resources consultants, workers' compensation
insurers, HMOs and other specialty managed care providers.

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<PAGE> 45

Competition in the highly fragmented PEO industry is generally on a local
or regional basis. Management believes that the primary elements of competition
are quality of service, choice and quality of benefits, reputation and price.
The Company believes that brand recognition, regulatory expertise, financial
resources, risk management, information technology capability and economies of
scale can distinguish a large-scale PEO from the rest of the industry. The
Company believes that it competes favorably in these areas.

The Company believes that barriers to entry into the PEO industry are
increasing due to, among others, the following factors: (i) the complexity of
the PEO business and the need for expertise in multiple disciplines; (ii) the
three to five years of experience required to establish experience ratings in
key cost areas of workers' compensation, health insurance and unemployment; and
(iii) the need for sophisticated management information systems to track all
aspects of business in a high growth environment.

REGULATION

The Company is subject to local, state and federal regulations which
include operating, fiscal and licensing requirements. Adding complexity to the
Company's regulatory environment are (i) uncertainties resulting from the
non-traditional employment relationships created by PEOs (ii) variations in
state regulatory schemes, and (iii) the ongoing evolution of regulations
regarding health care and workers' compensation. The Parent is a leader in
regulatory change management. The Company expects to benefit from its
affiliate's expertise in this area.

Many of the federal and state laws and regulations relating to tax, benefit
and employment matters applicable to employers were enacted prior to the
development of non-traditional employment relationships and, accordingly, do not
specifically address the obligations and responsibilities of PEOs or the
co-employment relationship. Moreover, the Company's PEO services are regulated
primarily at the state level. Regulatory requirements regarding the Company's
business therefore vary from state to state, and as the Company enters new
states it will be faced with new regulatory and licensing environments. There
can be no assurance that the Company will be able to satisfy the licensing
requirements or other applicable regulations of any particular state, that it
will be able to provide the full range of services currently offered, or that it
will be able to operate profitably within the regulatory environment of any
state in which it does not obtain regulatory approval. The absence of required
licenses would require the Company to restrict the services it offers. New
legislation or new interpretations of current licensing and regulatory
requirements could impose operating or licensing requirements on the Company
which it may not be able to satisfy or which could have a material adverse
effect on the Company's business, financial condition, results of operations and
liquidity. Additionally, interpretation of such legislation or regulation by
regulatory agencies with broad discretionary powers could require the Company to
modify its existing operations materially in order to comply with applicable
regulations.

The application of many laws to the Company's PEO services will depend on
whether the Company is considered an employer under the relevant statutes and
regulations. The IRS is currently examining this issue. See "Employee Benefit
Plans" below. In addition, from time to time there have been proposals to enact
a statutory definition of employer for certain purposes of the Code.

Regulation in the health care and workers' compensation fields continues to
evolve. Numerous reform proposals have been the subject of debate at both the
federal and state government levels. The Company cannot predict what effect any
such proposed reform will have on its business. If new legislation results in
increased health care costs, which comprise a significant portion of the
Company's direct costs, and if the Company is not able to reflect promptly such
increased costs in its service fees, such legislation could have a material
adverse impact on the Company's business, financial condition, results of
operations and liquidity.

PEO Licensing Requirements. A critical aspect of the growth of the PEO
industry has been increasing recognition and acceptance of PEOs by state
authorities. As the concept of PEO services

44
<PAGE> 46

has become more understood by regulatory authorities, the regulatory environment
has begun to shift from one of hostility and skepticism to one of regulatory
recognition of the industry. During the mid to late 1980s, legitimate industry
participants were challenged to overcome well publicized failures of financially
unsound and, in some cases, unscrupulous operators.

While many states do not explicitly regulate PEOs, approximately one-third
of the states, including Florida, have passed laws that have licensing or
registration requirements for PEOs and several additional states, including
Pennsylvania, are considering such regulation. Such laws vary from state to
state but generally provide for monitoring the fiscal responsibility of PEOs.
The Company is licensed in seven states and has begun the licensing program in
eight states. State regulation assists in screening insufficiently capitalized
PEO operations and resolves issues concerning an employee's status for specific
purposes under applicable state law. Because existing regulations are relatively
new, there is limited interpretive or enforcement guidance available. The
development of additional regulations and interpretation of existing regulations
can be expected to evolve over time.

In Florida, the Company's PEO operations are licensed under the Florida
Employee Leasing Licensing Act of 1991 (the "Florida Licensing Act"). The
Florida Licensing Act requires PEOs and their controlling persons to be
licensed, mandates reporting requirements and allocates several employer
responsibilities. The Florida Licensing Act also requires licensed PEOs to
submit annual financial statements and maintain a tangible accounting net worth
and positive working capital. The Florida Licensing Act also requires PEOs to,
among other things: (i) reserve the right of direction and control over the
leased employees; (ii) enter into a written agreement with the client company;
(iii) pay wages to the leased employees; (iv) pay and collect payroll taxes; (v)
maintain authority to hire, terminate, discipline and reassign employees; (vi)
reserve a right to direct and control the management of safety, risk and hazard
control at the worksite; (vii) promulgate and administer employment and safety
policies; and (viii) manage workers' compensation claims.

Federal and State Employment Taxes. The Company assumes the responsibility
and liability for the payment of federal and state employment taxes with respect
to wages and salaries paid to its employees, including worksite employees. There
are essentially three types of federal employment tax obligations: (i) income
tax withholding requirements; (ii) social security obligations under FICA; and
(iii) unemployment obligations under FUTA. Under the applicable Code sections,
the employer has the obligation to withhold and remit the employer portion and,
where applicable, the employee portion of these taxes.

To date, the IRS has relied extensively on the common law test of
employment in determining employer status and the resulting liability for
failure to withhold. However, the IRS has formed a Market Segment Study Group
for the stated purpose of examining whether PEOs, such as the Company, are the
employers of the worksite employees under the Code provisions applicable to
federal employment taxes and, consequently, whether they are exclusively
responsible for payment of employment taxes on wages and salaries paid to such
employees. Another stated purpose of the Market Segment Study Group is to
determine whether owners of client companies can be employees of PEOs under the
federal employment tax laws. See "Risk Factors -- Risk of Loss of Qualified
Status for Certain Tax Purposes."

The interpretive uncertainties raised by the Market Segment Study Group may
affect the Company's ability to report employment taxes on its own account
rather than for the accounts of its clients and would increase administrative
burdens on the Company's payroll service function. In addition, while the
Company believes that it can contractually assume the client company's
withholding obligations, in the event the Company fails to meet these
obligations, the client company may be held jointly and severally liable
therefor.

Employee Benefit Plans. The Company offers various employee benefit plans
to its worksite employees, including 401(k) plans (a profit-sharing plan with an
employer contribution feature), cafeteria plans, group health plans, group life
insurance plans, group disability insurance plans and employee assistance
programs. Generally, employee benefit plans are subject to provisions of both
the

45
<PAGE> 47

Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). In order to qualify for favorable tax treatment under the Code, the
plans must be established and maintained by an employer for the exclusive
benefit of its employees. Most of these benefit plans are also offered to the
Company's corporate employees.

The Market Segment Study Group established by the IRS is examining whether
PEOs, such as the Company, are the employers of worksite employees under Code
provisions applicable to employee benefit plans and consequently able to offer
to worksite employees benefit plans that qualify for favorable tax treatment.
The Market Segment Study Group is also examining whether client company owners
are employees of PEOs under Code provisions applicable to employee benefit
plans. The Company is unable to predict the timing or nature of the findings of
the Market Segment Study Group or the ultimate outcome of such conclusions or
findings. If the IRS study were to conclude that a PEO is not an employer of its
worksite employees for plan purposes, worksite employees might not be able to
continue to make contributions to the Company's 401(k) plans or cafeteria plans.
The Company believes that although unfavorable to the Company, a prospective
application by the IRS of an adverse conclusion would not have a material
adverse effect on its financial position and results of operations. If such
conclusion were applied retroactively, employees' vested account balances would
become taxable immediately, the Company would lose its tax deduction to the
extent the contributions were not vested, the plans' trusts would become taxable
trusts and penalties could be assessed. In such a case, the Company would face
the risk of client dissatisfaction as well as potential litigation. A
retroactive application by the IRS of an adverse conclusion could have a
material adverse effect on the Company's business, financial position, results
of operations and liquidity. While the Company believes that a retroactive
disqualification is unlikely, there can be no assurance as to the ultimate
resolution of these issues. See "Risk Factors -- Risk of Loss of Qualified
Status for Certain Tax Purposes."

In addition to the employer/employee relationship requirement described
above, pension and profit-sharing plans, including the Company's 401(k) plans,
must satisfy certain other requirements under the Code. These other requirements
are generally designed to prevent discrimination in favor of highly compensated
employees to the detriment of non-highly compensated employees with respect to
both the availability of, and the benefits, rights and features offered in,
qualified employee benefit plans. The Company applies the nondiscrimination
requirements of the Code at both a consolidated and client company level to
ensure that its 401(k) plans are in compliance with the requirements of the
Code.

Employee pension and welfare benefit plans are also governed by ERISA.
ERISA defines the term employer as "any person acting directly as an employer,
or indirectly in the interest of an employer, in relation to an employee benefit
plan." ERISA defines the term employee as "any individual employed by an
employer." The United States Supreme Court has held that the common law test of
employment must be applied to determine whether an individual is an employee or
an independent contractor under ERISA.

A definitive judicial interpretation of employer in the context of a PEO or
employee leasing arrangement has not been established. If the Company were found
not to be an employer for ERISA purposes, its plans might not comply with ERISA,
the level of services the Company could offer may be materially adversely
affected, and the Company and its plans might not enjoy the preemption of state
laws provided by ERISA and could be subject to varying state laws and
regulations, as well as to claims based upon state common laws.

Workers' Compensation. Workers' compensation is a state-mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries and
illnesses. In exchange for providing workers' compensation coverage for
employees, employers are not subject to litigation by employees for benefits in
excess of those provided by the relevant state statute. In most states, the
extensive benefits coverage (for both medical costs and lost wages) is provided
through the purchase of commercial insurance from private insurance companies,
participation in state-run insurance funds or employer self-insurance. Workers'

46
<PAGE> 48

compensation benefits and arrangements vary on a state-by-state basis and are
often highly complex. These laws establish the rights of workers to receive
benefits and to appeal benefit denials. Workers' compensation laws also regulate
the methods and procedures which the Company may employ in its workers'
compensation managed care programs. For example, workers' compensation laws
prohibit medical co-payment and deductible payment by employees. In addition,
certain states restrict employers' rights to select health care providers and
establish maximum fee levels for treatment of injured workers.

As a creation of state law, workers' compensation is subject to change by
each state's legislature and is influenced by the political processes in each
state. Several states have mandated that employers receive coverage only from
state-operated funds. Florida and other states have adopted legislation
requiring that all workers' compensation injuries be treated through a managed
care program. While such legislation may increase the market for the Company's
workers' compensation managed care services, it may also intensify the
competition faced by the Company for such services. In addition, federal health
care reform proposals include a proposal that may require 24-hour health
coverage, in which the coverage of traditional employer-sponsored health plans
is combined with workers' compensation coverage to provide a single insurance
plan for health problems, whether or not related to work. Incorporating workers'
compensation coverage into conventional health plans may adversely affect the
market for the Company's services and may intensify the competition faced by the
Company from HMOs and other health care providers. Moreover, because workers'
compensation benefits are mandated by law and are subject to extensive
regulation, payors and employers do not have the same flexibility to alter
benefits as they have with other health benefit programs. Finally, because
workers' compensation programs vary from state to state, it is difficult for
payors and multi-state employers to adopt uniform policies to administer, manage
and control the costs of benefits.

Other Employer-Related Requirements. As an employer, the Company is
subject to a wide variety of federal, state and local laws and regulations
governing employer-employee relationships, including the Immigration Reform and
Control Act, the Americans with Disabilities Act, the Family and Medical Leave
Act, the Occupational Safety and Health Act, wage and hour regulations, and
comprehensive local, state and federal civil rights laws and regulations,
including those prohibiting discrimination and sexual harassment. The definition
of employer may be broadly interpreted under these laws.

Responsibility for complying with various state and federal laws and
regulations is allocated by agreement between the Company and its clients, or in
some cases is the joint responsibility of both. See "Employee and Client
Services" above. Because the Company acts as a co-employer with the client
company, it is possible that the Company could incur liability for violations of
laws even though the Company is not contractually or otherwise responsible for
the conduct giving rise to such liability. The Company's standard client
agreement generally provides that the client will indemnify the Company for
liability incurred as a result of an act of negligence of a worksite employee
under the direction and control of the client or to the extent the liability is
attributable to the client's failure to comply with any law or regulation for
which it has specified contractual responsibility. However, there can be no
assurance that the Company will be able to enforce such indemnification and the
Company may therefore be ultimately responsible for satisfying the liability in
question.

EMPLOYEES

At June 30, 1997, the Company had 260 non-worksite employees. Of these, 37
are corporate management and 223 are administrative and clerical. None of the
Company's non-worksite employees is represented by a labor union and the Company
is not aware of any current activity to organize any of its non-worksite
employees. Management considers relations between the Company and its non-
worksite employees to be good. For information with respect to the Company's
worksite employees, see "Employee and Client Services" above.

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<PAGE> 49

PROPERTIES

The Company's principal executive offices are located at 2621 Van Buren
Avenue, Norristown, Pennsylvania 19403. In addition, the Company leases other
office space in various cities in the United States. See Notes 4 and 8 of Notes
to the Company's Consolidated Financial Statements for information concerning
the Company's leases for its facilities. The Company does not anticipate that it
will experience any difficulty in renewing any such leases upon their expiration
or obtaining different space on comparable terms if such leases are not renewed.
The Company believes that these facilities are well maintained and are of
adequate size for present needs and planned expansion in the near future.

INSURANCE

The Company believes that it maintains the types and amounts of insurance
customary in the industry, including coverage for general liability and workers'
compensation. The Company considers its insurance coverage to be adequate both
as to risks and amounts.

LEGAL PROCEEDINGS

From time to time, the Company is party to certain claims, suits and
complaints which arise in the ordinary course of business. Currently, there are
no such claims, suits or complaints which, in the opinion of management, would
have a material adverse effect on the Company's business, financial condition,
results of operations and liquidity.

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<PAGE> 50

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth certain information with respect to directors and
executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- ---- ------------------------------------------------
<S> <C> <C>
E. Martin Gibson(1)(2)................... 59 Chairman of the Board, Director
Loren J. Hulber.......................... 54 President, Chief Executive Officer and Director
Bernard C. Byrd, Jr...................... 35 Senior Vice President of Operations
Thomas D. Schubert....................... 36 Senior Vice President and Chief Financial and
Accounting Officer
Andrew W. Stith.......................... 29 Senior Vice President of Sales and Marketing
Robert K. Coddington..................... 48 Senior Vice President of Temporary Services
Arthur T. Locilento, Jr.................. 53 Senior Vice President of Human Resources
Christina D. Harris, Esquire............. 35 Senior Vice President of Regulatory Affairs and
Compliance
Marie L. Martino, Esquire................ 37 General Counsel and Secretary
James E. Boyd............................ 40 Area President, Southeast
Deborah M. Skinner....................... 48 Area President, Northeast
John H. Foster........................... 54 Director
Timothy E. Foster........................ 44 Director
Harvey V. Fineberg, M.D., Ph.D.(1)(2).... 51 Director
Stephen E. O'Neil, Esquire(1)(2)......... 63 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee

(2) Member of Audit Committee

The following is a brief summary of the business experience of each of the
directors and executive officers of the Company:

E. Martin Gibson. Mr. Gibson has been the Chairman of the Board of
Directors of the Company since March 3, 1997. He has served as a director of the
Parent since March 1992. Mr. Gibson, who is retired, served as Chairman and
Chief Executive Officer of Corning Lab Services, Inc., a subsidiary of Corning
Incorporated, from 1990 until December 1994. He currently serves as a director
of International Technology Corp., an environmental management company, of
Hardinge Brothers, Inc., a manufacturer of machine tools, and of Sensus Corp., a
private biotechnology company.

Loren J. Hulber. Mr. Hulber has been the President, Chief Executive
Officer and a director of the Company since March 3, 1997. For the previous ten
years, he served in various capacities for American Brands, Inc., most recently
as President and Chief Executive Officer of Day-Timers, Inc., a subsidiary
specializing in time management and personal organization. From 1973 until 1981,
Mr. Hulber was President and Chief Executive Officer of Durand Corporation, an
office products company. Upon Durand Corporation's acquisition by Jostens, Inc.
in 1981 and until 1987, Mr. Hulber was President of the Business Products Group,
a provider of business products and services. Mr. Hulber currently serves as
Vice Chairman of the Board of Trustees of Lehigh Valley Hospital and Health
Network.

Bernard C. Byrd, Jr. Mr. Byrd became Senior Vice President of Operations
of the Company on March 3, 1997. In 1992, he founded the Company's initial
acquisition, Resource One and served as its President and Chief Executive
Officer. Prior to founding Resource One, Mr. Byrd was Vice President of Finance
for Your Staff, Inc., a PEO that was acquired by Kelly Services, Inc., a
provider of temporary employee services. Before joining Your Staff, Inc., he was
the Chief Financial Officer for Staffing

49
<PAGE> 51

Services, Inc., which was a founding member of NAPEO. Since 1994, Mr. Byrd has
been a member of the Florida Board of Employee Leasing Companies and serves as
its immediate past chairman.

Thomas D. Schubert. Mr. Schubert has been the Senior Vice President and
Chief Financial and Accounting Officer of the Company since June 4, 1997. Prior
to joining the Company, he served in various capacities with Chemical Leamen
Tank Lines, Inc., a transportation and logistics company since 1991, most
recently as Vice President of Finance. From 1984 to 1990 he worked in the
accounting/auditing practice with the Philadelphia office of Ernst & Young where
he managed a variety of client engagements in the manufacturing and service
sectors.

Andrew W. Stith. Mr. Stith became Senior Vice President of Sales and
Marketing of the Company on March 3, 1997. In 1994, he joined the Parent as
Assistant to the Chairman of the Parent. In 1995, Mr. Stith assumed the position
of Vice President of Sales for the Contract Rehabilitation Division of the
Parent. Prior to joining the Parent, from 1992 to 1994 Mr. Stith obtained his
M.B.A. from the Amos Tuck School of Management Dartmouth College. From 1989 to
1992, he was associated with River Capital, Inc. as a venture capital associate.

Robert K. Coddington. Mr. Coddington became Senior Vice President of
Temporary Services of the Company on July 1, 1997. Mr. Coddington joined the
Parent in 1987 as Area Manager, Contract Rehabilitation Division. During his
tenure with the Parent, he held numerous operating positions including Vice
President of the Central Region and President of the Western Region. Most
recently, he was responsible for NovaPro Temp Services. Prior to joining the
Parent, Mr. Coddington spent 10 years in the long-term care industry. He was
also President of Audio Medical, Inc., a speech pathology firm which he founded
and operated.

Arthur T. Locilento, Jr. Mr. Locilento became Senior Vice President of
Human Resources of the Company on March 3, 1997. From September 1996 to March
1997, Mr. Locilento was a Director and Vice President of the Company. From 1988
to 1996, he served as Senior Vice President of Human Resources of the Parent.
From 1982 to 1988, Mr. Locilento served as Senior Vice President of Human
Resources at Shearson Lehman Brothers Inc., a financial services company.

Christina D. Harris, Esq. Ms. Harris became Senior Vice President of
Regulatory Affairs and Compliance on July 18, 1997. Prior to joining the
Company, she was National Vice President of Marketing (Alternative Staffing) for
AIG Risk Management, Inc. ("AIG") from April 1996 to July 1997. Before joining
AIG, she was Vice President for Legal Affairs and General Counsel for The Vincam
Group, Inc., a PEO, from December 1991 to April 1996. Ms. Harris has served as
NAPEO's chief delegate on employment law to its government affairs committees
and as Chairperson of its Legal Advisory Council. She is also the immediate past
president of the Florida Association of Professional Employer Organizations
("FAPEO").

Marie L. Martino, Esq. Ms. Martino became General Counsel and Secretary of
the Company on March 3, 1997. She also serves as Assistant General Counsel
responsible for litigation and employment law at the Parent, where she has been
employed since 1994. From 1993 to 1994, Ms. Martino was an associate in the
Labor and Employment Law Group at Dechert Price & Rhoads, a Philadelphia law
firm. For the four years prior to that she practiced in the employment law group
at Bell Atlantic Corp.

James E. Boyd. Mr. Boyd became Area President, Southeast of the Company on
March 3, 1997. In 1995, he joined ESA, a PEO acquired by the Company in February
1997, and was President and Chief Executive Officer of ESA from 1996 until ESA
was acquired by the Company. From 1978 to 1995, Mr. Boyd was associated with the
Boyd Insurance Agency, becoming an owner and the Chief Executive Officer in
1986. Mr. Boyd currently serves as Secretary of FAPEO.

Deborah M. Skinner. Ms. Skinner became Area President, Northeast of the
Company on March 3, 1997. She was formerly President and Chief Executive Officer
of TPI, a PEO which she founded in 1988 and which was acquired by the Company in
February 1997. Ms. Skinner currently serves as Secretary for the New York State
Chapter of the Association of Professional Employer Organizations and recently
completed her term as a member of the Board of Directors of NAPEO.

50
<PAGE> 52

John H. Foster. Mr. Foster became a director of the Company on March 3,
1997. He has been Chairman of the Board of the Parent since December 1984. From
December 1984 until May 1997, he was also Chief Executive Officer of the Parent.
Mr. Foster is a director of Corning Incorporated, an international corporation
with business interests in specialty materials, communications, laboratory
services and consumer products. Since March 1991, Mr. Foster also has been
Chairman of the Board and Chief Executive Officer of Apogee, Inc. Mr. Foster is
founder and Chairman of Foster Management Company, an investment advisor, and
general partner of various venture capital investment funds.

Timothy E. Foster. Mr. Foster became a director of the Company on March 3,
1997. He has been Chief Executive Officer of the Parent since May 1997. Between
October 1994 and May 1997, he was President and Chief Operating Officer of the
Parent. He has been a director of the Parent since December 1984. Prior to
becoming President, he served in a variety of finance and administrative roles
at the Parent, beginning in 1984. Since February 1995, he has also been a
director of Apogee, Inc.

Harvey V. Fineberg, M.D., Ph.D. Dr. Fineberg became a director of the
Company on March 3, 1997. He was named Provost of Harvard University in July of
1997. Until then, he had been Dean of the Harvard School of Public Health since
1984 and a Professor of Health Policy and Management there since 1982. From 1995
to 1996, he served as President of the Association of Schools of Public Health.
He is also a member of the Institute of Medicine. Dr. Fineberg is a director of
Principal Care, Inc., a women's health care company, and Apogee, Inc., a
national provider of mental health services.

Stephen E. O'Neil. Mr. O'Neil became a director of the Company on March 3,
1997. He has been a director of the Parent since December 1984. Mr. O'Neil has
been a principal of The O'Neil Group, a private investment firm since 1981. He
is a director of Brown Forman Corporation; Castle Convertible Fund, Inc.;
Spectra Fund, Inc.; Alger Fund, Inc.; and Alger American Funds.

BOARD OF DIRECTORS

All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified, or until their death,
resignation or removal.

Committees. The Company's Board of Directors has established a
Compensation Committee and an Audit Committee. The membership of each committee
is indicated by footnotes to the table above. The Compensation Committee
administers the Company's compensation programs, including the Stock Option Plan
(including determining the persons who are to receive options and the number of
shares subject to each option), and performs such other duties as may from time
to time be determined by the Board of Directors. The Audit Committee reviews the
scope and results of the annual audit of the Company's consolidated financial
statements conducted by the Company's independent accountants, the scope of
other services provided by the Company's independent accountants, proposed
changes in the Company's financial and accounting standards and principles, and
the Company's policies and procedures with respect to its internal accounting,
auditing, financial and legal and regulatory compliance controls. The Audit
Committee also makes recommendations to the Board of Directors on the engagement
of the independent accountants, as well as other matters which may come before
it or as directed by the Board of Directors.

Compensation. Non-employee directors of the Company receive reimbursement
of reasonable expenses incurred in serving as a director. In addition, pursuant
to the Company's Stock Option Plan, each director of the Company who is not an
employee of the Company automatically receives on the date such person first
becomes a director a grant of nonqualified options to purchase 20,000 shares of
Common Stock, which will vest one-third on each anniversary of the date of
grant. In addition, following each annual meeting of the Company's stockholders,
each such outside director will receive an annual grant of options to purchase
an additional 10,000 shares of Common Stock, all of which vest one-third on each
anniversary of the date of grant. The exercise price of all such options is the
fair market value at the time the options are granted. Options to purchase a
total of 20,000 shares of Common Stock have been granted under such arrangement
to each of Messrs. Gibson, O'Neil, John H. Foster, Timothy E. Foster and Dr.
Fineberg at an exercise price of $2.80 per share. Mr. Gibson has

51
<PAGE> 53

received an additional grant of options to purchase 20,000 shares of Common
Stock in consideration of his service as Chairman of the Company at an exercise
price of $2.80 per share. Directors who are employees of the Company or of the
Parent receive no compensation for their services as directors, except the
initial option grants described in this paragraph.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

Prior to the appointment of the current members of the Compensation
Committee, executive compensation decisions for the Company were made by the
Parent. The Company expects to receive in excess of 5% of its gross revenues for
the next fiscal year from the Parent.

EXECUTIVE COMPENSATION

The following table sets forth information for the fiscal year ended June
30, 1997 concerning the compensation paid or awarded to the Chief Executive
Officer and the other most highly compensated executive officer whose salary and
bonus exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------ ------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER AWARDS COMPENSATION(1)
- ------------------------------------------------ -------- ------- ---- ------ ------------
<S> <C> <C> <C> <C> <C>
Loren J. Hulber................................. $ 69,231 $31,500 0 0 $1,105
President and Chief Executive Officer
Arthur T. Locilento, Jr......................... $131,117 $73,355 0 25,000 $1,795
Senior Vice President of Human Resources
</TABLE>

- ---------------
(1) Consists of contributions made by the Company to the Company's 401(k) Plan
and the Company's Supplemental Deferred Compensation Plan.

The following table sets forth the grants of stock options to the executive
officers named in the Summary Compensation Table that have occurred during the
current fiscal year ended June 30, 1997:

OPTION GRANTS IN FISCAL YEAR 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE)(1) DATE 5% 10%
- -------------------------- ------ ---------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur T. Locilento,
Jr. .................... 25,000 7% $ 2.80 2/28/07 $114,020 $181,556
</TABLE>

- ---------------
(1) The per share exercise price equals fair market value of Common Stock on the
date of grant. There was no trading market for the Common Stock during the
fiscal year ended June 30, 1997. Accordingly, fair market value has been
determined by the Board of Directors at the date of each option grant, based
on the Board's assessment of the business and financial performance of the
Company, and an independent appraisal.

(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. This table does not take into account any
appreciation in the price of the Common Stock to date.

No options were exercised by the executive officers named in the Summary
Compensation Table during the fiscal year ended June 30, 1997. The following
table sets forth for the executive officers

52
<PAGE> 54

named in the Summary Compensation Table certain information concerning the value
of unexercised options at the end of the fiscal year ended June 30, 1997:

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Arthur T. Locilento, Jr. .................. 0 25,000 $ 0 $ 300,000
</TABLE>

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

(1) Amounts are shown as the positive spread between the exercise price and fair
market value (based on an estimated initial offering price of $12.00 per
share).

EMPLOYMENT AND OTHER ARRANGEMENTS

Mr. Loren J. Hulber entered into a three-year employment agreement with the
Company in January 1997. Under the agreement, Mr. Hulber receives a base salary
of $200,000 per year. Mr. Hulber is eligible to receive an annual bonus of up to
50% of his base salary, based on achievement of agreed-to objectives and
attainment of financial targets. He is also entitled to receive a separate
one-time payment of $100,000 if the Offering closes on or before December 31,
1997. Pursuant to his employment agreement, Mr. Hulber purchased 375,000 shares
of the Company's Common Stock at a cost of $720,000. Mr. Hulber's rights to the
stock vest in equal parts over three years. Vesting may be accelerated in the
event of a change of control of the Company or upon termination of Mr. Hulber's
employment by the Company. Mr. Hulber will receive severance of up to one year's
salary and bonus upon termination by the Company without cause.

Mr. Bernard C. Byrd, Jr., entered into a five-year employment agreement
with the Company in October 1996, which agreement was amended in April 1997.
Under the agreement, Mr. Byrd receives a base salary of $75,000 per year,
subject to annual merit reviews. Mr. Byrd is also eligible to receive an annual
bonus of up to $25,000, based on achievement of agreed to productivity and
performance criteria. Mr. Byrd was a stockholder of Resource One, which the
Company acquired in October 1996. In consideration for his capital stock in
Resource One, the Company paid Mr. Byrd $1,000,000 in cash, issued Mr. Byrd a
five-year 6% subordinated promissory note in the amount of $393,500 and issued
Mr. Byrd 93,750 shares of the Company's Common Stock at the closing of the
acquisition and agreed to pay Mr. Byrd (i) $1,000,000 upon the consummation of
the Offering and (ii) certain other additional cash payments and shares of the
Company's Common Stock if Resource One achieves certain operating objectives.
Subsequent to the closing of the transaction, the Company removed the
contingency from certain of Mr. Byrd's additional payments and lent Mr. Byrd
$83,700, collateralized by those payments. Mr. Byrd is currently entitled to
receive future non-contingent payments totaling $440,000 and 61,250 shares of
the Company's Common Stock. Mr. Byrd utilized the loan to purchase 30,000 shares
of the Company's Common Stock. Those shares vest over five years and unvested
shares may be repurchased by the Company if Mr. Byrd should leave the Company
prior to the shares becoming vested. Mr. Byrd also received $360,000 and 22,500
shares of the Company's Common Stock subsequent to the closing in satisfaction
of the Company's obligation with respect to the first contingent payment due
under the acquisition agreement. The Company also repurchased from Mr. Byrd
281,250 shares of the Company's Common Stock at a price of $1.92 per share on
January 10, 1997.

Ms. Deborah M. Skinner entered into a five-year employment agreement with
the Company in February 1997. Under the agreement, Ms. Skinner receives a base
salary of $85,000 per year, subject to annual merit reviews. Ms. Skinner will
receive severance of up to six months' salary upon termination by the Company
without cause. Ms. Skinner was a stockholder of TPI which the Company acquired
in February 1997. In consideration for her capital stock in TPI, the Company
paid Ms. Skinner $1,062,600 in cash and issued Ms. Skinner 60,878 shares of the
Company's Common Stock at the closing of the acquisition and agreed to pay Ms.
Skinner (i) $885,500 upon the consummation of the Offering and

53
<PAGE> 55

(ii) certain other additional cash payments and shares of the Company's Common
Stock if TPI achieves certain operating objectives.

Mr. James E. Boyd entered into a five-year employment agreement with the
Company in February 1997. Under the agreement, Mr. Boyd receives a base salary
of $125,000 per year, subject to annual merit reviews. Mr. Boyd is also eligible
to receive an annual bonus of up to 25% of his base salary, based on achievement
of agreed to productivity and performance criteria. Mr. Boyd will receive
severance of up to six months' salary and bonus upon termination by the Company
without cause. Mr. Boyd was a stockholder of ESA, which the Company acquired in
February 1997. In consideration for his capital stock in ESA, the Company paid
Mr. Boyd $576,220 in cash and issued Mr. Boyd 18,006 shares of the Company's
Common Stock at the closing of the acquisition and agreed to pay Mr. Boyd (i)
$480,183 upon the consummation of the Offering and (ii) certain other additional
cash payments and shares of the Company's Common Stock if ESA achieves certain
operating objectives. Subsequent to the closing, Mr. Boyd has received an
additional 2,100 shares of Common Stock and $33,613 in cash pursuant to such
earnout provisions.

STOCK OPTION PLAN

On February 28, 1997, the Company's Board of Directors adopted and its
shareholders approved the Company's 1997 Stock Option Plan (the "Stock Option
Plan") under which 625,000 shares of Common Stock are currently reserved for
issuance upon exercise of stock options. The Stock Option Plan provides for the
grant of both incentive stock options intended to qualify as such under Section
422 of the Code ("incentive stock options") and non-qualified options to
directors, officers, key employees, consultants and other individual
contributors of or to the Company, its parent and its subsidiaries, as
determined at the discretion of the Board. Effective March 3, 1997, the Board
delegated authority to make decisions respecting the grant of options under the
Stock Option Plan to the Compensation Committee of the Board. Pursuant to the
terms of the Stock Option Plan, options may not be granted with an exercise
price that is less than 100% of fair market value of the Company's Common Stock
on the date of grant, as reasonably determined by the Compensation Committee.
The Stock Option Plan will terminate on February 28, 2007, unless sooner
terminated by the Board of Directors.

As of September 5, 1997, there were outstanding under the Stock Option Plan
options to purchase an aggregate of 424,000 shares of Common Stock. Options to
purchase 380,000 shares are at an exercise price of $2.80 per share. The
remaining options to purchase 44,000 shares are at an exercise price of $4.50
per share. None of the options is currently exercisable. The Company intends to
file a registration statement under the Securities Act to register shares of
Common Stock reserved for issuance under the Plan. See "Shares Eligible for
Future Sale."

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<PAGE> 56

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) as of September 5, 1997 and (ii) as
adjusted to reflect the sale of 4,500,000 shares of Common Stock offered by the
Company in the Offering by (a) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock, (b) each director of
the Company who beneficially owns Common Stock, (c) each of the persons named in
the Summary Compensation Table and (d) all officers and directors of the Company
as a group. Except as indicated in the footnotes to the table, each named
beneficial owner has sole voting and investment power with respect to the shares
owned.

<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
---------------------
COMMON STOCK BEFORE AFTER
NAME AND ADDRESS(2) BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
NovaCare, Inc.......................................... 19,400,000 94.0% 77.2%
1016 West Ninth Avenue
King of Prussia, PA 19406
Loren J. Hulber(1)..................................... 375,000 1.8% 1.5%
All Directors and Officers as a group (15 persons)..... 566,675 2.7% 2.3%
</TABLE>

(1) Unless otherwise stated, the address of all persons is in care of the
Company, 2621 Van Buren Avenue, Norristown, Pennsylvania 19403.

55
<PAGE> 57

CERTAIN TRANSACTIONS

The Company was founded as a subsidiary of the Parent. After the Offering,
the Parent will own approximately 77% of the Common Stock of the Company. The
Parent has loaned the Company approximately $28.4 million, which will be repaid
from a portion of the proceeds of the Offering. See "Use of Proceeds." In return
for its efforts as the founder and its initial investment of $40,000, the
Company issued 16,000,000 shares of the Company's Common Stock to a subsidiary
of the Parent. In consideration of a license to use certain intellectual
property, it subsequently received 2,200,000 shares of the Company's Common
Stock. In consideration for the transfer of the assets of the Parent's temporary
staffing business on July 1, 1997, the Parent received 1,200,000 shares of the
Company's Common Stock. John H. Foster and Timothy E. Foster are each an officer
and director, and E. Martin Gibson and Stephen E. O'Neil are directors, of the
Parent.

In February 1997, the Company entered into the NovaCare Contract under
which the Parent's employees are co-employed by the Company for a five-year
term, ending on January 31, 2002. Under the NovaCare Contract, the Company
provides traditional PEO services such as payroll administration, worksite
safety evaluation, employment-related risk management and compensation and
benefits consultation required by the Parent for its employees, with the
exception of 275 employees in the States of Washington and New Mexico. The
annual revenue derived from the NovaCare Contract will vary based on the number
of the Parent's employees covered by the agreement and the nature of the
services provided. As of June 30, 1997, 15,072 of the Parent's employees were
co-employed under the NovaCare Contract. The Company expects that revenue from
the NovaCare Contract during the 12 months ending December 31, 2001 will be
approximately $600 million. Under the NovaCare Contract, the Company currently
receives a fee that equals the salary plus 9.7% of gross earnings of covered
employees, plus federal payroll tax costs of covered employees (a formula which
generally results in the payment of approximately 117% of the gross earnings of
such employees). See "Business -- Employee and Client Service,"
"Business -- Relationship with the Parent." See the Company's Consolidated
Statement of Operations and Note 2 of Notes to the Company's Consolidated
Statement for information regarding the contribution of the NovaCare Contract to
the Company's revenue.

The Parent has subleased office space to the Company in the Parent's
offices in Norristown, Pennsylvania pursuant to a seven-year sublease under
which the Company currently pays approximately $9,000 per month, subject to
certain escalations. In addition, the Parent and the Company have entered into a
management services agreement pursuant to which the Company is permitted to
purchase access to the Parent's infrastructure at the Parent's out-of-pocket
cost excluding depreciation and amortization. See "Business -- Operating
Strategy -- Leveraging the Parent's Existing Infrastructure."

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 60,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), and 1,000,000
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). At
September 5, 1997, there were 20,643,187 shares of Common Stock issued and
outstanding. The Company has not authorized the issuance of any shares of
Preferred Stock.

The following description of certain matters relating to the capital stock
of the Company is a summary and is qualified in its entirety by the provisions
of the Company's Certificate of Incorporation and By-Laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.

COMMON STOCK

At September 5, 1997, approximately 26 persons were holders of record of
the 20,643,187 shares of Common Stock outstanding. Each holder of record of
Common Stock is entitled to one vote for each outstanding share of Common Stock
owned by such holder, and is not entitled to cumulative voting for

56
<PAGE> 58

the election of directors and does not have preemptive rights. The issued and
outstanding shares of Common Stock are, and all shares of Common Stock to be
issued and to be sold in the Offering will be, validly issued, fully paid and
nonassessable. All shares of Common Stock have equal rights and are entitled to
receive ratably such dividends, if any, as the Board of Directors may declare
from time to time out of funds legally available therefor. Upon liquidation of
the Company, after payment or provision for payment of all of the Company's
debts and obligations and payment in full of all amounts, if any, due to holders
of Preferred Stock, the holders of the Common Stock will share ratably in the
net assets, if any, available for distribution to holders of Common Stock upon
liquidation.

PREFERRED STOCK

The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the Preferred Stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company. The
Company has no present intention to issue any shares of its Preferred Stock.

LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY

Article Sixth of the Certificate of Incorporation of the Company provides
that the Company shall indemnify and hold harmless any director, officer,
employee or agent of the Company from and against any and all expenses and
liabilities that may be imposed upon or incurred by him in connection with, or
as a result of, any proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such a director, officer,
employee or agent of the Company, whether or not he continues to be such at the
time such expenses and liabilities shall have been imposed or incurred, to the
extent permitted by the laws of the State of Delaware, as they may be amended
from time to time.

Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as director, except in the case in which the
director breaches his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized a payment of a
dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law, or obtained an improper personal benefit.

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale and other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.

TRANSFER AGENT

The transfer agent for the Common Stock will be .

57
<PAGE> 59

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 25,143,187 shares of
Common Stock outstanding, of which 20,643,187 shares (approximately 82% of the
shares to be outstanding) will be held by persons who acquired such shares in
transactions in which such shares were not registered under the Securities Act.
These shares may not be sold unless registered under the Securities Act or sold
pursuant to an applicable exemption from registration, such as Rule 144 under
the Securities Act ("Rule 144"). Rule 144, as currently in effect and subject to
its provisions and other applicable federal and state securities laws, permits a
person (or persons whose shares are aggregated) who has beneficially owned his
or her shares for at least one year to sell within any three month period a
number of shares that does not exceed the greater of 1% of the total number of
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information concerning the Company. Rule 144 also
permits, under certain circumstances, such sales of shares without any quantity
limitations or current public information requirements described above by a
person who is not an affiliate of the Company and who has satisfied a two-year
holding period.

The Company, its officers and directors and all other holders of Common
Stock and securities convertible into or exercisable or exchangeable for Common
Stock have agreed that during the Lockup Period, they will not, without the
prior written consent of Robertson, Stephens and Company LLC, offer, sell,
contract to sell or otherwise dispose of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock except, in the
case of the Company, in certain limited circumstances. Upon the expiration of
the Lockup Period, at least 1,012,687 of the shares to be outstanding
(approximately 4.2% of such shares) will be eligible for sale under Rule 144,
subject to compliance with Rule 144 volume limitations. Of the shares which will
be eligible for sale under Rule 144 at such date, 287,008 shares are held by
officers, directors and affiliates of the Company. See "Underwriting."

The Company cannot predict the number of shares of Common Stock which may
be sold in the future pursuant to Rule 144 since such sales will depend upon the
market price of the Common Stock, the individual circumstances of holders
thereof and other factors. Any sales of a substantial number of shares of Common
Stock in the public market could have a significant adverse effect on the market
price of the Common Stock.

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the 625,000 shares of Common Stock authorized and
reserved for issuance pursuant to the Stock Option Plan. Upon the filing of such
Form S-8, outstanding shares of Common Stock so registered may be freely sold
without restriction, except for shares held by officers, directors and other
affiliates of the Company. See "Management -- Stock Option Plan."

58
<PAGE> 60

UNDERWRITING

The underwriters named below (the "Underwriters"), acting through their
representative, Robertson, Stephens & Company LLC (the "Representative"), have
severally agreed, subject to the terms and conditions of an underwriting
agreement among the Company and the Underwriters (the "Underwriting Agreement"),
to purchase the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all of such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC.................................................

---------
Total................................................................... 4,500,000
</TABLE>

The Representative has advised the Company that it proposes to offer the
shares of Common Stock to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representative. No
such reduction shall affect the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 675,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 4,500,000 shares that the Underwriters have agreed to
purchase from the Company. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 4,500,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the 4,500,000 shares are being sold.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

Pursuant to the terms of lock-up agreements, the holders of approximately
shares of the Common Stock have agreed with the Representative that
during the Lockup Period, subject to certain limited exceptions, they will not
sell or otherwise dispose of shares of Common Stock, including shares issuable
under options or warrants exercisable during the Lockup Period, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock owned directly by such holders or
with respect to which they have the power of disposition without the prior
written consent of Robertson, Stephens & Company LLC.

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the Offering. Such transactions may

59
<PAGE> 61

be effected on The Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price will be
the history of, and the prospects for, the Company's business and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, its past and present earnings and the trend of such
earnings, the prospects for earnings of the Company, the present state of the
Company's development, the general condition of the securities market at the
time of the Offering and the market prices and earnings of similar securities of
comparable companies at the time of the Offering.

VALIDITY OF COMMON STOCK

The validity of the Common Stock offered hereby will be passed upon for the
Company by Haythe & Curley, 237 Park Avenue, New York, New York 10017, and for
the Underwriters by Dewey Ballantine, 1301 Avenue of the Americas, New York, New
York 10019.

EXPERTS

The consolidated financial statements of NovaCare Employee Services, Inc.
as of June 30, 1997 and for the period from October 1, 1996 (date of inception)
to June 30, 1997 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

The financial statements of Resource One, Inc. as of December 31, 1994 and
1995 and September 30, 1996 and for the nine-month period ended September 30,
1996 and the years ended December 31, 1994 and 1995 included in this Prospectus
have been so included in reliance on the report of Brewer, Beemer, Kuchnhucki &
Koon, PA, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

The financial statements of Employee Services of America, Inc. as of
December 31, 1994, 1995 and 1996 and January 31, 1997, and for the one-month
period ended January 31, 1997 and the years ended December 31, 1994, 1995 and
1996 included in this Prospectus have been so included in reliance on the report
of Varnadore, Tyler, Hoffner, King, Hawthorne, Hammer & Stathis, PA, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The financial statements of the TPI Group, Ltd. and subsidiaries as of
December 31, 1994, 1995 and 1996 and January 31, 1997 and for the one-month
period ended January 31, 1997 and the years ended December 31, 1994, 1995 and
1996 included in this Prospectus have been so included in reliance on the report
of Lazar, Levine & Company, LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

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<PAGE> 62

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus
concerning the provisions of any documents filed with the Registration Statement
as exhibits are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement. For further information about
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and to the financial statements, schedules and exhibits
filed as a part thereof.

Upon completion of the Offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at its New York Regional Office located at Seven World Trade
Center, New York, New York 10048 and its Chicago Regional Office located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, copies of such
documents can be obtained from the public reference section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549, upon payment of the prescribed
rates. In addition, the Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The
Registration Statement has been filed electronically through EDGAR and may be
retrieved through the Commission's Web site on the Internet. The statements
contained in this Prospectus concerning any contract or document are not
necessarily complete; where such contract or other document is an exhibit to the
Registration Statement, each such statement is qualified in all respects by the
provisions of such exhibit.

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<PAGE> 63

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NovaCare Employee Services, Inc. and Subsidiaries
Report of Independent Accountants................................................... F-1
Consolidated Balance Sheet and Pro Forma Unaudited Balance Sheet as of June 30,
1997............................................................................. F-2
Consolidated Statement of Operations for the period October 1, 1996 (inception of)
to June 30, 1997................................................................. F-3
Consolidated Statement of Changes in Shareholders' Equity for the period October 1,
1996 (inception of) to June 30, 1997............................................. F-4
Consolidated Statement of Cash Flows for the period October 1, 1996 (inception of)
to June 30, 1997................................................................. F-5
Notes to Consolidated Financial Statements.......................................... F-6
Unaudited Pro Forma Financial Information
Pro Forma Financial Information..................................................... F-18
Pro Forma Unaudited Consolidated Statement of Operations for the years ended June
30, 1997......................................................................... F-19
Notes to the Unaudited Pro Forma Consolidated Statement of Operations............... F-20
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1997.................. F-23
Notes to the Unaudited Pro Forma Consolidated Balance Sheet......................... F-24
Resource One, Inc.
Report of Independent Accountants................................................... F-25
Combined Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996..... F-26
Combined Statements of Income for the two years in the period ended December 31,
1995 and the nine months ended September 30, 1996................................ F-27
Combined Statements of Changes in Stockholders' Equity for the two years in the
period ended December 31, 1995 and the nine months ended September 30, 1996...... F-28
Combined Statements of Cash Flows for the two years in the period ended December 31,
1995 and the nine months ended September 30, 1996................................ F-29
Notes to Financial Statements....................................................... F-30
Employee Services of America, Inc.
Report of Independent Accountants................................................... F-35
Combined Balance Sheet as of January 31, 1997....................................... F-36
Combined Statement of Income for the one month ended January 31, 1997............... F-37
Combined Statement of Stockholders' Equity for the one month ended January 31,
1997............................................................................. F-38
Combined Statement of Cash Flows for the one month ended January 31, 1997........... F-39
Notes to Combined Financial Statements.............................................. F-40
Report of Independent Accountants................................................... F-45
Combined Balance Sheet as of December 31, 1994, 1995 and 1996....................... F-46
Combined Statement of Income for the three years in the period ended December 31,
1996............................................................................. F-47
Combined Statements of Shareholders' Equity for the three years in the period ended
December 31, 1996................................................................ F-48
Combined Statements of Cash Flows for the three years in the period ended December
31, 1996......................................................................... F-49
Notes to Combined Financial Statements.............................................. F-50
</TABLE>

62
<PAGE> 64

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TPI Group, Ltd.
Report of Independent Accountants................................................... F-56
Consolidated Balance Sheet as of January 31, 1997................................... F-57
Consolidated Statement of Operations for the one month period ended January 31,
1997............................................................................. F-58
Consolidated Statement of Stockholders' Equity for the one month period ended
January 31, 1997................................................................. F-59
Consolidated Statement of Cash Flows for the one month period ended January 31,
1997............................................................................. F-60
Notes to Consolidated Financial Statements.......................................... F-61
Report of Independent Accountants................................................... F-68
Consolidated Balance Sheets as of December 31, 1994, 1995 and 1996.................. F-69
Consolidated Statements of Operations for the three years in the period ended
December 31, 1996................................................................ F-70
Consolidated Statements of Changes in Stockholders' Equity for the three years in
the period ended December 31, 1996............................................... F-71
Consolidated Statements of Cash Flows for the three years in the period ended
December 31, 1996................................................................ F-72
Notes to Financial Statements....................................................... F-73
</TABLE>

63
<PAGE> 65

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of NovaCare Employee Services, Inc.

In our opinion, the accompanying Consolidated Balance Sheet and the related
Consolidated Statement of Operations, of Cash Flows and of Changes in
Shareholders' Equity present fairly, in all material respects, the financial
position of NovaCare Employee Services, Inc. and its subsidiaries (the
"Company") at June 30, 1997, and the results of their operations and their cash
flows for the period from October 1, 1996 (commencement of operations) to June
30, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
July 31, 1997

F-1
<PAGE> 66

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, JUNE 30,
1997 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 1,782 $ 1,782
Accounts receivable:
Related party (Note 2).......................................... 27,607 27,607
Unbilled........................................................ 7,215 7,215
Third parties, net of allowance for doubtful accounts of $26.... 1,910 1,910
Deferred income taxes.............................................. 296 296
Other current assets............................................... 1,069 1,069
------- -------
Total current assets....................................... 39,879 39,879
Property and equipment, net.......................................... 1,326 1,326
Excess cost of net assets acquired, net.............................. 53,691 53,691
Other assets, net.................................................... 1,102 1,102
------- -------
$95,998 $95,998
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements.......................... $ 298 $ 298
Accounts payable and accrued expenses.............................. 6,172 6,172
Accrued salaries, wages and payroll taxes.......................... 28,159 28,159
Current portion of accrued workers' compensation and health
claims.......................................................... 5,423 5,423
Note payable to related party (Note 2)............................. 28,382 28,382
Current portion of deferred purchase price obligations............. 18,905 18,905
Income taxes payable............................................... 1,382 1,382
------- -------
Total current liabilities.................................. 88,721 88,721
Financing arrangements, net of current portion....................... 1,068 1,068
Accrued workers' compensation and health claims, net of current
portion............................................................ 1,910 1,910
Deferred purchase price obligations, net of current portion.......... 856 856
Other................................................................ 411 411
------- -------
Total liabilities.......................................... 92,966 92,966
------- -------
Commitments and contingencies (Note 12).............................. -- --
Mandatorily redeemable common stock.................................. 2,731 --
Shareholders' equity:
Preferred stock, $.01 par value; authorized 1,000 shares; no shares
issued or outstanding........................................... -- --
Common stock, $.01 par value; authorized 60,000 shares, issued
19,193 shares................................................... 192 200
Additional paid-in capital......................................... 1,189 3,912
Retained earnings.................................................. -- --
------- -------
1,381 4,112
Less: Common stock in treasury (at cost), 563 shares............... (1,080) (1,080)
------- -------
Total shareholders' equity................................. 301 3,032
------- -------
$95,998 $95,998
======= =======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

F-2
<PAGE> 67

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 1, 1996
(INCEPTION) TO
JUNE 30, 1997
---------------
<S> <C>
Revenues:
Related party (Note 2)..................................................... $ 255,289
Third parties.............................................................. 138,904
--------
Total revenues..................................................... 394,193
Direct costs:
Related party (Note 2):
Salaries, wages and employment taxes of worksite employees.............. 234,182
Health care and workers' compensation................................... 14,362
State unemployment taxes and other...................................... 1,006
Third parties:
Salaries, wages and employment taxes of worksite employees.............. 123,056
Health care and workers' compensation................................... 8,199
State unemployment taxes and other...................................... 1,150
--------
Gross profit....................................................... 12,238
Selling, general and administrative expenses................................. 8,247
Provision for uncollectible accounts......................................... 26
Amortization of excess cost of net assets acquired........................... 1,034
--------
Income from operations............................................. 2,931
Investment income............................................................ 52
Interest expense............................................................. (56)
Interest expense -- related party (Note 2)................................... (693)
--------
Income before income taxes......................................... 2,234
Income taxes................................................................. 1,542
--------
Net income......................................................... $ 692
========
Unaudited pro forma information:
Unaudited pro forma net income............................................. $ 692
========
Unaudited pro forma net income per share................................... $ .03
========
Unaudited pro forma weighted average shares outstanding.................... 20,574
========
Unaudited supplemental pro forma information:
Unaudited supplemental pro forma net income................................ $ 1,100
========
Unaudited supplemental pro forma net income per share...................... $ ..05
========
Unaudited supplemental weighted average shares outstanding................. 24,398
========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

F-3
<PAGE> 68

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
SHARES ISSUED COMMON ADDITIONAL
----------------- STOCK TREASURY PAID-IN RETAINED
COMMON TREASURY ($.01 PAR VALUE) STOCK CAPITAL EARNINGS
------ -------- ---------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996
(inception)................ -- -- $ -- $ -- $ -- $ --
Common stock issued to
related party (Note 2)..... 6,200 -- 62 -- --
Common stock issued to
employees.................. 430 -- 4 -- 870 --
Common stock split........... 12,000 -- 126 -- (126) --
Repurchase of common stock... 563 (563) -- (1,080) 786 --
Accretion of mandatorily
redeemable common stock.... -- -- -- -- (341) (692)
Net income................... -- -- -- -- -- 692
------ ---- ---- ------- ------ -----
Balance at June 30, 1997..... 19,193 (563) $192 $(1,080) $1,189 $ --
====== ==== ==== ======= ====== =====
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

F-4
<PAGE> 69

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
OCTOBER 1, 1996
(INCEPTION) TO
JUNE 30, 1997
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 692
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization.............................................. 1,285
Provision for uncollectible accounts....................................... 26
Deferred income taxes...................................................... 116
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable -- third parties.................................... (2,293)
Accounts receivable -- related party (Note 2)........................... (27,607)
Other current assets.................................................... 308
Accounts payable and accrued expenses................................... (1,309)
Accrued salaries, wages and payroll taxes............................... 22,865
Accrued interest -- related party (Note 2).............................. 693
Accrued workers' compensation and health claims......................... 4,113
Income taxes payable.................................................... 1,037
Other, net.............................................................. 222
-------
Net cash flows provided by operating activities.................... 148
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired....................... (24,250)
Additions to property and equipment.......................................... (329)
Other, net................................................................... (387)
-------
Net cash flows used in investing activities........................ (24,966)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements with related party (Note 2)............. 27,688
Payment of long-term debt and credit arrangements............................ (94)
Proceeds from common stock issued............................................ 663
Purchase of treasury stock................................................... (1,080)
Other, net................................................................... (577)
-------
Net cash flows provided by financing activities.................... 26,600
-------
Net increase in cash and cash equivalents.................................... 1,782
Cash and cash equivalents, beginning of year................................. --
-------
Cash and cash equivalents, end of year....................................... $ 1,782
=======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

F-5
<PAGE> 70

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: NovaCare Employee Services, Inc. (the "Company") is
a national professional employer organization ("PEO") that provides businesses
with comprehensive, fully integrated outsourcing solutions to human resource
management, including payroll management, risk management, benefits
administration, unemployment services, rehabilitation temporary staffing and
human resource consulting services. The Company provides such services to small
and medium-sized companies in a variety of industries. The Company operates
primarily in Florida, Pennsylvania and New York with such states accounting for
approximately 29%, 10% and 9%, respectively of the Company's 1997 revenues.

Employee services are typically provided under a standard PEO services
agreement which provides for an initial one year term; thereafter, the agreement
is renewable periodically. The agreement is subject to termination without cause
by the Company or the client at any time upon 30 days' prior written notice.

The Company was established by NovaCare, Inc. (the "Parent") in September
1996 as a subsidiary and began operation in October 1996 with the acquisition of
Resource One, Inc. a PEO based in Florida. In February 1997, the Company
acquired three additional PEOs -- Employee Services of America, Inc. and
Prostaff Human Resources, Inc., in Florida and The TPI Group, Ltd. in New York,
and entered into a contract with the Parent to co-employ substantially all of
the Parent's workforce (the "NovaCare Contract") (See Note 2).

The Parent established the Company and entered into the NovaCare Contract
primarily because (i) the Company provides a vehicle for the Parent to leverage
its core competencies and investments in human resource management, information
systems, relationship selling, workers' compensation risk management,
outsourcing and management of a dispersed workforce, and (ii) by leveraging the
investments already made in its core competencies, the Parent can increase the
return to its shareholders from those investments.

Principles of Consolidation: The Consolidated Financial Statements include
the accounts of NovaCare Employee Services, Inc. and all wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.

Revenue Recognition: Revenues and the related costs of wages, salaries,
and employment taxes pertaining to worksite employees are recognized in the
period in which the employee performs the service. Because the Company is at
risk for all of its direct costs, independently of whether payment is received
from its clients, and consistent with industry practice, all amounts billed to
clients for gross salaries and wages, related employment taxes, and health care
and workers' compensation coverage are recognized as revenue by the Company. The
Company establishes an allowance for doubtful accounts for both related and
third party accounts receivable based on prior experience.

Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents: The Company considers its holdings of highly
liquid debt and money-market instruments to be cash equivalents if the
securities mature within 90 days from the date of acquisition. These investments
are carried at cost, which approximates fair value.

F-6
<PAGE> 71

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets, which principally range from three to ten years. Assets
under capital leases and leasehold improvements are amortized over the lesser of
the lease term or the asset's estimated useful life.

Excess Cost of Net Assets Acquired: Assets and liabilities acquired in
connection with business combinations accounted for under the purchase method
are recorded at their respective fair values. Deferred taxes have been recorded
to the extent of the difference between the fair value and the tax basis of the
assets acquired and liabilities assumed. The excess of the purchase price over
the fair value of net assets acquired, including the recognition of applicable
deferred taxes, consists of non-compete agreements, customer lists, assembled
workforce, and goodwill and is amortized on a straight-line basis over the
estimated useful lives of the assets which range from five to 40 years. The
Company will perform a periodic assessment of the recoverability of goodwill
based on estimated future cash flows.

Workers' Compensation: The Company is contractually obligated to provide
workers' compensation coverage for its employees and co-employees. The Company
accomplishes this through a combination of various commercial insurance policies
and self insurance programs. The Company records estimated accruals for workers'
compensation and health care claims, including estimates for incurred but not
reported claims, based upon review of the claims activity and past experience.
Management believes any differences which may arise between actual settlement of
claims and reserves at June 30, 1997 would not have a material effect on the
Company's financial position.

On July 1, 1997, the Company entered into a three-year contract with a
commercial insurance company for workers' compensation coverage. Under this
program, the Parent's worksite employees will continue to be covered under a
self insurance program. Other worksite employees will be covered under a fixed
cost insurance program, which is subject to certain per incident and aggregate
deductibles.

Income Taxes: The Company records deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.

Unaudited Pro Forma and Unaudited Supplemental Pro Forma Net Income Per
Common Share: The put option associated with the mandatorily redeemable common
stock is rendered inoperative if the Company files an initial public offering of
its common stock prior to two years from the date of acquisition and, in one
case, the Company is publicly trading on December 31, 1998 (see Note 10); such
an event will have a significant impact on the Company's net income per share
computation. Given the Company's plans to file a registration statement with the
Securities and Exchange Commission (see Note 13), historical net income per
share has been excluded from the accompanying financial statements. Unaudited
Pro Forma Net Income Per Share is computed by dividing net income, without
consideration to the accretion of mandatorily redeemable common stock (see Note
10), by the number of shares of common stock and common stock equivalents
outstanding as of July 31, 1997. Given that all shares issued prior to July 31,
1997 were issued at prices significantly below the estimated offering price in
the Company's initial public offering, all shares and options issued are
considered to be outstanding since inception of the Company, using the treasury
stock method, for the purposes of calculating the Unaudited Pro Forma Net Income
Per Share.

The Company intends to use a portion of the net proceeds from offering
4,500,000 shares of its common stock to retire certain indebtedness (see Note
13), and therefore has presented Unaudited Supplemental Pro Forma Net Income Per
Common Share in the accompanying financial statements. Unaudited Supplemental
Net Income Per Share is computed by dividing net income, adjusted for the
elimination of applicable interest expense, net of related income tax effect, by
total outstanding shares as of July 31, 1997 plus estimated additional shares
required to be sold to retire outstanding debt.

F-7
<PAGE> 72

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Recently Issued Accounting Standards: In June 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125") as amended by the December 1996
issuance of Statement of Financial Accounting Standards No. 127, "Deferral of
the Effective Date of Certain Provisions of SFAS No. 125" ("SFAS 127"). SFAS
125, as amended, provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. The Company
does not believe the adoption of SFAS 125, as amended, will have a material
effect on the Company's financial position or results of operations.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128")
which the Company is required to adopt no later than the second quarter of
fiscal year 1998. SFAS 128 establishes accounting standards for computing and
presenting earnings per share by replacing the presentations of weighted shares
outstanding, inclusive of common stock equivalents, with a dual presentation of
basic earnings per share which excludes dilution ("earnings per share") and
diluted earnings per share ("earnings per share-assuming dilutions") which
includes the dilutive effect of all potentially exercisable or convertible
stock. Once adopted, SFAS 128 requires restatement of all prior period earnings
per share data.

2. RELATED PARTY TRANSACTIONS

In return for its efforts as the founder, its initial investment of $40 and
the use of the Parent's trademark, the Company issued 18,200,000 shares (as
adjusted for the common stock split -- see Note 9) of the common stock to the
Parent. Given that the transactions were between companies under common control,
the issuance of shares was recorded at the cost basis of the Parent. The excess
paid over the cost basis has been treated as a reduction of equity.

Effective October 1996, the Company entered into a line of credit agreement
with the Parent which provides for an unspecified availability. Amounts borrowed
are due upon the earlier of the initial public offering of the common stock of
the Company or the termination date of the Parent's revolving credit agreement,
which is currently November 1999. Interest is charged to the Company at the
Parent's borrowing rate which is the EuroDollar rate plus a range of 0.5% to
1.125%. The weighted average borrowing rate over the period from October 1, 1996
to June 30, 1997 was 6.6%. The Parent has established an irrevocable letter of
credit on behalf of the Company in the amount of $1,141 which expires on
December 31, 1997. The letter has been established to meet the security
requirements of the Company's workers' compensation policy held with a
commercial insurance carrier at June 30, 1997. No amount is outstanding at June
30, 1997.

F-8
<PAGE> 73

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In February 1997, the Parent and the Company entered into the NovaCare
Contract, whereby the Parent's employees are co-employed by the Company in a
five-year term with automatic annual renewals. Under the NovaCare Contract, the
Company provides traditional PEO services such as payroll and benefits
administration, worksite safety evaluation, employment-related risk management
and benefits consultation. The Parent pays the Company a fee for its services
currently equal to the salary and Federal payroll costs plus 9.7% of gross
earnings of employees, or approximately 117% of the gross earnings of the
employees covered by the NovaCare Contract. The Parent may not terminate the
NovaCare Contract except in the event of: (i) the breach of any of the Company's
agreements, duties, or performance standards under the NovaCare Contract; (ii)
the making of false or misleading representations, warranties, or statements of
material fact in documents submitted by or on behalf of the Company to the
Parent; or (iii) insolvency, bankruptcy, or receivership of the Company.

The Parent has subleased office space to the Company. The sublease is a
month-to-month arrangement, terminable on 30 days' notice by either party, under
which the Company pays the Parent approximately $9 per month which equals the
Parent's cost.

The Parent also provides information systems consulting services and
general administrative and financial services to the Company on an as-needed
basis at the Parent's cost. During fiscal 1997 the Company reimbursed the Parent
for certain expenses, in the amount of $160, based upon estimates of time
incurred by the Parent's personnel on behalf of the Company.

As described in Note 13 -- Subsequent Events, effective July 1, 1997 the
Company acquired the assets and liabilities of NovaPro, a rehabilitation
temporary staffing business of the Parent.

The terms of the aforementioned related party transactions are equivalent
to those that would result from transactions among unrelated parties.

3. ACQUISITIONS

During the period from October 1, 1996 through June 30, 1997, the Company
acquired four professional employer organizations located in the northeastern
and southeastern portions of the United States.

The following unaudited pro forma consolidated results of operations of the
Company give effect to each of the acquisitions as if they occurred on October
1, 1996.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 1, 1996
(INCEPTION) TO
JUNE 30, 1997
-------------------
<S> <C>
Revenues................................................. $ 476,929
Net loss................................................. (2,346)
Pro forma net loss per share............................. $ (.11)
</TABLE>

The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made as
of October 1, 1996, or the results that may occur in the future.

F-9
<PAGE> 74

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information with respect to businesses acquired in purchase transactions
was as follows:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Goodwill....................................................... $46,440
Customer lists................................................. 5,488
Other.......................................................... 2,797
-------
Excess cost of net assets acquired........................... 54,725
Less: accumulated amortization............................... 1,034
-------
$53,691
=======
</TABLE>

<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
JUNE 30, 1997
-------------
<S> <C>
Cash paid (net of cash acquired)............................. $22,822
Deferred purchase price obligations.......................... 19,948
Mandatorily redeemable common stock (Note 10)................ 2,214
Notes issued................................................. 1,328
Other consideration.......................................... 1,178
-------
47,490
Liabilities assumed.......................................... 15,199
-------
62,689
Fair value of assets acquired................................ 10,436
-------
Cost in excess of fair value of net assets acquired..... $52,253
=======
</TABLE>

The acquisitions were accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price was allocated to net
assets acquired based on their estimated fair values. Net assets acquired
consisted primarily of accounts receivable and property and equipment. The
acquired accounts receivable was recorded at their estimated fair value on the
date of acquisition with a discount from face value of $773 after consideration
of the collectibility of outstanding receivables.

Certain purchase agreements require additional payments if specific
financial targets and non-financial conditions are met. Aggregate contingent
payments in connection with these acquisitions at June 30, 1997 of approximately
$2,100 cash and 100,000 shares of common stock have not been included in the
initial determination of cost of the businesses acquired since the amount of
such contingent consideration, if any, is not presently determinable. During the
period from October 1, 1996 (inception) through June 30, 1997, the Company paid
$1,428 in cash and issued 85,000 shares of common stock in connection with these
agreements, valued at $238.

Deferred purchase price obligations of $18,800 in cash and 366,063 shares
of common stock, valued at $961, represent guaranteed purchase price amounts of
$17,500 due to former owners upon the earlier of an initial public offering of
the Company's common stock (see Note 13) or December 31, 1997, $1,791 for
guaranteed payments payable within two years of the date of acquisition and $470
accrued for additional contingent payments.

F-10
<PAGE> 75

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Land and buildings............................................. $ 70
Property, equipment and furniture.............................. 1,019
Leasehold improvements......................................... 162
Capitalized software........................................... 240
------
1,491
Less: accumulated depreciation and amortization................ 165
------
$ 1,326
======
</TABLE>

Depreciation expense for the period from October 1, 1996 (inception) to
June 30, 1997 was $165.

5. FINANCING ARRANGEMENTS

Financing arrangements consisted of the following:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Subordinated promissory notes (6% to 10%), payable through
2002......................................................... $ 1,322
Capitalized lease obligations, payable through 2000............ 44
------
1,366
Less: current portion.......................................... 298
------
$ 1,068
======
</TABLE>

At June 30, 1997, aggregate annual maturities of financing arrangements
were as follows for the next five fiscal years and thereafter:

<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------------------
<S> <C>
1998........................................................ $ 298
1999........................................................ 306
2000........................................................ 311
2001........................................................ 290
2002........................................................ 136
Thereafter.................................................. 25
------
$1,366
======
</TABLE>

Interest paid on debt during the period October 1, 1996 through June 30,
1997 amounted to $49.

F-11
<PAGE> 76

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCRUED WORKERS' COMPENSATION AND HEALTH CLAIMS

The Company's accruals for claims are summarized as follows:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Accrued health benefit premiums payable and claims reserves.... $ 3,756
Accrued workers' compensation premiums payable and claims
reserves..................................................... 3,577
-------
7,333
Less: workers' compensation claims expected to be settled in
more than one year........................................... 1,910
-------
$ 5,423
=======
</TABLE>

Under the NovaCare Contract as described in Note 2, the Company is
self-insured for certain health benefits up to $150 per individual per year. The
Company expensed amounts for estimated losses occurring from both asserted and
unasserted claims. The estimate of the liability for unasserted claims arising
from unreported incidents is based on an analysis of historical claims rates.

7. INCOME TAXES

The components of income tax expense were as follows:

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997
(INCEPTION) TO
JUNE 30, 1997
---------------
<S> <C>
Current:
Federal.................................................... $ 937
State...................................................... 470
------
1,407
------
Deferred:
Federal.................................................... 122
State...................................................... 13
------
135
------
$ 1,542
======
</TABLE>

The components of net deferred tax assets as of June 30, 1997 were as
follows:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
Net operating loss carryforward................................ $ 2,454
Accruals and reserves not currently deductible for tax
purposes..................................................... 363
----
Gross deferred tax assets...................................... 2,817
Valuation reserve.............................................. (2,454)
----
Total deferred tax assets...................................... 363
Expenses capitalized for financial statement purposes.......... (67)
----
Net deferred tax asset.................................... $ 296
====
</TABLE>

F-12
<PAGE> 77

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In fiscal 1997, the Company acquired net operating loss carryforwards of
approximately $6,000 expiring through 2010. The Internal Revenue Code of 1986,
as amended (the "Code"), places certain restrictions on the use of net loss
carryforwards acquired through purchase transactions. Accordingly, the Company
has placed a full valuation allowance against these amounts.

The reconciliation of the expected tax expense (computed by applying the
federal statutory tax rate to income before income taxes) to actual tax expense
was as follows:

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997
(INCEPTION) TO
JUNE 30, 1997
---------------
<S> <C>
Expected Federal income tax expense.......................... $ 782
State income taxes, less Federal benefit..................... 470
Non-deductible amortization of excess cost of net assets
acquired................................................... 349
Tax credits.................................................. (10)
Other, net................................................... (49)
------
$ 1,542
======
</TABLE>

Income taxes paid during the period October 1, 1996 through June 30, 1997
amounted to $178.

8. OPERATING LEASES

The Company rents office space and equipment under non-cancelable operating
leases. Total rent expense charged to operations was $394 for the period from
October 1, 1996 to June 30, 1997.

Future minimum lease commitments for all non-cancelable leases as of June
30, 1997 are as follows:

<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
---------------------------------------------------------- ---------
<S> <C>
1998...................................................... $ 832
1999...................................................... 711
2000...................................................... 555
2001...................................................... 531
2002...................................................... 464
Thereafter................................................ 986
------
Total minimum lease payments.............................. $ 4,079
======
</TABLE>

9. SHAREHOLDERS' EQUITY

On September 16, 1996, the Board of Directors authorized 1,000,000 shares
of preferred stock with a par value of $.01 per share. No shares are issued and
outstanding as of June 30, 1997, nor were there shares issued and outstanding at
any time during the period from inception to June 30, 1997.

On January 2, 1997, the Board of Directors declared a four-for-one stock
split of the Company's common stock to shareholders of record on January 2,
1997. Accordingly, $126 was transferred from additional paid-in capital to
common stock, representing the par value of additional shares issued.

On January 2, 1997, the Company repurchased 562,500 shares of mandatorily
redeemable common stock from a former owner of an acquired business. Upon
repurchase, the mandatorily redeemable common stock becomes a component of
permanent equity. Accordingly, the 562,500 shares and the

F-13
<PAGE> 78

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related par value and additional paid-in capital associated with these shares
have been reflected in the accompanying consolidated statement of shareholders'
equity.

10. MANDATORILY REDEEMABLE COMMON STOCK

In connection with the acquisitions described in Note 3, 1,375,687 shares
(as adjusted for the stock split -- see Note 9) of common stock were issued
subject to an agreement which provides certain registration rights with respect
to the common stock, as well as the right, two years from the date of
acquisition, to put the shares to the Company at a price of $16.00 per share.
The put option is rendered inoperative if the Company files an initial public
offering of the Company's common stock prior to two years from the date of
acquisition and, in one case, the Company is publicly trading on December 31,
1998. The redeemable common stock was recorded at the fair value at the date of
issuance. The excess of the put price over the carrying value is being accreted
by periodic charges to retained earnings or additional paid-in capital, as
applicable, over a two year period. During the period from October 1, 1996 to
June 30, 1997, the Company recorded $1,033 of accretion to retained earnings and
additional paid-in capital.

11. BENEFIT PLANS

Stock Option Plan:

On February 28, 1997, the Company's Board of Directors adopted and its
shareholders approved the Company's 1997 Stock Option Plan (the "Plan") under
which 625,000 shares of common stock are currently reserved for issuance upon
the exercise of stock options. Under the Plan, substantially all options are
granted for a term of up to 10 years at prices equal to the fair value at the
date of grant. Options granted vest over five years and at June 30, 1997, the
weighted average remaining contractual life of the outstanding options was 9.67
years.

The following summarizes the activity of this stock option plan:

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1997
(INCEPTION) TO
JUNE 30,1997
---------------
<S> <C>
Options:
Granted.................................................... 375,000
Canceled................................................... (4,000)
--------
Outstanding at end of year................................. 371,000
========
Option price per share ranges:
Granted.................................................... $2.80
Outstanding at end of year................................. $2.80
Options exercisable at end of year........................... --
Options available for grant at end of year under the 1997
Stock Option Plan.......................................... 254,000
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for the plan.

F-14
<PAGE> 79

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The table below sets forth the pro forma information as if the Company had
adopted the compensation recognition provisions of SFAS 123:

<TABLE>
<CAPTION>
OCTOBER 1, 1996
(INCEPTION) TO
JUNE 30, 1997
---------------
<S> <C>
Increase to:
Net income................................................. $13
Net income per share....................................... --
Assumptions:
Expected life (years)...................................... 4.6 - 6.6
Risk-free interest rate.................................... 6.1% - 6.5%
Volatility................................................. 0%
Dividend yield............................................. N/A
</TABLE>

The compensation recognition was calculated assuming a fair market value
for the Company's common stock equal to the assumed share value as of the date
of the initial public offering. Certain options were grouped together for
purposes of valuation based upon vesting periods and the date of grant. The
weighted average fair value of the stock options, calculated using the
Black-Scholes option pricing model, granted during the period ended June 30,
1997 was $0.82.

12. COMMITMENTS AND CONTINGENCIES

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the financial position or results of operations of
the Company.

The Company's employer and health care operations are subject to numerous
Federal, state and local laws related to employment, taxes and benefit plan
matters. Generally, these regulations affect all companies in the United States.
However, the regulatory environment for professional employer organizations is
an evolving area due to uncertainties resulting from the non-traditional
employment relationships. Many Federal and state laws relating to tax and
employment matters were enacted prior to the development of PEO companies and do
not specifically address the obligations and responsibilities of these
co-employer relationships. If the IRS concludes that PEOs are not "employers" of
certain worksite employees for purposes of the Code, the Company's cafeteria
plan may lose its favorable tax status, and the Company may no longer be able to
assume its clients' Federal employment tax withholding obligations.

13. SUBSEQUENT EVENTS

Effective July 1, 1997, the Company issued 1,200,000 shares of its common
stock, valued at $5,400, to acquire the assets and liabilities of NovaPro,
formerly a business of the Parent (see Note 2), in a transaction accounted for
as a purchase. Given that the transaction is between companies under common
control, the transfer of assets and liabilities will be recorded at the
historical cost basis of the Parent. The excess paid over the historical cost
will be treated as a reduction of additional paid-in

F-15
<PAGE> 80

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capital. The following unaudited pro forma consolidated results of operations of
the Company give effect to the purchase of NovaPro as if it had occurred as of
the inception of the Company:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM:
------------------------------------------------------
OCTOBER 1, JANUARY 1, APRIL 1,
TO TO TO
DECEMBER 31, 1996 MARCH 31, 1997 JUNE 30, 1997
----------------- -------------- -------------
<S> <C> <C> <C>
Revenue.................... $11,347 $151,727 $ 233,112
Gross profit............... 671 4,979 7,413
Operating (loss) income.... (137) 1,148 2,063
Net (loss) income.......... $ (128) $ 263 $ 619
</TABLE>

The Company plans to file a registration statement with the Securities and
Exchange Commission to register for the sale of up to 4,500,000 shares of its
common stock. The Company intends to use the net proceeds of the offering to
retire certain outstanding indebtedness as follows: (i) to repay the Company's
outstanding revolving credit loan of $28,382 from the Parent (see Note 2) and
(ii) to satisfy $17,500 of deferred purchase price obligations incurred in
connection with the Company's acquisitions (see Note 3). The remaining net
proceeds will be used for expansion of the Company's operations, including
further penetration of existing markets, and as opportunities arise to expand
the Company's client base in new or existing markets through acquisitions.

14. PRO FORMA BALANCE SHEET (UNAUDITED)

The pro forma balance sheet as of June 30, 1997 represents the pro forma
effect of the conversion of the Company's mandatorily redeemable common stock
into 813,187 shares of common stock as of that date. As disclosed in Note 10,
the mandatorily redeemable common stock is automatically convertible in the
event of an initial public offering of the Company's common stock.

15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

For the period from October 1, 1996 (inception) to June 30, 1997:

<TABLE>
<CAPTION>
OCTOBER 1, 1996 JANUARY 1, 1997 APRIL 1, 1997
TO TO TO
DECEMBER 31, 1996 MARCH 31, 1997 JUNE 30, 1997
----------------- --------------- -------------
<S> <C> <C> <C>
Revenues................... $10,894 $ 151,076 $ 232,223
Gross profit............... 842 4,728 6,668
Income from operations..... 154 1,073 1,704
Net income................. $ 61 $ 220 $ 411
</TABLE>

F-16
<PAGE> 81

(THIS PAGE INTENTIONALLY LEFT BLANK.)

F-17
<PAGE> 82

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The following unaudited pro forma Combined Statement of Operations for the
year ended June 30, 1997 and unaudited pro forma Consolidated Balance Sheet as
of June 30, 1997 are based on the historical consolidated financial statements
of NovaCare Employee Services Inc. (the "Company") for the period from October
1, 1996 (commencement of operations) to June 30, 1997, adjusted to give effect
to the acquisition of Resource One, Inc. ("Resource One") (the predecessor
company), Employee Services of America, Inc., ("ESA"), The TPI Group, Ltd.
("TPI"), ProStaff Human Resources, Inc. ("Pro Staff ") and NovaPro. Resource
One, ESA, TPI and Prostaff were acquired prior to June 30, 1997 and are included
in the historical results of operations from their respective dates of
acquisition. Effective July 1, 1997, the Company issued 1,200 shares of its
common stock to acquire the assets and liabilities of NovaPro, a NovaCare, Inc.
(the "Parent") business (see Note 13 to the Consolidated Financial Statements
contained elsewhere in this Prospectus). The historical financial information is
also adjusted to give effect to the full year impact of the contract between the
Company and the Parent (the "NovaCare Contract") (further described in Note 2 of
Notes to the Company's Consolidated Financial Statements contained elsewhere in
this Prospectus). The application of a portion of the proceeds of this Offering
is assumed to pay certain debt which reduced pro forma as adjusted interest
expense. The Pro Forma Combined Statement of Operations has been prepared
assuming the above acquisitions and NovaCare Contract occurred as of July 1,
1996 and the Pro Forma Consolidated Balance Sheet has been prepared assuming
that the acquisition which occurred subsequent to June 30, 1997 had occurred as
of June 30, 1997. The acquisitions and the related adjustments are described in
the notes thereto.

The financial information is based on certain assumptions and estimates
that management believes are reasonable in the circumstances and does not
purport to be indicative of the results which actually would have been attained
had the above transactions occurred as of the dates indicated, or to project the
Company's results of operations or financial position for any future period or
date. This information should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
prospectus.

F-18
<PAGE> 83

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
RESULTS FOR
HISTORICAL RESULTS THE PERIOD
FOR THE PERIOD FROM
OCTOBER 1, 1996 JULY 1, 1996 OFFERING PRO FORMA
(INCEPTION) TO ACQUIRED NOVACARE PRO FORMA TO PRO FORMA AS
JUNE 30, 1997 COMPANIES(1) CONTRACT(2) ADJUSTMENTS JUNE 30, 1997 ADJUSTMENTS ADJUSTED
------------------ ------------ ----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Related party............ $255,289 $ -- $ 326,395 $ -- $ 581,684 $ -- $581,684
Third parties............ 138,904 157,509 -- -- 296,413 -- 296,413
-------- -------- -------- ------- -------- ------ --------
Total revenues......... 394,193 157,509 326,395 -- 878,097 -- 878,097
Direct costs:
Related Party:
Salaries, wages and
employment taxes of
worksite employees... 234,182 -- 298,610 -- 532,792 -- 532,792
Health care and
workers'
compensation, state
unemployment taxes
and other............ 15,368 -- 22,334 -- 37,702 -- 37,702
Third Parties:
Salaries, wages and
employment taxes of
worksite employees... 123,056 134,921 -- -- 257,977 -- 257,977
Health care and
workers'
compensation, state
unemployment taxes
and other............ 9,349 15,774 -- -- 25,123 -- 25,123
-------- -------- -------- ------- -------- ------ --------
Gross profit........... 12,238 6,814 5,451 -- 24,503 -- 24,503
Selling, general and
administrative
expenses................. 8,247 8,689 2,848 1,212(3) 20,996 -- 20,996
Provision for uncollectible
accounts................. 26 273 -- -- 299 -- 299
Amortization of excess cost
of net assets acquired... 1,034 -- -- 1,234(4) 2,268 -- 2,268
-------- -------- -------- ------- -------- ------ --------
Income (loss) from
operations........... 2,931 (2,148) 2,603 (2,446) 940 -- 940
Investment income.......... 52 20 -- -- 72 -- 72
Interest expense........... (56) (774) -- 740(5) (90) -- (90)
Interest expense-related
party.................... (693) -- -- (916)(6) (1,609) 1,609(8) --
-------- -------- -------- ------- -------- ------ --------
Income (loss) before
income taxes......... 2,234 (2,902) 2,603 (2,622) (687) 1,609 922
Income taxes............... 1,542 -- -- (808)(7) 734 632(9) 1,366
-------- -------- -------- ------- -------- ------ --------
Net income (loss)...... $ 692 $ (2,902) $ 2,603 $(1,814) $ (1,421) $ 977 $ (444)
======== ======== ======== ======= ======== ====== ========
Unaudited pro forma net
income (loss) per
share(10)............ $ .03 $ (.07) $ (.02)
======== ======== ========
Unaudited pro forma
weighted average
number of shares..... 20,574 20,574 24,398 (11)
======== ======== ========
</TABLE>

F-19
<PAGE> 84

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO THE PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

(1) The Acquired Companies adjustments represent the historical results of
operations of Resource One, ESA, TPI, Prostaff and NovaPro (collectively,
the "Acquired Companies") from July 1, 1996 to their respective dates of
acquisition, as noted below, and to June 30, 1997 for NovaPro,
respectively. Each of the acquisitions has been accounted for as a
purchase. Accordingly, the results of operations of each of the Acquired
Companies are included in the historical results of operations of the
Company since the date of acquisition.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY
1, 1996 TO THE DATE OF
ACQUISITION
--------------------------
INCOME (LOSS)
BEFORE INCOME
COMPANY ACQUIRED AS OF REVENUE TAXES
------------------------------------------ ---------------- -------- -------------
<S> <C> <C> <C>
Resource One.............................. October 1, 1996 $ 9,068 $ 43
ESA ...................................... February 1, 1997 87,046 67
TPI ...................................... February 1, 1997 51,206 (2,842)
Prostaff ................................. February 1, 1997 2,565 (48)
NovaPro................................... July 1, 1997 7,624 (122)
-------- -------
Total........................... $157,509 $(2,902)
======== =======
</TABLE>

The income tax effect of the Acquired Companies adjustments is considered
in Note 7 below.

(2) In February 1997, the Parent and the Company entered into the NovaCare
Contract whereby the Parent's employees are co-employed by the Company for
a five-year term with automatic annual renewals. Under the NovaCare
Contract, the Company provides traditional PEO services such as payroll and
benefits administration, worksite safety evaluation, employment-related
risk management and benefits consultation. The Parent pays the Company a
fee for its services currently equal to the salary and federal payroll tax
costs plus 9.7% of gross earnings of employees, or approximately 117% of
the gross earnings of the employees covered by the NovaCare Contract. The
Parent may not terminate the NovaCare Contract except in the event of: (i)
the breach of any of the Company's agreements, duties or performance
standards under the NovaCare Contract; (ii) the making of false or
misleading representations, warranties, or statements of material fact in
documents submitted by or on behalf of the Company to the Parent; or (iii)
insolvency, bankruptcy, or receivership of the Company.

The NovaCare Contract adjustment for the year ended June 30, 1997, reflects
the pro forma results of operations related to the NovaCare Contract from
July 1, 1996 to January 31, 1997. Results of operation from the NovaCare
Contract for the period from February 1, 1997 to June 30, 1997 are included
in the historical results.

The income tax effect of the NovaCare Contract adjustment is considered in
Note 7 below.

F-20
<PAGE> 85

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO THE PRO FORMA COMBINED
STATEMENT OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

(3) Includes adjustments representing net increases in selling, general, and
administrative expenses in support of the combined businesses.

<TABLE>
<CAPTION>
EXPENSE CATEGORY EXPENSE AMOUNT
----------------------------------------------------------------------- --------------
<S> <C>
Salaries, wages and benefits........................................... $ 736
Rental lease agreements................................................ 180
Other.................................................................. 296
------
Selling, general and administrative expenses adjustment........... $1,212
======
</TABLE>

(4) Reflects additional amortization of the excess of the purchase price over
the fair value of net assets acquired. The additional amortization consists
of non-compete agreements, customer lists, assembled workforce, and
goodwill, amortized on a straight-line basis over the estimated useful
lives of the assets which range from five to 40 years, as if the businesses
were acquired as of July 1, 1996.

(6) Represents interest due to the Parent (See Note 2 of Notes to the Company's
Consolidated Financial Statements) for money borrowed by the Company to
finance the acquisition of the Acquired Companies. The Company entered into
a loan agreement where the Parent charges interest to the Company at the
Euro-Dollar Rate plus 0.5% to 1.125%. The weighted average interest rate
was 6.6%.

(9) Represents an adjustment to state and federal income taxes which would have
been provided on the reduction of interest expense discussed in Note 8
above.

(10) The put option associated with the mandatorily redeemable common stock is
rendered inoperative if the Company files an initial public offering of its
Common Stock prior to two years from the date of acquisition and, in one
case, the Company is publicly trading on December 31, 1998 (see Note 10 of
Notes to the Company's Consolidated Financial Statements); such an event
will have a significant impact on the Company's net income per share
computation. Given the Company's plans to file a registration statement
with the Securities and Exchange Commission, (see Note 13 of Notes to the
Company's Consolidated Financial Statements) net income per share has been
excluded from the accompanying financial statements. Unaudited Pro Forma
Net

F-21
<PAGE> 86

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO THE PRO FORMA COMBINED
STATEMENT OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Income Per Share is computed by dividing net income, without consideration
for the accretion of shares of mandatorily redeemable common stock (see
Note 10 of Notes to the Company's Consolidated Financial Statements), by
the number of shares of common stock and common stock equivalents
outstanding as of July 31, 1997. Given that all shares issued prior to July
31, 1997 were issued at prices significantly below the estimated offering
price in the Company's initial public offering (see Note 13 of Notes to the
Company's Consolidated Financial Statements), all shares and options issued
are considered to be outstanding since inception of the Company, using the
treasury stock method, for the purposes of calculating the Unaudited Pro
Forma Net Income Per Share.

(11) The Company intends to use a portion of the net proceeds from offering
4,500,000 shares of its Common Stock to retire certain indebtedness (see
Note 13 to the Company's Consolidated Financial Statements). Unaudited pro
forma net income per share as adjusted is computed by dividing net income,
adjusted for the elimination of applicable interest expense, net of the
related income tax effect, as total outstanding shares as of July 31, 1997
plus estimated additional shares required to be sold to retire outstanding
debt.

F-22
<PAGE> 87

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
------------- PRO FORMA
THE RESULTS FOR THE
COMPANY PERIOD FROM OFFERING
AS OF NOVAPRO, PRO FORMA JULY 1, 1996 TO PRO FORMA PRO FORMA
JUNE 30, 1997 INC.(1) ADJUSTMENTS JUNE 30, 1997 ADJUSTMENTS(3) AS ADJUSTED
------------- -------- ---------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 1,782 $ 20 $ -- $ 1,802 $ 3,118 $ 4,920
Accounts receivable:
Related party...................... 27,607 -- -- 27,607 -- 27,607
Unbilled........................... 7,215 -- -- 7,215 -- 7,215
Third parties, net of allowance for
doubtful accounts of $26......... 1,910 1,626 -- 3,536 -- 3,536
Deferred income taxes................ 296 -- -- 296 -- 296
Other current assets................. 1,069 144 -- 1,213 -- 1,213
------- ------ ---- ------- ------- --------
Total current assets............... 39,879 1,790 -- 41,669 3,118 44,787
Property and equipment, net............ 1,326 449 -- 1,775 -- 1,775
Excess cost of net assets acquired,
net.................................. 53,691 -- -- 53,691 -- 53,691
Other assets, net...................... 1,102 93 -- 1,195 (577) 618
------- ------ ---- ------- ------- --------
$95,998 $2,332 $ -- $98,330 $ 2,541 $100,871
======= ====== ==== ======= ======= ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Current portion of financing
arrangements....................... $ 298 $ -- $ -- $ 298 $ -- $ 298
Accounts payable and accrued
expenses........................... 6,172 2,457 -- 8,629 -- 8,629
Accrued salaries, wages and payroll
taxes.............................. 28,159 -- -- 28,159 -- 28,159
Note payable to shareholder.......... 28,382 -- -- 28,382 (28,382) --
Deferred purchase price
obligations........................ 18,905 -- -- 18,905 (17,500) 1,405
Current portion of reserve for
claims............................. 5,423 -- -- 5,423 -- 5,423
Income taxes payable................. 1,382 -- -- 1,382 -- 1,382
------- ------ ---- ------- ------- --------
Total current liabilities.......... 88,721 2,457 -- 91,178 (45,882) 45,296
Financing arrangements, net of current
portion.............................. 1,068 -- -- 1,068 -- 1,068
Deferred purchase price obligations,
net of current....................... 856 -- -- 856 -- 856
Other.................................. 2,321 -- -- 2,321 -- 2,321
------- ------ ---- ------- ------- --------
Total liabilities.................. 92,966 2,457 -- 95,423 (45,882) 49,541
------- ------ ---- ------- ------- --------
Commitments and contingencies.......... -- -- -- -- -- --
Mandatorily redeemable common stock.... 2,731 -- -- 2,731 (2,731) --
Shareholders equity:
Preferred Stock, $.01 par value;
authorized 1,000 shares; no shares
issued or outstanding................ -- -- -- -- -- --
Common stock, $.01 par value;
authorized 60,000 shares, issued
19,193 shares........................ 192 -- 12(2) 204 53 257
Additional paid-in capital............. 1,189 -- (137)(2) 1,052 51,101 52,153
Retained earnings...................... -- (125) 125(2) -- -- --
------- ------ ---- ------- ------- --------
1,381 (125) -- 1,256 51,154 52,410
Less: common stock in treasury..... (1,080) -- -- (1,080) -- (1,080)
------- ------ ---- ------- ------- --------
Total shareholders' equity......... 301 (125) -- 176 51,154 51,330
------- ------ ---- ------- ------- --------
$95,998 $2,332 $ -- $98,330 $ 2,541 $100,871
======= ====== ==== ======= ======= ========
</TABLE>

F-23
<PAGE> 88

NOVACARE EMPLOYEE SERVICES, INC. AND SUBSIDIARIES

NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

(1) Represents the historical balance sheet of NovaPro as of June 30, 1997. See
Note 2 for further information.

(2) As described in Note 13 to the Consolidated Financial Statements, the
Company issued 1,200 shares of its common stock to acquire the assets and
liabilities of NovaPro, in a transaction accounted for as a purchase
effective July 1, 1997. Given that the transaction is between companies
under common control, the transfer of net assets has been recorded at the
historical cost basis of the Parent. The excess paid over the historical
cost has been treated as a reduction of additional paid-in capital.

(3) The adjustment to cash and cash equivalents represents the remaining
estimated net proceeds of the offering after applying such proceeds as
described under "Use of Proceeds". The adjustment to other assets, net
represents the reclassification of certain costs, previously incurred
related to the initial public offering of the Company's common stock, to
additional paid-in capital. The adjustment to the note payable to
shareholder and deferred purchase price obligations reflects the retirement
of certain liabilities by applying the estimated net proceeds of the
offering in the order described under "Use of Proceeds," as if the offering
had occurred on June 30, 1997. The remaining deferred purchase price
obligations relate to guaranteed payments due at specified dates subsequent
to the initial public offering of the Company's common stock. The adjustment
to mandatorily redeemable common stock (i.e. temporary equity) reflects the
conversion of the stock to permanent equity.

F-24
<PAGE> 89

INDEPENDENT AUDITOR'S REPORT

To the Stockholders of Resource One, Inc.

We have audited the accompanying combined balance sheets of Resource One,
Inc. as of September 30, 1996 and December 31, 1995 and 1994 and the related
combined statements of income, changes in stockholders' equity and cash flows
for the nine months and years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Resource One, Inc.
as of September 30, 1996 and December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months and years then ended in
conformity with generally accepted accounting principles.

Brewer, Beemer, Kuehnhackl & Koon, P.A.

Orlando, FL
April 4, 1997

F-25
<PAGE> 90

RESOURCE ONE, INC.

COMBINED BALANCE SHEETS
(SEE NOTE 1)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 281,585 $ 362,106 $ 194,489
Receivables, net:
Trade, net of allowance for doubtful accounts
of $2,586 in 1994............................ 54,375 46,624 86,721
Accrued leased employee revenue receivable..... 353,074 447,552 817,356
Claims administration fees receivable.......... 123,725 121,671 147,406
Administration fees receivable................. -- -- 32,999
Insurance commissions receivable............... 8,320 7,995 15,673
Deferred income taxes............................. -- -- 2,347
Other current assets.............................. -- -- 23,350
---------- ---------- ----------
Total current assets...................... 821,079 985,948 1,320,341
Property and equipment, net......................... 166,009 148,423 149,469
Other assets........................................ 18,432 107,090 73,956
---------- ---------- ----------
Total assets........................................ $1,005,520 $1,241,461 $ 1,543,766
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable.................. $ 94,529 $ 70,233 $ --
Accounts payable and accrued expenses............. 53,287 13,524 99,607
Accrued leased employee costs and expenses
payable........................................ 404,962 593,570 946,424
Amounts owed to customer.......................... -- 47,534 36,410
Income taxes payable.............................. 38,525 23,023 4,273
---------- ---------- ----------
Total current liabilities................. 591,303 747,884 1,086,714
Notes payable, net of current portion............. 68,848 30,765 7,577
Other liabilities................................. -- 69,685 --
---------- ---------- ----------
Total liabilities......................... 660,151 848,334 1,094,291
---------- ---------- ----------
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized, 100,000 shares issued and
outstanding.................................... 1,000 1,000 1,000
Additional paid-in capital........................ 204,280 144,280 144,280
Retained earnings................................. 140,089 247,847 304,195
---------- ---------- ----------
Total stockholders' equity................ 345,369 393,127 449,475
---------- ---------- ----------
Total liabilities and stockholders' equity.......... $1,005,520 $1,241,461 $ 1,543,766
========== ========== ==========
</TABLE>

See accompanying notes to combined financial statements.

F-26
<PAGE> 91

RESOURCE ONE, INC.

COMBINED STATEMENTS OF INCOME
(SEE NOTE 1)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Revenues:
Leased employee revenues........................ $ 9,975,120 $16,897,280 $22,101,897
Claims administration fees...................... 1,694,251 1,479,232 1,089,355
Insurance commissions........................... 201,335 190,189 168,195
Other administration fees....................... 58,484 127,394 60,019
Other revenues.................................. 57,550 55,119 45,254
----------- ----------- -----------
11,986,740 18,749,214 23,464,720
----------- ----------- -----------
Costs and expenses:
Leased employee payroll and benefits............ 9,426,636 16,117,676 21,224,300
Selling, general and administrative expenses.... 2,237,827 2,298,799 2,169,671
----------- ----------- -----------
11,664,463 18,416,475 23,393,971
----------- ----------- -----------
Income from operations............................ 322,277 332,739 70,749
----------- ----------- -----------
Other income (expense):
Interest income................................. 3,478 7,470 5,535
Interest expense................................ (6,152) (13,132) (3,219)
Miscellaneous income............................ 3,992 400 4,357
----------- ----------- -----------
1,318 (5,262) 6,673
----------- ----------- -----------
Income before income taxes........................ 323,595 327,477 77,422
Income tax expense................................ 94,193 63,534 21,074
----------- ----------- -----------
Net income........................................ $ 229,402 $ 263,943 $ 56,348
=========== =========== ===========
</TABLE>

See accompanying notes to combined financial statements.

F-27
<PAGE> 92

RESOURCE ONE, INC.

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
(SEE NOTE 1)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- --------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993................ $1,000 $206,885 $ 322,168 $ 530,053
Purchase and retirement of treasury
stock................................... -- (2,605) -- (2,605)
Distributions to shareholders............. -- -- (411,481) (411,481)
Net income................................ -- -- 229,402 229,402
------ -------- --------- ---------
Balance, December 31, 1994................ 1,000 204,280 140,089 345,369
Purchase and retirement of treasury
stock................................... (60,000) -- (60,000)
Distributions to shareholders............. -- -- (156,185) (156,185)
Net income................................ -- -- 263,943 263,943
------ -------- --------- ---------
Balance, December 31, 1995................ 1,000 144,280 247,847 393,127
Net income................................ -- -- 56,348 56,348
------ -------- --------- ---------
Balance, September 30, 1996............... $1,000 $144,280 $ 304,195 $ 449,475
====== ======== ========= =========
</TABLE>

See accompanying notes to combined financial statements.

F-28
<PAGE> 93

RESOURCE ONE, INC.

COMBINED STATEMENTS OF CASH FLOWS
(SEE NOTE 1)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
--------------------- -------------
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................... $229,402 $263,943 $ 56,348
Adjustments to reconcile net income to net cash (used
for) provided by operating activities:
Depreciation...................................... 108,182 90,228 52,262
Provision for uncollectible accounts.............. 2,586 -- --
Deferred income taxes............................. -- -- (2,347)
Changes in assets and liabilities:
Increase in accounts receivable................. (115,258) (84,348) (476,313)
Increase in prepaid expenses.................... -- -- (23,350)
Increase (decrease) in other assets............. (10,030) (88,658) 33,134
Increase in accounts payable and other
liabilities.................................. 34,424 29,922 16,398
Increase in accrued leased employee costs and
expenses payable............................. 144,348 188,608 352,854
(Increase) decrease in amounts owed to
customer..................................... -- 47,534 (11,124)
(Increase) decrease in income taxes payable..... 38,525 (15,502) (18,750)
--------- --------- ---------
Net cash provided by (used for) operating
activities...................................... 432,179 431,727 (20,888)
--------- --------- ---------

Cash flows from investing activities
Purchases of property and equipment, net of minor
retirements....................................... (28,024) (72,642) (53,308)
--------- --------- ---------
Net cash used for investing activities............ (28,024) (72,642) (53,308)
--------- --------- ---------

Cash flows from financing activities
Distributions to shareholders........................ (411,481) (156,185) --
Purchase of treasury stock........................... (2,605) (60,000) --
Principal borrowings on notes payable................ 178,681 60,000 --
Principal repayments on notes payable................ (33,379) (122,379) (93,421)
--------- --------- ---------
Net cash used for financing activities............ (268,784) (278,564) (93,421)
--------- --------- ---------
Net (increase) decrease in cash...................... 135,371 80,521 (167,617)
Cash and cash equivalents at beginning of period..... 146,214 281,585 362,106
--------- --------- ---------
Cash and cash equivalents at end of period........... $281,585 $362,106 $ 194,489
========= ========= =========
</TABLE>

See accompanying notes to combined financial statements.

F-29
<PAGE> 94

RESOURCE ONE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996

NOTE 1 -- NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:

BUSINESS ACTIVITY AND BASIS OF PRESENTATION

Resource One, Inc. (the "Company") is a Florida corporation with two
wholly-owned subsidiaries -- Human Resource One, Inc. ("HR One"), a Florida
corporation engaged in the business of employee leasing, and Professional
Insurance Planners of Florida, Inc. ("PIP"), a Florida corporation which serves
as a third party administrator for an insurance trust and other commercial
clients which self-insure.

Effective January 1, 1996, the Company, which had no operations prior to
that date, issued 100% of its common shares outstanding in exchange for all of
the outstanding common shares of HR One and PIP. Because the companies are
controlled by a common group of shareholders, the transaction was accounted for
as a combination of interests at historical cost, which is similar to a pooling
of interests.

RX One, Inc. ("RX One") is a Florida corporation engaged in the business of
providing prescription drug cards for the employees of clients of HR One and
PIP. RX One commenced operations during the first quarter of 1996 and has been
included in the combined financial statements because it is affiliated with the
Company through common ownership. Consequently, the accompanying financial
statements reflect the combined financial position and results of operations for
HR One, PIP and RX One for all periods presented.

Any reference made to the Company in the combined financial statements
includes RX One, as well as the Company's wholly-owned subsidiaries.

The Company's customers are businesses operating in a variety of industries
in locations throughout the United States. However, a considerable portion of
the Company's revenues and accounts receivable are related to transactions with
customers located in the State of Florida.

PRINCIPLES OF COMBINATION

The accompanying combined financial statements include the accounts of the
Company, HR One, PIP and RX One after elimination of all material intercompany
balances and transactions.

USE OF ESTIMATES

In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheets and affect revenue and expense
for the periods presented. Actual results could differ significantly from those
estimates.

CASH AND CASH EQUIVALENTS

The Company considers its holdings of highly liquid debt and money market
instruments to be cash equivalents if the securities mature within 90 days from
the date of acquisition or contain an investor put option which can be exercised
at par within 90 days of acquisition. These investments are carried at cost,
which approximates fair value.

F-30
<PAGE> 95

RESOURCE ONE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated using
straight line and accelerated methods over their estimated useful lives which
range as follows:

<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Computer equipment and software.............................. 3 - 10
Office furniture and equipment............................... 5 - 10
Leasehold improvements....................................... 10
</TABLE>

Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

INCOME TAXES

The Company uses the liability method of accounting for deferred income
taxes. Consequently, income tax expense consists of Federal and state income
taxes currently payable or refundable, and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities, net of any related valuation allowance. The effective tax expense
rate differs from the combined statutory Federal and state rate primarily due to
Federal income tax credits generated during the years ended December 31, 1994
and 1995 and the nine months ended September 30, 1996.

For the year ended December 31, 1995, HR One elected S corporation status
under the Internal Revenue Code. Consequently, in lieu of corporate income tax
expense for that year, the shareholder of the corporation was taxed on HR One's
taxable income.

F-31
<PAGE> 96

RESOURCE ONE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SEPARATE COMPANY FINANCIAL INFORMATION:

Revenues, net income and other changes in stockholders' equity of the
separate companies for the periods presented were as follows:

<TABLE>
<CAPTION>
HR ONE PIP RX ONE COMBINED
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>

For the year ended December 31,
1994:
Revenues......................... $ 9,975,120 $2,011,620 $ -- $11,986,740
Net income..................... 72,076 157,326 -- 229,402
Purchase and retirement of
treasury stock.............. -- 2,605 -- 2,605
Distributions to
shareholders................ -- 411,481 -- 411,481

For the year ended December 31,
1995:
Revenues......................... $16,897,280 $1,851,934 $ -- $18,749,214
Net income..................... 144,649 119,294 -- 263,943
Purchase and retirement of
treasury stock.............. 60,000 -- -- 60,000
Distributions to
shareholders................ 156,185 -- -- 156,185
For the nine months ended
September 30, 1996:
Revenues......................... $22,101,897 $1,361,221 $ 1,602 $23,464,720
Net income (loss).............. 42,528 27,809 (13,989) 56,348
Purchase and retirement of
treasury stock.............. -- -- -- --
Distributions to
shareholders................ -- -- -- --
</TABLE>

NOTE 3 -- PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Computer equipment and software.............. $ 532,412 $ 467,021 $ 510,549
Office furniture and equipment............... 158,605 163,668 162,064
Leasehold improvements....................... 10,582 10,582 10,582
-------- -------- --------
701,599 641,271 683,195
Less accumulated depreciation................ (535,590) (492,848) (533,726)
-------- -------- --------
$ 166,009 $ 148,423 $ 149,469
======== ======== ========
</TABLE>

Depreciation expense amounted to $108,182, $90,228 and $52,262 for years
ended December 31, 1994 and 1995, and the nine months ended September 30, 1996,
respectively.

F-32
<PAGE> 97

RESOURCE ONE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- NOTES PAYABLE:

Notes payable are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Various installment notes payable monthly
through December 1997, interest rates ranging
from 7% to 8.5%, collateralized by stock and
equipment.................................... $163,377 $100,998 $ 7,577
Less amount payable within one year............ 94,529 70,233 --
-------- -------- ------
Amount payable after one year.................. $ 68,848 $ 30,765 $ 7,577
======== ======== ======
</TABLE>

Interest paid totaled $3,219, $13,132 and $6,152 for the nine months ended
September 30, 1996 and years ended December 31, 1995 and 1994, respectively.

NOTE 5 -- COMMITMENTS AND CONTINGENCIES:

LEASE COMMITMENTS

The Company leases its office space and certain equipment under
noncancelable operating lease agreements. Annual remaining minimum rentals
required by these leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
-------------------------------------------------------- ---------
<S> <C>
1997.................................................... $ 197,596
1998.................................................... 110,163
1999.................................................... 56,367
2000.................................................... 57,931
2001.................................................... 9,655
--------
$ 431,712
========
</TABLE>

Rental expense for years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996, approximated $141,000, $155,000 and $155,000,
respectively.

CONCENTRATION OF CREDIT RISK

The Company extends credit, in the normal course of business, to a variety
of corporate entities located throughout the United States. Although the
Company's trade receivables are typically not collateralized, historically, no
significant credit related losses have been incurred.

As of December 31, 1994, December 31, 1995 and September 30, 1996, the
Company had cash balances on deposit with federally insured financial
institutions which exceeded federally insured limits by approximately $10,000,
$120,000 and $137,000, respectively.

The Company also has an investment account balance with a local bank in
South Miami. As of December 31, 1994 and 1995, and September 30, 1996, the
account balance totaled approximately $240,000, $244,000 and $146,000,
respectively. Such deposits are not covered by federal depositor insurance;
however, they are secured by U.S. Government securities.

LEGAL MATTERS

The Company is party to litigation arising in the normal course of
business. Management, after consultation with legal counsel, does not believe
that the resolution of any such matters will have a material effect on the
Company's financial position or results of operations.

F-33
<PAGE> 98

RESOURCE ONE, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- INCOME TAXES:

The components of income tax expense included in the accompanying
statements of income consist of the following:

<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
------------------- ------------
1994 1995 1996
------- ------- ------------
<S> <C> <C> <C>
Current expense:
Federal................................................ $80,625 $53,198 $ 19,148
State.................................................. 13,568 10,336 4,273
Deferred benefit......................................... -- -- (2,347)
------- ------- -------
Total income tax expense....................... $94,193 $63,534 $ 21,074
======= ======= =======
</TABLE>

At December 31, 1994 and 1995, there were no deferred tax assets or
liabilities. At September 30, 1996, the Company had gross deferred tax assets
totaling $2,347 and no deferred tax liabilities. Income taxes paid during the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1996 totaled approximately $92,000, $44,000 and $86,000, respectively.

NOTE 7 -- STOCKHOLDERS' EQUITY:

On August 31, 1994, PIP entered into an agreement with one of its
stockholders to repurchase the 2,500 shares of common stock owned by that
individual. The purchase price paid for the shares totaled $178,680. In
connection with this transaction, PIP issued a note payable for the purchase
price. The note bore interest at 7% with principal and interest payable monthly
until maturity on September 1, 1996. This note was paid off on January 31, 1996.

On January 1, 1995, HR One entered into an agreement with one of its
stockholders to repurchase the 50,000 shares of common stock owned by that
individual. The purchase price paid for the shares totaled $60,000. In
connection with this transaction, HR One issued a note payable for the purchase
price. The note bore interest at 8% payable monthly and was due in a single
payment on December 31, 1997. This note was paid off during 1996.

NOTE 8 -- SALARY SAVINGS PLAN:

The Company has adopted a salary savings plan (401K) which covers
substantially all employees age twenty-one or over who have completed ninety
days of service. Eligible employees may elect to contribute a portion of their
earnings to the plan. Matching contributions are made by the Company to the plan
on a discretionary basis. No contributions were made by the Company to the plan
during the years ended December 31, 1994 or 1995 or during the nine months ended
September 30, 1996.

NOTE 9 -- SUBSEQUENT EVENT:

Effective October 1, 1996, 100% of the Company's outstanding common stock
was purchased by Nova Care Employee Services, Inc., a Delaware corporation.

F-34
<PAGE> 99

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Employee Services of America, Inc. and Subsidiaries
Bradenton, Florida

We have audited the accompanying combined balance sheet of Employee
Services of America, Inc. and subsidiaries and Employers' Risk Management, Inc.
and Employee Benefits Management, Inc. (collectively referred to as the "Group")
as of January 31, 1997 and the related combined statements of income, changes in
shareholders' equity, and cash flows for the one month ended January 31, 1997.
These financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Employee Services of
America, Inc. and subsidiaries and Employers' Risk Management, Inc. and Employee
Benefits Management, Inc. as of January 31, 1997 and the results of their
operations and their cash flows for the one month ended January 31, 1997 in
conformity with generally accepted accounting principles.

Varnadore, Tyler, Hoffner, King, Hawthorne, Hammer, & Stathis, P.A.

Bradenton, FL
April 17, 1997

F-35
<PAGE> 100

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED BALANCE SHEET
JANUARY 31, 1997

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 552,987
Accounts receivable:
Trade, net of allowance for doubtful accounts of $117,147................. 294,411
Unbilled.................................................................. 2,379,970
Recoverable income taxes..................................................... 106,011
Deferred income taxes........................................................ 420,405
Other assets................................................................. 176,529
----------
Total current assets................................................. 3,930,313
Equipment and leasehold improvements, net.................................... 505,322
Other assets................................................................. 102,334
----------
$4,537,969
==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangement..................................... $ 8,702
Accounts payable and accrued expenses........................................ 1,115,716
Accrued salaries and wages................................................... 2,043,471
Workers' compensation premiums payable....................................... 757,967
Income taxes payable......................................................... 117,533
----------
Total current liabilities............................................ 4,043,389
Financing arrangement, net of current portion.................................. 27,136
Client deposits................................................................ 315,135
Deferred income taxes.......................................................... 8,457
Workers compensation agreement................................................. 300,000
----------
Total liabilities.................................................... 4,694,117
Shareholders' deficiency:
Common stock, $.01 par value, authorized 2,400,000 shares.................... 12,862
Additional paid-in capital................................................... 430,310
Accumulated deficit.......................................................... (599,320)
----------
Total shareholders' deficiency....................................... (156,148)
----------
$4,537,969
==========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-36
<PAGE> 101

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENT OF INCOME
FOR THE ONE MONTH ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
Revenues...................................................................... $12,453,429
Direct costs:
Salaries, wages and employment taxes of worksite employees.................. 11,024,429
Health care and workers' compensation....................................... 745,396
-----------
Total direct costs.................................................. 11,769,825
-----------
Gross profit........................................................ 683,604
Operating expenses:
Administrative personnel.................................................... 268,834
Other general and administrative............................................ 177,454
Sales and marketing......................................................... 106,172
Depreciation and amortization............................................... 12,000
-----------
Total operating expenses............................................ 564,460
-----------
Income (loss) from operations....................................... 119,144
Interest income (expense):.................................................... (662)
-----------
Income (loss) before income taxes................................... 118,482
Provision (benefit) for income taxes.......................................... (59,288)
-----------
Net income (loss)............................................................. $ 177,770
===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-37
<PAGE> 102

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE ONE MONTH ENDED JANUARY 31, 1997

<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL RETAINED
SHARES/ ($.01 PAID-IN EARNINGS
COMMON PAR VALUE) CAPITAL (DEFICIT)
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.................. 1,286,200 $ 12,862 $430,310 $(777,090)
Net income................................ -- -- -- 177,770
--------- ------- -------- ---------
Balance at January 31, 1997................. 1,286,200 12,862 430,310 $(599,320)
========= ======= ======== =========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-38
<PAGE> 103

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENT OF CASH FLOWS
FOR THE ONE MONTH ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 177,770
Adjustments to reconcile net income to net cash flows provided by operating
activities
Depreciation and amortization............................................... 12,000
Provision for uncollectible accounts........................................ 6,000
Deferred tax asset.......................................................... (107,276)
Changes in assets and liabilities:
Accounts receivable...................................................... (129,869)
Recoverable income taxes................................................. (19,511)
Other assets............................................................. 811,132
Accounts payable and accrued expenses.................................... (258,796)
Payroll taxes and other deductions payable............................... 254,556
Accrued salaries and wages............................................... (751,463)
Income taxes payable..................................................... 70,553
Workers' compensation premiums payable................................... 423,975
Client deposits.......................................................... (6,681)
---------
Net cash flows provided by operating activities..................... 482,390
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................ (11,301)
---------
Net cash flows used in investing activities......................... (11,301)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations............................... (800)
---------
Net cash flows used in financing activities......................... (800)
Net increase (decrease) in cash............................................... 470,289
Cash and cash equivalents at beginning of year................................ 82,698
---------
Cash and cash equivalents at end of year...................................... $ 552,987
=========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-39
<PAGE> 104

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Employee Services of Florida, Inc., Easy Staff, DAT
Sales and Consulting, Inc. and Boyd's Employee Services are licensed as
professional employer organizations (PEO) engaged in providing human resource
management and personnel administration services to a variety of small to medium
sized companies located primarily in Florida. The client companies include
retail and service industries. The PEO's do not have a concentration of
customers in any one industry. They assign their employees to clients and
allocate the direction of and control over the leased employees between the
clients and the PEO's. Employee leasing companies are regulated in the State of
Florida and are required to satisfy certain licensing requirements. Managers'
Resource provides payroll processing services to companies outside of the Group.

Employers' Risk Management, Inc. provides workers' compensation management
services to America.

Employee Benefits Management, Inc. provides the management of all insurance
products for all of the profits and commissions therefrom.

Principles of Combination: The accompanying combined financial statements
include the accounts of Employee Services of America, Inc. (America) and its
subsidiaries, combined with Employers' Risk Management, Inc. (Risk) and Employee
Benefits Management, Inc. (Benefits) (on a combined basis "the Group"). The
wholly owned subsidiaries of America include Employee Services of Florida, Inc.,
Easy Staff, Inc., DAT Sales and Consulting, Inc., Employee Services, Inc. of
North Carolina, Boyd's Employee Services, Inc. and Managers' Resource, Inc. All
significant intercompany balances and transactions are eliminated in the
combination. America, Risk and Benefits are related through common ownership and
common management.

America acquired all of the outstanding common stock of the above named
subsidiaries in May, 1996. Because the subsidiaries are controlled by a common
group of shareholders, the transaction was accounted for as a combination of
interests, at historical costs, which is similar to a pooling of interests.

Use of Estimates in the Preparation of Financial Statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents: The Group considers investments with an
original maturity of three months or less and money market investments to be
cash equivalents.

Revenues: Revenues and the related cost of wages, salaries, and employment
taxes from professional employer services related to worksite employees are
recognized in the period in which the employee performs the service. Because the
Group is at risk for all of its direct costs, independently of whether payment
is received from its clients, and consistent with industry practice, all amounts
billed to clients for gross salaries and wages, related employment taxes, and
health care and workers' compensation coverage are recognized as revenue by the
Group. Reserves for doubtful accounts are established when the Group determines
that collection from a client is unlikely. Leasing revenue earned but not billed
is reported as accrued (unbilled) revenue and direct costs performed related to
those revenues are reported as accrued salaries and wages.

Concentration of Credit Risk: The Group maintains cash balances at various
times during the year in excess of the $100,000 guaranteed by the Federal
Deposit Insurance Corporation. Concentration of credit risk for trade accounts
receivable is minimized since the majority of accounts receivable are due from
small businesses located throughout Florida. A deposit is collected from certain
clients depending

F-40
<PAGE> 105

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

on their credit history and method of paying for leasing services. If there is
an outstanding balance when services are terminated, the client deposit is
applied.

Equipment and Leasehold Improvements: Equipment and leasehold improvements
are stated at cost. Depreciation is provided using the straight-line basis over
the estimated useful lives of the assets.

Income Taxes: The Group records income tax expense using the liability
method of accounting for deferred income taxes. Under the liability method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement and income
tax bases of the Group's assets and liabilities. A valuation allowance is
recorded when it is more likely than not that any or all of a deferred tax asset
will not be realized. The provision for income taxes includes taxes currently
payable plus the net change during the year in deferred tax assets and
liabilities recorded by the Group.

Recently issued Accounting Pronouncements In October 1995: The Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 defines
a fair value based method of accounting for employee stock options and similar
instruments and must be adopted or the proforma income statement effects must be
disclosed in notes to the financial statements no later than the first quarter
of fiscal year 1997. The Group intends to elect disclosure of the proforma
income statement effects of SFAS 123, therefore the new Statement will not
affect the Group's financial position or results of operations.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of ("SFAS 121"),
which the Group is required to adopt no later than the first quarter of fiscal
year 1997. SFAS 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain intangibles to
be disposed of. Management does not believe the adoption of SFAS 121 will have a
material effect on the Group's financial position or results of operations.

2. EQUIPMENT AND LEASEHOLD IMPROVEMENT

Property and equipment consist of the following at January 31:

<TABLE>
<CAPTION>
1997
--------
<S> <C>
Furniture and fixtures............................................ $124,240
Machinery and equipment........................................... 330,474
Leasehold improvements............................................ 21,114
Vehicles.......................................................... 40,994
--------
516,822
Less: accumulated depreciation.................................... 11,500
--------
Total equipment and leasehold improvement.................... $505,322
========
</TABLE>

F-41
<PAGE> 106

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. CAPITAL LEASE OBLIGATIONS

The Group leases a phone system and a vehicle under agreements which are
classified as capital leases. The future minimum lease payments required under
the capital leases at January 31, 1997 are as follows:

<TABLE>
<S> <C>
1997............................................................... $ 8,702
1998............................................................... 12,104
1999............................................................... 12,104
2000............................................................... 11,096
-------
Total future minimum lease payments................................ 44,006
Amounts representing interest...................................... 8,168
-------
Present value of net minimum lease payments........................ 35,838
Less current portion............................................... 8,702
-------
Long term portion.................................................. $27,136
=======
</TABLE>

4. WORKERS' COMPENSATION CLAIMS RESERVE

5. PROVISION FOR INCOMES TAXES

Income taxes are provided for tax effects of transactions reported in the
financial statements and consist of taxes currently payable for the period, plus
or minus the net change in deferred tax assets and liabilities. Deferred income
tax assets and liabilities are computed for differences that have future tax
consequences using the currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income. A valuation
allowance was established to reduce the deferred tax assets to the amount that
will more likely be realized. The provision for income taxes includes the
following:

<TABLE>
<S> <C>
Current Provisions
Federal................................................ $ 40,750
State.................................................. 4,650
---------
45,400
---------
Deferred Provision
Federal................................................ (93,950)
State.................................................. (10,738)
---------
(104,688)
---------
Provision for income taxes (benefit)........... $ (59,288)
=========
</TABLE>

F-42
<PAGE> 107

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<S> <C>
Net deferred tax assets consist of the following:
Current deferred tax assets:
Workers' compensation payable................................... $293,000
Net operating loss carryforward................................. 130,199
Change in cash to accrued tax accounting........................ 21,000
Tip tax credit and other........................................ 11,206
Valuation allowance............................................. (35,000)
-------
420,405
Current deferred tax liabilities:
Workers' compensation participation receivable.................. --
-------
Net current deferred tax assets................................. $420,405
=======
Long-term deferred tax assets:
Workers' compensation payable................................... $120,000
Valuation allowance............................................. (59,000)
-------
61,000
-------
Long-term deferred tax liabilities:
Depreciation.................................................... 69,457
Change in cash to accrued tax accounting........................ --
-------
69,457
-------
Net long-term deferred tax asset (liability)............ $ (8,457)
=======
</TABLE>

The tips tax credit carryforward is available to offset future income taxes
and will expire in the year ending December 31, 2110.

6. COMMON STOCK AND STOCK OPTIONS

At January 31, 1997, America, Risk and Benefits were each authorized to
issue 800,000 shares of $.01 par value common stock and America was authorized
to issue 500,000 shares of preferred stock. At January 31, 1997, America, Risk
and Benefits had each issued and outstanding 428,746 of common stock. No
preferred stock was issued and outstanding.

At January 31, 1997 two shareholders of the Group held options to purchase
shares of the Group's common stock. The options offer the right to purchase a
total of 82,500 shares of common stock of each company in the Group at $1 per
share at any time through March 19, 1998.

At January 31, 1997, three shareholders of the Group held options to
purchase 64,311 shares of Employee Services of America, Inc. at $3 per share.

7. 401(k) RETIREMENT PLANS

In 1995, the Group adopted a 401(k) Matching Retirement Plan (the Plan)
which covers all non-leased employees that have completed one hour of service.
The Group provides a 50% matching contribution based on the amount of elective
contributions made to the Plan by employees -- not to exceed 5% of the
employee's compensation for the plan year. The matching percentage is subject to
the discretion of the Board of Directors. The Group also maintains matched and
unmatched plans for leased employees.

F-43
<PAGE> 108

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED PARTY TRANSACTIONS

In 1995, a stockholder was loaned $39,886, bearing interest at 7.5% per
annum, payable on demand. In addition, $30,225 was advanced to a stockholder and
a total of $4,320 plus accrued interest of $11,994 is due from various
stockholders which is not evidenced by formal note agreements and bears no
interest.

An insurance agency that is partially owned by one stockholder, is the
agent of record for the Group's liability and workers' compensation insurance
policies. As such, the insurance agency receives a commission from insurance
companies. The Group also entered into an agreement with the insurance agency
which provides compensation when specific loss ratios are attained.

The Group purchases various products and services from certain clients in
the ordinary course of business. The Group also provides employee leasing
services to certain clients that are solely and partially owned by the
stockholders of the Group.

9. COMMITMENTS AND CONTINGENCIES

Operating Leases: The Group conducts its operations in nine leased
facilities and also leases certain equipment under noncancellable operating
leases. The total future minimum rental payments are $251,341 and $11,928 in
1997 and 1998, respectively. The minimum rental payments of certain leased
facilities are subject to inflationary increases based upon the Consumer Price
Index which cannot be reasonably calculated in advance.

Commitment: The Group entered in an agreement with an insurance agency,
that is partially owned by one stockholder, to provide consulting services
during a three year period commencing January 1, 1995. Management estimates the
total commitment under this agreement was approximately $174,000.

Litigation: The Group is engaged in legal actions arising in the ordinary
course of business. The management of the Group and legal counsel believes that
the outcome will not have a material effect on the financial statements.

10. SUBSEQUENT EVENTS

In February, 1997, America and its subsidiaries, Benefits and Risk were
sold to NovaCare Employee Services, Inc. (a subsidiary of NovaCare, Inc.)

F-44
<PAGE> 109

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Employee Services of America, Inc. and Subsidiaries
Bradenton, Florida

We have audited the accompanying combined balance sheets of Employee
Services of America, Inc. and subsidiaries and Employers' Risk Management, Inc.
and Employee Benefits Management, Inc. (collectively referred to as the "Group")
as of December 31, 1996, 1995, and 1994, and the related combined statements of
income, changes in shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Employee Services of
America, Inc. and subsidiaries and Employers' Risk Management, Inc. and Employee
Benefits Management, Inc. as of December 31, 1996, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

Varnadore, Tyler, Hoffner, King, Hawthorne, Hammer, & Stathis, P.A.

Bradenton, FL
March 8, 1997

F-45
<PAGE> 110

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED BALANCE SHEETS
DECEMBER 31, 1994, 1995, AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 85,781 $ 34,488 $ 82,698
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$60,000 and $116,514, respectively............ 739,053 364,950 170,542
Unbilled........................................ 1,256,739 2,001,236 3,186,604
Recoverable income taxes........................... -- -- 86,500
Deferred income taxes.............................. 10,000 55,755 311,323
Other assets....................................... 334,971 233,422 180,927
---------- ----------- -----------
Total current assets....................... 2,426,550 2,689,851 4,018,594
Equipment and leasehold improvements, net.......... 244,502 445,617 505,521
Deferred income taxes.............................. -- 57,745 --
Other assets....................................... 93,625 131,730 102,934
---------- ----------- -----------
$ 2,764,671 $ 3,324,943 $4,627,049
========== =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangement........... $ -- $ 9,050 $ 6,742
Accounts payable and accrued expenses.............. 1,707,227 1,152,300 1,119,956
Accrued salaries and wages......................... 1,067,626 1,678,241 2,794,934
Workers' compensation premiums payable and claims
reserve......................................... 354,412 163,543 326,197
Income taxes payable............................... -- 110,512 46,980
---------- ----------- -----------
Total current liabilities.................. 3,129,265 3,113,646 4,294,809
Financing arrangement, net of current portion........ -- 36,609 29,896
Client deposits...................................... 421,006 399,686 321,816
Deferred income taxes................................ -- -- 6,651
Workers compensation agreement....................... 659,409 497,255 307,795
---------- ----------- -----------
Total liabilities.......................... 4,209,680 4,047,196 4,960,967
Shareholders' deficiency:
Common stock, $.01 par value, authorized 2,400,000
shares.......................................... 59,883 12,959 12,862
Additional paid-in capital......................... 378,884 423,092 430,310
Accumulated deficit................................ (1,883,776) (1,154,850) (777,090)
Treasury stock..................................... -- (3,454) --
---------- ----------- -----------
Total shareholders' deficiency............. (1,445,009) (722,253) (333,918)
---------- ----------- -----------
$ 2,764,671 $ 3,324,943 $4,627,049
========== =========== ===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-46
<PAGE> 111

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Revenues.......................................... $76,675,792 $104,352,905 $139,196,718
Direct costs:
Salaries, wages and employment taxes of worksite
employees.................................... 68,313,065 92,183,659 124,213,841
Health care and workers' compensation........... 4,969,562 6,389,198 8,690,547
Other direct costs.............................. 25,803 122,960 70,521
----------- ------------ ------------
Total direct costs...................... 73,308,430 98,695,817 132,974,909
----------- ------------ ------------
Gross profit............................ 3,367,362 5,657,088 6,221,809
Operating epenses:
Administrative personnel........................ 1,744,894 2,704,837 3,200,486
Other general and administrative................ 1,063,954 1,393,516 1,527,054
Sales and marketing............................. 555,378 735,758 988,918
Depreciation and amortization................... 60,420 87,578 117,011
----------- ------------ ------------
Total operating expenses................ 3,424,646 4,921,689 5,833,469
----------- ------------ ------------
Loss (income) from operations........... (57,284) 735,399 388,340
Interest expense (income):........................ -- -- (55,555)
----------- ------------ ------------
Loss (income) before income taxes....... (57,284) 735,399 332,785
Benefit (provision) for income taxes.............. (679) 6,473 (50,881)
----------- ------------ ------------
Net loss (income)................................. $ (56,605) $ 728,926 $ 383,666
=========== ============ ============
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-47
<PAGE> 112

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996

<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL RETAINED
SHARES/ ($.01 PAID-IN EARNINGS TREASURY
COMMON PAR VALUE) CAPITAL (DEFICIT) STOCK
--------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............. 984,700 $ 59,883 $226,424 $(1,827,171) $ --
Net loss............................. -- -- -- (56,605) --
Contributed capital.................. -- -- 152,460 -- --
--------- -------- -------- ----------- -------
Balance at December 31, 1994........... 984,700 59,883 378,884 (1,883,776) --
Net income........................... -- -- -- 728,926 --
Recapitalization -- change in par
value............................. -- (50,036) 50,036 -- --
Common stock issued.................. 311,200 3,112 -- -- --
Treasury stock acquired.............. -- -- -- -- (3,454)
Distribution......................... -- -- (5,828) -- --
--------- -------- -------- ----------- -------
Balance at December 31, 1995........... 1,295,900 12,959 423,092 (1,154,850) (3,454)
Net income........................... -- -- -- 383,666 --
Capital contributed.................. -- -- 7,218 -- --
Treasury stock canceled.............. (9,700) (97) -- (5,906) 3,454
--------- -------- -------- ----------- -------
Balance at December 31, 1996........... 1,286,200 $ 12,862 $430,310 $ (777,090) $ --
========= ======== ======== =========== =======
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-48
<PAGE> 113

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income...................................... $ (56,605) $ 728,926 $ 383,666
Adjustments to reconcile net (loss) income to net cash
flows provided by operating activities
Depreciation and amortization................... 60,420 87,576 117,021
Provision for uncollectible accounts............ 2,723 102,932 70,521
Loss on disposal of fixed assets................ -- -- 33,832
Deferred tax asset.............................. -- (103,494) (191,172)
Changes in assets and liabilities:
Accounts receivable.......................... (832,025) (475,355) (1,061,481)
Recoverable income taxes..................... -- -- (86,500)
Other assets................................. (5,425) (237,346) 79,685
Accounts payable and accrued expenses........ 68,288 268,014 65,702
Payroll taxes and other deductions payable... 150,661 (37,522) (36,044)
Accrued salaries and wages................... 373,910 610,615 1,116,693
Income taxes payable......................... -- 110,512 (63,532)
Benefit premiums payable..................... 803,043 (806,367) (63,002)
Workers' compensation premiums payable....... (855,880) (40,932) (26,806)
Client deposits.............................. 2,183 (21,320) (77,870)
--------- --------- -----------
Net cash flows (used in) provided by
operating activities.................... (288,707) 186,239 260,713
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (115,973) (218,630) (189,336)
Purchase of intangible assets.......................... (7,949) (16,821) (18,815)
--------- --------- -----------
Net cash flows used in investing
activities.............................. (123,922) (235,451) (208,151)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations........ -- (2,081) (9,021)
Proceeds from issuance of common stock and additional
paid-in capital...................................... 50,000 -- 4,669
--------- --------- -----------
Net cash flows provided by (used in)
financing activities.................... 50,000 (2,081) (4,352)
--------- --------- -----------
Net (decrease) increase in cash........................ (362,629) (51,293) 48,210
Cash and cash equivalents at beginning of year......... 448,410 85,781 34,488
--------- --------- -----------
Cash and cash equivalents at end of year............... $ 85,781 $ 34,488 $ 82,698
========= ========= ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid........................................ $ -- $ -- $ 55,555
========= ========= ===========
Income taxes paid.................................... $ -- $ -- $ 174,200
========= ========= ===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-49
<PAGE> 114

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Employee Services of Florida, Inc., Easy Staff, DAT
and Boyd's Employee Services are licensed as professional employer organizations
(PEO) engaged in providing human resource management and personnel
administration services to a variety of small to medium sized companies located
primarily in Florida. The client companies include retail and service
industries. The PEO's do not have a concentration of customers in any one
industry. They assign their employees to clients and allocate the direction of
and control over the leased employees between the clients and the PEO's.
Employee leasing companies are regulated in the State of Florida and are
required to satisfy certain licensing requirements. Employee Services, Inc. of
North Carolina has been inactive during the entire three year period ended
December 31, 1996. Managers' Resource provides payroll processing services to
companies outside of the Group.

Employers' Risk Management, Inc. provides workers' compensation management
services to America.

Employee Benefits Management, Inc. provides the management of all insurance
products for all of the profits and commissions therefrom.

Cash and Cash Equivalents: The Group considers investments with an
original maturity of three months or less and money market investments to be
cash equivalents.

Concentration of Credit Risk: The Group maintains cash balances at various
times during the year in excess of the $100,000 guaranteed by the Federal
Deposit Insurance Corporation. At December 31, 1996 there was approximately
$619,000 in a bank which was in excess of the federally insured limits.

F-50
<PAGE> 115

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of credit risk for trade accounts receivable is minimized since
the majority of accounts receivable are due from small businesses located
throughout Florida. A deposit is collected from certain clients depending on
their credit history and method of paying for leasing services. If there is an
outstanding balance when services are terminated, the client deposit is applied.

Equipment and Leasehold Improvements: Equipment and leasehold improvements
are stated at cost. Depreciation is provided using the straight-line basis over
the estimated useful lives of the assets.

Effective January 1, 1995, Easy Staff, DAT, Risk and Benefits changed their
tax status from an S corporation to a C corporation under the provisions of the
Internal Revenue Code. Employee Services of Florida, Employee Services, Inc. of
North Carolina and Managers' Resource, Inc. were originally formed and organized
as C corporations. As a C corporation, each company is liable for income taxes
on their income.

Reclassifications: Certain reclassifications have been made in the 1994
and 1995 financial statements to conform to the 1996 presentation.

2. WORKERS' COMPENSATION PARTICIPATION RECEIVABLE

The Group had a guaranteed rate agreement with a worker's compensation
carrier which provides compensation if certain loss ratios are not exceeded.
Under the provisions of the agreement, $737,241 was payable to the Group at
December 31, 1995. During 1996, $369,000 of this amount was collected. The
remaining balance was reduced by a settlement with the carrier upon termination
of the contract.

F-51
<PAGE> 116

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. EQUIPMENT AND LEASEHOLD IMPROVEMENT

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
Furniture and fixtures................... $ 126,039 $155,813 $ 162,374
Machinery and equipment.................. 169,202 298,276 437,903
Leasehold improvements................... 36,699 17,033 22,295
Vehicles................................. 77,043 53,371 50,546
--------- -------- ---------
408,983 524,493 673,118
Less: accumulated depreciation........... (164,481) (78,876) (167,597)
--------- -------- ---------
Total equipment and leasehold
improvement............................ $ 244,502 $445,617 $ 505,521
========= ======== =========
</TABLE>

4. CAPITAL LEASE OBLIGATIONS

The Group leases a phone system and a vehicle under agreements which are
classified as capital leases. The future minimum lease payments required under
the capital leases at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997....................................................... $14,314
1998....................................................... 12,104
1999....................................................... 12,104
2000....................................................... 11,096
-------
Total future minimum lease payments........................ 49,618
Amounts representing interest.............................. 12,980
-------
Present value of net minimum lease payments................ 36,638
Less current portion....................................... 6,742
-------
Long term portion.......................................... $29,896
=======
</TABLE>

5. WORKERS' COMPENSATION CLAIMS RESERVE

The Group maintains a workers' compensation policy which provides coverage
to all leased employees for work-related injuries. The Group is liable for
losses on claims up to certain deductible amounts. During 1996, the policy had a
maximum premium cap. The Group estimates that total premiums and deductible will
exceed the cap and the maximum liabilities has been recorded. During 1995, the
policy maximum premium cap was substantially higher than 1996 and was not met
and workers' compensation claims reserves of $465,893 were accrued based upon
claims reported as of December 31, 1995 as well as a estimated liability for
claims incurred but not reported. At December 31, 1996 the majority of these
claims have been settled and the claims reserves remaining are not material.

6. PROVISION FOR INCOMES TAXES

F-52
<PAGE> 117

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

tax assets to the amount that will more likely be realized. The provision for
income taxes includes the following:

<TABLE>
<CAPTION>
1994 1995 1996
----- --------- ---------
<S> <C> <C> <C>
Current Provisions
Federal................................... $(679) $ 101,987 $ 122,241
State..................................... -- 14,998 31,148
----- --------- ---------
(679) 116,985 153,389
----- --------- ---------
Deferred Provision
Federal................................... -- (96,344) (178,081)
State..................................... -- (14,168) (26,189)
----- --------- ---------
-- (110,512) (204,270)
----- --------- ---------
Provision for income taxes........ $(679) $ 6,473 $ (50,881)
===== ========= =========
</TABLE>

Net deferred tax assets consist of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
Current deferred tax assets:
Workers' compensation payable............ $ -- $ 352,822 $166,771
Net operating loss carryforward.......... 10,006 -- 113,644
Change in cash to accrued tax
accounting............................ -- 22,855 20,973
Tip tax credit and other................. -- 46,944 94,247
Valuation allowance...................... -- (71,421) (84,312)
-------- --------- -------
10,006 351,200 311,323
Current deferred tax liabilities:
Workers' compensation participation
receivable............................ -- (295,445) --
-------- --------- -------
Net current deferred tax assets.......... $10,006 $ 55,755 $311,323
======== ========= =======
Long-term deferred tax assets:
Workers' compensation payable............ $ -- $ 193,929 $ 61,000
Net operating loss carryforward.......... -- 6,447 --
Change in cash to accrued tax
accounting............................ -- 43,316 --
Tip tax, credit.......................... -- 24,007 --
Other.................................... -- 1,040 --
Valuation allowance...................... -- (193,929) --
-------- --------- -------
-- 74,810 61,000
-------- --------- -------
Long-term deferred tax liabilities:
Depreciation............................. -- 11,418 67,651
Change in cash to accrued tax
accounting............................ -- 5,647 --
-------- --------- -------
-- 17,065 67,651
-------- --------- -------
Net long-term deferred tax asset
(liability).................... $ -- $ 57,745 $ (6,651)
======== ========= =======
</TABLE>

The tips tax credit carryforward is available to offset future income taxes
and will expire in the year ending December 31, 2110.

F-53
<PAGE> 118

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. COMMON STOCK AND STOCK OPTIONS

At December 31, 1995 and 1996, America, Risk and Benefits were each
authorized to issue 800,000 shares of $.01 par value common stock and America
was authorized to issue 500,000 shares of preferred stock. At December 31, 1995,
America, Risk and Benefits had each issued and outstanding 428,746 of common
stock, net of 4,836 shares held as treasury stock. During 1996, the treasury
stock was canceled and America, Risk and Benefits each had issued and
outstanding 428,746 shares of common stock at December 31, 1996. No preferred
stock was issued and outstanding.

At December 31, 1995 two shareholders of the Group held options to purchase
shares of the Group's common stock. The options offer the right to purchase a
total of 82,500 shares of common stock of each company in the Group at $1 per
share at any time through March 19, 1998. In January, 1997, the options were
canceled and none had been exercised.

At December 31, 1996, three shareholders of the Group held options to
purchase 64,311 shares of Employee Services of America, Inc. at $3 per share.
These options were exercised in January, 1997.

8. 401(k) RETIREMENT PLANS

In 1995, the Group adopted a 401(k) Matching Retirement Plan (the Plan)
which covers all non-leased employee's that have completed one hour of service.
The Group provides a 50% matching contribution based on the amount of elective
contributions made to the Plan by employees -- not to exceed 5% of the
employee's compensation for the plan year. The matching percentage is subject to
the discretion of the Board of Directors. The Group paid matching contributions
of $39,089 and $37,830 for the periods ending December 31, 1995 and 1996,
respectively. The Group also maintains matched and unmatched plans for leased
employees.

9. RELATED PARTY TRANSACTIONS

10. COMMITMENTS AND CONTINGENCIES

Operating Leases: The Group conducts its operations in nine leased
facilities and also leases certain equipment under noncancellable operating
leases. The total future minimum rental payments are $281,536, $251,341 and
$11,928 in 1996, 1997 and 1998, respectively. The minimum rental payments of
certain leased facilities are subject to inflationary increases based upon the
Consumer Price Index which cannot be reasonably calculated in advance.

F-54
<PAGE> 119

EMPLOYEE SERVICES OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

$174,000. The amount payable to the insurance agency at December 31, 1996 for
consulting services is $7,800.

11. SUBSEQUENT EVENTS

In February, 1997, America and its subsidiaries, Benefits and Risk were
sold to NovaCare Employee Services, Inc. (a subsidiary of NovaCare, Inc.)

F-55
<PAGE> 120

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
The TPI Group, Ltd.
Queensbury, New York

We have audited the accompanying consolidated balance sheet of The TPI
Group, Ltd. and subsidiaries as of January 31, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the one month
period then ended. These consolidated financial statements are the
responsibility of the management of The TPI Group, Ltd. Our responsibility is to
express an opinion on the consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of The TPI
Group, Ltd. and subsidiaries as of January 31, 1997 and the results of their
operations and their cash flows for the one month period then ended, in
conformity with generally accepted accounting principles.

LAZAR, LEVINE & COMPANY LLP

New York, New York
April 11, 1997

F-56
<PAGE> 121

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 1997

<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................... $ 2,634
Cash -- restricted........................................................... 290,000
Accounts Receivable:
Trade, net of allowance for doubtful accounts of $362,097................. 817,076
Unbilled.................................................................. 1,833,930
Due from former shareholders................................................. 74,938
Miscellaneous receivables and deposits....................................... 176,398
Prepaid expenses and other current assets.................................... 364,846
------------
Total Current Assets........................................................... 3,559,822
Property and Equipment, Net.................................................... 593,568
Other Assets, Net.............................................................. 9,909
------------
$ 4,163,299
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft............................................................... $ 522,270
Current portion of financing arrangements.................................... 624,818
Accounts payable and accrued expenses........................................ 4,269,368
Payroll taxes payable........................................................ 2,702,957
Current portion of reserve for workers' compensation claims.................. 628,181
Income taxes payable......................................................... 22,228
Other current liabilities.................................................... 109,290
------------
Total Current Liabilities...................................................... 8,879,112
Long-Term Liabilities:
Financing arrangements, net of current portion............................... 43,764
Reserve for workers' compensation claims -- net of current portion........... 429,482
------------
Total Liabilities.............................................................. 9,352,358
------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Preferred stock -- 9% cumulative convertible $.01 par value -- 4,850 shares
authorized, issued and outstanding........................................ 49
Common stock -- $.01 par value, 11,111 shares authorized, 6,261 shares issued
and outstanding........................................................... 63
Additional paid-in capital................................................... 4,934,989
Accumulated deficit.......................................................... (10,124,160)
------------
Total Stockholders' Equity (Deficit)........................................... (5,189,059)
------------
$ 4,163,299
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-57
<PAGE> 122

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ONE MONTH PERIOD ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
Revenues......................................................................... $7,823,722
Payroll and Payroll Related Costs................................................ 7,514,248
----------
Gross Profit..................................................................... 309,474
----------
Operating Expenses:
Administrative personnel and payroll related costs............................. 169,515
General and administrative expenses............................................ 98,698
Sales and marketing expenses................................................... 98,584
Depreciation and amortization.................................................. 9,176
----------
Total Operating Expenses......................................................... 375,973
----------
(Loss) From Operations........................................................... (66,499)
----------
Other Expenses:
Interest and penalties......................................................... 273,229
Loss on disposal of fixed assets............................................... 12,000
----------
Total Other Expenses............................................................. 285,229
----------
(Loss) Before Provision for Income Taxes......................................... (351,728)
Provision for income taxes..................................................... 13,848
----------
Net (Loss)....................................................................... $ (365,576)
==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-58
<PAGE> 123

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE ONE MONTH PERIOD ENDED JANUARY 31, 1997

<TABLE>
<CAPTION>
SHARES ADDITIONAL
------------------ PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
PREFERRED COMMON ($.01 PAR VALUE) ($.01 PAR VALUE) CAPITAL DEFICIT
--------- ------ ---------------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ -- 6,261 $ -- $ 63 $ 85,038 $ (9,758,584)
Conversion of note
to preferred
stock........... 4,850 -- 49 -- 4,849,951 --
Net loss.......... -- -- -- -- -- (365,576)
----- ----- --- --- ---------- ------------
Balance at January
31, 1997........ 4,850 6,261 $ 49 $ 63 $4,934,989 $(10,124,160)
===== ===== === === ========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-59
<PAGE> 124

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ONE MONTH PERIOD ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows From Operating Activities:
Net loss....................................................................... $(365,576)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization............................................... 9,176
Loss on disposition of assets............................................... 12,000
Changes in assets and liabilities:
(Increase) in receivables................................................... (750,746)
(Increase) in prepaid expenses and other current assets..................... (48,343)
Increase in accounts payable and accrued expenses........................... 289,888
Increase in payroll taxes payable........................................... 740,860
Increase in other current liabilities....................................... 11,747
---------
Net cash (used in) operating activities................................ (100,994)
---------
Cash Flows From Investing Activities:
Additions to property and equipment............................................ (16,857)
Increase in other assets....................................................... (2,416)
---------
Net cash (used in) investing activities................................ (19,273)
---------
Cash Flows From Financing Activities:
Payments of financing arrangements............................................. (3,682)
Increase in former shareholders loans receivable............................... (62,138)
Increase in bank overdrafts.................................................... 187,921
---------
Net cash provided by financing activities.............................. 122,101
---------
Net Increase in Cash and Cash Equivalents........................................ 1,834
Cash and cash equivalents, beginning of period................................. 800
---------
Cash and Cash Equivalents, End of Period......................................... $ 2,634
=========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................... $ 7,600
Income taxes................................................................ --
Non-Cash Items:
On January 31, 1997, approximately $4,850,000 of debt was converted to
preferred stock.
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-60
<PAGE> 125

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE ONE MONTH PERIOD ENDED JANUARY 31, 1997

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) NATURE OF OPERATIONS:

The TPI Group, Ltd., "the Company," is a holding company which owns 100% of
the capital stock (see Principles of Consolidation below) of the following
corporations:

TPI Staffing, Inc., Queensbury, New York
Temporary Payroll Incentives, Inc., Queensbury, New York
TPI Payroll Processing Services, Inc., Queensbury, New York
Staffing Technologies, Inc., Queensbury, New York
Herotech, Inc., Queensbury, New York
Trans-Partnering Innovations, Inc., Boston, Massachusetts

The Company and its subsidiaries are primarily involved in providing
professional staffing, payroll and insurance benefit services to small and
medium sized companies in a variety of industries, including manufacturing,
retail and hospitality. The main office is located in Queensbury, New York with
satellite offices in several Atlantic Coast States.

The Company does not have a concentration of customers in any one industry;
however, during January 1997 a significant portion of the Company's revenues
were generated in New York.

(b) PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of The TPI
Group, Ltd. and its subsidiaries, TPI Staffing, Inc., Temporary Payroll
Incentives, Inc., TPI Payroll Processing Services, Inc., Staffing Technologies,
Inc., Herotech, Inc. and Trans-Partnering Innovations, Inc. All material
intercompany balances and transactions have been eliminated.

The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.

(d) CONCENTRATION OF CREDIT RISK:

The Company maintains the majority of its cash accounts in one commercial
bank. The total cash balances are secured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000.

(e) PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is provided on
straight-line or accelerated methods at rates based on the estimated useful
lives. Depreciation expense for the month ended January 31, 1997 was $9,036.

Expenditures for major renewals and betterments that extend the useful
lives of fixed assets are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

F-61
<PAGE> 126

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the asset is determined using the straight-line or accelerated methods. Expenses
associated with all other leases (operating leases) are charged to expense as
incurred.

(f) AMORTIZATION:

Organization costs are being amortized over a 60 month period. Amortization
expense for the month ended January 31, 1997 was $140.

(g) INCOME TAXES:

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable when the assets and liabilities are recovered or settled.

(h) CASH AND CASH EQUIVALENTS:

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.

(i) RESERVE FOR CLAIMS:

The Company's workers' compensation benefits and certain of its health care
benefits are provided under large deductible insured plans. The Company records
reserves for workers' compensation and health care claims costs based on
actuarial calculations using the Company's loss history of workers' compensation
and health care claims. In all cases regarding workers' compensation and health
care claims, reserves are established at the time a participant files a claim.
Furthermore, the Company, in determining its reserves, includes reserves for
estimated claims incurred but not reported.

At January 31, 1997, the Company has classified as current the estimated
amounts of reserves established for claims expected to be paid within one year.

The Company's estimates of its claims reserves, including its estimate of
incurred but not reported claims, are based primarily on its loss history. The
ultimate cost of heath care and workers' compensation claims will depend on
actual costs incurred in settling the claims and may differ from the amounts
reserved by the Company for those claims.

NOTE 2 -- CASH -- RESTRICTED:

Beginning in 1995, the Company placed $250,000 on deposit with a bank as
collateral for a letter of credit in favor of its workers' compensation
insurance carrier relating to the issuance of a worker's compensation insurance
policy.

During 1996, the Company placed $40,000 on deposit with a bank as
collateral for a letter of credit required on a general insurance bond.

F-62
<PAGE> 127

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- MISCELLANEOUS RECEIVABLES AND DEPOSITS:

At January 31, 1997, miscellaneous receivables and deposits consisted of
the following:

<TABLE>
<S> <C>
Deposits with insurance company required to fund possible
workers' compensation claims of prior years............. $152,396
Other miscellaneous receivables........................... 24,002
--------
$176,398
========
</TABLE>

NOTE 4 -- FIXED ASSETS:

Fixed assets consist of the following:

<TABLE>
<S> <C>
Leasehold improvements................................... $ 291,735
Furniture and equipment.................................. 503,845
Vehicles................................................. 71,942
Assets held under capital leases......................... 71,138
--------
938,660
Less: accumulated depreciation and amortization.......... (345,092)
--------
$ 593,568
========
</TABLE>

At January 31, 1997, land with an appraised value of $50,000 was
transferred to certain former shareholders in payment of compensation due them
at December 31, 1996.

NOTE 5 -- ACCRUED EXPENSES:

Included in accrued expenses as of January 31, 1997 is an accrual for
approximately $1,080,500 representing late payment penalties and interest due to
taxing authorities for late payment of withholding and unemployment taxes for
the fourth quarter of 1995, all four quarters of 1996 and the month of January
1997. These amounts, together with the corresponding tax liabilities have been
or are expected to be paid in 1997.

NOTE 6 -- FINANCING ARRANGEMENTS:

(a) NOTE PAYABLE -- DEMAND:

At January 31, 1997, the Company had a $600,000 demand note, payable to a
bank, at an interest rate of prime plus 1% per annum (9 1/4% at January 31,
1997). This note which was collateralized by letters of credit supplied to the
bank by certain former shareholders of the Company, was repaid in February 1997.

(b) OTHER NOTES PAYABLE:

<TABLE>
<S> <C>
Various notes, payable monthly, with interest rates ranging
from 6.99% to 10%, collateralized by certain equipment... $10,864
Note payable to a related party, payable with interest only
at rates from 9.5% to 10%, collateralized by a
mortgage................................................. 40,000
-------
Totals................................................... 50,864
Less: current portion.................................... 10,864
-------
Long-term portion........................................ $40,000
=======
</TABLE>

F-63
<PAGE> 128

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
----------------------------------------------------------- -------
<S> <C>
1997....................................................... $10,864
1998....................................................... --
1999....................................................... --
2000....................................................... --
Beyond..................................................... 40,000
-------
Total...................................................... $50,864
=======
</TABLE>

Capitalized lease obligations at January 31, 1997 consisted of the
following:

<TABLE>
<S> <C>
Leases collateralized by computer equipment with monthly payments
totaling $1,370 including interest at rates from 10.5% to
23.7%........................................................... $ 17,718
========
</TABLE>

Capitalized leased equipment consisted of the following:

<TABLE>
<S> <C>
Computer equipment................................................ $ 71,138
Less: accumulated depreciation.................................... (34,579)
--------
Total Book Value............................................. $ 36,559
========
</TABLE>

The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of January 31, 1997.

<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1997............................................................... $14,205
1998............................................................... 5,409
-------
Total minimum payments........................................ $19,614
=======
Total minimum payments............................................. $19,614
Less: amounts representing interest................................ 1,896
-------
Present value of net minimum lease payments........................ 17,718
Less: current portion.............................................. 13,954
-------
Long-term portion............................................. $3,764
=======
</TABLE>

NOTE 7 -- PROVISION FOR INCOME TAXES:

F-64
<PAGE> 129

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<S> <C>
Current:
Federal.................................................. $ --
States................................................... 13,848
-------
Total Current Taxes........................................ 13,848
-------
Net Operating Loss (NOL)
Carryforwards:
Federal.................................................. --
States................................................... --
-------
Total Tax Benefits......................................... --
-------
SubTotal................................................... 13,848
-------
Deferred:
Federal.................................................. --
States................................................... --
-------
Total Deferred Taxes....................................... --
-------
Total Income Tax........................................... $13,848
=======
</TABLE>

The tax effects of the temporary differences that give rise to deferred tax
assets, as of January 31, 1997, are as follows:

<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Net Operating Loss Carryforwards........................ $ 2,320,000
Less: valuation allowance............................... (2,320,000)
-----------
Net deferred tax assets................................. $ --
==========
</TABLE>

The Company has available at January 31, 1997, unused operating loss
carryforwards of approximately $5,800,000 which may be applied against future
taxable income expiring in various years beginning in 2005 through 2011. At an
assumed tax rate of 40%, these carryforwards may result in deferred tax assets
of approximately $2,320,000. Since there is no assurance that the Company will
generate future taxable income to utilize this asset, a 100% valuation allowance
has been provided as of January 31, 1997.

Effective January 31, 1997, a corporation purchased 100% of the outstanding
capital stock of the Company (see Note 12). According to I.R.C. Section 382, if
an ownership change of more than 50% a loss corporation occurs, the taxable
income of that loss corporation for any post-change tax year can be offset by
existing net operating loss carryforwards only to the extent of the fair market
value of the old loss corporations capital stock multiplied by the long-term
tax-exempt bond rate. On the date of the change in ownership the estimated
amount of net operating loss carryforwards that still exist is still to be
determined.

NOTE 8 -- LEASES:

The Company leases vehicles for two and three year terms under operating
leases. The Company also leases other equipment on an as-needed basis. Vehicle
and other equipment rental expense was $3,642 for the one month period ended
January 31, 1997.

F-65
<PAGE> 130

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule of future minimum rental payments required
under the above operating leases as of January 31, 1997.

The Company leases office space in various locations other than its main
office in Queensbury, New York (see Note 9c). Annual rentals aggregate
approximately $85,000.

NOTE 9 -- RELATED PARTY TRANSACTIONS:

(a) The following balances existed at January 31, 1997, as a result of
related party transactions between the Company, its former shareholders and
individuals related to the former shareholders of the Company:

<TABLE>
<CAPTION>
DESCRIPTION
----------------------------------------------------------
<S> <C>
Due from former shareholders.............................. $74,938
Long-term debt............................................ 40,000
Interest expense.......................................... 325
Rent expense.............................................. 2,866
</TABLE>

All the material details related to the balances and terms of the above
transactions are contained in other disclosures herein.

(b) The Company has guaranteed loans made by a financial institution
to four of its shareholders and an employee of the Company as detailed
below:

Two separate loans to four of its former shareholders which mature on
July 1, 2001 and June 1, 2008 and have a balance at January 31, 1997 of
$36,317 and $158,622, respectively

A loan made to one of the Company's employees maturing November 15,
2000 with a balance of $13,449 at January 31, 1997.

(c) In July 1993, the Company entered into a five year lease
agreement, aggregating approximately $35,000 per year, for office space in
Queensbury, New York in a building owned by the Company's former
shareholders. Prior to entering this agreement the Company leased the
office space on a month-to-month basis. Total rent expense paid for the
Queensbury office for the month ended January 31, 1997 was $2,866.

NOTE 10 -- PREFERRED STOCK:

On April 12, 1996, the Company received a loan from an investment
group/shareholder of $4,850,000. This note which bears interest at 10% per
annum, had a maturity date of April 12, 1997. As part of the note agreement, the
investment group had an option to convert the entire note balance including
interest into 4,850 shares of senior convertible cumulative 9% preferred stock,
at $.01 par value on or prior to December 31, 1996. The date of conversion of
the note was extended to the date of the sale of the Company (see Note 12) at
which point, the investment group exercised its option to convert its entire
note balance to preferred stock and waived any and all interest associated with
the note.

F-66
<PAGE> 131

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- CONTINGENCY:

The Company is a defendant in a lawsuit related to unlawful discharge from
employment and for intentional infliction of emotional distress. The plaintiff
seeks the sum of $10,000,000 for compensation and punitive damages. The
plaintiff is a former employee of a client of the Company who believes her
termination from employment was a violation of the "FMLA" Family and Medical
Leave Act. This case is in the preliminary stages of investigation, but
management believes that the lawsuit has no merit and it intends to vigorously
defend its position.

The Company is also involved in various other legal proceedings arising in
the ordinary course of business. It is the opinion of the Company's counsel that
the outcome of these actions are not expected to have a material adverse effect
on the Company's financial position or results of operations.

NOTE 12 -- SALE OF THE COMPANY:

On January 31, 1997, the shareholders of the Company sold all the
outstanding shares of capital stock of the Company to NovaCare Employee
Services, Inc., a subsidiary of NovaCare, Inc., a New York Stock Exchange
Company.

NOTE 13 -- EMPLOYMENT AGREEMENTS:

Effective as of January 31, 1997, the Company entered into employment
agreements with six key employees. The aggregate annual salaries of these six
employees is $535,000. These agreements have no specific expiration dates. As of
March 1, 1997, all six of the above employees have agreed to a 20% reduction in
their base salaries.

NOTE 14 -- JOINT VENTURE ARRANGEMENT:

A joint venture arrangement was established for the Connecticut and White
Plains offices. Effective November 1, 1995, the joint venture arrangement was
amended whereby the Company receives an amount equal to 2.5% of gross billings
of the two aforementioned offices. Management of these offices receives the
gross profit generated by these offices, reduced by the Company's above fee,
from which all overhead expenses will be paid. The amounts generated from this
joint venture for January 1997 were immaterial.

F-67
<PAGE> 132

INDEPENDENT AUDITORS' REPORT

To The Board of Directors
The TPI Group, Ltd.
Queensbury, New York

We have audited the accompanying consolidated balance sheets of The TPI
Group, Ltd. and subsidiaries as of December 31, 1996, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the management of The TPI Group, Ltd. Our responsibility is to
express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the financial position of The TPI
Group, Ltd. and subsidiaries as of December 31, 1996, 1995 and 1994 and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

LAZAR, LEVINE & COMPANY LLP

New York, New York
March 7, 1997

F-68
<PAGE> 133

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 4,164 $ 2,534 $ 800
Cash -- restricted................................ -- 340,000 290,000
Accounts Receivable:
Trade, net of allowance for doubtful accounts
of $8,606, $58,614 and $362,097,
respectively................................. 161,591 151,354 234,780
Unbilled....................................... 971,853 1,769,019 1,675,011
Factored....................................... -- 535,624 --
Due from shareholders............................. -- -- 12,800
Miscellaneous receivables and deposits............ 567,258 422,880 167,866
Prepaid expenses and other current assets......... 28,460 262,276 316,503
---------- ---------- ----------
Total Current Assets................................ 1,733,326 3,483,687 2,697,760
Property and Equipment, Net......................... 499,974 680,926 646,747
Other Assets, Net................................... 16,128 157,364 7,633
---------- ---------- ----------
Total assets........................................ $ 2,249,428 $ 4,321,977 $ 3,352,140
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft.................................... $ 265,265 $ 255,125 $ 334,349
Current portion of financing arrangements......... 438,867 1,732,892 627,182
Loans payable -- shareholders..................... 25,508 14,016 --
Accounts payable and accrued expenses............. 1,990,134 2,867,944 4,029,479
Payroll taxes payable............................. 1,437,798 3,553,657 1,962,097
Current portion of reserve for workers'
compensation claims............................ -- 202,333 628,181
Income taxes payable.............................. 4,399 4,560 8,380
Other current liabilities......................... 105,927 198,968 111,391
---------- ---------- ----------
Total Current Liabilities........................... 4,267,898 8,829,495 7,701,059
Long-Term Liabilities:
Financing arrangements -- net of current
portion........................................ 86,256 64,750 4,895,082
Reserve for workers' compensation claims -- net of
current portion................................ -- 294,806 429,482
---------- ---------- ----------
Total Liabilities................................... 4,354,154 9,189,051 13,025,623
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock -- $0.01 par value, 11,111 shares
authorized, 6,261 shares issued and outstanding
for 1996, 200 shares no par value authorized,
100 shares issued and outstanding for 1995 and
1994........................................... 85,101 85,101 63
Additional paid-in capital........................ -- -- 85,038
Accumulated deficit............................... (2,189,827) (4,952,175) (9,758,584)
---------- ---------- ----------
Total Stockholders' Equity (Deficit)................ (2,104,726) (4,867,074) (9,673,483)
---------- ---------- ----------
Total Liabilities and Stockholders' Equity
(Deficit)......................................... $ 2,249,428 $ 4,321,977 $ 3,352,140
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-69
<PAGE> 134

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................ $49,659,775 $72,067,276 $83,433,759
Payroll and Payroll Related Costs................... 48,720,337 70,355,295 81,812,101
----------- ----------- -----------
Gross Profit........................................ 939,438 1,711,981 1,621,658
----------- ----------- -----------
Operating Expenses:
Administrative personnel and payroll related
costs.......................................... 488,125 858,659 1,658,987
General and administrative expenses............... 1,119,425 1,467,824 1,777,698
Sales and marketing expenses...................... 475,629 674,233 866,526
Provision for doubtful accounts................... 38,833 71,755 487,121
Depreciation and amortization..................... 105,306 179,364 618,309
----------- ----------- -----------
Total Operating Expenses............................ 2,227,318 3,251,835 5,408,641
----------- ----------- -----------
(Loss) From Operations.............................. (1,287,880) (1,539,854) (3,786,983)
----------- ----------- -----------
Other Expenses:
Interest and penalties............................ 128,700 1,164,046 965,035
Other expenses, net............................... -- 54,721 40,543
----------- ----------- -----------
Total Other Expenses................................ 128,700 1,218,767 1,005,578
----------- ----------- -----------
(Loss) Before Provision for Income Taxes............ (1,416,580) (2,758,621) (4,792,561)
Provision for income taxes........................ 22,764 3,727 13,848
----------- ----------- -----------
Net (Loss).......................................... $(1,439,344) $(2,762,348) $(4,806,409)
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-70
<PAGE> 135

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
ADDITIONAL
SHARES/ COMMON PAID-IN ACCUMULATED
COMMON STOCK CAPITAL DEFICIT
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.................. 100 $ 85,101 $ -- $ (750,483)
Net loss.................................. -- -- -- (1,439,344)
------ ------- ------- -----------
Balance at December 31, 1994................ 100 85,101 -- (2,189,827)
Net loss.................................. -- -- -- (2,762,348)
------ ------- ------- -----------
Balance at December 31, 1995................ 100 85,101 -- (4,952,175)
Amendment of par value and exchange of
stock.................................. 6,161 (85,038) 85,038 --
Net loss.................................. -- -- -- (4,806,409)
------ ------- ------- -----------
Balance at December 31, 1996................ 6,261 $ 63 $ 85,038 $(9,758,584)
====== ======= ======= ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-71
<PAGE> 136

THE TPI GROUP, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows From Operating Activities:
Net loss.......................................... $(1,439,344) $(2,762,348) $(4,806,409)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization.................. 105,306 179,364 618,309
Provision for doubtful accounts................ 4,042 71,755 487,121
Deferred tax benefits.......................... 22,985 -- --
Cost of reserve for workers' compensation
claims....................................... -- 497,139 560,524
Loss on disposal of fixed assets............... -- -- 8,710
Changes in assets and liabilities:
(Increase) decrease in cash -- restricted...... -- (340,000) 50,000
(Increase) decrease in receivables............. (915,222) (1,394,308) 318,384
Decrease (increase) in prepaid expenses and
other current assets......................... 116,281 (233,816) (58,512)
Increase in accounts payable and accrued
expenses..................................... 788,498 877,810 1,161,535
Increase (decrease) in payroll taxes payable... 717,882 2,115,859 (1,591,560)
Increase (decrease) in other current
liabilities.................................. 36,201 93,202 (83,757)
----------- ----------- -----------
Net cash (used in) operating activities... (563,371) (895,343) (3,335,655)
----------- ----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment............... (63,389) (275,227) (95,688)
Increase in other assets, net..................... (11,291) (70,798) (336,289)
----------- ----------- -----------
Net cash (used in) investing activities... (74,680) (346,025) (431,977)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from financing arrangements.............. 469,000 1,619,370 5,450,000
Payments of financing arrangements................ (124,906) (358,000) (1,736,510)
Increase in shareholders loans receivable......... -- -- (12,800)
Increase (decrease) in shareholders' loans
payable........................................ 15,991 (11,492) (14,016)
Increase (decrease) in bank overdrafts............ 256,606 (10,140) 79,224
----------- ----------- -----------
Net cash provided by financing
activities.............................. 616,691 1,239,738 3,765,898
----------- ----------- -----------
Net (Decrease) in Cash and Cash Equivalents......... (21,360) (1,630) (1,734)
Cash and cash equivalents, beginning of year...... 25,524 4,164 2,534
----------- ----------- -----------
Cash and Cash Equivalents, End of Year.............. $ 4,164 $ 2,534 $ 800
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest.................................. $ 39,776 $ 293,821 $ 403,415
Income taxes.............................. 3,433 892 10,029
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-72
<PAGE> 137

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) NATURE OF OPERATIONS:

The TPI Group, Ltd., "the Company," is a holding company which owns 100% of
the capital stock (see Principles of Consolidation below) of the following
corporations:

TPI Staffing, Inc., Queensberry, New York
Temporary Payroll Incentives, Inc., Queensbury, New York
TPI Payroll Processing Services, Inc., Queensbury, New York
Staffing Technologies, Inc., Queensbury, New York
Herotech, Inc., Queensbury, New York
Trans-Partnering Innovations, Inc., Boston, Massachusetts

The Company does not have a concentration of customers in any one industry;
however, during 1994, 1995 and 1996 a significant portion of the Company's
revenues were generated in New York.

(b) PRINCIPLES OF CONSOLIDATION:

At all times since inception, there has been common ownership of the above
corporations amongst the existing shareholders of The TPI Group, Ltd. At January
1, 1995, the shareholders entered into an agreement whereby the individual
owners of the companies agreed to exchange their respective shares of capital
stock in these corporations for capital stock in The TPI Group, Ltd. As a result
of this agreement, The TPI Group, Ltd. became the sole stockholder and parent in
these corporations. Because the Companies are controlled by a common group of
shareholders, the transaction was accounted for as a combination of interests,
at historical cost, similar to a pooling of interests. This transaction has been
retroactively reflected as if it had taken place at the beginning of 1993 and
accordingly, consolidated financial statements have been prepared for each year.

Prior years' financial statements have been reclassified to conform with
current years' presentation.

F-73
<PAGE> 138

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) CONCENTRATION OF CREDIT RISK:

The Company maintains the majority of its cash accounts in one commercial
bank. The total cash balances are secured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000.

(e) PROPERTY AND EQUIPMENT:

Expenditures for major renewals and betterments that extend the useful
lives of fixed assets are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

Equipment operated under leases which transfer to the Company substantially
all benefits and risks associated with the assets are capitalized and an asset
and liability are recorded at the present value, or fair value if appropriate,
of minimum payments over the term of the lease. Amortization of the asset is
determined using the straight-line or accelerated methods. Expenses associated
with all other leases (operating leases) are charged to expense as incurred.

(f) AMORTIZATION:

Costs associated with the acquisition of a customer list have been
capitalized and are being amortized over a five year period on a straight-line
basis. At December 31, 1996 these costs were fully amortized.

Costs associated with the acquisition of a loan factoring agreement have
been capitalized and are being amortized on a straight-line basis over the life
of the agreement. The agreement was terminated on April 12, 1996 and all
remaining costs associated with the agreement were expensed (see Note 6).

The total amortization expenses for the years ended December 31, 1994, 1995
and 1996 were $13,286, $73,940 and $486,020, respectively.

(g) INCOME TAXES:

(h) CASH AND CASH EQUIVALENTS:

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.

(i) RESERVE FOR CLAIMS:

F-74
<PAGE> 139

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company, in determining its reserves, includes reserves for estimated claims
incurred but not reported.

At December 31, 1995 and 1996, the Company has classified as current the
estimated amounts of reserves established for claims expected to be paid within
one year.

NOTE 2 -- CASH -- RESTRICTED:

During 1996, the Company placed $40,000 on deposit with a bank as
collateral for a letter of credit required on a general insurance bond.

During 1995, the Company had an agreement with one of its clients whereby
the client kept $90,000 in a separate bank account, in the Company's name, as
collateral against its outstanding receivable. The Company reflected this amount
on its balance sheet as restricted cash and as a corresponding escrow liability.
During 1996, the $90,000 was no longer required to be maintained in a separate
account.

NOTE 3 -- MISCELLANEOUS RECEIVABLES AND DEPOSITS:

At December 31, 1996, miscellaneous receivables and deposits consisted of
the following:

<TABLE>
<CAPTION>
1996
--------
<S> <C>
Deposits with insurance company required to fund possible workers'
compensation claims of prior years.............................. $152,396
Other miscellaneous receivables................................... 15,470
--------
$167,866
========
</TABLE>

NOTE 4 -- FIXED ASSETS:

Fixed assets consist of the following:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Land.................................... $ 61,000 $ 61,000 $ 61,000
Leasehold improvements.................. 236,338 291,735 291,735
Furniture and equipment................. 158,513 391,360 486,988
Vehicles................................ 121,377 103,216 71,942
Assets held under capital leases........ 35,375 46,523 71,138
--------- --------- ---------
612,603 893,834 982,803
Less: accumulated depreciation and
amortization.......................... (112,629) (212,908) (336,056)
--------- --------- ---------
$ 499,974 $ 680,926 $ 646,747
========= ========= =========
</TABLE>

F-75
<PAGE> 140

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- ACCRUED EXPENSES:

Included in accrued expenses as of December 31, 1995 is an accrual for
$584,254 representing late payment penalties and interest due to the Internal
Revenue Service for late payment of federal withholding taxes for the quarters
ended September 30, and December 31, 1995.

Included in accrued expenses as of December 31, 1996 is an accrual for
$815,000 representing late payment penalties and interest due to the Internal
Revenue Service for late payment of federal withholding and unemployment taxes
for the fourth quarter of 1995 and all four quarters of 1996. These amounts,
together with the corresponding tax liabilities, have been or are expected to be
paid in 1997.

NOTE 6 -- FINANCING ARRANGEMENTS:

(a) NOTE PAYABLE -- DEMAND:

At December 31, 1994, the Company had a $100,000 demand note payable to a
bank, with an interest rate of 10.5% per annum. The note which was
collateralized by accounts receivable and contract rights, was repaid in
February 1995.

At December 31, 1996, the Company had a $600,000 demand note, payable to a
bank, at an interest rate of prime plus 1% per annum (9 1/4% at December 31,
1996). This note which was collateralized by letters of credit supplied to the
bank by certain shareholders of the Company, was repaid in February 1997.

(b) NOTE PAYABLE -- FACTORING AGREEMENT:

On October 4, 1995, the Company entered into a factoring agreement with
Reservoir Capital Corporation (RCC), whereby the Company sold to RCC selected
accounts receivable. RCC purchased from the Company 75% of the balance of the
selected receivables up to a maximum outstanding balance of $2,250,000. All cash
collected on these receivables was deposited daily into a bank account of RCC.
With the cash deposited into their account, RCC first reduced that portion of
the receivable which they purchased, next paid to itself a processing fee of 1%
of the total receivable plus interest at an annual rate of Wall Street prime
plus 5% of the outstanding receivable balance, and finally returned to the
Company the remaining portion of cash collected. This note was collateralized by
the accounts receivable of the Company.

At December 31, 1995, the outstanding balance of the RCC factoring
agreement was $1,630,519, and the related factored receivables were $2,174,025.
On April 12, 1996, the agreement with RCC was terminated and the loan was paid
in full.

F-76
<PAGE> 141

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Various notes payable monthly with interest rates
ranging from 6.99% to 10%, collateralized by
certain equipment................................. $ 80,475 $ 46,160 $12,590
Note payable to a related party, payable with
interest only at rates from 9.5% to 10%,
collateralized by a mortgage...................... 40,000 40,000 40,000
Note payable -- bank, guaranteed by a related party,
payable in monthly principal installments of
$20,000 plus interest at the prime rate published
by the Wall Street Journal plus 2% per annum
maturing February, 1996........................... 274,729 69,000 --
------- -------- --------
Totals............................................ 395,204 155,160 52,590
Less: current portion............................. 308,948 95,655 12,590
------- -------- --------
Long-term portion................................. $ 86,256 $ 59,505 $40,000
======= ======== ========
</TABLE>

Maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
----------------------------------------------------------- -------
<S> <C>
1997....................................................... $12,590
1998....................................................... --
1999....................................................... --
2000....................................................... --
Beyond..................................................... 40,000
-------
Total................................................. $52,590
=======
</TABLE>

(d) CAPITALIZED LEASE OBLIGATIONS:

Capitalized lease obligations at December 31, 1994, 1995 and 1996 consisted
of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Leases collateralized by computer equipment with monthly
payments totaling $1,370 including interest at rates of
10.5% to 23.7%. The leases began to expire in November
1995...................................................... $29,919 $ 11,963 $ 19,674
======== ======== ========
Capitalized leased equipment consisted of the following:
Computer equipment.......................................... $35,375 $ 46,523 $ 71,138
Less: accumulated depreciation.............................. (9,905) (20,625) (33,651)
-------- -------- --------
Total Book Value.................................. $25,470 $ 25,898 $ 37,487
======== ======== ========
</TABLE>

F-77
<PAGE> 142

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1996.

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------------------------------------------- -------
<S> <C>
1997....................................................................... $16,191
1998....................................................................... 5,409
-------
Total minimum payments........................................... $21,600
=======
Total minimum payments..................................................... $21,600
Less: amounts representing interest........................................ 1,926
-------
Present value of net minimum lease payments................................ 19,674
Less: current portion...................................................... 14,592
-------
Long-term portion................................................ $5,082
=======
</TABLE>

(e) NOTE PAYABLE -- INVESTMENT GROUP/SHAREHOLDER:

On April 12, 1996, the Company received a loan from an investment
group/shareholder of $4,850,000. This note bears interest at 10% per annum, and
matures on April 12, 1997. As part of the note agreement, the investment group
could convert the entire note balance including interest into 4,850 shares of
senior convertible cumulative 9% preferred stock, at $.01 par value on or prior
to December 31, 1996. (Extended to the date of sale of the Company -- see Note
13b).

NOTE 7 -- PROVISION FOR INCOME TAXES:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Current:
Federal...................................... $ -- $ -- $ --
States....................................... 4,135 3,727 13,848
------- ------ -------
Total Current Taxes............................ 4,135 3,727 13,848
------- ------ -------
Net Operating Loss (NOL) Carryforwards:
Federal...................................... (2,839) -- --
States....................................... (1,507) -- --
------- ------ -------
Total Tax Benefits............................. (4,346) -- --
------- ------ -------
SubTotal....................................... (211) 3,727 13,848
------- ------ -------
Deferred:
Federal...................................... 15,014 -- --
States....................................... 7,961 -- --
------- ------ -------
Total Deferred Taxes........................... 22,975 -- --
------- ------ -------
Total Income Tax............................... $22,764 $3,727 $13,848
======= ====== =======
</TABLE>

The tax effects of the temporary differences that give rise to deferred tax
assets, as of December 31, 1994, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Net Operating Loss Carryforwards..... $ 310,000 $ 1,244,000 $ 2,290,000
Less: valuation allowance............ (310,000) (1,244,000) (2,290,000)
------------ ------------ ------------
Net deferred tax assets.............. $ -- $ -- $ --
============ ============ ============
</TABLE>

F-78
<PAGE> 143

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has available at December 31, 1994, 1995 and 1996 unused
operating loss carryforwards of approximately $777,000, $3,111,000 and
$5,725,000, respectively, which may be applied against future taxable income
expiring in various years beginning in 2005 through 2011. At an assumed tax rate
of 40%, these carryforwards may result in deferred tax assets of approximately
$310,000, $1,244,000 and $2,290,000, respectively. Since there is no assurance
that the Company will generate future taxable income to utilize this asset, a
100% valuation allowance has been provided as of December 31, 1994, 1995 and
1996.

Subsequent to the balance sheet date, a corporation purchased 100% of the
outstanding stock of the Company (see Note 13). According to I.R.C. Section 382,
if an ownership change of more than 50% of a loss corporation occurs, the
taxable income of that loss corporation for any post-change tax year can be
offset by existing net operating loss carryforwards only to the extent of the
fair market value of the old loss corporations capital stock multiplied by the
long-term tax exempt bond rate. On the date of the change in ownership the
estimated amount of net operating loss carryforwards that still exist is still
to be determined.

NOTE 8 -- LEASES:

Beginning in 1994, the Company leased several vehicles for two and three
year terms under operating leases. The Company also leases other equipment on an
as-needed basis. Vehicle and other equipment rental expense was $14,288, $55,338
and $71,864 for the years ended December 31, 1994, 1995 and 1996, respectively.

The following is a schedule of future minimum rental payments required
under the above operating leases as of December 31, 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
<S> <C>
1997...................................................... $ 58,356
1998...................................................... 31,410
1999...................................................... 11,748
2000...................................................... 11,748
2001...................................................... 1,124
--------
$114,386
========
</TABLE>

The Company leases office space in various locations other than its main
office in Queensbury, New York (see Note 10c). Annual rentals aggregate
approximately $85,000.

NOTE 9 -- JOINT VENTURE ARRANGEMENT:

A joint venture arrangement has been established for the Connecticut and
White Plains offices. Management personnel of these offices agreed to reimburse
the Company for the excess of expenses over revenue from the date that those
offices were opened in 1994 through December 31, 1995. The total expense
reimbursement for 1995 was $66,128 which was reflected in other receivables.

Effective November 1, 1995 and throughout 1996, this joint venture
arrangement has been amended whereby the Company is to receive an amount equal
to 2.5% of gross billings of the two aforementioned offices. Management of these
offices is to receive the gross profit generated by these offices, reduced by
the Company's above fee, from which all overhead expenses will be paid.

F-79
<PAGE> 144

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- RELATED PARTY TRANSACTIONS:

(a) The following balances existed at December 31, 1994, 1995 and
1996, as a result of related party transactions between the Company, its
shareholders and individuals related to the shareholders of the Company:

<TABLE>
<CAPTION>
DESCRIPTION 1994 1995 1996
-------------------------------------------- ------- ------- ----------
<S> <C> <C> <C>
Due from shareholders....................... $ -- $ -- $ 12,800
Loans payable, shareholders................. 25,508 14,016 4,850,000
Long-term debt.............................. 40,000 40,000 40,000
Interest expense............................ 3,900 3,900 4,665
Rent expense................................ 36,755 33,427 35,061
</TABLE>

All the material details related to the balances and terms of the above
transactions are contained in other disclosures herein.

(b) The Company has guaranteed loans made by a financial institution
to four of its shareholders and an employee of the Company as detailed
below:

Two separate loans to four of its shareholders which mature on July 1, 2001
and June 1, 2008 and have a balance as of December 31, 1996 of $36,317 and
$158,622, respectively.

A loan made to one of the Company's employees maturing November 15, 2000
with a balance of $13,692 at December 31, 1996.

(c) In July 1993, the Company entered into a five year lease
agreement, aggregating approximately $35,000 per year, for office space in
Queensbury, New York, in a building owned by the Company's shareholders.
Prior to entering this agreement the Company leased the office space on a
month-to-month basis. Total rent expense paid for the Queensbury office for
the years ended December 31, 1994, 1995 and 1996 was $36,755, $33,427 and
$35,061, respectively.

NOTE 11 -- CAPITAL STOCK:

In April 1996 the Company amended its Certificate of Incorporation to
increase the authorized shares of capital stock from 200 shares of common stock
without par value to (i) 11,111 shares of common stock at $.01 par value and
(ii) 4,850 shares of senior convertible cumulative 9% preferred stock at $.01
par value.

The Company also issued 6,261 shares of its $.01 par value common stock in
exchange for the 200 shares of no par value stock outstanding.

None of the shares of preferred stock are issued and outstanding as of
December 31, 1996 (see Note 13b).

NOTE 12 -- CONTINGENCY:

F-80
<PAGE> 145

THE TPI GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- SUBSEQUENT EVENTS:

(a) SALE OF THE COMPANY:

(b) NOTE PAYABLE/PREFERRED STOCK:

In conjunction with the above mentioned sale, the investment group (see
Note 6e) exercised its option to convert its entire note balance to preferred
stock and waived any and all interest associated with the note.

(c) Effective as of January 31, 1997, the Company entered into employment
agreements with six key employees. The aggregate annual salaries of these six
employees is $535,000. These agreements have no specific expiration dates. As of
March 1, 1997, all six of the above employees have agreed to a 20% reduction in
their base salaries.

F-81
<PAGE> 146

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Prostaff Human Resources, Inc.
Bradenton, Florida

We have audited the accompanying balance sheet of Prostaff Human Resources,
Inc., as of January 31, 1997, and the related statements of operations, changes
in shareholder's equity and cash flows for the month then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prostaff Human Resources,
Inc., as of January 31, 1997, and the results of its operations and cash flows
for the month then ended in conformity with generally accepted accounting
principles.

Varnadore, Tyler, Hoffner, King, Hawthorne, Hammer, & Stathis, P.A.

Bradenton, FL
March 27, 1997, except for Notes 2 and 6,
as to which the date is April 7, 1997

F-82
<PAGE> 147

PROSTAFF HUMAN RESOURCES, INC.

BALANCE SHEET
JANUARY 31, 1997

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 53,861
Accounts receivable:
Trade, net of allowance for doubtful accounts of $-0-....................... 17,250
Unbilled.................................................................... 104,130
Notes receivable -- stockholder................................................ 60,000
Other current assets........................................................... 6,433
---------
Total current assets................................................... 241,674
Total property and equipment, net................................................ 27,035
---------
$ 268,709
=========

LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of financing arrangements...................................... $ 4,073
Accounts payable............................................................... 124,287
Accrued salaries............................................................... 88,922
---------
Total current liabilities.............................................. 217,282
Commitments and contingencies.................................................... --
Financing arrangements, net of current portion................................... 9,211
---------
Total liabilities................................................................ 226,493
Shareholder's Equity
Common stock -- $1 par value; authorized 100 shares............................ 10
Additional paid-in capital..................................................... 198,694
Accumulated deficit............................................................ (156,488)
---------
Total shareholder's equity............................................. 42,216
---------
$ 268,709
=========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-83
<PAGE> 148

PROSTAFF HUMAN RESOURCES, INC.

STATEMENT OF OPERATIONS
MONTH ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
Revenues...................................................................... $588,425
Direct Costs:
Salaries, wages and employment taxes of worksite employees.................. 532,777
Workers' compensation....................................................... 35,030
--------
Total direct costs.................................................. 567,807
--------
Gross profit........................................................ 20,618
Operating Expenses:
Administrative personnel.................................................... 19,642
Other general and administrative............................................ 6,705
Depreciation and amortization............................................... 584
--------
Total operating expenses............................................ 26,931
--------
Net loss from employee leasing...................................... (6,313)
Interest income, net.......................................................... 203
--------
Net loss................................................................. $ (6,110)
========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-84
<PAGE> 149

PROSTAFF HUMAN RESOURCES, INC.

STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
MONTH ENDED JANUARY 31, 1997

<TABLE>
<CAPTION>
COMMON ADDITIONAL
SHARES/ STOCK PAID-IN ACCUMULATED
COMMON ($1 PAR VALUE) CAPITAL DEFICIT
------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............ 10 $ 10 $203,694 $(150,378)
Capital distributions................... -- -- (5,000) --
Net loss................................ -- -- -- (6,110)
--
--- -------- ---------
Balance at January 31, 1997............. 10 $ 10 $198,694 $(156,488)
== === ======== =========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-85
<PAGE> 150

PROSTAFF HUMAN RESOURCES, INC.

STATEMENT OF CASH FLOWS
MONTH ENDED JANUARY 31, 1997

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................... $ (6,110)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation............................................................. 585
Changes in assets and liabilities
Accounts receivable.................................................... 134,769
Other current assets................................................... (296)
Accounts payable....................................................... (5,280)
Accrued salaries....................................................... (137,948)
---------
Net cash used by operating activities............................... (14,280)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term note payable and capital lease obligation............. (565)
Distributions from additional paid-in capital............................... (5,000)
---------
Net cash flows used in financing activities............................ (5,565)
---------
Net decrease in cash................................................... (19,845)
Cash and cash equivalents, beginning of year.................................. 73,706
---------
Cash and cash equivalents, end of year........................................ $ 53,861
=========
SUPPLEMENTAL DISCLOSURES:
Cash paid during month for:
Interest................................................................. $ 247
=========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of these
statements.

F-86
<PAGE> 151

PROSTAFF HUMAN RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Nature of Operation: Prostaff Human Resources, Inc. (Prostaff) is a
professional employer organization engaged in providing human resource
administration and risk management services to small and medium sized clients
located in Florida. Professional employer organizations are regulated by the
State of Florida and are required to satisfy certain licensing requirements.

Prostaff was incorporated in Florida in 1992 but was inactive until July
31, 1995.

Cash and Cash Equivalents: Prostaff considers all short-term debt
securities purchased with a maturity of three months or less to be cash
equivalents.

Revenues: Revenues and the related cost of wages, salaries, and employment
taxes from professional employer services are recognized in the period in which
the employee performs the services. Revenues earned but not billed are reported
as accrued revenue.

Accounts Receivable: Management believes that all accounts receivable at
January 31, 1997 were fully collectible. Therefore, no allowance for doubtful
accounts was recorded.

Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided using the straight-line basis over the estimated useful
lives of the assets.

Income Taxes: Prostaff has elected to be taxed as an S corporation under
the provisions of the Internal Revenue Code. Under those provisions, the sole
stockholder is liable for individual federal income taxes based on Prostaff's
taxable income. Therefore, no provision or liability for federal income taxes
has been included in these financial statements.

2. RELATED PARTY TRANSACTIONS

Since inception, the President and sole shareholder of Prostaff contributed
$203,694 to additional paid-in-capital. Of the amount, $60,000 was in the form
of notes payable to Prostaff. The notes are payable on demand and bear interest
at 9%. The notes were repaid on April 7, 1997. During 1997, a distribution of
$5,000 was made and charged against additional paid-in-capital.

3. PROPERTY AND EQUIPMENT

Property and equipment at January 31, 1997, consists of the following:

<TABLE>
<S> <C>
Furniture and fixtures..................................... $15,440
Computer equipment......................................... 20,473
-------
35,913
Less, accumulated depreciation............................. 8,878
-------
$27,035
=======
</TABLE>

F-87
<PAGE> 152

PROSTAFF HUMAN RESOURCES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. FINANCING ARRANGEMENTS

Financing arrangements at January 31, 1997 consists of:

<TABLE>
<S> <C>
Notes payable to finance companies repayable in monthly
installments ranging from $159 to $163, including interest from 18%
to 21% per annum, collateralized by computer software and
equipment.......................................................... $ 6,073
Capital lease obligation for office equipment payable in
monthly installment of $229 through February, 2001. Interest
inputed at 22%..................................................... 7,211
-------
13,284
Less: current portion.............................................. (4,073)
-------
$ 9,211
=======
</TABLE>

Scheduled maturities of financing arrangements are summarized as follows:

5. SUBSEQUENT EVENT

In February, 1997, the business and net operating assets of Prostaff was
sold to NovaCare Employee Services, Inc. (a subsidiary of NovaCare, Inc.).

In April, 1997, the president repaid $60,000 in notes to the company (see
Note 2).

F-88
<PAGE> 153
NOVACARE EMPLOYEE SERVICES VALUES

We believe that the most important and differentiating quality of outstanding
organizations is a set of values that inspires, unites and sustains them. Values
are constant and enduring and precede business plans, policies, procedures,
practices, performance and outcomes. The Company's values are:

CREDO: Helping Make Life a Little Better

PURPOSE: To be the brand, service and performance leader in the PEO
industry by creating a more satisfying, more productive
relationship between employers and employees

BELIEFS: Respect for the Individual
Service to the Customer
Pursuit of Excellence
Commitment to Personal Integrity

Our values are the basis on which we build our business, our careers and our
reputation. It is our belief that a strong commitment to these values and a
philosophy of "caring for and about people" will enable us to provide a level
of service that will build the businesses of our clients and enhance the
careers of our employees.

[NOVACARE PHOTO OF INDIVIDUALS]

[NOVACARE EMPLOYEE SERVICES LOGO]
<PAGE> 154

[NOVACARE LOGO]
<PAGE> 155

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions.

<TABLE>
<S> <C>
S.E.C. registration fee*........................................... $ 20,387
NASD filing fee*................................................... 7,228
NASDAQ -- NMS application fee...................................... **
Accounting fees and expenses....................................... **
Legal fees and expenses............................................ **
Printing and engraving expenses.................................... **
Blue sky fees and expenses......................................... **
Transfer agent fees................................................ **
Miscellaneous expenses............................................. **
---
Total.................................................... $ **
===
</TABLE>

- ---------------
* Actual fee

** To be supplied by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article Eleventh of the Certificate of Incorporation of the Company
contains a provision which eliminates the personal liability of a director of
the Company to the Company or to any of its stockholders for monetary damages
for a breach of his fiduciary duty as a director, except in the case in which
the director breached his duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or knowingly violated a law, authorized the payment of
a dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law, or obtained an improper personal benefit.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters and
their respective controlling persons on the other hand against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Information concerning the sale of the Company's securities is set forth
below:

On September 18, 1996, in connection with the Company's initial
capitalization, a Subsidiary of the Parent purchased 4,000,000 shares of Common
Stock for $40,000.

On January 10, 1997, Bernard C. Byrd, Jr., Senior Vice President of
Operations of the Company, purchased 30,000 shares of Common Stock for $84,000.

II-1
<PAGE> 156

On February 17, 1997, Loren J. Hulber, President and Chief Executive
Officer of the Company, purchased 375,000 shares of Common Stock for $720,000.

On May 1, 1997, Andrew W. Stith, Senior Vice President of Sales and
Marketing of the Company, purchased 5,000 shares of Common Stock for $14,000.

On May 1, 1997, James W. McLane, President of the Parent, purchased 10,000
shares of Common Stock for $28,000.

On May 15, 1997, Bernard Clinton Byrd, Jr., Senior Vice President of
Operations of the Company, purchased 22,500 shares of Common Stock for $63,000.

On May 15, 1997, William E. Mayville purchased 18,750 shares of Common
Stock for $52,500.

On June 10, 1997, Thomas R. Schubert, Senior Vice President and Chief
Financial Officer of the Company, purchased 10,000 shares of Common Stock for
$28,000.

Information concerning the issuance of the Company's securities in
connection with acquisitions is set forth below:

On October 8, 1996, the Company issued 93,750 shares of Common Stock to
Bernard Clinton Byrd, Jr. and 93,750 shares of Common Stock to William E.
Mayville in connection with the acquisition of Resource One.

On February 7, 1997, the Company issued 10,319 shares of Common Stock to
Deborah M. Skinner, 9,268 shares of Common Stock to John Skinner, III, 297
shares of Common Stock to Jerry DeLong, 9,803 shares of Common Stock to Malvern
and Carolyn Tippett, and 125,000 shares of Common Stock to Quansoo-TPI L.L.C. in
connection with the acquisition of TPI.

On February 27, 1997, the Company issued 9,485 shares of Common Stock to
Edward A. Chiles and Anne H. Chiles, 13,213 shares of Common Stock to James E.
Boyd, 4,793 shares of Common Stock to James E. Boyd and Sandra Boyd, 13,780
shares of Common Stock to Lawton Chiles, 6,483 shares of Common Stock to Milton
S. May and Brenda B. May, 77,105 shares of Common Stock to Suzan F. Boyd, 13,780
shares of Common Stock to Rhea G. Chiles, 53,842 shares of Common Stock to
Valerie Boyd, 141,041 shares of Common Stock to Valerie Boyd, as Trustee of the
Fay T. Boyd 5-year Grantor Retained Annuity Trust, 28,265 shares to Valerie Boyd
as Trustee of the Wilbur H. Boyd 2-year Grantor Retained Annuity Trust and
13,213 shares of Common Stock to Wayne R. Lynn in connection with the
acquisition of ESA.

On February 28, 1997, 2,200,000 shares of Common Stock were issued to a
subsidiary of the Parent in consideration for the Company's licensing of the
Parent's trademarks.

On April 21, 1997, the Company issued 1,107 shares of Common Stock to
Edward G. Chiles and Anne H. Chiles, 1,541 shares of Common Stock to James E.
Boyd, 559 shares of Common Stock to James E. Boyd and Sandra Boyd, 1,608 shares
of Common Stock to Lawton Chiles, 757 shares of Common Stock to Milton S. May
and Brenda B. May, 1,608 shares of Common Stock to Rhea G. Chiles, 8,995 shares
of Common Stock to Suzan F. Boyd, 6,281 shares of Common Stock to Valerie Boyd,
3,298 shares of Common Stock to Valerie Boyd, as Trustee of the Wilbur H. Boyd
2-year Grantor Retained Annuity Trust, 16,455 shares of Common Stock to Valerie
Boyd, as Trustee of the Fay J. Boyd 5-year Grantor Retained Annuity Trust and
1,541 shares of Common Stock to Wayne R. Lynn in connection with a contingent
payment made in connection with the acquisition of ESA.

On May 15, 1997, 11,000 shares of Common Stock were issued to ProStaff
Human Resources, Inc. ("ProStaff") in connection with a contingent payment made
in connection with the acquisition of certain assets of ProStaff.

On July 1, 1997, 1,200,000 shares of Common Stock were issued to a
subsidiary of the Parent in connection with the Company's acquisition of certain
assets of NovaPro.

II-2
<PAGE> 157

Registration under the Securities Act of the securities issued in the
transactions described herein and in the Prospectus was not required because
such securities were issued in transactions not involving any "public offering"
within the meaning of Section 4(2) of said Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The Exhibits required to be filed as part of this Registration Statement
are listed in the attached Index to Exhibits.

(b) Financial Statement Schedules:

The Financial Statement Schedule (VIII -- Valuation and Qualifying
Accounts) required to be filed as part of this Registration Statement is
included as page S-1. All other schedules have been omitted because they are
inapplicable or the information is provided in the Financial Statements,
including the Notes thereto, included in the Prospectus.

ITEM 17. UNDERTAKING

The Registrant hereby undertakes with respect to shares allocated to cover
over-allotments by the Underwriters to deregister any shares remaining unsold
upon the completion of the Offering by means of a post-effective amendment to
the Registration Statement.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of its
Certificate of Incorporation or By-laws or the laws of the State of Delaware, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE> 158

POWER OF ATTORNEY

The Registrant and each person whose signature appears below hereby
appoints Arthur T. Locilento, Jr. and Loren J. Hulber as attorneys-in-fact with
full power of substitution, severally, to execute in the name and on behalf of
the issuer and each such person, individually, and in each capacity stated
below, one or more amendments (including posteffective amendments) to the
registration statement as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the Registration Statement with
the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norristown, Commonwealth
of Pennsylvania on the 5th day of September, 1997.

NOVACARE EMPLOYEE SERVICES, INC.

By /s/ LOREN J. HULBER
------------------------------------
(Loren J. Hulber,
President and Chief Executive
Officer)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- -------------------------------------- -----------------
<C> <S> <C>

/s/ LOREN J. HULBER President and Chief Executive Officer September 5, 1997
- ----------------------------------- and Director
(Loren J. Hulber)

/s/ THOMAS D. SCHUBERT Senior Vice President, Chief Financial September 5, 1997
- ----------------------------------- Officer and Principal Accounting
(Thomas D. Schubert) Officer

/s/ E. MARTIN GIBSON Director September 5, 1997
- -----------------------------------
(E. Martin Gibson)

/s/ HARVEY V. FINEBERG, M.D. Director September 5, 1997
- -----------------------------------
(Harvey V. Fineberg, M.D.)

/s/ JOHN H. FOSTER Director September 5, 1997
- -----------------------------------
(John H. Foster)

/s/ TIMOTHY E. FOSTER Director September 5, 1997
- -----------------------------------
(Timothy E. Foster)

/s/ STEPHEN E. O'NEIL Director September 5, 1997
- -----------------------------------
(Stephen E. O'Neil)
</TABLE>

II-4
<PAGE> 159

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- ------
<S> <C> <C>
1* Form of Underwriting Agreement
2(a) Stock Purchase Agreement dated September 16, 1996 by and among Resource
One, Inc., Professional Insurance Planners of Florida, Inc., Human Resource
One, Inc., Rx One, Inc., William E. Mayville, Bernard Clinton Byrd, Jr. and
NovaResource, Inc.
2(b) Amendment dated April 8, 1997 to the stock purchase agreement dated as of
September 16, 1996 by and among Resource One, Inc., Professional Insurance
Planners of Florida, Inc., Human Resource One, Inc., Rx One, Inc., William
E. Mayville, Bernard Clinton Byrd, Jr. and NovaSource, Inc.
2(c) Stock Purchase Agreement dated January 24, 1997 by and among Employee
Services of America, Inc., Employee Services of Florida, Inc., Employers
Risk Management, Inc., Employee Benefits Management, Inc., Employers
Diversified Services, Inc., and Nova Resource, Inc.
2(d) Stock Purchase Agreement dated January 31, 1997 by and among The TPI Group,
LTD., Deborah M. Skinner, John Skinner III, Malvern Tippett, Carolyn
Tippett, Terry DeLong, Quansoo-TPI L.L.C. and NovaSource, Inc.
3(a) Certificate of Incorporation of the Company
3(b) By-laws of the Company, as amended to date
4(a) Stock Option Plan
5* Opinion and Consent of Haythe & Curley, counsel to the Company, as to the
legality securities being registered
10(a) Employment Agreement dated as of January 27, 1997 between the Company and
Loren J. Hulber
10(b) Stock Purchase Agreement dated as of February 10, 1997 between the Company
and Loren J. Hulber
10(c) Employment Agreement dated as of May 7, 1997 between the Company and Thomas
D. Schubert.
10(d) Stock Purchase Agreement dated as of June 10, 1997 between the Company and
Thomas D. Schubert.
10(e) Employment Agreement dated as of October 8, 1996 between the Company and
Bernard C. Byrd, Jr.
10(f) Amendment dated as of April 8, 1997 to the employment agreement dated
October 8, 1996 between the Company and Bernard C. Byrd, Jr.
10(g) Stock Purchase Agreement dated as of February 28, 1997 between the Company
and Bernard C. Byrd, Jr.
10(h)* Employment Agreement dated as of April 23, 1997 between the Company and
Andrew Stith.
10(i)* Stock Purchase Agreement dated as of April 23, 1997 between the Company and
Andrew Stith.
10(j) Employment Agreement dated as of February 6, 1997 between the Company and
Deborah M. Skinner.
10(k) Employment Agreement dated as of February 27, 1997 between the Company and
James Boyd.
10(l) Employment Agreement dated as of June 18, 1997 between the Company and
Christina Harris.
10(m) Agreement dated as of January 25, 1997 between NovaCare, Inc. and NovaCare
Employee Services, Inc.
10(n)* Agreement dated as of January 25, 1997 between NovaCare, Inc. and NovaCare
Employee Services, Inc.
10(o) Trademark Agreement dated as of February 28, 1997 between the Company and
NovaMark, Inc.
10(p) Loan Agreement dated as of September 18, 1996 between the Company and
NovaCare, Inc.
</TABLE>
<PAGE> 160

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- ------
<S> <C> <C>
10(q) Sublease Agreement dated as of June 4, 1997 between the Company and
NovaCare, Inc.
10(r) Supplemental Benefits Plan.
11 Statement re computation of unaudited proforma and unaudited supplemental
pro forma information
21 Subsidiaries of the Company.
23(a) Consent of Price Waterhouse LLP, independent accountants to NovaCare
Employee Services, Inc.
23(b) Consent of Haythe & Curley (included in Exhibit 5).
23(c) Consent of Brewer, Beemer, Kuehnhackl & Koon, P.A., independent accountants
to Resource One, Inc.
23(d) Consent of Varnadore, Tyler, Hoffner, King, Hawthorne, Hammer, & Stathis,
P.A., independent accountants to Employee Services of America, Inc. and
subsidiaries and Employers' Risk Management, Inc. and Employee Benefits
Management, Inc.
23(e) Consent of Lazar, Levine & Company LLP, independent accountants to The TPI
Group, Ltd.
24 Power of Attorney (included on the Signature Page of the Registration
Statement)
27 Financial Data Schedule
</TABLE>

* To be filed by amendment.

<PAGE> 1

Exhibit 2(a)

AGREEMENT OF PURCHASE AND SALE

By and Among

RESOURCE ONE, INC.,

PROFESSIONAL INSURANCE PLANNERS OF FLORIDA, INC.,

HUMAN RESOURCE ONE, INC.,

RX ONE, INC.,

WILLIAM E. MAYVILLE,

BERNARD CLINTON BYRD, JR.

and

NOVARESOURCE, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>

SECTION PAGE

<S> <C>
I PURCHASE AND SALE OF THE SHARES ...................................

II REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
COMPANY AND THE SHAREHOLDERS ........................................................

III REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
SHAREHOLDERS ........................................................................

IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ...................

V CONDUCT OF THE BUSINESS ...........................................

VI ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY, THE SHAREHOLDERS AND THE PURCHASER .........................................

VII CLOSING ...........................................................

VIII CONDITIONS TO THE SHAREHOLDERS' OBLIGATION TO CLOSE ...............

IX CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE .................

X INDEMNIFICATION ...................................................

XI NON-COMPETITION AGREEMENT .........................................

XII BROKERS AND FINDERS ...............................................

XIII MISCELLANEOUS .....................................................
</TABLE>

SCHEDULES

I. CONSIDERATION
II. EARN-OUT PAYMENTS
III. ADDITIONAL PAYMENTS; EXAMPLES OF EARN-OUT COMPUTATIONS

EXHIBITS

A. CERTAIN CONSENTS, LIENS, CONTRACTS, PERMITS
AND OTHER MATTERS
B. FINANCIAL STATEMENTS
C. CERTAIN EMPLOYEES OF THE BUSINESS
D. EMPLOYEE BENEFIT PLANS
E. OPINION OF COUNSEL TO THE SHAREHOLDERS
F. FORM OF EMPLOYMENT AGREEMENT OF BERNARD CLINTON BYRD, JR.
G. FORM OF EMPLOYMENT AGREEMENT OF WILLIAM E. MAYVILLE
H. FORM OF STOCKHOLDERS AGREEMENT
I. OPINION OF COUNSEL TO THE PURCHASER
J. NOVACARE GUARANTY

<PAGE> 3

AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT dated as of the 16th day of September, 1996 by
and among Resource One, Inc. a Florida corporation ("Resource One"),
Professional Insurance Planners of Florida, Inc., a Florida corporation ("PIP"),
Human Resource One, Inc., a Florida corporation ("HR One"), Rx One, Inc., a
Florida corporation ("Rx One;" PIP, HR One and Rx One are collectively referred
to as the "Affiliates" or the "Subsidiaries"), William E. Mayville and Bernard
Clinton Byrd, Jr. (each, a "Shareholder" and collectively, the "Shareholders")
and NovaResource, Inc., a Delaware corporation (the "Purchaser").

W I T N E S S E T H:

WHEREAS, the Shareholders are the holders of an aggregate of
100,000 shares of common stock, $.01 par value (the "Common Stock"), of Resource
One, which shares constitute all of the issued and outstanding shares of capital
stock of Resource One (all such shares of Common Stock held by the Shareholders
being hereinafter referred to as the "Resource One Shares");

WHEREAS, each of HR One and PIP is a wholly owned subsidiary
of Resource One (Resource One, Rx One, HR One and PIP are collectively referred
to as the "Company");

WHEREAS, the Shareholders are the holders of an aggregate of
1,000,000 shares of common stock, $.01 par value (the "Rx One Common Stock"), of
Rx One, which shares constitute all of the issued and outstanding shares of
capital stock of Rx One (all such shares of Rx One Common Stock held by the
Shareholders being hereinafter referred to as the "Rx One Shares"; the Resource
One Shares and the Rx One Shares are collectively referred to as the "Shares");

WHEREAS, Resource One is engaged in the business, among other
things, of holding the capital stock of HR One and PIP and related activities
(such activities as conducted by Resource One on the date of the Closing (as
hereinafter defined) being hereinafter referred to as the "Resource One
Business");

WHEREAS, HR One is a professional employer organization and is
engaged in the business, among other things, of providing businesses with an
outsourcing solution to the costs related to employment and human resources and
related activities primarily in the States of Florida and California (such
activities as conducted by HR One on the date of the Closing being hereinafter
referred to as the "HR One Business");

WHEREAS, PIP is engaged in the business, among other things,
of acting as a third party administrator and related activities in the State of
Florida (such activities as conducted by PIP on the date of the Closing being
hereinafter referred to as the "PIP Business");

WHEREAS, Rx One is engaged in the business, among other
things, of providing drug cards for the employees of clients of the Affiliates
and other companies and related activities in the State of Florida (such
activities as conducted by Rx One on the date of the Closing being hereinafter
referred to as the "Rx One Business;" the Rx One Business, the PIP Business, the
HR One Business and the Resource Business are collectively referred to herein as
the "Business").
<PAGE> 4
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto hereby agree as follows:
<PAGE> 5
PURCHASE AND SALE OF THE SHARES

Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained:

(i) At the Closing, each of the Shareholders shall sell,
assign and convey to the Purchaser, and the Purchaser shall purchase, acquire
and accept from the Shareholders, the Shares.

A. Purchase Price. (i) The purchase price (the "Purchase Price") for
the Shares is (a) $2,000,000, in cash, payable at the Closing, (b) $2,000,000,
in cash, payable in accordance with subsection (iv) below (the "Additional
Cash"), (c) 187,500 shares (the "NovaResource Shares") of the common stock, $.01
par value (the "NovaResource Common Stock"), of the Purchaser, payable at the
Closing, and (d) the contingent payments, if any, provided for in Sections
I(B)(iii), I(C), I(D) and I(F) hereof (such payments, the "Earn-Out Payments").

( ) If prior to or on December 31, 1998, the NovaResource Common Stock has not
been (a) listed or admitted to trading on a national securities exchange at an
initial price per share for the NovaResource Common Stock of at least $8.00, (b)
listed on the National Market System of the National Association of Securities
Dealers at an initial price per share for the NovaResource Common Stock of at
least $8.00 or (c) traded in the NASDAQ SmallCap Market at an initial price per
share for the NovaResource Common Stock of at least $8.00, then on December 31,
1998, each of the Shareholders will have the right to require the Purchaser to
purchase all (but not less than all) of the NovaResource Shares owned by such
Shareholder (and all permitted transferees of such Shareholder). Such right to
require the Purchaser to purchase NovaResource Shares shall be exercised by
written notice to the Purchaser no later than January 31, 1999. No later than
sixty (60) days after receipt by the Purchaser of such notice, at such place and
time as shall be mutually agreed to by the Purchaser and a Shareholder who has
exercised his right to require that the Purchaser purchase his NovaResource
Shares, the exercising Shareholder (and all permitted transferees of such
Shareholder) shall deliver to the Purchaser the NovaResource Shares owned by
such Shareholder (and all permitted transferees of such Shareholder) in due and
proper form for transfer, against delivery by the Purchaser of a certified or
official bank check payable to the order of, or a wire transfer to an account
designated by, such Shareholder (and all permitted transferees of such
Shareholder) in the amount per NovaResource Share being sold by such Shareholder
(and all permitted transferees of such Shareholder) of the lesser of (A) $16 and
(B) the "Market Value" (as hereinafter defined) thereof. The agreements
contained in this clause (ii) shall be null and void and of no force and effect
with respect to a Shareholder (and all permitted transferees of such
Shareholder) if such Shareholder (or any permitted transferees of such
Shareholder) shall have disposed of any of his (or their) NovaResource Shares
prior to December 31, 1998 other than pursuant to Section 2(b) or 5 of the
Stockholders Agreement (as hereinafter defined). For purposes of this Agreement,
"Market Value" per share of NovaResource Common Stock (including the
NovaResource Shares) shall be determined as of the relevant date by mutual
agreement of the Purchaser and the Shareholders. In the event the Purchaser and
the Shareholders cannot agree on the Market Value, the parties shall mutually
agree on a big six accounting firm or investment bank to determine the Market
Value, which determination shall be final and binding. Notwithstanding anything
above to the contrary, no transferee of either of the Shareholders shall have
any rights under this subsection (ii) to require the Purchaser to acquire his
NovaResource Shares.

(i) In the event that (a) the NovaResource Common Stock has
not been (1) listed or admitted to trading on a national securities exchange at
an initial price per share for the NovaResource Common Stock of at least $8.00,
(2) listed on the National Market System of the National Association of
Securities Dealers at an initial price per share for the NovaResource Common
Stock of at least $8.00, or (3) traded in the NASDAQ SmallCap Market at an
initial price per share for the NovaResource Common Stock of at least $8.00, (b)
a Shareholder has tendered his NovaResource Shares pursuant to subsection (ii)
above, and (c) the Market Value per NovaResource Share is less than $16, then
the Purchaser shall deliver to such Shareholder (and any permitted transferee of
such Shareholder) at the same time as such payment is made for his NovaResource
Shares, an amount equal to the product of (x) the difference between (A) $16 and
(B) the Market Value per NovaResource Share multiplied by (y) the number of
NovaResource Shares tendered by such Shareholder (and any permitted transferee
of such Shareholder) pursuant to subsection (ii) above.
<PAGE> 6
(ii) The Additional Cash shall be paid by the Purchaser to the Shareholders on
the earlier of (a) thirty (30) days after the closing of an underwritten
offering of the NovaResource Common Stock to the public for cash or (b) December
31, 1997, by delivery to each of the Shareholders of a certified check payable
to, or a wire transfer to an account designated by, such Shareholder, in the
amount of the portion of the Additional Cash set forth opposite such
Shareholder's name on Schedule I hereto.

B. Earn-Out Payments. As additional payment for the Shares,
subject to the conditions set forth herein and in Schedule II hereto, within
forty-five (45) days after March 31, 1997, June 30, 1998 and March 31, 1999,
respectively (each, an "Earn-Out Date"), the Purchaser shall deliver to the
Shareholders (in the percentage amounts set forth in Schedule I hereto), the
Earn-Out Payments, if any, payable with respect to such Earn-Out Date. The
amount of the Earn-Out Payments payable to the Shareholders on each Earn-Out
Date shall be (i) based upon the achievement by the Company of targeted
"worksite employee numbers" (as hereinafter defined) and (ii) determined in
accordance with the provisions hereof and Schedule II hereto. Each of the
Earn-Out Payments, if earned, shall be made by delivery to the Shareholders of
(x) a certified or official bank check payable to the order of such Shareholder
and (y) a certificate representing shares of the NovaResource Common Stock,
registered in the name of such Shareholder, in each case, in such amounts of
cash and such numbers of shares as are determined in accordance with Schedules I
and II hereto.

C. Additional Payments; Shortfall. (i) In addition to the
consideration set forth in Section I(C) hereof, subject to the conditions set
forth herein and in Schedule III hereto, with respect to each of the Earn-Out
Dates of March 31, 1997, June 30, 1998 and March 31, 1999, respectively, if the
Company shall have achieved "worksite employee numbers" greater than the 1997
Target Amount, 1998 Target Amount and 1999 Target Amount (as each such terms are
defined in Schedule II hereto), respectively, the Purchaser shall deliver to the
Shareholders (in the percentage amounts set forth in Schedule I hereto), at the
same time the Earn-Out Payments set forth in Section I(C) hereof are made (and
only if such Earn-Out Payments are required to be made), as additional payment
for the Shares, the additional payments (the "Additional Payments") provided for
in Schedule III hereto. Each of the Additional Payments, if earned, shall be
made by delivery to the Shareholders of (i) a certified or official bank check
payable to the order of such Shareholder and (ii) a certificate representing
shares of NovaResource Common Stock registered in the name of such Shareholder,
in each case, in such amounts of cash and such number of shares as are
determined in accordance with Schedules I and III hereto.

( ) In the event that there shall be a "Shortfall" (as
hereinafter defined) with respect to the 1997 Target Amount or the 1998 Target
Amount, and the Company shall achieve worksite employee numbers on the next
succeeding Earn-Out Date (the "Excess Date") in excess of the applicable Target
Amount for the Excess Date (the "Excess Amount"), at the option of the
Shareholders, the Earn-Out Payments with respect to such Excess Date shall be
computed by adding (i) the amount of the Earn-Out Payments which would have been
payable pursuant to Section I(C) for the prior Earn-Out Date, in excess of that
actually paid, if the Company had worksite employee numbers equal to the
worksite employee numbers actually achieved in the prior period plus the Excess
Amount carried back, if any, which Excess Amount shall not exceed the Shortfall,
and (ii) the Earn-Out Payments, if any, which would be payable pursuant to
Section I(C) with respect to the Excess Date if the worksite employee numbers of
the Company with respect to the Excess Date were reduced by the Excess Amount
carried back. Such option shall be exercised by the Shareholders (acting
jointly) by delivering written notice to the Purchaser no later than ten (10)
days after the Shareholders are notified by the Purchaser of the worksite
employee numbers for such Excess Date. For purposes hereof, "Shortfall" shall
mean the amount by which the Company fails to achieve worksite employee numbers
at least equal to the 1997 Target Amount or the 1998 Target Amount, as the case
may be.

D. Computation of Worksite Employee Numbers; Certain
Adjustments. The Purchaser shall, within thirty (30) days after each Earn-Out
Date, compute the worksite employee numbers of the Company for each such
Earn-Out Date. The amount so computed shall be the worksite employee numbers for
purposes of determining whether or not Earn-Out Payments shall be due and
payable. For purposes of this Agreement, "worksite employee numbers" shall mean
the number of persons paid as employees of all of the clients of the Company for
which the Company paid such employees' wages during the month ending on such
Earn-Out Date. The Purchaser, the Company and the Shareholders agree that it is
their current intention to grow and operate the Company in a prudent manner.
<PAGE> 7
Notwithstanding the determination of worksite employee numbers
for any Earn-Out Date by the Purchaser, the Shareholders shall have the right to
receive the information upon which such determination was made, and shall, in
the event of a dispute as to the amount or method of calculation of such
worksite employee numbers have the right to review all work papers, including
reports of the number of employees submitted to the Company's workers'
compensation carrier, relating to the determination of the worksite employee
numbers.

Numbers of shares of NovaResource Common Stock and prices per
share set forth in this Agreement shall be appropriately adjusted for any stock
split, stock dividend, reverse stock split or other similar event affecting the
NovaResource Common Stock. Fractional shares shall be rounded to the nearest
whole share.

In the event of the consolidation or merger of the Purchaser
with or into another person or the acquisition of all or substantially all the
assets of the Purchaser by another person (other than a consolidation or merger
in which the Purchaser is the continuing corporation and which does not result
in any change in the NovaResource Common Stock), the Purchaser shall have the
option to pay the Shareholders at such time as a payment is due pursuant to
Sections I(C) or I(D) hereof, in lieu of the NovaResource Common Stock provided
for in such Sections, the consideration per share in the form (in stock or cash
or other consideration) payable to the other holders of NovaResource Common
Stock in connection with such transaction, in each case, multiplied by the
number of shares of the NovaResource Common Stock deliverable to the
Shareholders provided for in such Sections.

E. Additional Cash Adjustment. (i) If prior to or on March 31,
1999, the NovaResource Common Stock has not been (a) listed or admitted to
trading on a national securities exchange at an initial price per share for the
NovaResource Common Stock of at least $8.00, (b) listed on the National Market
System of the National Association of Securities Dealers at an initial price per
share for the NovaResource Common Stock of at least $8.00, or (c) traded in the
NASDAQ SmallCap Market at an initial price per share for the NovaResource Common
Stock of at least $8.00, then on March 31, 1999, each of the Shareholders will
have the right to require the Purchaser to purchase all (but not less than all)
shares, if any, of NovaResource Common Stock issued by the Purchaser to such
Shareholder in connection with the Earn-Out Payments (including any shares of
NovaResource Common Stock such Shareholder has transferred pursuant to Section
2(b) of the Stockholders Agreement). Such right to require the Purchaser to
purchase such shares of NovaResource Common Stock shall be exercised by notice
to the Purchaser no later than April 30, 1999. No later than sixty (60) days
after receipt by the Purchaser of such notice, at such place and time as shall
be mutually agreed to by the Purchaser and a Shareholder who has exercised his
right to require that the Purchaser purchase his shares of NovaResource Common
Stock (and all shares of NovaResource Common Stock of such Shareholder's
permitted transferees), the exercising Shareholder shall deliver to the
Purchaser such shares of NovaResource Common Stock (including all shares of
NovaResource Common Stock of such Shareholder's permitted transferees) in due
and proper form for transfer, against delivery by the Purchaser of a certified
or official bank check payable to the order of, or a wire transfer to an account
designated by, such Shareholder (and any permitted transferees of such
Shareholder) in the amount per share of NovaResource Common Stock being sold by
such Shareholder (and any permitted transferees of such Shareholder) of the
lesser of (A) $16 and (B) the Market Value thereof. The agreements contained in
this paragraph shall be null and void and of no force and effect with respect to
a Shareholder if such Shareholder (or permitted transferee of such Shareholder)
shall have disposed of any of such shares of NovaResource Common Stock prior to
March 31, 1999 other than pursuant to Section 2(b) or 5 of the Stockholders
Agreement.
<PAGE> 8
(ii) In the event that (a) the NovaResource Common Stock has
not been (1) listed or admitted to trading on a national securities exchange at
an initial price per share for the NovaResource Common Stock of at least $8.00,
(2) listed on the National Market System of the National Association of
Securities Dealers at an initial price per share for the NovaResource Common
Stock of at least $8.00, or (3) traded in the NASDAQ SmallCap Market at an
initial price per share for the NovaResource Common Stock of at least $8.00, (b)
a Shareholder has tendered his NovaResource Shares pursuant to subsection (ii)
above, and (c) the Market Value per share of NovaResource Common Stock is less
than $16, then the Purchaser shall deliver to each Shareholder who tenders his
shares of NovaResource Common Stock pursuant to subsection (i) above (and any
permitted transferee of such Shareholder), at the same time as such payment is
made for such shares, an amount equal to the product of (x) the difference
between (A) $16 and (B) the Market Value per share of NovaResource Common Stock
multiplied by (y) the number of shares of NovaResource Common Stock tendered by
such Shareholder pursuant to subsection (i) above (and any permitted transferee
of such Shareholder).

I
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDERS

Each of the Company and the Shareholders, jointly and
severally, hereby represents and warrants to, and covenants and agrees with, the
Purchaser, as of the date of the Closing, that (except as set forth on Exhibits
A, C or D attached hereto):

Organization and Qualification. Resource One and each of the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the State of Florida and has full corporate power and authority to own
its properties and to conduct the businesses in which it is now engaged. Each of
Resource One and each of the Subsidiaries is in good standing in each other
jurisdiction wherein the failure so to qualify would have a material adverse
effect on its businesses or properties. Except for Resource One's ownership of
all of the capital stock of the Subsidiaries, neither Resource One nor any of
the Subsidiaries has any subsidiaries, owns any capital stock or other
proprietary interest, directly or indirectly, in any other corporation,
association, trust, partnership, joint venture or other entity and none of them
has any agreement with any person, firm or corporation to acquire any such
capital stock or other proprietary interest. Each of Resource One and each of
the Subsidiaries has full power, authority and legal right, and all necessary
approvals, permits, licenses and authorizations, to own its respective
properties and to conduct the portion of the Business conducted by it and to
enter into and consummate the transactions contemplated under this Agreement.
The copies of the articles of incorporation and by-laws of Resource One and each
of the Subsidiaries which have been delivered to the Purchaser are complete and
correct.

A. Authority. The execution and delivery of this Agreement by
Resource One and each of the Subsidiaries, the performance by Resource One and
each of the Subsidiaries of its respective covenants and agreements hereunder
and the consummation by Resource One and each of the Subsidiaries of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and legally binding
obligation of Resource One and each of the Subsidiaries, enforceable against
Resource One and each of the Subsidiaries in accordance with its terms.

B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of
Resource One or any of the Subsidiaries or any statute, ordinance, regulation,
order, judgment or decree of any court or governmental agency or board, or
conflicts with or will result in any breach of any of the terms of or constitute
a default under or result in the termination of or the creation of any lien
pursuant to the terms of any contract or agreement to which Resource One or any
of the Subsidiaries is a party or by which Resource One or any of the
Subsidiaries or any of the assets of Resource One or any of the Subsidiaries is
bound. No consents, approvals or authorizations of, or filings with, any
governmental authority or any other person or entity are required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for required consents, if any, to
assignment of permits, certificates, contracts, leases and other agreements as
set forth in Exhibit A attached hereto.
<PAGE> 9
C. Capitalization. (i) The authorized capital stock of
Resource One consists of 1,000,000 shares of Common Stock, of which 100,000
shares are issued and outstanding. All of the issued and outstanding shares of
Common Stock have been duly and validly authorized and issued and are fully paid
and non-assessable. All of the issued and outstanding shares of Common Stock are
owned beneficially and of record by the Shareholders, free and clear of any
lien, encumbrance, charge, security interest or claim whatsoever except for the
Buy/Sell Agreement (as hereinafter defined). Except for the Buy/Sell Agreement,
there are no outstanding subscriptions, warrants, options, calls, commitments or
other rights or agreements to which Resource One or either of the Shareholders
is bound relating to the issuance, sale or redemption of shares of Common Stock
or other securities of Resource One. No persons other than the Shareholders have
any interest in the Shares. No shares of capital stock or other securities of
Resource One are reserved for any purpose.

( ) The authorized capital stock of HR One consists of 1,000,000
shares of common stock, $.01 par value per share (the "HR One Common Stock"), of
which 50,000 shares are issued and outstanding. All of the issued and
outstanding shares of HR One Common Stock have been duly and validly authorized
and issued and are fully paid and non-assessable. All of the issued and
outstanding shares of HR One Common Stock are owned beneficially and of record
by Resource One, free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever. There are no outstanding subscriptions, warrants,
options, calls, commitments or other rights or agreements to which Resource One,
HR One or either of the Shareholders is bound relating to the issuance, sale or
redemption of shares of HR One Common Stock or other securities of HR One. No
persons other than Resource One have any interest in the shares of HR One Common
Stock. No shares of capital stock or other securities of HR One are reserved for
any purpose.

(i) The authorized capital stock of PIP consists of 5,000 shares of
common stock, $.10 par value per share ("PIP Common Stock"), of which 250 shares
are issued and outstanding. All of the issued and outstanding shares of PIP
Common Stock have been duly and validly authorized and issued and are fully paid
and non-assessable. All of the issued and outstanding shares of PIP Common Stock
are owned beneficially and of record by Resource One, free and clear of any
lien, encumbrance, charge, security interest or claim whatsoever. There are no
outstanding subscriptions, warrants, options, calls, commitments or other rights
or agreements to which PIP or either of the Shareholders is bound relating to
the issuance, sale or redemption of shares of PIP Common Stock or other
securities of PIP. No persons other than Resource One have any interest in the
shares of PIP Common Stock. No shares of capital stock or other securities of
PIP are reserved for any purpose.

(ii) The authorized capital stock of Rx One consists of 1,000,000
shares of common stock, $.01 par value per share ("Rx One Common Stock"), of
which 100,000 shares are issued and outstanding. All of the issued and
outstanding shares of Rx One Common Stock have been duly and validly authorized
and issued and are fully paid and non-assessable. All of the issued and
outstanding shares of Rx One Common Stock are owned beneficially and of record
by the Shareholders, free and clear of any lien, encumbrance, charge, security
interest or claim whatsoever. There are no outstanding subscriptions, warrants,
options, calls, commitments or other rights or agreements to which Resource One,
Rx One or either of the Shareholders is bound relating to the issuance, sale or
redemption of shares of Rx One Common Stock or other securities of Rx One. No
persons other than the Shareholders have any interest in the shares of Rx One
Common Stock. No shares of capital stock or other securities of Rx One are
reserved for any purpose.

D. Financial Statements; No Undisclosed Liabilities. No
financial statements have ever been prepared for Resource One. The Company and
the Shareholders have delivered to the Purchaser balance sheets of (i) HR One as
of December 31, 1994 and December 31, 1995 and the related statements of income,
retained earnings and cash flows and the notes thereto, for the periods then
ended, which financial statements (hereinafter referred to as the "Audited
Financials") have been audited by Brewer, Beemer, Kuehnhackl & Koon, P.A., HR
One's independent accountants and (ii) HR One, PIP and Rx One, as of June 30,
1996, and, in each case, the related statements of income, retained earnings and
cash flows for the periods then ended, which financial statements (the
"Unaudited Financials" and, together with the Audited Financials, the "Financial
Statements") have been prepared by the chief financial officer of HR One, PIP
and Rx One, respectively. The Financial Statements are true and correct in all
material respects. The Audited Financials have been prepared in accordance with
generally accepted accounting principles applied consistently throughout the
periods involved. The Unaudited Financials have been prepared in accordance with
generally accepted accounting principles, applied
<PAGE> 10
consistently throughout the periods involved, except that they lack full
footnote disclosure and are subject to year-end adjustments (none of which are
expected to be material). The Financial Statements fully and fairly present the
financial condition of Resource One and the Subsidiaries as at the dates thereof
and the results of the operations of Resource One and the Subsidiaries for the
periods indicated. The balance sheets contained in the Financial Statements
fairly reflect all liabilities of Resource One and the Subsidiaries of the types
normally reflected in balance sheets as at the dates thereof. Except to the
extent set forth in or provided for in the balance sheet of each of Resource One
and the Subsidiaries as of June 30, 1996 included in the Financial Statements
(the "1996 Balance Sheets") or as identified in Exhibit A, and except for
current liabilities incurred in the ordinary course of business consistent with
past practices (and not materially different in type or amount), none of
Resource One or the Subsidiaries has any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, whether due or to
become due, whether properly reflected under generally accepted accounting
principles as a liability or a charge or reserve against an asset or equity
account, and whether the amount thereof is readily ascertainable or not. None of
Resource One or the Subsidiaries nor either of the Shareholders is aware of any
material omissions in the Financial Statements. The books and records of HR One
are such that the Purchaser can prepare financial statements with respect to HR
One for such periods ending on or prior to the Closing as are required by
Regulation S-X under the Securities Act of 1933, as amended, which financial
statements (the "S-X Financial Statements") (i) can be presented in conformity
with the accounting rules of Regulation S-X and (ii) can be audited by the
Purchaser's independent certified public accountants. A true and correct copy of
the Financial Statements is attached hereto as Exhibit B.

E. Absence of Certain Changes. Except as set forth in Exhibit
A, subsequent to the date of the 1996 Balance Sheets, there has not been any (i)
material adverse or prospective material adverse change in the condition of the
Company, financial or otherwise, or in the results of the operations of the
Company; (ii) material damage or destruction (whether or not insured) affecting
the properties or business operations of the Company; (iii) labor dispute or, to
the best knowledge of the Company and each of the Shareholders, threatened labor
dispute involving the employees of the Company; (iv) actual or, to the best
knowledge of the Company and each of the Shareholders, threatened disputes with
any major accounts of the Company, or actual or, to the best knowledge of the
Company and each of the Shareholders, threatened loss of business from any of
the major accounts of the Company; (v) changes in the methods or procedures for
billing or collection of customer accounts or recording of customer accounts
receivable or reserves for doubtful accounts with respect to the Company; or
(vi) other event or condition of any character, known to the Company or either
of the Shareholders or which in the exercise of reasonable diligence should be
known to the Company or either of the Shareholders, not disclosed in this
Agreement pertaining to and materially adversely affecting the Company, the
Business or the assets of the Company.

F. Liabilities Incurred. Except as disclosed in Exhibit A,
subsequent to the date of the 1996 Balance Sheets, the Company has not (i)
incurred any bank indebtedness, entered into any leases, loan agreements or,
except in the ordinary course of business consistent with past practices,
contracts, obligations or arrangements of any kind, including, without
limitation, for the payment of money or property to any person, or (ii)
permitted any liens or encumbrances to attach to any assets of the Company.

G. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by the Company or in which the
Company has any interest is set forth in Exhibit A. All such leased real
property is held subject to written leases or other agreements which are valid
and effective in accordance with their respective terms, and there are no
existing defaults or events of default, or events which with notice or lapse of
time or both would constitute defaults, thereunder on the part of the Company,
except for such defaults, if any, as are not material in character, amount or
extent and do not, severally or in the aggregate, materially detract from the
value or interfere with the present use of the property subject to such lease or
affect the validity, enforceability or assignability of such lease or otherwise
materially impair the Company or the operations of the Business. Neither the
Company nor either of the Shareholders has any knowledge of any default or
claimed or purported or alleged default or state of facts which with notice or
lapse of time or both would constitute a default on the part of any other party
in the performance of any obligation to be performed or paid by such other party
under any lease referred to in Exhibit A. Neither the Company nor either of the
Shareholders has received any written or oral notice to the effect that any
lease will not be renewed at the termination of the term thereof or that any
such lease will be renewed only at a substantially higher rent.
<PAGE> 11
H. Title to Assets; Condition of Property. The Company has
good and valid title to all its properties and assets, real, personal and mixed,
tangible and intangible (in the case of owned real property and the improvements
thereon, good and marketable title in fee simple), including, without
limitation, the properties and assets reflected in the 1996 Balance Sheets
(except for assets leased under leases set forth in Exhibit A, assets sold or
retired and accounts receivable collected upon, since the date of the 1996
Balance Sheets in the ordinary course of business consistent with past
practices). The Company leases or owns all properties and assets used in the
operations of the Business as currently conducted. All such properties and
assets are in good condition and repair, consistent with their respective ages,
and have been maintained and serviced in accordance with the normal practices of
the Company and as necessary in the normal course of business. None of the
assets or properties of the Company is subject to any liens, charges,
encumbrances or security interests, except as set forth in Exhibit A. None of
the assets of the Company (or uses to which they are put) fails to conform with
any applicable agreement, law, ordinance or regulation in a manner which is
likely to be material to the operations of the Business. Except as set forth in
Exhibit A, the Company owns all the properties and assets which have been
located at or on any of the leased premises of the Company at any time since the
date of the 1996 Balance Sheets.

I. Taxes. The Company has filed or caused to be filed on a
timely basis all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by it. All
Tax Returns filed by or on behalf of the Company are true, complete and correct
in all material respects. The Company has paid all income, estimated (except
that HR One has not made any payments for estimated federal or Florida corporate
income taxes for the year beginning January 1, 1996), excise, franchise, gross
receipts, capital stock, profits, stamp, occupation, sales, use, transfer, value
added, property (whether real, personal or mixed), employment, unemployment,
disability, withholding, social security, workers' compensation and other taxes,
and interest, penalties, fines, costs and assessments (collectively, "Taxes"),
due and payable with respect to the periods covered by such Tax Returns (whether
or not reflected thereon). There are no Tax liens on any of the properties or
assets, real, personal or mixed, tangible or intangible, of the Company. The
accrual for Taxes reflected in the Financial Statements accurately reflects the
total amount of all unpaid Taxes, whether or not disputed and whether or not
presently due and payable, of the Company as of the close of the period covered
by the Financial Statements, and the amount of the Company's unpaid Taxes does
not exceed the accrual for Taxes reflected in the Financial Statements. Since
the date of the 1996 Balance Sheets, the Company has not incurred any tax
liability other than in the ordinary course of business. No Tax Return of the
Company has ever been audited. No deficiency in Taxes for any period has been
asserted by any taxing authority which remains unpaid at the date hereof (the
results of any settlement being set forth in Exhibit A), no written inquiries or
notices have been received by the Company from any Taxing authority with respect
to possible claims for Taxes, neither the Company nor either of the Shareholders
has any reason to believe that such an inquiry or notice is pending or
threatened, and there is no basis for any additional claims or assessments for
Taxes. The Company has not agreed to the extension of the statute of limitations
with respect to any Tax Return or Tax period. The Company has delivered to the
Purchaser copies of the federal and state income Tax Returns filed by the
Company for the past three years and for all other past periods as to which the
appropriate statute of limitations has not lapsed.
<PAGE> 12
The Shareholders at their own expense shall be responsible for
preparing and filing any and all federal, state, municipal and other Tax Returns
of Resource One and each of the Subsidiaries required to be filed by Resource
One and each of the Subsidiaries in respect of any and all periods up to and
including the date of the Closing (including, without limitation, Resource One's
and each of the Subsidiaries' federal income Tax Returns for the short taxable
year ending with the date of the Closing) to the extent not already filed,
whether or not required to be filed on or before the date of the Closing, and
shall pay all Taxes (and interest, penalties, fines or assessments thereon) due
and payable by Resource One or any of the Subsidiaries for all periods up to and
including the date of the Closing to the extent not already paid, accrued in the
Financial Statements or incurred in the ordinary course after the date of the
1996 Balance Sheets (including, without limitation, the federal income Taxes due
and payable with respect to the short taxable year referenced in the preceding
sentence.) The Shareholders shall review all such Tax Returns with the Purchaser
prior to filing and shall submit such proof of payment of the Taxes due as the
Purchaser shall reasonably request.

J. Permits; Compliance with Applicable Law.

(i) General. The Company is not in default under any, and
has complied with all, statutes, ordinances, regulations and laws, orders,
judgments and decrees of any court or governmental entity or agency, relating to
the Company, the Business or any assets of the Company as to which a default or
failure to comply might result in a material adverse affect on the Company, the
Business or any of the assets of the Company. Neither the Company nor either of
the Shareholders has any knowledge of any basis for assertion of any violation
of the foregoing or for any claim for compensation or damages or otherwise
arising out of any violation of the foregoing. Neither the Company nor either of
the Shareholders has received any notification of any asserted present or past
failure to comply with any of the foregoing which has not been satisfactorily
responded to in the time period required thereunder.

(ii) Permits; Intellectual Property. Set forth in Exhibit A
is a complete and accurate list of all permits, licenses, approvals, franchises,
patents, registered and common law trademarks, service marks, trade names,
copyrights (and applications for each of the foregoing), notices and
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the Company. The
Permits set forth in Exhibit A are all the Permits required for the conduct of
the Business. All the Permits set forth in Exhibit A are in full force and
effect, and the Company has not engaged in any activity which would cause or
permit revocation or suspension of any such Permit, and no action or proceeding
looking to or contemplating the revocation or suspension of any such Permit is
pending or, to the best knowledge of the Company and each of the Shareholders,
threatened. There are no existing defaults or events of default or event or
state of facts which with notice or lapse of time or both would constitute a
default by the Company under any such Permit. Neither the Company nor either of
the Shareholders has any knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a default on the part of any other party in the performance of
any obligation to be performed or paid by any other party under any Permit set
forth in Exhibit A. The use by the Company of any proprietary rights relating to
any Permit does not involve any claimed infringement of such Permit or rights.
The consummation of the transactions contemplated hereby will in no way affect
the continuation, validity or effectiveness of the Permits set forth in Exhibit
A or require the consent of any person. Except as set forth in Section
II(K)(iii) below, the Company is not required to be licensed by, nor is it
subject to the regulation of, any governmental or regulatory body.

(iii) Licensing. The operations of the Company are licensed
under the Florida Employee Leasing Act of 1991 (the "Florida Act") and in each
other state where the failure to be licensed would have a material adverse
effect on the Company, and are currently in compliance in all material respects
with the Florida Act and with any other statute regulating professional employer
organizations in such other states where the failure to comply would have a
material adverse effect on the Company. The Company has submitted all financial
statements required to be submitted by it under the Florida Act and the
Company's current tangible accounting net worth and positive working capital
meets the requirements of the Florida Act.

(iv) Environmental. (a) The Company has duly complied in
all material respects with and the real estate subject to the leases listed on
Exhibit A and improvements thereon, and all other real
<PAGE> 13
estate leased by the Company, and the improvements thereon (all such owned or
leased real estate hereinafter referred to collectively as the "Premises") are
in compliance in all material respects with, the provisions of all federal,
state and local environmental, health and safety laws, codes and ordinances and
all rules and regulations promulgated thereunder.

(b) The Company has not received any notice of, and neither
the Company nor either of the Shareholders knows of any facts which might
constitute, violations of any federal, state or local environmental, health or
safety laws, codes or ordinances, and any rules or regulations promulgated
thereunder, which relate to the use, ownership or occupancy of any of the
Premises or of any premises formerly owned, leased or occupied by the Company.

K. Accounts Receivable; Accounts Payable.

(i) The accounts receivable of the Company are in their
entirety valid accounts receivable, arising in the ordinary course of business.
The Company shall have available to the Purchaser unrestricted cash and cash
equivalents and collectible accounts receivable of sufficient amounts to pay any
and all current obligations of the Company as of the Closing as they become due.

(ii) The accounts and notes payable and other accrued expenses
reflected in the Financial Statements, and the accounts and notes payable and
accrued expenses incurred by the Company subsequent to the date of the 1996
Balance Sheets, are in all respects valid claims that arose in the ordinary
course of business. Since the date of the 1996 Balance Sheets, the accounts and
notes payable and other accrued expenses of the Company have been paid in a
manner consistent with past practice.

L. Contractual and Other Obligations. Set forth in Exhibit A
is a list and brief description of all (i) contracts, agreements, licenses,
leases, arrangements (written or oral) and other documents to which the Company
is a party or by which the Company, the Business or any of the assets of the
Company is bound (including, in the case of loan agreements, a description of
the amounts of any outstanding borrowings thereunder and the collateral, if any,
for such borrowings); (ii) obligations and liabilities of the Company pursuant
to uncompleted orders for the purchase of materials, supplies, equipment and
services for the requirements of the Business with respect to which the
remaining obligation of the Company is in excess of $2,500; and (iii) material
contingent obligations and liabilities of the Company; all of the foregoing
being hereinafter referred to as the "Contracts". Neither the Company nor any
other party is in default in the performance of any covenant or condition under
any Contract and no claim of such a default has been made and no event has
occurred on behalf of the Company or, to the best knowledge of the Company and
each of the Shareholders, any other party, which with the giving of notice or
the lapse of time would constitute a default under any covenant or condition
under any Contract. The Company is not a party to any Contract which would
terminate or be materially adversely affected by consummation of the
transactions contemplated by this Agreement. The Company is not a party to any
Contract expected to be performed at a loss. Originals or true, correct and
complete copies of all written Contracts have been provided to the Purchaser.

M. Compensation. Set forth in Exhibit C attached hereto is a
list of all agreements between the Company and each person employed by or
independently contracting with the Company with regard to compensation, whether
individually or collectively, and set forth in Exhibit C is a list of all
employees of the Company entitled to receive annual compensation in excess of
$20,000 and their respective salaries. The transactions contemplated by this
Agreement will not result in any liability for severance pay to any employee or
independent contractor of the Company. Except as set forth in Section II(Q), the
Company has not informed any employee or independent contractor providing
services to the Company that such person will receive any increase in
compensation or benefits or any ownership interest in the Company or the
Business.

N. Employee Benefit Plans. Except as set forth on Exhibit D
attached hereto, the Company does not maintain or sponsor, nor is it required to
make contributions to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (hereinafter referred to as
"ERISA"), in which the employees of the Company participate (such plans and
related trusts, insurance and annuity contracts, funding media and related
agreements and arrangements, other than any "multiemployer plan" (within the
meaning of Section 3(37) of ERISA), being hereinafter
<PAGE> 14
referred to as the "Benefit Plans" and any such multiemployer plans being herein
after referred to as the "Multiemployer Plans") comply in all material respects
with all requirements of the Department of Labor and the Internal Revenue
Service, and with all other applicable law, and the Company has not taken or
failed to take any action with respect to the Benefit Plans or Multiemployer
Plans which might create any material liability on the part of the Company or
the Purchaser. Each "fiduciary" (within the meaning of Section 3(21)(A) of
ERISA) as to each Benefit Plan and as to each Multiemployer Plan has complied in
all material respects with the requirements of ERISA and all other applicable
laws in respect of each such Plan. The Company has furnished to the Purchaser
copies of all Benefit Plans and Multiemployer Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans and Multiemployer
Plans for a period of three years prior to the date hereof. Such financial
statements and actuarial reports and annual reports and returns are true and
correct in all material respects, and none of the actuarial assumptions
underlying such documents have changed since the respective dates thereof. In
addition:

(i) Each Benefit Plan has received a favorable determination
letter from the Internal Revenue Service as to its qualification under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code");

(ii) No Benefit Plan which is a "defined benefit plan" (within
the meaning of Section 3(35) of ERISA) (hereinafter referred to as the
"Defined Benefit Plans") or Multiemployer Plan has incurred an
"accumulated funding deficiency" (within the meaning of Section 412(a)
of the Code), whether or not waived;

(iii) No "reportable event" (within the meaning of Section
4043 of ERISA) has occurred with respect to any Defined Benefit Plan or
any Multiemployer Plan;

(iv) The Company has not withdrawn (partially or totally
within the meaning of ERISA) from any Benefit Plan or any Multiemployer
Plan and neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated herein will result in the
withdrawal (partially or totally within the meaning of ERISA) from any
Benefit Plan or any Multiemployer Plan, or in any withdrawal or other
liability of any nature to the Company or the Purchaser under any
Benefit Plan or any Multiemployer Plan;

(v) No "prohibited transaction" (within the meaning of Section
406 of ERISA or Section 4975(c) of the Code) has occurred with respect
to any Benefit Plan or any Multiemployer Plan;

(vi) The excess of the aggregate present value of accrued
benefits over the aggregate value of the assets of any Defined Benefit
Plan (computed both on a termination basis and on an ongoing basis) is
not more than $-0-, and the aggregate withdrawal liability of the
Company with respect to any Multiemployer Plan assuming the withdrawal
of the Company from said Multiemployer Plan, is not more than $-0-;

(vii) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Company, in any way limits, impairs,
modifies or otherwise affects the right of the Company or the Purchaser
unilaterally to amend or terminate any Benefit Plan after the Closing,
subject to the requirements of applicable law;

(viii) There are no contributions which are or hereafter will
be required to have been made to trusts in connection with any Benefit
Plan that would constitute a "defined contribution plan" (within the
meaning of Section 3(34) of ERISA) (hereinafter referred to as a
"Defined Contribution Plan"), with respect to services rendered by
employees of the Company prior to the date of the Closing;

(ix) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans or Multiemployer Plans, there are no
actions, suits or claims (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto) pending with
respect to any Benefit Plan or any Multiemployer Plans, or any
circumstances which might give rise to any such action, suit or claim
(including claims for income taxes, interest, penalties, fines or
excise taxes with respect thereto);
<PAGE> 15
(x) All reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any governmental agency
have so been filed;

(xi) The Company has not incurred any liability to the Pension
Benefit Guaranty Corporation (except for required premium payments). No
notice of termination has been filed by the plan administrator
(pursuant to Section 4041 of ERISA) or issued by the Pension Benefit
Guaranty Corporation (pursuant to Section 4042 of ERISA) with respect
to any Benefit Plan subject to ERISA. There has been no termination of
any Defined Benefit Plan or any related trust by the Company; and

(xii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code. The Company has substantially complied with the notice and
continuation requirements of Section 4980B of the Code and the
regulations thereunder.

O. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company, or the terms and
conditions of employment, wages and hours. The Company is not engaged in any
unfair labor practice or other unlawful employment practice and there are no
charges of unfair labor practices or other employee-related complaints pending
or, to the best knowledge of the Company and each of the Shareholders,
threatened against the Company before the National Labor Relations Board, the
Equal Employment Opportunity Commission, the Occupational Safety and Health
Review Commission, the Department of Labor or any other federal, state, local or
other governmental authority. There is no strike, picketing, slowdown or work
stoppage or organizational attempt pending or, to the best knowledge of the
Company and each of the Shareholders, threatened against or involving the
Company. No issue with respect to union representation is pending or, to the
best knowledge of the Company and each of the Shareholders, threatened with
respect to the employees of the Company. No union or collective bargaining unit
or other labor organization has ever been certified or recognized by the Company
as the representative of any of the employees of the Company.

P. Increases in Compensation or Benefits. Except as set forth
in Exhibit C, subsequent to the date of the 1996 Balance Sheets, there have been
no increases in the compensation payable or to become payable to any of the
employees of the Company and there have been no payments or provisions for any
awards, bonuses, loans, profit sharing, pension, retirement or welfare plans or
similar or other disbursements or arrangements for or on behalf of such
employees (or related parties thereof), in each case, other than pursuant to
currently existing plans or arrangements, if any, set forth in Exhibit C;
provided, however, that in no event was any such increase in compensation or any
such payment or provision made with respect to either of the Shareholders (or
any members of the families of either of the Shareholders). All bonuses
heretofore granted to employees of the Company have been paid in full to such
employees. The vacation policy of the Company is set forth in Exhibit D. Except
as set forth in Exhibit C, no employee of the Company is entitled to vacation
time in excess of three weeks during the current calendar year and no employee
of the Company has any accrued vacation or sick time with respect to any prior
period.

Q. Insurance. A list and brief description of the insurance
policies maintained by the Company is set forth in Exhibit A. Such insurance
policies are in full force and effect and all premiums due thereon prior to or
on the date of the Closing have been paid. The Company has complied with the
provisions of such policies. Such insurance is of comparable amounts and
coverage as that which companies engaged in similar businesses maintain in
accordance with good business practices. There are no notices of any pending or,
to the best knowledge of the Company and each of the Shareholders, threatened
termination or premium increases with respect to any such policies. The Company
has not had any casualty loss or occurrence which may give rise to any claim of
any kind not covered by insurance and neither the Company nor either of the
Shareholders is aware of any occurrence which may give rise to any claim of any
kind not covered by insurance. No third party has filed any claim against the
Company or the Business for personal injury or property damage of a kind for
which liability insurance is generally available which is not fully insured,
subject only to the standard deductible. All claims against the Company or the
Business covered by insurance have been reported to the insurance carrier on a
timely basis. The Company has adequate insurance and reserves to cover any
liability that may arise out of any
<PAGE> 16
claims, including but not limited to workers compensation and health insurance
claims, that may be asserted against the Company for occurrences prior to the
date of the Closing.

R. Conduct of Business. The Company is not restricted from
conducting the Business in any location by agreement or court decree.

S. Allowances. The Company has no obligation outside of the
ordinary course of business to make allowances to any customers with respect to
the Business.

T. Use of Names. All names under which the Company currently
conducts the Business are listed in Exhibit A. To the best knowledge of the
Company and each of the Shareholders, there are no other persons or businesses
conducting businesses similar to those of the Company in the States of Florida
or California having the right to use or using the names set forth in Exhibit A
or any variants of such names; and no other person or business has ever
attempted to restrain the Company or either of the Shareholders from using such
names or any variant thereof.

U. Power of Attorney. The Company has not granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever.

V. Litigation; Disputes. Except as set forth in Exhibit A,
there are no material claims, disputes, actions, suits, investigations or
proceedings pending or, to the best knowledge of the Company and each of the
Shareholders, threatened against or affecting the Company, the Business or any
of the properties or assets of the Company, no such claim, dispute, action,
suit, proceeding or investigation has been pending or, to the best knowledge of
the Company and each of the Shareholders, threatened during the five-year period
preceding the date of the Closing and, to the best of the knowledge of the
Company and each of the Shareholders, there is no basis for any such claim,
dispute, action, suit, investigation or proceeding. Neither the Company nor
either of the Shareholders has any knowledge of any default under any such
action, suit or proceeding. The Company is not in default in respect of any
judgment, order, writ, injunction or decree of any court or of any federal,
state, municipal or other government department, commission, bureau, agency or
instrumentality or any arbitrator.

W. Location of Business and Assets. Set forth in Exhibit A is
each location (specifying state, county and city) where the Company (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including equipment and furniture.

X. Computer Software. The Company has the right to use all
computer software, including all property rights constituting part of that
computer software, used in connection with the Company's business operations
(the "Computer Software"). A list of all written licenses pertaining to the
Computer Software is set forth in Exhibit A (the "Licenses"). The Company has no
knowledge that any of the Licenses may not be valid or enforceable by the
Company or that the use of the Computer Software or any of the
Licenses may infringe upon or conflict with the rights of any third party. The
Company has not granted any licenses to use the Computer Software or any
sub-licenses with respect to any of the Licenses.

Y. Worksite Employee Numbers. As of August 31, 1996, the
worksite employee numbers of the Company are 1,700. As of August 31, 1996, the
Company had paid all salaries, wages, employer's portion of social security,
Medicare premiums, federal employment taxes, health care and workers'
compensation costs and state unemployment taxes with respect to such worksite
employees due and payable by such date and since August 31, 1996, the Company
has continued to pay such amounts as they have become due and payable.
<PAGE> 17
Z. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Company or either of
the Shareholders set forth herein, in the exhibits hereto or in any document
delivered by the Company or either of the Shareholders to the Purchaser, or any
authorized representative of the Purchaser, pursuant to this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading.

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS

Each of the Shareholders hereby represents and warrants to,
and covenants and agrees with, the Purchaser, as of the date of the Closing,
that:

Authority. Such Shareholder is fully able to execute and
deliver this Agreement and to perform such Shareholder's covenants and
agreements hereunder, and this Agreement constitutes a valid and legally binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms.

A. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which such Shareholder is a party or by which such Shareholder or
any of such Shareholder's assets is bound.

B. Ownership of Shares. Except for the Buy/Sell Agreement,
such Shareholder owns his Shares free and clear of any lien, encumbrance,
charge, security interest or claim whatsoever. Except for the Buy/Sell
Agreement, such Shareholder has the right to transfer his Shares to the
Purchaser and, upon transfer of his Shares to the Purchaser hereunder, the
Purchaser will acquire good and marketable title to his Shares, free and clear
of any lien, encumbrance, charge, security interest or claim whatsoever except
(i) those arising pursuant to any applicable securities laws or (ii) for any
liens, encumbrances, charges, security interests or claims created by or arising
through the Purchaser.

D. Investment. (i) Such Shareholder has received such
information relating to the business and affairs of the Purchaser which such
Shareholder has requested, and all additional information which such Shareholder
has considered necessary to verify the accuracy of the information so received.
Such Shareholder has had the opportunity to ask questions of and receive answers
from the Purchaser concerning the terms and conditions of the transactions
contemplated by this Agreement. On the basis of the foregoing, such Shareholder
is familiar with the operations, business plans and financial condition of the
Purchaser.

(ii) Such Shareholder understands that the Purchaser
proposes to issue and deliver to such Shareholder, under certain circumstances,
shares of NovaResource Common Stock pursuant to this Agreement without
compliance with the registration requirements of the Securities Act; that for
such purpose the Purchaser will rely upon the representations, warranties,
covenants and agreements contained herein; and that such non-compliance with
registration is not permissible unless such representations and warranties are
correct and such covenants and agreements performed. The Shareholder is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.

(iii) Such Shareholder understands that, under existing
rules of the Securities and Exchange Commission, such Shareholder may be unable
to sell his shares of NovaResource Common Stock except to the extent that such
shares of NovaResource Common Stock may be sold (A) pursuant to an effective
registration statement covering such shares pursuant to the Securities Act or
(B) in a bona fide private placement to a purchaser who shall be subject to the
same restrictions on any resale or (C) subject to the restrictions contained in
Rule 144 under the Securities Act ("Rule 144"). Such Shareholder understands
that Purchaser is under no obligation to effect a registration of the
Shareholder's shares of NovaResource Common Stock under the Securities Act.
<PAGE> 18
(iv) Such Shareholder is familiar with the provisions of
Rule 144 and the limitations upon the availability and applicability of such
Rule.

(v) Such Shareholder is a sophisticated investor familiar
with the type of risks inherent in the acquisition of restricted securities such
as the shares of NovaResource Common Stock and his financial position is such
that he can afford to retain his shares of NovaResource Common Stock for an
indefinite period of time without realizing any direct or indirect cash return
on his investment.

(vi) Such Shareholder is acquiring his shares of
NovaResource Common Stock for his account and not with a view to, or for sale in
connection with, the distribution thereof within the meaning of the Securities
Act.

III

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Shares.

B. Authority. The execution and delivery of this Agreement
by the Purchaser, the performance by the Purchaser of its covenants and
agreements hereunder and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary corporate action,
and this Agreement constitutes a valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.

CONDUCT OF THE BUSINESS

The Company and each of the Shareholders, jointly and
severally, hereby covenant and agree with the Purchaser that, except as
hereafter consented to in writing by the Purchaser, from and after the date of
this Agreement and until the Closing, the Company shall not:
<PAGE> 19
Operation of the Business. Make a purchase, sale or
lease in respect of the Company or introduce any method of management,
accounting or operation in respect of the Company, except in a manner consistent
with prior practice.

A. Accounts Receivable. Fail to maintain sales or accounts
receivable on a normal basis or change the cash equivalent accounts or the
methods or procedures for billing, collecting, or recording customer accounts
receivable or reserves for doubtful accounts.

B. Properties, Plant and Equipment. Fail to maintain,
repair, service, preserve, and in any way further encumber, its properties,
other than accounts receivable collected upon and supplies used in the ordinary
course of business after the date hereof.

C. No Loans, Advances, etc. Make any loans or advances,
debt repayments or forgiveness, interest payments or forgiveness, or grant pay
raises, bonuses or awards, or unusual salary or other payments, disbursements or
other distributions, directly or indirectly, in any form to any management
personnel, employee, director, officer or shareholder of the Company, or any
relative of any such person, or entities or persons affiliated with or related
to any such management personnel, employee, director, officer or shareholder of
the Company (except for a conveyance of the Company's 1993 Ford Explorer to
Bernard C. Byrd, Jr., as a bonus, in return for his assumption of the vehicle
loan to the Company from Barnett Bank as set forth in Exhibit A, Item No. 8(a).

D. No Dividends; Distributions; Payment of Certain
Indebtedness. Declare or pay any dividend or make any other distribution in
respect of its capital stock, or, except as specifically contemplated by this
Agreement, directly or indirectly, purchase, redeem or otherwise acquire or
dispose of any shares of its capital stock or, except in the ordinary course of
business, pay or discharge any outstanding indebtedness and in any event pay or
discharge any outstanding indebtedness of either of the Shareholders, the
relatives or affiliates of either of the Shareholders or of any of the
management personnel, employees, directors or officers of the Company.

E. Preservation of Organization, Employees and Business
Relationships. Fail to use its best efforts to (i) preserve the present business
organization of the Company intact; (ii) keep available the services of the
present employees of the Company; and (iii) preserve present relationships and
goodwill with entities or persons having business dealings with the Company,
including, without limitation, existing customers of the Company.

F. Books and Records. Fail to maintain the books and
records of the Company in accordance with good business practices, on a basis
consistent with prior practice.

G. Compliance with Laws. Fail to use its best efforts to
comply in all material respects with all statutes, ordinances, regulations,
orders, judgments and decrees of every court or governmental entity or agency
applicable to the Company and to the conduct of the Business and perform all of
its obligations with respect thereto without default.

H. Maintenance of Insurance. Fail to maintain and pay all
premiums with respect to such policies of insurance as are currently held in the
name of the Company.

I. Contracts. Make any change adverse to the Company in the
terms of any Contract or fail to perform any of its obligations with respect
thereto without default.

J. Claims. Waive, cancel, sell or otherwise dispose of for
less than the face value thereof any claim or right the Company has against
others.

K. Bonuses, etc. Take any action described in the first
sentence of Section II(Q) hereof.

L. Billings; Accounts Payable. Fail to bill for services
rendered or permit any account payable or accrued expense of the Company to be
outstanding for more than sixty (60) days, other than accounts payable or
accrued expenses being diligently contested in good faith by the Company and as
to which the Purchaser shall have consented in writing.
<PAGE> 20
M. Contracts. Enter into any contract, contractual
obligation, bank debt, lease, loan or other commitment, written or oral, or
agreement for amounts to be due to third parties, other than in the ordinary
course of business.

N. Encumbrances. Permit any encumbrance, lien or attachment
against any of its property.

O. Further Information. Fail to make available to the
Purchaser the books of account, records, Tax Returns, leases, contracts and
other documents or agreements of the Company and the Business as the Purchaser,
its counsel, accountants and its authorized representatives may from time to
time reasonably request.

P. Cooperation. Fail to cooperate fully with the Purchaser,
do all things reasonably necessary to assist the Purchaser and use its
reasonable best efforts at its own expense to obtain all consents and approvals
necessary for the transfer of the Shares, including the furnishing of all
financial and other information reasonably required by the party whose consent
or approval is being sought.

ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDERS AND THE PURCHASER

Publicity. Each of the Company and each of the
Shareholders covenants and agrees, jointly and severally, that any and all
publicity (whether written or oral) and notices to third parties (other than
employees of the Company) concerning the sale of the Shares and other
transactions contemplated by this Agreement shall be subject to the prior
written approval of the Purchaser, which approval may be withheld in the sole
discretion of the Purchaser; provided, however, that prior to the date of the
Closing the Purchaser covenants and agrees that any and all publicity (whether
written or oral) and notices to third parties (other than employees of the
Company) concerning the sale of the Shares and other transactions contemplated
by this Agreement shall be subject to the prior written approval of the
Shareholders.

A. Correspondence, etc. Each of the Company and each of the
Shareholders covenants and agrees, jointly and severally, that each of them will
deliver to the Purchaser, promptly after the receipt thereof, all inquiries,
correspondence and other materials received by either of them from any person or
entity relating to the Company or the Business.

B. Confidentiality. Each of the Company, the Purchaser and
each of the Shareholders covenants and agrees that it or he shall keep
confidential any and all nonpublic information relating to the Purchaser (with
respect to the Company and each of the Shareholders) or the Company or the
Business (with respect to the Purchaser), and none of them shall disclose or
utilize such information prior to the date of the Closing without the prior
written consent of the other party.
<PAGE> 21
C. Books and Records. Each of the Company and each of the
Shareholders represents and warrants, jointly and severally, that the books and
records of the Company are in all material respects complete and correct, have
been maintained in accordance with good business practices and accurately
reflect the basis for the financial position and results of operations of the
Company set forth in the Financial Statements. All of such books and records
have been available for inspection by the Purchaser and its representatives.
Each of the Company and each of the Shareholders covenants and agrees, jointly
and severally, that each of them shall give the Purchaser reasonable access to
the historical financial books and records of the Company, for a period of five
years from the date of the Closing. The Company or the Shareholders shall retain
all such books and records in substantially their condition at the time of the
Closing. None of such books and records shall be destroyed without the prior
written approval of the Purchaser or without first offering such books and
records to the Purchaser.

D. Florida Commercial Staffing, Inc.

From the date of the Closing until the first anniversary
thereof, the Shareholders shall grant an option to the Purchaser to purchase all
of the capital stock or substantially all of the assets of Florida Commercial
Staffing, Inc., a Florida corporation ("FCS"), for a purchase price of $1.00.
The Purchaser shall exercise such option by delivering written notice of such
exercise to each of the Shareholders prior to such first anniversary date. No
later than ten (10) days after receipt by the Shareholders of such notice, at
such place and time as shall be mutually agreed to by the Purchaser and the
Shareholders, the Shareholders shall deliver to the Purchaser their shares of
capital stock of FCS in due and proper form for transfer (or, in the event of a
sale of substantially all of such assets, such deeds and bills of sale as
reasonably required by the Purchaser), against delivery by the Purchaser of a
check payable to the order of each of the Shareholders in the amount of $.50.

CLOSING

Time and Place of Closing, Termination.

(i) Closing. Unless this Agreement is terminated pursuant
to subsection (ii) below, the closing of the purchase and sale of the Shares as
set forth herein (the "Closing") shall be held at the offices of Haythe &
Curley, 237 Park Avenue, New York, New York 10017 at 10:00 A.M., local time,
within five (5) business days after the date the Company receives the approval
(the "Approval") of the State of Florida Department of Business and Professional
Regulation, Division of Professions, Board of Employee Leasing Companies (the
"Florida Division") to the transactions contemplated hereby.

(ii) Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned upon notice by any party, in
writing, if the Approval has not been obtained by December 31, 1996.

(iii) Return of Documentation. Following a termination of
this Agreement in accordance with subsection (ii) above, the Purchaser shall
return all agreements, documents, contracts, instruments and other books and
records of the Company provided by the Company or by the Shareholders to the
Purchaser in connection with the transactions contemplated by this Agreement and
each of the Shareholders and the Company shall return all agreements, documents,
contracts, instruments and other books and records of the Purchaser provided by
the Purchaser to either of the Shareholders or the Company in connection with
the transactions contemplated by this Agreement.

A. Delivery of the Shares. Delivery of the Shares shall be
made by the Shareholders to the Purchaser at the Closing by delivering one or
more certificates in negotiable form representing the Shares, each such
certificate to be accompanied by any requisite documentary or stock transfer
Taxes, against payment of the Purchase Price payable at the Closing.
<PAGE> 22
B. Tax Matters. All transfer, documentary, sales, use,
stamp, registration, value added and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement (other than
transfer, documentary, sales, use, stamp, registration, value added and other
taxes (other than income taxes on the income of the Shareholders) and fees
(including any penalties and interest) with respect to the issuance of the
shares of NovaResource Common Stock to be issued pursuant to this Agreement,
which shall be paid by the Purchaser) shall be borne and paid by the
Shareholders when due, and the Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes and
fees, and, if required by applicable law, the Purchaser will join in the
execution of any such Tax Returns and other documentation.

VII

CONDITIONS TO THE SHAREHOLDERS' OBLIGATION TO CLOSE

The obligation of the Shareholders to sell the Shares and
the obligation of the Shareholders otherwise to consummate the transactions
contemplated by this Agreement at the Closing are subject to the following
conditions precedent, any or all of which may be waived by the Shareholders
(acting jointly) in writing in their sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:

No Litigation. No action, suit or proceeding against the
Company, either of the Shareholders or the Purchaser relating to the
consummation of any of the transactions contemplated by this Agreement or any
governmental action seeking to delay or enjoin any such transactions shall be
pending or threatened.

A. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and,
on the date of the Closing, the Purchaser shall deliver to the Shareholders a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the date of the Closing shall have been duly complied
with and performed in all material respects, and, on the date of the Closing,
the Purchaser shall deliver to the Shareholders a certificate dated the date of
the Closing to such effect.

B. Other Certificates. The Shareholders shall have received
such additional certificates, instruments and other documents in form and
substance satisfactory to them and their counsel, as they shall have reasonably
requested in connection with the transactions contemplated hereby.

C. Deliveries. All deliveries by the Purchaser required
hereunder shall have been made.

D. Payment of the Purchase Price. Each of the Shareholders
shall have received from the Purchaser (a) a certified check made payable to the
order of, or a wire transfer to an account designated by, such Shareholder in
the amount set forth opposite such Shareholder's name on Schedule I hereto and
(b) a certificate in negotiable form representing the number of NovaResource
Shares set forth opposite such Shareholder's name on Schedule I hereto,
registered in the name of such Shareholder.

E. Employment Agreements. The Purchaser and each of the
Shareholders shall have entered into employment agreements (the "Employment
Agreements") substantially in the form of Exhibits F and G attached hereto.

F. Stockholders Agreement. The Purchaser and the
Shareholders shall have entered into a stockholders agreement (the "Stockholders
Agreement") substantially in the form of Exhibit H attached hereto.

G. Third Party Consents. The Shareholders shall have
received all necessary consents of third parties under the contracts,
agreements, leases, insurance policies and other instruments of the Company, the
Purchaser or the Shareholders to the consummation of the transactions
contemplated hereby
<PAGE> 23
which consents shall not provide for the acceleration of any liabilities or any
other detriment to the Shareholders.

H. Opinion of Counsel. The Shareholders shall have received
an opinion of Haythe & Curley, counsel for the Purchaser, delivered to the
Shareholders pursuant to the instructions of the Purchaser, dated the date of
the Closing, substantially to the effect set forth in Exhibit I attached hereto.

I. Guaranty. NovaCare and the Shareholders shall have
entered into a Guaranty (the "Guaranty") substantially in the form of Exhibit J
attached hereto.

VIII

CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE

The obligation of the Purchaser to purchase the Shares and
otherwise to consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company and each of the Shareholders hereby agrees to use his or its best
efforts to satisfy at or prior to the Closing:

Opinion of Counsel. The Purchaser shall have received an
opinion of Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A., counsel
for the Company and the Shareholders, delivered to the Purchaser pursuant to the
instructions of the Company and the Shareholders, dated the date of the Closing,
substantially to the effect set forth in Exhibit E attached hereto.

A. No Litigation. No action, suit or proceeding against the
Company, either of the Shareholders or the Purchaser relating to the
consummation of any of the transactions contemplated by this Agreement nor any
governmental action seeking to delay or enjoin any such transactions shall be
pending or threatened.

B. Representations and Warranties. The representations and
warranties made by the Company and each of the Shareholders herein shall be
correct as of the date of the Closing in all respects with the same force and
effect as though such representations and warranties had been made as of the
date of the Closing, and, on the date of the Closing, the Company and each of
the Shareholders shall deliver to the Purchaser a certificate dated the date of
the Closing to such effect. All the terms, covenants and conditions of this
Agreement to be complied with and performed by the Company and each of the
Shareholders on or before the date of the Closing shall have been duly complied
with and performed in all material respects and, on the date of the Closing, the
Company and each of the Shareholders shall deliver to the Purchaser a
certificate dated the date of the Closing to such effect. The Shareholders may,
during the 12-day period immediately subsequent to the date of this Agreement,
amend, supplement or complete in writing any of the Exhibits attached hereto. In
the event that the Purchaser, in its sole discretion, deems any such amendment,
supplement or completion to be material and adverse, the Purchaser may terminate
this Agreement by delivering written notice to the Shareholders within ten (10)
days after receiving such amendment, supplement or completion.

C. Other Certificates. The Purchaser shall have received
such other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and its counsel, as it shall have reasonably
requested in connection with the transactions contemplated hereby.

D. Third Party Consents. The Purchaser shall have received
all necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company, the Purchaser or the
Shareholders to the consummation of the transactions contemplated hereby which
consents shall not provide for the acceleration of any liabilities or any other
detriment to the Purchaser or the Company.

E. Florida Division Consent. The Purchaser shall have
received evidence of the Approval of the Florida Division to the transactions
contemplated hereby.

F. Employment Agreements. The Purchaser and each of the
Shareholders shall have entered into the Employment Agreements.
<PAGE> 24
G. Stockholders Agreement. The Purchaser the Shareholders
shall have entered into the Stockholders Agreement.

H. Deliveries. All deliveries by the Company and each of
the Shareholders required hereunder shall have been made.

I. Buy/Sell Agreement. The Purchaser shall have received
evidence of the termination of the Stock Restriction and Stockholders Agreement
effective as of January 1, 1996 between the Shareholders and the Company (the
"Buy/Sell Agreement") which evidence releases the Purchaser, the Company and
their affiliates, employees, agents, successors and assigns from any liability
arising out of the Buy/Sell Agreement or the termination thereof.

INDEMNIFICATION

Indemnification by the Shareholders. Each of the
Shareholders, jointly and severally, shall indemnify and hold harmless the
Purchaser from and against any and all losses, claims, assessments, demands,
damages, liabilities, obligations, costs and/or expenses whatsoever (hereinafter
referred to collectively as the "Purchaser's Damages"), including, without
limitation, Purchaser's Counsel Expenses (as hereinafter defined), sustained or
incurred by the Purchaser and/or the Company as a result of or arising from (i)
the breach of any of the obligations, covenants or provisions of, or the
inaccuracy of any of the representations or warranties made by the Company or
either of the Shareholders herein or (ii) the claim set forth on Exhibit A, Item
No. 6a. For purposes hereof "Purchaser's Counsel Expenses" shall mean reasonable
fees and disbursements of counsel howsoever sustained or incurred by the
Purchaser and/or the Company, including, without limitation, in any action or
proceeding between the Purchaser and/or the Company and either of the
Shareholders or in any action or proceeding between the Purchaser and/or the
Company and any third party. In enforcing or exercising the right of the
Purchaser to indemnification hereunder, the Purchaser shall have the right from
time to time to set off the amount of any of the Purchaser's Damages against any
(A) payments to be made by the Purchaser pursuant to Section I(B)(ii), (iii) or
(iv) hereof or (B) Earn-Out Payments due and payable to the Shareholders as
provided for in Section I(C) or I(D) hereof; provided, however, that the
Purchaser shall not have the right to set-off under this Section X(A) the amount
of the Purchaser's Damages which it may sustain or incur by reason of a breach
of either of the Shareholder's covenants contained in Section XI hereof. The
Purchaser covenants and agrees that it shall set off the amount of any of the
Purchaser's Damages against the payment of Additional Cash to be made by the
Purchaser pursuant to Section I(B)(iv) hereof prior to requesting such amounts
directly from the Shareholders.

A. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless each of the Shareholders from and against any and
all losses, claims, assessments, demands, damages, liabilities, obligations,
costs and/or expenses whatsoever (hereinafter referred to as the "Shareholders'
Damages"; the Shareholders' Damages and the Purchaser's Damages are sometimes
referred to herein as the "Damages"), including, without limitation,
Shareholder's Counsel Expenses (as hereinafter defined), sustained or incurred
by either of the Shareholders as a result of or arising from the breach of any
of the obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by, the Purchaser herein. For purposes hereof
"Shareholders' Counsel Expenses" shall mean reasonable fees and disbursements of
counsel howsoever sustained or incurred by either of the Shareholders,
including, without limitation, in any action or proceeding between either of the
Shareholders and the Purchaser and/or the Company or in any action or proceeding
between either of the Shareholders and any third party.

B. Procedure for Indemnification. In the event that any
party hereto shall incur any Damages in respect of which indemnity may be sought
by such party pursuant to this Section X, the party from whom such indemnity may
be sought (the "Indemnifying Party") shall be given written notice thereof by
the party seeking such indemnity (the "Indemnified Party"), which notice shall
specify the amount and nature of such Damages and include the request of the
Indemnified Party for indemnification of such amount. If and to the extent there
is no objection from the Indemnifying Party to a claim for Damages within ten
(10) days of receiving such notice, the Indemnifying Party shall within thirty
(30) days pay to the Indemnified Party the amount of the Damages so specified.
The Indemnified Party shall provide to the Indemnifying Party as
<PAGE> 25
promptly as practicable all information and documentation in the possession or
control of the Indemnified Party reasonably requested by the Indemnifying Party
to support and verify the claim asserted and the Indemnifying Party shall be
given reasonable access to all books and records in the possession or control of
the Indemnified Party or any of its or his affiliates which the Indemnifying
Party reasonably determines to be related to such claim. In the case of third
party claims, the written notice given by the Indemnified Party as set forth
above shall be given within ten (10) days after the Indemnified Party obtains
written notice of the filing or assertion of any claim against the Indemnified
Party stating the nature and basis of such claim; provided, however, that any
delay or failure to notify any Indemnifying Party of any claim shall not relieve
it or him from any liability except to the extent that the Indemnifying Party
demonstrates that the defense of such action is materially prejudiced by such
delay or failure to notify. In the case of such third party claims, the
Indemnifying Party shall, within ten (10) days of receipt of notice of such
claim, notify the Indemnified Party of its or his intention to assume the
defense of such claim. If the Indemnifying Party shall assume the defense of the
claim, the Indemnifying Party shall have the right and obligation (i) to conduct
any proceedings or negotiations in connection therewith and necessary or
appropriate to defend the Indemnified Party, (ii) to take all other required
steps or proceedings to settle or defend any such claims and (iii) to employ
counsel to contest any such claim or liability in the name of the Indemnified
Party or otherwise. The Indemnifying Party may not settle any such claim or
litigation without the written consent of the Indemnified Party (which consent
may be withheld in the sole discretion of the Indemnified Party) if such
settlement is not solely for money damages and does not include an unconditional
release of the Indemnified Party from all liability in connection therewith. If
defendants in any action include the Indemnified Party and the Indemnifying
Party, and the Indemnified Party shall have been advised by its or his counsel
that there may be legal defenses available to the Indemnified Party which are
different from or in addition to those available to the Indemnifying Party, the
Indemnified Party shall have the right to employ its or his own counsel in such
action, and, in such event, the fees and expenses of such counsel shall be borne
by the Indemnifying Party, provided that the Indemnifying Party shall not pay
the fees of more than one defense counsel employed by the Indemnified Party. If
the Indemnifying Party shall not assume the defense of any such claim or
litigation resulting therefrom, the Indemnified Party may defend against any
such claim or litigation in such manner as it or he may deem appropriate and the
Indemnified Party may settle such claim or litigation on such terms as it or he
may deem appropriate, provided that the Indemnified Party may not settle any
claim or litigation without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld. In the event that a dispute arises
concerning the obligation of the Indemnifying Party to assume the defense of a
claim, or a dispute arises concerning a claim hereunder which does not involve a
third party claim, or in the event that there is any other dispute relating to
indemnification, the parties shall submit any such dispute to arbitration
pursuant to Section XIII(G) hereof; provided, however, that the parties agree to
negotiate in good faith for a period of at least ninety (90) days prior to
initiating arbitration to resolve any dispute. If it shall be finally determined
that the Indemnifying Party failed to assume the defense of any claim for which
the Indemnifying Party is liable to the Indemnified Party for Damages, then the
expense of defending the claim shall be borne by the Indemnifying Party. Payment
of Damages shall be made within ten (10) days of a final determination of a
claim.

A final determination of a disputed claim shall be (i) a
judgment of any court determining the validity of a disputed claim, if no appeal
is pending from such judgment and if the time to appeal therefrom has elapsed,
(ii) an award of any arbitration determining the validity of such disputed
claim, if there is not pending any motion to set aside such award and if the
time within which to move to set such award aside has elapsed, (iii) a written
termination of the dispute with respect to such claim signed by all of the
parties thereto or their attorneys, (iv) a written acknowledgement of the
Indemnifying Party that he or it no longer disputes the validity of such claim,
or (v) such other evidence of final determination of a disputed claim as shall
be acceptable to the parties.
<PAGE> 26
C. Subrogation. The Shareholders shall be subrogated to all
rights of the Purchaser or the Company with respect to any claim for which the
Purchaser or the Company has been indemnified by the Shareholders hereunder;
provided, that, the Purchaser shall not be required to make any claim against
the Company or any other party in order to pursue any claim against the
Shareholders and provided further, that neither of the Shareholders shall be
entitled to any indemnification or right of contribution from the Company or
have any other rights against the Company in connection with any claim made
hereunder.

E. Limits on Indemnification. Notwithstanding anything in
this Section X to the contrary, no party shall be entitled to indemnification
pursuant to this Section X with regard to any misrepresentation or breach of
warranty unless and until the aggregate amount of Damages to which the indemnity
relates sustained or incurred by such party with respect to all such
misrepresentations and breaches exceeds $25,000 which threshold amount shall not
apply to a claim pursuant to clause (ii) of the first sentence of Section XA
hereof.

NON-COMPETITION AGREEMENT

Following the consummation of the transactions contemplated
hereby, and in consideration thereof, neither of the Shareholders shall, (a)
unless (x) an Earn-Out Payment or other payment due and payable by the Purchaser
to the Shareholders (or permitted transferees of the Shareholders with respect
to their shares of NovaResource Common Stock) under this Agreement or (y) any
payment due to either of the Shareholders (or permitted transferees of the
Shareholders with respect to their shares of NovaResource Common Stock) under
the Stockholders Agreement or their respective Employment Agreements is not
subject to a bona fide dispute and is not paid within sixty (60) days after it
is due (and for so long as such Earn-Out Payment or other payment remains
unpaid), subsequent to the date of the Closing and until five years after the
date of the Closing, directly or indirectly, (i) engage, whether as principal,
agent, investor, distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any activity or business
venture, anywhere within (A) the counties of Dade, Broward and Orange, Florida
or (B) the county of Orange, California, which is competitive with the
Purchaser's business as a professional employer organization, (ii) solicit or
entice or endeavor to solicit or entice away from any member of the Purchaser
Group (as hereinafter defined) any person who was or is at the time of the
solicitation or enticement a director, officer, employee, agent or consultant of
such member of the Purchaser Group, either on either of the Shareholders' own
account or for any person, firm, corporation or other organization, whether or
not such person would commit any breach of such person's contract of employment
by reason of leaving the service of such member of the Purchaser Group, (iii)
solicit or entice or endeavor to solicit or entice away any person who was or is
at the time of the solicitation or enticement a client or customer of any member
of the Purchaser Group, either on either of the Shareholders' own account or for
any other person, firm, corporation or organization, or (iv) employ any person
who was a director, officer or employee of any member of the Purchaser Group or
any person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Purchaser Group, or (b) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the Purchaser Group or the business reputation or good name of any
member of the Purchaser Group, or be otherwise detrimental to the Purchaser
and/or the Company, including any action or statement intended, directly or
indirectly, to benefit a competitor of any member of the Purchaser Group;
provided, however, that it shall not be a breach of this subparagraph (b) if
either of the Shareholders, in good faith, asserts a claim in any legal
proceeding against the Purchaser or NovaCare, Inc. under this Agreement, his
Employment Agreement, the Stockholders Agreement or the Guaranty or otherwise.
Because the remedy at law for any breach of the foregoing provisions of this
Section XI would be inadequate, each of the Shareholders hereby consents, in
case of any such breach, to the granting by any court of competent jurisdiction
of specific enforcement, including, but not limited to pre-judgment injunctive
relief, of such provisions, as provided for in Section XIII(F) hereof.

The parties hereto agree that if, in any proceeding, the
court or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
<PAGE> 27
For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and parent entities
operating in the same lines of business.

The parties hereto agree that, although for tax purposes no
portion of the Purchase Price shall be allocated to the covenants of the
Shareholders under this Section XI, the covenants of the Shareholders under this
Section XI were a significant inducement for the Purchaser entering into the
transactions contemplated by this Agreement and such tax allocation shall not
affect the rights of the Purchaser to enforce such covenants.

BROKERS AND FINDERS

The Shareholders' Obligation. Neither the Purchaser nor
the Company shall have any obligation to pay any fee or other compensation to
any person, firm or corporation dealt with by the Company or either of the
Shareholders in connection with this Agreement and the transactions contemplated
hereby, and each of the Shareholders, jointly and severally, hereby agrees to
indemnify and save the Purchaser harmless from any liability, damage, cost or
expense arising from any claim for any such fee or other compensation.

A. The Purchaser's Obligation. Neither the Company nor
either of the Shareholders shall have any obligation to pay any fee or other
compensation to any person, firm or corporation dealt with by the Purchaser in
connection with this Agreement and the transactions contemplated hereby, and the
Purchaser hereby agrees to indemnify and save each of the Shareholders harmless
from any liability, damage, cost or expense arising from any claim for any such
fee or other compensation.

XII

MISCELLANEOUS

Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy or sent by
registered or certified mail, postage prepaid, as follows:

(1) If to the Shareholders or the Company
(prior to the Closing):

Mr. Bernard Clinton Byrd, Jr.
1351 North Lake Sybelia Drive
Maitland, Florida 32751

- and -

Mr. William E. Mayville
722 Aledo Avenue
Coral Gables, Florida 33134

with a copy to:

Dean, Mead, Egerton, Bloodworth,
Capouano & Bozarth, P.A.
800 North Magnolia Avenue, Suite 1500
Orlando, Florida 32803
Attention: Steven C. Lee, Esq.
Telecopy No.: (407) 423-1831
Telephone No.: (407) 841-1200
<PAGE> 28
(2) If to the Purchaser or the Company
(subsequent to the Closing):

NovaResource, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.

A. Survival of Representations. Each representation,
warranty, covenant and agreement of the parties hereto herein contained shall
survive closing, notwithstanding any investigation at any time made by or on
behalf of any party hereto for a period of thirty (30) months thereafter; except
(i) for covenants and agreements to be performed subsequent to the Closing and
(ii) that nothing in the foregoing shall be deemed to diminish any Indemnifying
Party's indemnification obligations to an Indemnified Party respecting (a) any
matter for which written notice to the Indemnifying Party has been given prior
to the end of the applicable indemnification period, and (b) claims for
indemnification for Tax matters and common law fraud, which shall survive for
the duration of the applicable statutes of limitations.

B. Entire Agreement. This Agreement and the documents
referred to herein contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby, and no modification hereof
shall be effective unless in writing and signed by the party against which it is
sought to be enforced.

C. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement. The Shareholders agree to execute
and deliver any reasonable and customary management representation letter
requested by the Purchaser's independent certified public accountants in
connection with their audit of the S-X Financial Statements.

D. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby; provided, however, that the Company shall not bear any of
such expenses.
<PAGE> 29
E. Injunctive Relief. Notwithstanding the provisions of
Section XIII(G) hereof, in the event of a breach or threatened breach by either
of the Shareholders of the provisions of Section XI of this Agreement, each of
the Shareholders hereby consents and agrees that the Purchaser shall be entitled
in order to maintain the status quo ante pending the outcome of any arbitration
pursuant to Section XIII(G) hereof to an injunction or similar equitable relief
restraining either of the Shareholders, as the case may be, from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by either of the Shareholders, as the case
may be, under any such provision, without the necessity of showing any actual
damage or that money damages would not afford an adequate remedy and without the
necessity of posting any bond or other security. The parties hereto hereby
consent to the jurisdiction of the federal courts for the Middle District of
Florida and the Florida state courts located in such District for any
proceedings under this Section XIII(F). The parties hereto agree that the
availability of arbitration in Section XIII(G) hereof shall not be used by any
party as grounds for the dismissal of any injunctive actions instituted by the
Purchaser pursuant to this Section XIII(F).

F. Dispute Resolution.

(i) Arbitration. The parties shall attempt amicably to
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to J.A.M.S./Endispute for final binding arbitration, which
shall be conducted by a single arbitrator in the Orlando, Florida area, pursuant
to J.A.M.S./Endispute's Arbitration Rules (the "Rules"). The parties agree that,
notwithstanding anything to the contrary contained in the Rules, the arbitrator
shall not award consequential, exemplary, incidental, punitive or special
damages.

(ii) Procedure. It is agreed that if any party shall
desire relief of any nature whatsoever from any other party as a result of any
Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than one (1) year after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in Section XIII(F)
hereof), or judicial proceedings between them, and that no appeal or judicial
review of the award or decision of the Arbitrator shall be taken, but that such
award or decision may be entered as a judgment and enforced in any court having
jurisdiction over the party against whom enforcement is sought. Any equitable
relief awarded under Section XIII(F) hereof shall be dissolved upon issuance of
the Arbitrator's decision and order.

G. Invalidity. Should any provision of this Agreement be
held by a court or arbitration panel of competent jurisdiction to be enforceable
only if modified, such holding shall not affect the validity of the remainder of
this Agreement, the balance of which shall continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated as
though originally set forth in this Agreement. The parties further agree that
any such court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.

H. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Purchaser and
the Company, respectively, and the legal representatives and heirs of either of
the Shareholders.

I. Governing Law. The validity of this Agreement and of any
of its terms or provisions, as well as the rights and duties of the parties
under this Agreement, shall be construed pursuant to and in accordance with the
laws of the State of Florida without regard to conflict of laws principles.
<PAGE> 30
J. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.

L. Knowledge. Whenever used in this Agreement, words or
phrases referring to the Company's knowledge or awareness of certain facts,
circumstances or events shall mean the actual knowledge which the Company (or
any of the Affiliates) has or would obtain after due inquiry of the Company (and
the Affiliates) or of the Company's attorneys, accountants or agents, or of
members of management (including, without limitation, all officers and
directors) of the Company (or any of the Affiliates). It being understood and
agreed that such knowledge or awareness of the Company (or any of the
Affiliates), for purposes hereof, shall be attributed to any of the Affiliates.
<PAGE> 31
' IN WITNESS WHEREOF, this Agreement has been duly executed
by the parties hereto as of the date first above written.

RESOURCE ONE, INC.

By:___________________________
Name: William E. Mayville
Title: President

HUMAN RESOURCE ONE, INC.

By:___________________________
Name:
Title:

PROFESSIONAL INSURANCE PLANNERS OF FLORIDA,
INC.

By:___________________________
Name:
Title:

RX ONE, INC.

By:___________________________
Name:
Title:

______________________________
William E. Mayville

______________________________
Bernard Clinton Byrd, Jr.

NOVARESOURCE, INC.

By:
Name:
Title:
<PAGE> 32
1

Schedule I

CONSIDERATION
<TABLE>
<CAPTION>

==============================================================================================
Shareholder Cash at Closing Number of Additional Percentage of
NovaResource Cash Earn-Out
Shares at Closing
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William E. Mayville $1,000,000 93,750 $1,000,000 50%
- ----------------------------------------------------------------------------------------------
Bernard Clinton Byrd, Jr. $1,000,000 93,750 $1,000,000 50%
==============================================================================================
</TABLE>
<PAGE> 33
1

Schedule II

EARN-OUT PAYMENTS

(a) With respect to the Earn-Out Date of March 31, 1997, if
the Company shall have achieved "worksite employee numbers" (as defined in
Section I(E) hereof) of at least 2,500 worksite employees (the "1997 Target
Amount") on such Earn-Out Date, the Purchaser shall deliver to the Shareholders
(in the percentage amounts set forth in Schedule I hereto), as additional
payment for the Shares (x) $600,000 in cash and (y) 37,500 shares of
NovaResource Common Stock. Notwithstanding the foregoing, if the Company shall
not have achieved worksite employee numbers of at least the 1997 Target Amount
on such Earn-Out Date, then the Shareholders shall be entitled to receive the
reduced Earn-Out Payments set forth below based on worksite employee numbers
actually achieved:

<TABLE>
<CAPTION>
(A) (B) (C)
Worksite Number of Shares of Amount of
Employee NovaResource Cash
------ Common Stock ----
Numbers ------------
Achieved
<S> <C> <C>
2,500 37,500 $600,000
2,400 31,250 500,000
2,300 25,000 400,000
2,200 18,750 300,000
2,100 12,500 200,000
2,000 6,250 100,000
1,900 3,125 50,000
1,800 1,562 25,000
Less than 1,800 0 0
</TABLE>

(b) With respect to the Earn-Out Date of June 30, 1998, if
the Company shall have achieved "worksite employee numbers" of at least 4,000
worksite employees (the "1998 Target Amount") on such Earn-Out Date, the
Purchaser shall deliver to the Shareholders (in the percentage amounts set forth
in Schedule I hereto), as additional payment for the Shares (x) $700,000 in cash
and (y) 43,750 shares of NovaResource Common Stock. Notwithstanding the
foregoing, if the Company shall not have achieved worksite employee numbers of
at least the 1998 Target Amount on such Earn-Out Date, then the Shareholders
shall be entitled to receive the reduced Earn-Out Payments set forth below based
on worksite employee numbers actually achieved:
<PAGE> 34
<TABLE>
<CAPTION>
(A) (B) (C)
Worksite Number of Shares of Amount of
Employee NovaResource Cash
Numbers Common Stock ----
Achieved ------------
<S> <C> <C>

4,000 43,750 $700,000
3,900 37,500 600,000
3,800 31,250 500,000
3,700 25,000 400,000
3,600 18,750 300,000
3,500 12,500 200,000
3,400 6,250 100,000
3,300 3,125 50,000
3,200 1,562 25,000
Less than 3,200 0 0
</TABLE>

(c) With respect to the Earn-Out Date of March 31,
1999, if the Company shall have achieved "worksite employee numbers" of at least
5,500 worksite employees (the "1999 Target Amount") on such Earn-Out Date, the
Purchaser shall deliver to the Shareholders (in the percentage amounts set forth
in Schedule I hereto), as additional payment for the Shares (x) $700,000 in cash
and (y) 43,750 shares of NovaResource Common Stock. Notwithstanding the
foregoing, if the Company shall not have achieved worksite employee numbers of
at least the 1999 Target Amount on such Earn-Out Date, then the Shareholders
shall be entitled to receive the reduced Earn-Out Payments set forth below based
on worksite employee numbers actually achieved:

<TABLE>
<CAPTION>
(A) (B) (C)
Worksite Number of Shares of Amount of
Employee NovaResource Cash
Numbers Common Stock ----
Achieved ------------
<S> <C> <C>

5,500 43,750 $700,000
5,400 37,500 600,000
5,300 31,250 500,000
5,200 25,000 400,000
5,100 18,750 300,000
5,000 12,500 200,000
4,900 6,250 100,000
4,800 3,125 50,000
4,700 1,562 25,000
Less than 4,700 0 0
</TABLE>

Notwithstanding anything in this Agreement to the contrary,
in the event one of the Shareholders (x) is terminated by the Purchaser pursuant
to the terms of Section 6.4 of such Shareholder's Employment Agreement or (y)
terminates his Employment Agreement pursuant to Section 6.5 of such
Shareholder's Employment Agreement (a) prior to March 31, 1997, such terminated
Shareholder shall receive the Earn-Out Payments with respect to the Earn-Out
Dates of March 31, 1997, June 30, 1998 and March 31, 1999, on the due dates set
forth in Section I(C), equal to one-half of the amount that would, in the
aggregate, be due to the Shareholders if the Company had achieved employee
worksite numbers equal to the 1997 Target Amount, 1998 Target Amount and 1999
Target Amount, respectively, (b) on or after March 31, 1997 and prior to June
30, 1998, such terminated Shareholder shall receive the Earn-Out Payments with
respect to the Earn-Out Dates of June 30, 1998 and March 31, 1999, on the due
dates set forth in Section I(C), equal to one-half of the amount that would, in
the aggregate, be due to the Shareholders if the Company had achieved employee
worksite numbers equal to the 1998 Target Amount and 1999 Target Amount,
respectively, and (c) on or after June 30, 1998 and prior to March 31, 1999,
such terminated Shareholder shall receive the Earn-Out Payments with respect to
the Earn-Out Date of
<PAGE> 35
March 31, 1999, on the due date set forth in Section I(C), equal to one-half of
the amount that would, in the aggregate, be due to the Shareholders if the
Company had achieved employee worksite numbers equal to the 1999 Target Amount.
Nothing herein shall affect the obligation of the Purchaser to pay the remaining
one-half of any of the Earn-Out Payments to the non-terminated Shareholder based
upon the employee worksite numbers actually achieved by the Company when and if
such payments are due and payable and such terminated Shareholder shall have no
rights with respect to such remaining one-half of such Earn-Out Payments
regardless of the employee worksite numbers actually achieved by the Company.
The foregoing provisions shall also apply in the event the other Shareholder is
terminated subsequent to the termination of the first Shareholder.
<PAGE> 36
Schedule III

ADDITIONAL PAYMENTS; EXAMPLES OF EARN-OUT COMPUTATIONS

(a) In addition to the payments set forth in Section I(C)
hereof, subject to the conditions set forth therein and in Section I(D) hereof
and in Schedule II hereto, with respect to the Earn-Out Date of March 31, 1997,
if the Company shall have achieved worksite employee numbers of greater than the
1997 Target Amount, the Purchaser shall deliver to the Shareholders (in the
percentage amounts set forth in Schedule I hereto), as additional payment for
the Shares, at the same time the payment set forth in Section I(C) hereof is
made (and only if such Earn-Out Payments are required to be made), (i) an amount
in cash equal to $600,000, multiplied by a fraction of which the numerator shall
be the amount by which the worksite employee numbers of the Company for such
period exceed the 1997 Target Amount and the denominator shall be the 1997
Target Amount and (ii) a number of shares of NovaResource Common Stock
determined by multiplying 37,500 by a fraction of which the numerator shall be
the amount by which the worksite employee numbers of the Company for such period
exceed the 1997 Target Amount and the denominator shall be the 1997 Target
Amount.

(b) In addition to the payments set forth in Section I(C)
hereof, subject to the conditions set forth therein and in Section I(D) hereof
and in Schedule II hereto, with respect to the Earn-Out Dates of June 30, 1998
and March 31, 1999, if the Company shall have achieved worksite employee numbers
of greater than the 1998 Target Amount or the 1999 Target Amount, as the case
may be, the Purchaser shall deliver to the Shareholders (in the percentage
amounts set forth in Schedule I hereto), as additional payment for the Shares,
at the same time the payment set forth in Section I(C) hereof is made (and only
if such Earn-Out Payments are required to be made), (i) an amount in cash equal
to $700,000, multiplied by a fraction of which the numerator shall be the amount
by which the worksite employee numbers of the Company for such period exceed the
1998 Target Amount or the 1999 Target Amount, as the case may be, and the
denominator shall be the 1998 Target Amount or the 1999 Target Amount, as the
case may be, and (ii) a number of shares of NovaResource Common Stock determined
by multiplying 43,750 by a fraction of which the numerator shall be the amount
by which the worksite employee numbers of the Company for such period exceed the
1998 Target Amount or the 1999 Target Amount, as the case may be, and the
denominator shall be the 1998 Target Amount or the 1999 Target Amount, as the
case may be.

The examples in this Schedule III have been prepared solely
for the purpose of showing the amount by which the contingent purchase price
could be increased using two hypothetical examples. Example #1 assumes the
worksite employee numbers on the Earn-Out Date of March 31, 1997 increase 10%
over the 1997 Target Amount, and example #2 assumes the worksite employee
numbers on the Earn-Out Date of March 31, 1997 increase 20% over the 1997 Target
Amount.

<TABLE>
<CAPTION>
Example 1 Worksite Cash Number of
Employee Numbers Shares of
NovaResource
Common Stock
<S> <C> <C> <C>
Target Amount 2,500 $600,000 37,500
Amount over Target 250 60,000 3,750
Amount (10%) ----- -------- ------
2,750 $660,000 41,250
===== ======== ======
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
Example 2 Worksite Cash Number of
Employee Numbers Shares of
NovaResource
Common Stock
<S> <C> <C> <C>
Target Amount 2,500 $600,000 37,500
Amount over Target 500 120,000 7,500
Amount (20%) ----- ------- ------
3,000 $720,000 45,000
===== ======= ======
</TABLE>

<PAGE> 1
EXHIBIT 2(b)

NOVACARE EMPLOYEE SERVICES, INC.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406

As of April 8, 1997

Mr. William E. Mayville
722 Aledo Avenue
Coral Gables, Florida 33134

Mr. Bernard Clinton Byrd, Jr.
1351 North Lake Sybelia Drive
Maitland, Florida 32751

Dear Bill and Barry:

This is to confirm that we have agreed to amend certain terms
and provisions of the Agreement of Purchase and Sale dated as of September 16,
1996 among NovaCare Employee Services, Inc., a Delaware corporation (f/k/a
NovaResource, Inc., the "Purchaser"), Resource One, Inc., a Florida corporation
("Resource One"), Human Resource One, Inc., a Florida corporation ("HR One"), Rx
One, Inc., a Florida corporation ("Rx One"), and Professional Insurance Planners
of Florida, Inc., a Florida corporation ("PIP"; PIP, Rx One, HR One, and
Resource One are collectively referred to as the "Company"), and William E.
Mayville and Bernard Clinton Byrd, Jr. (collectively, the "Shareholders") (such
agreement, as heretofore amended, the "Purchase Agreement").

1. Amendments. (a) Section I(B)(i) of the Purchase
Agreement is hereby amended by deleting such Section in its entirety and
substituting the following therefor:

(i) The purchase price (the "Purchase Price") for the
Shares is (a) $2,000,000, in cash, payable at the Closing, (b)
$2,000,000, in cash, payable in accordance with subsection (iv) below
(the "Additional Cash"), (c) 187,500 shares (the
<PAGE> 2
2

"NovaResource Shares") of the common stock, $.01 par value (the
"NovaResource Common Stock"), of the Purchaser, payable at the Closing,
and (d) the payments provided for in Section I(C) hereof (such
payments, the "Earn-Out Payments")."

(b) Section I(C) of the Purchase Agreement is hereby amended
by deleting such Section in its entirety and substituting the following
therefor:

"C. Earn-Out Payments. On each of March 31, 1997, June 30,
1998 and March 31, 1999 (each, a "Payment Date"), the Purchaser shall
deliver to the Shareholders, in additional payment for the Shares, the
Earn-Out Payments. The amount of the Earn-Out Payments payable to the
Shareholders on the (x) March 31, 1997 Payment Date shall be $660,000
in cash and 41,250 shares of NovaResource Common Stock, (y) June 30,
1998 Payment Date shall be $600,000 in cash and 52,500 shares of
NovaResource Common Stock and (z) March 31, 1999 Payment Date shall be
52,500 shares of NovaResource Common Stock. The Earn-Out Payments shall
be paid to the Shareholders regardless of, and shall not increase or
decrease as a result of, the actual "worksite employee numbers" of the
Company. Each of the Earn-Out Payments shall be made by delivery to
each of the Shareholders of (i) a certified or official bank check
payable to the order of such Shareholder and (ii) a certificate
representing shares of NovaResource Common Stock, registered in the
name of such Shareholder, in each case, in such amounts of cash and
such numbers of shares as are determined in accordance with Exhibit 1
to that certain letter agreement dated April 8, 1997 by and among the
Purchaser, the Shareholders and the Company. Number of shares of
NovaResource Common Stock set forth in this Section I(C) shall be
appropriately adjusted for any stock split, stock dividend or other
similar event affecting the NovaResource Common Stock; provided,
however, that the Purchaser and each of the Shareholders hereby agree
that (x) the shares of NovaResource Common Stock to be received as part
of any Earn-Out Payment shall not be adjusted for the 4 for 1 stock
split of the NovaResource Common Stock effected on January 2, 1997 and
(y) the $16 and $8 per share prices set forth in Sections I(B)(ii),
I(B)(iii) and I(F) of the Purchase Agreement and Section 5(iii) of the
Stockholders Agreement are not to be effected by the stock split
<PAGE> 3
3

effective January 2, 1997. Fractional shares shall be rounded to the
nearest whole share."

(d) Schedules II and III to the Purchase Agreement are hereby
deleted in their entirety.

2. Payments. In consideration of entering into this
Amendment and for other good and valuable consideration, the Purchaser shall (i)
pay to each of the Shareholders $20,000, payable by delivery to each of the
Shareholders within ten (10) days after the execution of this Agreement of a
certified or official bank check payable to the order of such Shareholder in
such amount and (ii) issue to each of the Shareholders, as additional payment
for the Shares, a promissory note in the principal amount of $393,500, in the
form attached hereto as Exhibit 2.

3. Repurchase of Shares. The parties acknowledge and
confirm that as of January 10, 1997 the Purchaser repurchased 281,250 shares of
NovaResource Common Stock from each of the Shareholders at a purchase price of
$1.92 per share of NovaResource Common Stock, together with interest from
January 10, 1997 through the date actually paid at the rate of 6% per annum. The
Purchaser shall pay for such shares by delivery to each of the Shareholders
within ten (10) days after the execution of this Agreement of a certified or
official bank check payable to the order of such Shareholder in the amount of
the purchase price for such shares (including such interest).

4. Miscellaneous.

Except as modified hereby, the Purchase Agreement
will remain in full force and effect. All capitalized terms used in this letter
and not otherwise defined will have the same meaning given to such terms in the
Purchase Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.

* * *
<PAGE> 4
4

Please evidence your agreement to the foregoing by signing this letter
where indicated below.

Very truly yours,

NOVACARE EMPLOYEE SERVICES, INC.

By:____________________________

Accepted and Agreed:

RESOURCE ONE, INC.

By:______________________________
Name:
Title:

HUMAN RESOURCE ONE, INC.

By:______________________________
Name:
Title:

PROFESSIONAL INSURANCE PLANNERS OF
FLORIDA, INC.

By:______________________________
Name:
Title:

RX ONE, INC.

By:______________________________
Name:
Title:

_________________________________
William E. Mayville

_________________________________
Bernard Clinton Byrd, Jr.
<PAGE> 5
EXHIBIT 1

EARN-OUT PAYMENTS

<TABLE>
<CAPTION>
Shareholder March 31, 1997 June 30, 1998 March 31, 1999
Payment Date Payment Date Payment Date
Cash Shares Cash Shares Shares
<S> <C> <C> <C> <C> <C>
William E. Mayville $300,000 18,750 $160,000 21,875 21,875
Bernard Clinton Byrd, Jr $360,000 22,500 $440,000 30,625 30,625
TOTAL $660,000 41,250 $600,000 52,500 52,500
</TABLE>

<PAGE> 1
EXHIBIT 2(c)

AGREEMENT OF PURCHASE AND SALE

By and Among

EMPLOYEE SERVICES OF AMERICA, INC.,

EMPLOYEE SERVICES OF FLORIDA, INC.,

EMPLOYERS RISK MANAGEMENT, INC.,

EMPLOYEE BENEFITS MANAGEMENT, INC.,

EMPLOYERS' DIVERSIFIED SERVICES, INC.,

THE SHAREHOLDERS AND OPTION HOLDERS OF EMPLOYEE SERVICES
OF AMERICA, INC.

and

NOVARESOURCE, INC.
<PAGE> 2
TABLE OF CONTENTS

SECTION PAGE

I PURCHASE AND SALE OF THE SHARES..................................... 2

II REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE COMPANY......................................................... 7

III REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE SHAREHOLDERS.................................................... 21

IV REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
THE PURCHASER....................................................... 23

V CONDUCT OF THE BUSINESS............................................. 25

VI ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY, THE SHAREHOLDERS AND THE PURCHASER......................... 28

VII CLOSING............................................................. 29

VIII CONDITIONS TO THE SHAREHOLDERS' OBLIGATION TO CLOSE................. 29

IX CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE................... 32

X INDEMNIFICATION..................................................... 33

XI NON-COMPETITION AGREEMENT........................................... 36

XII BROKERS AND FINDERS................................................. 37

XIII MISCELLANEOUS....................................................... 38

SCHEDULES

I. CONSIDERATION
II. EARN-OUT PAYMENTS
III. ADDITIONAL PAYMENTS; EXAMPLES OF EARN-OUT COMPUTATIONS
<PAGE> 3
AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT dated as of the 24th day of January, 1997 by
and among Employee Services of America, Inc. a Florida corporation ("ESA"),
Employee Services of Florida, Inc., a Florida corporation ("ESF"), Employers
Risk Management, Inc., a Florida corporation ("ERM"), Employee Benefits
Management, Inc., a Florida corporation ("EBM"), Employers' Diversified
Services, Inc., a Florida corporation ("EDSI"), and the other shareholders and
non-shareholder option holders set forth on the signature pages hereto (each, a
"Shareholder", and collectively, the "Shareholders"), and NovaResource, Inc., a
Delaware corporation (the "Purchaser").

W I T N E S S E T H:

WHEREAS, the Shareholders are the holders of an aggregate of
428,747 shares of common stock, $.01 par value (the "Common Stock"), of ESA,
which shares constitute all of the issued and outstanding shares of capital
stock of ESA, and options to purchase 146,811 shares of Common Stock, which
options constitute all of the issued and outstanding options to purchase shares
of capital stock of ESA (all such shares and such options to purchase shares of
Common Stock held by the Shareholders being hereinafter referred to as the "ESA
Shares");

WHEREAS, ESF is a wholly owned subsidiary of ESA (ESA, ESF,
ESA's other subsidiaries (together with ESF, the "Subsidiaries"), ERM and EBM
are hereinafter collectively referred to as the "Company");

WHEREAS, EDSI is the holder of 428,747 shares of common stock,
$.01 par value (the "ERM Common Stock"), of ERM and 428,747 shares of common
stock, $.01 par value (the "EBM Common Stock"), of EBM (all such shares of ERM
Common Stock and EBM Common Stock held by EDSI being hereinafter referred to as
the "ERM Shares" and the "EBM Shares", respectively; the ERM Shares, the EBM
Shares and the ESA Shares are collectively referred to as the "Shares");

WHEREAS, ESA and the Subsidiaries are a professional employer
organization and are engaged in the business, among other things, of providing
businesses with an outsourcing solution to the costs related to employment and
human resources and related activities in the State of Florida (such activities
as conducted by ESA and the Subsidiaries on the date of the Closing (as
hereinafter defined) being hereinafter referred to as the "ESA Business");
<PAGE> 4
2

WHEREAS, ERM is engaged in the business, among other things,
of providing risk management consulting services to businesses in the State of
Florida (such activities as conducted by ERM on the date of the Closing being
hereinafter referred to as the "ERM Business");

WHEREAS, EBM is engaged in the business, among other things,
of providing employee benefit plans, and administration and consulting services
in connection therewith, to businesses in the State of Florida (such activities
as conducted by EBM on the date of the Closing being hereinafter referred to as
the "EBM Business;" the ESA Business, the ERM Business and the EBM Business are
collectively referred to herein as the "Business"); and

WHEREAS, effective on the date of the Closing, the Purchaser
desires to acquire from the Shareholders all of the Shares, and each of the
Shareholders desires to sell his respective Shares to the Purchaser, on the
terms and subject to the conditions hereinafter set forth.

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

PURCHASE AND SALE OF THE SHARES

A. Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, each of
the Shareholders shall sell, assign and convey to the Purchaser and the
Purchaser shall purchase, acquire and accept from the Shareholders, such
Shareholder's Shares.
<PAGE> 5
3

B. Purchase Price. (i) The purchase price (the "Purchase
Price") for the Shares is (a) $12,000,000 in cash, payable to the Shareholders
(in the amounts set forth on Schedule I hereto) at the Closing, (b) $10,000,000
in cash, payable in accordance with subsection (iii) below (the "Additional
Cash"), (c) 375,000 shares (the "NovaResource Shares") of the common stock, $.01
par value (the "NovaResource Common Stock"), of the Purchaser, payable to the
Shareholders in the numbers of shares set forth on Schedule I hereto at the
Closing; and (d) the contingent payments, if any, provided for in Section I(C)
and I(D) hereof (such payments, the "Earn-Out Payments").
<PAGE> 6
4

(i) If prior to and on December 31, 1998 the NovaResource Common Stock is not
(a) listed or admitted to trading on a national securities exchange, (b) listed
on the National Market System of the Nasdaq Stock Market, Inc. ("NASDAQ") or (c)
traded in the NASDAQ SmallCap Market, each of the Shareholders will have the
right to require the Purchaser to purchase all (but not less than all) of the
NovaResource Shares owned by such Shareholder at a purchase price of $16 per
NovaResource Share. Notwithstanding that the NovaResource Common Stock is so
listed, admitted to trading or traded, each of the Shareholders shall continue
to have the put right set forth in this clause (ii), subject to the other terms
and conditions contained in this clause (ii), in the event that (x) the IPO (as
hereinafter defined) shall have occurred prior to or on December 31, 1998 at an
initial offering price to the public of less than $16 per share of NovaResource
Common Stock or the closing price per share for the NovaResource Common Stock on
December 31, 1998 shall be less than $16 per share and (y) prior to the closing
of the IPO, the Purchaser shall have ceased to be controlled, directly or
indirectly, by NovaCare, Inc., a Delaware corporation ("NovaCare"). Such right
to require the Purchaser to purchase NovaResource Shares shall be exercised by
written notice to the Purchaser no later than January 31, 1999. No later than
twenty (20) business days after receipt by the Purchaser of such notice, at such
place and time as shall be mutually agreed to by the Purchaser and a Shareholder
who has exercised his right to require that the Purchaser purchase his
NovaResource Shares, the exercising Shareholder shall deliver to the Purchaser
the NovaResource Shares owned by such Shareholder in due and proper form for
transfer, against delivery by the Purchaser of a cashier's or official bank
check payable to the order of, or a wire transfer to an account designated by,
such Shareholder in the amount of $16 per NovaResource Share being sold by such
Shareholder. The agreements contained in this clause (ii) shall be null and void
and of no force and effect with respect to a Shareholder if such Shareholder
shall have disposed of any of the NovaResource Shares prior to December 31, 1998
other than pursuant to Section 2(b) (but only as a result of the Shareholder's
death) or 5 of the Stockholders Agreement (as hereinafter defined) or in a
transaction exempt from registration pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), in which all transferees agree to be bound by
all the terms and conditions of this Agreement and the Stockholders Agreement,
including, but not limited to, the Purchaser's right of offset for Damages
contained in Section X hereof.

(iii) The Additional Cash shall be paid by the Purchaser to
the Shareholders on the earlier of (a) ten (10) days after the closing of the
initial underwritten offering (the "IPO") of the NovaResource Common Stock to
the public for cash or (b) December 31, 1997, by delivery to each of the
Shareholders of a cashier's check payable to, or a wire transfer to an account
designated by, such Shareholder, in the amount of the portion of the Additional
Cash set forth opposite such Shareholder's name on Schedule I hereto.
<PAGE> 7
5

C. Earn-Out Payments. As additional payment for the Shares,
subject to the conditions set forth herein and in Schedule II hereto, within
twenty (20) days after March 31, 1997 and March 31, 1998, respectively (each, an
"Earn-Out Date"), the Purchaser shall deliver to the Shareholders (in the
percentage amounts set forth opposite each such Shareholder's name in Schedule I
hereto) the Earn-Out Payments, if any, payable with respect to such Earn-Out
Date. The amount of the Earn-Out Payments payable to the Shareholders on each
Earn-Out Date shall be (i) based upon the achievement by the Company of targeted
"worksite employee numbers" (as hereinafter defined) and (ii) determined in
accordance with the provisions hereof and Schedule II hereto. Each of the
Earn-Out Payments, if earned, shall be made by delivery to each of the
Shareholders of (x) a cashier's or official bank check payable to, or a wire
transfer to an account designated by, such Shareholder and (y) a certificate
representing shares of the NovaResource Common Stock, registered in the name of
such Shareholder, in each case, in such amounts of cash and such numbers of
shares as are determined in accordance with Schedules I and II hereto.

D. Additional Payments; Shortfall. (i) In addition to the
consideration set forth in Section I(C) hereof, subject to the conditions set
forth herein and in Schedule III hereto, with respect to each of the Earn-Out
Dates of March 31, 1997 and March 31, 1998, respectively, if the Company shall
have achieved "worksite employee numbers" greater than the 1997 Target Amount
and 1998 Target Amount (as each such term is defined in Schedule II hereto),
respectively, the Purchaser shall deliver to the Shareholders (in the percentage
amounts set forth opposite each such Shareholder's name in Schedule I hereto),
at the same time the Earn-Out Payments set forth in Section I(C) hereof are made
(and only if such Earn-Out Payments are required to be made), as additional
payment for the Shares, the additional payments (the "Additional Payments")
provided for in Schedule III hereto. Each of the Additional Payments, if earned,
shall be made by delivery to each of the Shareholders of (i) a cashier's or
official bank check payable to, or a wire transfer to an account designated by,
such Shareholder and (ii) a certificate representing shares of NovaResource
Common Stock registered in the name of such Shareholder, in each case, in such
amounts of cash and such number of shares as are determined in accordance with
Schedules I and III hereto.

(i) In the event that there shall be a "Shortfall" (as
hereinafter defined) with respect to the 1997 Target Amount, and the Company
shall achieve worksite employee numbers on the Earn-Out Date of March 31, 1998
(the "Excess Date") in excess of the applicable Target Amount for the Excess
Date (the "Excess Amount"), at the option of the Shareholders (unanimously
exercised), the Earn-Out Payments with respect to such Excess Date shall be
computed by adding (i) the amount of the Earn-Out Payments which would have been
payable pursuant to Section I(C) for the Earn-Out Date of March 31, 1997, in
excess of that actually paid, if the Business
<PAGE> 8
6

had worksite employee numbers equal to the worksite employee numbers actually
achieved in the prior period plus the Excess Amount carried back, if any, which
Excess Amount shall not exceed the Shortfall, and (ii) the Earn-Out Payments, if
any, which would be payable pursuant to Section I(C) with respect to the Excess
Date if the worksite employee numbers of the Company with respect to the Excess
Date were reduced by the Excess Amount carried back. Such option shall be
exercised by the Shareholders by delivering written notice executed by all of
the Shareholders to the Purchaser no later than fifteen (15) days after the
Shareholders are notified by the Purchaser of the worksite employee numbers for
such Excess Date. For purposes hereof, "Shortfall" shall mean the amount by
which the Company fails to achieve worksite employee numbers at least equal to
the 1997 Target Amount.

E. Computation of Worksite Employee Numbers; Certain
Adjustments. The Purchaser shall, within ten (10) days after each Earn-Out Date,
compute the worksite employee numbers of the Company for each such Earn-Out Date
and provide those numbers to the Shareholders within five (5) days after their
computation. The amount so computed shall be the worksite employee numbers for
purposes of determining whether or not Earn-Out Payments shall be due and
payable. For purposes of this Agreement, "worksite employee numbers" shall mean
the number of persons paid as employees of all of the clients of the Company for
which the Company paid such employees' wages during the month ending on such
Earn-Out Date.

Notwithstanding the determination of worksite employee numbers
for any Earn-Out Date by the Purchaser, the Shareholders shall have the right to
receive the information upon which such determination was made, and shall, in
the event of a dispute as to the amount or method of calculation of such
worksite employee numbers (which dispute shall be resolved as provided in
Section XIII(G) hereof), have the right to review all work papers relating to
the determination of the worksite employee numbers.

<PAGE> 9
7

F. Additional Cash Adjustment. If on December 31, 1998, the
NovaResource Common Stock is not (a) listed or admitted to trading on a national
securities exchange, (b) listed on the NASDAQ National Market System or (c)
traded in the NASDAQ SmallCap Market, each of the Shareholders will have the
right to require the Purchaser to purchase all (but not less than all) shares,
if any, of NovaResource Common Stock issued by the Purchaser to such Shareholder
in connection with the Earn-Out Payments and the Additional Payments, if any, at
a purchase price of $16 per share of NovaResource Common Stock. Notwithstanding
that the NovaResource Common Stock is so listed, admitted to trading or traded,
each of the Shareholders shall continue to have the put right set forth in this
Section I(F), subject to the other terms and conditions contained in this
Section I(F), in the event that (x) the IPO shall have occurred prior to or on
December 31, 1998 at an initial offering price to the public of less than $16
per share of NovaResource Common Stock or the closing price per share for the
NovaResource Common Stock on December 31, 1998 shall be less than $16 per share
and (y) prior to the closing of the IPO, the Purchaser shall have ceased to be
controlled, directly or indirectly, by NovaCare. Such right to require the
Purchaser to purchase such shares of NovaResource Common Stock shall be
exercised by written notice to the Purchaser no later than January 31, 1999. No
later than twenty (20) business days after receipt by the Purchaser of such
notice, at such place and time as shall be mutually agreed to by the Purchaser
and a Shareholder who has exercised his right to require that the Purchaser
purchase his shares of NovaResource Common Stock, the exercising Shareholder
shall deliver to the Purchaser such shares of NovaResource Common Stock in due
and proper form for transfer, against delivery by the Purchaser of a cashier's
or official bank check payable to the order of, or a wire transfer to an account
designated by, such Shareholder in the amount of $16 per share of NovaResource
Common Stock being sold by such Shareholder. The agreements contained in this
paragraph shall be null and void and of no force and effect with respect to a
Shareholder if such Shareholder shall have disposed of any of such shares of
NovaResource Common Stock prior to December 31, 1998 other than pursuant to
Section 2(b) (but only as a result of such Shareholder's death) or 5 of the
Stockholders Agreement or in a transaction exempt from registration pursuant to
the Securities Act, in which all transferees agree to be bound by all the terms
and conditions of this Agreement and the Stockholders Agreement, including, but
not limited to, the Purchaser's right of offset for Damages contained in Section
X hereof.

G. Corporate Reorganization; Etc. Numbers of shares of
NovaResource Common Stock (including the NovaResource Shares) and prices per
share set forth in this Agreement shall be appropriately adjusted for any stock
split, stock dividend, reverse stock split or other similar event affecting the
NovaResource Common Stock. Fractional shares shall be rounded to the nearest
whole share.
<PAGE> 10
8

In the event of the consolidation or merger of the Purchaser
with or into another entity or the acquisition of all or substantially all the
assets of the Purchaser by another person prior to the making of an Earn-Out
Payment (other than a consolidation or merger in which the Purchaser is the
continuing corporation and which does not result in any change in the
NovaResource Common Stock), the Purchaser shall have the option to pay the
Shareholders at such time as a payment is due pursuant to Sections I(C) or I(D)
hereof, in lieu of the NovaResource Common Stock provided for in such Sections,
the consideration per share in the form (in stock or cash or other
consideration) payable to the other holders of NovaResource Common Stock in
connection with such transaction, in each case, multiplied by the number of
shares of the NovaResource Common Stock deliverable to the Shareholders provided
for in such Sections; notwithstanding the foregoing, in the event that such
consolidation, merger or acquisition occurs prior to the IPO, each of the
Shareholders shall have the right to receive cash (which right shall be
exercised by such Shareholder by notifying the Purchaser at least five business
days before the relevant Earn-Out Date), at the rate of $16 per share for the
shares of NovaResource Common Stock to which such Shareholder would have been
entitled pursuant to Sections I(C) or I(D) hereof.

II
REPRESENTATIONS, WARRANTIES,;
COVENANTS AND AGREEMENTS OF THE COMPANY

The Company hereby represents and warrants to, and covenants
and agrees with, the Purchaser, as of the date of the Closing, that:
<PAGE> 11
9

A. Organization and Qualification. Each of ESA, the
Subsidiaries, ERM and EBM is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation as set forth in
Exhibit II(A) and has full corporate power and authority to own its properties
and to conduct the businesses in which it is now engaged. The Company is in good
standing in each other jurisdiction wherein the failure so to qualify would have
an adverse effect on its businesses or financial condition taken as a whole in
excess of $25,000 with respect to all such failures to qualify (a "Material
Adverse Effect"). Except for ESA's ownership of all of the capital stock of the
Subsidiaries as set forth on Exhibit II(A) hereto, neither ESA, any of the
Subsidiaries, ERM or EBM has any subsidiaries, owns any capital stock or other
proprietary interest, directly or indirectly, in any other corporation,
association, trust, partnership, joint venture or other entity and has no
agreement with any person, firm or corporation to acquire any such capital stock
or other proprietary interest. Each of ESA, each of the Subsidiaries, ERM and
EBM has full power, authority and legal right, and all necessary approvals,
permits, licenses and authorizations, to own its properties and to conduct the
portion of the Business conducted by it, except where the failure to have such
would not have a Material Adverse Effect, and to enter into and consummate the
transactions contemplated under this Agreement. The copies of the articles of
incorporation and by-laws of the Company which have been delivered to the
Purchaser are complete and correct.

B. Authority. The execution and delivery of this Agreement by
each of ESA, ESF, ERM and EBM, the performance by each of ESA, ESF, ERM and EBM
of its covenants and agreements hereunder and the consummation by each of ESA,
ESF, ERM and EBM of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes a valid
and legally binding obligation of each of ESA, ESF, ERM and EBM, enforceable
against each of ESA, ESF, ERM and EBM in accordance with its terms, subject to
the effect of (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the rights and remedies of creditors generally and (ii)
general principles of equity.

C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of ESA,
ESF, ERM or EBM or any statute, ordinance, regulation, order, judgment or decree
of any court or governmental agency or board, or conflicts with or will result
in any breach of any of the terms of or constitute a default under or result in
the termination of or the creation of any lien pursuant to the terms of any
material contract or agreement to which ESA, ESF, ERM or EBM is a party or by
which ESA, ESF, ERM or EBM or any of the assets of ESA, ESF, ERM or EBM is
bound. Except for (i) the filing of a Hart-Scott-Rodino Notification and Report
Form (an "H-S-R Form") and the expiration
<PAGE> 12
10

or termination of the related waiting period pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), and (ii) the
consent of the Florida Department of Business and Professional Regulation,
Division of Professions, Board of Employee Leasing Companies (the "Florida
Division"), no consents, approvals or authorizations of, or filings with, any
governmental authority or any other person or entity are required in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for required consents, if any, to
assignment of permits, certificates, contracts, leases and other agreements as
set forth in Exhibit II(C) attached hereto.

D. Capitalization. (i) The authorized capital stock of ESA
consists of 800,000 shares of Common Stock, of which 428,747 shares are issued
and outstanding. All of the issued and outstanding shares of Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable. All of the issued and outstanding shares of Common Stock are
owned beneficially and of record by the Shareholders, free and clear of any
lien, encumbrance, charge, security interest or claim whatsoever. Except as set
forth on Exhibit II(D) hereto, there are no outstanding subscriptions, warrants,
options, calls, commitments or other rights or agreements to which ESA or any of
the Shareholders is bound relating to the issuance, sale or redemption of shares
of Common Stock or other securities of ESA. No person other than the
Shareholders has any interest in the ESA Shares. Except as set forth on Exhibit
II(D) hereto, no shares of capital stock or other securities of ESA are reserved
for any purpose.

(i) The authorized capital stock of the
Subsidiaries is as set forth on Exhibit II(A) hereto. All of the issued and
outstanding shares of capital stock of the Subsidiaries (the "Subsidiaries
Stock") have been duly and validly authorized and issued and are fully paid and
non-assessable. All of the issued and outstanding shares of the Subsidiaries
Stock are owned beneficially and of record by ESA, free and clear of any lien,
encumbrance, charge, security interest or claim whatsoever. There are no
outstanding subscriptions, warrants, options, calls, commitments or other rights
or agreements to which ESA or any Subsidiary is bound relating to the issuance,
sale or redemption of shares of Subsidiaries Stock or other securities of any
Subsidiary. No person other than ESA has any interest in the outstanding shares
of the Subsidiaries Stock. No shares of capital stock or other securities of any
Subsidiary are reserved for any purpose.

(ii) The authorized capital stock of ERM consists
of 800,000 shares of ERM Common Stock, of which 428,747 shares are issued and
outstanding. All of the issued and outstanding shares of ERM Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable. All of the issued and outstanding shares of ERM Common Stock are
owned beneficially and of record
<PAGE> 13
11

by EDSI, free and clear of any lien, encumbrance, charge, security interest or
claim whatsoever. There are no outstanding subscriptions, warrants, options,
calls, commitments or other rights or agreements to which ERM or EDSI is bound
relating to the issuance, sale or redemption of shares of ERM Common Stock or
other securities of ERM. No person other than EDSI has any interest in the ERM
Shares. No shares of capital stock or other securities of ERM are reserved for
any purpose.

(iii) The authorized capital stock of EBM consists of
800,000 shares of EBM Common Stock, of which 428,747 shares are issued and
outstanding. All of the issued and outstanding shares of EBM Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable. All of the issued and outstanding shares of EBM Common Stock are
owned beneficially and of record by EDSI, free and clear of any lien,
encumbrance, charge, security interest or claim whatsoever. There are no
outstanding subscriptions, warrants, options, calls, commitments or other rights
or agreements to which EBM or EDSI is bound relating to the issuance, sale or
redemption of shares of EBM Common Stock or other securities of EBM. No person
other than EDSI has any interest in the EBM Shares. No shares of capital stock
or other securities of EBM are reserved for any purpose.

E. Financial Statements; No Undisclosed Liabilities. The
Company has delivered to the Purchaser audited combined balance sheets of ESA's
predecessor group as of December 31, 1994 and December 31, 1995, an unaudited
consolidated balance sheet of ESA as of September 30, 1996, an unaudited balance
sheet of ERM as of September 30, 1996 and an unaudited balance sheet of EBM as
of September 30, 1996, and the related statements of income, retained earnings
and cash flows and the notes thereto, for the periods then ended (hereinafter
referred to as the "Financial Statements"). The audited Financial Statements
have been audited by Varnadore, Tyler & Hawthorne, P.A., ESA's independent
accountants. The Financial Statements are true and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied consistently throughout the periods involved. The Financial
Statements fairly present the financial condition of the Company as at the dates
thereof and the results of the operations of the Company for the periods
indicated. The balance sheets contained in the Financial Statements fairly
reflect all liabilities of the Company of the types normally reflected in
balance sheets as at the dates thereof. Except to the extent set forth in or
provided for in the consolidated balance sheet of ESA as of September 30, 1996,
the balance sheet of ERM as of September 30, 1996 or the balance sheet of EBM as
of September 30, 1996 included in the Financial Statements (collectively, the
"1996 Balance Sheet") or as identified in Exhibit II(E), and except for current
liabilities incurred in the ordinary course of business consistent with past
practices (and not materially different in type or amount), the Company has no
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due, whether properly
<PAGE> 14
12

reflected under generally accepted accounting principles as a liability or a
charge or reserve against an asset or equity account, and whether the amount
thereof is readily ascertainable or not, except for any that singly or in the
aggregate would not have a Material Adverse Effect. The Company is not aware of
any material omissions in the Financial Statements that singly or in the
aggregate could have a Material Adverse Effect. A true and correct copy of the
Financial Statements is attached hereto as Exhibit II(E).

F. Absence of Certain Changes. Except as set forth in Exhibit
II(F), subsequent to September 30, 1996, there has not been any (i) adverse or,
to the knowledge of the Company, prospective adverse change in the condition of
the Company, financial or otherwise, or in the results of the operations of the
Company, singly or in the aggregate, that has had or will have a Material
Adverse Effect; (ii) damage or destruction (whether or not insured) affecting
the properties or business operations of the Company, singly or in the
aggregate, having a Material Adverse Effect; (iii) labor dispute or, to the
knowledge of the Company, threatened labor dispute involving the employees of
the Company; (iv) actual or, to the knowledge of the Company, threatened
disputes with any major accounts of the Company, or actual or, to the knowledge
of the Company, threatened loss of business from any of the major accounts of
the Company, singly or in the aggregate, having a Material Adverse Effect after
taking into account any business gained after such date from new accounts or
increases in business from existing accounts; (v) changes in the methods or
procedures for billing or collection of customer accounts or recording of
customer accounts receivable or reserves for doubtful accounts with respect to
the Company; or (vi) other event or condition of any character, known to the
Company or any of the Shareholders or which in the exercise of reasonable
diligence should be known to the Company, not disclosed in this Agreement
pertaining to and, singly or in the aggregate, having a Material Adverse Effect
on the Company, the Business or the assets of the Company.

G. Liabilities Incurred. Except as disclosed in Exhibit II(G),
subsequent to September 30, 1996, the Company has not (i) incurred any bank
indebtedness, entered into any loan agreements, material leases or, except in
the ordinary course of business consistent with past practices, material
contracts, obligations or arrangements of any kind, including, without
limitation, for the payment of money or property to any person, or (ii)
permitted any liens or encumbrances to attach to any assets of the Company.

H. Real Property Owned or Leased. A list and description of
all real property owned by or leased to or by the Company or in which the
Company has any interest is set forth in Exhibit II(H). All such leased real
property is held subject to written leases or other agreements which are valid
and effective in accordance with
<PAGE> 15
13

their respective terms, and there are no existing defaults or events of default,
or events which with notice or lapse of time or both would constitute defaults,
thereunder on the part of the Company, except for such defaults, if any, as do
not, singly or in the aggregate, constitute a Material Adverse Effect and do
not, severally or in the aggregate, materially interfere with the present use of
the property subject to such lease or affect the validity, enforceability or
assignability of such lease or otherwise impair the Company or the operations of
the Business in a manner, singly or in the aggregate, having a Material Adverse
Effect. The Company does not have any knowledge of any default or claimed or
purported or alleged default or state of facts which with notice or lapse of
time or both would constitute a default on the part of any other party in the
performance of any obligation to be performed or paid by such other party under
any lease referred to in Exhibit II(H). The Company has not received any written
or oral notice to the effect that any lease that provides for renewal will not
be renewed at the termination of the term thereof or that any such lease will be
renewed only at a substantially higher rent than otherwise specifically provided
in such lease.

I. Title to Assets; Condition of Property. The Company has
good title to all its properties and assets, real, personal and mixed, tangible
and intangible (in the case of owned real property and the improvements thereon,
good and marketable title in fee simple), including, without limitation, the
properties and assets reflected in the 1996 Balance Sheet (except for assets
leased under leases set forth in Exhibit II(H), assets sold or retired and
accounts receivable collected upon, since September 30, 1996 in the ordinary
course of business consistent with past practices). The Company leases or owns
all properties and assets used in the operations of the Business as currently
conducted. All such properties and assets are in good condition and repair,
consistent with their respective ages, and have been maintained and serviced in
accordance with the normal practices of the Company and as necessary in the
normal course of business. None of the assets or properties of the Company is
subject to any liens, charges, encumbrances or security interests, except as set
forth in Exhibit II(I). None of the assets of the Company (or uses to which they
are put) fails to conform with any applicable agreement, law, ordinance or
regulation in a manner which is likely, singly or in the aggregate, to have a
Material Adverse Effect. Except as set forth in Exhibit II(I), the Company owns
or leases all the properties and assets which have been located at or on any of
the leased premises of the Company at any time since September 30, 1996.
<PAGE> 16
14

J. Taxes. The Company has filed or caused to be filed on a
timely basis all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by it. All
Tax Returns filed by or on behalf of the Company are true, complete and correct
in all material respects. The Company has paid all income, estimated, excise,
franchise, gross receipts, capital stock, profits, stamp, occupation, sales,
use, transfer, value added, property (whether real, personal or mixed),
employment, unemployment, disability, withholding, social security, workers'
compensation and other taxes, and interest, penalties, fines, costs and
assessments (collectively, "Taxes"), due and payable with respect to the periods
covered by such Tax Returns (whether or not reflected thereon), except where any
such failure to pay, singly or in the aggregate, would not have a Material
Adverse Effect. There are no Tax liens on any of the properties or assets, real,
personal or mixed, tangible or intangible, of the Company. The accrual for Taxes
reflected in the Financial Statements accurately reflects the total amount of
all unpaid Taxes, whether or not disputed and whether or not presently due and
payable, of the Company as of the close of the period covered by the Financial
Statements, and the amount of the Company's unpaid Taxes does not exceed the
accrual for Taxes reflected in the Financial Statements for the period ended
December 31, 1995. Since the date of the 1996 Balance Sheet, the Company has not
incurred any Tax liability other than in the ordinary course of business. No Tax
Return of the Company has ever been audited. No deficiency in Taxes for any
period has been asserted by any Taxing authority which remains unpaid at the
date hereof (the results of any settlement being set forth in Exhibit II(J)), no
written inquiries or notices have been received by the Company from any Taxing
authority with respect to possible claims for Taxes, the Company has no reason
to believe that such an inquiry or notice is pending or threatened, and, to the
knowledge of the Company, there is no basis for any additional claims or
assessments for Taxes. The Company has not agreed to the extension of the
statute of limitations with respect to any Tax Return or Tax period. The Company
has delivered to the Purchaser copies of the federal and state income Tax
Returns filed by the Company for the past three years.

K. Permits; Compliance with Applicable Law.
<PAGE> 17
15

(i) General. The Company is not in default
under any, and has complied with all, statutes, ordinances, regulations and
laws, orders, judgments and decrees of any court or governmental entity or
agency, relating to the Company, the Business or any assets of the Company as to
which a default or failure to comply might result, singly or in the aggregate,
in a Material Adverse Effect. The Company does not have any knowledge of any
basis for assertion of any violation of the foregoing or for any claim for
compensation or damages or otherwise arising out of any violation of the
foregoing. The Company has not received any notification of any asserted present
or past failure to comply with any of the foregoing which has not been
satisfactorily responded to in the time period required thereunder.

(ii) Permits; Intellectual Property. Set forth
in Exhibit II(K) is a complete and accurate list of all material permits,
licenses, approvals, franchises, patents, registered and common law trademarks,
service marks, tradenames, copyrights (and applications for each of the
foregoing), notices and authorizations issued by governmental entities or other
regulatory authorities, federal, state or local (collectively the "Permits"),
held by the Company. The Permits set forth in Exhibit II(K) are all the Permits
required for the conduct of the Business. All the Permits set forth in Exhibit
II(K) are in full force and effect, and the Company has not engaged in any
activity which would cause or permit revocation or suspension of any such
Permit, and no action or proceeding looking to or contemplating the revocation
or suspension of any such Permit is pending or, to the knowledge of the Company,
threatened. There are no existing defaults or events of default or event or
state of facts which with notice or lapse of time or both would constitute a
default by the Company under any such Permit, except where such a default,
singly or in the aggregate, would not have a Material Adverse Effect. The
Company does not have any knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a default on the part of any other party in the performance of
any obligation to be performed or paid by any other party under any Permit set
forth in Exhibit II(K). To the knowledge of the Company, the use by the Company
of any proprietary rights relating to any Permit does not involve any claimed
infringement of such Permit or rights. The consummation of the transactions
contemplated hereby will in no way affect the continuation, validity or
effectiveness of the Permits set forth in Exhibit II(K) or, except for the
filing of an H-S-R Form and the consent of the Florida Division, require the
consent of any person. Except as set forth in Section II(K)(iii) below, the
Company is not required to be licensed by, nor is it subject to the regulation
of, any governmental or regulatory body.

(iii) Licensing. The operations of the Company
are licensed under the Florida Employee Leasing Act (the "Florida Act") and in
each other state where the failure to be licensed, singly or in the aggregate,
would have a Material Adverse Effect, and are currently in compliance in all
respects with the Florida Act and
<PAGE> 18
16

with any other statute regulating professional employer organizations in such
other states where the failure to comply, singly or in the aggregate, would have
a Material Adverse Effect. The Company has submitted all financial statements
required to be submitted by it under the Florida Act and the Company's current
tangible accounting net worth and positive working capital meets the
requirements of the Florida Act.

(iv) Environmental. (a) The Company, to its
knowledge, has duly complied in all respects with, and the real estate subject
to the leases listed on Exhibit II(H) and improvements thereon, and all other
real estate leased by the Company, and the improvements thereon (all such owned
or leased real estate hereinafter referred to collectively as the "Premises")
are in compliance in all respects with, the provisions of all federal, state and
local environmental, health and safety laws, codes and ordinances and all rules
and regulations promulgated thereunder, except with such failure to comply,
singly or in the aggregate, does not have a Material Adverse Effect.

(b) The Company has not received any notice of,
and the Company does not know of any facts which might constitute, violations of
any federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder, which relate to
the use, ownership or occupancy of any of the Premises or of any premises
formerly owned, leased or occupied by the Company.

L. Accounts Receivable; Accounts Payable.

(i) The accounts receivable of the Company are
in their entirety valid accounts receivable, arising in the ordinary course of
business. At the Closing, the Company shall have available to the Purchaser
unrestricted cash and cash equivalents of sufficient amounts to pay any and all
current obligations of the Company as they become due in the ordinary course of
business, other than the expenses incurred in connection with the transactions
contemplated by this Agreement as provided herein.

(ii) The accounts and notes payable and other
accrued expenses reflected in the Financial Statements, and the accounts and
notes payable and accrued expenses incurred by the Company subsequent to
September 30, 1996, are in all respects valid claims that arose in the ordinary
course of business, other than expenses incurred in connection with the
transactions contemplated by this Agreement (to the extent payable by the
Company). Since September 30, 1996, the accounts and notes payable and other
accrued expenses of the Company have been paid in a manner consistent with past
practice.
<PAGE> 19
17

M. Contractual and Other Obligations. Set forth in Exhibit
II(M) is a list and brief description of all (i) contracts or agreements having
a stated dollar value in excess of $25,000, licenses, leases, arrangements
(written or oral) having a stated dollar value in excess of $25,000 and other
documents having a stated dollar value in excess of $25,000 to which the Company
is a party or by which the Company, the Business or any of the assets of the
Company is bound (including, in the case of loan agreements, a description of
the amounts of any outstanding borrowings thereunder and the collateral, if any,
for such borrowings); (ii) obligations and liabilities of the Company pursuant
to uncompleted orders for the purchase of materials, supplies, equipment and
services for the requirements of the Business with respect to which the
remaining obligation of the Company is in excess of $25,000; and (iii) material
contingent obligations and liabilities of the Company; all of the foregoing
being hereinafter referred to as the "Contracts". Neither the Company nor, to
the knowledge of the Company, any other party is in default in the performance
of any covenant or condition under any Contract that, singly or in the
aggregate, would have a Material Adverse Effect and, to the knowledge of the
Company, no claim of such a default has been made and no event has occurred
which with the giving of notice or the lapse of time would constitute a default
under any covenant or condition under any Contract that, singly or in the
aggregate, would have a Material Adverse Effect. The Company is not a party to
any Contract which would terminate or be adversely affected by consummation of
the transactions contemplated by this Agreement, except where such termination
or adverse effect, singly or in the aggregate, would not have a Material Adverse
Effect. The Company is not a party to any Contract that it expects to be
performed at a loss. Originals or true, correct and complete copies of all
written Contracts have been provided to the Purchaser.

N. Compensation. Set forth in Exhibit II(N) attached hereto is
a list of all agreements (not terminable without penalty by the Company on less
than 30 days' notice) between the Company and each person, other than worksite
employees of the Company's employer clients ("Worksite Employees"), employed by
or independently contracting with the Company with regard to compensation,
whether individually or collectively, and set forth in Exhibit II(N) is a list
of all employees other than Worksite Employees of the Company ("Company-Based
Employees") entitled to receive annual compensation in excess of $20,000 and
their respective salaries. The transactions contemplated by this Agreement will
not result in any liability for severance pay to any employee or independent
contractor of the Company. The Company has not informed any employee or
independent contractor providing services to the Company that such person will
receive any increase in compensation or benefits, except consistent with past
practice, or any ownership interest in the Company or the Business.

O. Employee Benefit Plans. Except as set forth on Exhibit
II(O) attached hereto, the Company does not maintain or sponsor, nor is it
required to make
<PAGE> 20
18

contributions to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. Except as set forth in Exhibit II(O), all pension,
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (hereinafter referred to as "ERISA"), in which Company-Based
Employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements, other than any
"multiemployer plan" (within the meaning of Section 3(37) of ERISA), being
hereinafter referred to as the "Benefit Plans" and any such multiemployer plans
being hereinafter referred to as the "Multiemployer Plans") comply in all
respects with all applicable requirements of the Department of Labor and the
Internal Revenue Service, and with all other applicable law, except where any
such failure to comply, singly or in the aggregate, does not have a Material
Adverse Effect, and the Company has not taken or failed to take any action with
respect to the Benefit Plans or Multiemployer Plans which might create any
liability on the part of the Company or the Purchaser, except where any such
action or failure to act, singly or in the aggregate, does not have a Material
Adverse Effect. Each "fiduciary" (within the meaning of Section 3(21)(A) of
ERISA) as to each Benefit Plan and as to each Multiemployer Plan has complied in
all respects with the requirements of ERISA and all other applicable laws in
respect of each such Plan, except where any such failure to comply, singly or in
the aggregate, does not have a Material Adverse Effect. The Company has
furnished to the Purchaser copies of all existing Benefit Plans and
Multiemployer Plans and all financial statements, actuarial reports and annual
reports and returns filed with the Internal Revenue Service with respect to such
Benefit Plans and Multiemployer Plans for a period of three years prior to the
date hereof. Such financial statements and actuarial reports and annual reports
and returns are true and correct in all material respects, and none of the
actuarial assumptions underlying such documents have changed since the
respective dates thereof. In addition:

(i) Each Benefit Plan intended to be qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), has received a favorable determination letter from the
Internal Revenue Service as to its qualification thereunder or has been
drafted to comply with the requirements of such Section and, except as
set forth on Exhibit II(O) attached hereto, the Company will apply for
a determination letter for such Benefit Plan within the time prescribed
by law;

(ii) No Benefit Plan which is a "defined benefit
plan" (within the meaning of Section 3(35) of ERISA) (hereinafter
referred to as the "Defined Benefit Plans") or Multiemployer Plan has
incurred an "accumulated funding
<PAGE> 21
19

deficiency" (within the meaning of Section 412(a) of the Code), whether
or not waived;

(iii) No "reportable event" (within the meaning of
Section 4043 of ERISA) has occurred with respect to any Defined Benefit
Plan or any Multiemployer Plan;

(iv) The Company has not withdrawn (partially or
totally within the meaning of ERISA) from any Benefit Plan or any
Multiemployer Plan and neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein
will result in the withdrawal (partially or totally within the meaning
of ERISA) from any Benefit Plan or any Multiemployer Plan, or in any
withdrawal or other liability of any nature to the Company or the
Purchaser under any Benefit Plan or any Multiemployer Plan;

(v) No "prohibited transaction" (within the meaning
of Section 406 of ERISA or Section 4975(c) of the Code) has occurred
with respect to any Benefit Plan or any Multiemployer Plan;

(vi) The excess of the aggregate present value of
accrued benefits over the aggregate value of the assets of any Defined
Benefit Plan (computed both on a termination basis and on an ongoing
basis) is not more than $-0-, and the aggregate withdrawal liability of
the Company with respect to any Multiemployer Plan assuming the
withdrawal of the Company from said Multiemployer Plan, is not more
than $-0-;

(vii) No provision of any Benefit Plan or of any
agreement, and no act or omission of the Company, in any way limits,
impairs, modifies or otherwise affects the right of the Company or the
Purchaser unilaterally to amend or terminate any Benefit Plan after the
Closing, subject to the requirements of applicable law;

(viii) Except as set forth on Exhibit II(O), there are
no contributions which are or hereafter will be required to have been
made to trusts in connection with any Benefit Plan that would
constitute a "defined contribution plan" (within the meaning of Section
3(34) of ERISA) (hereinafter referred to as a "Defined Contribution
Plan"), with respect to services rendered by Company-Based Employees
prior to the date of the Closing;

(ix) Other than claims in the ordinary course for
benefits with respect to the Benefit Plans or Multiemployer Plans,
there are no actions, suits
<PAGE> 22
20

or claims (including claims for income Taxes, interest, penalties,
fines or excise Taxes with respect thereto) pending with respect to any
Benefit Plan or any Multiemployer Plans, or, to the knowledge of the
Company, any circumstances which might give rise to any such action,
suit or claim (including claims for income Taxes, interest, penalties,
fines or excise Taxes with respect thereto);

(x) All reports, returns and similar documents with
respect to the Benefit Plans required to be filed with any governmental
agency have so been filed;

(xi) The Company has not incurred any liability to
the Pension Benefit Guaranty Corporation (except for required premium
payments). No notice of termination has been filed by the plan
administrator (pursuant to Section 4041 of ERISA) or issued by the
Pension Benefit Guaranty Corporation (pursuant to Section 4042 of
ERISA) with respect to any Benefit Plan subject to ERISA. There has
been no termination of any Defined Benefit Plan or any related trust by
the Company; and

(xii) The Company does not have any obligation to
provide health or other welfare benefits to former, retired or
terminated Company-Based Employees, except as specifically required
under Section 4980B of the Code. The Company has substantially complied
with the notice and continuation requirements of Section 4980B of the
Code and the regulations thereunder.

P. Labor Relations. There have been no violations that, singly
or in the aggregate, would have a Material Adverse Effect of any federal, state
or local statutes, laws, ordinances, rules, regulations, orders or directives
with respect to the employment of individuals by, or the employment practices or
work conditions of, the Company, or the terms and conditions of employment,
wages and hours. The Company is not engaged in any unfair labor practice or
other unlawful employment practice and there are no charges of unfair labor
practices or other employee-related complaints that, singly or in the aggregate,
would have a Material Adverse Effect pending or, to the knowledge of the
Company, threatened against the Company before the National Labor Relations
Board, the Equal Employment Opportunity Commission, the Occupational Safety and
Health Review Commission, the Department of Labor or any other federal, state,
local or other governmental authority. There is no strike, picketing, slowdown
or work stoppage or organizational attempt pending, threatened against (to the
knowledge of the Company) or involving the Company. No issue with respect to
union representation is pending or, to the knowledge of the Company, threatened
with respect to the employees of the Company. No union or collective bargaining
unit or other labor organization has ever been certified or recognized by the
Company as the representative of any of the employees of the Company.
<PAGE> 23
21

Q. Increases in Compensation or Benefits. Except as set forth
in Exhibit II(Q), subsequent to the date of the 1996 Balance Sheet, there have
been no increases in the compensation payable or to become payable to any of the
Company-Based Employees and there have been no payments or provisions for any
awards, bonuses, loans, profit sharing, pension, retirement or welfare plans or
similar or other disbursements or arrangements for or on behalf of such
employees (or related parties thereof), in each case, other than pursuant to
currently existing plans or arrangements, if any, set forth in Exhibit II(O);
provided, however, that, except as set forth in Exhibit II(Q), no such increase
in compensation or any such payment or provision was made with respect to any of
the Shareholders (or any members of the families of any of the Shareholders).
All bonuses heretofore granted to Company-Based Employees have been paid in full
to such employees. The vacation policy of the Company is set forth in Exhibit
II(Q). Except as set forth in Exhibit II(Q), no Company-Based Employee is
entitled to vacation time in excess of three weeks during the current calendar
year and no Company-Based Employee has any accrued vacation or sick time with
respect to any prior period.

R. Insurance. A list and brief description of the insurance
policies maintained by the Company is set forth in Exhibit II(R). Such insurance
policies are in full force and effect and all premiums due thereon prior to or
on the date of the Closing have been paid. The Company has complied in all
material respects with the provisions of such policies. Such insurance is of
comparable amounts and coverage as that which companies engaged in similar
businesses maintain in accordance with good business practices. The Company has
not received any notices of any pending or threatened termination or premium
increases with respect to any such policies. The Company has not had any
casualty loss or occurrence which may give rise to any claim of any kind not
covered by insurance and the Company is not aware of any occurrence which may
give rise to any claim of any kind not covered by insurance, subject only to the
policy deductible. No third party has filed any claim against the Company or the
Business for personal injury or property damage of a kind for which liability
insurance is generally available which is not fully insured, subject only to the
policy deductible. All claims against the Company or the Business covered by
insurance have been reported to the appropriate insurance carrier on a timely
basis. Except as set forth on Exhibit II(R), the Company has adequate insurance
and reserves to cover any liability that may arise out of any claims, including
but not limited to workers compensation and health insurance claims, that may be
asserted against the Company for occurrences prior to the date of the Closing
consistent with past practices and experience.

S. Conduct of Business. The Company is not restricted from
conducting the Business in any location by agreement or court decree.
<PAGE> 24
22

T. Allowances. The Company has no obligation outside of the
ordinary course of business to make allowances to any customers with respect to
the Business.

U. Use of Names. All names under which the Company currently
conducts the Business are listed in Exhibit II(U). To the Company's knowledge,
there are no other persons or businesses conducting businesses similar to those
of the Company in the State of Florida having the right to use or using the
names set forth in Exhibit A or any variants of such names; and no other person
or business has ever attempted to restrain the Company from using such names or
any variant thereof.

V. Power of Attorney. The Company has not granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever.

W. Litigation; Disputes. Except as set forth in Exhibit II(W),
there are no claims, disputes, actions, suits, investigations or proceedings
that, singly or in the aggregate, would have a Material Adverse Effect pending
or, to the knowledge of the Company, threatened against or affecting the
Company, the Business or any of the properties or assets of the Company, no such
claim, dispute, action, suit, proceeding or investigation has been pending or,
to the knowledge of the Company, threatened during the five-year period
preceding the date of the Closing and, to the knowledge of the Company, there is
no basis for any such claim, dispute, action, suit, investigation or proceeding.
The Company does not have any knowledge of any default under any such action,
suit or proceeding. The Company is not in default in respect of any judgment,
order, writ, injunction or decree of any court or of any federal, state,
municipal or other government department, commission, bureau, agency or
instrumentality or any arbitrator where such a default, singly or in the
aggregate, would have a Material Adverse Effect.

X. Location of Business and Assets. Set forth in Exhibit II(X)
is each location (specifying state, county and city) where the Company (i) has a
place of business, (ii) owns or leases real property and (iii) owns or leases
any other property, including equipment and furniture.

Y. Computer Software. The Company has the right to use all
computer software, including all property rights constituting part of that
computer software, used in connection with the Company's business operations
(the "Computer Software"). A list of all written licenses pertaining to the
Computer Software is set forth in Exhibit II(Y) (the "Licenses"). The Company
has no knowledge that any of the Licenses may not be valid or enforceable by the
Company or that the use of the Computer Software or any of the Licenses may
infringe upon or conflict with the rights
<PAGE> 25
23

of any third party. The Company has not granted any licenses to use the Computer
Software or any sub-licenses with respect to any of the Licenses.

Z. Worksite Employee Numbers. As of December 31, 1996, the
worksite employee numbers of the Company are 8,637. As of December 31, 1996, the
Company had paid all salaries, wages, employer's portion of social security,
Medicare premiums, federal employment Taxes, health care and workers'
compensation costs and state unemployment Taxes with respect to such worksite
employees due and payable by such date and since November 30, 1996, the Company
has continued to pay such amounts as they have become due and payable.

AA. Bank Accounts. Set forth in Exhibit II(AA) attached hereto
is a list of all bank accounts maintained in the name of the Company and a brief
description of persons having power to sign on behalf of the Company with
respect to each such account.

BB. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Company set forth
herein, in the exhibits hereto or in any document delivered by the Company to
the Purchaser, or any authorized representative of the Purchaser, pursuant to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading.

III

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS

Each of the Shareholders hereby represents and warrants to,
and covenants and agrees with, the Purchaser, as of the date of the Closing,
that:

A. Authority. Such Shareholder is fully able to execute and
deliver this Agreement and to perform such Shareholder's covenants and
agreements hereunder, and this Agreement constitutes a valid and legally binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms, subject to the effect of (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights and
remedies of creditors generally and (ii) general principles of equity.

B. No Legal Bar; Conflicts. Neither the execution and delivery
by such Shareholder of this Agreement, nor the consummation by such Shareholder
of the
<PAGE> 26
24

transactions contemplated hereby, violates any statute, ordinance, regulation,
order, judgment or decree of any court or governmental agency, or conflicts with
or will result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any lien pursuant to
the terms of any contract or agreement to which such Shareholder is a party or
by which such Shareholder or any of such Shareholder's assets is bound.

C. Ownership of Shares. Such Shareholder owns his Shares free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever. Such Shareholder has the right to transfer his Shares to the
Purchaser and, upon transfer of such Shareholder's Shares to the Purchaser
hereunder, the Purchaser will acquire good and marketable title to such
Shareholder's Shares, free and clear of any adverse claim of which the Purchaser
does not have notice.

D. Investment. With respect to each Shareholder who is
receiving shares of NovaResource Common Stock as part of the Purchase Price for
such Shareholder's Shares:

(i) Such Shareholder has received a copy of
NovaCare's 1996 Annual Report to Stockholders, which contains its Annual Report
on Form 10-K for the fiscal year ended June 30, 1996, and its Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996. Such Shareholder has had
the opportunity to ask questions of and receive answers from the Purchaser
concerning the terms and conditions of the transactions contemplated by this
Agreement.

(ii) Such Shareholder understands that the
Purchaser proposes to issue and deliver to such Shareholder, under certain
circumstances, shares of NovaResource Common Stock pursuant to this Agreement
without compliance with the registration requirements of the Securities Act;
that for such purpose the Purchaser will rely upon the representations,
warranties, covenants and agreements contained herein; and that such
non-compliance with registration is not permissible unless such representations
and warranties are correct and such covenants and agreements performed. Such
Shareholder is an "accredited investor" as such term is defined in Rule 501
under the Securities Act.

(iii) Such Shareholder understands that, under
existing rules of the Securities and Exchange Commission ("SEC"), such
Shareholder may be unable to sell his shares of NovaResource Common Stock except
to the extent that such shares of NovaResource Common Stock may be sold (A)
pursuant to an effective registration statement covering such shares pursuant to
the Securities Act or (B) in a bona fide private placement to a purchaser who
shall be subject to the same restrictions on any resale or (C) subject to the
restrictions contained in Rule 144 under the Securities Act
<PAGE> 27
25

("Rule 144"). Such Shareholder understands that, except pursuant to the
Registration Rights Agreement (as hereinafter defined), the Purchaser is under
no obligation to effect a registration of the Shareholder's shares of
NovaResource Common Stock under the Securities Act.

(iv) Such Shareholder is familiar with the
provisions of Rule 144 and the limitations upon the availability and
applicability of such Rule.

(v) Such Shareholder is a sophisticated investor
familiar with the type of risks inherent in the acquisition of restricted
securities such as the shares of NovaResource Common Stock and his financial
position is such that he can afford to retain his shares of NovaResource Common
Stock for an indefinite period of time without realizing any direct or indirect
cash return on his investment.

IV
REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS OF THE PURCHASER

The Purchaser hereby represents and warrants to, and
covenants, and agrees with, the Company and the Shareholders, as of the date of
the Closing, that:

A. Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Shares.

B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action, and this
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms.

governmental agency, or conflicts with or will result in any breach of any of
the terms of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Purchaser is a party or by which the Purchaser or any
of its assets is bound.

D. Capitalization. The authorized capital stock of the
Purchaser consists of (i) 1,000,000 shares of preferred stock, $.01 par value
per share, none of which shares are issued and outstanding, and (ii) 20,000,000
shares of NovaResource Common Stock, of which 16,187,500 shares are issued and
outstanding. All of the issued and outstanding shares of NovaResource Common
Stock have been duly and validly authorized and issued and are fully paid and
non-assessable. 16,000,000 of the issued and outstanding shares of NovaResource
Common Stock are owned beneficially and of record by NC Resources, Inc., a
Delaware corporation and a wholly owned subsidiary of NovaCare. In addition, in
connection with an acquisition, the Purchaser is obligated to issue additional
shares of NovaResource Common Stock contingent upon achievement of certain
operational targets over future periods. The number of such additional shares
which will be issued cannot be determined until such periods terminate, but if
the criteria are achieved, but not exceeded, the Purchaser would be obligated to
issue 125,000 shares of NovaResource Common Stock. Contemporaneously herewith,
the Purchaser is negotiating a number of other acquisitions. Based on the status
of such negotiations as of the date hereof, if all such acquisitions were to be
consummated, the Purchaser would issue 468,750 shares of NovaResource Common
Stock and be obligated to issue 178,125 additional shares of NovaResource Common
Stock contingent upon achievement of certain operational targets over future
periods (assuming such criteria are achieved, but not exceeded). At present, the
Purchaser has no employee stock purchase or stock option plans and, except as
set forth above and for the transactions contemplated by this Agreement, no
shares of capital stock or other securities of the Purchaser are reserved for
any purpose.

E. NovaCare SEC Reports. As of the filing date, each report or
statement filed by NovaCare with the SEC pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), complied as to form in all material
respects with the requirements of the Exchange Act and did not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.

F. General. The Purchaser will use its best efforts to take
all action and to do all things necessary, proper, or advisable to consummate
and make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Section VIII below).
<PAGE> 29
27

G. Notices and Consents. The Purchaser will give any notices
to third parties, and will use its reasonable best efforts to obtain any third
party consents, that may be required in connection with the consummation of the
transactions contemplated by this Agreement. The Purchaser (or NovaCare) will
file any Notification and Report Forms and related material (the "Notification")
that the Purchaser (or NovaCare) may be required to file with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
under the H-S-R Act as soon as practically possible but in no event later than
ten business days after the date of this Agreement, will use its best efforts to
obtain an early termination of the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary, proper or advisable. The
Purchaser will take any additional action that may be necessary, proper, or
advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of, government agencies and third
parties that may be required to given, made, or obtained in connection with the
consummation of the transactions contemplated by this Agreement; provided,
however, that the Purchaser shall not be required to incur expenses that are not
reasonable in connection therewith.

H. Preservation of Business. From and after the date of this
Agreement and until the Closing, the Purchaser will keep its business and
properties intact in all material respects, including its present operations,
physical facilities and relationships with lessors, licensors, suppliers,
customers and employees.
<PAGE> 30
28

I. Notice of Developments. From and after the date of this
Agreement and until the payment of the Additional Cash, the Purchaser will give
prompt written notice to the Shareholders of (i) any development affecting the
assets, liabilities, business, financial condition, operations, results of
operations, or future prospects of the Purchaser that would materially adversely
affect the ability of the Purchaser to consummate the transactions contemplated
by this Agreement and (ii) the filing with the SEC of the registration statement
and any amendment(s) thereto with respect to the IPO, the receipt by the
Purchaser of SEC comment letter(s) thereon and the effectiveness under the
Securities Act of such registration statement. No disclosure by the Purchaser
pursuant to this provision, however, shall be deemed to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.

V
CONDUCT OF THE BUSINESS

The Company hereby covenants and agrees with the Purchaser
that, except as hereafter consented to in writing by the Purchaser, from and
after the date of this Agreement and until the Closing, the Company shall not:

A. Operation of the Business. Make a purchase, sale or lease
in respect of the Company or introduce any method of management, accounting or
operation in respect of the Company, except in a manner consistent with prior
practice.

B. Accounts Receivable. Fail to maintain sales or accounts
receivable on a normal basis or change the cash equivalent accounts or the
methods or procedures for billing, collecting, or recording customer accounts
receivable or reserves for doubtful accounts.

C. Properties, Plant and Equipment. Fail to maintain, repair,
service, preserve, and in any way further encumber, its properties, other than
accounts receivable collected upon and supplies used in the ordinary course of
business after the date hereof.

D. No Loans, Advances, etc. Make any loans or advances, debt
repayments or forgiveness, interest payments or forgiveness, or grant pay
raises, bonuses or awards, or unusual salary or other payments, disbursements or
other distributions, directly or indirectly, in any form to any Company-Based
Employee, management personnel, director, officer or shareholder of the Company,
or any relative of any such person, or entities or persons affiliated with or
related to any such
<PAGE> 31
29

Company-Based Employee, management personnel, director, officer or shareholder
of the Company.

E. No Dividends; Distributions; Payment of Certain
Indebtedness. Declare or pay any dividend or make any other distribution in
respect of its capital stock, or, except as specifically contemplated by this
Agreement, directly or indirectly, purchase, redeem or otherwise acquire or
dispose of any shares of its capital stock or, except in the ordinary course of
business, pay or discharge any outstanding indebtedness and in any event pay or
discharge any outstanding indebtedness of any of the Shareholders, the relatives
or affiliates of any of the Shareholders or of any Company-Based Employees,
management personnel, directors or officers of the Company.

F. Preservation of Organization, Company-Based Employees and
Business Relationships. Fail to use its reasonable best efforts to (i) preserve
the present business organization of the Company intact; (ii) keep available the
services of the present Company-Based Employees, subject to termination of
employment for unsatisfactory performance from time to time in the ordinary
course of business and, for any Company-Based Employee listed on Exhibit II(N),
upon reasonable prior notice to the Purchaser; and (iii) preserve present
relationships and goodwill with entities or persons having business dealings
with the Company, including, without limitation, existing customers of the
Company.

G. Books and Records. Fail to maintain the books and records
of the Company in accordance with good business practices, on a basis consistent
with prior practice.

H. Compliance with Laws. Fail to use its best efforts to
comply in all material respects with all statutes, ordinances, regulations,
orders, judgments and decrees of every court or governmental entity or agency
applicable to the Company and to the conduct of the Business and perform all of
its obligations with respect thereto without default in any material respect.

I. Maintenance of Insurance. Fail to maintain and pay all
premiums with respect to such policies of insurance as are currently held in the
name of the Company.

J. Contracts. Make any change adverse to the Company in the
terms of any existing Contract or fail to perform any of its obligations with
respect thereto without default where such adverse change or failure to perform,
singly or in the aggregate, would have a Material Adverse Effect.
<PAGE> 32
30

K. Claims. Waive, cancel, sell or otherwise dispose of for
less than the face value thereof any claim or right the Company has against
others.

L. Bonuses, etc. Take any action described in the first
sentence of Section II(Q) hereof.

M. Billings; Accounts Payable. Fail to bill for services
rendered or permit any account payable or accrued expense of the Company to be
outstanding for more than sixty (60) days, other than accounts payable or
accrued expenses being diligently contested in good faith by the Company, on a
basis consistent with prior practice.

N. Contracts. Enter into any contract, contractual obligation,
bank debt, lease, loan or other commitment, written or oral, or agreement for
amounts to be due to third parties, other than in the ordinary course of
business.

O. Encumbrances. Permit any encumbrance, lien or attachment
against any of its property.

P. Further Information. Fail to make available to the
Purchaser the books of account, records, Tax Returns, leases, contracts and
other documents or agreements of the Company and the Business as the Purchaser,
its counsel, its accountants and its authorized representatives may from time to
time reasonably request.
<PAGE> 33
31

Q. Cooperation. Fail to cooperate fully with the Purchaser, do
all things reasonably necessary to assist the Purchaser and use its reasonable
best efforts at its own expense to obtain all consents and approvals necessary
for the transfer of the Shares, including the filing of the Notification with
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the H-S-R Act as soon as practically possible but in
no event later than ten business days after the date of this Agreement (and the
making of any further filings pursuant thereto that may be necessary, proper or
advisable), and the furnishing of all financial and other information reasonably
required by the party whose consent or approval is being sought; provided,
however, that the Company shall not be required to incur expenses that are not
reasonable in connection therewith.

ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDERS AND THE PURCHASER

A. Publicity. Each of the Company and each of the Shareholders
covenants and agrees, jointly and severally, that any and all publicity (whether
written or oral) and notices to third parties (other than employees of the
Company) concerning the transactions contemplated by this Agreement shall be
subject to the prior written approval of the Purchaser, which approval may be
withheld in the sole discretion of the Purchaser; provided, however, that any
public announcement with respect to the termination of this Agreement or the
transactions contemplated hereby shall be subject to the reasonable prior
written approval of both the Purchaser and the Company.

B. Correspondence, etc. Each of the Company and the
Shareholders covenants and agrees, jointly and severally, that each of them will
promptly make available to the Purchaser upon reasonable request, all inquiries,
correspondence and other materials received by any of them from any person or
entity relating to the ordinary course of business of either the Company or the
Business.
<PAGE> 34
32

C. Confidentiality. Each of the Company, the Purchaser and
each of the Shareholders covenants and agrees that it or he shall keep
confidential any and all nonpublic information relating to the Purchaser (with
respect to the Company and each of the Shareholders) or, prior to the Closing,
the Company or the Business (with respect to the Purchaser), and none of them
shall disclose such information without the prior written consent of the other
party.

VII
CLOSING

A. Time and Place of Closing. The closing of the purchase and
sale of the Shares as set forth herein (the "Closing") shall be held at the
offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017 at 10:00
A.M., local time, at such date as shall be mutually agreed upon within five (5)
business days after the later of (i) the date the Company receives the consent
of the Florida Division to the transactions contemplated hereby and (ii) the
expiration or termination of the waiting period under the H-S-R Act.
Notwithstanding the foregoing, this Agreement may be terminated by either the
Company and the Shareholders, on the one hand, or the Purchaser, on the other
hand, with no liability on the part of any party hereto, if the Closing has not
occurred prior to or on March 10, 1997 solely as the result of the failure (i)
to obtain the consent of the Florida Division or (ii) of the waiting period
under the H-S-R Act to expire or terminate; provided, however, that such date
shall be extended to April 10, 1997 if the Closing has not occurred prior to or
on March 10, 1997 solely because of a request by the Antitrust Division of the
United States Department of Justice or the Federal Trade Commission for
additional information under the H-S-R Act.

B. Delivery of the Shares. Delivery of the Shares shall be
made by the Shareholders to the Purchaser at the Closing by delivering one or
more certificates in negotiable form representing the Shares, each such
certificate to be accompanied by any requisite documentary or stock transfer
Taxes, against payment of the Purchase Price payable at the Closing.
<PAGE> 35
33

C. Tax Matters. All transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be borne and paid
by the Shareholders when due, and each of the Shareholders will, at their own
expense, file all necessary Tax Returns and other documentation with respect to
all such Taxes and fees, and, if required by applicable law, the Purchaser will
join in the execution of any such Tax Returns and other documentation.

VIII

CONDITIONS TO THE SHAREHOLDERS' OBLIGATION TO CLOSE

The obligation of the Shareholders to sell the Shares and the
obligation of the Shareholders otherwise to consummate the transactions
contemplated by this Agreement at the Closing are subject to the following
conditions precedent, any or all of which may be waived by the Shareholders
(acting jointly) in writing in their sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:

A. Opinions of Counsel. The Company and the Shareholders shall
have received opinions of Peter D. Bewley, Esq., inside counsel for the
Purchaser and NovaCare, and Haythe & Curley, outside counsel for the Purchaser
and NovaCare, delivered to the Company and the Shareholders pursuant to the
instructions of the Purchaser and NovaCare, dated the date of the Closing,
substantially to the effect set forth in Exhibit VIII(A) attached hereto.

B. No Litigation. No action, suit or proceeding against the
Company, any of the Shareholders or the Purchaser relating to the consummation
of any of the transactions contemplated by this Agreement or any governmental
action seeking to delay or enjoin any such transactions shall be pending or
threatened.

C. Representations and Warranties. The representations and
warranties made by the Purchaser herein shall be correct as of the date of the
Closing in all respects with the same force and effect as though such
representations and warranties had been made as of the date of the Closing, and,
on the date of the Closing, the Purchaser shall deliver to the Company and the
Shareholders a certificate dated the date of the Closing to such effect.

D. Covenants. All the terms, covenants and conditions of this
Agreement to be complied with and performed by the Purchaser on or before the
date of the Closing shall have been duly complied with and performed in all
material
<PAGE> 36
34

respects, and, on the date of the Closing, the Purchaser shall deliver to the
Shareholders a certificate dated the date of the Closing to such effect.

E. Other Certificates. The Shareholders shall have received
such additional certificates, instruments and other documents in form and
substance reasonably satisfactory to them and their counsel, as they shall have
reasonably requested in connection with the transactions contemplated hereby.

F. Deliveries. All deliveries by the Purchaser required
hereunder shall have been made.

G. Payment of the Purchase Price. Each of the Shareholders
shall have received from the Purchaser (i) a cashier's check made payable to the
order of, or a wire transfer to an account designated by, each of the
Shareholders in the amount set forth opposite such Shareholder's name on
Schedule I hereto and (ii) a certificate representing the number of shares of
NovaResource Common Stock set forth opposite such Shareholder's name on Schedule
I hereto.

H. Employment Agreement. The Purchaser and James Boyd shall
have entered into an employment agreement substantially in the form of Exhibit
VIII(H) attached hereto (the "Employment Agreement").

I. Stockholders Agreement. The Purchaser and the Shareholders
shall have entered into a stockholders agreement (the "Stockholders Agreement")
substantially in the form of Exhibit VIII(I) attached hereto.

J. Governmental Consent. The Shareholders shall have received
evidence of the consent of the Florida Division to the transactions contemplated
hereby and the waiting period under the H-S-R Act shall have expired or been
terminated.

K. Guaranty. NovaCare, Inc., a Delaware corporation
("NovaCare"), shall have issued and delivered a guaranty (the "Guaranty") in
favor of the Shareholders, substantially in the form of Exhibit VIII(K) attached
hereto.

L. Registration Rights Agreement. The Purchaser and the
Shareholders shall have entered into a registration rights agreement (the
"Registration Rights Agreement") substantially in the form of Exhibit VIII(L)
attached hereto.

M. Boyd Non-Competition Agreement. The Purchaser and Wilbur
Boyd ("Boyd") shall have entered into a non-competition agreement (the
"Non-Competition Agreement") substantially in the form of Exhibit VIII(M)
attached hereto.
<PAGE> 37
35

N. Third Party Consents. The Shareholders shall have received
all necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company, the Purchaser, NovaCare
or any of the Shareholders to the consummation of the transactions contemplated
hereby which consents shall not provide for the acceleration of any liabilities
or any other detriment to the Shareholders.

O. No Material Adverse Change. No material adverse change
shall have occurred in the assets, liabilities, business, financial condition,
operations, results of operations or future prospects of the Purchaser or
NovaCare which would materially adversely affect the ability of the Purchaser or
NovaCare to consummate the transactions contemplated by this Agreement or the
Guaranty, respectively.

CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE

The obligation of the Purchaser to purchase the Shares and
otherwise to consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company and each of the Shareholders hereby agrees to use its or his best
efforts to satisfy at or prior to the Closing:

A. Opinions of Counsel. The Purchaser shall have received
opinions of Broad and Cassel and Greene, Donnelly, Schermer, Tipton & Moseley,
counsel for the Company and the Shareholders, delivered to the Purchaser
pursuant to the instructions of the Company and the Shareholders, dated the date
of the Closing, substantially to the effect set forth in Exhibit IX(A) attached
hereto.

B. No Litigation. No action, suit or proceeding against the
Company, any of the Shareholders or the Purchaser relating to the consummation
of any of the transactions contemplated by this Agreement nor any governmental
action seeking to delay or enjoin any such transactions shall be pending or
threatened.

C. Representations and Warranties. The representations and
warranties made by the Company and each of the Shareholders herein shall be
correct as of the date of the Closing in all respects with the same force and
effect as though such representations and warranties had been made as of the
date of the Closing, and, on the date of the Closing, the Company and each of
the Shareholders shall deliver to the Purchaser a certificate dated the date of
the Closing to such effect. All the terms,
<PAGE> 38
36

covenants and conditions of this Agreement to be complied with and performed by
the Company and each of the Shareholders on or before the date of the Closing
shall have been duly complied with and performed in all material respects and,
on the date of the Closing, the Company and each of the Shareholders shall
deliver to the Purchaser a certificate dated the date of the Closing to such
effect.

D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
reasonably satisfactory to the Purchaser and its counsel, as it shall have
reasonably requested in connection with the transactions contemplated hereby.

E. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company, the Purchaser, NovaCare
or any of the Shareholders to the consummation of the transactions contemplated
hereby which consents shall not provide for the acceleration of any liabilities
or any other detriment to the Purchaser, NovaCare or the Company.

F. Governmental Approval. The Purchaser shall have received
evidence of the consent of the Florida Division to the transactions contemplated
hereby and the waiting period under the H-S-R Act shall have expired or
terminated.

G. Employment Agreement. The Purchaser and James Boyd shall
have entered into the Employment Agreement.

H. Stockholders Agreement. The Purchaser and the Shareholders
shall have entered into the Stockholders Agreement.

I. Deliveries. All deliveries by the Company and the
Shareholders required hereunder shall have been made.

J. Shares. All of the Shares shall have been sold by the
Shareholders and delivered to the Purchaser.
<PAGE> 39
37

K. Boyd Non-Competition Agreement. The Purchaser and Boyd
shall have entered into the Non-Competition Agreement.

X
INDEMNIFICATION
<PAGE> 40
38

A. Indemnification by the Shareholders. Each of the
Shareholders, jointly and severally, shall indemnify and hold harmless the
Purchaser from and against any and all losses, claims, assessments, demands,
damages, liabilities, obligations, costs and/or expenses whatsoever (hereinafter
referred to collectively as the "Purchaser's Damages", the amount of which shall
be calculated without regard to any Material Adverse Effect or similar
threshold), including, without limitation, Purchaser's Counsel Expenses (as
hereinafter defined), sustained or incurred by the Purchaser and/or the Company
as a result of or arising from the breach of any of the obligations, covenants
or provisions of, or the inaccuracy of any of the representations or warranties
(such inaccuracy to be determined without regard to any Material Adverse Effect
or similar qualification contained therein) made by, the Company (even though
such representations and warranties are not made by the Shareholders) or any of
the Shareholders herein. For purposes hereof "Purchaser's Counsel Expenses"
shall mean reasonable fees and disbursements of counsel howsoever sustained or
incurred by the Purchaser and/or the Company, including, without limitation, in
any action or proceeding between the Purchaser and/or the Company and any of the
Shareholders or in any action or proceeding between the Purchaser and/or the
Company and any third party. In addition to the right of the Purchaser to
indemnification hereunder, the Purchaser shall have the right from time to time
to set off the amount of any of the Purchaser's Damages against any (A) payments
to be made by the Purchaser pursuant to Section I(B)(ii) or I(F) hereof or (B)
Earn-Out Payments or Additional Payments due and payable to the Shareholders as
provided for in Section I(C) or I(D) hereof; provided, however, that the
Purchaser shall not have the right to set off under this Section X(A) the amount
of the Purchaser's Damages which it may sustain or incur by reason of a breach
of any of the Shareholders' covenants contained in Section XI hereof and
provided further, that if the amount to be set off under this Section X(A) is
less than the amount of the payment due to be made by the Purchaser, the
Purchaser shall not withhold such excess amount or otherwise fail to pay it when
due. In the event that the Purchaser exercises its right under this Section X(A)
to set off the amount of any of its Damages against any of the Earn-Out Payments
or Additional Payments and any of the Shareholders disputes the validity of the
Damages, the Purchaser agrees to place such disputed amount in an
interest-bearing (with respect to the cash portion of such payment) escrow
account to be held by Haythe & Curley until the dispute is resolved pursuant to
the terms of this Section X and Section XIII(G) hereof.

B. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless each of the Shareholders from and against any and
all losses, claims, assessments, demands, damages, liabilities, obligations,
costs and/or expenses whatsoever (hereinafter referred to as the "Shareholder's
Damages"; the Shareholder's Damages and the Purchaser's Damages are sometimes
referred to herein as the "Damages"), including, without limitation,
Shareholder's Counsel Expenses (as
<PAGE> 41
39

hereinafter defined), sustained or incurred by any of the Shareholders as a
result of or arising from the breach of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the representations or warranties
made by, the Purchaser herein or by NovaCare in the Guaranty. For purposes
hereof "Shareholder's Counsel Expenses" shall mean reasonable fees and
disbursements of counsel howsoever sustained or incurred by any of the
Shareholders, including, without limitation, in any action or proceeding between
any of the Shareholders and the Purchaser and/or the Company or in any action or
proceeding between any of the Shareholders and any third party.

C. Procedure for Indemnification. In the event that any party
hereto shall incur any Damages in respect of which indemnity may be sought by
such party pursuant to this Section X, the party from whom such indemnity may be
sought (the "Indemnifying Party") shall be given written notice thereof by the
party seeking such indemnity (the "Indemnified Party"), which notice shall
specify the amount and nature of such Damages and include the request of the
Indemnified Party for indemnification of such amount. The Indemnifying Party
shall within 30 days pay to the Indemnified Party the amount of the Damages so
specified.

D. Subrogation. The Shareholders shall be subrogated to all
rights of the Purchaser or the Company with respect to any claim for which the
Purchaser or the Company has been indemnified by the Shareholders hereunder;
provided, that, the Purchaser shall not be required to make any claim against
the Company or any other party in order to pursue any claim against any of the
Shareholders; provided further, that none of the Shareholders shall be entitled
to any indemnification or right of contribution from the Company (except insofar
as a Shareholder may be entitled thereto in such Shareholder's capacity as a
past or present officer or director of the Company, provided, that, any
indemnification or contribution payments made by the Company may constitute
Purchaser's Damages) or have any other rights against the Company in connection
with any claim made hereunder and provided further that nothing contained in
this Section X(D) shall permit the Purchaser to assert any claim against the
Shareholders unless the Purchaser has incurred Purchaser's Damages as a result
of or arising from the breach of any of the obligations, covenants or provisions
of, or the inaccuracy of any of the representations or warranties made by, the
Company or any of the Shareholders herein as set forth in Section X(A) hereof.

E. Limits on Indemnification.

(i) No Indemnified Party shall be entitled to
indemnification pursuant to this Section X unless and until the aggregate amount
of Damages with respect to which the Purchaser and the Company or any of the
Shareholders, as the case may be, is entitled to indemnification under this
Section X exceeds $150,000, and then only for such excess amount, if any.
<PAGE> 42
40

(ii) The aggregate liability of the Shareholders for
Damages arising out of breaches of any of the obligations, covenants or
provisions of, or the inaccuracy of any of the representations and warranties
made by, the Company and the Shareholders contained in this Agreement shall be
limited to the sum (the "Shareholder Limit") of (x) $2,000,000 payable in cash
and (y) the NovaResource Shares valued at $16 per share payable in kind provided
that the Shareholder Limit shall be increased from time to time by any amounts
paid, or which would be payable except for the offset provisions contained in
Section X(A) hereof, as Earn-Out Payments or Additional Payments, and the
aggregate liability of any Shareholder therefor shall be limited to such
Shareholder's pro rata share of the Shareholder Limit (based upon such
Shareholder's percentage allocation of the Purchase Price as set forth in
Schedule I). In the event that the Purchaser shall not be entitled to receive
Purchaser's Damages because such Purchaser's Damages exceed the Shareholder
Limit as in effect at the time, but there is an increase in the Shareholder
Limit because the Shareholders have become entitled to receive an Earn-Out
Payment and Additional Payment, if applicable, the Purchaser shall be entitled
to recover such excess Purchaser's Damages by offsetting the amount thereof
against the amount of such Earn-Out Payment and Additional Payment, if
applicable.

XI
NON-COMPETITION AGREEMENT
<PAGE> 43
41

Following the consummation of the transactions contemplated
hereby, and in consideration thereof, none of the Shareholders (other than James
Boyd who shall be subject to the non-competition agreement contained in the
Employment Agreement) shall (i) subsequent to the date of the Closing and until
five years after the date of the Closing (except that such period shall
terminate 15 months after the date of the Closing in the case of Wayne Lynn),
directly or indirectly, (a) engage, whether as principal, agent, investor (other
than as a holder of less than 5% of the outstanding capital stock of a publicly
traded corporation), distributor, representative, stockholder (other than as a
holder of less than 5% of the outstanding capital stock of a publicly traded
corporation), employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture, anywhere within the counties of Florida set
forth in Exhibit XI hereto, which is competitive with the Purchaser's business
as a professional employer organization, (b) solicit or entice or endeavor to
solicit or entice away from any member of the Purchaser Group (as hereinafter
defined) any person who was or is at the time of the solicitation or enticement
a director, officer, employee or agent of such member of the Purchaser Group,
either on any of the Shareholders' own account or for any person, firm,
corporation or other organization, whether or not such person would commit any
breach of such person's contract of employment by reason of leaving the service
of such member of the Purchaser Group, (c) solicit or entice or endeavor to
solicit or entice away any person who was or is at the time of the solicitation
or enticement a client or customer of any member of the Purchaser Group, either
on any of the Shareholders' own account or for any other person, firm,
corporation or organization, (d) employ any person who was a director, officer
or employee of any member of the Purchaser Group or any person who is or may be
likely to be in possession of any confidential information or trade secrets
relating to the business of any member of the Purchaser Group, or (e) take any
action or make any statement the intended effect of which would be otherwise
detrimental in any material respect to the Purchaser and/or the Company,
including any action or statement intended, directly or indirectly, to benefit
in any material respect a competitor of any member of the Purchaser Group or
(ii) at any time, take any action or make any statement the intended effect of
which would be, directly or indirectly, to impair in any material respect the
good will of any member of the Purchaser Group or the business reputation or
good name of any member of the Purchaser Group. Because the remedy at law for
any breach of the foregoing provisions of this Section XI would be inadequate,
any affected member of the Purchaser Group is entitled to seek specific
enforcement, including, but not limited to pre-judgment injunctive relief, of
such provisions in a court of competent jurisdiction, as provided for in Section
XIII(F) hereof.

shall be deemed appropriately amended and modified in keeping with the intention
of the parties to the maximum extent permitted by law.

For purposes hereof, "Purchaser Group" shall mean,
collectively, the Purchaser and its subsidiaries, affiliates and parent entities
operating in the same lines of business.

XII
BROKERS AND FINDERS

A. The Shareholders' Obligation. Except as otherwise provided
in this Agreement, neither the Purchaser nor the Company shall have any
obligation to pay any fee or other compensation to any person, firm or
corporation, other than Josephthal Lyon & Ross Incorporated ("Josephthal"),
dealt with by the Company or any of the Shareholders in connection with this
Agreement and the transactions contemplated hereby, and each of the
Shareholders, jointly and severally, hereby agrees to indemnify and save the
Purchaser harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
<PAGE> 45
43

B. The Purchaser's Obligation. Neither the Company nor any of
the Shareholders shall have any obligation to pay any fee or other compensation
to any person, firm or corporation dealt with by the Purchaser in connection
with this Agreement and the transactions contemplated hereby, and the Purchaser
hereby agrees to indemnify and save each of the Shareholders harmless from any
liability, damage, cost or expense arising from any claim for any such fee or
other compensation.

XIII
MISCELLANEOUS

A. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by confirmed telecopy,
overnight delivery service or registered or certified mail, postage prepaid, as
follows:

(1) If to the Shareholders or, prior to the Closing, the Company:

Ms. Valerie Boyd
Employee Services of (prior to the Closing)
America, Inc.
402 43rd Street West
Bradenton, Florida 34209
Telecopy No.: (941) 748-5145
Telephone No.: (941) 746-0004

15000 Old 41 North (subsequent to
Naples, Florida 34110 the Closing)
Telecopy No.: (941) 597-2163
Telephone No.: (941) 597-3131

with copies to:

Broad and Cassel
Miami Center, Suite 3000
201 South Biscayne Boulevard
Miami, Florida 33131
Attention: William C. Phillippi, P.A.
Telecopy No.: (305) 373-9493
Telephone No.: (305) 373-9400
<PAGE> 46
44

Josephthal Lyon & Ross Incorporated
200 Park Avenue, 24th Floor
New York, New York 10166
Attention: Mr. Robert W. Wien
Telecopy No.: (212) 949-9887
Telephone No.: (212) 907-4188

(2) If to the Purchaser or, subsequent to the Closing, the Company:

NovaResource, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, the next business day if sent by overnight
delivery service, and three business days after the date of mailing, if mailed.

B. Survival of Representations. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive
closing, notwithstanding any investigation at any time made by or on behalf of
any party hereto; provided, however, that the pre-Closing representations and
warranties of the Company and the Shareholders shall expire nine months after
the date of the Closing and of the Purchaser shall expire upon payment of the
Additional Cash to the Shareholders; except (i) for covenants and agreements to
be performed subsequent to the Closing and (ii) that nothing in the foregoing
shall be deemed to diminish any Indemnifying Party's indemnification obligations
to an Indemnified Party respecting (a) any matter for which
<PAGE> 47
45

written notice to the Indemnifying Party has been given prior to the end of the
applicable indemnification period, and (b) claims for indemnification for Tax
matters and common law fraud, which shall survive for the duration of the
applicable statutes of limitations.

C. Entire Agreement. This Agreement and the documents referred
to herein contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.

D. Further Assurances. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement. Each of the Shareholders agrees to
execute and deliver any reasonable and customary management representation
letter requested by the Purchaser's independent certified public accountants in
connection with their audit of the Financial Statements.

E. Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby; provided, however, that the Company shall not bear any of
such expenses other than the fees and expenses of Josephthal as provided in
their engagement letter dated September 30, 1996, and reasonable attorneys fees
(up to $30,000) and expenses of Broad and Cassel, counsel for the Company and
the Shareholders.
<PAGE> 48
46

F. Injunctive Relief. Notwithstanding the provisions of
Section XIII(G) hereof, in the event of a breach or threatened breach by any of
the Shareholders of the provisions of Section XI of this Agreement, the
Purchaser shall be entitled in order to maintain the status quo ante pending the
outcome of any arbitration pursuant to Section XIII(G) hereof to seek an
injunction or similar equitable relief restraining any of the Shareholders, as
the case may be, from committing or continuing any such breach or threatened
breach or granting specific performance of any act required to be performed by
any of the Shareholders, as the case may be, under any such provision, without
the necessity of showing that money damages would not afford an adequate remedy.
The parties hereto hereby consent to the exclusive jurisdiction of the federal
courts for the Middle District of Florida and the Florida state courts located
in such District for any proceedings under this Section XIII(F). The parties
hereto agree that the availability of arbitration in Section XIII(G) hereof
shall not be used by any party as grounds for the dismissal of any injunctive
actions instituted by the Purchaser pursuant to this Section XIII(F).

G. Dispute Resolution.

(i) Arbitration. The parties shall attempt amicably
to resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to J.A.M.S./Endispute for final binding arbitration, which
shall be conducted by a single arbitrator, who, if possible, shall have actual
experience in the business of professional employer organizations and who shall
not be a retired judge (the "Arbitrator"), in the Bradenton, Florida area,
pursuant to J.A.M.S./Endispute's Arbitration Rules (the "Rules").
Notwithstanding anything to the contrary contained in the Rules, the Arbitrator
shall not award exemplary, incidental, punitive or special damages.

(ii) Procedure. If any party shall desire relief of
any nature whatsoever from any other party as a result of any Controversy, such
party will initiate such arbitration proceedings within a reasonable time, but
in no event more than one (1) year, subject to the provisions of Section
XIII(B), after the facts underlying said Controversy first arise or become known
to the party seeking relief (whichever is later). The failure of such party to
institute such proceedings within said period shall be deemed a full waiver of
any claim for such relief. The time period for discovery, including depositions,
shall be limited to 30 calendar days after the appointment of the Arbitrator.
The hearings in connection with the arbitration shall be limited to 10 business
days that start no later than 30 calendar days after the appointment of the
Arbitrator. The Arbitrator shall render a decision in connection with the
arbitration within 30 calendar days after the end of the hearings. The
Arbitrator shall award the prevailing party its costs for the arbitration
proceeding, including its reasonable
<PAGE> 49
47

attorneys' fees and costs. The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable (except as provided in Section XIII(F) hereof), or judicial
proceedings between them, and that no appeal or judicial review of the award or
decision of the Arbitrator shall be taken, but that such award or decision may
be entered as a judgment and enforced in any court having jurisdiction over the
party against whom enforcement is sought. Any equitable relief awarded under
Section XIII(F) hereof shall be dissolved upon issuance of the Arbitrator's
decision and order.

H. Invalidity. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.

I. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Purchaser and
the Company, respectively, and the legal representatives and heirs of each of
the Shareholders.

J. Time. Time is of the essence in the performance of this
Agreement.

K. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the Commonwealth of Pennsylvania, without regard to conflict of laws
principles; except
<PAGE> 50
48

that Section XI of this Agreement shall be construed pursuant to and in
accordance with the laws of the State of Florida, without regard to conflict of
laws principles.

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

* * *

<PAGE> 51
49

IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.

EMPLOYEE SERVICES OF AMERICA, INC.

By:___________________________
Name:
Title:

EMPLOYEE SERVICES OF FLORIDA, INC.

By:____________________________
Name:
Title:

EMPLOYERS RISK MANAGEMENT, INC.

By:____________________________
Name:
Title:

EMPLOYEE BENEFITS MANAGEMENT, INC.

By:____________________________
Name:
Title:

EMPLOYERS' DIVERSIFIED SERVICES, INC.

By:____________________________
Name:
Title:

<PAGE> 52
50

________________________________________________________
Valerie Boyd, as Trustee of the Wilbur H. Boyd Two Year
Grantor Retained Annuity Trust

________________________________________________________
Valerie Boyd, as Trustee of the Fay T. Boyd Five Year
Grantor Retained Annuity Trust

________________________________________________________
Suzan F. Boyd

________________________________________________________
Valerie Boyd

________________________________________________________
Wayne R. Lynn

________________________________________________________
Edward G. Chiles

________________________________________________________
Anne H. Chiles

________________________________________________________
Lawton Chiles

________________________________________________________
<PAGE> 53
51

Rhea G. Chiles

________________________________________________________
James E. Boyd

________________________________________________________
Sandra Boyd

________________________________________________________
Milton S. May

________________________________________________________
Brenda B. May

NOVARESOURCE, INC.

By:______________________
Name:
Title:

For the sole purpose of agreeing to issue and deliver the Guaranty in
the form of Exhibit VIII(K) at the Closing pursuant to Section VIII(K) hereof
and to file the Notification under the H-S-R Act pursuant to Section V(G)
hereof:

NOVACARE, INC.

By:______________________
Name:
Title:

<PAGE> 1
EXHIBIT 2(d)

AGREEMENT OF PURCHASE AND SALE

By and Among

THE TPI GROUP, LTD.,

THE INDIVIDUAL SHAREHOLDERS OF THE TPI GROUP, LTD.,

QUANSOO-TPI L.L.C.

and

NOVASOURCE, INC.
<PAGE> 2
TABLE OF CONTENTS

SECTION PAGE

I PURCHASE AND SALE OF THE SHARES..................................... 2

II REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDERS...................... 5

III REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS...................................... 19

IV REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF QUANSOO............................................... 21

V REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF PURCHASER............................................. 22

VI CONDUCT OF THE BUSINESS............................................. 24

VII ADDITIONAL REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE COMPANY, THE SHAREHOLDERS,
QUANSOO AND THE PURCHASER........................................... 26

VIII CLOSING............................................................. 27

IX CONDITIONS TO THE SHAREHOLDERS' AND QUANSOO'S
OBLIGATION TO CLOSE .............................................. 28

X CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE................... 30

XI INDEMNIFICATION..................................................... 31

XII NON-COMPETITION AGREEMENT........................................... 34

XIII BROKERS AND FINDERS................................................. 35

XIV MISCELLANEOUS....................................................... 35

SCHEDULES

I. CONSIDERATION
II. EARN-OUT PAYMENTS
III. ADDITIONAL PAYMENTS; EXAMPLES OF EARN-OUT
COMPUTATIONS
<PAGE> 3
AGREEMENT OF PURCHASE AND SALE

THIS AGREEMENT dated as of the 31st day of January, 1997 by and among
The TPI Group, Ltd., a New York corporation (the "Company"), Deborah M. Skinner,
John Skinner III, Malvern Tippett, Carolyn Tippett, Terry DeLong (each, a
"Shareholder", and collectively, the "Shareholders"), Quansoo-TPI L.L.C., a
Delaware limited liability company ("Quansoo"), and NovaSource, Inc., a Delaware
corporation (the "Purchaser").

W I T N E S S E T H :

WHEREAS, the Shareholders and Quansoo are the holders of an aggregate
of 6,261 shares of common stock, $.01 par value (the "Common Stock"), and
Quansoo is the holder of an aggregate of 4,850 shares of preferred stock, $.01
par value (the "Preferred Stock"), of the Company, which shares constitute all
of the issued and outstanding shares of capital stock of the Company (all such
shares of Common Stock held by the Shareholders being hereinafter referred to as
the "Shareholder Shares" and all such shares of Common Stock and Preferred Stock
held by Quansoo being hereinafter referred to as the "Quansoo Shares" and the
Shareholder Shares and the Quansoo Shares collectively being hereinafter
referred to as the "Shares");

WHEREAS, the Company and its subsidiaries (except as the context
otherwise requires, the term "Company" includes each of its subsidiaries) are
professional employer organizations and are engaged in the business, among other
things, of providing businesses with an outsourcing solution to the costs
related to employment and human resources and related activities in the States
of New York, Vermont, Pennsylvania, Massachusetts, Connecticut, New Hampshire,
North Carolina, New Jersey and Rhode Island (such activities as conducted by the
Company and its subsidiaries on the date of the Closing (as hereinafter defined)
being hereinafter referred to as the "Business"); and

WHEREAS, effective on the date of the Closing, the Purchaser desires
to acquire from the Shareholders and Quansoo all of the Shares, and each of the
Shareholders and Quansoo desires to sell his/its respective Shares to the
Purchaser, on the terms and subject to the conditions hereinafter set forth.
<PAGE> 4
2

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

PURCHASE AND SALE OF THE SHARES

A. Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, each of
the Shareholders and Quansoo shall sell, assign and convey to the Purchaser and
the Purchaser shall purchase, acquire and accept from the Shareholders and
Quansoo, the Shares.
<PAGE> 5
3

B. Purchase Price. (i) The purchase price (the "Purchase Price")
for the Shares is (a) $3,300,000 in cash, payable to the Shareholders (in the
amounts opposite each name set forth on Schedule I hereto) and $2,700,000 in
cash, payable to Quansoo, in each case at the Closing, (b) $2,750,000 in cash,
payable to the Shareholders, and $2,250,000 in cash, payable to Quansoo, in each
case in accordance with subsection (iii) below (the "Additional Cash"), (c)
189,063 shares of the common stock, $.01 par value (the "NovaSource Common
Stock"), of the Purchaser, payable to the Shareholders in the numbers of shares
opposite each name set forth on Schedule I hereto on the date which is two years
from the date of the Closing, and 154,687 shares of NovaSource Common Stock
(collectively, with the shares issuable to the Shareholders, the "NovaSource
Shares") payable to Quansoo at the Closing; and (d) the contingent payments, if
any, provided for in Sections I(C) and I(D) hereof (such payments, the "Earn-Out
Payments"). The Purchaser shall also make a capital contribution to the Company
at the Closing in an amount equal to $1,000,000 in cash for the purpose of
satisfying the outstanding indebtedness of the Company to Fleet Bank and
satisfying certain other obligations of the Company.

(i) If prior to or on the date which is two years from the date of
the Closing (the "Determination Date") the NovaSource Common Stock is not (a)
listed or admitted to trading on a national securities exchange, (b) listed on
the National Market System of the Nasdaq Stock Market, Inc. ("NASDAQ") or (c)
traded in the NASDAQ SmallCap Market, each of the Shareholders and Quansoo will
have the right to require the Purchaser to purchase all (but not less than all)
of the NovaSource Shares owned by such exercising holder (the "Exercising
Holder") at a purchase price of $16 per NovaSource Share. Such right to require
the Purchaser to purchase NovaSource Shares shall be exercised by written notice
to the Purchaser no later than 30 days after the Determination Date. No later
than sixty (60) days after receipt by the Purchaser of such notice, at such
place and time as shall be mutually agreed to by the Purchaser and an Exercising
Holder who has exercised his/its right to require that the Purchaser purchase
his/its NovaSource Shares, the Exercising Holder shall deliver to the Purchaser
the NovaSource Shares owned by such Exercising Holder in due and proper form for
transfer, against delivery by the Purchaser of a certified or official bank
check payable to the order of, or a wire transfer to an account designated by,
such Exercising Holder in the amount of $16 per NovaSource Share being sold by
such Exercising Holder. The agreements contained in this clause (ii) shall be
null and void and of no force and effect with respect to (x) a Shareholder if
such Shareholder shall have disposed of any of the NovaSource Shares prior to
the Determination Date other than pursuant to Section 2(b) (but only to Quansoo
or as a result of such Shareholder's death) or Section 5 of the Stockholders
Agreement (as hereinafter defined) or (y) Quansoo, if Quansoo shall have
disposed of any of the NovaSource Shares prior to the Determination Date other
than pursuant to Section 2(b) or Section 5 of the Stockholders Agreement.
<PAGE> 6
4

(iii) $2,750,000 of the Additional Cash shall be paid by the
Purchaser to the Shareholders (in the amounts opposite each name set forth on
Schedule I hereto) and $2,250,000 of the Additional Cash shall be paid by the
Purchaser to Quansoo, in each case on the earlier of (a) thirty (30) days after
the closing of an underwritten offering of the NovaSource Common Stock to the
public for cash (the "IPO") or (b) December 31, 1997, by delivery to each of the
Shareholders and Quansoo of a certified check payable to, or a wire transfer to
an account designated by, each of the Shareholders and Quansoo, in the amount
opposite each name set forth on Schedule I hereto in the case of the
Shareholders and in the amount of $2,250,000 in the case of Quansoo.

C. Earn-Out Payments. As additional payment for the Shares,
subject to the conditions set forth herein and in Schedule II hereto, within
sixty (60) days after December 31, 1997 (the "Earn-Out Date"), the Purchaser
shall deliver 55% to the Shareholders (in the percentage amounts set forth
opposite each such Shareholder's name in Schedule I hereto) and 45% to Quansoo
of the Earn-Out Payments, if any, payable with respect to such Earn-Out Date.
The amount of the Earn-Out Payments payable to the Shareholders and Quansoo on
the Earn-Out Date shall be (i) based upon the achievement by the Company of
targeted "EBITDA" (as hereinafter defined) and (ii) determined in accordance
with the provisions hereof and Schedule II hereto. The Earn-Out Payments, if
earned, shall be made by delivery to each of the Shareholders and Quansoo of (x)
a certified or official bank check payable to the order of such Shareholder or
Quansoo, as applicable, and (y) a certificate representing shares of the
NovaSource Common Stock registered in the name of such Shareholder or Quansoo,
in each case, in such amounts of cash and such numbers of shares as are
determined in accordance with this Section I(C) and Schedules I and II hereto.

D. Additional Payments. In addition to the consideration set
forth in Section I(C) hereof, subject to the conditions set forth herein and in
Schedule III hereto, with respect to the Earn-Out Date of December 31, 1997, if
the Company shall have achieved "EBITDA" greater than the 1997 Target Amount (as
such term is defined in Schedule II hereto), the Purchaser shall deliver 55% to
the Shareholders (in the percentage amounts set forth opposite each such
Shareholder's name in Schedule I hereto) and 45% to Quansoo, in each such case
at the same time the Earn-Out Payments set forth in Section I(C) hereof are made
(and only if such Earn-Out Payments are required to be made), as additional
payment for the Shares, the additional payments (the "Additional Payments")
provided for in Schedule III hereto. The Additional Payments, if earned, shall
be made by delivery to each of the Shareholders and Quansoo of (i) a certified
or official bank check payable to the order of such Shareholder or Quansoo, as
applicable, and (ii) a certificate representing shares of
<PAGE> 7
5

NovaSource Common Stock registered in the name of such Shareholder or Quansoo,
in each case, in such amounts of cash and such numbers of shares as are
determined in accordance with this Section I(D) and Schedules I and III hereto.

E. Computation of EBITDA. The Purchaser shall, within sixty (60)
days after the Earn-Out Date, compute the EBITDA of the Company. The amount so
computed shall be the EBITDA for purposes of determining whether or not Earn-Out
Payments shall be due and payable. For purposes of this Agreement, "EBITDA" of
the Company shall mean earnings before interest, income taxes, depreciation and
amortization of the Company determined in accordance with generally accepted
accounting principles consistent with the Purchaser's accounting practices. In
calculating EBITDA, no deduction shall be made for administrative charges or
allocations of corporate expenses from any direct or indirect parent entity of
the Purchaser.

Notwithstanding the determination of EBITDA for the Earn-Out Date by
the Purchaser, the Shareholders and Quansoo shall have the right to receive the
information upon which such determination was made, and shall, in the event of a
dispute as to the amount or method of calculation of EBITDA, have the right to
review all work papers relating to the determination of EBITDA.

F. Additional Cash Adjustment. If on December 31, 1998, the
NovaSource Common Stock is not (a) listed or admitted to trading on a national
securities exchange, (b) listed on the NASDAQ National Market System or (c)
traded in the NASDAQ SmallCap Market, each of the Shareholders and Quansoo will
have the right to require the Purchaser to purchase all (but not less than all)
shares, if any, of NovaSource Common Stock issued by the Purchaser to such
Exercising Holder in connection with the Earn-Out Payments at a purchase price
of $16 per share of NovaSource Common Stock. Such right to require the Purchaser
to purchase such shares of NovaSource Common Stock shall be exercised by written
notice to the Purchaser no later than January 31, 1999. No later than sixty (60)
days after receipt by the Purchaser of such notice, at such place and time as
shall be mutually agreed to by the Purchaser and an Exercising Holder who has
exercised his/its right to require that the Purchaser purchase his/its shares of
NovaSource Common Stock, the Exercising Holder shall deliver to the Purchaser
such shares of NovaSource Common Stock in due and proper form for transfer,
against delivery by the Purchaser of a certified or official bank check payable
to the order of, or a wire transfer to an account designated by, such Exercising
Holder in the amount of $16 per share of NovaSource Common Stock being sold by
such Exercising Holder. The agreements contained in this paragraph shall be null
and void and of no force and effect with respect to (x) a Shareholder if such
Shareholder shall have disposed of any of such shares of NovaSource Common Stock
prior to December 31, 1998 other than pursuant to Section 2(b) (but only to
Quansoo
<PAGE> 8
6

or as a result of such Shareholder's death) or Section 5 of the Stockholders
Agreement or (y) Quansoo, if Quansoo shall have disposed of any of such shares
of NovaSource Common Stock prior to December 31, 1998 other than pursuant to
Section 2(b) or Section 5 of the Stockholders Agreement.

G. Certain Adjustments. Numbers of shares of NovaSource Common
Stock and prices per share set forth in this Agreement shall be appropriately
adjusted for any stock split, stock dividend, reverse stock split or other
similar event affecting the NovaSource Common Stock. Fractional shares shall be
rounded to the nearest whole share.

In the event of the consolidation or merger of the Purchaser
with or into another person or the acquisition of all or substantially all the
assets of the Purchaser by another person (other than a consolidation or merger
in which the Purchaser is the continuing corporation and which does not result
in any change in the NovaSource Common Stock), the Purchaser shall have the
option to pay the Shareholders and Quansoo at such time as a payment is due
pursuant to Sections I(B)(i)(c), I(C) or I(D) hereof, in lieu of the NovaSource
Common Stock provided for in such Sections, the consideration per share in the
form (in stock or cash or other consideration) payable to the other holders of
NovaSource Common Stock in connection with such transaction, in each case,
multiplied by the number of shares of NovaSource Common Stock deliverable to the
Shareholders or Quansoo, as the case may be, provided for in such Sections.

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE SHAREHOLDERS

Each of the Company and the Shareholders, jointly and severally,
hereby represents and warrants to, and covenants and agrees with, the Purchaser,
as of the date of the Closing, that:

A. Organization and Qualification. The Company and each of its
subsidiaries, with the exception of Trans-Partnering Innovations, Inc., which is
duly organized, validly existing and in good standing under the laws of the
State of Delaware, are duly organized, validly existing and in good standing
under the laws of the State of New York. The Company and each of its
subsidiaries have full corporate power and authority to own their properties and
to conduct the businesses in which they are now engaged. The Company and each of
its subsidiaries are in good standing in each other jurisdiction wherein the
failure so to qualify would have a material adverse
<PAGE> 9
7

effect on their businesses or properties. The Company and each of its
subsidiaries have no capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, joint
venture or other entity and have no agreement with any person, firm or
corporation to acquire any such capital stock or other proprietary interest. The
Company and its subsidiaries have full power, authority and legal right, and all
necessary approvals, permits, licenses and authorizations, to own its properties
and to conduct the Business and to enter into and consummate the transactions
contemplated under this Agreement. The copies of the articles of incorporation
and by-laws of the Company and its subsidiaries which have been delivered to the
Purchaser are complete and correct.

B. Authority. The execution and delivery of this Agreement by
the Company, the performance by the Company of its covenants and agreements
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms.

C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Company or its subsidiaries or any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency or board, or conflicts
with or will result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any lien pursuant to
the terms of any contract or agreement to which the Company or its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of the
assets of the Company or its subsidiaries is bound. No consents, approvals or
authorizations of, or filings with, any governmental authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
except for required consents, if any, to assignment of permits, certificates,
contracts, leases and other agreements as set forth in Exhibit II(C) attached
hereto.

D. Capitalization. The authorized capital stock of the Company
consists of 11,111 shares of Common Stock, of which 6,261 shares are issued and
outstanding, and 4,850 shares of Preferred Stock, of which 4,850 shares are
issued and outstanding. All of the issued and outstanding shares of capital
stock of the Company and its subsidiaries have been duly and validly authorized
and issued and are fully paid and non-assessable. All of the issued and
outstanding shares of capital stock of the Company are owned beneficially and of
record by the Shareholders and Quansoo, free and clear of any lien, encumbrance,
charge, security interest or claim whatsoever. There are no outstanding
subscriptions, warrants, options, calls, commitments or other
<PAGE> 10
8

rights or agreements to which the Company or its subsidiaries or any of the
Shareholders or Quansoo is bound relating to the issuance, sale or redemption of
shares of capital stock or other securities of the Company. No person other than
the Shareholders and Quansoo have any interest in the Shares. No shares of
capital stock or other securities of the Company are reserved for any purpose.

E. Financial Statements; No Undisclosed Liabilities. The Company
and the Shareholders have delivered to the Purchaser consolidated balance sheets
of the Company and its subsidiaries as of December 31, 1994, December 31, 1995
and October 31, 1996 and the related statements of income, retained earnings and
cash flows and the notes thereto, for the periods then ended (hereinafter
referred to as the "Financial Statements"). The Financial Statements for 1994
and 1995 have been audited by Lazar, Levine & Company LLP, the Company's
independent accountants. The Financial Statements are true and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles applied consistently throughout the periods involved. The
Financial Statements fully and fairly present the financial condition of the
Company and its subsidiaries as at the dates thereof and the results of the
operations of the Company for the periods indicated. The balance sheets
contained in the Financial Statements fairly reflect all liabilities of the
Company and its subsidiaries of the types normally reflected in balance sheets
as at the dates thereof. Except to the extent set forth in or provided for in
the consolidated balance sheet of the Company and its subsidiaries as of October
31, 1996 included in the Financial Statements (the "1996 Balance Sheet") or as
identified in Exhibit II(E), and except for current liabilities incurred in the
ordinary course of business consistent with past practices (and not materially
different in type or amount), the Company and its subsidiaries have no
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, whether due or to become due, whether properly reflected under
generally accepted accounting principles as a liability or a charge or reserve
against an asset or equity account, and whether the amount thereof is readily
ascertainable or not. Neither the Company nor any of the Shareholders is aware
of any material omissions in the Financial Statements. The books and records of
the Company and its subsidiaries are such that the Purchaser can prepare
financial statements with respect to the Company and its subsidiaries for such
periods ending on or prior to the Closing as are required by Regulation S-X
under the Securities Act of 1933, as amended, which financial statements (the
"S-X Financial Statements") (i) can be presented in conformity with the
accounting rules of Regulation S-X and (ii) can be audited by the Purchaser's
independent certified public accountants. A true and correct copy of the
Financial Statements is attached hereto as Exhibit II(E).

F. Absence of Certain Changes. Except as set forth in Exhibit
II(F), subsequent to the date of the 1996 Balance Sheet, there has not been any
(i) material adverse or prospective material adverse change in the condition of
<PAGE> 11
9

the Company or its subsidiaries, financial or otherwise, or in the results of
the operations of the Company or its subsidiaries; (ii) material damage or
destruction (whether or not insured) affecting the properties or business
operations of the Company or its subsidiaries; (iii) labor dispute or, to the
best knowledge of the Company and each of the Shareholders, threatened labor
dispute involving the employees of the Company or its subsidiaries; (iv) actual
or, to the best knowledge of the Company and each of the Shareholders,
threatened disputes with any major accounts of the Company or its subsidiaries,
or actual or, to the best knowledge of the Company and each of the Shareholders,
threatened loss of business from any of the major accounts of the Company or its
subsidiaries; (v) changes in the methods or procedures for billing or collection
of customer accounts or recording of customer accounts receivable or reserves
for doubtful accounts with respect to the Company or its subsidiaries; or (vi)
other event or condition of any character, known to the Company or any of the
Shareholders or which in the exercise of reasonable diligence should be known to
the Company or any of the Shareholders, not disclosed in this Agreement
pertaining to and materially adversely affecting the Company or its
subsidiaries, the Business or the assets of the Company or its subsidiaries.

G. Dividends; Distributions; Liabilities Incurred. Except as
disclosed in Exhibit II(G), subsequent to the date of the 1996 Balance Sheet,
the Company and its subsidiaries have not (i) declared or paid any dividend or
made any other distribution in respect of the capital stock of the Company or
its subsidiaries or, directly or indirectly, purchased, redeemed or otherwise
acquired or disposed of any shares of the capital stock of the Company or its
subsidiaries, (ii) except in the ordinary course of business consistent with
past practices, paid or discharged any outstanding indebtedness, (iii) incurred
any bank indebtedness, or entered into any leases, loan agreements or, except in
the ordinary course of business consistent with past practices, contracts,
obligations or arrangements of any kind, including, without limitation, for the
payment of money or property to any person, or (iv) permitted any liens or
encumbrances to attach to any assets of the Company or its subsidiaries.

H. Real Property Owned or Leased. A list and description of all
real property owned by or leased to or by the Company or its subsidiaries or in
which the Company or its subsidiaries have any interest is set forth in Exhibit
II(H). All such leased real property is held subject to written leases or other
agreements which are valid and effective in accordance with their respective
terms, and there are no existing defaults or events of default, or events which
with notice or lapse of time or both would constitute defaults, thereunder on
the part of the Company or its subsidiaries, except for such defaults, if any,
as are not material in character, amount or extent and do not, severally or in
the aggregate, materially detract from the value or interfere with the present
use of the property subject to such lease or affect the validity, enforceability
or assignability of such lease or otherwise materially impair the Company or its
<PAGE> 12
10

subsidiaries or the operations of the Business. Neither the Company nor any of
the Shareholders has any knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a default on the part of any other party in the performance of
any obligation to be performed or paid by such other party under any lease
referred to in Exhibit II(H). Neither the Company nor any of the Shareholders
has received any written or oral notice to the effect that any lease will not be
renewed at the termination of the term thereof or that any such lease will be
renewed only at a substantially higher rent.

I. Title to Assets; Condition of Property. The Company and its
subsidiaries have good and valid title to all their properties and assets, real,
personal and mixed, tangible and intangible (in the case of owned real property
and the improvements thereon, good and marketable title in fee simple),
including, without limitation, the properties and assets reflected in the 1996
Balance Sheet (except for assets leased under leases set forth in Exhibit II(H),
assets sold or retired and accounts receivable collected upon, since the date of
the 1996 Balance Sheet in the ordinary course of business consistent with past
practices). The Company and its subsidiaries lease or own all properties and
assets used in the operations of the Business as currently conducted. All such
properties and assets are in good condition and repair, consistent with their
respective ages, and have been maintained and serviced in accordance with the
normal practices of the Company and its subsidiaries and as necessary in the
normal course of business. None of the assets or properties of the Company or
its subsidiaries is subject to any liens, charges, encumbrances or security
interests, except as set forth in Exhibit II(I). None of the assets of the
Company or its subsidiaries (or uses to which they are put) fails to conform
with any applicable agreement, law, ordinance or regulation in a manner which is
likely to be material to the operations of the Business. Except as set forth in
Exhibit II(I), the Company and its subsidiaries own all the properties and
assets which have been located at or on any of the leased premises of the
Company or its subsidiaries at any time since the date of the 1996 Balance
Sheet.
<PAGE> 13
11

J. Taxes. The Company and its subsidiaries have filed or caused
to be filed on a timely basis all federal, state, local, foreign and other tax
returns, reports and declarations (collectively, "Tax Returns") required to be
filed by them . All Tax Returns filed by or on behalf of the Company and its
subsidiaries are true, complete and correct in all material respects. The
Company and its subsidiaries have paid all income, estimated, excise, franchise,
gross receipts, capital stock, profits, stamp, occupation, sales, use, transfer,
value added, property (whether real, personal or mixed), employment,
unemployment, disability, withholding, social security, workers' compensation
and other taxes, and interest, penalties, fines, costs and assessments
(collectively, "Taxes"), due and payable with respect to the periods covered by
such Tax Returns (whether or not reflected thereon), with the exception of those
Taxes listed in Exhibit II(J). There are no Tax liens on any of the properties
or assets, real, personal or mixed, tangible or intangible, of the Company or
its subsidiaries. The accrual for Taxes reflected in the Financial Statements
accurately reflects the total amount of all unpaid Taxes, whether or not
disputed and whether or not presently due and payable, of the Company and its
subsidiaries as of the close of the period covered by the Financial Statements,
and the amount of the unpaid Taxes, if any, of the Company and its subsidiaries
does not exceed the accrual for Taxes reflected in Exhibit II(J). Since the date
of the 1996 Balance Sheet, the Company and its subsidiaries have not incurred
any Tax liability other than in the ordinary course of business, with the
exception of possible late penalties and interest as set forth in Exhibit II(M).
No Tax Return of the Company or its subsidiaries has ever been audited. No
deficiency in Taxes for any period has been asserted by any Taxing authority
which remains unpaid at the date hereof (the results of any settlement being set
forth in Exhibit II(J)), no written inquiries or notices have been received by
the Company from any Taxing authority with respect to possible claims for Taxes,
neither the Company nor any of the Shareholders has any reason to believe that
such an inquiry or notice is pending or threatened, and there is no basis for
any additional claims or assessments for Taxes, with the exception of Taxes due
and owing as set forth in Exhibit II(J). The Company and its subsidiaries have
not agreed to the extension of the statute of limitations with respect to any
Tax Return or Tax period. The Company and its subsidiaries have delivered to the
Purchaser copies of the federal and state income Tax Returns filed by the
Company and its subsidiaries for the past three years and for all other past
periods as to which the appropriate statute of limitations has not lapsed.

K. Permits; Compliance with Applicable Law.
<PAGE> 14
12

(i) General. The Company and its subsidiaries are not in default
under any, and have complied with all, statutes, ordinances, regulations and
laws, orders, judgments and decrees of any court or governmental entity or
agency, relating to the Company, its subsidiaries, the Business or any assets of
the Company or its subsidiaries as to which a default or failure to comply might
result in a material adverse affect on the Company, its subsidiaries, the
Business or any of the assets of the Company or its subsidiaries. Neither the
Company nor any of the Shareholders has any knowledge of any basis for assertion
of any violation of the foregoing or for any claim for compensation or damages
or otherwise arising out of any violation of the foregoing. Neither the Company
nor any of the Shareholders has received any notification of any asserted
present or past failure to comply with any of the foregoing which has not been
satisfactorily responded to in the time period required thereunder.

(ii) Permits; Intellectual Property. Set forth in Exhibit II(K)
is a complete and accurate list of all permits, licenses, approvals, franchises,
patents, registered and common law trademarks, service marks, tradenames,
copyrights (and applications for each of the foregoing), notices and
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the Company or its
subsidiaries. The Permits set forth in Exhibit II(K) are all the Permits
required for the conduct of the Business. All the Permits set forth in Exhibit
II(K) are in full force and effect, and the Company and its subsidiaries have
not engaged in any activity which would cause or permit revocation or suspension
of any such Permit, and no action or proceeding looking to or contemplating the
revocation or suspension of any such Permit is pending or, to the best knowledge
of the Company and each of the Shareholders, threatened. There are no existing
defaults or events of default or event or state of facts which with notice or
lapse of time or both would constitute a default by the Company or its
subsidiaries under any such Permit. Neither the Company nor any of the
Shareholders has any knowledge of any default or claimed or purported or alleged
default or state of facts which with notice or lapse of time or both would
constitute a default on the part of any other party in the performance of any
obligation to be performed or paid by any other party under any Permit set forth
in Exhibit II(K). To the best knowledge of the Company and each of the
Shareholders, the use by the Company or its subsidiaries of any proprietary
rights relating to any Permit does not involve any claimed infringement of such
Permit or rights. The consummation of the transactions contemplated hereby will
in no way affect the continuation, validity or effectiveness of the Permits set
forth in Exhibit II(K) or require the consent of any person. Except as set forth
in Section II(K)(iii) below, the Company and its subsidiaries are not required
to be licensed by, nor are they subject to the regulation of, any governmental
or regulatory body.

(iii) Licensing. The operations of the Company and its
subsidiaries are licensed in each state where the failure to be licensed would
have a material adverse
<PAGE> 15
13

effect on the Company and its subsidiaries, and are currently in compliance in
all material respects with any statute regulating professional employer
organizations in such states where the failure to comply would have a material
adverse effect on the Company and its subsidiaries.

(iv) Environmental. (a) The Company and its subsidiaries have
duly complied in all material respects with and the real estate subject to the
leases listed on Exhibit II(H) and improvements thereon, and all other real
estate leased by the Company or its subsidiaries, and the improvements thereon
(all such owned or leased real estate hereinafter referred to collectively as
the "Premises") are in compliance in all material respects with, the provisions
of all federal, state and local environmental, health and safety laws, codes and
ordinances and all rules and regulations promulgated thereunder.

(b) Neither the Company nor its subsidiaries have received
any notice of, and neither the Company nor any of the Shareholders knows of any
facts which might constitute, violations of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder, which relate to the use, ownership or
occupancy of any of the Premises or of any premises formerly owned, leased or
occupied by the Company or its subsidiaries.

L. Accounts Receivable; Accounts Payable.

(i) The accounts receivable of the Company and its subsidiaries are
in their entirety valid accounts receivable, arising in the ordinary course of
business.

(ii) The accounts and notes payable and other accrued expenses
reflected in the Financial Statements, and the accounts and notes payable and
accrued expenses incurred by the Company and its subsidiaries subsequent to the
date of the 1996 Balance Sheet, are in all respects valid claims that arose in
the ordinary course of business. Since the date of the 1996 Balance Sheet, the
accounts and notes payable and other accrued expenses of the Company and its
subsidiaries have been paid in a manner consistent with past practice.

M. Contractual and Other Obligations. Set forth in Exhibit
II(M) is a list and brief description of all (i) contracts, agreements,
licenses, leases, arrangements (written or oral) and other documents to which
the Company or any of its subsidiaries is a party or by which the Company, its
subsidiaries, the Business or any of the assets of the Company or its
subsidiaries is bound (including, in the case of loan agreements, a description
of the amounts of any outstanding borrowings thereunder and
<PAGE> 16
14

the collateral, if any, for such borrowings); (ii) obligations and liabilities
of the Company and its subsidiaries pursuant to uncompleted orders for the
purchase of materials, supplies, equipment and services for the requirements of
the Business with respect to which the remaining obligation of the Company or
its subsidiaries is in excess of $2,500; and (iii) material contingent
obligations and liabilities of the Company and its subsidiaries; all of the
foregoing being hereinafter referred to as the "Contracts". Neither the Company,
or its subsidiaries nor, to the best knowledge of the Company and each of the
Shareholders, any other party is in default in the performance of any covenant
or condition under any Contract and, to the best knowledge of the Company and
each of the Shareholders, no claim of such a default has been made and no event
has occurred which with the giving of notice or the lapse of time would
constitute a default under any covenant or condition under any Contract. Neither
the Company nor any of its subsidiaries is a party to any Contract which would
terminate or be materially adversely affected by consummation of the
transactions contemplated by this Agreement. Neither the Company nor any of its
subsidiaries is a party to any Contract expected to be performed at a loss.
Originals or true, correct and complete copies of all written Contracts have
been provided to the Purchaser.

N. Compensation. Set forth in Exhibit II(N) attached hereto
is a list of all agreements between the Company or its subsidiaries and each
person employed by or independently contracting with the Company or its
subsidiaries with regard to compensation, whether individually or collectively,
and set forth in Exhibit II(N) is a list of all employees of the Company and its
subsidiaries entitled to receive annual compensation in excess of $20,000 and
their respective salaries. The transactions contemplated by this Agreement will
not result in any liability for severance pay to any employee or independent
contractor of the Company or its subsidiaries. The Company and its subsidiaries
have not informed any employee or independent contractor providing services to
the Company or its subsidiaries that such person will receive any increase in
compensation or benefits or any ownership interest in the Company, its
subsidiaries, or the Business.

O. Employee Benefit Plans. Except as set forth on Exhibit
II(O) attached hereto, the Company and its subsidiaries do not maintain or
sponsor, nor is it required to make contributions to, any pension,
profit-sharing, savings, bonus, incentive or deferred compensation, severance
pay, medical, life insurance, welfare or other employee benefit plan. All
pension, profit-sharing, savings, bonus, incentive or deferred compensation,
severance pay, medical, life insurance, welfare or other employee benefit plans
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the
employees of the Company or its subsidiaries participate (such plans and related
trusts, insurance and annuity contracts, funding media and related agreements
<PAGE> 17
15

and arrangements, other than any "multiemployer plan" (within the meaning of
Section 3(37) of ERISA), being hereinafter referred to as the "Benefit Plans"
and any such multiemployer plans being hereinafter referred to as the
"Multiemployer Plans") comply in all material respects with all requirements of
the Department of Labor and the Internal Revenue Service, and with all other
applicable law, and the Company and its subsidiaries have not taken or failed to
take any action with respect to the Benefit Plans or Multiemployer Plans which
might create any material liability on the part of the Company, its subsidiaries
or the Purchaser. Each "fiduciary" (within the meaning of Section 3(21)(A) of
ERISA) as to each Benefit Plan and as to each Multiemployer Plan has complied in
all material respects with the requirements of ERISA and all other applicable
laws in respect of each such Plan. The Company has furnished to the Purchaser
copies of all Benefit Plans and Multiemployer Plans and all financial
statements, actuarial reports and annual reports and returns filed with the
Internal Revenue Service with respect to such Benefit Plans and Multiemployer
Plans for a period of three years prior to the date hereof. Such financial
statements and actuarial reports and annual reports and returns are true and
correct in all material respects, and none of the actuarial assumptions
underlying such documents have changed since the respective dates thereof. In
addition:

(i) Each Benefit Plan has received a favorable determination letter
from the Internal Revenue Service as to its qualification under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code");

(ii) No Benefit Plan which is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA) (hereinafter referred to as the
"Defined Benefit Plans") or Multiemployer Plan has incurred an
"accumulated funding deficiency" (within the meaning of Section 412(a) of
the Code), whether or not waived;

(iii) No "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred with respect to any Defined Benefit Plan or any
Multiemployer Plan;

(iv) Neither the Company nor any of its subsidiaries has withdrawn
(partially or totally within the meaning of ERISA) from any Benefit Plan
or any Multiemployer Plan and neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein
will result in the withdrawal (partially or totally within the meaning of
ERISA) from any Benefit Plan or any Multiemployer Plan, or in any
withdrawal or other liability of any nature to the Company, its
subsidiaries or the Purchaser under any Benefit Plan or any Multiemployer
Plan;
<PAGE> 18
16

(v) No "prohibited transaction" (within the meaning of Section 406 of
ERISA or Section 4975(c) of the Code) has occurred with respect to any
Benefit Plan or any Multiemployer Plan;

(vi) The excess of the aggregate present value of accrued benefits
over the aggregate value of the assets of any Defined Benefit Plan
(computed both on a termination basis and on an ongoing basis) is not more
than $-0-, and the aggregate withdrawal liability of the Company or its
subsidiaries with respect to any Multiemployer Plan assuming the
withdrawal of the Company or its subsidiaries from said Multiemployer
Plan, is not more than $-0-;

(vii) No provision of any Benefit Plan or of any agreement, and no
act or omission of the Company or its subsidiaries, in any way limits,
impairs, modifies or otherwise affects the right of the Company or the
Purchaser unilaterally to amend or terminate any Benefit Plan after the
Closing, subject to the requirements of applicable law;

(viii) There are no contributions which are or hereafter will be
required to have been made to trusts in connection with any Benefit Plan
that would constitute a "defined contribution plan" (within the meaning of
Section 3(34) of ERISA) (hereinafter referred to as a "Defined
Contribution Plan"), with respect to services rendered by employees of the
Company or its subsidiaries prior to the date of the Closing;

(ix) Other than claims in the ordinary course for benefits with
respect to the Benefit Plans or Multiemployer Plans, there are no actions,
suits or claims (including claims for income Taxes, interest, penalties,
fines or excise Taxes with respect thereto) pending with respect to any
Benefit Plan or any Multiemployer Plans, or any circumstances which might
give rise to any such action, suit or claim (including claims for income
Taxes, interest, penalties, fines or excise Taxes with respect thereto);

(x) All reports, returns and similar documents with respect to the
Benefit Plans required to be filed with any governmental agency have so
been filed;

(xi) The Company and its subsidiaries have not incurred any liability
to the Pension Benefit Guaranty Corporation (except for required premium
payments). No notice of termination has been filed by the plan
administrator (pursuant to Section 4041 of ERISA) or issued by the Pension
Benefit Guaranty Corporation (pursuant to Section 4042 of ERISA) with
respect to any Benefit
<PAGE> 19
17

Plan subject to ERISA. There has been no termination of any Defined
Benefit Plan or any related trust by the Company or its subsidiaries; and

(xii) The Company and its subsidiaries do not have any obligation to
provide health or other welfare benefits to former, retired or terminated
employees, except as specifically required under Section 4980B of the
Code. The Company and its subsidiaries have substantially complied with
the notice and continuation requirements of Section 4980B of the Code and
the regulations thereunder.

P. Labor Relations. There have been no violations of any
federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company or its subsidiaries, or
the terms and conditions of employment, wages and hours. The Company and its
subsidiaries are not engaged in any unfair labor practice or other unlawful
employment practice and there are no charges of unfair labor practices or other
employee-related complaints pending or, to the best knowledge of the Company and
each of the Shareholders, threatened against the Company or its subsidiaries
before the National Labor Relations Board, the Equal Employment Opportunity
Commission, the Occupational Safety and Health Review Commission, the Department
of Labor or any other federal, state, local or other governmental authority.
There is no strike, picketing, slowdown or work stoppage or organizational
attempt pending, threatened against (to the best knowledge of the Company and
each of the Shareholders) or involving the Company or its subsidiaries. No issue
with respect to union representation is pending or, to the best knowledge of the
Company and each of the Shareholders, threatened with respect to the employees
of the Company or its subsidiaries. No union or collective bargaining unit or
other labor organization has ever been certified or recognized by the Company or
its subsidiaries as the representative of any of the employees of the Company or
its subsidiaries.

Q. Increases in Compensation or Benefits. Except as set forth in
Exhibit II(Q), subsequent to the date of the 1996 Balance Sheet, there have been
no increases in the compensation payable or to become payable to any of the
employees of the Company or its subsidiaries and there have been no payments or
provisions for any awards, bonuses, loans, profit sharing, pension, retirement
or welfare plans or similar or other disbursements or arrangements for or on
behalf of such employees (or related parties thereof), in each case, other than
pursuant to currently existing plans or arrangements, if any, set forth in
Exhibit II(O); provided, however, that in no event was any such increase in
compensation or any such payment or provision made with respect to any of the
Shareholders (or any members of the families of any of the Shareholders). All
bonuses heretofore granted to employees of the Company or its subsidiaries have
been paid in full to such employees. The vacation policy of the
<PAGE> 20
18

Company and its subsidiaries is set forth in Exhibit II(Q). Except as set forth
in Exhibit II(Q), no employee of the Company or its subsidiaries is entitled to
vacation time in excess of three weeks during the current calendar year and no
employee of the Company or its subsidiaries has any accrued vacation or sick
time with respect to any prior period.

R. Insurance. A list and brief description of the insurance
policies maintained by the Company and its subsidiaries is set forth in Exhibit
II(R). Such insurance policies are in full force and effect and all premiums due
thereon prior to or on the date of the Closing have been paid. The Company and
its subsidiaries have complied with the provisions of such policies. Such
insurance is of comparable amounts and coverage as that which companies engaged
in similar businesses maintain in accordance with good business practices. The
Company and its subsidiaries have not received any notices of any pending or
threatened termination or premium increases with respect to any such policies.
The Company and its subsidiaries have not had any casualty loss or occurrence
which may give rise to any claim of any kind not covered by insurance and
neither the Company nor any of the Shareholders is aware of any occurrence which
may give rise to any claim of any kind not covered by insurance. No third party
has filed any claim against the Company, its subsidiaries,or the Business for
personal injury or property damage of a kind for which liability insurance is
generally available which is not fully insured, subject only to the standard
deductible. All claims against the Company, its subsidiaries, or the Business
covered by insurance have been reported to the appropriate insurance carrier on
a timely basis. The Company and its subsidiaries have adequate insurance and
reserves to cover any liability that may arise out of any claims, including but
not limited to workers compensation and health insurance claims, that may be
asserted against the Company or its subsidiaries for occurrences prior to the
date of the Closing.

S. Conduct of Business. The Company and its subsidiaries are not
restricted from conducting the Business in any location by agreement or court
decree.

T. Allowances. The Company and its subsidiaries have no
obligation outside of the ordinary course of business to make allowances to any
customers with respect to the Business.

U. Use of Names. All names under which the Company and its
subsidiaries currently conduct the Business are listed in Exhibit II(U). There
are no other persons or businesses conducting businesses similar to those of the
Company and its subsidiaries in the States of New York, Vermont, Pennsylvania,
Massachusetts, Connecticut, New Hampshire, North Carolina, New Jersey and Rhode
Island having the right to use or using the names set forth in Exhibit II(U) or
any variants of such names; and no other person or business has ever attempted
to restrain either the
<PAGE> 21
19

Company, its subsidiaries, or any of the Shareholders from using such names or
any variant thereof.

V. Power of Attorney. The Company and its subsidiaries have not
granted any power of attorney (revocable or irrevocable) to any person, firm or
corporation for any purpose whatsoever.

W. Litigation; Disputes. Except as set forth in Exhibit II(W),
there are no material claims, disputes, actions, suits, investigations or
proceedings pending or, to the best knowledge of the Company and each of the
Shareholders, threatened against or affecting the Company, its subsidiaries, the
Business or any of the properties or assets of the Company or its subsidiaries,
no such claim, dispute, action, suit, proceeding or investigation has been
pending or, to the best knowledge of the Company and each of the Shareholders,
threatened during the five-year period preceding the date of the Closing and, to
the best knowledge of the Company and each of the Shareholders, there is no
basis for any such claim, dispute, action, suit, investigation or proceeding.
Neither the Company nor any of the Shareholders has any knowledge of any default
under any such action, suit or proceeding. The Company and its subsidiaries are
not in default in respect of any judgment, order, writ, injunction or decree of
any court or of any federal, state, municipal or other government department,
commission, bureau, agency or instrumentality or any arbitrator.

X. Location of Business and Assets. Set forth in Exhibit II(X)
is each location (specifying state, county and city) where the Company and its
subsidiaries (i) have a place of business, (ii) own or lease real property and
(iii) own or lease any other property, including equipment and furniture.

Y. Computer Software. The Company and its subsidiaries have the
right to use all computer software, including all property rights constituting
part of that computer software, used in connection with the Business (the
"Computer Software"). A list of all written licenses pertaining to the Computer
Software is set forth in Exhibit II(Y) (the "Licenses"). The Company has no
knowledge that any of the Licenses may not be valid or enforceable by the
Company or any of its subsidiaries or that the use of the Computer Software or
any of the Licenses may infringe upon or conflict with the rights of any third
party. The Company and its subsidiaries have not granted any licenses to use the
Computer Software or any sub-licenses with respect to any of the Licenses.

Z. Worksite Employee Numbers. As of January 27, 1997, the number
of persons paid as employees of all of the clients of the Company and its
subsidiaries for which the Company or any of its subsidiaries paid such
employees' wages was 7,735. As of January 27, 1997, the Company and its
subsidiaries had paid
<PAGE> 22
all salaries, wages, employer's portion of social security, Medicare premiums,
federal employment Taxes, health care and workers' compensation costs and state
unemployment Taxes with respect to such worksite employees due and payable by
such date and since January 27, 1997, the Company and its subsidiaries have
continued to pay such amounts as they have become due and payable.

AA. Bank Accounts. Set forth in Exhibit II(AA) attached hereto
is a list of all bank accounts maintained in the name of the Company and its
subsidiaries and a brief description of persons having power to sign on behalf
of the Company and its subsidiaries with respect to each such account.

BB. Disclosure. No representation or warranty made under any
Section hereof and none of the information furnished by the Company or its
subsidiaries or any of the Shareholders set forth herein, in the exhibits hereto
or in any document delivered by the Company or any of the Shareholders to the
Purchaser, or any authorized representative of the Purchaser, pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.

III

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS

Each of the Shareholders hereby represents and warrants to, and
covenants and agrees with, the Purchaser, as of the date of the Closing, that:

B. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which such Shareholder is a party or by which such Shareholder or
any of such Shareholder's assets is bound.
<PAGE> 23
21

C. Ownership of Shares. Such Shareholder owns such Shareholder's
Shares free and clear of any lien, encumbrance, charge, security interest or
claim whatsoever. Such Shareholder has the right to transfer such Shareholder's
Shares to the Purchaser and, upon transfer of such Shareholder's Shares to the
Purchaser hereunder, the Purchaser will acquire good and marketable title to
such Shareholder's Shares, free and clear of any lien, encumbrance, charge,
security interest or claim whatsoever.

(ii) Such Shareholder understands that the Purchaser proposes to
issue and deliver to such Shareholder shares of NovaSource Common Stock pursuant
to this Agreement without compliance with the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"); that for such purpose
the Purchaser will rely upon the representations, warranties, covenants and
agreements contained herein; and that such non-compliance with registration is
not permissible unless such representations and warranties are correct and such
covenants and agreements performed. Such Shareholder is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.

(iii) Such Shareholder understands that, under existing rules of
the Securities and Exchange Commission, such Shareholder may be unable to sell
his or her shares of NovaSource Common Stock except to the extent that such
shares of NovaSource Common Stock may be sold (A) pursuant to an effective
registration statement covering such shares pursuant to the Securities Act or
(B) in a bona fide private placement to a purchaser who shall be subject to the
same restrictions on any resale or (C) subject to the restrictions contained in
Rule 144 under the Securities Act ("Rule 144"). Such Shareholder understands
that the Purchaser is under no obligation to effect a registration of such
Shareholder's shares of NovaSource Common Stock under the Securities Act.

(iv) Such Shareholder is familiar with the provisions of Rule
144 and the limitations upon the availability and applicability of such Rule.
<PAGE> 24
22

(v) Such Shareholder is a sophisticated investor familiar with
the type of risks inherent in the acquisition of restricted securities such as
the shares of NovaSource Common Stock and his or her financial position is such
that he or she can afford to retain his or her shares of NovaSource Common Stock
for an indefinite period of time without realizing any direct or indirect cash
return on his or her investment.

(vi) Such Shareholder is acquiring his or her shares of
NovaSource Common Stock for his or her own account and not with a view to, or
for sale in connection with, the distribution thereof within the meaning of the
Securities Act.

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF QUANSOO

Quansoo hereby represents and warrants to, and covenants
and agrees with, the Purchaser, as of the date of the Closing, that:

A. Authority. Quansoo is fully able to execute and deliver
this Agreement and to perform its covenants and agreements hereunder, and this
Agreement constitutes a valid and legally binding obligation of Quansoo ,
enforceable against Quansoo in accordance with its terms.

B. No Legal Bar; Conflicts. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, violates any statute, ordinance, regulation, order,
judgment or decree of any court or governmental agency, or conflicts with or
will result in any breach of any of the terms of or constitute a default under
or result in the termination of or the creation of any lien pursuant to the
terms of any contract or agreement to which Quansoo is a party or by which
Quansoo or any of Quansoo's assets is bound.

C. Ownership of Shares. Quansoo owns the Quansoo Shares free
and clear of any lien, encumbrance, charge, security interest or claim
whatsoever. Quansoo has the right to transfer the Quansoo Shares to the
Purchaser.

D. Investment. (i) Quansoo understands that the Purchaser
proposes to issue and deliver to Quansoo shares of NovaSource Common Stock
pursuant to this Agreement without compliance with the registration requirements
of the Securities Act; that for such purpose the Purchaser will rely upon the
representations, warranties, covenants and agreements contained herein; and that
such
<PAGE> 25
23

non-compliance with registration is not permissible unless such representations
and warranties are correct and such covenants and agreements performed. Quansoo
is an "accredited investor" as such term is defined in Rule 501 under the
Securities Act.

(ii) Quansoo understands that, under existing rules of the Securities
and Exchange Commission, Quansoo may be unable to sell its shares of NovaSource
Common Stock except to the extent that such shares of NovaSource Common Stock
may be sold (A) pursuant to an effective registration statement covering such
shares pursuant to the Securities Act or (B) in a bona fide private placement to
a purchaser who shall be subject to the same restrictions on any resale or (C)
subject to the restrictions contained in Rule 144. Quansoo understands that,
except pursuant to the Registration Rights Agreement (as hereinafter defined),
the Purchaser is under no obligation to effect a registration of Quansoo's
shares of NovaSource Common Stock under the Securities Act.

(iii) Quansoo is familiar with the provisions of Rule 144 and the
limitations upon the availability and applicability of such Rule.

(iv) Quansoo is a sophisticated investor familiar with the type of
risks inherent in the acquisition of restricted securities such as the shares of
NovaSource Common Stock and its financial position is such that it can afford to
retain its shares of NovaSource Common Stock for an indefinite period of time
without realizing any direct or indirect cash return on its investment.

(v) Quansoo is not acquiring its shares of NovaSource Common Stock
with a view to, or for sale in connection with, the distribution thereof within
the meaning of the Securities Act.

REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF PURCHASER

The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Shareholders and Quansoo, as of the date of the Closing,
that:

A. Organization and Qualification. The Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Purchaser has full power, authority and legal right, and all
necessary approvals, permits, licenses and authorizations, to enter into and
consummate the transactions contemplated under this Agreement. The copies of the
certificate of incorporation and
<PAGE> 26
24

by-laws of the Purchaser which have been delivered to the Shareholders and
Quansoo are complete and correct.

B. Authority. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms.

C. No Legal Bar; Conflicts. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the certificate of incorporation or by-laws of the
Purchaser or any statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency or board, or conflicts with or will result in
any breach of any of the terms of or constitute a default under or result in the
termination of or the creation of any lien pursuant to the terms of any contract
or agreement to which the Purchaser is a party or by which the Purchaser or any
of the assets of the Purchaser is bound. No consents, approvals or
authorizations of, or filings with, any governmental authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.

D. Capitalization. The authorized capital stock of the Purchaser
consists of (i) 1,000,000 shares of preferred stock, $.01 par value per share,
none of which shares are issued and outstanding, and (ii) 20,000,000 shares of
NovaSource Common Stock, of which 16,187,500 shares are issued and outstanding.
All of the issued and outstanding shares of NovaSource Common Stock have been
duly and validly authorized and issued and are fully paid and non-assessable.
16,000,000 of the issued and outstanding shares of NovaSource Common Stock are
owned beneficially and of record by NC Resources, Inc., a Delaware corporation
and a wholly owned subsidiary of NovaCare, Inc., a Delaware corporation
("NovaCare"). In addition, in connection with an acquisition, the Purchaser is
obligated to issue additional shares of NovaSource Common Stock contingent upon
achievement of certain operational targets over future periods. The number of
such additional shares which will be issued cannot be determined until such
periods terminate, but if the criteria are achieved, but not exceeded, the
Purchaser would be obligated to issue 125,000 shares of NovaSource Common Stock.
Contemporaneously herewith, the Purchaser is negotiating a number of other
acquisitions. Based on the status of such negotiations as of the date hereof, if
all such acquisitions were to be consummated, the Purchaser would issue 500,000
shares of NovaSource Common Stock and be obligated to issue 246,875 additional
shares of NovaSource Common Stock contingent upon achievement of certain
operational targets over future periods (assuming such criteria are achieved,
but not
<PAGE> 27
25

exceeded). At present, the Purchaser has no employee stock purchase or stock
option plans and, except as set forth above and for the transactions
contemplated by this Agreement, no shares of capital stock or other securities
of the Purchaser are reserved for any purpose.

CONDUCT OF THE BUSINESS

The Company, its subsidiaries, and each of the Shareholders
jointly and severally, hereby covenant and agree with the Purchaser that,
except as hereafter consented to in writing by the Purchaser, from and after
the date of this Agreement and until the Closing, the Company and its
subsidiaries shall not:

A. Operation of the Business. Make a purchase, sale or lease in
respect of the Company or its subsidiaries or introduce any method of
management, accounting or operation in respect of the Company or its
subsidiaries, except in a manner consistent with prior practice.

C. Properties, Plant and Equipment. Fail to maintain, repair,
service, preserve, and in any way further encumber, their properties, other than
accounts receivable collected upon and supplies used in the ordinary course of
business after the date hereof.

D. No Loans, Advances, etc. Make any loans or advances, debt
repayments or forgiveness, interest payments or forgiveness, or grant pay
raises, bonuses or awards, or unusual salary or other payments, disbursements or
other distributions, directly or indirectly, in any form to any management
personnel, employee, director, officer or shareholder of the Company or its
subsidiaries, or any
<PAGE> 28
26

relative of any such person, or entities or persons affiliated with or related
to any such management personnel, employee, director, officer or shareholder of
the Company or its subsidiaries.

E. No Dividends; Distributions; Payment of Certain Indebtedness.
Declare or pay any dividend or make any other distribution in respect of the
capital stock of the Company or its subsidiaries, or, except as specifically
contemplated by this Agreement, directly or indirectly, purchase, redeem or
otherwise acquire or dispose of any shares of such capital stock or, except in
the ordinary course of business, pay or discharge any outstanding indebtedness
and in any event pay or discharge any outstanding indebtedness of any of the
Shareholders, Quansoo, the relatives or affiliates of any of the Shareholders,
or any of the management personnel, employees, directors or officers of the
Company or its subsidiaries.

F. Preservation of Organization, Employees and Business
Relationships. Fail to use their best efforts to (i) preserve the present
business organization of the Company and its subsidiaries intact; (ii) keep
available the services of the present employees of the Company and its
subsidiaries; and (iii) preserve present relationships and goodwill with
entities or persons having business dealings with the Company and its
subsidiaries, including, without limitation, existing customers of the Company
and its subsidiaries.

G. Books and Records. Fail to maintain the books and records of
the Company and its subsidiaries in accordance with good business practices, on
a basis consistent with prior practice.

H. Compliance with Laws. Fail to use their best efforts to
comply in all material respects with all statutes, ordinances, regulations,
orders, judgments and decrees of every court or governmental entity or agency
applicable to the Company or its subsidiaries and to the conduct of the Business
and perform all of their obligations with respect thereto without default.

I. Maintenance of Insurance. Fail to maintain and pay all
premiums with respect to such policies of insurance as are currently held in the
name of the Company and its subsidiaries.

J. Contracts. Make any change adverse to the Company or its
subsidiaries in the terms of any Contract or fail to perform any of their
obligations with respect thereto without default.
<PAGE> 29
27

K. Claims. Waive, cancel, sell or otherwise dispose of for less
than the face value thereof any claim or right the Company or any of its
subsidiaries has against others.

L. Bonuses, etc. Take any action described in the first sentence
of Section II(Q) hereof.

M. Billings; Accounts Payable. Fail to bill for services
rendered or permit any account payable or accrued expense of the Company or its
subsidiaries (other than those set forth in the Exhibits to this Agreement) to
be outstanding for more than sixty (60) days, other than accounts payable or
accrued expenses being diligently contested in good faith by the Company or its
subsidiaries and as to which the Purchaser shall have consented in writing.

O. Encumbrances. Permit any encumbrance, lien or attachment
against any of their property.

P. Further Information. Fail to make available to the Purchaser
the books of account, records, Tax Returns, leases, contracts and other
documents or agreements of the Company or its subsidiaries and the Business as
the Purchaser, its counsel, accountants and its authorized representatives may
from time to time reasonably request.
<PAGE> 30
28

Q. Cooperation. Fail to cooperate fully with the Purchaser, do
all things reasonably necessary to assist the Purchaser and use their reasonable
best efforts at their own expense to obtain all consents and approvals necessary
for the transfer of the Shares, including the furnishing of all financial and
other information reasonably required by the party whose consent or approval is
being sought.

VII

ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY,
THE SHAREHOLDERS, QUANSOO AND THE PURCHASER

A. Publicity. Each of the Company, its subsidiaries and each of
the Shareholders covenants and agrees, jointly and severally, that any and all
publicity (whether written or oral) and notices to third parties (other than
employees of the Company or its subsidiaries) concerning the sale of the Shares
and other transactions contemplated by this Agreement shall be subject to the
prior written approval of the Purchaser, which approval may be withheld in the
sole discretion of the Purchaser. Quansoo covenants and agrees that any and all
press releases or other general public disclosure of the transactions
contemplated by this Agreement shall be subject to the prior written approval of
the Purchaser, which may be withheld in the sole discretion of the Purchaser.

B. Correspondence, etc. Each of the Shareholders covenants and
agrees, jointly and severally, that subsequent to the Closing, each of them will
deliver to the Purchaser, promptly after the receipt thereof, all inquiries,
correspondence and other materials received by any of them from any person or
entity relating to the Company, its subsidiaries or the Business.

C. Confidentiality. Each of the Company, its subsidiaries, the
Purchaser and each of the Shareholders covenants and agrees that it or he or she
shall keep confidential any and all nonpublic information relating to the
Purchaser (with respect to the Company, its subsidiaries and each of the
Shareholders) or, prior to the Closing, the Company, its subsidiaries or the
Business (with respect to the Purchaser), and none of them shall disclose such
information without the prior written consent of the other party. Quansoo agrees
that it will keep confidential any and all nonpublic information relating to the
Purchaser and shall not disclose such information without the prior written
consent of the Purchaser. The Purchaser shall not directly or indirectly use any
information concerning the Company or its subsidiaries prior to Closing for any
reason other than the acquisition contemplated in this Agreement.
<PAGE> 31
29

D. Filing of Reports under the Exchange Act. At all times
following the IPO, the Purchaser shall comply with all the reporting
requirements of the Exchange Act and with all other public information reporting
requirements, in either case, which are required as a condition to the
availability of an exemption from the Securities Act under Rule 144 for the sale
of any shares of NovaSource Common Stock by any Shareholder. The Purchaser shall
cooperate with each Shareholder in supplying upon request such information
within the Purchaser's possession as may be necessary for such Shareholder to
prepare and file a Form 144.

VIII

CLOSING

A. Time and Place of Closing. The closing of the purchase and
sale of the Shares as set forth herein (the "Closing") shall be held at the
offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017 at 10:00
A.M., local time, or by such other method of closing as the parties may mutually
agree, at such date as shall be mutually agreed upon within two (2) business
days after the satisfaction of the condition set forth in Section X(K) hereof;
provided that if such condition has not been satisfied or waived by the
Purchaser on or prior to February 14, 1997, any party may terminate this
Agreement, without incurring any liability to the other parties, by delivering
written notice to such effect to the other parties.

B. Delivery of the Shares. Delivery of the Shares shall be made
by the Shareholders and Quansoo to the Purchaser at the Closing by delivering
one or more certificates in negotiable form representing the Shares, each such
certificate to be accompanied by any requisite documentary or stock transfer
Taxes which shall be paid by the Purchaser at the Closing.
<PAGE> 32
30

C. Tax Matters. All transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be borne and paid
by the Purchaser when due, and the Purchaser will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such Taxes and
fees, and, if required by applicable law, the Shareholders and Quansoo will join
in the execution of any such Tax Returns and other documentation.

CONDITIONS TO THE SHAREHOLDERS' AND
QUANSOO'S OBLIGATION TO CLOSE

The obligation of the Shareholders and Quansoo to sell the
Shares and the obligation of the Shareholders and Quansoo otherwise to
consummate the transactions contemplated by this Agreement at the Closing are
subject to the following conditions precedent, any or all of which may be
waived by the Shareholders (acting jointly) and Quansoo in writing in their
sole discretion, (no waiver by the Shareholders shall be binding on Quansoo and
no waiver by Quansoo shall be binding on the Shareholders), and each of which
the Purchaser hereby agrees to use its best efforts to satisfy at or prior to
the Closing:

A. No Litigation. No action, suit or proceeding against the
Company, its subsidiaries, any of the Shareholders, Quansoo or the Purchaser
relating to the consummation of any of the transactions contemplated by this
Agreement nor any governmental action seeking to delay or enjoin any such
transactions shall be pending or threatened.

B. Covenants. The representations and warranties made by the
Purchaser herein shall be correct as of the date of the Closing in all respects
with the same force and effect as though such representations and warranties had
been made as of the date of the Closing, and, on the date of the Closing, the
Purchaser shall deliver to the Company, its subsidiaries and each of the
Shareholders and Quansoo a certificate dated the date of the Closing to such
effect. All the terms, covenants and conditions of this Agreement to be complied
with and performed by the Purchaser on or before the date of the Closing shall
have been duly complied with and performed in all material respects and, on the
date of the Closing, the Purchaser shall deliver to the Company, its
subsidiaries and Quansoo a certificate dated the date of the Closing to such
effect.

C. Other Certificates. The Shareholders and Quansoo shall have
received such additional certificates, instruments and other documents in form
and
<PAGE> 33
31

substance satisfactory to them and their counsel, as they shall have reasonably
requested in connection with the transactions contemplated hereby.

D. Deliveries. All deliveries by the Purchaser required
hereunder shall have been made.

E. Payment of the Purchase Price. Each of the Shareholders shall
have received from the Purchaser a certified check made payable to the order of,
or a wire transfer to an account designated by, each of the Shareholders in the
amount set forth opposite each name set forth on Schedule I hereto; Quansoo
shall have received a wire transfer to an account designated by it in the amount
of $2,700,000; and the Company or its designated subsidiary shall have received
a certified check made payable to its order, or a wire transfer to an account
designated by it, in the amount of $1,000,000.

F. Employment Agreement. The Purchaser and Deborah M. Skinner
shall have entered into an employment agreement substantially in the form of
Exhibit IX(F) attached hereto (the "Employment Agreement").

G. Stockholders Agreement. The Purchaser and the Shareholders
and Quansoo shall have entered into a stockholders agreement (the "Stockholders
Agreement") substantially in the form of Exhibit IX(G) attached hereto.

H. Guarantee. NovaCare shall have issued a guarantee (the
"Shareholder Guarantee") in favor of the Shareholders in the form of Exhibit
IX(H) attached hereto and a guarantee (the "Quansoo Guarantee") in favor of
Quansoo in the form of Exhibit IX(H) attached hereto.

I. Registration Rights Agreement. The Purchaser and Quansoo
shall have entered into a registration rights agreement (the "Registration
Rights Agreement") substantially in the form of Exhibit IX(I) attached hereto.

J. Opinion of Counsel. The Shareholders and Quansoo shall each
have received an opinion of Peter D. Bewley, Esq., or Haythe & Curley, counsel
for the Purchaser, delivered to the Shareholders and Quansoo pursuant to the
instructions of the Purchaser, dated the date of the Closing, substantially to
the effect set forth in Exhibit IX(J) attached hereto.

K. Skinner Note. The Purchaser shall have delivered to Deborah
M. Skinner the Promissory Note substantially in the form of Exhibit IX(K)
attached hereto.
<PAGE> 34
32

L. Real Property. Prior to the Closing, the Company shall have
conveyed to the Shareholders the real property owned by the Company in South
Carolina described in Exhibit II(H).

CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE

The obligation of the Purchaser to purchase the Shares and
otherwise to consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company, its subsidiaries, and each of the Shareholders and Quansoo (solely as
to the conditions for which it is responsible) hereby agrees to use his or her
or its best efforts to satisfy at or prior to the Closing:

A. Opinions of Counsel to the Company, the Shareholders and
Quansoo. The Purchaser shall have received opinions of Waite & Associates, P.C.,
counsel for the Company and the Shareholders, delivered to the Purchaser
pursuant to the instructions of the Company and the Shareholders, and Orloff,
Lowenbach, Stifelman & Siegel, counsel for Quansoo, delivered to the Purchaser
pursuant to the instructions of Quansoo, each dated the date of the Closing,
substantially to the effect set forth in Exhibit X(A) attached hereto.

B. No Litigation. No action, suit or proceeding against the
Company, its subsidiaries, any of the Shareholders, Quansoo or the Purchaser
relating to the consummation of any of the transactions contemplated by this
Agreement nor any governmental action seeking to delay or enjoin any such
transactions shall be pending or threatened.

C. Representations and Warranties. The representations and
warranties made by the Company, its subsidiaries, each of the Shareholders and
Quansoo herein shall be correct as of the date of the Closing in all respects
with the same force and effect as though such representations and warranties had
been made as of the date of the Closing, and, on the date of the Closing, the
Company, its subsidiaries, each of the Shareholders and Quansoo shall deliver to
the Purchaser a certificate dated the date of the Closing to such effect. All
the terms, covenants and conditions of this Agreement to be complied with and
performed by the Company, its subsidiaries, each of the Shareholders and Quansoo
on or before the date of the Closing shall have been duly complied with and
performed in all material respects and, on the date of the Closing, the Company,
its subsidiaries, each of the Shareholders
<PAGE> 35
33

and Quansoo shall deliver to the Purchaser a certificate dated the date of the
Closing to such effect.

D. Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
satisfactory to the Purchaser and its counsel, as it shall have reasonably
requested in connection with the transactions contemplated hereby.

E. Third Party Consents. The Purchaser shall have received all
necessary consents of third parties under the contracts, agreements, leases,
insurance policies and other instruments of the Company, its subsidiaries, the
Purchaser, any of the Shareholders or Quansoo to the consummation of the
transactions contemplated hereby which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser or the
Company or its subsidiaries.

F. Employment Agreement. The Purchaser and Deborah M. Skinner
shall have entered into the Employment Agreement.

G. Stockholders Agreement. The Purchaser, the Shareholders and
Quansoo shall have entered into the Stockholders Agreement.

H. Deliveries. All deliveries by the Company, its subsidiaries,
the Shareholders and Quansoo required hereunder shall have been made.

I. Shares. All of the Shares shall have been sold by the
Shareholders and Quansoo and delivered to the Purchaser.

J. Quansoo Security Interests. The Purchaser shall have received
evidence reasonably satisfactory to it of the termination of all security
interests of Quansoo in the assets of the Company and its subsidiaries or shall
have received UCC-3 termination statements and other instruments, in form and
substance reasonably satisfactory to the Purchaser, sufficient to effect such
termination.

K. Lien and Judgment Searches. The Purchaser shall have received
lien and judgment reports from all jurisdictions where the Company and its
subsidiaries own or lease real property showing no liens or judgments other than
those set forth in the Exhibits to this Agreement.

INDEMNIFICATION
<PAGE> 36
34

A. Indemnification by the Shareholders and Quansoo. (i) Each of
the Shareholders (and not Quansoo), jointly and severally, shall indemnify and
hold harmless the Purchaser from and against any and all losses, claims,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
whatsoever (hereinafter referred to collectively as the "Purchaser's Damages"),
including, without limitation, Purchaser's Clause (i) Counsel Expenses (as
hereinafter defined), sustained or incurred by the Purchaser and/or the Company
as a result of or arising from (x) the breach of any of the obligations,
covenants or provisions of, or the inaccuracy of any of the representations or
warranties made by, the Company or any of the Shareholders herein, (y) the
litigation in New York Supreme Court, Albany County, captioned Deborah M.
Skinner, John Skinner, Carolyn Tippett, Malvern Tippett, Temporary Payroll
Incentives, Inc. and The TPI Group, Inc. v. James Belliveau, Mary Belliveau,
Hudson Valley Staff, Ltd. and Essential Business Services, Inc. or (z) any
penalties and interest which may be assessed for the late payment of Taxes as
set forth in Exhibit II(M) attached hereto which accrue for the period prior to
the Closing. For purposes hereof "Purchaser's Clause (i) Counsel Expenses" shall
mean reasonable fees and disbursements of counsel howsoever sustained or
incurred by the Purchaser and/or the Company and/or its subsidiaries, including,
without limitation, in any action or proceeding between the Purchaser and/or the
Company and/or its subsidiaries and any of the Shareholders or in any action or
proceeding between the Purchaser and/or the Company and/or its subsidiaries and
any third party in respect of a matter subject to this clause (i). In addition,
the Shareholders shall pay, or shall reimburse the Company for, $60,000 of the
$105,000 payable by the Company to John J. Lee, III pursuant to the Settlement
Agreement included in Exhibit II(M). Notwithstanding anything to the contrary
contained herein, the liability of Terry DeLong for Purchaser's Damages pursuant
hereto shall be limited to the Purchase Price actually received by him.

(ii) Quansoo shall indemnify and hold harmless the Purchaser from and
against any and all Purchaser's Damages, including, without limitation,
Purchaser's Clause (ii) Counsel Expenses, sustained or incurred by the Purchaser
and/or the Company as a result of or arising from the breach of any of the
obligations or covenants of, or the inaccuracy of any of the representations or
warranties made by, Quansoo herein. For purposes hereof, "Purchaser's Clause
(ii) Counsel Expenses" shall mean reasonable fees and disbursements of counsel
howsoever sustained or incurred by the Purchaser and/or the Company and/or its
subsidiaries, including, without limitation, in any action or proceeding between
the Purchaser and/or the Company and/or its subsidiaries and Quansoo, or in any
action or proceeding between the Purchaser and/or the Company and/or its
subsidiaries and any third party in respect of a matter subject to this clause
(ii).
<PAGE> 37
35

(iii) In addition to the right of the Purchaser to
indemnification under this Section XI(A), the Purchaser shall have the right
from time to time to set off the amount of any of the Purchaser's Damages
against any (A) payments to be made by the Purchaser to the Shareholders (in the
case of a claim pursuant to clause (i)) or to Quansoo (in the case of a claim
pursuant to clause (ii)) pursuant to Section I(B)(i)(c), (ii) or (iii) or I(F)
hereof or (B) Earn-Out Payments due and payable to the Shareholders or Quansoo,
as applicable, as provided for in Section I(C) or I(D) hereof; provided,
however, that the Purchaser shall not have the right to set-off under this
Section XI(A) the amount of the Purchaser's Damages which it may sustain or
incur by reason of a breach of any of the Shareholders' or Quansoo's covenants
contained in Section XII hereof; and provided further that in no event shall the
Purchaser have any right to offset against any payment due to Quansoo the amount
of any Purchaser's Damages claimed from any of the Shareholders or to offset
against any payment due to the Shareholders the amount of any Purchaser's
Damages claimed from Quansoo.

B. Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless each of the Shareholders and Quansoo from and
against any and all losses, claims, assessments, demands, damages, liabilities,
obligations, costs and/or expenses whatsoever (hereinafter referred to as the
"Seller's Damages"; the Seller's Damages and the Purchaser's Damages are
sometimes referred to herein as the "Damages"), including, without limitation,
Seller's Counsel Expenses (as hereinafter defined), sustained or incurred by any
of the Shareholders and/or Quansoo as a result of or arising from the breach of
any of the obligations or covenants of the Purchaser herein or in the
Registration Rights Agreement or the inaccuracy of any of the representations
and warranties made by the Purchaser herein or by NovaCare in the Shareholder
Guarantee or in the Quansoo Guarantee. For purposes hereof "Seller's Counsel
Expenses" shall mean reasonable fees and disbursements of counsel howsoever
sustained or incurred by any of the Shareholders and/or Quansoo, including,
without limitation, in any action or proceeding between any of the Shareholders
and/or Quansoo and the Purchaser and/or the Company or in any action or
proceeding between any of the Shareholders and/or Quansoo and any third party.

C. Procedure for Indemnification. In the event that any party
hereto shall incur any Damages in respect of which indemnity may be sought by
such party pursuant to this Section XI, the party from whom such indemnity may
be sought (the "Indemnifying Party") shall be given written notice thereof by
the party seeking such indemnity (the "Indemnified Party"), which notice shall
specify the amount and nature of such Damages and include the request of the
Indemnified Party for indemnification of such amount. The Indemnifying Party
shall within 30 days pay to the Indemnified Party the amount of the Damages so
specified.
<PAGE> 38
36

D. Subrogation. The Shareholders and Quansoo, as the case may
be, shall be subrogated to all rights of the Purchaser or the Company with
respect to any claim for which the Purchaser or the Company has been indemnified
by the Shareholders or Quansoo, as the case may be, hereunder; provided, that,
the Purchaser shall not be required to make any claim against the Company or any
other party in order to pursue any claim against any of the Shareholders or
Quansoo, as the case may be, and provided further, that none of the Shareholders
or Quansoo, as the case may be, shall be entitled to any indemnification or
right of contribution from the Company or have any other rights against the
Company in connection with any claim made hereunder.

XII

NON-COMPETITION AGREEMENT
<PAGE> 39
37

Following the consummation of the transactions contemplated hereby,
and in consideration thereof, none of the Shareholders nor Quansoo shall (a)
subsequent to the date of the Closing and until five years after the date of the
Closing, directly or indirectly, (i) engage, whether as principal, agent,
investor, distributor, representative, stockholder, employee, consultant,
volunteer or otherwise, with or without pay, in any activity or business
venture, anywhere within the States of New York, Vermont, Pennsylvania,
Massachusetts, Connecticut, New Hampshire, North Carolina, New Jersey, and Rhode
Island , which is competitive with the Purchaser's business as a professional
employer organization, (ii) solicit or entice or endeavor to solicit or entice
away from any member of the Purchaser Group (as hereinafter defined) any person
who was or is at the time of the solicitation or enticement a director, officer,
employee, agent or consultant of such member of the Purchaser Group, either on
any of the Shareholders' or Quansoo's own account or for any person, firm,
corporation or other organization, whether or not such person would commit any
breach of such person's contract of employment by reason of leaving the service
of such member of the Purchaser Group, (iii) except as otherwise provided in the
Employment Agreement with respect to Deborah M. Skinner, solicit or entice or
endeavor to solicit or entice away any person who was or is at the time of the
solicitation or enticement a client or customer of any member of the Purchaser
Group, either on any of the Shareholders' or Quansoo's own account or for any
other person, firm, corporation or organization, or (iv) employ any person who
was a director, officer or employee of any member of the Purchaser Group or any
person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Purchaser Group, or (b) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the Purchaser Group or the business reputation or good name of any
member of the Purchaser Group, or be otherwise detrimental to the Purchaser
and/or the Company, including any action or statement intended, directly or
indirectly, to benefit a competitor of any member of the Purchaser Group.
Because the remedy at law for any breach of the foregoing provisions of this
Section XII would be inadequate, each of the Shareholders and Quansoo hereby
consents, in case of any such breach, to the granting by any court of competent
jurisdiction of specific enforcement, including, but not limited to pre-judgment
injunctive relief, of such provisions, as provided for in Section XIV(F) hereof.

For purposes hereof, "Purchaser Group" shall mean, collectively, the
Purchaser and its subsidiaries, affiliates and parent entities operating in the
same lines of business.

XIII

BROKERS AND FINDERS

A. The Shareholders' Obligation. Neither the Purchaser nor the
Company and its subsidiaries shall have any obligation to pay any fee or other
compensation to any person, firm or corporation dealt with by the Company, its
subsidiaries, Quansoo or any of the Shareholders in connection with this
Agreement and the transactions contemplated hereby, and each of the
Shareholders, jointly and severally, hereby agrees to indemnify and save the
Purchaser harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
<PAGE> 41
39

B. The Purchaser's Obligation. Neither the Company and its
subsidiaries nor any of the Shareholders nor Quansoo shall have any obligation
to pay any fee or other compensation to any person, firm or corporation dealt
with by the Purchaser in connection with this Agreement and the transactions
contemplated hereby, and the Purchaser hereby agrees to indemnify and save each
of the Shareholders and Quansoo harmless from any liability, damage, cost or
expense arising from any claim for any such fee or other compensation.

XIV

MISCELLANEOUS

A. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy or sent by
registered or certified mail, postage prepaid, as follows:

(1) If to the Shareholders or the Company or its subsidiaries
(prior to the Closing):

The TPI Group, Ltd.
310 Bay Road
Queensbury, New York 12804
Attention: President
Telecopy No.:
Telephone No.:
<PAGE> 42
40

with a copy to:

Waite & Associates, P.C.
90 N. Pearl Street
Albany, New York 12207
Attention: Stephen J. Waite, Esq.
Telecopy No.: (518) 463-4594
Telephone No.: (518) 463-4257

(2) If to the Purchaser or the Company or its subsidiaries
(subsequent to the Closing):

NovaSource, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Telephone No.: (610) 992-7200

(3) If to Quansoo:

c/o Martin Solomon
Suite 906
2665 South Bay Shore Drive
Coconut Grove, FL 33133
Telecopy No.: (305) 856-3472
Telephone No.: (305) 856-3103
<PAGE> 43
41

with a copy to:

Orloff, Lowenbach, Stifelman & Siegel
101 Eisenhower Parkway
Roseland, New Jersey 07068
Attention: Stanley Schwartz, Esq.
Telecopy No.: (201) 622-3073
Telephone No.: (201) 622-6200

D. Further Assurances. Each of the parties hereto shall use such
party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement. Each of the Shareholders agrees to
execute and deliver any reasonable and customary management representation
letter requested by the Purchaser's independent certified public accountants in
connection with their audit of the S-X Financial Statements.

E. Expenses. Each of the parties hereto shall bear such party's
own expenses in connection with this Agreement and the transactions contemplated
hereby; provided, however, that the Company shall not bear any of such expenses,
other than reasonable attorneys fees and expenses (up to an aggregate of
$35,000) of counsel for the Company, the Shareholders and Quansoo.
<PAGE> 44
42

F. Injunctive Relief. Notwithstanding the provisions of Section
XIV(G) hereof, in the event of a breach or threatened breach by any of the
Shareholders of the provisions of Section XII of this Agreement, each of the
Shareholders hereby consents and agrees that the Purchaser shall be entitled in
order to maintain the status quo ante pending the outcome of any arbitration
pursuant to Section XIV(G) hereof to an injunction or similar equitable relief
restraining any of the Shareholders, as the case may be, from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by any of the Shareholders, as the case may
be, under any such provision, without the necessity of showing any actual damage
or that money damages would not afford an adequate remedy and without the
necessity of posting any bond or other security. The parties hereto hereby
consent to the jurisdiction of the federal courts for the Northern District of
New York and the New York state courts located in such District for any
proceedings under this Section XIV(F). The parties hereto agree that the
availability of arbitration in Section XIV(G) hereof shall not be used by any
party as grounds for the dismissal of any injunctive actions instituted by the
Purchaser pursuant to this Section XIV(F).

G. Dispute Resolution.

(i) Arbitration. The parties shall attempt amicably to
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be submitted to J.A.M.S./Endispute for final binding arbitration, which
shall be conducted by a single arbitrator in the New York, New York area,
pursuant to J.A.M.S./Endispute's Arbitration Rules (the "Rules"). The parties
agree that, notwithstanding anything to the contrary contained in the Rules, the
arbitrator shall not award consequential, exemplary, incidental, punitive or
special damages.

(ii) Procedure. It is agreed that if any party shall
desire relief of any nature whatsoever from any other party as a result of any
Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than one (1) year after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in Section XIV(F)
hereof), or judicial proceedings between them, and that no appeal or judicial
review of the award or decision of the Arbitrator shall be taken, but that such
award or decision may be entered as a judgment
<PAGE> 45
43

and enforced in any court having jurisdiction over the party against whom
enforcement is sought. Any equitable relief awarded under Section XIV(F) hereof
shall be dissolved upon issuance of the Arbitrator's decision and order.

H. Invalidity. Should any provision of this Agreement be held by
a court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.

I. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Purchaser, the
Company and Quansoo respectively, and the legal representatives and heirs of
each of the Shareholders.

J. Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the State of New York , without regard to conflict of laws principles.

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

* * *
<PAGE> 46
44

IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.

THE TPI GROUP, LTD.

By:___________________________
Name:
Title:

______________________________
Deborah M. Skinner

______________________________
John Skinner III

______________________________
Malvern Tippett

______________________________
Carolyn Tippett

______________________________
Terry DeLong

QUANSOO-TPI L.L.C.

By:___________________________
Name:
Title:

NOVASOURCE, INC.

By:___________________________
Name:
Title:

<PAGE> 47
45

<PAGE> 1
EXHIBIT 3(a)

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

NOVACARE EMPLOYEE SERVICES, INC.

AS OF JULY 18,1997

THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to the provisions of the General Corporation Law of the State of
Delaware, does hereby certify as follows:

FIRST: The name of the corporation is NovaCare Employee
Services, Inc. (the "Corporation").

SECOND: The address of the Corporation's registered office in
the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, which
address is located in the County of New Castle, and the name of the
Corporation's registered agent at such address is CT Delaware.

THIRD: The purpose for which the Corporation is organized is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 61,000,000 shares, consisting of
(i) 60,000,000 shares of common stock, $0.01 par value per share (the "Common
Stock"), and (ii) 1,000,000 shares of preferred stock, $0.01 par value per share
(the "Preferred Stock"). The number of authorized shares of Preferred Stock
and/or Common Stock may be increased or decreased (but not below the number of
shares then outstanding) by the affirmative vote of the holders of a majority of
the voting stock of the Corporation. The powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions of the Preferred Stock and the Common Stock shall be
as follows:

Subarticle I. Preferred Stock.

1. Designation, Description and Terms.
<PAGE> 2
2

(a) The Preferred Stock may be issued from
time to time as shares of one or more series of Preferred Stock, and in the
resolution or resolutions providing for the issue of shares of each particular
series, before issuance, the Board of Directors of the Corporation is expressly
authorized to fix the designations, powers, preferences, rights, qualifications,
limitations and/or restrictions of such series of Preferred Stock, including,
without limitation:

(i) the distinctive designation of such series and
the number of shares which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors in creating such series) or decreased
(but not below the number of shares thereof then outstanding)
from time to time by like action of the Board of Directors;

(ii) the rate of dividends payable on such series,
whether or not dividends shall be cumulative, the date or
dates from which dividends shall accrue and, if cumulative,
the relationship which such dividends shall bear to dividends
payable on any other series;

(iii) whether or not the shares of such series shall
be subject to redemption by the Corporation and, if so, the
times, prices and other terms and conditions of such
redemption;

(iv) whether or not the shares of such series shall
be subject to the operation of a sinking fund or a fund of a
similar nature and, if so, the terms thereof;

(v) the rights of the shares of each series in case
of liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or upon any distribution of
its assets;

(vi) whether or not the shares of such series shall
be convertible into or exchangeable for shares of any other
series or class of stock of the Corporation and, if so, the
terms of conversion or exchange;

(vii) whether or not the shares of such series shall
have voting rights in addition
<PAGE> 3
3

to the voting rights provided by law and in paragraph 4 below
and, if so, the nature and extent thereof; and

(viii) the consideration to be received by the
Corporation for the shares of such series.

(b) The shares of the Preferred Stock of any
one series shall be identical with each other in all respects except as
to the dates from which dividends thereon shall accrue or be
cumulative.

(c) In case the stated dividends and the
amounts, if any, payable on liquidation, dissolution or winding up of
the Corporation are not paid in full, the shares of each series of the
Preferred Stock, after the payment in full of such dividends and
amounts to all series of the Preferred Stock ranking senior to such
series and before any payment to any series ranking junior thereto,
shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be
payable on said shares if all dividends were declared and paid in full,
and in any distribution of assets other than by way of dividends, in
accordance with the sums which would be payable on such distribution if
all sums payable were discharged in full.

(d) Upon the issuance of any series of
Preferred Stock, a certificate setting forth the resolution or
resolutions (including the designation, description and terms of such
series) adopted by the Board of Directors with respect to such series
shall be made and filed in accordance with the then applicable
requirements, if any, of the laws of the State of Delaware, or, if no
certificate is then so required, such certificate shall be signed and
acknowledged on behalf of the Corporation by its President or a Vice
President, and its corporate seal shall be affixed thereto and attested
by its Secretary or an Assistant Secretary, and such certificate shall
be filed and kept on file at the principal office of the Corporation in
the State of Delaware or at such other place or places as the Board of
Directors shall designate.

2. Redemption. If so provided by the Board of Directors in the
certificate made pursuant to subparagraph
<PAGE> 4
4

(d) of paragraph 1 with respect to any series of the Preferred Stock, the
Corporation may redeem the whole or any part of such series, at such time or
times and from time to time and at such redemption price or prices as may be
provided by the Board of Directors in such certificate and otherwise upon the
terms and conditions fixed by the Board of Directors in such certificate for any
such redemptions.

3. Rights Upon Liquidation. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of each series of the Preferred Stock then outstanding
shall be entitled to receive, after the payment in full of all amounts to which
the holders of all series of the Preferred Stock ranking senior thereto are
entitled, out of the assets of the Corporation, before any distribution or
payment shall be made to the holders of any series of the Preferred Stock
ranking junior to such series upon liquidation, dissolution or winding up of the
Corporation, or of any Junior Stock, the amount, if any, for each share provided
by the Board of Directors in the certificate made pursuant to subparagraph (d)
of paragraph 1. If payment shall have been made in full to the holders of each
series of the Preferred Stock, the remaining assets of the Corporation shall be
distributed among the holders of the Junior Stock, according to their respective
rights and preferences and pro rata in accordance with their respective
holdings.

4. Vote. On all matters with respect to which holders
of the Preferred Stock or of certain series thereof are entitled to vote as a
single class, each holder of Preferred Stock afforded such class voting right
shall be entitled to one vote for each share held.

5. Junior Stock. For purposes of this Article FOURTH,
the term "Junior Stock" shall mean the Common Stock and any other class of stock
of the Corporation hereafter authorized which shall rank junior to all series of
the Preferred Stock as to all dividends or preferences on dissolution,
liquidation or winding up of the Corporation.

6. General. Except as specifically set forth in this
Subarticle I, whenever in this Subarticle I notice by the holders of the
Preferred Stock is called for, such notice shall be effective for all purposes
under this Subarticle I if effected by the holders of a majority of the shares
of Preferred Stock at the time outstanding.

Subarticle II. Common Stock

1. Vote. Each share of Common Stock shall be entitled
to one vote on matters to be voted on by the stockholders of the Corporation.
<PAGE> 5
5

2. Dividends. After the requirements in respect of dividends
payable on the Preferred Stock, as set forth in Subarticle I 1(a)(ii) are met,
the holders of Common Stock shall be entitled to dividends at such time and in
such amounts as shall be declared by the Board of Directors from time to time
out of funds legally available therefor.

3. Rights Upon Liquidation. In the event of any liquidation,
dissolution or winding-up of the Corporation (whether voluntary or involuntary)
after the payment in full to the holders of Preferred Stock of all preferential
amounts to which they are then entitled in accordance with Subarticle I, the
holders of Common Stock shall be entitled to receive out of the assets of the
Corporation then remaining an amount per share equal to the amount per share to
which they would be entitled if the holders of Common Stock were to share
ratably in such assets.

FIFTH: Subject to the provisions of the General Corporation
Law of the State of Delaware, the number of Directors of the Corporation shall
be determined as provided by the By-Laws.

SIXTH: To the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, or any comparable successor law, as the same
may be amended and supplemented from time to time, the Corporation (i) may
indemnify all persons whom it shall have power to indemnify thereunder from and
against any and all of the expenses, liabilities or other matters referred to in
or covered thereby, (ii) shall indemnify each such person if he is or is
threatened to be made a party to an action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Corporation
or because he was serving the Corporation or any other legal entity in any
capacity at the request of the Corporation while a director, officer, employee
or agent of the Corporation and (iii) shall pay the expenses of such a current
or former director incurred in connection with any such action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding. The indemnification and advancement of expenses provided for herein
shall not be deemed exclusive of any other rights to which those entitled to
indemnification or advancement of expenses may be entitled under any by-law,
agreement, contract or vote of stockholders or disinterested directors or
pursuant to the direction (however embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent
<PAGE> 6
6

and shall inure to the benefit of the heirs, executors and administrators of
such a person.

SEVENTH: In furtherance and not in limitation of the general
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of the Corporation,
except as specifically stated therein.

EIGHTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.

NINTH: Except as otherwise required by the laws of the State
of Delaware, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and papers of the Corporation outside
of the State of Delaware, and the Corporation shall have the power to have one
or more offices within or without the State of Delaware, at such places as may
be from time to time designated by the By-Laws or by resolution of the
stockholders or directors. Elections of directors need not be by ballot unless
the By-Laws of the Corporation shall so provide.

TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
<PAGE> 7
7

upon stockholders herein are granted subject to this reservation.

ELEVENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for the unlawful payment of
dividends or unlawful stock purchases under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of
Delaware is amended to further eliminate or limit the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware, as so amended. Any repeal or modification of this Article by
the stockholders of the Corporation shall be by the affirmative vote of the
holders of not less than eighty percent (80%) of the outstanding shares of stock
of the Corporation and entitled to vote in the election of directors, considered
for the purposes of this Article ELEVENTH as one class, shall be prospective
only and shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.

TWELFTH: The name and address of the incorporator is Ronald J.
Prague, 237 Park Avenue, New York, New York 10017.

CertInco

<PAGE> 1
EXHIBIT 3(b)

NOVARESOURCE, INC.
BY-LAWS

I
Offices

The registered office of the Corporation shall be in the City of Dover,
County of Kent, State of Delaware.

The Corporation may also have offices at such other places, both within
and without the State of Delaware, as may from time to time be designated by the
Board of Directors.

II
Books

The books and records of the Corporation may be kept (except as
otherwise provided by the laws of the State of Delaware) outside of the State of
Delaware and at such place or places as may from time to time be designated by
the Board of Directors.

III
Stockholders

1. Annual Meetings. The annual meeting of the stockholders of the
Corporation for the election of Directors and the transaction of such other
business as may properly come before said meeting shall be held at the principal
business office of the Corporation or at such other place or places either
within or without the State of
<PAGE> 2
2

Delaware as may be designated by the Board of Directors and stated in the notice
of the meeting, on the first Monday of May in each year, if not a legal holiday,
and, if a legal holiday, then on the next day not a legal holiday, at 10:00
o'clock in the forenoon, or such other day as shall be determined by the Board
of Directors.

Written notice of the place designated for the annual meeting of the
stockholders of the Corporation shall be delivered personally or mailed to each
stockholder entitled to vote thereat not less than ten (10) and not more than
sixty (60) days prior to said meeting, but at any meeting at which all
stockholders shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above described may be
dispensed with. If mailed, said notice shall be directed to each stockholder at
his address as the same appears on the stock ledger of the Corporation unless he
shall have filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which case it shall
be mailed to the address designated in such request.

2. Special Meetings. Special meetings of the stockholders of the
Corporation shall be held whenever called in the manner required by the laws of
the State of Delaware for purposes as to which there are special statutory
provisions, and for other purposes whenever called
<PAGE> 3
3

by resolution of the Board of Directors, or by the Chairman of the Board, or by
the President, or by the holders of a majority of the outstanding shares of
capital stock of the Corporation the holders of which are entitled to vote on
matters that are to be voted on at such meeting. Any such special meeting of
stockholders may be held at the principal business office of the Corporation or
at such other place or places, either within or without the State of Delaware,
as may be specified in the notice thereof. Business transacted at any special
meeting of stockholders of the Corporation shall be limited to the purposes
stated in the notice thereof.

Except as otherwise expressly required by the laws of the State of
Delaware, written notice of each special meeting, stating the day, hour and
place, and in general terms the business to be transacted thereat, shall be
delivered personally or mailed to each stockholder entitled to vote thereat not
less than ten (10) and not more than sixty (60) days before the meeting. If
mailed, said notice shall be directed to each stockholder at his address as the
same appears on the stock ledger of the Corporation unless he shall have filed
with the Secretary of the Corporation a written request that notices intended
for him be mailed to some other address, in which case it shall be mailed to the
address designated in said request. At any special meeting at which all
stockholders shall be present, or of which all
<PAGE> 4
4

stockholders not present have waived notice in writing, the giving of notice as
above described may be dispensed with.

Section 1. List of Stockholders. The officer of the Corporation
who shall have charge of the stock ledger of the Corporation shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

Section 2. Quorum. At any meeting of the stockholders of the
Corporation, except as otherwise expressly provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws, there must be
present, either in person or by proxy, in order to constitute a quorum,
stockholders owning a majority of the issued and outstanding shares of the
capital stock of the
<PAGE> 5
5

Corporation entitled to vote at said meeting. At any meeting of stockholders at
which a quorum is not present, the holders of, or proxies for, a majority of the
stock which is represented at such meeting, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.

Section 3. Organization. The Chairman of the Board, or in his
absence the President, or in his absence any Vice President, shall call to order
meetings of the stockholders and shall act as chairman of such meetings. The
Board of Directors or the stockholders may appoint any stockholder or any
Director or officer of the Corporation to act as chairman of any meeting in the
absence of the Chairman of the Board, the President and all of the Vice
Presidents.

The Secretary of the Corporation shall act as secretary of all meetings
of the stockholders, but in the
<PAGE> 6
6

absence of the Secretary the presiding officer may appoint any other person to
act as secretary of any meeting.

Section 4. Voting. Except as otherwise provided in the
Certificate of Incorporation or these By-Laws, each stockholder of record of the
Corporation shall, at every meeting of the stockholders of the Corporation, be
entitled to one (l) vote for each share of stock standing in his name on the
books of the Corporation on any matter on which he is entitled to vote, and such
votes may be cast either in person or by proxy, appointed by an instrument in
writing, subscribed by such stockholder or by his duly authorized attorney, and
filed with the Secretary before being voted on, but no proxy shall be voted
after three (3) years from its date, unless said proxy provides for a longer
period. If the Certificate of Incorporation provides for more or less than one
(l) vote for any share of capital stock of the Corporation, on any matter, then
any and every reference in these By-Laws to a majority or other proportion of
capital stock shall refer to such majority or other proportion of the votes of
such stock.

The vote on all elections of Directors and on any other questions
before the meeting need not be by ballot, except upon demand of any stockholder.

When a quorum is present at any meeting of the stockholders of the
Corporation, the vote of the holders of a majority of the capital stock entitled
to vote at such
<PAGE> 7
7

meeting and present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, under any
provision of the laws of the State of Delaware or of the Certificate of
Incorporation, a different vote is required in which case such provision shall
govern and control the decision of such question.

Section 5. Consent. Except as otherwise provided by the
Certificate of Incorporation, whenever the vote of the stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provision of the laws of the State of Delaware or of the
Certificate of Incorporation, such corporate action may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
capital stock of the Corporation having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
thereto in writing.

Section 6. Judges. At every meeting of the stockholders of the
Corporation at which a vote by ballot is
<PAGE> 8
8

taken, the polls shall be opened and closed, the proxies and ballots shall be
received and taken in charge, and all questions touching the qualifications of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by, two (2) judges. Said judges shall be appointed by the Board of
Directors before the meeting, or, if no such appointment shall have been made,
by the presiding officer of the meeting. If for any reason any of the judges
previously appointed shall fail to attend or refuse or be unable to serve,
judges in place of any so failing to attend, or refusing or unable to serve,
shall be appointed in like manner.

ARTICLE II
Directors

Section 1. Number, Election and Term of Office. The business and
affairs of the Corporation shall be managed by the Board of Directors. The
number of Directors which shall constitute the whole Board shall be between one
(1) and eight (8). Within such limits, the number of Directors may be fixed from
time to time by vote of the stockholders or of the Board of Directors, at any
regular or special meeting, subject to the provisions of the Certificate of
Incorporation. Directors need not be stockholders. Directors shall be elected at
the annual meeting of the stockholders of the Corporation, except as provided in
Section 2 of this Article, to serve until the next annual
<PAGE> 9
9

meeting of stockholders and until their respective successors are duly elected
and have qualified.

In addition to the powers by these By-Laws expressly conferred upon
them, the Board may exercise all such powers of the Corporation as are not by
the laws of the State of Delaware, the Certificate of Incorporation or these
By-Laws required to be exercised or done by the stockholders.

Section 2. Vacancies and Newly Created Directorships.
Except as hereinafter provided, any vacancy in the office of a Director
occurring for any reason other than the removal of a Director pursuant to
Section 3 of this Article, and any newly created Directorship resulting from any
increase in the authorized number of Directors, may be filled by a majority of
the Directors then in office or by a sole remaining Director. In the event that
any vacancy in the office of a Director occurs as a result of the removal of a
Director pursuant to Section 3 of this Article, or in the event that vacancies
occur contemporaneously in the offices of all of the Directors, such vacancy or
vacancies shall be filled by the stockholders of the Corporation at a meeting of
stockholders called for the purpose. Directors chosen or elected as aforesaid
shall hold office until the next annual meeting of stockholders and until their
respective successors are duly elected and have qualified.
<PAGE> 10
10

Section 3. Removals. At any meeting of stockholders of the
Corporation called for the purpose, the holders of a majority of the shares of
capital stock of the Corporation entitled to vote at such meeting may remove
from office, with or without cause, any or all of the Directors.

Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, either within or
without the State of Delaware, as shall from time to time be determined by
resolution of the Board.

Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President or any
two Directors on notice given to each Director, and such meetings shall be held
at the principal business office of the Corporation or at such other place or
places, either within or without the State of Delaware, as shall be specified in
the notices thereof.

Section 6. Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held as soon as practicable after each
annual election of Directors and on the same day, at the same place at which
regular meetings of the Board of Directors are held, or at such other time and
place as may be provided by resolution of the Board. Such meeting may be held at
any other time or place which shall be specified in a notice given, as
hereinafter provided, for special meetings of the Board of Directors.
<PAGE> 11
11

Section 7. Notice. Notice of any meeting of the Board of
Directors requiring notice shall be given to each Director by mailing the same,
addressed to him at his residence or usual place of business, at least
forty-eight (48) hours, or shall be sent to him at such place by facsimile
transmission, courier, telegraph, cable or wireless, or shall be delivered
personally or by telephone, at least twelve (12) hours, before the time fixed
for the meeting. At any meeting at which every Director shall be present or at
which all Directors not present shall waive notice in writing, any and all
business may be transacted even though no notice shall be given.

Section 8. Quorum. At all meetings of the Board of Directors,
the presence of one-third or more of the Directors constituting the Board shall
constitute a quorum for the transaction of business. Except as may be otherwise
specifically provided by the laws of the State of Delaware, the Certificate of
Incorporation or these By-Laws, the affirmative vote of a majority of the
Directors present at the time of such vote shall be the act of the Board of
Directors if a quorum is present. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
<PAGE> 12
12

Section 9. Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if all members of the Board consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board.

Section 10. Telephonic Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in such meeting can hear each other, and participation in a
meeting pursuant to this Section 10 shall constitute presence in person at such
meeting.

Section 11. Compensation of Directors. Directors, as such,
shall not receive any stated salary for their services, but, by resolution of
the Board, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board; provided that
nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.

Section 12. Resignations. Any Director of the Corporation may
resign at any time by giving written notice to the Board of Directors or to the
Chairman of the Board or
<PAGE> 13
13

to the President or the Secretary of the Corporation. Any such resignation shall
take effect at the time specified therein, or, if the time be not specified,
upon receipt thereof; and unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.

ARTICLE III
Officers

Section 1. Number, Election and Term of Office. The officers
of the Corporation shall be a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary and a Treasurer, and may at the discretion of the
Board of Directors include one or more Assistant Treasurers and Assistant
Secretaries. The officers of the Corporation shall be elected annually by the
Board of Directors at its meeting held immediately after the annual meeting of
the stockholders, and shall hold their respective offices until their successors
are duly elected and have qualified. Any number of offices may be held by the
same person. The Chairman of the Board may from time to time appoint such other
officers and agents as the interest of the Corporation may require and may fix
their duties and terms of office.

Section 2. Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall have general
and active management of the business of the Corporation, and shall see that all
<PAGE> 14
14

orders and resolutions of the Board are carried into effect. He shall ensure
that the books, reports, statements, certificates and other records of the
Corporation are kept, made or filed in accordance with the laws of the State of
Delaware. He shall preside at all meetings of the Board of Directors and at all
meetings of the stockholders. He shall cause to be called regular and special
meetings of the stockholders and of the Board of Directors in accordance with
these By-Laws. He may sign, execute and deliver in the name of the Corporation
all deeds, mortgages, bonds, contracts or other instruments authorized by the
Board of Directors, except in cases where the signing, execution or delivery
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation or where any of them
shall be required by law otherwise to be signed, executed or delivered. He may
sign, with the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, certificates of stock of the Corporation. He shall appoint
and remove, employ and discharge, and fix the compensation of all servants,
agents, employees and clerks of the Corporation other than the duly elected or
appointed officers, subject to the approval of the Board of Directors. In
addition to the powers and duties expressly conferred upon him by these By-Laws,
he shall, except as otherwise specifically provided by the laws of the State of
Delaware,
<PAGE> 15
15

have such other powers and duties as shall from time to time be assigned to him
by the Board of Directors.

Section 3. President. The President shall be the chief
operating officer, or, if the office of Chairman of the Board shall be vacant,
the chief executive officer of the Corporation. At the request of the Chairman
of the Board, or in the case of his absence or inability to act, or if the
office of Chairman of the Board shall be vacant, the President shall perform the
duties of the Chairman of the Board, and when so acting, shall have all the
powers of the Chairman of the Board. He may sign, with the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, certificates of
stock of the Corporation. In addition to the powers and duties expressly
conferred upon him by these By-Laws, he shall, except as otherwise specifically
provided by the laws of the State of Delaware, have such other powers and duties
as shall from time to time be assigned to him by the Chairman of the Board or by
the Board of Directors.

Section 4. Vice Presidents. The Vice Presidents shall perform
such duties as the Chairman of the Board, the President or the Board of
Directors shall require. Any Vice President shall, during the absence or
incapacity of the President, assume and perform his duties.

Section 5. Secretary. The Secretary may sign all certificates
of stock of the Corporation. He shall record
<PAGE> 16
16

all the proceedings of the meetings of the Board of Directors and of the
stockholders of the Corporation in books to be kept for that purpose. He shall
have custody of the seal of the Corporation and may affix the same to any
instrument requiring such seal when authorized by the Board of Directors, and
when so affixed he may attest the same by his signature. He shall keep the
transfer books, in which all transfers of the capital stock of the Corporation
shall be registered, and the stock books, which shall contain the names and
addresses of all holders of the capital stock of the Corporation and the number
of shares held by each; and he shall keep such stock and transfer books open
daily during business hours to the inspection of every stockholder and for
transfer of stock. He shall notify the Directors and stockholders of their
respective meetings as required by law or by these By-Laws, and shall perform
such other duties as may be required by law or by these By-Laws, or which may be
assigned to him from time to time by the Board of Directors.

Section 6. Assistant Secretaries. The Assistant Secretaries
shall, during the absence or incapacity of the Secretary, assume and perform all
functions and duties which the Secretary might lawfully do if present and not
under any incapacity.

Section 7. Treasurer. The Treasurer shall have charge of the
funds and securities of the Corporation. He
<PAGE> 17
17

may sign all certificates of stock. He shall keep full and accurate accounts of
all receipts and disbursements of the Corporation in books belonging to the
Corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board, and shall render to the Chairman of the Board or the
President or the Directors, whenever they may require it, an account of all his
transactions as Treasurer and an account of the business and financial position
of the Corporation.

Section 8. Assistant Treasurers. The Assistant Treasurers
shall, during the absence or incapacity of the Treasurer, assume and perform all
functions and duties which the Treasurer might lawfully do if present and not
under any incapacity.

Section 9. Treasurer's Bond. The Treasurer and Assistant
Treasurers shall, if required so to do by the Board of Directors, each give a
bond (which shall be renewed every six (6) years) in such sum and with such
surety or sureties as the Board of Directors may require.

Section 10. Transfer of Duties. The Board of Directors or the
Chairman of the Board in its or his absolute discretion may transfer the power
and duties, in whole or in part, of any officer to any other officer, or
<PAGE> 18
18

persons, notwithstanding the provisions of these By-Laws, except as otherwise
provided by the laws of the State of Delaware.

Section 11. Vacancies. If the office of Chairman of the Board,
President, Vice President, Secretary or Treasurer, or of any other officer or
agent becomes vacant for any reason, the Board of Directors may choose a
successor to hold office for the unexpired term.

Section 12. Removals. At any meeting of the Board of Directors
called for the purpose, any officer or agent of the Corporation may be removed
from office, with or without cause, by the affirmative vote of a majority of the
entire Board of Directors.

Section 13. Compensation of Officers. The officers shall receive
such salary or compensation as may be determined by the Board of Directors.

Section 14. Resignations. Any officer or agent of the
Corporation may resign at any time by giving written notice to the Board of
Directors or to the Chairman of the Board or the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if the time be not specified, upon receipt thereof; and unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.

ARTICLE IV
<PAGE> 19
19

Contracts, Checks and Notes

Section 1. Contracts. Unless the Board of Directors shall
otherwise specifically direct, all contracts of the Corporation shall be
executed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President.

Section 2. Checks and Notes. All checks, drafts, bills of
exchange and promissory notes and other negotiable instruments of the
Corporation shall be signed by such officers or agents of the Corporation as may
be designated by the Board of Directors.

ARTICLE V
Stock

Section 1. Certificates of Stock. The certificates for shares
of the stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be prepared or approved by the Board of
Directors. Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board, the President or a Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary certifying the number of
shares owned by him and the date of issue; and no certificate shall be valid
unless so signed. All certificates shall be consecutively
<PAGE> 20
20

numbered and shall be entered in the books of the Corporation as they are
issued.

Where a certificate is countersigned (l) by a transfer agent other than
the Corporation or its employee, or, (2) by a registrar other than the
Corporation or its employee, any other signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.

All certificates surrendered to the Corporation shall be cancelled and,
except in the case of lost or destroyed certificates, no new certificates shall
be issued until the former certificates for the same number of shares of the
same class of stock shall have been surrendered and cancelled.

Section 2. Transfer of Stock. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
<PAGE> 21
21

ARTICLE VI
Registered Stockholders

The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to, or interest in, such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, save as expressly provided by the laws of the
State of Delaware.

ARTICLE VII
Lost Certificates

Any person claiming a certificate of stock to be lost or destroyed,
shall make an affidavit or affirmation of the fact and advertise the same in
such manner as the Board of Directors may require, and the Board of Directors
may, in its discretion, require the owner of the lost or destroyed certificate,
or his legal representative, to give the Corporation a bond in a sum sufficient,
in the opinion of the Board of Directors, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss of any such
certificate. A new certificate of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed may be issued without
requiring any bond when, in the judgment of the Directors, it is proper so to
do.
<PAGE> 22
22

ARTICLE VIII
Fixing of Record Date

In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.

ARTICLE IX
Dividends

Subject to the relevant provisions of the Certificate of Incorporation,
dividends upon the capital stock of the Corporation may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in property, or in
<PAGE> 23
23

shares of the capital stock of the Corporation, subject to the provisions of the
Certificate of Incorporation.

Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sums as the Directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the Directors
shall think conducive to the interest of the Corporation, and the Directors may
modify or abolish any such reserve in the manner in which it was created.

IV
Waiver of Notice

Whenever any notice whatever is required to be given by statute or
under the provisions of the Certificate of Incorporation or these By-Laws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be equivalent
thereto.

V
Seal

The corporate seal of the Corporation shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware."
<PAGE> 24
24

Amendments

Subject to the provisions of the Certificate of Incorporation, these
By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the
stockholders or by the Board of Directors, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment or repeal of the By-Laws or of adoption of new By-Laws be contained in
the notice of such special meeting.

<PAGE> 1
EXHIBIT 4(a)

EXHIBIT A

NOVACARE EMPLOYEE SERVICES, INC.

1997 Stock Option Plan

1. Purposes of Plan. The purposes of this Plan, which shall be known as
the 1997 Stock Option Plan and is hereinafter referred to as the "Plan", are (i)
to provide incentives for key employees of NovaCare Employee Services, Inc. (the
"Company") and its subsidiary or parent corporations (within the respective
meanings of Section 424(f) and 424(e) of the Internal Revenue Code of 1986, as
amended (the "Code"), and referred to herein as "Subsidiary" and "Parent",
respectively) by encouraging their ownership of the common stock, $.01 par
value, of the Company (the "Stock") and (ii) to aid the Company in retaining
such key employees, upon whose efforts the Company's success and future growth
depends, and attracting other such employees.

2. Administration. The Plan shall be administered by the Board of
Directors, which may delegate authority to administer the Plan to the
Compensation Committee of the Board of Directors("Committee"), as hereinafter
provided. For purposes of administration, the
<PAGE> 2
2

Committee, subject to the terms of the Plan, shall have plenary authority to
establish such rules and regulations, make such determinations and
interpretations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be final, conclusive and binding on all persons, including
Optionees (as hereinafter defined) and their legal representatives and
beneficiaries.

The Committee shall be appointed from time to time by the Board of
Directors and shall consist of not fewer than two of its members. All members of
the Committee shall be directors who are "Non-Employee Directors" as that term
is defined in 17 C.F.R. Section 240.16b-3(b)(3)(i). The Board of Directors shall
designate one of the members of the Committee as its Chairman. The Committee
shall hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to
<PAGE> 3
3

writing and signed by all members shall be as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee). No member of the
Committee shall be liable for any act or omission with respect to his service on
the Committee, if he acts in good faith and in a manner he reasonably believes
to be in or not opposed to the best interests of the Company. Service on the
Committee shall constitute service as a director of the Company for all
purposes.

3. Stock Available for Options. There shall be available for options
under the Plan a total of 625,000 shares of Stock, subject to any adjustments
which may be made pursuant to Section 5(f). Shares of Stock used for purposes of
the Plan may be either authorized and unissued shares, or previously issued
shares held in the treasury of the Company, or both. Shares of Stock covered by
options which have terminated or expired prior to exercise shall be available
for further options hereunder.
<PAGE> 4
4

4. Eligibility. Options under the Plan may be granted to key employees
of the Company or any Subsidiary or Parent, including officers or directors of
the Company or any Subsidiary or Parent. Options may be granted to eligible
employees whether or not they hold or have held options previously granted under
the Plan or otherwise granted or assumed by the Company. In selecting employees
for options, the Committee may take into consideration any factors it may deem
relevant, including its estimate of the employee's present and potential
contributions to the success of the Company and its Subsidiaries. Service as a
director or officer of the Company or any Parent or Subsidiary shall be
considered employment for purposes of the Plan. In the event the Company becomes
obligated to grant options, through the assumption of, or in substitution for,
outstanding awards previously granted by an acquired company or a company with
which the Company combines, options may be granted to a non-continuing director
of such acquired or combining company who does not become an
<PAGE> 5
5

employee or director of the Company or any Subsidiary or Parent.

5. Terms and Conditions of Options. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:

(a) Option Price. Except in the case of an option granted in
assumption of or substitution for an outstanding award of a company acquired by
the Company or with which the Company combines, the price at which each share of
Stock covered by an option granted under the Plan may be purchased shall be
determined by the Committee and shall not be less than the market value per
share of Stock on the date of grant of an option as determined pursuant to
Section 5(c). The date of the grant of an option shall be the date specified by
the Committee in its grant of the option.
<PAGE> 6
6

(b) Option Period. The period for exercise of an option shall in no
event be more than ten years from the date of grant. Options may, in the
discretion of the Committee, be made exercisable in installments during the
option period. Any shares not purchased on any applicable installment date may
be purchased thereafter at any time before the expiration of the option period.

(c) Exercise of Options. In order to exercise an option, the holder
thereof (the "Optionee") shall deliver to the Company written notice specifying
the number of shares of Stock to be purchased, together with cash or a certified
or bank cashier's check payable to the order of the Company in the full amount
of the purchase price therefor; provided that, for the purpose of assisting an
Optionee to exercise an option, the Company may make loans to the Optionee or
guarantee loans made by third parties to the Optionee, on such terms and
conditions as the Board of Directors may authorize; and provided further that
such purchase price may be paid in shares of Stock owned by
<PAGE> 7
7

the Optionee having a market value on the date of exercise equal to the
aggregate purchase price, or in a combination of cash and Stock. For purposes of
the Plan, the market value per share of Stock shall be the last sale price
regular way on the date of reference, or, in case no sale takes place on such
date, the average of the closing high bid and low asked prices regular way, in
either case on the principal national securities exchange on which the Stock is
listed or admitted to trading, or if the Stock is not listed or admitted to
trading on any national securities exchange, the last sale price reported on the
National Market System or the Small Cap Market of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, whichever
is applicable, or if there are no such prices reported on NASDAQ on such date,
as furnished to the Committee by any New York Stock Exchange member selected
from time to time by the Committee for such purpose. If there is no bid or asked
price reported on any such date, the market value shall be determined by the
Committee in
<PAGE> 8
8

accordance with the regulations promulgated under Section 2031 of the Code, or
by any other appropriate method selected by the Committee. If the Optionee so
requests, shares of Stock purchased upon exercise of an option may be issued in
the name of the Optionee or another person. An Optionee shall have none of the
rights of a stockholder until the shares of Stock are issued to him. An option
may not be exercised for less than ten shares of Stock, or the number of shares
of Stock remaining subject to such option, whichever is smaller.

(d) Effect of Termination of Employment. An option may not be
exercised after the Optionee has ceased to be in the full-time employ of the
Company or any Subsidiary or Parent, except in the following circumstances:

(i) If the Optionee's employment is terminated by action of his
employer, or by reason of disability or retirement under any retirement plan
maintained by the Company or any Subsidiary or Parent, the option may be
exercised
<PAGE> 9
9

by the Optionee within three months after such termination, but only as
to any shares exercisable on the date the Optionee's employment so
terminates;

(ii) In the event of the death of the Optionee during the three month
period after termination of employment covered by (i) above, the person or
persons to whom his rights are transferred by will or the laws of descent
and distribution shall have a period of one year from the date of his death
to exercise any options which were exercisable by the Optionee at the time
of his death;

(iii) In the event of the death of the Optionee while employed, the
option shall thereupon become exercisable in full, and the person or persons
to whom the Optionee's rights are transferred by will or the laws of descent
and distribution shall have a period of one year
<PAGE> 10
10

from the date of the Optionee's death to exercise such option. The
provisions of the foregoing sentence shall apply to any outstanding options
which are incentive stock options to the extent permitted by Section 422(d)
of the Code and such outstanding options in excess thereof shall,
immediately upon the occurrence of the event described in the foregoing
sentence, be treated for all purposes of the plan as nonstatutory stock
options and shall be immediately exercisable as such as provided in the
foregoing sentence.

(iv) If the Optionee is not an employee or director of the Company or
any Subsidiary or Parent and is a non-continuing director of a company
acquired by the Company or with which the Company has combined and the
Company has become obligated to grant options to such Optionee as a result
of such acquisition or combination.
<PAGE> 11
11

In no event shall any option be exercisable more than ten years from
the date of grant thereof. Nothing in the Plan or in any option granted pursuant
to the Plan (in the absence of an express provision to the contrary) shall
confer on any individual any right to continue in the employ of the Company or
any Subsidiary or Parent or interfere in any way with the right of the Company
to terminate his employment at any time.

(e) Transferability of Options. During the lifetime of an Optionee,
options held by such Optionee may not be transferred otherwise than by will or
by the laws of descent and distribution without the written consent of
theCommittee, except that nonstatutory options may be transferred to members of
such Optionee's immediate family, trusts for the benefit of such Optionee or
such family members or charitable organizations under Section 501(c)(3) of the
Code, subject to continuing compliance by the Optionee with the terms and
conditions of the option, including, but not limited to, continued employment.
<PAGE> 12
12

(f) Adjustments for Change in Stock Subject to Plan and Other Events.
In the event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of the Company, the Committee shall
make such adjustments, if any, as it deems appropriate in the number and kind of
shares subject to the Plan, in the number and kind of shares covered by
outstanding options, or in the option price per share, or both.

In connection with any merger or consolidation in which the Company is
not the surviving corporation or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options granted to any Optionee on or before February 28, 1997 or to a director
during the period of his directorship at any time
<PAGE> 13
13

before or after February 28, 1997 shall become exercisable in full,
notwithstanding any other provision of the Plan or of any such outstanding
options granted thereunder, on and after (i) the fifteenth day prior to the
effective date of such merger, consolidation, sale, transfer, acquisition or
change in control or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be. The Committee may, in its sole discretion
determine that certain other options granted after February 28, 1997 shall
become exercisable in full under such circumstances determined by the Committee.
The provisions of this paragraph shall apply to any outstanding options which
are incentive stock options to the extent permitted by Section 422(d) of the
Code and such outstanding options in excess thereof shall, immediately upon the
occurrence of the event described in clause (i) or (ii) of the foregoing
sentence, be treated for all purposes of the Plan as nonstatutory stock options
and shall be immediately exercisable as such as provided in the foregoing
sentence. Notwithstanding the foregoing, in no
<PAGE> 14
14

event shall any option be exercisable after the date of termination of the
exercise period of such option specified in Sections 5(b)and 5(d).

(g) Registration, Listing and Qualification of Shares of Stock. Each
option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of the
shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
granting of such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. The Company may require
that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
<PAGE> 15
15

compliance with the foregoing or any other applicable legal requirement.

(h) Other Terms and Conditions. The Committee may impose such other
terms and conditions, not inconsistent with the terms hereof, on the grant or
exercise of options, as it deems advisable.

6. Provisions Applicable to Incentive Stock Options. The Committee may,
in its discretion, grant options under the Plan to eligible employees which
constitute "incentive stock options" (within the meaning of Section 422(d) of
the Code), provided, however, that the aggregate fair market value of the Stock
with respect to which incentive stock options are exercisable for the first time
by the Optionee during any calendar year shall not exceed the limitation set
forth in Section 422(d) of the Code, and provided further that Section 5(d)(ii)
hereof shall not apply to any incentive stock option.

7. Amendment and Termination. Unless the Plan shall theretofore have
been terminated as hereinafter
<PAGE> 16
16

provided, the Plan shall terminate on, and no option shall be granted hereunder
after, February 27, 2007; provided, however, that the Board of Directors may at
any time prior to that date terminate the Plan. The Board of Directors may at
any time amend the Plan. No termination or amendment of the Plan may, without
the consent of an Optionee, adversely affect the rights of such Optionee under
any option held by such Optionee.

8. Effectiveness of Plan. The Plan will not be made effective unless
approved by a majority of the votes cast by the stockholders of the Company at a
meeting of stockholders duly called and held for such purpose or pursuant to a
written consent signed by the holders of a majority of the Stock, and no option
granted hereunder shall be exercisable prior to such approval.

9. Other Actions. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including but not by way of limitation, the right of the Company to grant or
<PAGE> 17
17

assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.

<PAGE> 1
EXHIBIT 10(a)

EMPLOYMENT AGREEMENT

AGREEMENT made as of January 27, 1997 by and between NovaSource, Inc.
(the "Employer") and Loren J. Hulber (the "Employee").

RECITALS

The Employer wishes to retain the services of the Employee in the capacity
of President and Chief Executive Officer, and the Employee wishes to serve in
the employ of the Employer in that capacity, upon the terms and conditions
hereinafter set forth.

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

1. Employment, Term.

1.1 The Employer agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Employer, for the term set forth in Section
1.2, in the position and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.

1.2 The term of the Employee's employment under this Agreement shall
be the period commencing on the date hereof and continuing for three (3) years,
unless sooner terminated in accordance with this Agreement. This Agreement shall
automatically renew for successive one year terms, unless either party shall
give the other notice of non-renewal at least ninety (90) days before the end of
the initial or any renewal term.

2. Position, Duties. Employee shall serve Employer as President and
Chief Executive Officer. The Employee shall have such specific powers, duties
and responsibilities as are consistent with the offices of President and Chief
Executive Officer. The scope of such powers, duties and responsibilities shall
be subject to the interpretation only of the Chairman and the Board of Directors
of the Employer. The Employee shall perform his duties and responsibilities
hereunder faithfully and diligently, in accordance with the budget, business
plans, policies and procedures developed by the Board of Directors of the
Employer. The Employee shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder and shall serve ex
officio as a member of the Board of Directors with a vote.

3. Compensation.

3.1 Salary. In consideration of the performance by the Employee of
the services set forth in Section 2 and the Employee's observance of the other
covenants set forth herein, the Employer shall pay the Employee, and the
Employee shall accept, an annualized base salary of $200,000, payable on a
bi-weekly schedule in accordance with the Employer's regular payroll practices.
Once an initial public offering of the stock of the Employer shall have been
completed, Employee's salary shall be adjusted by the Board of Directors to a
level consistent in the Board's judgment with salaries for similarly situated
employees in similar
<PAGE> 2
publicly traded companies, subject to the Board's judgment with respect to the
Employee's performance.

3.2 Bonus. The Employee shall receive incentive compensation of up
to fifty percent (50%) of his annual base salary, payable within thirty days
after Employer's receipt of audited financial statements for each fiscal year,
prorated if Employee's employment begins during a fiscal year. Employee must be
employed as of the last day of the fiscal year for which incentive compensation
is paid to be eligible to receive such compensation. The actual bonus payable
will be based on achievement of agreed upon objectives and attainment of
financial targets. Objectives for the initial fiscal year shall be agreed to in
a writing executed by both parties within thirty (30) days after the date of
this Agreement. Objectives for subsequent fiscal years shall be agreed to in
writing within thirty (30) days after the start of the relevant fiscal year.

3.3. Special Incentive. Employee shall receive a one-time cash
payment of One Hundred Thousand Dollars ($100,000), subject to required
withholding and deductions, on July 15, 1997 if Employer has made an initial
public offering by June 17, 1997.

3.4 Stock. Employee shall have the right to purchase three hundred
seventy-five thousand (375,000) restricted unregistered shares of the common
stock of Employer (the "Shares") at one dollar and ninety-two cents ($1.92) per
share, which right shall be exercised within thirty (30) days after the date of
this Agreement. The right to sell the Shares to any person other than the
Employer shall vest in three equal installments on the first, second and third
anniversary of the date of this Agreement. If Employee shall leave the
employment of Employer for any reason before all or any part of the Shares shall
have vested, Employer, by notice to Employee given within thirty (30) days after
Employee's employment has terminated, may require Employee to sell such unvested
portion of the Shares to the Employer at one dollar and ninety-two cents ($1.92)
per share, as adjusted for the effect of any split, reverse split,
recapitalization, reorganization, merger, consolidation or other change in the
corporate structure or stock of the Employer. If Employer fails to provide
Employee with notice of its intent to acquire such Shares within thirty (30)
days after the last day of Employee's employment hereunder, such unvested
portion of the Shares shall vest and Employer shall have no further interest in
such Shares.

3.5 Stock Options. After the Employer has completed its first fiscal
year and each year thereafter, Employee shall be eligible for award of stock
options, which may be granted by the Board of Directors of the Employer in its
sole discretion consistent with its compensation philosophy and policies.

4. Expense Reimbursement. During the term of this Agreement, consistent
with the Employer's policies and procedures as in effect from time to time, the
Employer shall reimburse the Employee for all reasonable and necessary
out-of-pocket expenses incurred by the Employee in connection with the
performance of the Employee's duties and responsibilities hereunder, upon the
presentation of proper accounts therefor in accordance with the Employer's
policies.

2
<PAGE> 3
5. Other Benefits. During the term of this Agreement, the Employee
shall be entitled to receive such benefits as are from time to time made
available to other similarly situated employees of the Employer on the same
terms as are available to such similarly situated employees, it being understood
that the Employee shall be required to make the same contributions and payments
in order to receive any of such benefits as may be required of such similarly
situated employees.

6. Termination of Employment.

6.1 Death. In the event of the death of the Employee during the term
of this Agreement, the Employer shall pay to the estate or other legal
representative of the Employee the base salary provided for in Section 3.1
accrued to the Employee's date of death and not previously paid, and the estate
or other legal representative of the Employee shall have no further rights under
this Agreement.

6.2 Disability. If the Employee becomes incapacitated by reason of
sickness, accident or other physical or mental disability and is for a period of
sixty (60) consecutive days unable to perform the essential functions of his
position hereunder, if after reasonable effort by the Employer to assign other
duties to the Employee which the Employee is able to perform, the Employee is
unable to perform such alternate duties, the employment of the Employee may be
terminated by the Employer upon thirty (30) days' prior written notice to the
Employee. Promptly after such termination, the Employer shall pay to the
Employee the base salary provided for in Section 3.1 accrued to the date of such
termination and not previously paid. Neither the Employee nor the Employer shall
have further rights or obligations under this Agreement, except as provided in
Sections 7, 8 and 9.

6.3 Due Cause. The employment of the Employee may be terminated by
the Employer at any time during the term of this Agreement for Due Cause
(defined below). In the event of such termination, the Employer shall pay to the
Employee the base salary provided for in Section 3.1 accrued to the date of such
termination and not previously paid to the Employee, and, after the satisfaction
of any claim of the Employer against the Employee arising as a result of such
Due Cause, neither the Employee nor the Employer shall have any further rights
or obligations under this Agreement, except as provided in Sections 7, 8 and 9.
For purposes hereof, "Due Cause" means (a) a material breach of any of the
Employee's obligations hereunder (it being understood that any breach of the
provisions of Sections 2, 7 or 8 hereof shall be considered material); (b)
willful failure to carry out his duties hereunder, or gross misconduct; or (c)
that the Employee has been charged with any felony or with any lesser crime or
offense involving moral turpitude, or, in the sole judgment of the Chairman, has
breached the Employer's expectations of integrity and forthrightness. Before
terminating Employee for Due Cause, Employer shall notify Employee of the
grounds for such termination and, if such grounds are susceptible to cure, shall
provide Employee Thirty (30) days during which to cure any such grounds. If
Employee shall fail during such period to cure the grounds, Employee's
termination shall be effective as of the date of the notice provided hereunder.

3
<PAGE> 4
6.4 Other Termination by the Employer. The Employer may terminate
the Employee's employment prior to the expiration of the term of this Agreement
for whatever reason it deems appropriate; provided, however, that in the event
that such termination is not pursuant to Sections 6.1, 6.2 or 6.3:

(i) The Employer shall continue to pay to the Employee (or his
estate or other legal representative in the case of the death of the Employee
subsequent to such termination), in the same periodic installments as his base
salary was paid, the base salary provided for in Section 3.1 (at the annual rate
then in effect), until the first to occur of (a) the then scheduled expiration
of the term hereof or (b) the expiration of a period of one (1) year following
such termination (the applicable period hereinafter being referred to as the
"Severance Period"); provided further, that such periodic installment payments
by the Employer shall cease as of the date Employee obtains alternative
employment which does not conflict with Section 8.1(a) of this Agreement, except
that, if such employment is at a rate of compensation less than that required
hereunder, Employer shall continue to pay the difference between the
compensation payable under this section 6.4(i) and the compensation Employee
actually receives in his non-conflicting position for the remainder of the
Severance Period;

(ii) Employee shall receive a bonus, payable on the date
specified in Section 3.2 above for the fiscal year during which termination
occurs (the "Termination Year"), equal to (a) the lesser of the bonus earned in
the preceding fiscal year or 50% of his base salary during the Termination Year
(the "Final Bonus") plus (b) an amount equal to the Final Bonus multiplied by
the number of months in the Severance Period after the Termination Year divided
by twelve;

(iii) Employee shall become fully vested in the stock granted
pursuant to section 3.4 hereof and in any options granted pursuant to section
3.5 hereof; and

(iv) Employee shall continue to receive during the Severance
Period, to the extent permitted by law, the same health, disability and life
insurance benefits as Employee was receiving on the date of termination,
provided that Employee shall continue to make the same contributions toward such
coverage as Employee was making on the date of termination, with such
adjustments to contributions as are made generally for all employees.

6.5 Rights to Benefits. Upon termination of employment under any
provision contained in this Section 6, except section 6.4, rights and benefits
of the Employee, his estate or other legal representative under the employee
benefit plans and programs of the Employer, if any, will be determined in
accordance with the terms and provisions of such plans and programs. Neither the
Employee nor the Employer shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9.

6.6. Constructive Termination. Anything herein to the contrary
notwithstanding, if the Employer:

4
<PAGE> 5
(i) demotes the Employee to a lesser position than provided in
Section 2; or

(ii) causes a material change in the nature or scope of the
authorities, powers, functions, duties, or responsibilities attached to the
Employee's position as described in Section 2;

then, within thirty (30) days after learning of the action, the Employee may
advise the Employer in writing that the action constitutes a termination of his
employment by the Employer pursuant to Section 6.4 (Other Termination by the
Employer), in which event the Employer shall have thirty (30) days (the
"Correction Period") in which to correct such action. If the Employer does not
correct such action during the Correction Period, such action shall (unless
consented to in writing by the Employee) constitute a termination of the
Employee's employment by the Employer pursuant to Section 6.4 (Other Termination
by the Employer) effective on the first business day following the end of the
Correction Period.

6.7 Termination of Employment Following a Change in Control.
Anything herein to the contrary notwithstanding, the Employee may terminate his
employment with the Employer during the one (1) year period following a Change
in Control, and such termination shall constitute a termination of the
Employee's employment by the Employer pursuant to Section 6.4 (Other Termination
by the Employer); provided, however, that the amounts referred to in paragraphs
(i) and (ii) of Section 6.4 shall be paid to the Employee in a lump sum on the
date of termination. For purposes of this Agreement, a Change in Control of the
Employer shall be deemed to have occurred if:

(i) a "person" (meaning an individual, a partnership, or other
group or association as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, other than the Employee or a group including the
Employee), either (x) acquires twenty percent (20%) or more of the combined
voting power of the outstanding securities of the Employer having a right to
vote in elections of directors and such acquisition shall not have been approved
within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as hereinafter defined) then in office or (y) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Employer having a right to vote in elections of directors; or

(ii) Continuing Directors shall for any reason cease to
constitute a majority of the Board of Directors of the Employer;

(iii) all or substantially all of the business and/or assets
of the Employer are disposed of by the Employer to a party or parties other than
a subsidiary or other affiliate of the Employer, pursuant to a partial or
complete liquidation of the Employer, sale of assets (including stock of a
subsidiary of the Employer) or otherwise; or

(iv) Mr. John H. Foster, Chairman of NovaCare, Inc. shall
have died.

5
<PAGE> 6
For purposes of this Agreement, the term "Continuing Director" shall mean
a member of the Board of Directors of the Employer who either was a member of
the Board of Directors on the date hereof or who subsequently became a Director
and whose election, or nomination for election, was approved by a vote of at
least two-thirds of the Continuing Directors then in office.

7. Confidential Information.

7.1 (a) The Employee shall, during the Employee's employment with
the Employer and at all times thereafter, treat all confidential material (as
hereinafter defined) of the Employer or any other member of the Company Group
(as hereinafter defined) confidentially. The Employee shall not, without the
prior written consent of the Chairman of the Employer, disclose such
confidential material, directly or indirectly, to any party, who at the time of
such disclosure is not an employee or agent of any member of the Company Group,
or remove from the premises of the Employer or any other member of the Company
Group any notes or records relating thereto, copies or facsimiles thereof
(whether made by electronic, electrical, magnetic, optical, laser, acoustic or
other means), or any other property of any member of the Company Group. The
Employee agrees that all confidential material, together with all notes and
records of the Employee relating thereto, and all copies or facsimiles thereof
in the possession of the Employee (whether made by the foregoing or other
means), are the exclusive property of the Company Group. The Employee shall not
in any manner use any confidential material of the Company Group, or any other
property of any member of the Company Group, outside of the scope of the
Employee's duties and responsibilities under this Agreement or in any way that
is detrimental to any member of the Company Group.

(b) For the purposes hereof, the term "confidential material"
means all information in any way concerning the activities, business or affairs
of any member of the Company Group or any of the customers or clients of any
member of the Company Group, including, without limitation, information
concerning trade secrets, together with all sales and financial information
concerning any member of the Company Group and any and all information
concerning projects in research and development or marketing plans for any
products or projects of the Company Group, and all information in any way
concerning the activities, business or affairs of any of such customers or
clients, which is furnished to the Employee by any member of the Company Group
or any of its agents, customers or clients, or otherwise acquired by the
Employee in the course of the Employee's employment with the Employer; provided,
however, that the term "confidential material" shall not include information
which (i) becomes generally available to the public other than as a result of a
disclosure by the Employee, (ii) was available to the Employee on a
non-confidential basis prior to his employment with any member of the Company
Group or (iii) becomes available to the Employee on a non-confidential basis
from a source other than any member of the Company Group or any of its agents,
customers or clients, provided that such source is not bound by a
confidentiality agreement with any member of the Company Group or any of such
agents, customers or clients.

6
<PAGE> 7
(c) For purposes hereof, the "Company Group" means,
collectively, the Employer, NovaCare, Inc. and the subsidiaries, affiliates and
parent entities of each such entity.

7.2 Promptly upon the request of the Employer, the Employee shall
deliver to the Employer all confidential material in tangible form relating to
any member of the Company Group in the possession of the Employee, without
retaining a copy thereof, unless, in the opinion of counsel for the Employer,
either returning such confidential material or failing to retain a copy thereof
would violate any applicable federal, state, local or foreign law, in which
event such confidential material shall be returned without retaining any copies
thereof as soon as practicable after such counsel advises that the same may be
lawfully done.

7.3 If Employee is required, by deposition, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process, to disclose any confidential material relating to any member of
the Company Group, the Employee shall provide the Employer with prompt notice
thereof so that the Employer may seek an appropriate protective order and/or
waive compliance by the Employee with the provisions hereof; provided, however,
that if in the absence of a protective order or the receipt of such a waiver,
the Employee is, in the opinion of counsel for the Employer, compelled to
disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
confidential material may be so disclosed.

8. Non-Competition.

8.1 The Employee acknowledges that the services to be rendered by
the Employee to the Employer are of a special and unique character. The Employee
agrees that, in consideration of his employment hereunder, Employee shall not,
(a) prior to one year following the date of termination of the Employee's
employment by the Employer or any other member of the Company Group (i) engage,
whether as principal, agent, investor, distributor, representative, stockholder,
employee, consultant, volunteer or otherwise, with or without pay, in any
activity or business venture, anywhere within the United States, which is
competitive with the business of the Company Group on the date of termination,
(ii) solicit or entice or endeavor to solicit or entice away from any member of
the Company Group any person who was a director, officer, employee, agent or
consultant of such member of the Company Group, either on such Employee's own
account or for any person, firm, corporation or other organization, whether or
not such person would commit any breach of such person's contract of employment
by reason of leaving the service of such member of the Company Group, (iii)
solicit or entice or endeavor to solicit or entice away any of the clients or
customers of any member of the Company Group, either on such Employee's own
account or for any other person, firm, corporation or organization, or (iv)
employ any person who was a director, officer or employee of any member of the
Company Group or any person who is or may be likely to be in possession of any
confidential information or trade secrets relating to the business of any member
of the Company Group, or (b) at any time, take any action or make

7
<PAGE> 8
any statement the effect of which would be, directly or indirectly, to impair
the good will of any member of the Company Group or the business reputation or
good name of any member of the Company Group, or be otherwise detrimental to the
Company, including any action or statement intended, directly or indirectly, to
benefit a competitor of any member of the Company Group.

8.2 The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.

8.3 The Employee expressly acknowledges and agrees that the
covenants and agreements set forth in this Section 8 are reasonable in all
respects, and necessary in order to protect, maintain and preserve the value and
goodwill of the businesses of the Company Group, as well as the proprietary and
other legitimate business interests of the members of the Company Group. The
Employee acknowledges and agrees that the covenants and agreements of the
Employee set forth in this Section 8 are a material reason for the payment of
the compensation and benefits provided for in this Agreement.

9. Equitable Relief. In the event of a breach or threatened breach by
the Employee of any of the provisions of Section 7 or 8 of this Agreement, the
Employee hereby consents and agrees that the Employer shall be entitled to
pre-judgment injunctive relief or similar equitable relief, designed to maintain
the status quo ante pending arbitration under Section 19 of this Agreement, by
restraining the Employee from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Employee under any of such provisions, without the necessity of
showing any actual damage or that only damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereby consent to the jurisdiction of the federal courts located in the
Eastern District of Pennsylvania and the state courts operating within the
geographical area included in such District for any proceedings under this
Section 9.

10. Successors and Assigns.

10.1 Assignment by the Employer. The Employer may assign this
Agreement to any affiliate of the Employer.

10.2 Assignment by the Employee. The Employee may not assign this
Agreement or any part thereof without the prior written consent of the Chairman
of the Employer, and any attempted or purported assignment in the absence of
such consent shall be null and void.

8
<PAGE> 9
11. Governing Law. This Agreement shall be deemed a contract made under,
and for all purposes shall be construed in accordance with, the laws of the
Commonwealth of Pennsylvania applicable to contracts to be performed entirely
within such Commonwealth.

12. Entire Agreement. This Agreement contains all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto.

13. Modification and Amendment; Waiver. The provisions of this Agreement
may be modified, amended or waived, but only upon the written consent of the
party against whom enforcement of such modification, amendment or waiver is
sought and then such modification, amendment or waiver shall be effective only
to the extent set forth in such writing. No delay or failure on the part of any
party hereto in exercising any right, power or remedy hereunder shall effect or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.

14. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopier or sent by registered or
certified mail, postage prepaid, as follows:

If to the Employee:

Loren J. Hulber
Fieldstone Farm
7250 Saint Peter's Road
Macungie, PA 18062
Telephone: (610) 967-6044

With a copy to:

Matthew R. Sorrentino, Esquire
Tallman Hudders & Sorrentino
The Paragon Centre
Suite 300
1611 Pond Road
Allentown, PA 18104-2256
Telephone: (610) 391-1800
Telecopy: (610) 391-1805

9
<PAGE> 10
If to the Employer:

NovaSource, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chairman
Telephone: (610) 992-7400
Telecopy: (610) 992-3330

With a copy to:

NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telephone: (610) 992-7404
Telecopy: (610) 992-3396

15. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.

16. Expenses. Each of the parties hereto shall bear his or its own
costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.

17. Titles. Titles of the sections of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed
by reference to the title of any section.

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

19. Arbitration. The parties shall attempt amicably to resolve
disagreements and disputes hereunder by negotiation. If the matter is not
amicably resolved through negotiation, within thirty (30) days after written
notice from either party, any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be subject to
exclusive, final and binding arbitration, which shall be conducted in
Philadelphia,

10
<PAGE> 11
PA, in accordance with the J.A.M.S./Endispute rules for employment arbitration.
Any party may bring a court action to compel arbitration under this Agreement or
to enforce an arbitration award.

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

EMPLOYER: ___________________________________

By_________________________________
Name:
Title:

EMPLOYEE: ___________________________________

<PAGE> 1
EXHIBIT 10(b)

NOVASOURCE, INC.
1016 West Ninth Avenue
King of Prussia, PA 19406

February 10, 1997

Mr. Loren J. Hulber
Fieldstone Farm
7250 Saint Peter's Road
Macungie, PA 18062

Dear Mr. Hulber:

The undersigned, NovaSource, Inc., a Delaware Corporation (the
"Company"), and Loren J. Hulber (the "Purchaser"), hereby agree as follows:

1. Authorization and Sale of the Shares. The Company has authorized
the issuance to the Purchaser of and proposes to sell to the Purchaser, as an
employee benefit and as an incentive to the Purchaser 375,000 shares
(collectively the "Shares" and individually a "Share") of its common stock, $.01
par value (the "Common Stock"), at a price of $1.92 per Share. The Shares are
being issued pursuant to a commitment made by the Company pursuant to the
Employment Agreement dated as of January 10, 1997 by and between the Company and
the Purchaser (the "Employment Agreement").

2. Purchase of the Shares by the Purchaser. Subject to the terms and
conditions hereof, the Purchaser hereby agrees to purchase the Shares from the
Company in reliance upon its representations and warranties herein contained,
and the Company hereby agrees to sell the Shares to the Purchaser in reliance
upon the Purchaser's representations and warranties herein contained, at an
aggregate purchase price (the "Purchase Price") of $720,000 in cash.

3. Representations, Warranties, and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Purchaser as follows:

(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.

(b) The Company has duly authorized the execution and delivery
of this Agreement and the issuance and delivery of the Shares and this Agreement
constitutes a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, or other laws affecting generally the enforceability of
creditors' rights and by
<PAGE> 2
limitations on the availability of equitable remedies. The Shares, when issued
and delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.

4. Representations, Warranties, and Agreements of the Purchaser. The
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:

(a) The Purchaser understands that by the terms of this
Agreement he or she is purchasing shares of Common Stock issued and delivered by
the Company without compliance with the registration requirements of the
Securities Act of 1933 (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the registration requirements of
the Securities Act and such laws, and without the approval, disapproval, or
passing on the merits by any regulatory authority; that for purposes of such
exemptions, the Company will rely upon the representations, warranties and
agreements of the Purchaser contained herein; and that such non-compliance with
registration requirements is not permissible unless such representations and
warranties are correct and such agreements performed. The Purchaser is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act.

(b) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him or her hereunder. The Purchaser understands that, under
existing rules of the Securities and Exchange Commission (the "Commission"), the
Purchaser may be unable to sell any of the Shares except to the extent that the
Shares may be sold (A) in a bona fide private placement to a purchaser who shall
be subject to the same restrictions on sale or (B) subject to the restrictions
contained in Rule 144 under the Securities Act.

(c) The Purchaser is acquiring the Shares pursuant to this
Agreement for the Purchaser's own account and not with a view to or for sale in
connection with the distribution thereof within the meaning of the Securities
Act. The Purchaser shall not effect a distribution of any Shares until either
(A) the Purchaser has received the opinion of counsel for the Company that
registration under the Securities Act is not required or (B) a registration
statement under the Securities Act covering such Shares and the disposition
thereof has become effective under the Securities Act, and the Purchaser agrees
that the certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.

(d) The Purchaser has received such information relating to
the business and affairs of the Company as the Purchaser has requested, and all
additional information which the Purchaser has considered necessary to verify
the accuracy of the information so received. The Purchaser has had the
opportunity to ask questions of and receive answers from the Company concerning
the terms and conditions of the transactions contemplated by this Agreement. On
the basis of the foregoing, the

2
<PAGE> 3
Purchaser is familiar with the operations, business plans and financial
condition of the Company.

(e) The Purchaser's financial position is such that he can
afford to retain the Shares for an indefinite period of time without realizing
any direct or indirect cash return on his investment.

(f) The Purchaser is familiar with the provisions of Rule 144
and the limitations upon the availability and applicability of such rule.

(g) the Purchaser is a sophisticated investor familiar with
the type of risks inherent in the acquisition of restricted securities such as
the Common Stock.

5. Restrictions on Transferability of the Shares. The Purchaser
hereby agrees that the Purchaser shall not sell, assign, transfer, gift, devise,
bequeath, deliver, pledge, hypothecate or otherwise dispose of any of the
Shares, except as provided for in this Agreement. Any disposition or purported
disposition of Shares in violation of this Agreement shall be null and void and
shall not be recorded on the books of the Company. Notwithstanding the
foregoing:

(a) Disposition of Vested Shares and Shares Which Are Not
Vested Shares. Shares which are "vested" in accordance with the following
schedule (the "Vested Shares") may be disposed of in the manner set forth in
Subsection (b) or (d) of this Section 5.

Cumulative Percentage of
Shares Which Are Vested Shares
------------------------------

On or before January 9, 1998 ............... 0%

January 10, 1998 to
January 9, 1999 ............................ 33-1/3%

January 10, 1999 to
January 9, 2000 ............................ 66-2/3%

On or after January 10, 2000 ............... 100%

Shares which are not Vested Shares (the "Unvested Shares") may be
disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.

(b) Vested Shares.

(i) Vested Shares held by the Purchaser may be transferred
by the Purchaser provided that the Purchaser first complies with the right to
purchase set

3
<PAGE> 4
forth in this Subsection (b). The Company shall have a right to purchase any
Vested Shares proposed to be sold by the Purchaser on the terms set forth in
this Subsection (b).

(ii) If the Purchaser wishes to dispose of Vested Shares,
the Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he or she wishes to dispose of. Such Offer
shall be for cash or promissory notes only. Promptly upon receipt of the Offer,
the Purchaser shall give notice to the Company (the "Offer Notice") of the
Purchaser's intent to dispose of Vested Shares, which Offer Notice shall specify
the name of the proposed purchaser, the number of Vested Shares (the "Offered
Securities") the Purchaser desires to dispose of and the price and terms of
payment of such proposed disposition. Upon receipt of the Offer Notice, the
Company shall have the right to purchase all (but not less than all) of the
Offered Securities at the price and on the terms of the Offer. Such right must
be exercised by the Company by giving notice to that effect to the Purchaser
within a period of ten business days after the date of receipt of the Offer
Notice (any such notice of the exercise of such right being herein referred to
as an "Acceptance Notice").

(iii) In the event of the exercise by the Company of its
right to purchase pursuant to this Subsection (b), the Acceptance Notice shall
specify the time and date for purchase of the Offered Securities (the "Share
closing") which shall be not more than 30 days after the expiration of the ten
business day period set forth in clause (b)(ii). The Purchaser shall deliver to
the Company at the Share closing, which shall be held at the business
headquarters of the Company, the Offered Securities in due and proper form for
transfer, against payment of the purchase price of the Company.

(iv) If the Company shall fail or decline to agree to
purchase the Offered Securities within the ten business day period provided for
in clause (b)(ii), then the Purchaser shall have the right and privilege to sell
all (but not less than all) the Offered Securities, within 60 days after the
expiration of such ten business day period, to the bona fide purchaser named in
the Offer Notice, at the price and on terms of payment specified in the Offer.
If, for any reason, the Offered Securities are not sold within such 60-day
period, the Offered Securities shall again become subject to the terms and
conditions of this Agreement.

(v) The Company's right to purchase set forth in this
Subsection (b) shall terminate upon the occurrence of the closing of the initial
sale by the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act (other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan).

(i) If the Purchaser shall cease to be employed by
NovaSource, Inc. or any other subsidiary or affiliate of the Company
(collectively, the "Company Group"), for any reason whatsoever, the Company
shall have the right (but not

4
<PAGE> 5
the obligation) to purchase from the Purchaser all or any portion of the
Unvested Shares owned by the Purchaser at the time the Purchaser ceases to be
employed by the Company, provided that Shares that become vested before or upon
such termination of Purchaser's employment pursuant to any provision of the
Employment Agreement providing for acceleration of vesting upon the occurrence
of certain events shall be deemed vested for purposes of this Agreement. Such
right to purchase shall be exercisable by written notice to that effect given by
the Company to the Purchaser within 30 days after the Purchaser has ceased to be
employed by any member of the Company Group, as aforesaid. Upon the giving of
such written notice, the Purchaser shall for all purposes cease to be a
stockholder of the Company as to the Unvested Shares covered by such notice and
shall have no rights against the Company or any other person in respect of such
Unvested Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 30-day period become Vested Shares.

(ii) At the time and date specified in the notice given by
the Company referred to in clause (c)(i), which date shall in no event be more
than 15 days after the expiration of the 30-day period for the exercise of the
right to purchase set forth therein, the Purchaser shall deliver to the Company,
at the business headquarters of the Company, the Unvested Shares to be sold by
the Purchaser in due and proper form for transfer, against payment by the
Company of the purchase price therefor, as determined in accordance with clause
(c)(iii).

(iii) The per Share purchase price for the Unvested Shares
payable by the Company pursuant to clause (c)(ii) shall be $1.92. The number of
Unvested Shares to be purchased and the per Share purchase price pursuant to
this clause (c)(iii) shall be appropriately adjusted by the Board of Directors
of the Company to reflect any split, reverse split, recapitalization,
reorganization, merger, stock dividend, consolidation or other change in the
corporate structure or the stock of the Company

(d) Disposition to Family Members. Shares held by the
Purchaser may be transferred by the Purchaser to or for the benefit of the
Purchaser or a member of the Purchaser's immediate family. For the purpose of
this Agreement, the term "immediate family" of the Purchaser shall mean the
Purchaser's spouse and children (and the direct lineal descendants of the
Purchaser's children). It shall be a condition to the validity of any transfer
of Shares permitted by the provisions of this Subsection (d) that the transferee
shall execute a copy of this Agreement, shall hold such Shares subject to the
provisions of this Agreement, and shall make no further transfer of such Shares,
except in compliance with the terms and conditions of this Agreement.

5
<PAGE> 6
at the Purchaser's address set forth at the head of this Agreement, a stock
certificate registered in the name of the Purchaser and representing the Shares.

7. Notice. Any notice under this Agreement shall be in writing and
delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at the Purchaser's address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.

8. Successors. The terms, covenants and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, legal representatives, successors, permitted transferees and
assigns.

9. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely within such Commonwealth.

10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto, and no modifications of or amendments to
this Agreement shall be binding on the parties hereto unless in writing and
signed by them.

11. Integration. This Agreement supersedes all prior understandings,
negotiations, and agreements relating to the subject matter hereof.

12. Severability. If any provision herein contained shall be held to
be illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.

13. Reorganization, Etc. The provisions of this Agreement shall
apply mutatis mutandi to any shares or other securities resulting from any stock
split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the Company
and to any shares or other securities of the Company or of any successor company
which may be received by the Purchaser by virtue of his or her ownership of the
Shares.

* * *

6
<PAGE> 7
If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.

Very truly yours,

NOVASOURCE, INC.

By___________________________

Accepted and agreed to as
aforesaid:

___________________________
Loren J. Hulber

<PAGE> 1
EXHIBIT 10(c)

May 7, 1997

Mr. Thomas D. Schubert
204 Afton Way
West Chester, PA 19380

Dear Tom:

It is indeed a pleasure to confirm NovaCare Employee Services' offer of
employment and your acceptance to become Senior Vice President/Chief Financial
Officer. The management team is very pleased that someone of your stature and
experience will be helping shape our future. Equally important, we believe that
you will contribute in a significant way to the building of a culture based on
values. Your experience, leadership and recent accomplishments are important to
this decision, and we look forward to your contributions and much success
together.

The offer of employment is as follows:

- - BASE SALARY - Your employment will begin on June 4, 1997 and you will be paid
$5961.54 on a bi-weekly basis as that is our method of payment. This
annualizes to a base salary of $155,000. You will be eligible for a salary
review on January 1, 1998.

- - INCENTIVE OPPORTUNITY - You will be eligible to participate in the NovaCare
Employee Services Incentive Compensation Plan as approved by the Compensation
Committee of the Board of Directors (the "Compensation Committee"). Your
opportunity will be 35% of your base salary. This incentive will be based on
performance against objectives which you and I will negotiate. Bonuses are
normally distributed after the end of the fiscal year. Your first bonus will
be payable after the end of the 1998 fiscal year, provided you are still
employed by NCES at that time. An incentive plan document will be forthcoming
from Bud Locilento.

- - EQUITY - You will receive an initial stock option grant of 25,000 stock
options priced at $2.80, subject to approval of the Compensation Committee.
This grant will vest in five equal installments of 20% each starting with the
first anniversary of the grant. Thereafter, you will be eligible to
participate in NovaCare Employee Services Stock Option Plan and may receive
grants at the discretion of the Board of Directors.

- - OFFICER STATUS - You will be elected an Officer of NovaCare Employee
Services, subject to the approval of the Board of Directors.
<PAGE> 2
Mr. Thomas D. Schubert
May 7, 1997
Page 2

- - SUPPLEMENTAL BENEFITS PLAN - You will participate in the NovaCare, Inc.
Supplemental Benefits Plan as a Level I executive, or in a comparable plan
established by NovaCare Employee Services, Inc.

- - BENEFITS - You will be eligible to participate in any and all of the group
benefit plans that NovaCare Employee Services offers. You will be entitled to
three weeks of paid time off.

- - NON-COMPETE AND CONFIDENTIALITY AGREEMENT - Restrictions. You acknowledge
that the services to be rendered by you to NovaCare Employee Services are of
a special and unique character. That knowledge will give us a competitive
advantage and could be used to our significant detriment by our competitors.
Therefore, in order to induce NovaCare Employee Services to enter into this
Agreement, and in consideration of your employment hereunder, you agree, for
the benefit of NovaCare Employee Services and its affiliates, that you will
not, during the period of your employment with NovaCare and for one (1) year
thereafter commencing on the date of termination of your employment with
NovaCare Employee Services:

(a) engage, directly or indirectly, whether as principal, consultant,
employee, officer, director, partner, agent, stockholder, limited partner or
other investor (other than an investment of (i) not more than five percent
(5%) of the stock or equity of any corporation the capital stock of which is
publicly traded or (ii) not more than five percent (5%) of the ownership
interest of any partnership or other entity) or otherwise, within the United
States of America, with any firm or person in any activity or business
venture which is in competition with any line or lines of business being
conducted by NovaCare Employee Services or in competition with any outpatient
rehabilitation, contract rehabilitation, occupational health or orthotics &
prosthetics business of any affiliate of NovaCare Employee Services.

(b) solicit or entice or endeavor to solicit or entice away from NovaCare
Employee Services or any affiliate of NovaCare Employee Services or employ,
directly or indirectly, any person who was an employee of NovaCare Employee
Services or of any affiliate of NovaCare Employee Services at any time during
the one-year period ending on the date of termination of your employment with
NovaCare Employee Services, either for your own account or for any
individual, firm or corporation, whether or not such person would commit any
breach of his contract of employment by reason of leaving the service of
NovaCare Employee Services or its affiliates, except that this restriction
shall not apply in the case of any person whose employment shall have been
terminated by NovaCare Employee Services or its affiliates; or
<PAGE> 3
Mr. Thomas D. Schubert
May 7, 1997
Page 3

(c) The Employee shall, during the Employee's employment with the Employer
and at all times thereafter, treat all confidential material (as hereinafter
defined) of the Employer or any other member of the Company Group (as
hereinafter defined) confidentially. The Employee shall not without the prior
written consent of the President of the Employer, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or
remove from the premises of the Employer or any other member of the Company
Group any notes or records relating thereto, copies to facsimiles thereof
(whether made by electronic, electrical, magnetic, optical, laser, acoustic
or other means), or any other property of any member of the Company Group.
The Employee agrees that all confidential material, together with all notes
and records of the Employee relating thereto, and all copies or facsimiles
thereof in the possession of the Employee (whether made by the foregoing or
other means), are the exclusive property of the Company Group. The Employee
shall not in any manner use any confidential material of the Company Group,
or any other property of any member of the Company Group, outside of the
scope of the Employee's duties and responsibilities under this Agreement or
in any way that is detrimental to any member of the Company Group.

(d) For the purpose hereof, the term "confidential material" means all
information in any way concerning the activities, business or affairs of any
member of the Company Group or any of the customers or clients of any member
of the Company Group, including, without limitation, information concerning
trade secrets, together with all sales and financial information concerning
any member of the Company Group and any and all information concerning
projects in research and development or marketing plans for any products or
projects of the Company Group, and all information in any way concerning the
activities, business or affairs of any of such customers or clients, which is
furnished to the Employee by any member of the Company Group or any of its
agents, customers or clients, or otherwise acquired by the Employee in the
course of the Employee's employment with the Employer; provided, however,
that the term "confidential material" shall not include information which (i)
becomes generally available to the public other than as a result of a
disclosure by the Employee, (ii) was available to the Employee on a
non-confidential basis prior to his employment with any member of the Company
Group or (iii) becomes available to the Employee on a non-confidential basis
from a source other than any member of the Company Group or any of its
agents, customers and clients, provided that such source is not bound by a
confidentiality agreement with any member of the Company Group or any of such
agents, customers or clients. You agree that if, in any proceeding, the court
or other authority refuses to enforce the confidentiality and non-compete
covenants set forth herein because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant

<PAGE> 4
Mr. Thomas D. Schubert
May 7, 1997
Page 4

will be deemed appropriately amended and modified in keeping with the
intention of the parties, to the maximum extent permitted by law.

You acknowledge and agree that the confidentiality and non-compete covenants
and agreements set forth herein are reasonable in all respects, and necessary
in order to protect, maintain and preserve the value and goodwill of the
business and other legitimate business interests of NovaCare. You acknowledge
and agree that the covenants and agreements set forth in this Agreement are a
material reason for the payment of the compensation and benefits provided for
in this Agreement.

In the event of a breach or threatened breach by you of any of the
confidentiality and non-compete provisions of this Agreement, you hereby
consent and agree that NovaCare will be entitled to prejudgment injunctive
relief or similar equitable relief, designed to maintain the status quo ante
pending arbitration under this Agreement, as described below, by restraining
you from committing or continuing any such breach or threatened breach or
granting specific performance of any act required to be performed by you
under this Agreement, without the necessity of showing any actual damage or
that only damages would not afford in adequate remedy and without the
necessity of posting any bond or other security. You hereby consent to the
jurisdiction of the federal courts located in the Eastern District of
Pennsylvania and the state courts operating within the geographical area
included in such District for any proceedings hereunder.

ARBITRATION - We will attempt amicably to resolve disagreements and disputes
hereunder by negotiation. If the matter is not amicably resolved through
negotiation, within thirty (30) days after written notice from either party,
and controversy, dispute or disagreement arising out of or relating to this
Agreement, or the breach thereof, will be subject to exclusive, final and
binding arbitration, which will be conducted in Philadelphia, PA, in
accordance with the J.A.M.S./Endispute Alternative Dispute Resolution
Services Rules of Procedure for Arbitration. Either party may bring a court
action to compel arbitration under this Agreement or to enforce an
arbitration award.

TERMINATION OF EMPLOYMENT - If NovaCare Employee Services terminates your
employment for any reason other than due cause, NovaCare will provide a lump
sum payment in accordance with the severance policy in place at that time.
All other provisions of NovaCare Employee Services severance policies will
apply in the event of your termination, including the execution of an
Agreement and General Release as a precondition to any severance payment. For
purposes of this agreement, due cause means (a) any willful and continuing
failure to discharge your duties, (b) gross negligence in the performance of
your duties, (c) conduct detrimental to the

<PAGE> 5
Mr. Thomas D. Schubert
May 7, 1997
Page 5

Company, or (d) commission of a felony or any crime or offense involving
moral turpitude. You will also be extended Outplacement Benefits appropriate
for an executive of your level through a vendor of NovaCare Employee
Services' choice should you be terminated for any reason other than due
cause.

Your employment relationship with NovaCare Employee Services is at will.
Either you or NovaCare Employee Services may terminate that relationship at
any time, with or without notice. You and the Company hereby acknowledge that
no express or implied commitment or promise of employment for any period of
time has been made, and that the at-will nature of this employment
relationship may not be altered hereafter, except through a written agreement
signed by you and an authorized officer on behalf of NovaCare Employee
Services.

These issues represent the substantive parts of the employment offer, Tom. We
have a dynamic organization and a bright future. We are all delighted that
you will be joining the team. Please acknowledge your acceptance of this
Agreement by signing the enclosed copy of this letter and returning it to me.

Welcome to NovaCare Employee Services!

Sincerely,

/s/

Loren J. Hulber

cc: A.T. Locilento, Jr.
Judee von Seldeneck

Agreed and Accepted:

/s/_____________________________ 5/13/97
Thomas D. Schubert Date

<PAGE> 1

Exhibit 10(d)

NOVACARE EMPLOYEE SERVICES, INC.
2621 Van Buren Avenue
Norristown, PA 19403

June 10, 1997

Mr. Thomas D. Schubert
204 Afton Way
West Chester, PA 19380

Dear Mr. Schubert:

The undersigned, NovaCare Employee Services, Inc., a Delaware
Corporation (the "Company"), and Thomas D. Schubert (the "Purchaser"), hereby
agree as follows:

2. Purchase of the Shares by the Purchaser. Subject to the
terms and conditions hereof, the Purchaser hereby agrees to purchase the Shares
from the Company in reliance upon its representations and warranties herein
contained, and the Company hereby agrees to sell the Shares to the Purchaser in
reliance upon the Purchaser's representations and warranties herein contained,
at an aggregate purchase price (the "Purchase Price") of $28,000 in cash.

3. Representations, Warranties, and Agreements of the Company.
The Company represents and warrants to, and agrees with, the Purchaser as
follows:

(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.

(b) The Company has duly authorized the execution and
delivery of this Agreement and the issuance and delivery of the Shares and this
Agreement constitutes a valid and legally binding agreement of the Company
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, or other laws affecting generally the
enforceability of creditors' rights and by limitations on the availability of
equitable remedies. The Shares, when issued and

<PAGE> 2

delivered in accordance with this Agreement, shall have been duly issued and
shall be validly outstanding, fully paid and nonassessable shares of the Common
Stock.

4. Representations, Warranties, and Agreements of the Purchaser.
The Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:

(a) The Purchaser understands that by the terms of this
Agreement he is purchasing shares of Common Stock issued and delivered by the
Company without compliance with the registration requirements of the Securities
Act of 1933 (the "Securities Act") or the securities laws of any state, under
and in reliance on exemptions from the registration requirements of the
Securities Act and such laws, and without the approval, disapproval, or passing
on the merits by any regulatory authority; that for purposes of such exemptions,
the Company will rely upon the representations, warranties and agreements of the
Purchaser contained herein; and that such non-compliance with registration
requirements is not permissible unless such representations and warranties are
correct and such agreements performed. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 under the Securities Act.

(b) The Purchaser understands that the Company is under no
obligation to effect a registration under the Securities Act of the Shares to be
purchased by him hereunder. The Purchaser understands that, under existing rules
of the Securities and Exchange Commission (the "Commission"), the Purchaser may
be unable to sell any of the Shares except to the extent that the Shares may be
sold (A) in a bona fide private placement to a purchaser who shall be subject to
the same restrictions on sale or (B) subject to the restrictions contained in
Rule 144 under the Securities Act.

(d) As Chief Financial Officer of the Company, the Purchaser
is fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision, and to all additional information which
has considered necessary to verify the accuracy of the information so received.
The Purchaser has had the opportunity to ask questions of and receive answers
from the Company concerning the terms and conditions of the transactions
contemplated by this Agreement

<PAGE> 3

(e) The Purchaser is a sophisticated investor familiar with
the type of risks inherent in the acquisition of restricted securities such as
the Common Stock and his financial position is such that he can afford to retain
the Shares for an indefinite period of time without realizing any direct or
indirect cash return on his investment.

(f) The Purchaser is familiar with the provisions of Rule 144
and the limitations upon the availability and applicability of such rule.

<TABLE>
<CAPTION>
Cumulative Percentage of
Shares Which Are Vested Shares
------------------------------
<S> <C>
On or before June 9, 1998........ 0%

June 10, 1998 to
June 9, 1999..................... 33-1/3%

June 10, 1999 to
June 9, 2000..................... 66-2/3%

On or after June 10, 2000........ 100%
</TABLE>

Shares which are not Vested Shares (the "Unvested Shares") may
be disposed of only in the manner set forth in Subsection (c) or (d) of this
Section 5.

(b) Vested Shares.

(i) Vested Shares held by the Purchaser may be
transferred by the Purchaser provided that the Purchaser first complies with the
right to purchase set forth in this Subsection (b). The Company shall have a
right to purchase any Vested Shares proposed to be sold by the Purchaser on the
terms set forth in this Subsection (b).

<PAGE> 4

(i) If the Purchaser shall cease to be employed by the
Company or any other subsidiary or affiliate of the Company (collectively, the
"Company Group"), for any reason whatsoever, the Company shall have the right
(but not the obligation) to purchase from the Purchaser all or any portion of
the Unvested Shares owned by the Purchaser at the time the Purchaser ceases to
be employed by the Company, provided that Shares that become vested before or
upon such termination of Purchaser's

<PAGE> 5

employment pursuant to any provision of the Employment Agreement providing for
acceleration of vesting upon the occurrence of certain events shall be deemed
vested for purposes of this Agreement. Such right to purchase shall be
exercisable by written notice to that effect given by the Company to the
Purchaser within 30 days after the Purchaser has ceased to be employed by any
member of the Company Group, as aforesaid. Upon the giving of such written
notice, the Purchaser shall for all purposes cease to be a stockholder of the
Company as to the Unvested Shares covered by such notice and shall have no
rights against the Company or any other person in respect of such Unvested
Shares except the right to receive payment for such Unvested Shares in
accordance herewith. Notwithstanding the provisions of Subsection (a) of this
Section 5, Unvested Shares not so purchased by the Company shall upon the
expiration of such 30-day period become Vested Shares.

(iii) The per Share purchase price for the Unvested Shares
payable by the Company pursuant to clause (c)(ii) shall be $2.80. The number of
Unvested Shares to be purchased and the per Share purchase price pursuant to
this clause (c)(iii) shall be appropriately adjusted by the Board of Directors
of the Company to reflect any split, reverse split, recapitalization,
reorganization, merger, stock dividend, consolidation or other change in the
corporate structure or the stock of the Company

(d) Disposition to Family Members. Shares held by the Purchaser
may be transferred by the Purchaser to or for the benefit of the Purchaser or a
member of the Purchaser's immediate family. For the purpose of this Agreement,
the term "immediate family" of the Purchaser shall mean the Purchaser's spouse
and children (and the direct lineal descendants of the Purchaser's children). It
shall be a condition to the validity of any transfer of Shares permitted by the
provisions of this Subsection (d) that the transferee shall execute a copy of
this Agreement, shall hold such Shares subject to the provisions of this
Agreement, and shall make no further transfer of such Shares, except in
compliance with the terms and conditions of this Agreement.

6. The Closing. Simultaneously with the execution and delivery of
this Agreement, the Purchaser shall cause to be delivered to the Company a check
or checks payable to the order of the Company in the amount of the Purchase
Price. Promptly after receipt of such check or checks, the Company shall deliver
to the Purchaser at the Purchaser's address set forth at the head of this
Agreement, a stock certificate registered in the name of the Purchaser and
representing the Shares.

<PAGE> 6

7. Notice. Any notice under this Agreement shall be in writing
and delivered personally or sent by certified mail, return receipt requested,
addressed, as the case may be, (i) to the Company at its address set forth at
the head of this Agreement or such other address as may hereafter be designated
by the Company by notice to the Purchaser in the manner provided herein; and
(ii) to the Purchaser at the Purchaser's address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.

8. Successors. The terms, covenants and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, legal representatives, successors, permitted
transferees and assigns.

9. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.

11. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.

12. Severability. If any provision herein contained shall be
held to be illegal or unenforceable, such holding shall not affect the validity
or enforceability of the other provisions of this Agreement.

13. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandi to any shares or other securities resulting from any
stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the Company
and to any shares or other securities of the Company or of any successor company
which may be received by the Purchaser by virtue of his or her ownership of the
Shares.

14. Disputes.

(a) Arbitration. The parties shall attempt amicably to
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be settled exclusively by binding arbitration, which shall be conducted
by a single arbitrator in Philadelphia, PA, in accordance with the
J-A-M-S/Endispute Streamlined Arbitration Rules and Procedures (the "Rules").
The parties agree that, notwithstanding anything to the contrary contained

<PAGE> 7

in the Rules, the arbitrator shall not award consequential, exemplary,
incidental, punitive or special damages.

(b) Procedure. It is agreed that if any party shall desire
relief of any nature whatsoever from the other party as a result of any
Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than one (1) year after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable or judicial proceedings between them, and
that no appeal or judicial review of the award or decision of the Arbitrator
shall be taken, but that such award or decision may be entered as a judgment and
enforced in any court having jurisdiction over the party against whom
enforcement is sought.

* * *

<PAGE> 8

If you are in agreement with the foregoing, please execute and
deliver to the undersigned the enclosed counterpart of this Agreement, whereupon
this Agreement shall become a binding agreement between us.

Very truly yours,

NOVACARE EMPLOYEE
SERVICES, INC.

By _______________________________

Accepted and agreed to as
aforesaid:

_________________________________
Thomas D. Schubert

<PAGE> 1
EXHIBIT 10 (e)

EMPLOYMENT AGREEMENT

AGREEMENT made the 8th day of October, 1996 by and between
NovaResource, Inc., a Delaware corporation (the "Company"), and Bernard Clinton
Byrd, Jr. (the "Employee").

W I T N E S S E T H :

WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.

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

1. Employment, Term.

1 The Company agrees to employ the Employee,
and the Employee agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the position and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.

2 The term of the Employee's employment under
this Agreement shall be the period commencing on the date hereof and continuing
through October 8, 2001, unless sooner terminated in accordance with this
Agreement.

3 The parties hereto acknowledge that the
Company may designate another direct or indirect wholly-owned subsidiary of the
Company to employ the Employee and to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform this
Agreement.

2. Position, Duties. The Employee shall serve as Senior
Vice President of the Company and shall have such duties and responsibilities
consistent with such position as are requested of him by the President of the
Company or his or her designee or successor; provided, however, that in no event
shall the Employee be required to relocate from the Orlando, Florida
metropolitan area. The Employee shall perform his duties and responsibilities
hereunder faithfully
<PAGE> 2
2

and diligently. The Employee shall report to the President of the Company, to
the designees or successors of such person, and to the Board of Directors of the
Company. The Employee shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder. The Employee hereby
represents that he is not bound by any confidentiality agreements or restrictive
covenants which restrict or may restrict his ability to perform his duties
hereunder, and agrees that he will not enter into any such agreements or
covenants during the term of his employment hereunder, except such restrictive
covenants or confidentiality agreements which are required by the Company. Prior
to or at the time of the Company's initial public offering, John H. Foster, the
current President of the Company, will relinquish such position. At such time,
the Employee will be considered for such position. In the event the Employee is
elected as President of the Company, this Agreement shall be appropriately
amended or modified.

3. Compensation.

1 Base Salary. During the term of this Agreement, in
consideration of the performance by the Employee of the services set forth in
Section 2 and his observance of the other covenants set forth herein, the
Company shall pay the Employee, and the Employee shall accept, a base salary at
the rate of $150,000 per annum, payable in accordance with the standard payroll
practices of the Company. In addition to the base salary payable hereunder, the
Employee may be entitled to receive merit increases in salary during the term
hereof in amounts and at such times as shall be determined by the President of
the Company in his or her sole discretion. In no event shall the failure to
grant any such increase (or the amount of any such increase) give rise to a
claim by the Employee under this Agreement.

2 Bonus. During each twelve-month period during the
term of this Agreement, in addition to the base salary payable under Section 3.1
above, the Employee shall be eligible to earn a bonus of up to $50,000 (the
"Bonus"), based on certain annual criteria related to the personal productivity
and performance of the Employee, such criteria to be determined annually by the
Employee and the President of the Company.

necessary out-of-pocket expenses incurred by him in connection with the
performance of his duties hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies.

5. Other Benefits. During the term of this Agreement,
the Employee shall be entitled to receive three paid weeks vacation time per
annum and such other benefits and customary medical and life insurance as are
from time to time made available to other similarly situated employees of Human
Resource One, Inc., a Florida corporation ("HR One"), on the same terms as are
available to such similarly situated employees, it being understood that the
Employee shall be required to make the same contributions and payments in order
to receive any of such benefits as may be required of such similarly situated
employees.

6. Termination of Employment.

1 Death. In the event of the death of the
Employee during the term of this Agreement, the Company shall pay to the estate
or other legal representative of the Employee (x) the salary provided for in
Section 3.1 (at the annual rate then in effect) accrued to the Employee's date
of death and not theretofore paid, (y) the Bonus, if it has been determined and
earned in accordance with Section 3.2 but not yet paid, and (z) any expense
reimbursement due to the Employee pursuant to Section 4 but not yet paid, and
the estate or other legal representative of the Employee shall have no further
rights under this Agreement. Rights and benefits of the Employee, his estate or
other legal representative under the employee benefit plans and programs of the
Company, if any, will be determined in accordance with the terms and provisions
of such plans and programs.

2 Disability. If the Employee shall become
incapacitated by reason of sickness, accident or other physical or mental
disability and shall for a period of thirty (30) consecutive days be unable to
perform his normal duties hereunder, with or without reasonable accommodation,
the employment of the Employee hereunder may be terminated by the Company upon
thirty (30) days' prior written notice to the Employee. Within thirty (30) days
after such termination, the Company shall pay to the Employee (x) the salary
provided for in Section 3.1 (at the annual rate then in effect) accrued to the
date of such termination and not theretofore paid, (y) the Bonus, if it has been
determined and earned in accordance with Section 3.2 but not yet paid, and (z)
any expense reimbursement due to the Employee pursuant to Section 4 but not yet
paid. Rights and benefits of the Employee, his estate or other
<PAGE> 4
4

legal representative under the employee benefit plans and programs of the
Company, if any, will be determined in accordance with the terms and provisions
of such plans and programs. Neither the Employee nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8 and 9.

3 Due Cause. The employment of the Employee
hereunder may be terminated by the Company at any time during the term of this
Agreement for Due Cause (as hereinafter defined). In the event of such
termination, the Company shall pay to the Employee (x) the salary provided for
in Section 3.1 (at the annual rate then in effect) accrued to the date of such
termination and not theretofore paid to the Employee, (y) the Bonus, if it has
been determined and earned in accordance with Section 3.2 but not yet paid, and
(z) any expense reimbursement due to the Employee pursuant to Section 4 but not
yet paid, and, after the satisfaction of any claim of the Company against the
Employee arising as a direct and proximate result of such Due Cause, neither the
Employee nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8 and 9. Rights and benefits of the
Employee, his estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. For purposes hereof, "Due
Cause" shall mean (a) a material breach of any of the Employee's obligations
hereunder (it being understood that any breach of the provisions of Sections 2,
7 or 8 hereof shall be considered material) or performance which, in the good
faith judgment of the Board of Directors of the Company, is unsatisfactory; or
(b) that the Employee, in carrying out his duties hereunder, in the good faith
judgment of the Board of Directors of the Company, has been guilty of (i)
willful or gross neglect or (ii) willful or gross misconduct, resulting in
either case in material harm to any member of the Company Group (as hereinafter
defined); or (c) that the Employee has been convicted or indicted with respect
to (i) a felony or (ii) any crime or offense involving moral turpitude. In the
event of an occurrence under this Section 6.3, the Employee shall be given
written notice by the Company that it intends to terminate the Employee's
employment for Due Cause under this Section, which written notice shall specify
the act or acts upon the basis of which the Company intends so to terminate the
Employee's employment. If the basis for such written notice is an act or acts
described in clause (a) above and not involving moral turpitude, the Employee
shall be given twenty (20) days to cease or correct the performance (or
nonperformance) giving rise to such written
<PAGE> 5
5

notice and, upon failure of the Employee within such twenty (20) days to cease
or correct such performance (or nonperformance), the Employee's employment by
the Company shall automatically be terminated hereunder for Due Cause.

4 Other Termination by the Company. The
Company may terminate the Employee's employment prior to the expiration of the
term of this Agreement for whatever reason it deems appropriate; provided,
however, that in the event that such termination is not pursuant to Sections
6.1, 6.2 or 6.3, the Company shall pay to the Employee (or his estate or other
legal representative in the case of the death of the Employee subsequent to such
termination) (x) the salary provided for in Section 3.1 (at the annual rate than
in effect) accrued to the date of such termination, (y) the Bonus, if it has
been determined and earned in accordance with Section 3.2 but not yet paid, and
(z) any expense reimbursement due to the Employee pursuant to Section 4 but not
yet paid. Rights and benefits of the Employee, his estate or other legal
representative under the employee benefit plans and programs of the Company, if
any, will be determined in accordance with the terms and provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 9.

5 Termination by the Employee. In the event of
a continued material monetary breach by the Company of its obligations under
this Agreement or the Purchase Agreement (as hereinafter defined), which
continued breach has not been cured within 60 days after written notice to the
Company of such breach (or such longer period of time reasonably necessary to
cure such breach in the event the Company has commenced such cure and is
diligently pursuing the same in good faith), then the Employee may immediately
terminate his employment hereunder by written notice to the Company. In the
event the Employee terminates his employment pursuant to this Section 6.5, the
Company shall pay to the Employee (x) the salary provided for in Section 3.1 (at
the annual rate then in effect) accrued to the date of such termination, (y) the
Bonus, if it has been determined and earned in accordance with Section 3.2 but
not yet paid, and (z) any expense reimbursement due to the Employee pursuant to
Section 4 but not yet paid. Rights and benefits of the Employee, his estate or
other legal representative under the benefit plans and programs of the Company,
if any, will be determined in accordance with the terms and provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 9.
<PAGE> 6
6

7. Confidential Information.

1 (a) The Employee shall, during the
Employee's employment with the Company and at all times thereafter, treat all
confidential material (as hereinafter defined) of the Company or any of the
Company's subsidiaries, affiliates or parent entities (the Company and the
Company's subsidiaries, affiliates and parent entities being hereinafter
collectively referred to as the "Company Group") confidentially. The Employee
shall not, without the prior written consent of the President of the Company,
disclose such confidential material, directly or indirectly, to any party, who
at the time of such disclosure is not an employee or agent of any member of the
Company Group, or remove from the Company's premises any notes or records
relating thereto, copies or facsimiles thereof (whether made by electronic,
electrical, magnetic, optical, laser, acoustic or other means), or any other
property of any member of the Company Group. The Employee agrees that all
confidential material, together with all notes and records of the Employee
relating thereto, and all copies or facsimiles thereof in the possession of the
Employee (whether made by the foregoing or other means) are the exclusive
property of the Company. The Employee shall not in any manner use any
confidential material of the Company Group, or any other property of any member
of the Company Group, in any manner not specifically directed by the Company.

(a) For the purposes hereof, the term
"confidential material" shall mean all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers of any member of the Company Group, including, without limitation,
information concerning trade secrets, together with all sales and financial
information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information
concerning the practices and customers of any member of the Company Group, and
all information in any way concerning the activities, business or affairs of any
of such customers, as such, which is furnished to the Employee by any member of
the Company Group or any of its agents or customers, as such, or otherwise
acquired by the Employee in the course of the Employee's employment with the
Company; provided, however, that the term "confidential material" shall not
include information which (i) becomes generally available to the public other
than as a result of a disclosure by the Employee, (ii) was available to the
<PAGE> 7
7

Employee on a non-confidential basis prior to his employment with any member of
the Company Group, or (iii) becomes available to the Employee on a
non-confidential basis from a source other than any member of the Company Group
or any of its agents or customers, as such, provided that such source is not
bound by a confidentiality agreement with any member of the Company Group or any
of such agents or customers.

2 Promptly upon the request of the Company,
the Employee shall deliver to the Company all confidential material relating to
any member of the Company Group in the possession of the Employee without
retaining a copy thereof (provided, however, that the Employee shall be entitled
to retain a list of such confidential material so long as the form of such list
is reasonably acceptable to the Company), unless, in the written opinion of
counsel for the Company delivered to the Employee, either returning such
confidential material or failing to retain a copy thereof would violate any
applicable Federal, state, local or foreign law, in which event such
confidential material shall be returned without retaining any copies thereof as
soon as practicable after such counsel advises in writing to the Employee that
the same may be lawfully done.

3 In the event that the Employee is required,
by oral questions, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process, to disclose any
confidential material relating to any member of the Company Group, the Employee
shall provide the Company with prompt notice thereof so that the Company may
seek an appropriate protective order and/or waive compliance by the Employee
with the provisions hereof; provided, however, that if in the absence of a
protective order or the receipt of such a waiver, the Employee is, in the
opinion of counsel reasonably acceptable to the Company, compelled to disclose
confidential material not otherwise disclosable hereunder to any legislative,
judicial or regulatory body, agency or authority, or else be exposed to
liability for contempt, fine or penalty or to other censure, such confidential
material may be so disclosed.
<PAGE> 8
8

8. Non-Competition.
<PAGE> 9
9

1 The Employee acknowledges that the services
to be rendered by him to the Company are of a special and unique character. The
Employee agrees that, in consideration of his employment hereunder, the Employee
will not, (a) unless (x) an Earn-Out Payment or other payment due and payable by
the Company to the Employee (or permitted transferees of the Employee of shares
of NovaResource Common Stock as defined in the Purchase Agreement) under the
Agreement of Purchase and Sale dated as of September 16, 1996 (the "Purchase
Agreement") among the Company, HR One, Resource One, Inc., a Florida
corporation, William E. Mayville ("Mayville"), the Employee and the other
parties thereto, or (y) any payment due to the Employee (or permitted
transferees of the Employee of shares of NovaResource Common Stock) under the
Stockholders Agreement dated as of the date hereof among NovaCare, Inc., the
Delaware parent corporation of the Company, Mayville and the Employee or this
Agreement is not subject to a bona fide dispute and is not paid within sixty
(60) days after it is due (and for so long as such Earn-Out Payment or other
payment remains unpaid), (A) during the term of this Agreement and (B) prior to
two years from the date of termination of the Employee's employment by the
Company or any other member of the Company Group, directly or indirectly, (w)
engage, whether as principal, agent, investor, distributor, representative,
stockholder, employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture, anywhere within (i) the counties of Dade,
Orange and Broward, Florida or (ii) the county of Orange, California which is
competitive with the professional employer organization business of the Company
or any of the other members of the Company Group, (x) solicit or entice or
endeavor to solicit or entice away from any member of the Company Group any
person who was or is at the time of solicitation or enticement a director,
officer, employee, agent or consultant of such member of the Company Group,
either on the Employee's own account or for any person, firm, corporation or
other organization, whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the service of such member
of the Company Group, (y) solicit or entice or endeavor to solicit or entice
away any person who was or is at the time of solicitation or enticement a
customer of any member of the Company Group, either on the Employee's own
account or for any other person, firm, corporation or organization, or (z)
employ any person who was a director, officer or employee of any member of the
Company Group or any person who is or may be likely to be in possession of any
confidential information or trade secrets relating to the business of any member
of the Company Group, or (b) take any
<PAGE> 10
10

action or make any statement the effect of which would be, directly or
indirectly, to impair the good will of any member of the Company Group or the
business reputation or good name of any member of the Company Group, or be
otherwise detrimental to the Company, including any action or statement
intended, directly or indirectly, to benefit a competitor of any member of the
Company Group; provided, however, that it shall not be a breach of this
Subsection (b) if the Employee, in good faith, asserts a claim in any legal
proceeding against the Company or NovaCare, Inc., a Delaware corporation, under
the Purchase Agreement, the Stockholders Agreement, this Agreement or otherwise.

For purposes hereof, the "Company Group" shall mean,
collectively, the Company and the Company's subsidiaries operating in the same
lines of business.

2 The Employee and the Company agree that if,
in any proceeding, the court or other authority shall refuse to enforce the
covenants herein set forth because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant shall be deemed
appropriately amended and modified in keeping with the intention of the parties
to the maximum extent permitted by law.

8.3 The Employee expressly acknowledges and
agrees that the covenants and agreements set forth in this Section 8 are
reasonable in all respects, and necessary in order to protect, maintain and
preserve the value and goodwill of the Company Group, as well as the proprietary
and other legitimate business interests of the members of the Company Group. The
Employee acknowledges and agrees that the covenants and agreements of the
Employee set forth in this Section 8 constitute a significant part of the
consideration given by the Employee to the Company in exchange for the salary
and benefits provided for in this Agreement, and are a material reason for such
payment.

parties hereto hereby consent to the jurisdiction of the Federal courts located
in the Middle District of Florida and the state courts located in such District
for any proceedings under this Section 9. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have.

10. Successors and Assigns.

1 Assignment by the Company. The Company shall
require any successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. As used in this Section, the "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.

2 Assignment by the Employee. The Employee may
not assign this Agreement or any part hereof without the prior written consent
of the President of the Company; provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate.

11. Governing Law. This Agreement shall be deemed a
contract made under, and for all purposes shall be construed in accordance with,
the laws of the State of Florida applicable to contracts to be performed
entirely within such State.

12. Entire Agreement. This Agreement is entered into
pursuant to the Purchase Agreement. This Agreement and the other agreements
executed contemporaneously herewith and therewith contain all the understandings
and representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, if there be any, previously entered into by them with respect thereto;
provided,
<PAGE> 12
12

however, that Section 8 shall not serve as a limitation of the terms of any
other non-competition agreement between the Employee and any member of the
Company Group. No modification of this Agreement shall be effective unless in
writing and signed by the party against which enforcement is sought to be
enforced. Any oral agreements or representations respecting the transactions
contemplated by the Purchase Agreement, not reduced to writing in the Purchase
Agreement or in any of the documents referred to therein (including this
Agreement), are null and void.

13. Modification and Amendment; Waiver. The provisions of
this Agreement may be modified, amended or waived, but only upon the written
consent of the party against whom enforcement of such modification, amendment or
waiver is sought and then such modification, amendment or waiver shall be
effective only to the extent set forth in such writing. No delay or failure on
the part of any party hereto in exercising any right, power or remedy hereunder
shall effect or operate as a waiver thereof, nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such
right, power or remedy preclude any further exercise thereof or of any other
right, power or remedy.

14. Notices. All notices, requests or instructions
hereunder shall be in writing and delivered personally, sent by telecopier or
sent by registered or certified mail, postage prepaid, as follows:

If to the Company:

1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

If to the Employee:

Mr. Bernard Clinton Byrd, Jr.
1351 N. Lake Sybelia Drive
<PAGE> 13
13

Maitland, Florida 32701
<PAGE> 14
14

with a copy to:

15. Severability. Should any provision of this Agreement
be held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court is
expressly authorized to modify any such unenforceable provision of this
Agreement in lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this Agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.

determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such amounts, in whole or in part, the Company may, in its
sole discretion, accept other provision for payment of taxes as permitted by
law, provided it is satisfied in its sole discretion that all requirements of
law affecting its responsibilities to withhold such taxes have been satisfied.

17. Survivorship. The respective rights and obligations
of the parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.

18. Expenses. Each of the parties hereto shall bear his
or its own costs and expenses, including attorneys' fees and disbursements,
incurred in connection with this Agreement and the transactions contemplated
hereby.

19. Titles. Titles of the sections of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section.

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

* * *

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

NOVARESOURCE, INC.

By___________________________
Name:
Title:

____________________________
Bernard Clinton Byrd, Jr.

<PAGE> 1
EXHIBIT 10 (f)

NOVACARE EMPLOYEE SERVICES, INC.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406

As of April 8, 1997

Mr. Bernard Clinton Byrd, Jr.
1351 North Lake Sybelia Drive
Maitland, Florida 32751

Dear Barry:

This is to confirm that we have agreed to amend certain terms
and provisions of the Employment Agreement dated as of October 8, 1996 between
NovaCare Employee Services, Inc., a Delaware corporation (f/k/a NovaResource,
Inc.), and Bernard Clinton Byrd, Jr. (the "Employment Agreement").

1. Amendments. (a) Section 3.1 of the
Employment Agreement shall be amended by deleting the first sentence therein and
substituting the following therefor:

"3.1 Base Salary. During the term of this Agreement,
in consideration of the performance by the Employee of the
services set forth in Section 2 and his observance of the
other covenants set forth herein, the Company shall pay the
Employee, and the Employee shall accept, a base salary at the
rate of $75,000 per annum, payable in accordance with the
standard payroll practices of the Company."

(a) Section 3.2 of the Employment Agreement shall be amended
by deleting such Section in its entirety and substituting the following
therefor:

"3.2 Bonus. During each twelve-month period during
the term of this Agreement, in addition to the base salary
payable under Section 3.1 above, the Employee shall be
eligible to earn a bonus of up to $25,000 (the "Bonus"), based
on certain annual criteria related to the personal
productivity and performance of
<PAGE> 2
2

the Employee, such criteria to be determined annually by the
Employee and the President of the Company."

2. Miscellaneous.

(a) Except as modified hereby, the Employment
Agreement will remain in full force and effect. All capitalized terms used in
this letter and not otherwise defined will have the same meaning given to such
terms in the Employment Agreement.

(b) This letter may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

* * *
<PAGE> 3
3

Please evidence your agreement to the foregoing by signing
this letter where indicated below.

Very truly yours,

NOVACARE EMPLOYEE SERVICES,
INC.

By____________________________

Accepted and Agreed:

________________________________
Bernard Clinton Byrd, Jr.

<PAGE> 1
EXHIBIT 10 (g)

NOVACARE EMPLOYEE SERVICES, INC.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406

February 28, 1997

Mr. Bernard Clinton Byrd, Jr.
1351 N. Lake Sybelia Drive
Maitland, Florida 32701

Dear Barry:

The undersigned, NovaCare Employee Services, Inc., a Delaware
corporation (the "Company"), and you (the "Purchaser"), hereby agree as follows:

2. Purchase of the Shares by the Purchaser.
Subject to the terms and conditions hereof, the Purchaser hereby agrees to
purchase the Shares from the Company in reliance upon its representations and
warranties herein contained, and the Company hereby agrees to sell the Shares to
the Purchaser in reliance upon his representations and warranties herein
contained, at an aggregate purchase price (the "Purchase Price") of (x) $300 in
cash and (y) a 7% promissory note issued by the Company in the principal amount
of $83,700.

3. Representations, Warranties, and Agreements of the
Company. The Company represents and warrants to, and agrees with, the Purchaser
as follows:
<PAGE> 2
2

(a) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware.

(b) The Company has duly authorized the execution
and delivery of this Agreement and the issuance and delivery of the Shares and
this Agreement constitutes a valid and legally binding agreement of the Company
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, or other laws affecting generally the
enforceability of creditors' rights and by limitations on the availability of
equitable remedies. The Shares, when issued and delivered in accordance with
this Agreement, shall have been duly issued and shall be validly outstanding,
fully paid and nonassessable shares of the Common Stock.

(c) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated herein shall
violate any provision of the Certificate of Incorporation or By-laws of the
Company or any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflict with or result in any breach of any of
the terms of, constitute a default under, or result in the termination of or the
creation of any lien pursuant to the terms of, any contract or agreement to
which the Company is a party or by which the Company or any of its assets is
bound.

4. Representations, Warranties, and Agreements of the
Purchaser. The Purchaser hereby represents and warrants to, and agrees with, the
Company as follows:

(a) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated herein shall conflict with
or result in any breach of any of the terms of, constitute a default under, or
result in the termination of or the creation of any lien pursuant to the terms
of, any contract or agreement to which the Purchaser is a party or by which he
or any of his assets is bound.

(b) (i) The Purchaser understands that by the terms of
this Agreement he is purchasing shares of Common Stock issued and delivered by
the Company without compliance with the registration requirements of the
Securities Act of 1933 (the "Securities Act") or the securities laws of any
state, under and in reliance on exemptions from the
<PAGE> 3
3

registration requirements of the Securities Act and such laws, and without the
approval, disapproval, or passing on the merits by any regulatory authority;
that for purposes of such exemptions, the Company will rely upon the
representations, warranties and agreements of the Purchaser contained herein;
and that such non-compliance with registration requirements is not permissible
unless such representations and warranties are correct and such agreements
performed. The Purchaser is an "accredited investor" as term is defined in Rule
501 of the Securities Act.

(ii) The Purchaser understands that the Company is under
no obligation to effect a registration under the Securities Act of the Shares to
be purchased by him hereunder. The Purchaser understands that, under existing
rules of the Securities and Exchange Commission (the "Commission"), he may be
unable to sell any of the Shares except to the extent that the Shares may be
sold (A) in a bona fide private placement to a purchaser who shall be subject to
the same restrictions on sale or (B) subject to the restrictions contained in
Rule 144 under the Securities Act.

(iii) As a Vice President of the Company, the Purchaser is
fully familiar with the business, properties and financial condition of the
Company, and acknowledges that he has been afforded access to such additional
information concerning the Company as he considers necessary or appropriate to
make an informed investment decision.

(iv) The Purchaser is a sophisticated investor familiar
with the type of risks inherent in the acquisition of securities such as the
Common Stock, and his financial position is such that he can afford to retain
the Shares for an indefinite period of time without realizing any direct or
indirect cash return on his investment.

(v) The Purchaser is acquiring the Shares pursuant to
this Agreement for the Purchaser's own account and not with a view to or for
sale in connection with the distribution thereof within the meaning of the
Securities Act. Except as set forth in Section 5 below, the Purchaser shall not
effect a distribution of any Shares until either (A) the Purchaser has received
the opinion of counsel for the Company that registration under the Securities
Act is not required or (B) a registration statement under the Securities Act
covering such Shares and the disposition
<PAGE> 4
4

thereof has become effective under the Securities Act, and the Purchaser agrees
that the certificates evidencing the Shares may bear a restrictive legend to the
foregoing effect.

5. Restrictions on Transferability of the Shares. The
Purchaser hereby agrees that the Purchaser shall not sell, assign, transfer,
gift, devise, bequeath, deliver, pledge, hypothecate or otherwise dispose of any
of the Shares, except as provided for in this Agreement. Any disposition or
purported disposition of Shares in violation of this Agreement shall be null and
void and shall not be recorded on the books of the Company. Notwithstanding the
foregoing:

(a) Disposition of Vested Shares and Shares which are not
Vested Shares. Shares which are "vested" in accordance with the following
schedule (the "Vested Shares") may be disposed of in the manner set forth in
Subsections (b) or (d) of this Section 5.

<TABLE>
<CAPTION>
Cumulative Percentage
of Shares which
are Vested Shares
---------------------
<S> <C>
On or before February 27, 1998....................... 0

February 28, 1998 to
February 27, 1999.................................... 20%

February 28, 1999 to
February 27, 2000.................................... 40%

February 28, 2000 to
February 27, 2001.................................... 60%

February 28, 2001 to
February 27, 2002.................................... 80%

On or after February 28, 2002........................100%
</TABLE>

Shares which are not Vested Shares (the "Unvested Shares") may
be disposed of only in the manner set forth in Subsections (c) or (d) of this
Section 5.

(b) Vested Shares.
<PAGE> 5
5

(ii) If the Purchaser wishes to dispose of Vested Shares,
the Purchaser shall first obtain a bona fide written offer (the "Offer") for the
purchase of the Vested Shares which he wishes to dispose of. Such Offer shall be
for cash or promissory notes only. Promptly upon receipt of the Offer, the
Purchaser shall give notice to the Company (the "Offer Notice") of his intent to
dispose of Vested Shares, which Offer Notice shall specify the name of the
proposed purchaser, the number of Vested Shares (the "Offered Securities") the
Purchaser desires to dispose of and the price and terms of payment of such
proposed disposition. Upon receipt of the Offer Notice, the Company shall have
the right to purchase all (but not less than all) of the Offered Securities at
the price and on the terms of the Offer. Such right must be exercised by the
Company by giving notice to that effect to the Purchaser within a period of
twenty days after the date of receipt of the Offer Notice (any such notice of
the exercise of such right being herein referred to as an "Acceptance Notice").

(iii) In the event of the exercise by the Company of its
right to purchase pursuant to this Subsection (b), the Acceptance Notice shall
specify the time and date for purchase of the Offered Securities (the "Share
closing") which shall be not more than 30 days after the expiration of the
twenty day period set forth in clause (b)(ii). The Purchaser shall deliver to
the Company at the Share closing, which shall be held at the business
headquarters of the Company, the Offered Securities in due and proper form for
transfer, against payment of the purchase price by the Company.

(iv) If the Company shall fail or decline to agree to
purchase the Offered Securities within the twenty day period provided for in
clause (b)(ii), then the Purchaser shall have the right and privilege to sell
all (but not less than all) the Offered Securities, within 60 days after the
expiration of such twenty day period, to the bona fide purchaser named in the
Offer Notice, at the price and on terms of payment specified in the Offer. If,
for any reason, the Offered Securities are not sold within such
<PAGE> 6
6

60-day period, the Offered Securities shall again become subject to the terms
and conditions of this Agreement.

(v) If, as of the Share closing, any amount of principal
of and interest on any indebtedness of the Purchaser to the Company shall then
be outstanding, payment of the purchase price for the Offered Securities at the
closing shall be made, at the Company's option, by a credit against such
indebtedness to the extent of the principal thereof and interest thereon then
outstanding (whether or not such principal and interest is then due and
payable).

(vi) The Company's right to purchase set forth in this
Subsection (b) shall terminate upon the occurrence of the closing of the initial
sale by the Company to the public of shares of the Common Stock pursuant to a
registration statement filed under the Securities Act (other than a registration
statement covering securities of the Company to be issued pursuant to an
employee benefit plan).

(c) Termination of the Purchaser's Employment. (i) If the
Purchaser shall cease to be employed by the Company or any other subsidiary or
affiliate of the Company (collectively, the "Company Group"), for any reason
whatsoever, the Company shall have the right (but not the obligation) to
purchase from the Purchaser all or any portion of the Unvested Shares owned by
the Purchaser at the time the Purchaser ceases to be employed by any member of
the Company Group (including any Unvested Shares transferred pursuant to the
provisions of Subsection (d) of this Section 5). Such right to purchase shall be
exercisable by written notice to that effect given by the Company to the
Purchaser within 60 days after the Purchaser has ceased to be employed by the
Company, as aforesaid. Upon the giving of such written notice, the Purchaser
shall for all purposes cease to be a stockholder of the Company as to the
Unvested Shares covered by such notice and shall have no rights against the
Company or any other person in respect of such Unvested Shares except the right
to receive payment for such Unvested Shares in accordance herewith.
Notwithstanding the provisions of Subsection (a) of this Section 5, Unvested
Shares not so purchased by the Company shall upon the expiration of such 60-day
period become Vested Shares.

(ii) At the time and date specified in the notice given by
the Company referred to in clause (c)(i), which date shall in no event be more
than 15 days after the expiration of the 60-day period for the exercise of the
<PAGE> 7
7

right to purchase set forth therein, the Purchaser shall deliver to the Company,
at the business headquarters of the Company, the Unvested Shares to be sold by
the Purchaser in due and proper form for transfer, against payment by the
Company of the purchase price therefor, as determined in accordance with clause
(c)(iv).

(iii) If at the time of payment of the purchase price
referred to in clause (c)(ii), any amount of principal of or interest on any
indebtedness of the Purchaser to the Company shall be outstanding, payment of
the purchase price for the Unvested Shares shall be made, at the Company's
option, as a credit against such indebtedness to the extent of the principal
thereof and interest thereon then outstanding (whether or not such principal and
interest is then due and payable).

(iv) The per Share purchase price for the Unvested Shares
payable by the Company pursuant to clause (c)(ii) shall be $2.80. The number of
Unvested Shares to be purchased and the per Share purchase price pursuant to
this clause (c)(iv) shall be appropriately adjusted by the Board of Directors of
the Company to reflect any split, reverse split, recapitalization,
reorganization, merger, subdivision dividend, consolidation or other change in
the corporate structure or the stock of the Company.

(d) Disposition to Family Members. Shares held by the
Purchaser may be transferred by the Purchaser to or for the benefit of the
Purchaser or a member of his immediate family. For the purpose of this
Agreement, the term "immediate family" of the Purchaser shall mean his spouse
and children (and the direct lineal descendants of his children). It shall be a
condition to the validity of any transfer of Shares permitted by the provisions
of this Subsection (d) that the transferee shall execute a copy of this
Agreement, shall hold such Shares subject to the provisions of this Agreement,
and shall make no further transfer of such Shares, except in compliance with the
terms and conditions of this Agreement.

6. Voting Agreement. Except as hereinafter set forth,
the Purchaser agrees that, subject to the laws of the State of Delaware and the
terms of this Agreement, from the date of this Agreement until February 28, 2002
the Purchaser will vote all shares of Common Stock owned by the Purchaser in
favor of a Board of Directors which shall include John H. Foster and such other
persons designated by John H. Foster
<PAGE> 8
8

as shall together with John H. Foster constitute a majority of such members.

7. Come Along/Take Along.

(a) (i) In the event that either (a) NC Resources, Inc.,
a Delaware corporation ("NC Resources"), proposes to transfer all or
substantially all of the shares of the Common Stock held by it or (b) NovaCare,
Inc., a Delaware corporation and the parent of NC Resources ("NovaCare"),
proposes to transfer substantially all of the shares of stock of NC Resources (a
"Sale of Securities"), in either case other than to (i) NovaCare or one of its
direct or indirect wholly-owned subsidiaries or (ii) the public for cash
pursuant to a registration statement filed under the Securities Act, then the
following provisions of this Section 7 shall apply.

(ii) NovaCare shall cause NC Resources to permit the
Purchaser, or cause the Purchaser to be permitted, to sell the number of shares
of the Common Stock held by the Purchaser (and each permitted transferee
pursuant to Section 5(d) above) which bears the same proportion to the number of
shares of Common Stock then held by the Purchaser as, in the case of a Sale of
Securities described in clause (a) of Section 7(a)(i) above, the number of
shares of the Common Stock being sold by NC Resources bears to the total number
of shares of Common Stock of the Company owned by NC Resources, or as, in the
case of a Sale of Securities described in clause (b) of Section 7(a)(i) above,
the number of shares of stock of NC Resources being sold by NovaCare bears to
the total number of shares of stock of NC Resources owned by NovaCare, for the
same consideration and otherwise on the same terms and conditions to be received
by NC Resources or NovaCare (as the case may be) in the Sale of Securities (with
such consideration to be equitably adjusted in the case of a Sale of Securities
described in clause (b) of Section 7(a)(i) above to take into account any
liabilities of NC Resources and any assets of NC Resources other than the Common
Stock).

(iii) NovaCare shall have the right to request the
Purchaser to sell or cause to be sold the number of shares of the Common Stock
held by the Purchaser (and each permitted transferee pursuant to Section 5(d)
above) which bears the same proportion to the number of shares of the Common
Stock then held by the Purchaser (and each permitted transferee pursuant to
Section 5(d) above) as the number of
<PAGE> 9
9

shares of the Common Stock being sold by NC Resources bears to the total number
of shares of the Common Stock owned by NC Resources (a "Stockholder Request").

(iv) Upon receipt by the Purchaser of a Stockholder
Request, the Purchaser will sell or will cause to be sold the appropriate number
of shares of the Common Stock held by the Purchaser for the consideration and
otherwise on the same terms and conditions received by NC Resources or NovaCare,
as the case may be, which terms shall be set forth in such Shareholder Request.

(b) The obligations of NovaCare and NC Resources under
clause (a) of this Section 7 to afford the Purchaser, or cause the Purchaser to
be afforded, the rights referred to therein will be discharged if the Purchaser
is given written notice (which notice shall include a summary of the terms and
conditions of such rights) which allows the Purchaser ten business days to
exercise such rights (by written reply addressed to such person as may be
designated in the notice, and if requested in such notice, sent by registered
mail, return receipt requested), and within such ten business day period the
Purchaser has not given notice of exercise of such rights.

8. The Closing. As soon as practicable after the
execution and delivery of this Agreement, the Purchaser shall cause to be
delivered to the Company in payment of the Purchase Price (x) a check payable to
the order of the Company in the amount of $300 and (y) the Note. Promptly upon
receipt of such check and the Note, the Company shall deliver to the Purchaser a
stock certificate registered in the name of the Purchaser and representing the
Shares.

9. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase the Shares pursuant hereto are subject,
at his option, to the accuracy of the representations and warranties of the
Company contained in Section 3.

10. Conditions to the Obligations of the Company. The
obligations of the Company to sell the Shares pursuant hereto are subject, at
its option, to the accuracy of the representations and warranties of the
Purchaser contained in Section 4.

11. Expenses. Each of the parties hereto shall pay its
own expenses in connection with the preparation,
<PAGE> 10
10

execution and delivery of this Agreement; provided, however, in the event of any
dispute in connection with, or arising out of, this Agreement, the reasonable
attorneys' fees and expenses of the prevailing party in such dispute shall be
borne by the non-prevailing party.

12. Notice. Any notice under this Agreement shall be in
writing and delivered personally or sent by certified mail, return receipt
requested, addressed, as the case may be, (i) to the Company at its address set
forth at the head of this Agreement or such other address as may hereafter be
designated by the Company by notice to the Purchaser in the manner provided
herein; and (ii) to the Purchaser at his address set forth at the head of this
Agreement or such other address as may hereafter be designated by the Purchaser
by notice to the Company in the manner provided herein. All notices personally
delivered shall be deemed to have been given when delivered and all notices sent
by mail shall be deemed to have been given three business days after mailing.

13. Successors. The terms, covenants and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, legal representatives, successors, permitted
transferees and assigns.

14. Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within such
Commonwealth.

15. Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto, and no modifications of or
amendments to this Agreement shall be binding on the parties hereto unless in
writing and signed by them.

16. Integration. This Agreement supersedes all prior
understandings, negotiations, and agreements relating to the subject matter
hereof.

17. Severability. If any provision herein contained shall
be held to be illegal or unenforceable, such holding shall not affect the
validity or enforceability of the other provisions of this Agreement.
<PAGE> 11
11

18. Reorganization, Etc. The provisions of this Agreement
shall apply mutatis mutandis to any shares or other securities resulting from
any stock split or reverse split, stock dividend, reclassification, subdivision,
consolidation or reorganization of any shares or other securities of the
Company, to any shares or other securities resulting from any recapitalization,
consolidation, merger or reorganization of the Company and to any shares or
other securities of the Company or of any successor company or of any parent of
such successor company which may be received by the Purchaser by virtue of his
ownership of the Shares.

19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to affect the meaning
of the provisions of this Agreement.

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

21. Term. This Agreement shall terminate upon the
occurrence of the closing of the initial sale to the public of shares of the
Common Stock pursuant to a registration statement filed under the Securities Act
(other than a registration statement covering securities of the Company to be
issued pursuant to an employee benefit plan); provided, that, the termination of
this Agreement shall not affect any applicable restrictions on the transfer of
the shares of the Common Stock owned by the Purchaser imposed by operation of
law.

* * *
<PAGE> 12
12

Very truly yours,

NOVACARE EMPLOYEE SERVICES, INC.

By ______________________________

Accepted and agreed to as
aforesaid:

________________________________

Bernard Clinton Byrd, Jr.

The undersigned are executing
this Agreement to indicate
their agreement to Section 7
hereof:

NC RESOURCES, INC.

By _____________________________

NOVACARE, INC.

By _____________________________

<PAGE> 1
EXHIBIT 10(j)

EMPLOYMENT AGREEMENT

AGREEMENT made the 6th day of February 1997 by and between
NovaSource, Inc., a Delaware corporation (the "Company"), and Deborah M. Skinner
(the "Employee").

W I T N E S S E T H:

WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.

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

1. Employment, Term.

1 The Company agrees to employ the Employee, and the
Employee agrees to serve in the employ of the Company, for the term set forth in
Section 1.2, in the position and with the responsibilities, duties and authority
set forth in Section 2 and on the other terms and conditions set forth in this
Agreement.

2 The term of the Employee's employment under this
Agreement shall be the period commencing on the date hereof and continuing
through February 6, 2002 unless sooner terminated in accordance with this
Agreement.

3 The parties hereto acknowledge that the Company may
designate another direct or indirect wholly owned subsidiary of the Company to
employ the Employee and to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform this Agreement.
<PAGE> 2
2

2. Position, Duties. The Employee shall serve as a
Vice President of the Company and shall be responsible for the day-to-day
operations of The TPI Group, Ltd., a New York subsidiary corporation of the
Company ("TPI"), and its subsidiaries, and shall have such duties and
responsibilities as are requested of her by the President of the Company or his
or her designee or successor, commensurate with the Employee's position, as
designated herein, and as shall be significantly comparable to her duties and
responsibilities with TPI as of the date hereof; provided, however, that in no
event shall the Employee be required to relocate from the Albany, New York
metropolitan area without the Employee's consent. The Employee shall perform her
duties and responsibilities hereunder faithfully and diligently. The Employee
shall report to the President of the Company, to the designees or successors of
such person, and to the Board of Directors of the Company. The Employee shall
devote her full business time and attention to the performance of her duties and
responsibilities hereunder. The Employee hereby represents that she is not bound
by any confidentiality agreements or restrictive covenants which restrict or may
restrict her ability to perform her duties hereunder, and agrees that she will
not enter into any such agreements or covenants during the term of her
employment hereunder, except such restrictive covenants or confidentiality
agreements which are required by the Company.

3. Compensation.

1 Base Salary. During the term of this Agreement, in
consideration of the performance by the Employee of the services set forth in
Section 2 and her observance of the other covenants set forth herein, the
Company shall pay the Employee, and the Employee shall accept, a base salary
(the "Base Salary") at the rate of $85,000 per annum, payable in accordance with
the standard payroll practices of the Company. In addition to the Base Salary
payable hereunder, the Employee may be entitled to receive merit increases in
salary during the term hereof in amounts and at such times as shall be
determined by the President of the Company in his or her sole discretion. In no
event shall the failure to grant any such increase (or the amount of any such
increase) give rise to a claim by the Employee under this Agreement.

4. Expense Reimbursement. During the term of this
Agreement, consistent with the Company's policies and procedures as may be in
effect from time to time, the Company shall reimburse the Employee for all
reasonable and necessary out-of-pocket expenses incurred by her in connection
with the performance of her duties hereunder, upon the presentation of proper
accounts therefor in accordance with the Company's policies.

5. Other Benefits. During the term of this Agreement,
the Employee shall be entitled to receive four paid weeks vacation time per
annum, such other customary benefits, including medical and life insurance and
continuing education
<PAGE> 3
3

benefits, as are from time to time made available to other similarly situated
employees of the Company on the same terms as are available to such similarly
situated employees, and stock option awards, if any, as may be determined from
time to time by the Board of Directors of the Company, in its sole discretion,
it being understood that the Employee shall be required to make the same
contributions and payments in order to receive any of such benefits or options
as may be required of such similarly situated employees.

6. Termination of Employment.

1 Death. In the event of the death of the Employee
during the term of this Agreement, the Company shall pay to the estate or other
legal representative of the Employee the salary provided for in Section 3.1 (at
the annual rate then in effect) accrued to the Employee's date of death and not
theretofore paid, and the estate or other legal representative of the Employee
shall have no further rights under this Agreement. Rights and benefits of the
Employee, her estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs.

2 Disability. If the Employee shall become
incapacitated by reason of sickness, accident or other physical or mental
disability and shall for a period of thirty (30) consecutive days be unable to
perform her normal duties hereunder, with or without reasonable accommodation,
the employment of the Employee hereunder may be terminated by the Company upon
thirty (30) days' prior written notice to the Employee. Within thirty (30) days
after such termination, the Company shall pay to the Employee the salary
provided for in Section 3.1 (at the annual rate then in effect) accrued to the
date of such termination and not theretofore paid. Rights and benefits of the
Employee, her estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. Neither the Employee nor
the Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8 and 9.

Agreement, except as provided in Sections 7, 8 and 9. Rights and benefits of the
Employee, her estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. For purposes hereof, "Due
Cause" shall mean (a) a material breach of any of the Employee's obligations
hereunder (it being understood that any breach of the provisions of Sections 2,
7 or 8 hereof shall be considered material) or performance which is
unsatisfactory; or (b) that the Employee, in carrying out her duties hereunder
has been guilty of (i) willful or gross neglect or (ii) willful or gross
misconduct, resulting in either case in harm to any member of the Company Group
(as hereinafter defined); or (c) that the Employee has been (i) formally charged
with a felony or (ii) convicted of or indicted on any crime or offense involving
moral turpitude. In the event of an occurrence under this Section 6.3, the
Employee shall be given written notice by the Company that it intends to
terminate the Employee's employment for Due Cause under this Section, which
written notice shall specify the act or acts upon the basis of which the Company
intends so to terminate the Employee's employment. If the basis for such written
notice is an act or acts described in clause (a) above and not involving moral
turpitude, the Employee shall be given twenty (20) days to cease or correct the
performance (or nonperformance) giving rise to such written notice and, upon
failure of the Employee within such twenty (20) days to cease or correct such
performance (or nonperformance), the Employee's employment by the Company shall
automatically be terminated hereunder for Due Cause.
<PAGE> 5
5

4 Other Termination by the Company. Subsequent to
December 31, 1997, the Company may terminate the Employee's employment prior to
the expiration of the term of this Agreement for whatever reason it deems
appropriate; provided, however, that in the event that such termination is not
pursuant to Sections 6.1, 6.2 or 6.3, the Company shall continue to pay to the
Employee (or her estate or other legal representative in the case of the death
of the Employee subsequent to such termination), in the same periodic
installments as her annual salary was paid, the salary provided for in Section
3.1 (at the annual rate than in effect), until the first to occur of (a) the
then scheduled expiration of the term hereof or (b) the expiration of a period
of six (6) months following such termination. Rights and benefits of the
Employee, her estate or other legal representative under the employee benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs. Neither the Employee nor
the Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8 and 9.

7. Confidential Information.

1 (a) The Employee shall, during the Employee's
employment with the Company and at all times thereafter, treat all confidential
material (as hereinafter defined) of the Company Group confidentially. The
Employee shall not, without the prior written consent of the President of the
Company, disclose such confidential material, directly or indirectly, to any
party, who at the time of such disclosure is not an employee or agent of any
member of the Company Group, or, except in order to carry out her duties under
this Agreement, remove from the Company's premises any notes or records relating
thereto, copies or facsimiles thereof (whether made by electronic, electrical,
magnetic, optical, laser, acoustic or other means), or any other property of any
member of the Company Group. The Employee agrees that all confidential material,
together with all notes and records of the Employee relating thereto, and all
copies or facsimiles thereof in the possession of the Employee (whether made by
the foregoing or other means) are the exclusive property of the Company. The
Employee shall not in any manner use any confidential material of the Company
Group, or any other property of any member of the Company Group, in any manner
not specifically directed by the Company.

<PAGE> 6
6

and all information concerning the practices and customers of any member of the
Company Group, and all information in any way concerning the activities,
business or affairs of any of such customers, as such, which is furnished to the
Employee by any member of the Company Group or any of its agents or customers,
as such, or otherwise acquired by the Employee in the course of the Employee's
employment with the Company; provided, however, that the term "confidential
material" shall not include information which (i) becomes generally available to
the public other than as a result of a disclosure by the Employee, (ii) was
available to the Employee on a non-confidential basis prior to her employment
with any member of the Company Group, or (iii) becomes available to the Employee
on a non-confidential basis from a source other than any member of the Company
Group or any of its agents or customers, as such, provided that such source is
not bound by a confidentiality agreement with any member of the Company Group or
any of such agents or customers.

2 Promptly upon the request of the Company, the Employee shall
deliver to the Company all confidential material relating to any member of the
Company Group in the possession of the Employee without retaining a copy thereof
(provided, however, that the Employee shall be entitled to retain a list of such
confidential material so long as the form of such list is reasonably acceptable
to the Company), unless, in the written opinion of counsel for the Company
delivered to the Employee, either returning such confidential material or
failing to retain a copy thereof would violate any applicable Federal, state,
local or foreign law, in which event such confidential material shall be
returned without retaining any copies thereof as soon as practicable after such
counsel advises in writing to the Employee that the same may be lawfully done.
<PAGE> 7
7

3 In the event that the Employee is required, by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process, to disclose any confidential
material relating to any member of the Company Group, the Employee shall provide
the Company with prompt notice thereof so that the Company may seek an
appropriate protective order and/or waive compliance by the Employee with the
provisions hereof; provided, however, that if in the absence of a protective
order or the receipt of such a waiver, the Employee is, in the opinion of
counsel for the Company, compelled to disclose confidential material not
otherwise disclosable hereunder to any legislative, judicial or regulatory body,
agency or authority, or else be exposed to liability for contempt, fine or
penalty or to other censure, such confidential material may be so disclosed.

8. Non-Competition.
<PAGE> 8
8

1 The Employee acknowledges that the services to be
rendered by her to the Company are of a special and unique character. The
Employee agrees that, in consideration of her employment hereunder, the Employee
will not (a) during the term of this Agreement and prior to two years from the
date of termination of the Employee's employment by the Company or any other
member of the Company Group, directly or indirectly, (w) engage, whether as
principal, agent, investor, distributor, representative, stockholder, employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture, anywhere within the States of New York, Vermont, Pennsylvania,
Massachusetts, Connecticut, New Hampshire, North Carolina, New Jersey, and Rhode
Island which is competitive with the businesses of the Company or any of the
other members of the Company Group, (x) solicit or entice or endeavor to solicit
or entice away from any member of the Company Group any person who was or is at
the time of solicitation or enticement a director, officer, employee, agent or
consultant of such member of the Company Group, either on the Employee's own
account or for any person, firm, corporation or other organization, whether or
not such person would commit any breach of such person's contract of employment
by reason of leaving the service of such member of the Company Group, (y)
solicit or entice or endeavor to solicit or entice away any person who was or is
at the time of solicitation or enticement a customer of any member of the
Company Group, either on the Employee's own account or for any other person,
firm, corporation or organization, or (z) employ any person who was a director,
officer or employee of any member of the Company Group or any person who is or
may be likely to be in possession of any confidential information or trade
secrets relating to the business of any member of the Company Group, other than
Jessica Warner, but only if Jessica Warner is no longer employed by the Company
or any other member of the Company Group and is employed by the Employee in a
business that is not competitive with the business of the Company or any other
member of the Company Group, or (b) at any time, take any action or make any
statement the intended effect of which would be, directly or indirectly, to
impair the good will of any member of the Company Group or the business
reputation or good name of any member of the Company Group, or be otherwise
detrimental to the Company, including any action or statement intended, directly
or indirectly, to benefit a competitor of any member of the Company Group.

For purposes hereof, the "Company Group" shall mean,
collectively, the Company and the Company's subsidiaries, affiliates and parent
entities engaged in the same lines of business.

of time, any such covenant shall be deemed appropriately amended and modified in
keeping with the intention of the parties to the maximum extent permitted by
law.

8.3 The Employee expressly acknowledges and agrees
that the covenants and agreements set forth in this Section 8 are reasonable in
all respects, and necessary in order to protect, maintain and preserve the value
and goodwill of the Company Group, as well as the proprietary and other
legitimate business interests of the members of the Company Group. The Employee
acknowledges and agrees that the covenants and agreements of the Employee set
forth in this Section 8 constitute a significant part of the consideration given
by the Employee to the Company in exchange for the salary and benefits provided
for in this Agreement, and are a material reason for such payment.

9. Equitable Relief. In the event of a breach or threatened
breach by the Employee of any of the provisions of Sections 7 or 8 of this
Agreement, the Employee hereby consents and agrees that the Company shall be
entitled to pre-judgment injunctive relief or similar equitable relief
restraining the Employee from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Employee under any of such provisions, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the Federal courts located
in the Northern District of New York and the state courts located in such
District for any proceedings under this Section 9. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have.

10. Successors and Assigns.

2 Assignment by the Employee. The Employee may not
assign this Agreement or any part hereof without the prior written consent of
the
<PAGE> 10
10

President of the Company; provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of her legal incompetency or her
death and shall not preclude the legal representative of her estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under her will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to her
estate.

11. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of New York applicable to contracts to be performed entirely within
such State.

12. Entire Agreement. This Agreement and the other agreements
executed contemporaneously herewith contain all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, if there be any, previously entered into by them with respect thereto;
provided, however, that Section 8 shall not serve as a limitation of the terms
of any other non-competition agreement between the Employee and any member of
the Company Group. No modification of this Agreement shall be effective unless
in writing and signed by the party against which enforcement is sought to be
enforced.

13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.

14. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopier or sent by
registered or certified mail, postage prepaid, as follows:
<PAGE> 11
11

If to the Company:

1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

If to the Employee:

Deborah M. Skinner
P. O. Box 82 Cleverdale Road
Cleverdale, NY 12820

with a copy to:

Waite & Associates, P.C.
90 North Pearl Street
Albany, NY 12207
Attention: Stephen J. Waite, Esq.
Telecopy No.: (518) 463-4594
Telephone No.: (518) 463-4257

part hereof and treated as though originally set forth in this Agreement. The
parties further agree that any such court is expressly authorized to modify any
such unenforceable provision of this Agreement in lieu of severing such
unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such other
modifications as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as so modified by the court shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.

16. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or her
beneficiaries, including her estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.

17. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.

18. Expenses. Each of the parties hereto shall bear her or its
own costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.

19. Titles. Titles of the sections of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section.

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

* * *
<PAGE> 13
13

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

NOVASOURCE, INC.

By___________________________
Name:
Title:

_____________________________
Deborah M. Skinner

<PAGE> 1
EXHIBIT 10(k)

EMPLOYMENT AGREEMENT

AGREEMENT made the 27th day of February, 1997 by and between
NovaSource, Inc., a Delaware corporation (the "Company"), and James Boyd (the
"Employee").

W I T N E S S E T H:

WHEREAS, the Employee is presently the president of Employee
Services of Florida, Inc., a Florida corporation ("ESF"); and

WHEREAS, the Company intends to acquire ESF through the
acquisition of Employee Services of America, Inc., a Florida corporation of
which ESF is a wholly owned subsidiary ("ESA"); and

WHEREAS, the Company wishes to assure itself of the services
of the Employee, and the Employee wishes to serve in the employ of the Company,
upon the terms and conditions hereinafter set forth.

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

1. Employment, Term.

1 The Company agrees to employ the Employee, and the
Employee agrees to serve in the employ of the Company, for the term set forth in
Section 1.2, in the position and with the responsibilities, duties and authority
set forth in Section 2 and on the other terms and conditions set forth in this
Agreement.

2 The term of the Employee's employment under this
Agreement shall be the period commencing on the date hereof and continuing
through February 28, 2002 unless sooner terminated in accordance with this
Agreement.

2. Position, Duties. The Employee shall serve as the President
of, and shall be responsible for the day to day operations of ESA and its
subsidiaries, and shall have such duties and responsibilities as are requested
of him by the President of the Company or his or her designee or successor. The
Employee shall perform his duties and responsibilities hereunder faithfully and
diligently. The Employee shall report to the President of the Company, to the
designees or successors of such person, and to the Board of Directors of the
Company. The Employee shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder. However, the parties
recognize and acknowledge that the Employee owns an interest in an insurance
agency and sits on its board of directors and, so long as such agency does not
compete with the Company or any other members of the Company Group (as
hereinafter defined) and so long as his involvement therewith does not
materially interfere with the performance of his duties under this Agreement, he
may continue to do so without it constituting a violation of his duties under
this Agreement. The Employee hereby represents that he is not bound by any
confidentiality agreements or restrictive covenants which restrict or may
restrict his ability to perform his duties hereunder, and agrees that he will
not enter into any such agreements or covenants during the term of his
employment hereunder, except such restrictive covenants or confidentiality
agreements which are required by this Agreement. The parties agree that the
Employee can fulfill all of his duties and responsibilities under this Agreement
if he maintains his business office and residence in Manatee County, Florida,
and the Company shall not require him to change these locations.

3. Compensation.

1 Base Salary. During the term of this Agreement, in
consideration of the performance by the Employee of the services set forth in
Section 2 and his observance of the other covenants set forth herein, the
Company shall pay the Employee, and the Employee shall accept, a base salary
(the "Base Salary") at the rate of $125,000 per annum, payable in accordance
with the standard payroll practices of the Company. In addition to the Base
Salary payable hereunder, the Employee may be entitled to receive merit
increases in salary during the term hereof in amounts and at such times as shall
be determined by the President of the Company in his or her sole discretion. In
no event shall the failure to grant any such increase (or the amount of any such
increase) give rise to a claim by the Employee under this Agreement.

2 Bonus. During each twelve-month period during the term of
this Agreement, in addition to the Base Salary payable under Section 3.1 above,
the Employee shall be eligible to earn a bonus of up to 25% of the Base Salary,
based on certain annual criteria related to the personal productivity and
performance of the Employee, such criteria to be determined annually by the
Employee and the President of the Company.
<PAGE> 3
3

3 Automobile Allowance. During the term of this Agreement, the
Company shall provide the Employee with a leased automobile with monthly lease
payments not to exceed $600, plus reasonable gas, oil, maintenance and
insurance.

4 Club Dues. During the term of this Agreement, the Company
shall pay directly or reimburse the Employee for dues actually paid to the
country club of the Employee's choice and costs associated with maintaining club
membership (all payable without regard to the deductibility thereof for income
tax purposes), such payment or reimbursement in no event to exceed an aggregate,
at present, of $225 per month plus applicable sales tax, and to be subject to
increases of not more than 10% per annum.

4. Expense Reimbursement. During the term of this Agreement,
consistent with the Company's policies and procedures as may be in effect from
time to time, the Company shall reimburse the Employee for all reasonable and
necessary out-of-pocket expenses incurred by him in connection with the
performance of his duties hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies (all payable without regard
to the deductibility thereof for income tax purposes).

5. Other Benefits. During the term of this Agreement, the
Employee shall be entitled to receive four paid weeks vacation time per annum,
medical and dental insurance as currently provided to the Employee by ESA and/or
ESF and life insurance and continuing education benefits on the same terms as
are from time to time made available to other similarly situated employees of
the Company, and stock option awards, if any, as may be determined from time to
time by the Board of Directors of the Company, in its sole discretion.

6. Termination of Employment.

1 Death. In the event of the death of the Employee
during the term of this Agreement, the Company shall pay to the estate or other
legal representative of the Employee the salary provided for in Section 3.1 (at
the annual rate then in effect) and all other benefits available to the Employee
under this Agreement accrued to the Employee's date of death and not theretofore
paid, and the estate or other legal representative of the Employee shall have no
further rights under this Agreement. Rights and benefits of the Employee, his
estate or other legal representative under the employee benefit plans and
programs of the Company, if any, will be determined in accordance with the terms
and provisions of such plans and programs.
<PAGE> 4
4

2 Disability. If the Employee shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall
for a period of sixty (60) consecutive days be unable to perform his normal
duties hereunder, with or without reasonable accommodation, the employment of
the Employee hereunder may be terminated by the Company upon thirty (30) days'
prior written notice to the Employee. Within thirty (30) days after such
termination, the Company shall pay to the Employee the salary provided for in
Section 3.1 (at the annual rate then in effect) and all other benefits available
to the Employee under this Agreement accrued to the date of such termination and
not theretofore paid. Rights and benefits of the Employee, his estate or other
legal representative under the employee benefit plans and programs of the
Company, if any, will be determined in accordance with the terms and provisions
of such plans and programs. Neither the Employee nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8 and 9.

3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (as hereinafter defined). In the event of such termination, the Company
shall pay to the Employee the salary provided for in Section 3.1 (at the annual
rate then in effect) and all other benefits available to the Employee under this
Agreement accrued to the date of such termination and not theretofore paid to
the Employee, and, after the satisfaction of any claim of the Company against
the Employee arising as a direct and proximate result of such Due Cause, neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9. Rights and benefits
of the Employee, his estate or other legal representative under the employee
benefit plans and programs of the Company, if any, will be determined in
accordance with the terms and provisions of such plans and programs. For
purposes hereof, "Due Cause" shall mean (a)(i) a material breach of any of the
Employee's obligations hereunder (it being understood that any breach of the
provisions of Sections 7 (except for any such breach involving an unintentional
disclosure of immaterial confidential material (as hereinafter defined)) or 8
hereof shall be considered material), (ii) the use of alcohol or drugs by the
Employee to an extent that materially interferes with the performance by the
Employee of his responsibilities hereunder, (iii) the Employee's threatening to
cause, or repeatedly or intentionally causing, objectively inappropriate damage
to the relations of any member of the Company Group with its customers,
suppliers or employees or (iv) the continued refusal by the Employee to carry
out any reasonable lawful order or instruction of the Company; or (b) that the
Employee, in carrying out his duties hereunder, in the good faith judgment of
the Board of Directors of the Company, has been guilty of (i) willful or gross
neglect or (ii) willful or gross misconduct, resulting in either case in harm to
any member of the Company Group; or (c) that the Employee has been (i) formally
charged with a felony or (ii) convicted or indicted of any crime or offense
involving
<PAGE> 5
5

moral turpitude. In the event of an occurrence under this Section 6.3,
the Employee shall be given written notice by the Company that it intends to
terminate the Employee's employment for Due Cause under this Section, which
written notice shall specify the act or acts upon the basis of which the Company
intends so to terminate the Employee's employment. If the basis for such written
notice is an act or acts described in clause (a) above and not involving moral
turpitude, the Employee shall be given twenty (20) days to cease or correct the
performance (or nonperformance) giving rise to such written notice and, upon
failure of the Employee within such twenty (20) days to cease or correct such
performance (or nonperformance) or, in the event such performance (or
nonperformance) cannot reasonably be completed within 20 days, the Employee
fails to begin performance (or nonperformance) within such 20-day period and
diligently continue same until completion, the Employee's employment by the
Company shall automatically be terminated hereunder for Due Cause.
<PAGE> 6
6

4 Other Termination by the Company. The Company may terminate
the Employee's employment prior to the expiration of the term of this Agreement
for whatever reason it deems appropriate by giving the Employee written notice
thereof; provided, however, that in the event that such termination is not
properly permitted pursuant to Sections 6.1, 6.2 or 6.3, the Company shall
continue to pay to the Employee (or his estate or other legal representative in
the case of the death of the Employee subsequent to such termination), in the
same periodic installments as his annual salary was paid, the salary provided
for in Section 3.1 (at the annual rate than in effect), until the first to occur
of (a) the then scheduled expiration of the term hereof or (b) the expiration of
a period of six (6) months following such termination and all other benefits
available to the Employee under this Agreement accruing through the date of the
written notice of termination. Rights and benefits of the Employee, his estate
or other legal representative under the employee benefit plans and programs of
the Company, if any, will be determined in accordance with the terms and
provisions of such plans and programs. Neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8 and 9 except that, in the event of a termination
solely under this Section 6.4, the period of non-competition under Section 8
shall be equal to the period during which periodic installments of the
Employee's annual salary are actually paid to the Employee by the Company, it
being understood and agreed that the Company shall have the option (but not the
obligation) to extend such period beyond the period set forth in the first
sentence of this Section 6.4 up to the period set forth in Section 8.1(A)(ii) by
continuing to pay such periodic installments of salary during the period of the
extension.

7. Confidential Information.
<PAGE> 7
7

1 (a) The Employee shall, during the Employee's employment
with the Company and at all times thereafter, treat all confidential material of
the Company Group confidentially. The Employee shall not, without the prior
written consent of the President of the Company, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or,
except in order to carry out his duties under this Agreement, remove from the
Company's premises any notes or records relating thereto, copies or facsimiles
thereof (whether made by electronic, electrical, magnetic, optical, laser,
acoustic or other means), or any other property of any member of the Company
Group. The Employee agrees that all confidential material, together with all
notes and records of the Employee relating thereto, and all copies or facsimiles
thereof in the possession of the Employee (whether made by the foregoing or
other means) are the exclusive property of the Company. The Employee shall not
in any manner use any confidential material of the Company Group, or any other
property of any member of the Company Group, in any manner not specifically
directed by the Company.

(a) For the purposes hereof, the term "confidential material"
shall mean all information in any way concerning the activities, business or
affairs of any member of the Company Group or any of the customers of any member
of the Company Group, including, without limitation, information concerning
trade secrets, together with all sales and financial information concerning any
member of the Company Group and any and all information concerning projects in
research and development or marketing plans for any products or projects of the
Company Group, and all information concerning the practices and customers of any
member of the Company Group, and all information in any way concerning the
activities, business or affairs of any of such customers, as such, which is
furnished to the Employee by any member of the Company Group or any of its
agents or customers, as such, or otherwise acquired by the Employee in the
course of the Employee's employment with the Company; provided, however, that
the term "confidential material" shall not include information which (i) becomes
generally available to the public other than as a result of a disclosure by the
Employee, (ii) was available to the Employee on a non-confidential basis prior
to his employment with any member of the Company Group, or (iii) becomes
available to the Employee on a non-confidential basis from a source other than
any member of the Company Group or any of its agents or customers, as such,
provided that such source is not bound by a confidentiality agreement with any
member of the Company Group or any of such agents or customers.

2 Promptly upon the written request of the Company, the
Employee shall deliver to the Company all confidential material relating to any
member of the Company Group in the possession of the Employee without retaining
a copy thereof (provided, however, that the Employee shall be entitled to retain
a list of such
<PAGE> 8
8

confidential material so long as the form of such list is reasonably acceptable
to the Company). If either returning any confidential material or failing to
retain a copy thereof would not violate any applicable Federal, state, local or
foreign law, such confidential material shall be returned without retaining any
copies thereof as soon as practicable after the written request of the Company.

3 In the event that the Employee is required, by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process, to disclose any confidential
material relating to any member of the Company Group, the Employee shall provide
the Company with prompt notice thereof so that the Company may seek an
appropriate protective order and/or waive compliance by the Employee with the
provisions hereof; provided, however, that if in the absence of a protective
order or the receipt of such a waiver, the Employee is compelled to disclose
confidential material not otherwise disclosable hereunder to any legislative,
judicial or regulatory body, agency or authority, or else be exposed to
liability for contempt, fine or penalty or to other censure, such confidential
material may be so disclosed.

4 Nothing contained in this Section 7 shall prohibit
the Employee from engaging in his chosen business or profession, provided said
activity is not otherwise prohibited by any other provision of this Agreement.

8. Non-Competition.

1 The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character. The Employee agrees that, in consideration of his employment
hereunder, the Employee will not (A)(i) during the term of this Agreement and
(ii) prior to two years from the date of termination of the Employee's
employment by the Company or any other member of the Company Group, directly or
indirectly, (a) engage, whether as principal, agent, investor (other than as a
holder of less than 5% of the outstanding capital stock of a publicly traded
corporation), distributor, representative, stockholder (other than as a holder
of less than 5% of the outstanding capital stock of a publicly traded
corporation), employee, consultant, volunteer or otherwise, with or without pay,
in any activity or business venture, anywhere within the counties of Florida set
forth in Exhibit A hereto, which is competitive with the businesses of the
Company or any of the other members of the Company Group, (b) solicit or entice
or endeavor to solicit or entice away from any member of the Company Group any
person who was or is at the time of solicitation or enticement a director,
officer, employee or agent of such member of the Company Group, either on the
Employee's own account or for any person, firm, corporation or other
organization, whether or not such person would commit any breach of such
person's contract of employment by reason of leaving the
<PAGE> 9
9

service of such member of the Company Group, (c) solicit or entice or endeavor
to solicit or entice away any person who was or is at the time of solicitation
or enticement a customer of any member of the Company Group, either on the
Employee's own account or for any other person, firm, corporation or
organization, (d) employ any person who was a director, officer or employee of
any member of the Company Group or any person who is or may be likely to be in
possession of any confidential information or trade secrets relating to the
business of any member of the Company Group, or (e) take any action or make any
statement the intended effect of which would be detrimental in any material
respect to the Company, including any action or statement intended, directly or
indirectly, to benefit in any material respect a competitor of any member of the
Company Group or (B) at any time, take any action or make any statement the
intended effect of which would be, directly or indirectly, to impair in any
material respect the good will of any member of the Company Group or the
business reputation or good name of any member of the Company Group.

For purposes hereof, the "Company Group" shall mean,
collectively, the Company and the Company's subsidiaries, affiliates and parent
entities engaged in the same lines of business.

2 The Employee and the Company agree that if, in any
proceeding, the court or other authority shall refuse to enforce the covenants
herein set forth because such covenants cover too extensive a geographic area or
too long a period of time, any such covenant shall be deemed appropriately
amended and modified in keeping with the intention of the parties to the maximum
extent permitted by law.

8.3 The Employee expressly acknowledges and agrees
that the covenants and agreements set forth in this Section 8 are reasonable in
all respects, and necessary in order to protect, maintain and preserve the value
and goodwill of the Company Group, as well as the proprietary and other
legitimate business interests of the members of the Company Group. The Employee
acknowledges and agrees that the covenants and agreements of the Employee set
forth in this Section 8 constitute a significant part of the consideration given
by the Employee to the Company in exchange for the salary and benefits provided
for in this Agreement, and are a material reason for such payment.

9. Equitable Relief. In the event of a breach or
threatened breach by the Employee of any of the provisions of Sections 7 or 8 of
this Agreement, the Company shall be entitled, in order to maintain the status
quo ante pending the outcome of any arbitration pursuant to Section 21 hereof,
to seek pre-judgment injunctive relief or similar equitable relief restraining
the Employee from committing or continuing any such breach or threatened breach
or granting specific performance of any act required to be performed by the
Employee under any of such provisions, without the necessity
<PAGE> 10
10

of showing that money damages would not afford an adequate remedy. The parties
hereto hereby consent to the exclusive jurisdiction of the Federal courts
located in the Middle District of Florida and the Florida state courts located
in such District for any proceedings under this Section 9. The parties hereto
agree that the availability of arbitration in Section 21 hereof shall not be
used by any party as grounds for dismissal of any injunctive actions instituted
by the Company pursuant to this Section 9. Nothing herein shall be construed as
prohibiting the Company or the Employee from pursuing any other remedies at law
or in equity which it may have.

10. Successors and Assigns.

2 Assignment by the Employee. The Employee may not
assign this Agreement or any part hereof without the prior written consent of
the President of the Company; provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate.

11. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of Florida applicable to contracts to be performed entirely within
such State.

between the Employee and any member of the Company Group. No modification of
this Agreement shall be effective unless in writing and signed by the party
against which enforcement is sought to be enforced.

13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.

14. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by confirmed telecopier,
overnight delivery service, or registered or certified mail, postage prepaid, as
follows:

If to the Company:

1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: President
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

with a copy to:

NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telecopy No.: (610) 992-3328
Voice No.: (610) 992-7200

If to the Employee:

James E. Boyd
2121 21st Street West
Palmetto, Florida 34221
Telecopy: (941) 747-0226
Telephone: (941) 746-0004
<PAGE> 12
12

with a copy to:

Broad and Cassel
Miami Center, Suite 3000
201 South Biscayne Boulevard
Miami, Florida 33131
Attention: William C. Phillippi, P.A.
Telecopy No.: (305) 373-9400
Voice No.: (305) 373-9493

Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, the next business day if sent by overnight
delivery service, and three business days after the date of mailing, if mailed.

16. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
<PAGE> 13
13

17. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.

18. Expenses. Each of the parties hereto shall bear his or its
own costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.

19. Titles. Titles of the sections of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section.

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

21. Dispute Resolution.

1 Arbitration. The parties hereto shall attempt
amicably to resolve disagreements by negotiating with each other. In the event
that the matter is not amicably resolved through negotiation, any controversy,
dispute or disagreement arising out of or relating to this Agreement (a
"Controversy") shall be submitted to J.A.M.S./Endispute for final binding
arbitration, which shall be conducted by a single arbitrator (the "Arbitrator")
in the Bradenton, Florida area, pursuant to J.A.M.S./Endispute's Arbitration
Rules (the "Rules"). Notwithstanding anything to the contrary contained in the
Rules, the Arbitrator shall not award exemplary, incidental, punitive or special
damages.

2 Procedure. If any party shall desire relief of any
nature whatsoever from any other party as a result of any Controversy, such
party will initiate such arbitration proceedings within a reasonable time, but
in no event more than one (1) year after the facts underlying said Controversy
first arise or become known to the party seeking relief (whichever is later).
The failure of such party to institute such proceedings within said period shall
be deemed a full waiver of any claim for such relief. The Arbitrator shall award
the prevailing party its costs for the arbitration proceeding, including its
attorney's fees and costs. The parties agree that the decision and award of the
arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable (except as provided in Section 9), or judicial proceedings
between them, and that no appeal or judicial review of the award or decision of
the arbitrator shall be taken, but that such award or decision may be entered as
a judgment and enforced in any court having jurisdiction over the party against
whom enforcement is
<PAGE> 14
14

sought. Any equitable relief awarded under Section 9 shall be dissolved upon
issuance of the arbitrator's decision and order.

* * *
<PAGE> 15
15

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

NOVASOURCE, Inc.

By___________________________
Name:
Title:

_____________________________
James Boyd

<PAGE> 1
EXHIBIT 10(l)

June 18, 1997

Ms. Christina Harris
P.O. Box 191652
San Francisco, CA 94119-1652

Dear Christina:

It is indeed a pleasure to confirm NovaCare Employee Services' offer of
employment and your acceptance to become Senior Vice President, Regulatory
Affairs and Compliance. I am very pleased that you will be helping shape our
future. I also believe that you will contribute in a significant way to the
building of a culture based on values. I look forward to your contributions as
our company begins an aggressive expansion plan.

The offer of employment is as follows:

- - BASE SALARY - You will be paid $4,230.77 on a bi-weekly basis as that
is our method of payment. This annualizes to a base salary of $110,000.
You will be eligible for a salary review on the first anniversary of
your employment.

- - INCENTIVE OPPORTUNITY - You will be eligible to participate in the
NovaCare Employee Services Incentive Compensation Plan as approved by
the Compensation Committee of the Board of Directors (the "Compensation
Committee"). Your opportunity will be 30% of your base salary. This
incentive will be based on performance against objectives which you and
I will negotiate. Bonuses are normally distributed after the end of the
fiscal year provided you are still employed by NCES at that time. An
incentive plan document will be forthcoming from Bud Locilento.

- - EQUITY - You will receive an initial stock option grant of 10,000 stock
options priced at $2.80, subject to approval of the Compensation
Committee. This grant will vest in five equal installments of 20% each
starting with the first anniversary of the grant. Thereafter, you will
be eligible to participate in the NovaCare Employee Services Stock
Option Plan and may receive grants at the discretion of the Board of
Directors.

- - RELOCATION BENEFITS - You will be provided reasonable and customary
relocation benefits associated with your move from San Francisco to
Bradenton, including transportation of household goods and car and
temporary housing not to exceed 30 days.
<PAGE> 2
Ms. Christina Harris
June 18, 1997
Page 2

- - Reimbursement of up to $5400 in the event that AIG requires any such
portion be reimbursed to AIG (relocation expenses)

- - BENEFITS - You will be eligible to participate in any and all of the
group benefit plans that NovaCare Employee Services offers. COBRA
payments to AIG for medical benefits during the waiting period based on
existing ratio of employer contribution.

- - NON-COMPETE AND CONFIDENTIALITY AGREEMENT - Restrictions. You
acknowledge that the services to be rendered by you to NovaCare
Employee Services are of a special and unique character. That knowledge
will give us a competitive advantage and could be used to our
significant detriment by our competitors. Therefore, in order to induce
NovaCare Employee Services to enter into this Agreement, and in
consideration of your employment hereunder, you agree, for the benefit
of NovaCare Employee Services and its affiliates, that you will not,
during the period of your employment with NovaCare and for one (1) year
thereafter commencing on the date of termination of your employment
with NovaCare Employee Services:

(a) engage, directly or indirectly, whether as principal, consultant,
employee, officer, director, partner, agent, stockholder, limited
partner or other investor (other than an investment of (i) not more
than five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded or (ii) not more than five
percent (5%) of the ownership interest of any partnership or other
entity) or otherwise, within the United States of America, with any
firm or person in any activity or business venture which is in
competition with any line or lines of business being conducted by
NovaCare Employee Services or any affiliate of NovaCare Employee
Services.

(b) solicit or entice or endeavor to solicit or entice away from
NovaCare Employee Services or any affiliate of NovaCare Employee
Services or employ, directly or indirectly, any person who was an
employee of NovaCare Employee Services or of any affiliate of NovaCare
Employee Services at any time during the one-year period ending on the
date of termination of your employment with NovaCare Employee Services,
either for your own account or for any individual, firm or corporation,
whether or not such person would commit any breach of his contract of
employment by reason of leaving the service of NovaCare Employee
Services or its affiliates, except that this restriction shall not
apply in the case of any person whose employment shall have been
terminated by NovaCare Employee Services or its affiliates; or

confidentially. The Employee shall not without the prior written
consent of the President of the Employer, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company
Group, or remove from the premises of the Employer or any other member
of the Company Group any notes or records relating thereto, copies to
facsimiles thereof (whether made by electronic, electrical, magnetic,
optical, laser, acoustic or other means), or any other property of any
member of the Company Group. The Employee agrees that all confidential
material, together with all notes and records of the Employee relating
thereto, and all copies or facsimiles thereof in the possession of the
Employee (whether made by the foregoing or other means), are the
exclusive property of the Company Group. The Employee shall not in any
manner use any confidential material of the Company Group, or any other
property of any member of the Company Group, outside of the scope of
the Employee's duties and responsibilities under this Agreement or in
any way that is detrimental to any member of the Company Group.

(d) For the purpose hereof, the term "confidential material" means all
information in any way concerning the activities, business or affairs
of any member of the Company Group or any of the customers or clients
of any member of the Company Group, including, without limitation,
information concerning trade secrets, together with all sales and
financial information concerning any member of the Company Group and
any and all information concerning projects in research and development
or marketing plans for any products or projects of the Company Group,
and all information in any way concerning the activities, business or
affairs of any of such customers or clients, which is furnished to the
Employee by any member of the Company Group or any of its agents,
customers or clients, or otherwise acquired by the Employee in the
course of the Employee's employment with the Employer; provided,
however, that the term "confidential material" shall not include
information which (i) becomes generally available to the public other
than as a result of a disclosure by the Employee, (ii) was available to
the Employee on a non-confidential basis prior to his employment with
any member of the Company Group or (iii) becomes available to the
Employee on a non-confidential basis from a source other than any
member of the Company Group or any of its agents, customers and
clients, provided that such source is not bound by a confidentiality
agreement with any member of the Company Group or any of such agents,
customers or clients.

You agree that if, in any proceeding, the court or other authority
refuses to enforce the confidentiality and non-compete covenants set
forth herein because such covenants cover too extensive a geographic
area or too long a period of time, any such covenant will be deemed
appropriately amended and modified in keeping with the intention of the
parties, to the maximum extent permitted by law.
<PAGE> 4
Ms. Christina Harris
June 18, 1997
Page 4

You acknowledge and agree that the confidentiality and non-compete
covenants and agreements set forth herein are reasonable in all
respects, and necessary in order to protect, maintain and preserve the
value and goodwill of the business and other legitimate business
interests of NovaCare. You acknowledge and agree that the covenants and
agreements set forth in this Agreement are a material reason for the
payment of the compensation and benefits provided for in this
Agreement.

In the event of a breach or threatened breach by you of any of the
confidentiality and non-compete provisions of this Agreement, you
hereby consent and agree that NovaCare will be entitled to prejudgment
injunctive relief or similar equitable relief, designed to maintain the
status quo ante pending arbitration under this Agreement, as described
below, by restraining you from committing or continuing any such breach
or threatened breach or granting specific performance of any act
required to be performed by you under this Agreement, without the
necessity of showing any actual damage or that only damages would not
afford in adequate remedy and without the necessity of posting any bond
or other security. You hereby consent to the jurisdiction of the
federal courts located in the Eastern District of Pennsylvania and the
state courts operating within the geographical area included in such
District for any proceedings hereunder.

ARBITRATION - We will attempt amicably to resolve disagreements and
disputes hereunder by negotiation. If the matter is not amicably
resolved through negotiation, within thirty (30) days after written
notice from either party, and controversy, dispute or disagreement
arising out of or relating to this Agreement, or the breach thereof,
will be subject to exclusive, final and binding arbitration, which will
be conducted in Philadelphia, PA, in accordance with the
J.A.M.S./Endispute Alternative Dispute Resolution Services Rules of
Procedure for Arbitration. Either party may bring a court action to
compel arbitration under this Agreement or to enforce an arbitration
award.

Your employment relationship with NovaCare Employee Services is at
will. Either you or NovaCare Employee Services may terminate that
relationship at any time, with or without notice. You and the Company
hereby acknowledge that no express or implied commitment or promise of
employment for any period of time has been made, and that the at-will
nature of this employment relationship may not be altered hereafter,
except through a written agreement signed by you and an authorized
officer on behalf of NovaCare Employee Services. This offer of
employment is contingent upon reference checking relative to your past
performance and credentials.
<PAGE> 5
Ms. Christina Harris
June 18, 1997
Page 5

We have a dynamic organization and you will be able to make substantial and
important contributions to our success. We are all delighted that you will be
joining the team. Please acknowledge your acceptance of this Agreement by
signing the enclosed copy of this letter and returning it to me.

Welcome to NovaCare Employee Services!

Sincerely,

/s/ Loren J. Hulber
_______________________

Loren J. Hulber
President & CEO

Agreed and Accepted:

/s/ Christina Harris
________________________ June 28, 1997
Christina Harris Date

<PAGE> 1
EXHIBIT 10(m)

SUBSCRIBER SERVICE AGREEMENT

This Agreement is made as of the 25th day of January, 1997 (the "Effective
Date") by and between NovaCare, Inc., a Delaware corporation with its principal
place of business at 1016 W. Ninth Avenue, King of Prussia, Pennsylvania 19406
and its subsidiaries listed on Exhibit A ("Subscriber"), and NovaCare Employee
Services, Inc. ("NovaCare"), a Delaware corporation with its principal place of
business at 2621 Van Buren Avenue, Norristown, Pennsylvania 19403.

W I T N E S S E T H:

WHEREAS, NovaCare has expertise in employment relations matters, including
payroll and benefits administration, workers' compensation insurance management
(including risk assessment, injury prevention and claims management), human
resources policies, procedures and practices (including intervention to resolve
employment-related issues) and training and development;

WHEREAS, Subscriber has decided to outsource certain human resource
functions in order to improve service and reduce costs by taking advantage of
the expertise of a focused human resources business; and

WHEREAS, NovaCare wishes to be the outsourcing contractor providing
identified human resource services to Subscriber pursuant to the terms and
conditions contained in this Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises herein contained, and intending legally to be bound, the parties
agree as follows:

1. Term and Termination.

1.1 Initial Term. The initial term (the "Initial Term") of this
Agreement shall be from January 25, 1997 through December 31, 2001, unless
sooner terminated pursuant to Section 1(C) below.

1.2 Renewal Term. This Agreement shall automatically renew for an
additional one-year term (a "Renewal Term") upon the expiration of the Initial
Term and each subsequent Renewal Term unless written notice of non-renewal be
given by either party at least nine (9) months prior to the expiration of the
Initial or any Renewal Term.
<PAGE> 2
1.3 Termination.

1.3.1 By NovaCare. NovaCare may terminate this Agreement upon
notice to Subscriber in the event that:

(a) Subscriber fails to pay any sums due hereunder, and
such failure continues for three (3) business days after written notice thereof
is sent to Subscriber, certified or registered mail, return receipt requested;

(b) Subscriber fails at any time to procure or maintain
any insurance coverage required by this Agreement;

(c) Subscriber fails to perform or observe any duty,
obligation or covenant contained in this Agreement other than those set forth in
subparagraph (a) or subparagraph (b) above, and such failure continues for ten
(10) days after written notice thereof is sent to Subscriber, certified or
registered mail, return receipt requested;

(d) Subscriber becomes insolvent (that is, unable to pay
its debts as they mature or in accordance with customary business practice) or
commits an act of bankruptcy, or applies for, consents to, or acquiesces in the
appointment of a trustee or a receiver for it or any of its property, or, in the
absence of such application, consent or acquiescence, a trustee or receiver is
appointed for Subscriber or for a substantial part of its property and is not
discharged within thirty days thereof, or if any bankruptcy or insolvency
proceeding, or any dissolution or liquidation proceeding, is instituted by or
against Subscriber and is consented to or acquiesced in by Subscriber or remains
for thirty (30) days undismissed;

(e) there occurs the termination, cessation or
liquidation of the Subscriber's business;

(f) any representation, warranty or statement of
material fact made or furnished to NovaCare or NovaCare's representatives by or
on behalf of the Subscriber, or any document, instrument or other paper
submitted to NovaCare or NovaCare's representatives by or on behalf of
Subscriber, is false or misleading in any material respect;

(g) NovaCare determines, and obtains an opinion of
counsel to the effect, that all or a substantial portion of its receipts
hereunder are or will become subject to a sales, value added, gross receipts or
similar tax in a particular jurisdiction as to which it exercises its right to
terminate;

(h) changes in federal, state or local law, regulation
or controlling legal interpretation occur that make it legally impossible or
economically

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impractical for NovaCare to carry out its obligations hereunder in the
jurisdiction(s) as to which it exercises its right to terminate;

(i) Subscriber fails to comply with any reasonable
directive regarding health and safety from NovaCare, NovaCare's workers'
compensation carrier, or any government agency with jurisdiction over a health
or safety matter;

(j) Subscriber misrepresents workers' compensation or
Fair Labor Standards Act classification or inaccurately reports employee payroll
hours, pay rate or salary; or

(k) there occurs a Change in Control of Subscriber.

For purposes of this Agreement, a Change in
Control of the Subscriber shall be deemed to have occurred if:

(i) a "person" (meaning an individual, a
partnership, or other group or association as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934), either (x) acquires twenty
percent (20%) or more of the combined voting power of the outstanding securities
of the Subscriber having a right to vote in elections of directors and such
acquisition shall not have been approved within sixty (60) days following such
acquisition by a majority of the Continuing Directors (as hereinafter defined)
then in office or (y) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of the Subscriber having a right to
vote in elections of directors; or

(ii) Continuing Directors shall for any reason
cease to constitute a majority of the Board of Directors of the Subscriber; or

(iii) all or substantially all of the business
and/or assets of the Subscriber are disposed of by the Subscriber to a party or
parties other than a subsidiary or other affiliate of the Subscriber, pursuant
to a partial or complete liquidation of the Subscriber, sale of assets
(including stock of a subsidiary of the Subscriber) or otherwise.

For purposes of this Agreement, the term
"Continuing Director" shall mean a member of the Board of Directors of the
Subscriber who either was a member of the Board of Directors on the date hereof
or who subsequently became a Director and whose election, or nomination for
election, was approved by a vote of at least two-thirds of the Continuing
Directors then in office.

1.3.2 By Subscriber. Subscriber may terminate this Agreement
upon notice to NovaCare in the event that:

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(a) NovaCare fails to pay any sums required to be paid
hereunder by NovaCare as employer of an employee located at a Subscriber
worksite or at a worksite at which Subscriber provides services pursuant to a
contract with the business located at the worksite (an employee at either of
such worksites hereinafter being referred to as a "Worksite Employee") (i) to or
on behalf of a Worksite Employee or (ii) to a governmental agency, insurance
carrier, third party administrator or other third party, and such failure
continues for three (3) business days after written notice thereof is sent to
NovaCare, certified or registered mail, return receipt requested;

(b) NovaCare fails at any time to procure or maintain
insurance coverage required by this Agreement;

(c) NovaCare fails to meet the following service
performance standards, and such failure continues for a period of sixty (60)
days after written notice thereof is sent to NovaCare, certified or registered
mail, return receipt requested:

(i) employee status change transactions (new
hires, wage and salary actions, changes in status from full-time to part-time or
on or off leave and terminations) (hereinafter referred to as "Status
Transactions") will be processed within forty-eight (48) hours of receipt by
NovaCare's designated representative of accurate information in a form
acceptable to NovaCare; Status Transactions received by the established payroll
cut-off date and time (the "Payroll Cut-off") for a payroll will be processed
for that payroll; and ninety-seven percent (97%) of Status Transactions
processed through the NovaStar human resource information system will be
correct;

(ii) payroll data received by NovaCare's
designated representative by the Payroll Cut-off will be processed to deliver
payroll on time one hundred percent (100%) of the time, and ninety-nine percent
(99%) of paychecks will correctly reflect information transmitted from the
Subscriber;

(iii) new hire and status change benefit forms
("Benefit Forms") will be submitted to the third party administrator responsible
for the applicable benefit plan within one (1) week of receipt by NovaCare's
designated representative and a confirmation will be provided by NovaCare to the
Worksite Employee within four (4) days after submission to the third party
administrator. If NovaCare acts as the plan administrator, it will update its
file and provide confirmation as if it were the third party administrator;

(iv) ninety percent (90%) of incoming calls to the
employee service center during established business hours will be answered
immediately and incoming calls reaching voice mail will be returned within
twenty-four (24) hours; and

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(v) a customer service survey measuring
satisfaction with NovaCare services, in form and substance approved by
Subscriber, whose approval shall not be unreasonably withheld, will be conducted
no later than December 31 each year during the term hereof and the results will
show not greater than a five percent (5%) overall reduction in employee
satisfaction from the baseline established in the first annual survey;

(d) NovaCare becomes insolvent (that is, unable to pay
its debts as they mature or in accordance with customary business practice) or
commits an act of bankruptcy, or applies for, consents to, or acquiesces in the
appointment of a trustee or a receiver for it or any of its property, or, in the
absence of such application, consent or acquiescence, a trustee or receiver is
appointed for NovaCare or for a substantial part of its property and is not
discharged within thirty days thereof, or if any bankruptcy or insolvency
proceeding, or any dissolution or liquidation proceeding, is instituted by or
against NovaCare and is consented to or acquiesced in by NovaCare or remains or
thirty (30) days undismissed;

(e) there occurs the termination, cessation or
liquidation of NovaCare's business;

(f) any representation, warranty or statement of
material fact made or furnished to Subscriber or Subscriber's representatives by
or on behalf of NovaCare, or any document, instrument or other paper submitted
to Subscriber or Subscriber's representatives by or on behalf of NovaCare, is
false or misleading in any material respect; or

(g) NovaCare fails to perform or observe any material
duty, obligation or covenant contained in this Agreement other than those set
forth in subparagraph (a), subparagraph (b) or subparagraph (c) above, and such
failure continues for ten (10) days after written notice thereof is sent to
NovaCare, certified or registered mail, return receipt requested;

2. Fees.

2.1 Initial Fees. For services rendered hereunder, Subscriber shall
pay to NovaCare (i) an initial base service fee ("Base Fee") of one hundred nine
and seven tenths percent (109.7%) of gross earnings, including salary, wages,
bonus, vacation time, paid time off, sick time, commissions and severance pay
(before deductions, whether before tax or after tax) paid to Worksite Employees
plus (ii) the net amount of expense reimbursement and any other cash payment to
a Worksite Employee that is included in a paycheck at the request of Subscriber
but is not includable in gross earnings for federal or state tax purposes, and
the employer's portion of FICA and FUTA attributable to gross earnings (the
"Non-Wage Fee").

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2.2 Changes in Base Fee.

2.2.1 Changes in Benefit Plan Structure or Design. The Base
Fee includes a charge for the costs of the benefit programs (descriptions of
which are attached hereto as Exhibit B) (the "Plans") that NovaCare makes
available to Worksite Employees. The Base Fee shall be increased to reflect the
increased cost of changes requested by Subscriber in the design or structure of
any Plan.

2.2.2 Annual Reduction in Base Fee. On January 1, 1998 and
each January 1 thereafter through January 1, 2001 the Base Fee payable hereunder
shall be reduced by one-tenth of one percent (1/10%) (that is, from 109.7% to
109.6% in 1998, 109.5% in 1999, 109.4% in 2000, and 109.3% in 2001). The Base
Fee shall remain at one hundred nine and two tenths percent (109.2%) during the
first and any subsequent Renewal Term.

2.3 Additional Fee. Subscriber may request Additional Services from
NovaCare pursuant to Section 3.2 below. The fee for such services shall be set
forth in an addendum to this Agreement.

2.4 Payment of Fee.

2.4.1 Base Fee and Non-Wage Fee. Subscriber shall fund an
account with the amount of the Base Fee and Non-Wage Fee (the "Payroll Account")
in advance of each payroll payment date. NovaCare shall have the right to draw
against the Payroll Account an amount equal to the Base Fee and Non-Wage Fee for
the applicable payroll payment date. Subscriber agrees to collect, verify, and
transmit to NovaCare's administrative office, no less than seven (7) business
days before each NovaCare payroll date any information required to determine
correctly and accurately the amount of the payment due NovaCare. If Subscriber
defaults in paying the amounts due NovaCare and NovaCare continues to pay wages
for Worksite Employees at a rate not below the statutory minimum wage,
Subscriber shall fully indemnify and hold NovaCare harmless from any and all
claims made by employees for wages in excess of the amount paid by NovaCare and
any and all legal fees and expenses incurred in defense of such claims.
Additionally, Subscriber must immediately inform NovaCare of any situation in
which payment will not be immediately forthcoming and thereafter, at the request
of NovaCare, Subscriber shall terminate the employment of persons for whom
payment by Subscriber to NovaCare will not be made.

2.4.2 Additional Fees. Additional fees provided for under
Section 2.3 above shall be invoiced monthly after services have been delivered.
Subscriber shall pay such invoices within thirty days after receipt.

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3. Services.

3.1 Base Services. NovaCare shall provide the following services
("Base Services") with respect to Worksite Employees in consideration of the
payment of the Base Fee:

(i) Payment of wages based on hours, wage and salary rates and
other information supplied by Subscriber, including application of set-offs owed
to Subscriber and implementation of garnishment orders;

(ii) Calculation of Paid Time Off (in accordance with
Subscriber's policies);

(iii) Calculation and payment of sign-on, relocation and other
bonuses;

(iv) Collection, reporting and payment of applicable federal,
state and local payroll taxes;

(v) Collection of employee contributions, payment of premiums
and administration under the Plans;

(vi) Administration of unemployment compensation claims;

(vii) Payment of workers' compensation insurance premiums and
administration and management of workers' compensation claims, including payment
of claims not paid by an insurance carrier or other third party;

(viii) Completion, reporting and maintenance of payroll and
Plan records, with the exception of records of hours worked, which shall be
collected, verified and maintained by Subscriber, provided that Subscriber shall
make available to NovaCare copies of such records of hours worked as NovaCare
may require for the purpose of maintaining the Plans;

(ix) Operation of an employee service center providing
Worksite Employees with access for the purpose of making changes and resolving
questions relating to Plans and paychecks;

(x) Payment of expense reimbursement and any other non-wage
payments to Worksite Employees, as requested by Subscriber;

(xi) Development and implementation, not later than December
31, 1998, of a system designed to measure compliance with its obligations under
Section 1.3.2(c)(iv) hereof;

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(xii) Provision of reports within fifteen (15) days after the
last day of each calendar month showing its performance compared to the
performance standards established in Section 1.3.2(c) above, except that the
obligation to provide reports with respect to Section 1.3.2(c)(iv) shall
commence fifteen (15) days after the first full month following implementation
of the system specified in Section 3.1.(xi); and

(xiii) Funding of Plans that require funding within the time
required by law.

3.2 Additional Services. NovaCare may offer services not covered by
Section 3.1 including, but not limited to, recruiting, training and development,
human resources consulting, outplacement and pre-employment testing. Any such
services shall be provided pursuant to a written addendum to this Agreement,
executed by both parties, setting forth the services to be provided and the fee
for such services.

4. Rights, Duties and Obligations of Subscriber.

4.1 Supervision of Employees. Subscriber will be responsible for
supervision and direction of Worksite Employees in carrying out the work of
Subscriber's business, and shall provide all instrumentalities (including
uniforms, tools, equipment and other supplies) necessary to the performance of
job functions.

4.2 Reports of Hours Worked. Subscriber shall maintain accurate
records of actual time worked, shall make accurate reports of time worked by
Worksite Employees to NovaCare in accordance with the requirements of the Fair
Labor Standards Act and any applicable similar state law and shall verify the
accuracy of such reports. Subscriber shall maintain the records required to be
kept under this Section 4.2 for seven (7) years.

4.3 Employment Decisions. Any common-law employee of Subscriber
shall be deemed a Worksite Employee hereunder. Subscriber shall verify skills
and references and determine employment eligibility of all Worksite Employees.
If a Worksite Employee is required to possess or maintain a license, or to be
supervised by a supervisor who is required to possess or maintain a license,
Subscriber shall be responsible for verifying such licensure or providing such
required supervision. In taking any adverse action with respect to the pay,
conditions of employment or employment status of a Worksite Employee (an
"Adverse Action"), Subscriber shall comply with applicable law governing
employment. Worksite Employees who are supervisory employees shall act in that
capacity in compliance with applicable law. Supervisors' actions alleged to be
in violation of law are outside the scope of their responsibility as NovaCare
employees and supervisory employees acting in violation of law shall be deemed
to be acting solely as agents of Subscriber.

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4.4 Employee Benefit Plans. Subscriber shall not adopt, establish,
maintain, operate or contribute to any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
without the express written consent of NovaCare.

4.5 Financial Controls. Subscriber accepts sole responsibility for
accounting and other financial control policies (and fidelity bonding
requirements) applicable to Worksite Employees or their conduct.

4.6 Compliance With Law. Subscriber accepts sole responsibility for
compliance with the following provisions of law applicable to Worksite
Employees:

(i) the Occupational Safety and Health Act (OSHA) and related
or similar federal, state or local regulations and the employer's common law
duty to supervise the worksite and provide a safe working environment;

(ii) government contracting requirements under a) Executive
Order 11246, b) the Vocational Rehabilitation Act of 1973, c) the Vietnam Era
Veterans' Readjustment Assistance Act of 1974, d) the Walsh-Healy Public
Contracts Act, e) the Davis-Bacon Act, f) the Service Contract Act of 1965, and
g) any and all similar, related, or like federal, state, or local laws,
regulations, ordinances, and statutes;

(iii) Worker Adjustment and Retraining Notification Act
("WARN");

(iv) laws affecting assignment of and ownership of
intellectual property rights including, but not limited to, inventions, whether
patentable or not, and patents resulting therefrom, copyrights and trade
secrets;

(v) the Immigration Reform and Control Act of 1986 except as
set forth in Subsection 5.1(iv) below; and

(vi) the Fair Labor Standards Act, Title VII of the Civil
Rights Act of 1964, as amended, the Family and Medical Leave Act, the Age
Discrimination in Employment Act, as amended, the Americans With Disabilities
Act (including provisions thereunder relating to Subscriber's premises), and any
other federal, state, county or local laws, regulations, ordinances, and
statutes which govern the employer/employee relationship.

4.7 Safety. Subscriber shall report all accidents in which Worksite
Employees are injured immediately (by telephone within one working day of (x)
notice to Subscriber, or (y) Subscriber's knowledge, of an injury, and in
writing by fax within forty-eight (48) hours) to NovaCare or NovaCare's
designee. Subscriber shall cooperate in any safety inspection or investigation
of a worksite injury conducted by or

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on behalf of NovaCare. Subscriber shall permit an injured Worksite Employee to
return to work in an available modified-duty capacity pursuant to a medical
release at NovaCare's request. Subscriber shall make such changes to the work
environment and enforce such working practices as NovaCare shall reasonably
require to enhance worksite safety.

Where required by applicable state law, NovaCare shall retain
a right of direction and control over the management of safety, risk and hazard
control involving Worksite Employees. However, liability for employee safety is
a responsibility of Subscriber, who controls the worksites and their business
operations. Subscriber acknowledges that it is responsible for maintaining a
safe working environment, providing proper training in compliance with federal
or state law or regulation, and establishing and maintaining such safety
programs, safety policies, and safety committees as may be required by law.
NovaCare, NovaCare's workers' compensation and liability insurance carriers or
their assignees have the right to survey the Subscriber's worksites to look for
unsafe conditions or unsafe acts which may lead to accidents. However, the
retention of such right by NovaCare does not relieve Subscriber of any
obligations that it has pursuant to the federal Occupational Safety and Health
Act (OSHA) or any other federal, state or local law intended to provide
employees at Subscriber's worksites with a safe work environment.

4.8 COBRA. NovaCare shall be responsible for providing continued
health care coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA Coverage") to each employee and
former employee (and their dependents) of the Subscriber who is eligible for
such COBRA Coverage on the effective date hereof. Subject to Section 6.1 and
Subscriber's reimbursement obligation (as set forth below), upon termination of
this Agreement, NovaCare shall provide COBRA Coverage to each Worksite Employee,
former Worksite Employee, their dependents and any individual entitled to COBRA
Coverage under the preceding sentence (collectively, the "COBRA Participants")
who are eligible for such coverage under any NovaCare "group health plan" (as
defined in Section 4980B(g)(2) of the Code) on the date of termination of this
Agreement or who become eligible for COBRA Coverage as a result of the
termination of this Agreement. Notwithstanding the preceding sentence,
NovaCare's maximum aggregate liability for continued health benefits for the
COBRA Participants shall equal the amount of the COBRA premium paid by the COBRA
Participants. Benefit claims incurred during the period of COBRA Coverage which
are paid by NovaCare on behalf of the COBRA Participants and that exceed the
aggregate COBRA premium shall be the responsibility of the Subscriber. As soon
as practicable following the end of the COBRA Coverage period, NovaCare shall
submit an accounting to the Subscriber of all health benefit claims paid by
NovaCare on behalf of the COBRA Participants. If the total of such claims
exceeds the aggregate COBRA premium received by NovaCare, Subscriber shall
immediately pay to NovaCare such excess amount.

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4.9. Provision of Information. Subscriber shall provide to NovaCare
such true and accurate information as NovaCare may request as necessary to
comply with requirements of law with respect to Subscriber's ownership and
organizational structure and compensation packages of its senior executives and
structure and operation of benefit plans offered to Worksite Employees by
Subscriber.

5. Rights, Duties and Obligations of NovaCare.

5.1 Compliance With Law. Provided that Subscriber has given to
NovaCare all information required hereunder, NovaCare accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:

(i) all rules and regulations governing the reporting,
collecting and payment of federal and state payroll taxes on wages paid under
this Agreement, including, but not limited to, a) federal income tax withholding
provisions of the Internal Revenue Code, b) state and/or local income tax
withholding provisions, if applicable, c) Federal Insurance Contributions Act
(FICA), d) Federal Unemployment Tax Act (FUTA), and e) applicable state
unemployment tax provisions;

(ii) except as provided below, applicable workers'
compensation laws including, but not limited to, a) procuring workers'
compensation insurance, b) completing and filing all required reports, and c)
administering, managing, and otherwise processing claims and related procedures
provided that Subscriber agrees to reimburse NovaCare for any monies found due,
whether by audit or otherwise as a result of any workers' compensation
classification information provided by Subscriber to NovaCare;

(iii) Internal Revenue Code Section4980B, subject to the
provisions of Section 4.8;

(iv) Section 1324A(b) of the Immigration Reform and Control
Act of 1986, assuming that Subscriber has provided to NovaCare all necessary and
accurate documentation required by such law;

(v) the Consumer Credit Protection Act, Title III; and

(vi) the Fair Labor Standards Act, 29 U.S.C. Sections201
et seq., based solely on information provided by Subscriber pursuant to Section
4.2 hereof.

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5.2 Delivery of Services.

5.2.1 Information Systems. Subscriber currently has access to
the data and reports listed in Exhibit C (the "Operating Information") through
electronic information systems (the "Systems"). On the effective date hereof,
NovaCare shall assume responsibility for maintaining the Systems. During the
term hereof, NovaCare shall continue to make available to Subscriber the
Operating Information. NovaCare shall not change the Systems in a way that
deprives Subscriber of access to the Operating Information in the electronic
format used on the effective date of this Agreement without first obtaining
Subscriber's written approval. Subscriber may, as a condition to granting
approval of a change in Systems, require that NovaCare be responsible for costs
necessary to create, or that NovaCare create, any interface or translation
required to provide Subscriber with access to Operating Information comparable
to its access on the effective date hereof. Subscriber hereby grants NovaCare a
non-exclusive license, effective for the term of this Agreement, to use the
Systems only as necessary to provide services to Subscriber under this
Agreement. NovaCare shall not obtain any ownership interest in the Systems
pursuant to the license herein granted. Any changes to the Systems made by
NovaCare shall become the property of Subscriber and NovaCare shall execute at
its own cost such assignments and other documents as may be necessary or
appropriate for transferring and/or confirming ownership to and in Subscriber.

5.2.2 Organization. NovaCare shall consult with Subscriber and
shall consider Subscriber's recommendations before making any material change in
the size, structure, span of responsibility or location of any organizational
element providing service to Subscriber under this Agreement.

6. Effect of Termination.

6.1 COBRA. In the event of termination of this Agreement, the
Subscriber shall immediately provide coverage under a "group health plan" (as
defined in Section 4980B(g)(2) of the Code) to all Worksite Employees, former
Worksite Employees, and their dependents who were eligible for coverage under
any NovaCare group health plan immediately before such event. The Subscriber's
group health plan provided under the preceding sentence shall not contain any
exclusion or limitation with respect to any pre-existing condition applicable to
any Worksite Employee, former Worksite Employee or their dependents.

6.2 Accrued Pay. If this Agreement is terminated and if the affected
employees are entitled to the payment of any accrued bonus, vacation, sick or
personal leave, Subscriber shall be liable for the payment thereof and will make
such payments directly to NovaCare. If, however, Subscriber continues to employ
such affected employee(s) after termination of this Agreement, the Subscriber
shall be liable to the employee(s) for same and NovaCare shall have no
obligation therefor.

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6.3 Survival. The indemnification, contribution and duty to
cooperate provisions of this Agreement shall survive the expiration of this
Agreement or other termination of this Agreement indefinitely.

6.4 Duration of Obligations. Upon the termination of this Agreement
for any reason, the parties shall continue to have the following obligations
through and including the termination date:

(i) NovaCare shall have the obligation for wages and benefits
payable to the employees through and including the termination date. If for any
reason (whether or not required by applicable law) NovaCare makes any payment to
any of the employees after this Agreement has been terminated, NovaCare shall be
entitled to full reimbursement for such expenditures;

(ii) Except as otherwise provided herein, all obligations of
NovaCare under this Agreement to maintain workers' compensation insurance
coverage and health care coverage on behalf of the employees shall cease,
effective as of the termination date. All such employees shall be immediately
informed by Subscriber that they are no longer covered by NovaCare's workers'
compensation policy. Subscriber shall immediately assume all federal, state and
local obligations of an employer to the employees which are not in conflict with
state or federal law, and shall immediately assume full responsibility for
providing workers' compensation coverage. NovaCare shall immediately be released
from such obligations as are permitted by law, except that NovaCare shall remain
responsible for the cost of claims for workers' compensation incurred prior to
the date of termination. It is the intent of the parties that, to the extent
allowed by law, they be placed in their respective positions immediately before
their entry into this Agreement in the event of a termination or Subscriber's
failure to pay NovaCare; and

(iii) Subscriber shall have the obligation to pay all fees
payable in accordance with the provisions of this Agreement, which are
attributable to the period ending on the termination date.

7. Indemnification.

7.1 Indemnification by Subscriber. Subscriber agrees to indemnify,
hold harmless, protect and defend NovaCare, its subsidiaries and affiliates and
each of their officers, directors, agents, attorneys and employees from any
claims, expenses (including court costs and attorneys' fees), damages and
liabilities (including severance payments to Worksite Employees) (collectively
hereinafter referred to as "Damages"), from claims, actions, suits, judgments or
settlements arising out of negligence, malpractice, tortious conduct, violation
of any statute, law, or regulation, criminal or dishonest activity by any
Worksite Employee, product liability related to products manufactured or
distributed by Subscriber, Subscriber's breach of any of its obligations or
warranties under this Agreement, or any action by Subscriber or its agents which

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may result in a violation of any law or regulation, including, but not limited
to, Damages allegedly arising out of an Adverse Action or out of worksite
conditions or actions of any kind. If such indemnification is for any reason not
available or insufficient to hold NovaCare harmless, Subscriber agrees to
contribute to the losses involved in such proportion as is appropriate to
reflect the relative benefits received (or anticipated to be received) by
Subscriber and by NovaCare with respect to the matters contemplated by this
Agreement or, if such allocation is judicially determined to be unavailable, in
such proportion as is appropriate to reflect not only such relative benefits,
but also other equitable considerations such as the relative fault of
Subscriber, on the one hand, and of NovaCare, on the other hand; provided,
however, that Subscriber shall be responsible for all losses which in the
aggregate are in excess of the amount of all fees actually received by NovaCare
from Subscriber in connection with the services to be provided hereunder.
NovaCare shall give Subscriber prompt written notice of any claim for which
indemnification will be sought hereunder, shall cooperate in the investigation
and defense of any such claim and shall not settle or compromise any such claim
without the approval of Subscriber unless Subscriber fails to provide evidence
of ability to pay a judgment in excess of the proposed settlement amount.

7.2 Indemnification by NovaCare. NovaCare assumes responsibility for
the payment of wages to the Worksite Employees without regard to payments by
Subscriber to NovaCare, although in doing so NovaCare does not waive or limit
any claim against Subscriber. NovaCare agrees to indemnify, hold harmless,
protect and defend Subscriber, its subsidiaries and affiliates and each of their
officers, directors, agents, attorneys and employees from and against any
claims, expenses (including attorneys' fees and court costs), damages and
liabilities from claims, actions, suits, judgments or settlements arising out of
NovaCare's breach of its obligations or warranties under this Agreement or any
action by NovaCare or its agents or employees (other than Worksite Employees)
which may result in a violation of any law or regulation, except violations
resulting from conduct of Worksite Employees or worksite conditions. Subscriber
shall give NovaCare prompt written notice of any claim for which indemnification
will be sought hereunder, shall cooperate in the investigation and defense of
any such claim and shall not settle or compromise any such claim without the
approval of NovaCare.

7.3 Subrogation. Each party hereby waives any claim in its favor
against the other party by way of subrogation or indemnification which may arise
during the term of this Agreement for any and all loss of or damage to any of
its property, or for bodily injury or death, which loss, damage, or bodily
injury or death is covered by insurance to the extent that such loss or damage
is recovered under such policies of insurance as required herein. The
subrogation and indemnification concept set forth in this provision is intended
to apply only to insurance matters, and nothing in this provision is intended to
alter the indemnification rights set forth elsewhere in this Agreement. Each
party shall assure that its insurance policies contain provisions authorizing
waiver of subrogation consistent with this Section 7.3.

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8. Representations and Warranties.

8.1 Fair Labor Standards Act. Subscriber agrees not to withhold a
payment to NovaCare absent NovaCare's express permission, or in any manner, or
by any device, act in violation of, cause, or seek to cause a violation of any
applicable federal, state or local law, ordinance, or regulation pertaining to
the terms, conditions, and services of this Agreement. Where Subscriber has
followed or complied with a request or recommendation of NovaCare or otherwise
properly relied on information supplied by NovaCare, it shall be relieved of
responsibility for back pay and damages for such actions, unless Subscriber has
failed to comply with its obligations hereunder to provide accurate information
to NovaCare. Subscriber further warrants that it shall not make any taxable
payment of any kind, except profit-sharing or pension plan distributions
pursuant to the terms of a qualified plan, to any employee covered by this
Agreement, and that any such payment shall be a breach of this Agreement, and at
the election of NovaCare, grounds for immediate termination of this Agreement.

8.2 Employment Matters. Subscriber warrants that, except as
described in Exhibit C, there are no collective bargaining agreements binding
upon Subscriber or affecting Worksite Employees, and that there are no pending
governmental investigations or any lawsuit related to Worksite Employees, the
working conditions of the Worksite Employees, the products or services produced
or provided by Worksite Employees or any other matters affecting the performance
of NovaCare under this Agreement except as otherwise disclosed to NovaCare.
Subscriber warrants that all hazardous materials, if any, on its premises are
maintained, stored and disposed of in accordance with applicable law. Subscriber
agrees to provide any and all protective safety equipment required for safe
performance of job duties or required under local, state or federal law.

9. Workers' Compensation. NovaCare shall provide workers' compensation
insurance for Worksite Employees in compliance with applicable law. Workers
performing services for Subscriber not covered by this Agreement and not on
NovaCare's payroll shall not be covered by NovaCare's workers' compensation
insurance. NovaCare will not provide workers' compensation coverage to any
employee for whom Subscriber is not reporting hours of payroll. Subscriber
further agrees to require any independent contractor it utilizes to provide
evidence of workers' compensation coverage before the independent contractor
commences work at the worksite. Subscriber acknowledges that NovaCare's workers'
compensation carrier or NovaCare is entitled to periodically audit the employee
classification lists for each Subscriber location to make sure that employees
are classified properly for workers' compensation purposes. In the event that
during such an audit, or at any other time, NovaCare finds that Worksite
Employees have been misclassified and such misclassification resulted from
information supplied to NovaCare by Subscriber, Subscriber will promptly
reimburse NovaCare, upon invoice, for charges which otherwise would have been
payable by Subscriber had such employee been properly classified. NovaCare
retains the responsibility for the management of workers'

15
<PAGE> 16
compensation claims, claim filings and related procedures. Subscriber agrees to
cooperate with NovaCare in that regard, including in regard to the notification
of injuries required by this Agreement or by law.

10. Insurance. During the Initial Term of this Agreement and any Renewal
Term, Subscriber shall obtain and maintain the following types of insurance:

10.1 Automobile. Subscriber shall obtain and maintain automobile
insurance for all owned, non-owned, and hired vehicles used in connection with
the work performed on its premises or in connection with its business, and will
cause its insurance carrier to issue a Certificate of Insurance evidencing same
to NovaCare, naming NovaCare as an additional named insured and allowing not
less than thirty (30) days' notice of cancellation or material change. The
policy shall insure against liability for bodily injury and property damage,
with a minimum combined single limit of Five Hundred Thousand Dollars ($500,000)
and Uninsured Motorist or PIP equivalent coverage of at least the minimum limits
required by the State where a "no fault" law shall apply.

10.2 General Liability. Subscriber shall obtain and maintain general
liability insurance, and cause its insurance carrier to issue a Certificate of
Insurance evidencing same to NovaCare, naming NovaCare as an additional named
insured and allowing not less than thirty (30) days' notice of cancellation or
material change. The minimum requirement shall be One Million Dollars
($1,000,000) combined single limit, Three Million Dollars ($3,000,000) aggregate
limit, including, but not limited to, where applicable, premises, operations,
products, completed operations, contract and broad form property damage,
independent contractors, personal injury, host liquor, and full liquor
liability. If Subscriber renders professional services, it shall obtain and
maintain throughout the term, and any succeeding terms of this Agreement,
professional liability coverage as applicable, and will cause its insurance
carrier to issue a Certificate of Insurance evidencing same to NovaCare allowing
not less than thirty (30) days' notice of cancellation or material change.
Unless otherwise agreed to, such policy shall have a combined single limit of
not less than One Million Dollars ($1,000,000), Three Million Dollars
($3,000,000) aggregate limit.

Subscriber agrees that NovaCare shall not provide any general
liability insurance coverage for products liability, completed operations or
professional liability for any Worksite Employee or the Subscriber. Subscriber
shall further agree that NovaCare shall have no obligation to provide any form
of automobile insurance coverage on behalf of any Worksite Employee or for
Subscriber.

11. Miscellaneous.

11.1 Third Party Rights. This Agreement is intended solely for the
mutual benefit of the parties hereto and does not create any rights of any kind
in a third party. NovaCare reserves the right and from time to time to assign
its rights, duties

16
<PAGE> 17
and obligations hereunder to any affiliate, provided that NovaCare shall
guarantee the performance and liability of any such affiliate. Any such
assignment may be limited to a portion of NovaCare's obligations arising in one
or more jurisdictions.

11.2 Integration. This Agreement constitutes the entire agreement
between the parties with regard to the subject matter hereof and supersedes any
and all agreements, whether oral or written, between the parties with respect to
its subject matter.

11.3 Waiver. Failure by either party at any time to require
performance by the other party or to claim a breach of any provision of this
Agreement will not be construed as a waiver of any subsequent breach nor affect
the effectiveness of this Agreement, nor any part thereof, nor prejudice either
party as regards to any subsequent action.

11.4 Governing Law. This Agreement shall be subject to the laws of
the Commonwealth of Pennsylvania.

11.5 Dispute Resolution.

11.5.1 Arbitration. The parties shall attempt amicably to
resolve disagreements by negotiating with each other. In the event that the
matter is not amicably settled through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be resolved exclusively by binding arbitration, which shall be conducted
by a single arbitrator in the Philadelphia, PA area, in accordance with the
J-A-M-S/ENDISPUTE Streamlined (in the case of a dispute within the scope of the
Streamlined Rules and Procedures) or Comprehensive Arbitration Rules and
Procedures (the "Rules"). The parties agree that notwithstanding anything to the
contrary contained in the Rules, the arbitrator shall not award consequential,
exemplary, incidental, punitive or special damages.

11.5.2 Procedure. It is agreed that if any party shall desire
relief of any nature whatsoever from any other party as a result of any
Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than twelve (12) months after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in 11.5.3. below) or
judicial proceedings between them, and that no appeal or judicial review of the
award or decision of the Arbitrator shall be taken, but that such award or
decision may be entered as a judgment and enforced in any court having
jurisdiction over the party against whom enforcement is sought.

17
<PAGE> 18
11.5.3. Equitable Relief. The parties recognize that
irreparable injury may result from a breach of this Agreement and that money
damages may be inadequate to fully remedy the injury. Therefore, either party
may, in any such instance, seek and obtain from a court of competent
jurisdiction one or more preliminary or permanent orders designed to maintain
the status quo ante pending arbitration by (i) restraining and enjoining any act
that would constitute a breach or (ii) compelling the performance of any
obligation that, if not performed, would constitute a breach. Any relief awarded
under this paragraph shall be dissolved upon issuance of the Arbitrator's
decision and order.

11.6 Subscriber Intellectual Property Rights. Subscriber shall own
any and all intellectual property rights incident to any and all process,
products, inventions and discoveries that are created or invented by a Worksite
Employee and who was directed by Subscriber to create or develop such process,
product, discovery or invention. Subscriber shall bear any and all costs
associated with any copyrights, trademarks or patents that Subscriber chooses to
obtain to protect Subscriber's intellectual property rights.

11.7 Duty to Cooperate. In the event that an employee or a
government agency or entity files any type of claim, lawsuit or charge against
NovaCare, Subscriber or both, alleging a violation of any law or failure to do
something which was otherwise required by law, Subscriber and NovaCare mutually
agree to cooperate with each other in the defense of any such claim, lawsuit or
charge. NovaCare and Subscriber will make available to each other upon request
any and all documents that either party has in its possession which relate to
any such claim, lawsuit or charge. However, neither party shall have the duty to
cooperate with the other if the dispute is between the parties themselves, nor
shall this provision preclude the raising of cross claims or third party claims
between Subscriber and NovaCare.

11.8 Severability. Should any term, warranty, covenant, condition,
or provision of this Agreement be held to be invalid or unenforceable, the
balance of this Agreement shall remain in force and shall stand as if the
unenforceable part did not exist. The captions in this Agreement are provided
for convenience only and are not part of the terms and conditions of this
Agreement.

11.9 Modification and Implementation. Any modifications to this
Agreement must be in writing and executed by NovaCare and Subscriber to be
enforceable.

11.10 No Partnership. Nothing set forth herein shall be deemed to
create a partnership or joint venture between Subscriber and NovaCare and no
fiduciary duty shall arise from the relationship created herein.

18
<PAGE> 19
11.11 Notification of Termination to Employees. NovaCare will notify
all persons made Worksite Employees by this Agreement of that status after
Subscriber provides the names of such persons to NovaCare. NovaCare will also
provide each Worksite Employee with any required notice pursuant to applicable
state law or such person's status under this Agreement and shall obtain from
such person any required acknowledgment of such status. If for any reason this
Agreement is terminated, NovaCare will notify all Worksite Employees of whom it
is aware of the termination of this Agreement and Subscriber shall also notify
all Worksite Employees of the termination of this Agreement and shall inform
them that they are no longer covered by NovaCare's benefits or workers'
compensation policy.

11.12 Counterparts. This Agreement may be signed in one or more
counterparts, each of which when executed shall be deemed an original and
together shall constitute one and the same instrument.

11.13 Intention of the Parties. The intention of the parties with
respect to allocation between them of rights, duties and obligations is as set
forth in this Agreement. To the extent that the law of any state requires a
different form of agreement to effect the intention of the parties, the parties
agree to negotiate in good faith and to execute separate agreements applicable
to such state.

NOVACARE, INC. NOVACARE EMPLOYEE
for itself and as Agent for its SERVICES, INC.
Subsidiaries listed on Exhibit A.

- -------------------------------- ---------------------------------
Signature Date Signature Date

- -------------------------------- ---------------------------------
Printed or Typed Name Printed or Typed Name

- -------------------------------- ---------------------------------
Title Title

Subscriber

19
<PAGE> 20
EXHIBIT A

COVERED SUBSIDIARIES

A.D. Craig Company
ASK Colorado Health Care Services, P.C.
Advance Orthotics, Inc.
Advanced Orthopedic Technologies (Clayton), Inc.
Advanced Orthopedic Technologies (Lett), Inc.
Advanced Orthopedic Technologies (New Jersey), Inc.
Advanced Orthopedic Technologies (New Mexico), Inc.
Advanced Orthopedic Technologies (New York), Inc.
Advanced Orthopedic Technologies (OTI), Inc.
Advanced Orthopedic Technologies (Parmeco), Inc.
Advanced Orthopedic Technologies (SFV), Inc.
Advanced Orthopedic Technologies (Virginia), Inc.
Advanced Orthopedic Technologies (West Virginia), Inc.
Advanced Orthopedic Technologies Management Corp.
Advanced Orthopedic Technologies, Inc.
Advanced Orthopedic Technologies, Inc.
Affiliated Physical Therapists, Ltd.
Artificial Limb and Brace Center
Ather Sports Injury Clinic, Inc.
Atlantic Rehabilitation Services, Inc.
Boca Rehab Agency, Inc.
Bowman-Shelton Orthopedic Service, Incorporated
Buendel Physical Therapy, Inc.
C.O.A.S.T. Institute Physical Therapy, Inc.
Cannon & Associates, Inc.
Cenla Physical Therapy & Rehabilitation Agency, Inc.
Center for Physical Therapy & Sports Rehabilitation, Inc.
CenterTherapy, Inc.
Certified Orthopedic Appliance Co., Inc.
Champion Physical Therapy, Inc.
Coplin Physical Therapy Associates, Inc.
Crowley Physical Therapy Clinic, Inc.
Dale Clark Prosthetics, Inc.
Douglas Avery & Associates, Ltd.
Douglas C. Claussen, R.P.T., Physical Therapy, Inc.
Elk County Physical Therapy, Inc.
Employee Benefits Management, Inc.
Employee Services, Inc. of North Carolina
<PAGE> 21
Employers' Risk Management, Inc.
Fine, Bryant & Wah, Inc.
Francis Naselli, Jr. & Stewart Rich Physical Therapists, Inc.
Frank J. Malone & Son, Inc.
Gallery Physical Therapy Center, Inc.
Georgia Physical Therapy of West Georgia, Inc.
Greater Sacramento Physical Therapy Associates, Inc.
Grove City Physical Therapy and Sports Medicine, Inc.
Gulf Breeze Physical Therapy, Inc.
Gulf Coast Hand Specialists, Inc.
Hand Therapy Associates, Inc.
Hand Therapy and Rehabilitation Associates, Inc.
Hawley Physical Therapy, Inc.
Heartland Rehabilitation, Inc.
Indianapolis Physical Therapy and Sports Medicine, Inc.
Industrial Health Care Company, Inc.
J. E. Hanger, Incorporated
Jim All, Inc.
Kesinger Physical Therapy, Inc.
Lynn M. Carlson, Inc.
Marilyn Hawker, Inc.
McFarlen & Associates, Inc.
McKinney Prosthetics/Orthotics, Inc.
Medical Arts O&P Services, Inc.
Metro Rehabilitation Services, Inc.
Mica Corporation, Inc.
Michigan Therapy Centre, Inc.
Mill River Management, Inc.
Mitchell Tannebaum I, Inc.
Mitchell Tannebaum II, Inc.
Mitchell Tannenbaum III, Inc.
Monmouth Rehabilitation, Inc.
NC (Wisconsin), S.C.
NC Cash Management, Inc.
NC Resources, Inc.
New Mexico Physical Therapists, Inc.
Northland Regional Orthotic and Prosthetic Center, Inc.
Northside Physical Therapy, Inc.
NovaCare (Arizona), Inc.
NovaCare (Colorado), Inc.
NovaCare (Texas), Inc.
NovaCare Administrative Employee Services of New York, Inc.
NovaCare Administrative Employee Services, Inc.
NovaCare Easton & Moran Physical Therapy, Inc.
NovaCare Employee Services Club Staff, Inc.
<PAGE> 22
NovaCare Employee Services Easy Staff, Inc.
NovaCare Employee Services Northeast, Inc.
NovaCare Employee Services Resource One, Inc.
NovaCare Employee Services TPI, Inc.
NovaCare Employee Services of America, Inc.
NovaCare Employee Services of Boston, Inc.
NovaCare Employee Services of Bradenton, Inc.
NovaCare Employee Services of Florida, Inc.
NovaCare Employee Services of New York, Inc.
NovaCare Employee Services of Orlando, Inc.
NovaCare Employee Services, Inc.
NovaCare Management Company, Inc.
NovaCare Management Services, Inc.
NovaCare Northside Therapy, Inc.
NovaCare Orthotics & Prosthetics East, Inc.
NovaCare Orthotics & Prosthetics Holdings, Inc.
NovaCare Orthotics & Prosthetics West, Inc.
NovaCare Orthotics & Prosthetics, Inc.
NovaCare Outpatient Rehabilitation East, Inc.
NovaCare Outpatient Rehabilitation I, Inc.
NovaCare Outpatient Rehabilitation West, Inc.
NovaCare Outpatient Rehabilitation, Inc.
NovaCare Rehab Agency of Alabama, Inc.
NovaCare Rehab Agency of Florida, Inc.
NovaCare Rehab Agency of Georgia, Inc.
NovaCare Rehab Agency of Illinois, Inc.
NovaCare Rehab Agency of Kansas, Inc.
NovaCare Rehab Agency of Missouri, Inc.
NovaCare Rehab Agency of New Jersey, Inc.
NovaCare Rehab Agency of North Carolina, Inc.
NovaCare Rehab Agency of Northern California, Inc.
NovaCare Rehab Agency of Ohio, Inc.
NovaCare Rehab Agency of Oklahoma, Inc.
NovaCare Rehab Agency of Oregon, Inc.
NovaCare Rehab Agency of Pennsylvania, Inc.
NovaCare Rehab Agency of South Carolina, Inc.
NovaCare Rehab Agency of Southern California, Inc.
NovaCare Rehab Agency of Tennessee, Inc.
NovaCare Rehab Agency of Virginia, Inc.
NovaCare Rehab Agency of Washington, Inc.
NovaCare Rehab Agency of Wyoming, Inc.
NovaCare Rehabilitation Agency of Wisconsin, Inc.
NovaCare Rehabilitation, Inc.
NovaCare Service Corp.
NovaCare Speech Therapy & Audiology, Inc.
<PAGE> 23
NovaCare, Inc.
NovaCare, Inc. (Delaware)
NovaFunds, Inc.
NovaMark, Inc.
NovaMed, Inc.
NovaStock, Inc.
OSI Midwest, Inc.
Opus Care, Inc.
Ortho East, Inc.
Ortho Rehab Associates, Inc.
Ortho-Fab Laboratories, Inc.
Orthopedic Rehabilitative Services, Ltd.
Orthotic & Prosthetic Rehabilitation Technologies, Inc.
Orthotic and Prosthetic Associates, Inc.
Peters, Starkey & Todrank Physical Therapy Corporation
Physical Focus, Inc.
Physical Rehabilitation Partners, Inc.
Physical Therapy Institute, Inc.
Professional Insurance Planners of Florida, Inc.
Professional Orthotics and Prosthetics, Inc.
Professional Orthotics and Prosthetics, Inc. of Santa Fe
Progressive Orthopedic
Prosthetics-Orthotics Associates, Inc.
Quad City Management, Inc.
Quad City Regional Spine Institute, P.C.
RCI (Colorado), Inc.
RCI (Exertec), Inc.
RCI (Illinois), Inc.
RCI (Michigan), Inc.
RCI (S.P.O.R.T.), Inc.
RCI (WRS), Inc.
RCI Nevada, Inc.
Rebound Oklahoma, Inc.
Redwood Pacific Therapies, Inc.
Rehab Managed Care of Arizona, Inc.
Rehab Provider Network - California, Inc.
Rehab Provider Network - Delaware, Inc.
Rehab Provider Network - Georgia, Inc.
Rehab Provider Network - Illinois, Inc.
Rehab Provider Network - Indiana, Inc.
Rehab Provider Network - Maryland, Inc.
Rehab Provider Network - Michigan, Inc.
Rehab Provider Network - New Jersey, Inc.
Rehab Provider Network - Ohio, Inc.
Rehab Provider Network - Oklahoma, Inc.
<PAGE> 24
Rehab Provider Network - Pennsylvania, Inc.
Rehab Provider Network - Virginia, Inc.
Rehab Provider Network - Washington, D.C., Inc.
Rehab Provider Network of Colorado, Inc.
Rehab Provider Network of Florida, Inc.
Rehab Provider Network of Nevada, Inc.
Rehab Provider Network of New Mexico, Inc.
Rehab Provider Network of Texas, Inc.
Rehab Provider Network of Wisconsin, Inc.
Rehab World, Inc.
Rehab/Work Hardening Management Associates, Ltd.
RehabClinics (Coast), Inc.
RehabClinics (Galaxy), Inc.
RehabClinics (New Jersey), Inc.
RehabClinics (PTA), Inc.
RehabClinics (SPT), Inc.
RehabClinics Abilene, Inc.
RehabClinics Dallas, Inc.
RehabClinics Pennsylvania, Inc.
RehabClinics, Inc.
Rehabilitation Fabrication, Inc.
Robert M. Bacci, R.P.T., Physical Therapy, Inc.
Robin-Aids Prosthetics, Inc.
Rx One, Inc.
S.T.A.R.T., Inc.
SG Rehabilitation Agency, Inc.
SG Speech Associates, Inc.
Salem Orthopedic & Prosthetic, Inc.
San Joaquin Orthopedic, Inc.
South Jersey Physical Therapy Associates, Inc.
Southpointe Fitness Center, Inc.
Southwest Medical Supply Company, Inc.
Southwest Physical Therapy, Inc.
Southwest Therapists, Inc.
Sporthopedics Sports and Physical Therapy Centers, Inc.
Sports Therapy and Arthritis Rehabilitation, Inc.
Staffing Technologies, Inc.
Star Physical Therapy, Inc.
Stephenson-Holtz, Inc.
T.J. Partnership I
TJ Corporation I, L.L.C.
Texoma Health Care Center, Inc.
The Center for Physical Therapy and Rehabilitation, Inc.
The Orthopedic Sports and Industrial Rehabilitation Network, Inc.
Theodore Dashnaw Physical Therapy, Inc.
<PAGE> 25
Treister, Inc.
Union Square Center for Rehabilitation & Sports Medicine, Inc.
Vanguard Rehabilitation, Inc.
Wayzata Physical Therapy Center, Inc.
West Suburban Health Partners, Inc.
Western Rehab Services, Inc.
Workers Rehabilitation Services, Inc.
<PAGE> 26
EXHIBIT B

BENEFITS PLANS

NovaCare, Inc. benefits plans as structured on February 1, 1997 as follows:

1. Flex Plan, including Medical, Dental, Employee Life Insurance,
Dependent Life Insurance, Long Term Disability Insurance, Health Care Spending
Account, Flex Time Off and Financial Counseling.

2. 401(k) Retirement Savings Plan

3. Short Term Disability Plan

4. Vision Discount Plan

5. Employee Assistance Program

6. Business Travel Accident Insurance

7. Employee Stock Purchase Plan

8. Executive Supplemental Benefits Plan
<PAGE> 27
EXHIBIT C

INFORMATION SYSTEMS

THE FOLLOWING SYSTEMS AND INTERFACES ARE SUPPORTED AND MAINTAINED ONLY BY NCES
AND THEIR PREFERRED VENDORS:

NovaSTAR -
- Main Human Resources Information System for NovaCare, Inc. Contains
information for all employees not in the Outpatient Division
- Data captured includes
- Demographic
- Organization
- Compensation
- Employment
- Job/EEO
- Review
- Tax
- Tax Deferred Plans
- Benefit Deductions
- Licenses
- Awards
- ADP required data
- Data Control
- File Number
- Watson Wyatt required data
- Benefit FTE

HR Partner -
- Human Resources Information and Payroll front-end system for Outpatient
Rehabilitation
- Data captured includes
- Demographic
- Organization
- Compensation
- Employment
- Job/EEO
- Review
- Tax
- Tax Deferred Plans
- Benefit Deductions
- All Payroll Data (time, earnings, deductions)
- Watson Wyatt Required data
- Benefit FTE

HR2000 -
- Human Resources Information System for Orthotics & Prosthetics Division
- Data captured includes
- Demographic
- Organization
- Compensation
- Employment
- Job/EEO
- Review
<PAGE> 28
EXHIBIT C

INFORMATION SYSTEMS

- Tax
- Tax Deferred Plans
- Benefit Deductions
- Watson Wyatt Required data
- Benefit FTE

PC Payroll

- Front-end Payroll system that captures raw pay data and transmits it to
ADP for net check processing and pay check cutting and distribution
- Interfaces coming in are from NovaStar via PC Exchange for employee
demographic information, file number, and data control from Watson Wyatt
for benefit deductions
- PC Exchange - interface of raw employee data from NovaStar to PC Payroll

EAS -
- Expense reporting system that interfaces with NovaSTAR
- NovaStar, HR2000, and HR Partner send a weekly feed to EAS for employee
demographic information

Watson Wyatt Interface
- Interface from NovaStar, HR2000, and HR Partner to Watson Wyatt (benefits
administration vendor) which included employee demographic, compensation,
employment, and other Watson Wyatt required raw data
- The calculated benefits deduction information is sent back to PC Payroll
and HR Partner to be included in the payroll

NovaFlex - front end Watson Wyatt benefits administration system updated by
Watson Wyatt

Contracts Database - Interface to NovaStar for facility identification numbers

THE FOLLOWING SYSTEMS TAKE FEEDS/INTERFACES FROM NOVASTAR AND SHOULD BE
MAINTAINED AND SUPPORTED BY NOVACARE, INC. AS DESIRED. CHANGES TO THESE SYSTEMS
WHICH WOULD REQUIRE CHANGES IN DATA OR FORMAT FROM NCES SUPPORT SYSTEMS WOULD
HAVE TO BE NEGOTIATED BETWEEN NOVACARE, INC. AND NCES.

NovaNet+ -
- takes raw data from NovaSTAR for DCP processing

Termination Reporting Database-
- takes termination information from NovaSTAR for reporting purposes

THE FOLLOWING SYSTEMS TAKE FEEDS/INTERFACES FROM ADP AND SHOULD BE MAINTAINED
AND SUPPORTED BY NOVACARE AND NCES JOINTLY DEPENDING ON THE INITIATOR OF THE
CHANGE:

Symix General Ledger
- takes feed from ADP for updates to the general ledger system

SMS General Ledger
- takes feed from ADP for updates to the general ledger system

<PAGE> 1
EXHIBIT 10(o)

TRADE NAME AND TRADEMARK LICENSE AGREEMENT

THIS TRADE NAME AND TRADEMARK LICENSE AGREEMENT is made this 28th day
of February 1997, by and between NovaMark, Inc., a Delaware corporation, with
its principal address at 103 Foulk Road, Suite 232, Wilmington, DE 19803
(hereinafter referred to as "Licensor") and NovaSource, Inc., a Delaware
corporation, having a principal place of business at 2621 Van Buren Avenue,
Norristown, PA 19403 (hereinafter referred to as "Licensee").

BACKGROUND

Licensor is in the business of owning and licensing intellectual
property, including trade names, trademarks and service marks. Licensee desires
to license the use of certain Licensor's trademarks and trade names in
connection with the advertising, promotion, sale and delivery of Licensee's
services. Licensor agrees to license Licensee to use its trademarks and trade
names on the terms and conditions set forth herein.

IN CONSIDERATION OF THE FOREGOING and of the mutual covenants herein
contained, and intending to be legally bound, the parties hereby agree as
follows.

1. Definitions. The following words shall have the following meanings
when used in this Agreement:

1.1 "Affiliate" shall mean a person controlling, controlled by or
under common control with another person.

1.2 "Controlling Interest" shall mean power to elect or control the
majority of the board of directors of Licensee or Licensee's parent.

1.3 "Licensed Marks" shall mean those trademarks, service marks and
trade names licensed by Licensor for use by Licensee hereunder as initially set
forth in Exhibit A, attached hereto, and as may be amended from time to time.

1.4 "Services" shall mean outsourced human relations/employee
relations services provided as part of the service offerings of a professional
employer organization, including, but not limited to, payroll processing,
provision and administration of benefit plans and workers' compensation
insurance, recruiting, temporary staffing, training and development, human
relations/employee relations consulting, compensation and benefits consulting,
workplace safety consulting and management and the provision of human
relations/employee relations policies and procedures.

1.5 "Territory" shall mean the United States of America, including
its territories and possessions, and the Commonwealth of Puerto Rico.

2. Grant of License. Licensor hereby grants to Licensee and its
Affiliates a personal, nonexclusive, nontransferable, nonassignable license to
use the Licensed Marks throughout the
<PAGE> 2
Territory in connection with the advertising, promotion, sale and delivery of
the Services and as a part of Licensee's name and the names of its Affiliates,
during the term of this Agreement.

3. License Fees. In consideration of Licensor's grant of the personal,
nonexclusive, nontransferable, nonassignable license in Section 2 above,
Licensee shall issue to Licensor two million two hundred thousand (2,200,000)
shares of the common stock, $.01 par value, of the Licensee.

4. Nonexclusive Rights. Notwithstanding any provision herein to the
contrary, Licensor may license other entities, including but not limited to,
firms, individuals, partnerships and corporations to use the Licensed Marks in
any part of the world including the Territory, and Licensor reserves all rights
pertaining to the Licensed Marks.

5. Use of Licensed Marks.

5.1 Licensee shall have the right to use the Licensed Marks in
connection with Licensee's promotion of the Services, but only with Licensor's
prior written approval and in strict compliance with this License and the
policies, instructions and guidelines of Licensor.

5.2 Licensee acknowledges Licensor's exclusive right, title and
interest in and to the Licensed Marks, and Licensee shall mark any advertising
or promotional material utilizing or reproducing any Licensed Mark in such
manner as to preserve and protect all rights of Licensor therein.

5.3 Nothing contained in this Agreement shall be construed as
conveying to Licensee any right, title or interest in or to any of the Licensed
Marks other than an express right to a permissive use thereof in connection with
the advertising, promotion, sale and delivery of Services and as a part of
Licensee's name.

5.4 Licensee shall cooperate to the fullest extent possible with
Licensor or its nominee to take such actions as Licensor in its sole discretion
may consider necessary to protect any of the Licensed Marks.

5.5 Licensee will fully cooperate with Licensor in maintaining and
defending the ownership and validity of each of the Licensed Marks against
infringement and claims of infringement. Licensee will promptly notify Licensor
of (i) any infringement or unauthorized use of any Licensed Mark by any third
party, or (ii) any assertion by any third party that Licensee's use of any
Licensed Mark infringes the rights of any third party, provided that Licensee
shall not be obligated to initiate or defend legal action with respect to any
Licensed Mark, and Licensee shall not initiate or defend any such action itself
without Licensor's prior written consent.

5.6 Licensee shall not do any act which may affect the validity of
any of the Licensed Marks.

6. Approval By Licensor. All uses of the Licensed Marks herein shall be
submitted by Licensee to Licensor for Licensor's approval or disapproval prior
to any release thereof by Licensee. If such approval or disapproval is not
received by Licensee within thirty (30) days after

2
<PAGE> 3
receipt of such material by Licensor, such material shall be considered
disapproved. Once approval has been obtained, further approval of the same
material need not be obtained for future or repeat use, but all such material
shall be consistent with the maintenance of the excellent reputation of
Licensor. If Licensor shall give notice of disapproval of any such material,
Licensee shall not use or distribute such material.

7. Goodwill. Licensor and Licensee each acknowledges that each of the
Licensed Marks has acquired a valuable secondary meaning and goodwill with the
public. Accordingly, Licensee undertakes and agrees not to use the Licensed
Marks in any manner whatsoever which, directly or indirectly, would derogate or
detract from the repute of the Licensed Marks. Licensee agrees that if Licensee
shall be convicted of a felony or otherwise becomes an object of public scorn
which materially and adversely affects the repute of the License Marks, Licensor
shall have the right to terminate this Agreement without obligation to Licensee.
Licensor and Licensee each acknowledges that the undertaking on its part set
forth in this paragraph represents a major inducement and consideration for
Licensor to enter into this Agreement.

8. Termination.

8.1 Either Licensee or Licensor may at its option immediately
terminate this Agreement by giving written notice thereof to the other party in
the event that:

8.1.1 the other party becomes insolvent, or a petition in
bankruptcy is filed, or any similar relief is filed by or against the other
party, or a receiver is appointed with respect to any of the assets of the other
party, or a liquidation proceeding is commenced by or against the other party;
or

8.1.2 the other party fails to correct or cure any material
breach by the other party of any covenant or obligation under this Agreement
hereunder within thirty (30) calendar days after receipt by the other party of a
written notice from such party specifying such breach.

8.2 In the event that all or a Controlling Interest in Licensee, or
a parent of Licensee, is acquired by an unrelated third party other than
Licensor by merger, acquisition or private or public purchase of securities or
assets, Licensor shall have the right to terminate this Agreement with thirty
(30) days' written notice.

9. Effect of Termination.

9.1 Upon the termination of this Agreement for whatever reason,
Licensee will immediately cease all use of the Licensed Marks and deliver to
Licensor or destroy all materials bearing the Licensed Marks. Licensee shall
also take all action necessary to transfer and assign to Licensor or its nominee
any right, title or interest to any of the Licensed Marks which Licensee may
have acquired in any manner as a result of its activities under this Agreement.

9.2 Notwithstanding any termination in accordance with the
foregoing, Licensor shall have, and hereby reserves all the rights and remedies
which it has or which are

3
<PAGE> 4
granted to it by operation of law, for damage for breach of this Agreement on
the part of the Licensee.

10. Term. This Agreement and all licenses and rights granted hereunder
shall be perpetual, commencing on the date first written above, except as
earlier terminated as provided herein.

11. Notice. Any notice required or permitted to be given under this
Agreement shall be sent in writing and shall be deemed to be duly given five (5)
days after mailing if mailed to such party, by U.S. certified, return receipt
requested, or when delivered if delivered by other means, to the addresses
indicated below:

If to Licensor:

NovaMark, Inc.
103 Foulk Road, Suite 232
Wilmington, DE 19803
Attention: President

With a Copy to:

NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, PA 19406
Attention: General Counsel

If to Licensee:

NovaSource, Inc.
2621 Van Buren Avenue
Norristown, PA 19403
Attention: President

or to such other addresses as the parties may provide to each other from time to
time.

12. Amendment. This Agreement may not be amended, modified or extended
except by a written instrument signed by an authorized executive officer of both
Licensor and Licensee.

13. Disclaimer of Partnership or Agency. The relationship between
Licensor and the Licensee under this Agreement is solely that of independent
contractors. Neither of the parties is in any way the legal representative or
agent of the other party for any purpose and neither party shall have power to
assume or create, in writing or otherwise, any obligation or responsibility of
any kind, express or implied, in the name of or on behalf of the other party.

14. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania, excluding its
principles of conflicts of laws,

4
<PAGE> 5
and each of the parties hereto irrevocably agrees to submit to the jurisdiction
and venue of the courts of the Commonwealth of Pennsylvania.

15. Dispute Resolution.

15.1 Arbitration. The parties shall attempt amicably to resolve
disagreements by negotiating with each other. In the event that the matter is
not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be settled exclusively by binding arbitration, which shall be conducted by
a single arbitrator in the Philadelphia, PA area, in accordance with the J-A-
M-S/ENDISPUTE Streamlined (in the case of a dispute within the scope of the
Streamlined Rules and Procedures) or Comprehensive Arbitration Rules and
Procedures (the "Rules"). The parties agree that notwithstanding anything to the
contrary contained in the Rules, the arbitrator shall not award consequential,
exemplary, incidental, punitive or special damages.

15.2 Procedure. It is agreed that if any party shall desire relief
of any nature whatsoever from any other party as a result of any Controversy,
such party will initiate such arbitration proceedings within a reasonable time,
but in no event more than twelve (12) months after the facts underlying said
Controversy first arise or become known to the party seeking relief (whichever
is later). The failure of such party to institute such proceedings within said
period shall be deemed a full waiver of any claim for such relief. The parties
shall bear equally all costs of said arbitration (other than their own
attorney's fees and costs). The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable (except as provided in Section 19 below) or judicial
proceedings between them, and that no appeal or judicial review of the award or
decision of the Arbitrator shall be taken, but that such award or decision may
be entered as a judgment and enforced in any court having jurisdiction over the
party against whom enforcement is sought.

16. Waiver. Any failure of Licensor to enforce, at any time or for any
period of time, any of the provisions under this Agreement shall not be
construed as a waiver of the right of Licensor to enforce such provisions unless
said waiver is in writing, and signed by an authorized executive officer of
Licensor.

17. Survival. Licensee recognizes and agrees that its obligations under
Sections 5, 9, 14 and 15 of this Agreement shall survive the termination of this
Agreement and Licensee shall be bound by such obligations after termination
hereof.

18. Separability of Provisions. Each provision of this Agreement shall
be considered separable and if for any reason any provision or provisions herein
are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of this Agreement or affect those
portions of this Agreement which are valid.

19. Remedies. In the event Licensee breaches or threatens to breach any
of the covenants expressed herein, the parties recognize that irreparable injury
to Licensor may result and that money damages may be inadequate to fully remedy
the injury. Therefore, Licensor may, in any such instance, seek and obtain from
a court of competent jurisdiction one or more preliminary or permanent orders
designed to maintain the status quo ante pending arbitration by

5
<PAGE> 6
(i) restraining and enjoining any act that would constitute a breach or (ii)
compelling the performance of any obligation that, if not performed, would
constitute a breach. Any relief awarded under this paragraph shall be dissolved
upon issuance of the arbitrator's decision and order pursuant to Section 15
hereof.

20. Entire Agreement. This Agreement, the exhibits hereto and the
documents referenced herein, constitute the entire agreement between the parties
hereto, and there are no representations, warranties, covenants or obligations
except as set forth herein. This Agreement supersedes all prior or
contemporaneous agreements, understandings, negotiations and discussions,
written or oral, of the parties hereto, relating to any transaction contemplated
by this Agreement. Nothing in this Agreement is intended or shall be construed
to confer upon or to give any person other than the parties hereto any rights or
remedies under or by reason of this Agreement.

21. Background, Enumeration and Headings. The "Background,"
enumeration, and headings contained in this Agreement are for convenience of
reference only and are not intended to have any substantive significance in
interpreting this Agreement.

22. Assignment. Licensee shall not assign any interest in this
Agreement by merger, consolidation, operation of law or otherwise without the
prior written consent of an authorized executive officer of Licensor.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the day and year first written above.

ATTEST: LICENSOR

________________________________ By: _______________________________ (SEAL)
Robert Campbell, Vice President

ATTEST: LICENSEE

________________________________ By: _______________________________ (SEAL)

6
<PAGE> 7
Exhibit A

Licensed Marks

NOVACARE, US Trademark Registration No. 1,635,791
Dove Design, US Trademark Registration No. 1,613,340

<PAGE> 1
Exhibit 10(p)

LOAN AGREEMENT

THIS AGREEMENT, made as of September 18, 1996 by and between NovaFunds,
Inc., a Delaware corporation with offices at 103 Foulk Road, Suite 280,
Wilmington, DE 19803 ("NovaFunds") and NovaResource, Inc., a Delaware
corporation with offices at 2621 Van Buren Avenue, Norristown, PA 19403
("NovaResource").

WITNESSETH:

WHEREAS, NC Resources, Inc., a Delaware corporation, is the founder of
NovaResource and is the holder of four million (4,000,000) shares (the "Shares")
of the common stock, $.01 par value, (the "Stock") of NovaResource, which Shares
constitute all of the issued and outstanding Stock of NovaResource;

WHEREAS, NovaResource is in need of start-up capital to execute its
business plan;

WHEREAS, NC Resources, Inc. owns one hundred (100) shares of the common
stock, $.01 par value, of NovaFunds, being all of the issued and outstanding
common stock of NovaFunds; and

WHEREAS, NovaFunds has determined to lend to NovaResource necessary
start-up capital in accordance with the terms and conditions herein contained;

NOW THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, the parties, intending to be legally
bound, agree as follows:

1. Loan. NovaFunds shall loan to NovaResource such amounts as
NovaFunds shall deem appropriate for general business purposes of NovaResource,
including, but not limited to, payment of expenses of operation and of cash
amounts payable in connection with acquisitions. Amounts loaned hereunder shall
be evidenced by journal entries in the general ledgers of NovaFunds and
NovaResource. As between NovaFunds and NovaResource, no separate documentation
of such amounts shall be required.

2. Compliance With Bank Loan Requirements. All loans made hereunder
shall be subject to the requirements imposed on NovaCare, Inc. and its
subsidiaries pursuant to the credit agreement dated May 27, 1994, as
subsequently and hereafter amended, by and between NovaCare, Inc. and PNC Bank,
N.A. and certain other banks (the "Credit Agreement"). Capitalized terms used in
this Loan Agreement and not elsewhere defined shall have the meanings set forth
in the Credit Agreement. Funds loaned hereunder shall be used only as permitted
under the Credit Agreement. NovaResource shall take all actions required of a
Borrower under the Credit Agreement with respect to funds loaned hereunder.
<PAGE> 2
3. Repayment. NovaResource shall make repayment of all amounts loaned
hereunder at the earlier of (i) the expiration of the Credit Agreement or as
otherwise required thereunder; (ii) the closing of any public offering of the
capital stock of NovaResource, of any other public or private sale of capital
stock or assets of NovaResource or of any debt refinancing; (iii) ninety days
after receipt of a written demand by NovaFunds for repayment; (iv) the
expiration or earlier termination of this Agreement; (v) the date on which
NovaResource becomes insolvent, or a petition in bankruptcy is filed, or any
similar relief is filed by or against NovaResource, or a receiver is appointed
with respect to any of the assets of NovaResource, or a liquidation proceeding
is commenced by or against NovaResource; or (vi) thirty (30) calendar days after
receipt by NovaResource of a written notice from NovaFunds specifying any
material breach by NovaResource of any covenant or obligation under this
Agreement, if NovaResource has failed to correct or cure such breach hereunder
within such thirty (30) day period.

4. Interest. NovaResource shall pay interest on funds borrowed
hereunder at the rate and on the dates provided for in the Credit Agreement.
Such interest payments shall be made to NovaFunds, which shall be responsible
for making interest payments to the Agent under the Credit Agreement.

5. Term. The term of this agreement shall be three (3) years from the
date first above written, unless sooner terminated in accordance with its terms.

6. Notice. Any notice required or permitted to be given under this
Agreement shall be sent in writing and shall be deemed to be duly given five (5)
days after mailing if mailed to such party, by U.S. certified, return receipt
requested, or when delivered if delivered by other means, to the addresses
indicated below:

If to NovaFunds:

NovaFunds, Inc.
103 Foulk Road, Suite 280
Wilmington, DE 19803
Attention: President

With a Copy to:

NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, PA 19406
Attention: General Counsel

If to NovaResource:

2
<PAGE> 3
NovaResource, Inc.
2621 Van Buren Avenue
Norristown, PA 19403
Attention: President

or to such other addresses as the parties may provide to each other from time to
time.

7. Amendment. This Agreement may not be amended, modified or extended
except by a written instrument signed by an authorized executive officer of both
NovaFunds and NovaResource.

8. Disclaimer of Partnership or Agency. The relationship between
NovaFunds and the NovaResource under this Agreement is solely that of lender and
borrower. Neither party is in any way the legal representative or agent of the
other party for any purpose and neither party shall have the power to assume or
create, in writing or otherwise, any obligation or responsibility of any kind,
express or implied, in the name of or on behalf of the other party.

9. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania, excluding its
principles of conflicts of laws, and each of the parties hereto irrevocably
agrees to submit to the jurisdiction and venue of the courts of the Commonwealth
of Pennsylvania.

10. Dispute Resolution.

10.1 Arbitration. The parties shall attempt amicably to resolve
disagreements by negotiating with each other. In the event that the matter is
not amicably resolved through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be settled exclusively by binding arbitration, which shall be conducted
by a single arbitrator in the Philadelphia, PA area, in accordance with the
J-A-M-S/ENDISPUTE Streamlined (in the case of a dispute within the scope of the
Streamlined Rules and Procedures) or Comprehensive Arbitration Rules and
Procedures (the "Rules"). The parties agree that notwithstanding anything to the
contrary contained in the Rules, the arbitrator shall not award consequential,
exemplary, incidental, punitive or special damages.

10.2 Procedure. It is agreed that if any party shall desire relief
of any nature whatsoever from any other party as a result of any Controversy,
such party will initiate such arbitration proceedings within a reasonable time,
but in no event more than twelve (12) months after the facts underlying said
Controversy first arise or become known to the party seeking relief (whichever
is later). The failure of such party to institute such proceedings within said
period shall be deemed a full waiver of any claim for such relief. The parties
shall bear equally all costs of said arbitration (other than their own
attorney's fees and costs). The parties agree that the decision and award of the
Arbitrator shall be final and conclusive upon the parties, in lieu of all other
legal, equitable or judicial

3
<PAGE> 4
proceedings between them, and that no appeal or judicial review of the award or
decision of the Arbitrator shall be taken, but that such award or decision may
be entered as a judgment and enforced in any court having jurisdiction over the
party against whom enforcement is sought.

11. Waiver. Any failure of NovaFunds to enforce, at any time or for any
period of time, any of the provisions under this Agreement shall not be
construed as a waiver of the right of NovaFunds to enforce such provisions
unless said waiver is in writing, and signed by an authorized executive officer
of NovaFunds.

12. Survival. NovaResource recognizes and agrees that its obligations
under Section 10 of this Agreement shall survive the termination of this
Agreement and NovaResource shall be bound by such obligations after termination
hereof.

13. Separability of Provisions. Each provision of this Agreement shall
be considered separable and if for any reason any provision or provisions herein
are determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of this Agreement or affect those
portions of this Agreement which are valid.

14. Entire Agreement. This Agreement, the exhibits hereto and the
documents referenced herein, constitute the entire agreement between the parties
hereto, and there are no representations, warranties, covenants or obligations
except as set forth herein. This Agreement supersedes all prior or
contemporaneous agreements, understandings, negotiations and discussions,
written or oral, of the parties hereto, relating to any transaction contemplated
by this Agreement. Nothing in this Agreement is intended or shall be construed
to confer upon or to give any person other than the parties hereto any rights or
remedies under or by reason of this Agreement.

15. Enumeration and Headings. The enumeration and headings contained in
this Agreement are for convenience of reference only and are not intended to
have any substantive significance in interpreting this Agreement.

16. Assignment. NovaResource shall not assign any interest in this
Agreement by merger, consolidation, operation of law or otherwise without the
prior written consent of an authorized executive officer of Nova Funds.

4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the day and year first written above.

ATTEST: NOVAFUNDS

________________________________ By: _________________________ (SEAL)

ATTEST: NOVARESOURCE

________________________________ By: _________________________ (SEAL)

<PAGE> 1
EXHIBIT 10(q)

SUBLEASE

1. PARTIES.

This Sublease, dated as of June 4, 1997 is made between NovaCare, Inc.,
a Delaware corporation ("Sublessor") and NovaCare Employee Services
("Sublessee").

2. MASTER LEASE.

By lease dated June 4, 1997, by and between VAN BUREN ASSOCIATES, L.P.
("Lessor") and Sublessor (the "Lease"), and amended on June 20, 1997,
Landlord leased to Tenant a total of 29,945 square feet of rentable
area ("Master Premises") of a multi-tenant building (the "Building")
located at 2621 Van Buren Avenue, Norristown, Pennsylvania 19403, in
Lower Providence Township, Montgomery County, Pennsylvania, under
certain terms, covenants, conditions and agreements for a term to
commence on August 1, 1997, and expire July 30, 2004. The Lease and
amendment are herein collectively referenced as the "Master Lease" and
are attached hereto as Exhibit "A."

3. PREMISES.

Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 29,945 rentable square feet designated as Suite 100 and
indicated on the floor plan attached as Exhibit "B."

4. WARRANTY BY SUBLESSOR.

Sublessor warrants and represents to Sublessee that the Master Lease
has not been amended or modified except as expressly set forth herein,
that Sublessor is not now, and as of the commencement of the Term
hereof will not be, in default or breach of any of the provisions of
the Master Lease, and that Sublessor has no knowledge of any claim by
Lessor that Sublessor is in default or breach of any of the provisions
of the Master Lease.

5. TERM AND TERMINATION.

5.1 TERM The Term of this Sublease shall commence on August 1,
1997 ("Commencement Date") and end on July 30, 2004
("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of the Sublease. Possession of
the Premises ("Possession") shall be delivered to Sublessee on
the Commencement Date. If for any reason Sublessor does not
deliver Possession to Sublessee on or before the Commencement
Date, Sublessor shall not be subject to any liability for such
failure, the Termination Date shall not
<PAGE> 2
be extended by the delay, and the validity of this Sublease
shall not be impaired, but rent shall abate until delivery of
Possession. Notwithstanding the foregoing, if Sublessor has
not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter or
before delivery of Possession, Sublessee may give written
notice to Sublessor of Sublessee's intention to cancel this
Sublease. Said notice shall set forth an effective date for
such cancellation which shall be at least ten (10) days after
delivery of said notice to Sublessor. If Sublessor delivers
Possession to Sublessee on or before such effective date, this
Sublease shall remain in full force and effect. If Sublessor
fails to deliver Possession to Sublessee on or before such
effective date, this Sublease shall be canceled, in which case
all consideration previously paid by Sublessee to Sublessor on
account of this Sublease shall be returned to Sublessee, this
Sublease shall thereafter be of no further force or effect,
and Sublessor shall have no further liability to Sublessee on
account of such delay or cancellation. If Sublessor permits
Sublessee to take possession prior to the Commencement Date,
such early Possession shall not advance the Termination Date
but Sublessee shall be subject to the provisions of this
Sublease as of such date, including without limitation the
payment of rent.

6. RENT.

6.1 MINIMUM RENT. Sublessee shall pay to Sublessor as minimum
rent, without deduction, set off, notice or demand, at 1016
West Ninth Avenue, King of Prussia, PA 19406 or at such other
place as Sublessor shall designate from time to time by notice
in writing to Sublessee (i) during the period from the
Commencement Date through May 31, 1998, $ 33,952.62 per month;
(ii) during the period from June 1, 1998 through July 31,
2002, $ 38,678.96 per month; (iii) during the period from
August 1, 2002 through July 31, 2004 $ 41,174.37 per month. If
the Term begins or ends on a day other than the first or last
day of a month, the rent for the partial month shall be
prorated on a per diem basis based on a 360 day year.

6.2 OPERATING COSTS. If the Master lease requires Sublessor to pay
Lessor all or a portion of the taxes, insurance, maintenance
costs or other expenses of operating the building and/or
project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance,
then Sublessee shall pay to Sublessor all of the amounts
payable by Sublessor for Operating Costs incurred during the
Term. Such additional rent shall be payable as and when
Operating Costs are payable by Sublessor to Lessor. If the
Master Lease provides for the payment by Sublessor of
Operating Costs on the basis of an estimate thereof, then as
and when adjustments between estimated and actual Operating
Costs are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder

2
<PAGE> 3
shall be adjusted in a like manner; and if any such adjustment shall
occur after the expiration or earlier termination of the Term, then the
obligations of Sublessor and Sublessee under this Subsection 6.2 shall
survive such expiration or termination. Sublessor shall, upon request
by Sublessee, furnish Sublessee with copies of all statements submitted
by Lesser of actual or estimated Operating Costs during the Term.

7. USE OF PREMISES.

The Premises shall be used and occupied only for General Office Use and
for no other use or purpose.

8. ASSIGNMENT AND SUBLETTING.

Sublessee shall not assign this Sublease or further Sublet all or any
part of the Premises without the prior written consent of Sublessor
(and the consent of Lessor, if such is required under the terms of the
Master Lease).

9. OTHER PROVISIONS OF SUBLEASE.

All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if Sublessor were
the lessor thereunder, Sublessee the lessee thereunder, and the
Premises the Master Premises. Sublessee assumes and agrees to perform
the lessee's obligations under the Master Lease during the Term to the
extent that such obligations are applicable to the Premises except that
the obligation to pay rent to Lessor under the Master Lease shall be
considered performed by Sublessee to the extent and in the amount rent
is paid to Sublessor in accordance with Section 6 of this Sublease.
Sublessee shall not commit or suffer any act or omission that will
violate any of the provisions of the Master Lease. Sublessor shall
exercise due diligence in attempting to cause Lessor to perform its
obligations under the Master Lease for the benefit of Sublessee. If the
Master Lease terminates, this Sublease shall terminate and the parties
shall be relieved of any further liability or obligation under this
Sublease; provided, however, that if the Master Lease terminates as a
result of a default or breach by Sublessee under this Sublease and/or
the Master Lease, then the Sublessee shall be liable to the Sublessor
for all damages suffered as a result of such termination.
Notwithstanding the foregoing, if the Master Lease gives Sublessor any
right to terminate the Master Lease in the event of the partial or
total damage, destruction, or condemnation of the Master Premises or
the building or project of which the Master Premises are a part, the
exercise of such right by Sublessor shall not constitute a default or
breach hereunder.

10. BROKER PARTICIPATION.

3
<PAGE> 4
Sublessor and Sublessee warrant and represent that they have dealt with
no real estate broker in connection with this Sublease.

4
<PAGE> 5
11. ATTORNEY'S FEES.

If Sublessor or Sublessee shall commence an action against the other
arising out of or in connection with this Sublease the prevailing party
shall be entitled to recover its costs of suit and reasonable
attorneys' fees.

SUBLESSOR: NOVACARE, INC. SUBLESSEE: NOVACARE EMPLOYEE SERVICES

By: /s/ By: /s/
------------------------ ----------------------------------

5
<PAGE> 6
FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is made
as of the 9th day of July, 1997 by and between VAN BUREN ASSOCIATES,
L.P. (hereinafter called "Landlord") and NOVACARE, INC. (hereinafter called
"Tenant").

BACKGROUND

A. Landlord and Tenant entered into that certain Agreement of Lease
dated June , 1997 (the "Lease") for certain space consisting of 26,285
rentable square feet on the first floor known as Suite (the "Existing
Premises") of the building located at 2621 Van Buren Avenue, Lower Providence
Township, PA.

B. Landlord and Tenant desire to amend the Lease to include additional
premises adjacent to the Existing Premises.

C. All capitalized terms shall have the meanings given them in the
Lease unless otherwise defined herein.

NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) and
for other good and valuable consideration, Landlord and Tenant hereby agree as
follows:

1. From and after the date hereof, Landlord hereby leases to Tenant
additional space consisting of approximately 3,660 rentable square feet (the
"Additional Premises"). The Existing Premises and the Additional Premises are
more particularly described on the cross-hatched area on the floor plan annexed
hereto as Exhibit "A". Exhibit "A" supersedes and replaces the existing Exhibit
"A" to the Lease in its entirety. All references to Demised Premises in the
Lease shall hereafter mean the Existing Premises and the Additional Premises
and will comprise a total of approximately 29,945 rentable square feet.

2. The Rent Rider referenced in Section 3(a) of the Lease and attached
thereto is deleted in its entirety and the Rent Rider attached hereto is
substituted in its place. Tenant agrees that the minimum rent set forth on the
Rent Rider for months 1-10 has been calculated only on the Existing Premises
for such period. In the event of a default hereunder, the rent payable for
months 1-10 shall include minimum rent on the entire Premises, for a total
monthly minimum rent of $38,678.96.

3. Section 4(A)(iii) "Tenant's Fraction" is hereby amended by adding
the following at the end thereof.

Effective December 1, 1997, Tenant shall be obligated to commence
the payment of Operating Expenses on the entire Demised Premises. Accordingly,
effective December 1, 1997, Tenant's Fraction shall be 29,945/46,000. In the
event of a default hereunder, Tenant's Fraction shall automatically be deemed
to be 29,945/46,000, from and after the date of default.

-1-
<PAGE> 7
4. Section 20, Landlord Improvement, is hereby amended to provide
that Landlord's obligations to complete certain improvements to the Demised
Premises shall include the Additional Premises in accordance with the plans and
specifications attached hereto as Exhibit "B".

5. Except as modified herein, all of the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized representatives, the day and year first
above written.

LANDLORD:

VAN BUREN ASSOCIATES, L.P.

By: Bergen of Valley Forge, Inc., its
general partner

By: /s/ Arthur P. Pasquarella
-----------------------------
Date: 7/9/97
--------------------------

TENANT:

NOVACARE, INC.

By: /s/ Robert E. Healy, Jr.
-----------------------------
Date: 6/20/97
--------------------------

-2-
<PAGE> 8
RENT RIDER

<TABLE>
<CAPTION>
PERIOD MONTHLY ANNUALLY
------ ------- --------
<S> <C> <C>

Months 1-10 $33,952.62 $407,431.45

Months 10-60 $38,678.96 $464,147.50

Months 61-84 $41,174.37 $494,092.50

</TABLE>

-3-
<PAGE> 9
6/3/97

AGREEMENT OF LEASE

BETWEEN

VAN BUREN ASSOCIATES, L.P.

AS LANDLORD

AND

NOVACARE INC.

AS TENANT

<PAGE> 10
OFFICE LEASE

LEASE made this 12th day of June, 1997 by and between VAN BUREN ASSOCIATES,
L.P. (hereinafter called "LANDLORD"), and NOVACARE INC., a Delaware Corporation
(hereinafter called "TENANT").

WITNESSETH, THAT:

1. DEMISED PREMISES. Landlord, for the term and subject to the provisions
and conditions hereof, leases to Tenant and Tenant accepts from Landlord, the
space consisting of 26,285 rentable square feet on the FIRST floor known as
Suite (hereinafter referred to as the "DEMISED PREMISES") of the building
known as 2621 VAN BUREN AVENUE located in the VALLEY FORGE CORPORATE CENTER,
LOWER PROVIDENCE TOWNSHIP in NORRISTOWN, PENNSYLVANIA (hereinafter referred to
as the "BUILDING"), and more particularly described by the cross-hatched area on
the floor plans annexed herein as Exhibit "A", to be used by Tenant for the
purpose of GENERAL OFFICE ADMINISTRATION and for no other purpose.

2. TERM. Tenant shall use and occupy the Demised Premises for a term of
SEVEN (7) years and ZERO (0) months, commencing on the FIRST day of AUGUST, 1997
and ending on the THIRTIETH day of JULY, 2004 unless sooner terminated as herein
provided.

3. MINIMUM RENT.

(a) See Rent Rider attached. The first installment to be payable on the
execution of this Lease and subsequent installments to be payable on the first
day of each successive month of term hereof following the first month of such
terms.

(b) If the term of this Lease begins on a day other than the first day of
a month, rent from such day until the first day of the following month shall be
prorated at the rate of one-thirtieth or one-thirty first of the fixed monthly
rental for each day of the first full calendar month of the term hereof (and, in
such event, the installment of rent paid at execution hereof shall be applied to
the rent due for the first full calendar month of the term hereof).

(c) All rent and other sums due to Landlord hereunder shall be payable to
BR MANAGEMENT CORPORATION, AGENT FOR VAN BUREN ASSOCIATES, L.P. and mailed to
the office of Landlord at 1500 MARKET STREET, 3000 CENTRE SQUARE WEST,
PHILADELPHIA, PA 19102, or to such other party or at such other address as
Landlord may designate, from time to time, by written notice to Tenant, without
demand and without deduction, set-off or counterclaim (except to the extent
demand or notice shall be expressly provided for herein).

(d) If Landlord, at any time or times, shall accept said rent or any
other sum due to it hereunder after the same shall become due and payable such
acceptance shall not excuse delay upon subsequent occasions, or constitute or be
construed as, a waiver of any of Landlord's rights hereunder.

4. ESCALATION IN TAXES, OPERATING COSTS, COSTS OF LIVING: COST OF
ELECTRICITY.

(A) Definitions. As used in this Section 4, the following terms shall be
defined as hereinafter set forth.

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<PAGE> 11
(i) "TAXES" shall mean all real estate taxes and assessments,
general and special, ordinary or extraordinary, foreseen or unforeseen, imposed
upon the Building or with respect to the ownership thereof and the parcel of
land appurtenant thereto. If, due to a future change in the method of taxation,
any franchise, income, profit or other tax, however designated, shall be levied
or imposed in substitution in whole or in part, for (or in lieu of) any tax
which would otherwise be included within the defined herein.

(ii) "BASE YEAR OPERATING EXPENSES" shall be $3.75 per square
foot, and the Base Year for Operating Expenses shall be calendar year 1997.

(iii) "TENANT'S FRACTION" shall be a fraction, the numerator of
which is the Demised Rentable Square Feet and the denominator of which is the
total Rentable Square Feet of office space in the Building. The Tenant's
Fraction as of the date of this Lease is 26,285/46,000. Tenant's Fraction shall
be adjusted if the total office space in the Building increases or decreases
and Landlord shall notify Tenant in writing when the total office space in the
building changes.

(iv) (a) "OPERATING EXPENSES" shall mean except as hereinafter
limited, Landlord's actual out-of-pocket expenses in respect of the operation,
maintenance and management of the Building (after deducting any reimbursement,
discount, credit, reduction or other allowance received by Landlord) and shall
include, without limitation: (1) wages and salaries (and taxes imposed upon
employers with respect to such employed by Landlord for rendering service in
the normal operation, cleaning, maintenance, and repair of the Building; (2)
contract costs of contractors hired for the operation, maintenance and repair
of the Building; (3) the cost of steam, electricity, water and sewer and other
utilities (except for electricity, which is separately charged by Landlord as
herein provided) chargeable to the operation and maintenance of the Building;
(4) cost of insurance for the Building including fire and extended coverage,
elevator, boiler, sprinkler leakage, water damage, public liability and
property damage, plate glass, and rent protection, but excluding any charge for
increased premiums due to acts or omissions of other occupants of the Building
or because of extra risk which are reimbursed to Landlord by such other
occupants; (5) supplies; (6) legal and accounting expenses; (7) real estate
taxes; and (8) management expense; (9) the cost of any capital improvements
made for the purpose of reducing Operating Expenses or which may be required by
governmental authority under any governmental law or regulation that was not
applicable to the Building as of the date of this Lease, which cost shall be
amortized over such reasonable period as Landlord shall determine, together
with interest on the unamortized balance at the rate of two (2%) percent per
annum in excess of the Prime Rate being charge by PNC Bank, N.A. as of the date
on the first invoice presented by the contractor performing the capital
improvements or such higher rate as may have been paid by the Landlord on funds
borrowed for the purpose of constructing such capital improvements;

The term "OPERATING EXPENSES" shall not include: (1) the cost of redecorating
or repairing not provided on a regular basis to tenants of the Building; (2)
except to the extent expressly provided in (iv)(a) above; the cost of any
repair or replacement item which, by standard accounting practice, should be
capitalized; (3) any charge for depreciation, interest or rents paid or
incurred by Landlord; (4) any charge for Landlord's income tax, excess profit
taxes, franchise taxes or similar taxes on Landlord's business; (5) commissions.

(b) In determining Operating expenses for any year, if less
than ninety-five percent (95%) of the Building rentable area shall have been
occupied by tenants at any time during such year, Operating Expenses shall be
deemed for such year to be an amount equal to the like expenses which Landlord
reasonably determines would normally be incurred had such occupancy been
ninety-five percent (95%) throughout such year.

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<PAGE> 12
(c) In determining Operating Expenses for any year,
Landlord shall allocate Operating Expenses for the Building and the land
between the office space and warehouse space in the Building, and Tenant's
Fraction shall be applied to those Operating Expenses allocated to the office
space.

(vi) "DEMISED RENTABLE SQUARE FEET" shall mean 26,285 square
feet.

(vii) "RENTABLE SQUARE FEET IN THE BUILDING" shall mean
46,000 square feet.

(B) Escalation of Operating Expenses.

(i) For and with respect to each calendar year of
the term of this Lease (and any renewals or extensions thereof) subsequent to
the Base Year for Operating Expenses, there shall accrue, as additional rent, an
amount equal to the product obtained by multiplying the Tenant's Fraction by the
amount of the increase, if any, of Operating Expenses for such year over the
Base Year Operating Expenses (appropriately prorated for any partial calendar
year included within the beginning and end of the term). Landlord agrees to cap
the annual increase in Operating Expenses at six (6%) percent per year
cumulatively over 1998 Operating Expenses excluding all expenses that cannot be
controlled by Landlord i.e. real estate taxes, insurance; which shall not be
capped as aforesaid.)

(ii) Landlord shall furnish to Tenant no later than
March 31st after the beginning of each calendar year of the term hereof
subsequent to the Base Year for Operating Expenses;

(a) A statement (the "EXPENSE STATEMENT")
setting forth (1) Operating Expenses for the previous calendar year, and (2)
Tenant's Fraction of the Operating Expenses for the previous calendar year; and

(b) A statement of Landlord's good faith
estimate of Operating Expenses, and the amount of Tenant's Fraction thereof
(the "ESTIMATED SHARE"), for the current calendar year.

(iii) Beginning with the next installment of minimum
rent due after delivery of the foregoing statements to Tenant, Tenant shall pay
to Landlord, on account of its share of Operating Expenses (or Landlord shall
pay to Tenant, if the following quantity is negative):

(a) One-twelfth of the Estimated Share
multiplied by the number of full or partial calendar months elapsed during the
current calendar year up to and including the month payment is made, plus any
amounts due from Tenant to Landlord on account of Operating Expenses for prior
periods of time, less:

(b) The amount, if any, by which the
aggregate of payments made by Tenant on account of Operating Expenses for the
previous calendar year exceed those actually due as specified in the Expense
Statement.

(iv) On the first day of each succeeding month up to
the time Tenant shall receive a new Expense Statement and statement of Tenant's
Estimated Share, Tenant shall pay to Landlord, on account of its share of
Operating Expenses, one-twelfth of the then current Estimated Share. Any
payment due from Tenant to landlord, or any refund due from Landlord to Tenant,
on account of Operating Expenses not yet determined as of the expiration of the
term hereof shall be made within twenty (20) days after submission to Tenant
of the next Expense Statement.

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<PAGE> 13
(v) Provided Tenant is not in Default of the Lease, Tenant may
audit Landlord's books and related records for purposes of verifying the
accuracy of Landlord's Expense Statement, no later than six (6) months after
Tenant receives Landlord's Expense Statement. Tenant must provide Landlord with
five (5) business days advanced written notice.

5. UTILITIES SEPARATELY CHARGED TO DEMISED PREMISES. Tenant shall be
responsible for all utilities (including gas and electric) which are consumed
within the Demised Premises. Tenant shall pay for the consumption of such
utilities based on its metered usage. Utility bills shall be paid by Tenant
within ten (10) days after the receipt and non-payment or late payment of such
bills shall be considered a default under this Lease.

6. SERVICES. Landlord agrees that it shall:

(a) Provide Tenant and its employees and agents shall have access
to the Demised Premises at all times, subject to compliance with access control
measures as may be in effect for the Building.

(b) Provide water for drinking, lavatory and toilet purposes drawn
through fixtures installed by Landlord; and

(c) Furnish the Demised Premises with electric for heating, hot
and chilled water and air-conditioning. Tenant shall not install or operate in
the Demised Premises any electrically operated equipment or other machinery,
other than typewriters, adding machine and other machinery and equipment
normally used in modern offices, or any plumbing fixtures, without first
obtaining the prior written consent of the Landlord. Landlord may condition
such consent upon the payment by Tenant of additional rent as compensation for
the additional consumption of water and/or electricity occasioned by the
operation of said equipment, fixtures, or machinery.

Tenant, at Tenant's sole expense, shall be responsible for the installation,
maintenance, and use of any equipment or any kind or nature whatsoever which
would or might necessitate any changes, replacements, or additions to the water
system, plumbing system, heating system, air-conditioning system, or the
electrical system servicing the Demised Premises or any other portion of the
Building without the prior written consent of the Landlord, and in the event
such consent is granted, such replacement, changes or additions shall be paid
for by Tenant. It is understood that Landlord does not warrant that any of the
services referred to in this Section 7 will be free from interruption from
causes beyond the reasonable control of Landlord. No interruption of service
shall ever be deemed an eviction or disturbance of Tenant's use and possession
of the Demised Premises or any part thereof or render Landlord liable to Tenant
for damages by abatement or rent or otherwise relieve Tenant from performance
of Tenant's obligations under this Lease, unless Landlord, after reasonable
notice, shall willfully and without cause fail or refuse to take action within
its control. If service to the Demised Premises has not been restored within
five (5) days from the day service is interrupted, rent shall abate until
service is restored, provided Landlord has failed to use commercially
reasonable efforts to restore service.

7. CARE OF DEMISED PREMISES. Tenant agrees, on behalf of itself, its
employees and agents, that it shall:

(a) Comply at all times with any and all federal, state and local
statutes, regulations, ordinances, and other requirements of any of the
constituted public authorities relating to its use and occupancy of the Demised
Premises.

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<PAGE> 14

(b) Upon prior notice, except in an emergency, give Landlord access to
the Demised Premises at all reasonable times, without charge or diminution of
rent, to enable Landlord (i) to examine the same and to make such repairs,
additions and alterations as Landlord may be permitted to make hereunder or as
Landlord may deem advisable for the preservation of the integrity, safety and
good order of the Building or any part thereof; and (ii) upon reasonable
notice, to show the Demised Premises to prospective mortgagees and purchasers
and, during the six (6) months prior to expiration of the term, to prospective
tenants;

(c) Keep the Demised Premises in good order and condition and replace
all glass broken by Tenant, its agents, employees or invitees with glass of the
same quality as that broken, except for glass broken by fire and extended
coverage type risks, and commit no waste in the Demised Premises;

(d) Upon the termination of this Lease in any manner whatsoever,
remove Tenant's goods effects and those of any other person claiming under
Tenant, and quit and deliver up the Demised Premises to Landlord peaceably and
quietly in as good order and condition at the inception of the term of this
Lease or as the same hereafter may be improved by Landlord or Tenant,
reasonable use and wear thereof, damage from fire and extended coverage type
risks, and repairs which are Landlord's obligation excepted. Goods and effects
not removed by Tenant at the termination of this Lease, however terminated,
shall be considered abandoned and Landlord may dispose of and/or store the same
as it deems expedient, the cost thereof to be charged to Tenant;

(e) Except as permitted under Paragraph 29, Signage, not place signs
on the Demised Premises except on doors and then only of a type and with
lettering and text approved by Landlord. Identification of Tenant and Tenant's
location shall be provided in a directory in the Building Lobby;

(f) Not overload, damage or deface the Demised Premises or do any act
which might make void or voidable any insurance on the Demised Premises or the
Building or which may render an increased or extra premium payable for
insurance (and without prejudice to any right or remedy of Landlord regarding
this subparagraph, Landlord shall have the right to collect from Tenant, upon
demand, any such increase or extra premium). Tenant shall maintain at its own
sole cost adequate insurance coverage for all of its equipment, furniture,
supplies and fixtures and provide Landlord with certificates evidencing such
coverage;

(g) Not make any alteration of or addition to the Demised Premises
without the prior written approval of Landlord (except for work of a decorative
nature);

(h) Not install or authorize the installation of any coin operated
vending machine, except for the dispensing of cigarettes, coffee, and similar
items to the employees of Tenant for consumption upon the Demised Premises; and

(i) Observe the rules and regulations annexed hereto as Exhibit "C",
as the same may from time to time be amended by Landlord for the general
safety, comfort and convenience of Landlord, occupants and tenants of the
Building.

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<PAGE> 15

8. SUBLETTING AND ASSIGNING. Tenant shall not assign this Lease or
sublet all or any portion of the Demised Premises without first obtaining
Landlord's prior written consent thereto. If such consent is given, it will not
release Tenant from its obligations hereunder and which will not be deemed a
consent to any further subletting or assignment. If Landlord consents to any
such subletting or assignment, it shall nevertheless be a condition to the
effectiveness thereof that a fully executed copy of the sublease or assignment
be furnished to Landlord and that any assignee assume in writing all
obligations of Tenant hereunder. Tenant shall not mortgage or encumber this
Lease. Notwithstanding the foregoing provided Tenants remains liable under
this Lease, Tenant may sublet or assign the Lease to affiliated entities under
the same ownership as Tenant without Landlord's consent, provided that Landlord
has received notice of the proposed sublease or assignment and the sublessee or
assignee agrees to be bound under the lease.

9. DELAY IN POSSESSION. If Landlord shall be unable to deliver
possession of the Demised Premises to Tenant on the date specified for
commencement of the term hereof because of the holding over or retention of
possession of any tenant or occupant, or if any repairs, improvements or
decoration of the Demised Premises are not completed, or for any other reason.
Landlord shall not be subject to any liability to Tenant. Under such
circumstances, the rent reserved and covenanted to be paid herein shall not
commence until possession of Demised Premises is given or until Landlord shall
give written notice to Tenant that the Demised Premises are available for
occupancy by Tenant, whichever shall first occur, and no such failure to give
possession shall in any other respect affect the validity of this Lease or any
obligation to extend the term of this Lease.

10. FIRE OR CASUALTY. In case of damage to the Demised Premises or the
Building by fire or other casualty, Tenant shall give immediate notice thereof
to Landlord. Landlord shall thereupon cause the damage to be repaired with
reasonable speed, subject to delays which may arise by reason of adjustment of
loss under insurance policies and for delays beyond the reasonable control of
Landlord. To the extent and for the time that the Demised Premises are thereby
rendered untenantable, the rent shall proportionately abate. If the Demised
Premises cannot be repaired within 120 days, or if fifty (50%) percent or more
of the Demised Premises is rendered untenantable, then Tenant may terminate the
Lease by providing Landlord with thirty (30) days prior Notice to Terminate not
later than thirty (30) days after Landlord notifies Tenant of the condition of
the Demised Premises.

In the event the damage shall be so extensive that Landlord shall decide not to
repair or rebuild, or if any mortgagee, having the right to do so shall direct
that the insurance proceeds are to be applied to reduce the mortgage debt
rather than to the repair of such damage, this Lease shall, at the option of
Landlord, exercisable by written notice to Tenant given within thirty (30) days
after Landlord is notified of the casualty, be terminated as of a date
specified in such notice (which shall not be more than ninety (90) days
thereafter), and the rent (taking into account any abatement as aforesaid)
shall be adjusted to the termination date. Thereafter, Tenant shall promptly
vacate the Demised Premises.

11. LIABILITY. Tenant agrees that Landlord and its building manager
and their officers, employees and agents shall not be liable to Tenant for, and
Tenant hereby releases said parties, from any personal injury or damage to or
loss of personal property in the Demised Premise from any cause whatsoever
unless and to the extent that such damage, loss or injury is the result of the
negligence of Landlord, its building manager, or their officers, employees or
agents, and Landlord and its building manager and their officers or employees
shall not be liable to Tenant for any such damage or loss whether or not the
result of their negligence to the extent Tenant is compensated therefor by
Tenant's insurance. Tenant shall and does hereby indemnify and hold Landlord
harmless of and from all loss or liability incurred by Landlord in connection
with any failure of Tenant to fully perform its obligations under this Lease
and in connection with any personal injury or damage of any type or nature
occurring in or resulting out of Tenant's use of the Demised Premises, unless
due to Landlord's fault.

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<PAGE> 16
12. EMINENT DOMAIN. If the whole or a substantial part of the
Building shall be taken or condemned for a public or quasi-public use under a
statute or by right of eminent domain or private purchase in lieu thereof by
any competent authority, Tenant shall have no claim against Landlord and shall
not have any claim or right to any portion of the amount that may be awarded as
damages or paid as a result of any such condemnation or purchase; and all right
of the Tenant to damages therefore are hereby assigned by Tenant to Landlord.
The foregoing shall not, however, deprive Tenant of any separate award for
moving expenses or which would not reduce the award payable to Landlord. Upon
the date the right to possession shall vest in the condemning authority, this
Lease shall cease and terminate with rent adjusted to such date, and Tenant
shall have no claim against Landlord for the value of any unexpired term of
this Lease.

13. INSOLVENCY.

(a) The appointment of a receiver or trustee to take possession
of all or a portion of the assets of Tenant, or (b) an assignment by Tenant for
the benefit of creditors, or (c) the institution by or against Tenant of any
proceedings for bankruptcy or reorganization under any state or federal law
(unless in the case of involuntary proceedings, the same shall be dismissed
within sixty (60) days after institution), or (d) any execution issued against
Tenant which is not stayed or discharged within fifteen (15) days after
issuance of any execution sale of the assets of Tenant, shall constitute a
breach of this Lease by Tenant. Landlord in the event of such a breach, shall
have, without need of further notice, the rights enumerated in Section 15
herein.

14. DEFAULT.

(a) If Tenant shall fail to pay rent or any other sum payable to
Landlord hereunder, or if Tenant shall fail to perform or observe any of the
other covenants, terms or conditions contained in this Lease within thirty (30)
days of receipt of notice from Landlord of such failure or (except with respect
to the failure to pay rent or any other sum) such longer period as is
reasonably required to correct any such default, provided Tenant promptly
commences and diligently continues to effectuate a cure, but in any event
within forty-five (45) days after written notice thereof by Landlord), or if
any of the events specified in Section 14 occur, or if Tenant vacates or
abandons the Demised Premises during the term hereof or removes or manifests an
intention to remove any of Tenant's goods or property therefrom other than in
the ordinary and usual course of Tenant's business, then and in any of said
cases (notwithstanding any former breach of covenant or waiver thereof in a
former instance), Landlord, in addition to all other rights and remedies
available to it by law or equity or by any other provisions hereof, may at any
time thereafter:

(i) upon three (3) days notice to Tenant, declare to be
immediately due and payable, the rent and other charges herein reserved for the
balance of the term of this Lease (taken without regard to any early
termination of said term on account of default), a sum equal to the Accelerated
Rent Component (has hereinafter defined), and Tenant shall remain liable to
Landlord as hereinafter provided; and/or

(ii) whether or not Landlord has elected to recover the
Accelerated Rent Component, terminate this Lease on at least five (5) days
notice to Tenant and, on the date specified in said notice, this Lease and the
term hereby demised and all rights of Tenant hereunder shall expire and
terminate and Tenant shall thereupon quit and surrender possession of the
Demised Premises to Landlord in the condition elsewhere herein required and
Tenant shall remain liable to Landlord as hereinafter provided.

(b) For purposes herein, the Accelerated Rent Component shall mean
the aggregate of:

(i) all rent and other charges, payments, costs and expenses due
from Tenant to Landlord and in arrears at the time of the election of Landlord
to recover the Accelerated Rent Component;

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<PAGE> 17
(ii) the minimum rent reserved for the then entire unexpired
balance of the term of this Lease (taken without regard to any early
termination of the term by virtue of any default), plus all other charges,
payments, costs and expenses herein agreed to be paid by Tenant up to the end
of said term which shall be capable of precise determination at the time of
Landlord's election to recover the Accelerated Rent Component; and

(iii) Landlord's good faith estimate of all charges,
payments, costs and expenses herein agreed to be paid by Tenant up to the end
of said term which shall not be capable to precise determination as aforesaid
(and for such purposes no estimate of any component of the additional rent to
accrue pursuant to the provisions of Section 4 hereof shall be less than the
amount which would be due if each such component continued at the highest
monthly rate or amount in effect during the twelve (12) months immediately
preceding the default).

(c) In any case in which this Lease shall have been terminated, or
in any case in which Landlord shall have elected to recover the Accelerated
Rent Component and any portion of such sum shall remain unpaid, Landlord may
without further notice, enter upon and repossess the Demised Premises, by
force, summary proceedings, ejectment or otherwise, and may dispossess Tenant
and remove Tenant and all other persons and property from the Demised Premises
and may have, hold and enjoy the Demised Premises and the rents and profits
therefrom. Landlord may, in its own name, as agent for Tenant, if this Lease
has not been terminated, or in its own behalf, if this Lease has been
terminated, relet the Demised Premises or any part thereof for such term or
terms (which may be greater or less than the period which would otherwise have
constituted the balance of the term of this Lease) and on such terms (which may
include concessions of free rent) as Landlord in its sole discretion may
determine. Landlord may, in connection with any such reletting, cause the
Demised Premises to be decorated, altered, divided, consolidated with other
space or otherwise changed or prepared for reletting. No reletting shall be
deemed a surrender and acceptance of the Demised Premises.

(d) Tenant shall, with respect to all periods of time up to and
including the expiration of the term of this Lease (or what would have been the
expiration date in the absence of default or breach) remain liable to Landlord
as follows:

(i) In the event of termination of this Lease on account of
Tenant's default or breach, Tenant shall remain liable to Landlord for damages
equal to the rent and other charges payable under this Lease by Tenant as if
this Lease were still in effect, less the net proceeds of any reletting after
deducting all costs incident thereto (including without limitation all
repossession costs, brokerage and management commission, operating and legal
expenses and fees, alteration costs and expense of preparation for reletting)
and to the extent such damages shall not have been recovered by Landlord by
virtue of payment by Tenant of the Accelerated Rent Component (but without
prejudice to the right of Landlord to demand and receive the Accelerated Rent
Component), such damages shall be payable to Landlord monthly upon
presentation to Tenant of a bill for the amount due.

(ii) In the event and so long as this Lease shall not have
been terminated after default or breach by Tenant, the rent and all other
charges payable under this Lease shall be reduced by the net proceeds of any
reletting by Landlord (after deducting all costs incident thereto as above set
forth) and by any portion of the Accelerated Rent Component paid by Tenant to
Landlord, and any amount due to Landlord shall be payable monthly upon
presentation to Tenant of a bill for the amount due.

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<PAGE> 18
(e) In the event Landlord shall, after default or breach by
Tenant, recover the Accelerated Rent Component from Tenant and it shall be
determined at the expiration of the term of this Lease (taken without regard to
early termination for default) that a credit is due Tenant because the net
proceeds of reletting, as aforesaid, plus amounts paid to Landlord by Tenant
exceed the aggregate of rent and other charges accrued in favor of Landlord to
the end of said term, Landlord shall refund such excess to Tenant, without
interest, promptly after such determination.

(f) Landlord shall in no event be responsible or liable for
any failure to relet the Demised Premises or any part thereof, or for any
failure to collect any rent due upon a reletting.

(g) As an additional and cumulative remedy of Landlord in the
event of termination of this Lease by Landlord following any breach or default
by Tenant, Landlord, at its option, shall be entitled to recover damages for
such breach in an amount equal to the Accelerated Rent Component (determined
from and after the date of Landlord's election under this subsection (g) less
the fair rental value of the Demised Premises for the remainder of the term of
this Lease (taken without regard to the early termination) and such damages
shall be payable by Tenant upon demand. Nothing contained in this Lease shall
limit or prejudice the right of Landlord to prove and obtain as damages
incident to a termination of this Lease, in any bankruptcy reorganization or
other court proceedings, the maximum amount allowed by any statute or rule of
law in effect with such damages are to be proved.

(h) INTENTIONALLY OMITTED

(i) Tenant hereby waives all errors and defect of a procedural
nature in any proceedings brought against it by Landlord under this Lease.
Tenant further waives the right to any notices to quit as may be specified in
the Landlord and Tenant Act of Pennsylvania, as amended, and agrees that five
(5) days notice shall be sufficient in any case where a longer period may be
statutorily specified.

(j) If rent or any other sum due from Tenant to Landlord shall
be over due for more than five (5) days after notice from Landlord, it shall
thereafter bear interest at the rate of two points over PNC Bank quoted prime
rate per annum (or, if lower, the highest legal rate) until paid.

15. SUBORDINATION. This Lease is and shall be subject and subordinate
to all the terms and conditions of all underlying mortgages and to all ground or
underlying leases of the entire Building which may now or hereafter be secured
upon the Building, and to all renewals, modifications, consolidations,
replacements and extensions thereof. This clause shall be self-operative and no
further instrument of subordination, Tenant shall execute, within fifteen (15)
days after request, any certificate that Landlord may reasonably require
acknowledging such subordination. Notwithstanding the foregoing, the party
holding the instrument to which this Lease is subordinate shall have the right
to recognize and preserve this Lease in the event of any foreclosure sale or
possessory action, and in such case this Lease shall continue in full force and
effect at the option of the party holding the superior lien, and Tenant shall
attorn to such party and shall execute, acknowledge and deliver any instrument
that has for its purpose and effect the confirmation of such attornment.
Notwithstanding the foregoing, Landlord agrees that if the existing first
mortgage loan encumbering the Property is not satisfied of record on or before
September 1, 1997, Landlord shall use its best efforts to obtain from the holder
of such mortgage a subordination, non-disturbance and attornment agreement
containing terms and conditions acceptable to Landlord, Tenant and the mortgage
holder.

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<PAGE> 19
16. NOTICES. All bills, statements, notices or communications which
Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to an officer
of Tenant or sent by registered, certified mail or an overnight delivery service
addressed to Tenant at the Building, and the time of the giving of such notice
or communication shall be deemed to be the time when the same is delivered to
Tenant or deposited in the mail, as the case may be. Any notice by Tenant to
Landlord must be served by registered, certified mail or an overnight delivery
service addressed to Landlord at the address where the last previous rental
hereunder was payable, or in the case of subsequent change upon notice given, to
the latest address furnished, with copies to Mr. Kieran Sherry, Director of
Facilities, NovaCare Inc., 1016 W. Ninth Avenue, King of Prussia, PA 19406.

17. HOLDING-OVER. Upon the failure of the Tenant to surrender possession of
the premises upon the expiration or sooner termination of this Lease, Tenant
shall pay to Landlord, as liquidated damages, an amounts equal to 150% of the
rent and additional rent required to be paid under this Lease as applied to any
period in which Tenant shall remain in possession after expiration or sooner of
this Lease. Acceptance by Landlord of rent after such expiration or earlier
termination shall not constitute a consent to a holdover hereunder or result in
a renewal. The foregoing provisions of this section are an addition to and do
not affect Landlord's right of reentry or any other rights of Landlord hereunder
or as otherwise provided by law.

18. MISCELLANEOUS.

(a) Tenant represents and warrants that it has not employed any broker
or agent as its representative in the negotiation for or the obtaining of this
Lease, and agrees to indemnify and hold Landlord harmless from any and all cost
or liability for compensation claimed by any broker or agent with whom it has
dealt, except for Smith Mack and Company, Inc. and Preferred Real Estate
Advisors, Inc.

(b) The word "Tenant" as used in this Lease shall be construed to mean
tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed. This Lease shall not inure to
the benefit of any assignee, heir, legal representative, transferee or successor
of Tenant except upon the express written consent or election of Landlord.
Subject to the foregoing limitation, each provision hereof shall extend to and
shall, as the case may require, bind and inure to the benefit of Tenant and its
heirs, legal representatives, successors and assigns.

(c) The term "Landlord" as used in this Lease means the fee owner of
the Building or, if different, the party holding and exercising the right, as
against all others (except space Tenants of the Building) to possession of the
entire Building. Landlord above-named represents that it is the holder of such
rights as of the date of execution hereof. In the event of the voluntary
transfer of such ownership or right to a successor-in-interest of Landlord,
Landlord shall be freed and relieved of all liability and obligation hereunder
which shall thereafter accrue (and, as to any unapplied portion of Tenant's
security deposit, Landlord shall be relieved of all liability therefor upon
transfer of such portion to its successor in interest) and Tenant shall look
solely to such successor in interest for the performance of the covenants and
obligations of the Landlord hereunder (either in terms of ownership or
possessory rights). The successor in interest shall not (i) be liable for any
previous act or omission of a prior landlord; (ii) be subject to any rental
offsets or defenses against a prior landlord; (iii) be liable for any security
not actually received by it. Subject to the foregoing, the provisions hereof
shall be binding upon and inure to the benefit of the successors and assigns of
Landlord. Notwithstanding anything to the contrary contained in this Lease, any
liability of Landlord, its agents, partners or employees, arising out of or in
respect of this Lease, the Demised Premises or the Building, and if Landlord
shall default in the performance of Landlord's obligation under this Lease or
otherwise Tenant shall look solely to the equity of Landlord in its interest in
the Building.

Page - 11

<PAGE> 20
(d) Tenant agrees to execute a memorandum of this Lease in the
form submitted by Landlord, which may be recorded by Landlord. Tenant also
agrees to execute any assignment of this Lease by Landlord, evidencing its
consent to such assignment.

19. LANDLORD IMPROVEMENT. Landlord shall, in a good and workmanlike
manner, cause the Demised Premises to be completed in accordance with the plans
approved by Landlord and Tenant pursuant to Exhibits "A" (Floor Plans) and "B"
(Construction Standards Memorandum) hereof, reserving the right to: (a) make
substitutions of material of equivalent grade and quality when and if any
specified material shall not be readily and reasonably available; (b) make
changes necessitated or by conditions met during the course of construction,
provided that Tenant's approval of any substantial change (and any reduction of
cost incident thereto) shall first be obtained (which approval shall not be
reasonably withheld so long as there shall be general conformity with said
working drawings).

20. WAIVER OF SUBROGATION. Each party hereto hereby waives any and
every claim which arises or which may arise in its favor and against the other
party hereto during the term of this Lease, or any extension or renewal
thereof, for any and all loss of, or damage to, any of its property located
within or upon or constituting a part of the Building, to the extent that such
loss or damage is recovered under an insurance policy or policies and to the
extent such policy or policies contain provisions permitting such waivers of
claims. Each party agrees to request its insurers to issue policies containing
such provisions and if any extra premium is payable therefor, the party which
would benefit from the provision shall have the option to pay such additional
premium in order to obtain such benefit.

21. RENT TAX. If, during the term of this Lease or any renewal or
extension thereof, any tax is imposed upon the privilege of renting or
occupying the Demised Premises or upon the amount of rentals collected
therefor, Tenant will pay each month, as additional rent, a sum equal to such
tax or charge that is imposed for such month, but nothing herein shall be taken
to require Tenant to pay any income, estate, inheritance or franchise tax
imposed upon Landlord.

22. PRIOR AGREEMENT, AMENDMENTS. Neither party hereto has made any
representations or promises except as contained herein or in some further
writing signed by the party making such representation or promise. No other
agreement hereinafter made shall be effective to change, modify, discharge or
effect an abandonment of this Lease, in whole or in part, unless such agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought. Tenant agrees to execute any
amendment to this Lease required by a mortgagee of the Building, which
amendment does not materially adversely affect Tenant's rights or obligation
hereunder.

23. CAPTIONS. The captions of the paragraphs in this Lease are
inserted and included solely for convenience and shall not be considered or
given any effect in construing the provisions hereof.

24. MECHANIC'S LIEN. Tenant shall, within ten (10) days after notice
from Landlord, discharge any mechanic's lien for materials or labor claimed to
have been furnished to the Demised Premises on Tenant's behalf (except for work
contracted for by Landlord) and shall indemnify and hold harmless Landlord from
any loss incurred in connection therewith.

25. LANDLORD'S RIGHT TO CURE. Landlord may (but shall not be
obligated), on five (5) days notice to Tenant (except that no notice need be
given in case of emergency) cure on behalf of Tenant any default hereunder by
Tenant, and the cost of such cure (including any attorney's fees incurred)
shall be deemed additional rent payable upon demand.

Page - 12

<PAGE> 21
26. PUBLIC LIABILITY INSURANCE. Tenant shall at all times during the term
hereof maintain in full force and effect with respect to the Demised Premises
and Tenant's use thereof, comprehensive public liability insurance, naming
Landlord as an additional insured, covering injury to person in amounts at least
equal to Five Million ($5,000,000) Dollars combined single limit bodily injury
and property. Tenant shall lodge with Landlord duplicate originals or
certificates of such insurance at or prior to the commencement date of the term
hereof, together with evidence of paid-up premiums, and shall lodge with
Landlord renewals thereof at least fifteen (15) days prior to expiration.

27. ESTOPPEL STATEMENT. Tenant shall from time to time, within ten (10)
days after request by Landlord, execute, acknowledge and deliver to Landlord a
statement certifying that this Lease is unmodified and in full force and effect
(or that the same is in full force and effect as modified, listing any
instruments or modifications), the dates to which rent and other charges have
been paid, and whether or not, to the best of Tenant's knowledge, Landlord is in
default or whether Tenant has any claims or demands against Landlord (and, if
so, the default, claim and/or demand shall be specified) and such other matters
as requested by Landlord.

28. SIGNAGE: Subject to review and approval of Tenant's signage
specifications by Landlord, and subject to conformance to the applicable zoning
ordinance, Tenant may install its sign on the building adjacent to Tenant's
main entrance and in top position on a monument sign adjacent to Tenant's main
entrance at Tenant's expense.

29. PARKING: Tenant shall be permitted access to and the use of a maximum
of 120 parking spaces.

30. SCOPE OR BUILDING RENOVATIONS: Landlord agrees to complete certain
improvements to the entire Building and site outlined in Exhibit "B",
Construction Standards Memorandum, and the attached Site Plan, Exhibit "D".

31. RESTROOMS: Landlord agrees to refurbish the common area restrooms
located in the vacant area adjacent to the Demised Premises in accordance with
Exhibit "E", Restroom Plan.

32. LANDLORD'S INTEREST: Landlord is executing this Lease in its capacity
as fee owner and holder of a leasehold interests in the Property.

33. COMPLIANCE WITH LAWS AND ORDINANCES: The Tenant agrees that it will,
at its sole cost and expense, promptly fulfill and comply with all laws,
ordinances, regulations and requirements of the City, County, State and Federal
Governments and any and all departments thereof having jurisdiction over the
Building, and of the National Board of Fire Underwriters or any other similar
body now or hereafter constituted, affecting the Tenant's occupancy of the
Premises or the business conducted therein.

34. OPTION TO RENEW: Provided Tenant is not in default of the Lease,
Tenant shall have the Option to renew the Lease for three (3) or five (5) years
upon the expiration date of this Lease. All other terms and conditions of the
Lease shall remain in effect during the renewal period except the Minimum Rent
shall be 95% of the rent being charged for comparable office space in the
Valley Forge area. Tenant must notify Landlord in writing at least nine (9)
months prior to the expiration date of this Lease in order to exercise Tenant's
Option to Renew.

Page - 13
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused this Lease to be executed by their duly authorized representatives the
day and year first above written.

LANDLORD: VAN BUREN ASSOCIATES, L.P.

BY: BERGEN OF VALLEY FORGE, INC.

BY: /s/ Arthur P. Pasquarella
-----------------------------------------
Executive Vice President

DATE:

TENANT: NOVACARE INC.

BY: /s/ Robert E. Healy, Jr.
-----------------------------------------

DATE: 6/3/97

Page - 14

<PAGE> 23
SCHEDULE "A"

RENT RIDER

PERIOD MONTHLY ANNUALLY
------ ------- --------
Months 1 - 60 $33,952.62 $407,431.45
Months 61 - 84 $36,143.11 $433,717.35

Page - 15

<PAGE> 24
EXHIBIT A FLOOR PLAN

Page - 16

<PAGE> 25
EXHIBIT B CONSTRUCTION STANDARDS MEMORANDUM

Page - 17

<PAGE> 26
CONSTRUCTION STANDARDS
MEMORANDUM

PROJECT LOCATION

2621 VAN BUREN AVENUE
VALLEY FORGE CORPORATE CENTER

DEVELOPER/GENERAL CONTRACTOR

PREFERRED REAL ESTATE INVESTMENTS, INC.
555 NORTH LANE, SUITE 6101
CONSHOHOCKEN, PA 19428

TENANT

NOVACARE INC.

1
<PAGE> 27
BASE BUILDING IMPROVEMENTS

The following base building improvements are to be performed by the
Developer/General Contractor. The Developer/General Contractor shall be
responsible for executing this work n a code complying manner. The
Developer/General Contractor shall submit appropriate detailed Architectural
and Engineering documents covering the Base Building work for review and
approval by the Tenant prior to proceeding with the work.

1. WINDOWS

Provide and install new windows where indicated on the plans. Windows to be
1" insulated glass with factory seal in extruded anodized aluminum frame by
approved window manufacturer.

2. ENTRANCE CANOPY

Provide new building entrance canopy at location indicated on the plans.
Canopy construction to include standing seam metal roof on steel or wood
framing.

3. MAIN ENTRANCE

Provide new storefront entrance system as indicated on the plans.
Storefront system to be 1" insulated glass in extruded anodized aluminum
frame as manufactured by Kawneer or approved equal.

4. EXTERIOR PAINT

Paint and repair the building with masonry primer and minimum two coats of
exterior paint in color to be approved by Tenant in accordance with Exhibit
"D" Site Plan.

5. FIRE ALARM

Provide complete fire alarm system in compliance with all governing life
safety codes.

6. FIRE EXTINGUISHERS

Provide min. of one ABC, rechargeable type fire extinguisher per every
2,400 SF. Tenant to approve all locations prior to installation.

<PAGE> 28
7. SITE WORK

Provided detailed Site Plan documentation describing all site
improvements to be prepared by Yerkes, Civil Engineers. All site work
shall meet the requirements of governing local, State and Federal
regulations.

Site work improvements include but are not limited to:

a) Landscaping at new main entrances, perimeters, parking areas, and
screening the loading area.

b) New site lighting where necessary to comply with local code
requirements.

8. HVAC

Provide completely new HVAC system in accordance with all governing code
requirement, as well as, ASHRAE standards, NFPA-90, Pa Life Safety 101,
and BOCA Mechanical code. All sheet metal ductwork shall comply with the
appropriate sections of SMACNA Guidelines.

The HVAC system design is to be based on providing a minimum of 1 ton of
A/C per 350 SF. Provide HVAC plans and documents specifying the full
scope of HVAC work including unit locations and capacities, zones,
modification to ductwork, diffuser locations - type - CFM output,
thermostat control locations, exhaust fans and locations, etc.; all for
review and approval by the Tenant prior to commencing with the work.
Provide copies of all required permits and spec sheets on all new HVAC
equipment including rooftop units, ductwork, diffusers, exhaust fans,
and controls.

HVAC SYSTEM TO INCLUDE:

1. Programmable digital thermostats for each zone
2. Max. length of flexible duct to be 12'
3. Exhaust for all bathrooms
4. New diffusers throughout
5. HVAC design for all Conference Rooms, Training Rooms and the Lunch
Room to ensure ample capacity and sufficient air changes for their
designated use and occupant load.

HVAC CONTRACTOR TO PROVIDE:

1. Copies of all equipment manuals and warrantees

3
<PAGE> 29
9. SKYLIGHTS

Provide (3) three skylights with wide ceiling soffits in open
areas located by Tenant.

Note: Location may be modified if skylight conflicts with
ductwork, sprinklers or other mechanical systems equipment.

TENANT FITOUT REQUIREMENTS
- --------------------------

The following Tenant Fitout requirements are to be performed by the Developer.
The Developer shall submit appropriate detailed Architectural documents
covering the Tenant Fitout work.

1. DRYWALL

Provide fire rated partitions in accordance with all applicable
code requirements. Specify UL rated partition system where fire
ratings are required. Drywall and insulate the perimeter walls.

Drywall Partition Types:

a) Standard Partitions:

3-5/8" metal studs @ 16" O.C. space with one layer of
1/2" GWB each. Attach top and bottom channel runners to
floor and ceiling track with mechanical fasteners @
min. 12" O.C.

Locations: All partitions unless otherwise noted.

b) Insulated Partitions:

Same as standard except that partition extends above
the ceiling a min. of 8", of 2" thermafiber insulation
(STC rating 48) in each stud cavity and laid a min. of
2' to each side of the partition above the ceiling.

c) Insulated and Secure Partitions:

3-5/8" metal studs @ 16" O.C. with one layer of 1/2"
GWB each side and 2" thermafiber insulation (STC rating
48) continuously from floor to underside of deck. Attach
top and bottom runners to floor and underside of roof
deck with sealant and suitable mechanical fasteners @
min. 12" O.C. Provided additional lateral bracing as
required for adequate wall stiffness.

4
<PAGE> 30
2. CEILING SYSTEMS:

All ceilings throughout the Building to be new 2X4 acoustic tile ceiling
system. Ceiling height to match existing at first floor (10"-0" AFF).

a) Standard Ceiling tile Celotex Fissuretone II;

Location: All Areas unless otherwise noted.

b) Up-graded Ceiling tile to be Celotex Texturetone;

Location: Main Conference Room, Reception Area;

3. FLOORS:

All floors to be prepared for installation of scheduled finish flooring.
Prepare substrate in strict accordance with all manufacturer's
specifications for first quality installation by means of grinding,
chopping, flash patching or leveling. Substrate must be free from moisture,
dust, oils, grease, wax, or other matter.

4. LIGHTING:

All lighting to be recessed. Provide 2X4 fluorescent (4 tube) and 1X4
fluorescent (2 tube) with electronic ballast, typical. Lighting layout to
be reviewed and approved by Tenant prior to purchase and installation.
Provide fixtures as follows:

a) 2 X 4 fixture with 1/2" x 1/2" silver paracube lenses at: all
Private Offices, Executive Conference Room, Reception Area.

b) 2 X 4 fixture with prismatic lenses at: all remaining first floor
areas.

c) 6" downlight, Halo, 150 watt with black baffle trim on dimmer
switches.

Location: Provided by Tenant

5. DOORS & HARDWARE:

a) All interior single leaf doors shall be min. 3'-0" X 6'-8" solid
core wood doors with stain grade veneer for natural finish. All
door frames to be hollow metal with min. 3 silencer per door.
Tenant to select veneer species.

<PAGE> 31
b) All interior double leaf doors to be same as described above for single
leaf doors; each leaf to be 3'-0" X 6'-8".

c) All new exterior doors, except the new storefront entry door, shall be
insulated flush steel doors with hollow metal frame. All exit doors
shall have positive latching with approved panic hardware.

d) The new storefront entry shall be an insulated aluminum storefront
system as manufactured by Kawneer or approved equal complete with panic
hardware and closers.

e) Door Hardware shall include:

5 knuckle full mortise hinges, wall mounted door stops, Dorma 7600
Series door closers at exit doors, bathroom doors, and where required by
code, Schlage "A" and "S" series lever handsets.
All hardware will have brushed aluminum or brushed chrome finish, ADA
compliant.
All doors to receive passage sets unless otherwise noted.

Privacy locksets shall be installed at:
Phone Room, Supply/Storage closets

f) All offices to receive passage sets

6. MILLWORK:

Provide millwork as follows:

a) Reception Area

b) Lunch Room:

Provide min. 5 L.F. of plastic laminate kitchen base cabinets and wall
cabinets and wall cabinets with counter top and backsplashes.

c) Coffee Stations:

Provide laminate base and wall cabinets with counter top and backsplash.

d) Bathrooms:

Provide vanity with Corian top and integral bowls.

<PAGE> 32
e) Copy Center:

Provide plastic laminate counter and backsplash at 36" AFF,
approximately 45 L.F. Provide continuous adjustable shelving, 2
shelves high; all walls. Provide plastic laminate counter at
passthru at 42" high X 48" long X 24" deep.

f) Provide rod and shelf at all coat closets.

7. FINISHES:

a) Flooring: Submit samples of all approved flooring materials and
review locations for final approval by Tenant prior to purchase and
installation.

General carpet - Min. 24 oz. level loop, Antron Nylon to be selected
by Tenant. Allowance - $10/yd. installed.

Accent Carpet and Boarder - Min. 32 oz. cut pile, Antron Nylon to be
selected by Tenant. Allowance - $13/yd. installed.

VCT shall be Armstrong Excelon tile as selected by Tenant.
Locations:

Ceramic Tile shall be American Olean tile as selected by Tenant:

Floor - 4 1/4" X 4 1/4" unglazed matte
Wall - 4 1/4" X 4 1/4" glazed
Base - 4 1/4" X 4 1/4" cove base

Locations: Toilet Rooms

Walk-off Mat shall be recessed 1" coco mat

Locations: Main Entrance and Employee Entrance

b) Base:

"Mercer" 4" vinyl base, color to be selected;
Straight Base @ carpeted areas,
Cove Base @ VCT areas

7
<PAGE> 33
c) Walls:

Paint:

All drywall surfaces to be painted with flat latex
enamel unless otherwise note.

All trim to be alkyd enamel, semi-gloss

Wall Vinyl:

"Genon" type II, stipultex vinyl, Class A rated.

Location: (verify with Tenant)

Toilet rooms above tile; Lunch Room

"Genon" Textile selector type II, Class A rated.

Location: (verify with Tenant)
Reception Area

8. POWER & TELEPHONE

General:

a) Provide electrical circuiting, switching and lighting
documents for review and approval by Tenant.

b) Provide copies of all electrical permits and
underwriters inspection certification for the Tenant's
records.

c) All locations for all electrical devices to be
confirmed with Tenant prior to installation.

d) Provide electrical devices as follows:

Typical Workstation:

1 standard quad receptacle
Provide min. 2 circuits per 4 stations; min. 20 amps
per circuit
All wiring to be MCP cable
Work stations are electrical, Landlord to feed wires

8
<PAGE> 34
Typical Private Office:

3 standard duplex receptacles
1 isolated ground duplex receptacle

Main Conference Room:

3 standard quad receptacles in built-in millwork
1 standard duplex receptacle each wall.

Lunch Room:

10 receptacles:

Small Conference Rooms:

3 standard duplex receptacles
1 isolated ground duplex receptacle

General Corridors and Public Spaces:

1 standard duplex receptacle spaced at a max. distance of
every 40 FT.

Coffee Stations:

1 quad receptacle above counter

9. PLUMBING:
Provide complete plumbing system in accordance with all applicable
codes including ADA Regulations to include all plumbing rough-in,
distribution, drainage, equipment, fixtures, valves, and faucets.

Lunch Room:

1 double bowl s/s sink

Coffee Stations:

1 small s/s sink
Direct water lines to coffee makers

<PAGE> 35
Miscellaneous

Provide code required drinking fountain (1 ADA accessible)

10. SPRINKLER:

Provide complete sprinkler system including all pumps, controls, and
distribution in compliance with NFPA-13 and other governing codes. Provide
full system test and Factory Mutual inspection certificate and annual
service agreement covering all inspections and scheduled maintenance on
system.

Sprinkler Heads:

Exposed Chrome heads at all First Floor Levels

<PAGE> 36
EXHIBIT C BUILDING RULES AND REGULATIONS

Page - 18

<PAGE> 37
EXHIBIT "C"

BUILDING RULES AND REGULATIONS

1. The sidewalks, entryways, passages, corridors, stairways and
elevators shall not be obstructed by any of the tenants, their employees or
agents, or used by them for purposes other than ingress or egress to and from
their respective suites. All safes or other heavy articles shall be carried up
or into the leased premises only at such times and in such manner as shall be
prescribed by the Landlord and the Landlord shall in all cases have the right to
specify a maximum weight and proper position or location of any such safe or
other heavy article. Any damage done to the Building by taking in or removing
any safe or from overloading any floor in any way shall be paid by the Tenant.
The cost of repairing or restoring any part of the Building which shall be
defaced or injured by a tenant, its agents or employees, shall be paid for by
the Tenant.

2. Each Tenant will refer all contractors, contractor's
representatives and installation technicians rendering any service on or to the
leased premises for the tenant to Landlord for Landlord's approval and
supervision before permanence of any contractual service. This provision shall
apply to all work performed in the Building, including installation of
telephones, telegraph equipment, electrical devices and attachments and
installations of any nature affecting floors, walls, woodwork, trim, windows,
ceilings, equipment or any other physical portion of the Building.

3. No, sign, advertisement or notice shall be inscribed, painted
or affixed on any part of the inside or outside of the Building unless of such
color, size and style and in such place upon or in the Building as shall first
be designated by Landlord; there shall be no obligation or duty on Landlord to
allow any sign, advertisement or notice to be inscribed, painted or affixed on
any part of the inside or outside of the Building except as specified in a
tenant's lease. Signs on or adjacent to doors shall be in color, size and style
approved by Landlord, the cost to be paid by the tenants. A directory in a
conspicuous place, with the names of tenants, will be provided by Landlord;
any necessary revision in this will be made by Landlord within a reasonable
time after notice from the tenant of an error or of a change making revision
necessary. No furniture shall be placed in front of the Building or in any lobby
or corridor without written consent of Landlord.

4. No tenant shall do or permit anything to be done in its leased
premises, or bring to keep anything therein, which will in any way increase
the rate of fire insurance on the Building, or on property kept therein, or
obstruct or interfere with the rights of other tenants, or in any way injure or
annoy them, or conflict with the laws relating to fire prevention and safety,
or with any regulations of the fire department, or with any rules or ordinances
of any Board of Health or other governing bodies having jurisdiction over the
Building.

5. The janitor of the Building may at all times keep a pass-key,
and he and other agents of the Landlord shall at all times, be allowed
admittance to the leased premises for purposes permitted in Tenant's lease.

Page - 21
<PAGE> 38
6. No additional locks shall be placed upon any doors without the
written consent of the Landlord. All necessary keys shall be furnished by the
Landlord, and the same shall be surrendered upon the termination of this Lease,
and the Tenant shall then give the Landlord or his agents explanation of the
combination of all locks upon the doors of vaults.

7. The water closets and other water fixtures shall not be used for
any purpose other than those for which they were constructed, and any damage
resulting to them from misuse or abuse by a tenant or its agents, employees or
invitees, shall be borne by the Tenant.

8. No person shall disturb the occupants of the Building by the
use of any musical instruments, the making or transmittal of noises which are
audible outside the leased premises, or any unreasonable use. No dogs or other
animals or pets of any kind will be allowed in the Building.

9. No bicycles or similar vehicles will be allowed in the building.

10. Nothing shall be thrown out the windows of the building or down
the stairways or other passages.

11. Tenants shall not be permitted to use or to keep in the Building
any kerosene, camphene, burning fluid or other illuminating materials.

12. If any tenant desires telegraphic, telephonic or other electric
connections, Landlord or its agents will direct the electricians as to what and
how the wires may be introduced, and without such directions no boring or
cutting for wires will be permitted.

13. If a tenant desires shades, they must be of such shape, color
materials and make as shall be prescribed by Landlord. No outside awning shall
be permitted.

14. No portion of the Building shall be used for the purposes of
lodging rooms or for any immoral or unlawful purposes.

15. No tenant shall store anything outside the building or in any
common areas in the building.

Page - 22

<PAGE> 39
EXHIBIT D SITE PLAN

Page - 19

<PAGE> 1

Exhibit 10(r)

NCES/NOVACARE, INC.

SUPPLEMENTAL BENEFITS PLAN

This is the NCES/NOVACARE, INC. SUPPLEMENTAL BENEFITS PLAN
(formerly known as the NovaCare, Inc. Supplemental Benefits Plan), as amended
and restated effective July 1, 1997, maintained by NovaCare Employee Services,
Inc. ("NCES"), NovaCare, Inc., a Delaware corporation ("NovaCare"), and certain
of their affiliates which have adopted the Plan for their eligible senior
executives constituting a select group of management or highly compensated
employees.

<PAGE> 2

TABLE OF CONTENTS

Section Page

SECTION 1 DEFINITIONS .................................................... 1

SECTION 2 PARTICIPATION IN THE PLAN ...................................... 5

2.1 Commencement of Participation ........................... 5
2.2 Procedure For and Effect of Admission ................... 6
2.3 Cessation of Participation .............................. 6
2.4 Transfer of Employee .................................... 6
2.5 Cessation of Employer's Affiliate Status ................ 7

SECTION 3 PLAN CONTRIBUTIONS ............................................. 7

3.1 Deferral Contributions ................................... 7
3.2 Rules Governing Deferral Contributions ................... 8
3.3 Fixed Matching Contributions ............................. 8
3.4 Performance Matching Contributions ....................... 8
3.5 Vesting .................................................. 8

SECTION 4 PARTICIPANT ACCOUNTS ........................................... 10

4.1 Establishment of Accounts ................................ 10
4.2 Benefit Allocation ....................................... 10
4.3 Irrevocable Allocation ................................... 10
4.4 Adjustment of Accounts ................................... 10
4.5 Suballocation Within the Education Account ............... 11
4.6 Investment Obligation of the Employer .................... 11

SECTION 5 BENEFITS ....................................................... 11

5.1 Employer Provided Insurance Benefits ..................... 11
5.2 Retirement Account ....................................... 12
5.3 Education Account ........................................ 14
5.4 Fixed Period Account ..................................... 15
5.5 Tax Withholding .......................................... 15

- i -

<PAGE> 3

SECTION 6 ADMINISTRATION ................................................. 15

6.1 Appointment of Administrator ............................ 15
6.2 Administrator's Responsibilities ........................ 15
6.3 Records and Accounts .................................... 16
6.4 Administrator's Specific Powers and Duties .............. 16
6.5 Employer's Responsibility to Administrator .............. 16
6.6 Liability ............................................... 16
6.7 Payment of Expenses ..................................... 17
6.8 Indemnity of Administrator .............................. 17

SECTION 7 CLAIMS PROCEDURE ............................................... 17

7.1 Claim ................................................... 17
7.2 Review Procedure ........................................ 17
7.3 Final Decision .......................................... 18

SECTION 8 AMENDMENT AND TERMINATION ...................................... 18

8.1 Plan Amendment .......................................... 18
8.2 No Premature Distribution ............................... 18
8.3 Termination of the Plan ................................. 18

SECTION 9 MISCELLANEOUS .................................................. 18

9.1 Supplemental Benefits ................................... 18
9.2 Governing Law; Jurisdiction ............................. 19
9.3 No Assignment Permitted ................................. 19
9.4 Binding Terms ........................................... 19
9.5 Spendthrift Provision ................................... 19
9.6 Headings ................................................ 19
9.7 Rule of Interpretation .................................. 19

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<PAGE> 4

SECTION 1

DEFINITIONS

1.1 Account means the recordkeeping source under which Plan benefits are
calculated. The specific Accounts under the Plan are listed in Section
4.1.

1.2 Administrator means the individual or committee appointed to administer
the Plan pursuant to Section 6.

1.3 Agreement means the trust agreement between the Employer and one or
more trustees establishing a grantor trust to assist the Employer in
fulfilling its obligations under the Plan.

1.4 Base Pay means an Eligible Employee's base salary, Deferral
Contributions and any pretax elective deferrals to any
Employer-sponsored plan that includes either a qualified cash or
deferred arrangement under section 401(k) of the Code or a cafeteria
plan under section 125 of the Code.

1.5 Beneficiary means the person, persons, trust or other entity that a
Participant designates by written revocable designation filed with the
Administrator to receive Plan benefits in the event of the
Participant's death before all amounts due him under the Plan have been
fully paid. A Participant may designate a different Beneficiary with
respect to each Account established for him.

1.6 Boards means the Boards of Directors of NovaCare and NCES, or any
person or persons designated by the Boards of Directors.

1.7 Bonus means any cash remuneration paid to an Eligible Employee as an
incentive award pursuant to the bonus plan applicable to the Eligible
Employee. Bonus may consist of Annual Bonus and/or Quarterly Bonus
components. Annual Bonus means an incentive award based on performance
criteria applicable to an entire fiscal year of the applicable
Employer. Quarterly Bonus means an incentive award based on performance
criteria applicable to the first, second, third or fourth quarter, on a
stand-alone basis, of the fiscal year of the applicable Employer.

1.8 Change in Control means (other than an initial public offering) the
occurrence of any of the following:

A. the acquisition by any party or parties of the beneficial
ownership of 20% or more of the outstanding voting shares of
the Company;

B. the occurrence of a transaction requiring shareholders'
approval for the acquisition of the Company through purchase
of stock or assets, or by merger or otherwise; or

<PAGE> 5

C. the election during any 24-month period of 20%, or more, of
the members of either of the Boards, without the approval of a
majority of the members of such Board as constituted at the
beginning of the period.

1.9 Code means the Internal Revenue Code of 1986, as amended.

1.10 Company means either NovaCare or NCES as the context requires.

1.11 Deferral Agreement means a written agreement between a Participant and
the Employer whereby a Participant agrees to defer a portion of his
Base Pay and/or Bonus and the Employer agrees to provide Plan benefits.

1.12 Deferral Contribution means a Participant's elective deferral
contribution described in Section 3.1

1.13 Determination Date means March 31 and September 30 of each calendar
year or such other date as the Administrator shall designate and, for
each Participant, the date of his death, Retirement, termination of
employment due to Disability or other termination of employment.

1.14 Disability means an illness or injury that meets the definition and
provisions described in the Individual Long Term Disability Contract
covering the Participants.

1.15 Effective Date means September 1, 1991. The effective date of this
amendment and restatement is July 1, 1997.

1.16 Eligibility Dates.

A. Eligibility Date, for making Elective Deferrals, means (i) the
first day of the first payroll period of any month that begins
at least 30 days, but no more than 120 days, after the date an
individual first becomes an Eligible Employee, provided that
the Eligible Employee must properly submit all necessary forms
at least 15 days before such Eligibility Date and (ii) any
other date following an Enrollment Period established by the
Administrator;

B. Eligibility Date, for receiving Fixed and, if any, Performance
Matching Contributions, means the January 1 or July 1
following the Eligibility Date upon which the Participant
begins to make Elective Deferrals; and

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<PAGE> 6

C. Eligibility Date, for coverage for insurance benefits, means
the January 1 or July 1 following the later of the initial
date of hire of an individual who is an Eligible Employee as
of that date, or the date an individual who is an employee of
the Employer becomes an Eligible Employee.

1.17 Eligible Dependent means an individual who is a child, stepchild,
grandchild, niece or nephew, or who otherwise qualifies as a dependent
of a Participant for purposes of the Code, who is living at any time
during the Enrollment Period, and who is either (i) younger than age 14
or (ii) younger than age 18 but for whom a subaccount was initially
established pursuant to Section 4.5 prior to his reaching age 14.

1.18 Eligible Employee means each employee of the Employer who (i) has a
Salary Grade of 33 or higher, (ii) is designated by the Administrator
as an employee who would have a Salary Grade of 33 or higher (an
"Equivalent Salary Grade") if the employee had a Salary Grade, (iii)
was demoted during the preceding 12-month period into a lower-graded
position from a position with a Salary Grade or Equivalent Salary Grade
of 33 or higher, or (iv) was a Participant on July 1, 1994; provided
that Eligible Employee shall not include any employee of NCES or any of
its affiliates who also maintains an employee-employer relationship
with a co-employer other than NovaCare or any of its affiliates.

1.19 Employer means NovaCare, NCES and each of their respective affiliates
which have adopted the Plan for their eligible senior executives and
joined in the Trust.

1.20 Enrollment Period means the election period established by the
Administrator which ends prior to the first day of a Plan Year.

1.21 EPS Budget means, for any Plan Year up to and including the Plan Year
beginning July 1, 1995 and ending June 30, 1996, the average of the
percentages of the EPS Budgets achieved by NovaCare for that year and
the four immediately preceding Plan Years. For the Plan Year beginning
July 1, 1996, EPS Budget means the EPS Budget achieved by NovaCare for
that year. For any Plan Year beginning on or after July 1, 1997, EPS
Budget means the EPS Budget achieved by the applicable Company for that
year.

1.22 Fixed Matching Contribution means the Employer contributions described
in Section 3.3.

1.23 Group I Eligible Employee means each Eligible Employee who has a Salary
Grade or Equivalent Salary Grade of 35 or higher, or who had such a
Salary Grade or Equivalent Salary Grade immediately prior to a demotion
which became effective during the previous 12-month period.

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<PAGE> 7

1.24 Group II Eligible Employee means each Eligible Employee who has a
Salary Grade or Equivalent Salary Grade of 33 or 34, or who had such a
Salary Grade or Equivalent Salary Grade immediately prior to a demotion
which became effective during the previous 12-month period.

1.25 Investment Fund or Fund means the investments referenced in Section 4.4
that serve as a means to measure value increases or decreases with
respect to a Participant's Accounts.

1.26 Involuntary Termination means, solely for purposes of the Plan and the
Agreement, the occurrence of any of the following:

A. a termination of the Participant's employment by the Employer
other than for serious, willful misconduct in respect of the
employee's obligations to the Employer, which misconduct shall
include but not be limited to conviction of a felony, or
perpetration of a common law fraud which has or is likely to
result in material economic damage to the Employer; or

B. a termination of the Participant's employment by the
Participant following:

(1) a change by the Employer of the Participant's
functions, duties or responsibilities which causes
the Participant's position with the Employer to
become of less dignity, responsibility, importance,
scope or Salary Grade;

(2) a reassignment by the Employer of the Participant to
another geographic location more than 50 miles from
the Participant's current place of residence; or

(3) a reduction in the Participant's Total Compensation
other than one occurring through reduction of the
Participant's Bonus based on actual financial
performance of the Employer.

1.27 NCES means NovaCare Employee Services, Inc., a Delaware corporation.

1.28 NovaCare means NovaCare, Inc., a Delaware Corporation.

1.29 Participant means any Eligible Employee who has elected to participate
in the Plan and has reached an Eligibility Date.

1.30 Performance Matching Contribution means the Employer contributions
described in Section 3.4.

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<PAGE> 8

1.31 Plan means the NCES/NovaCare, Inc. Supplemental Benefits Plan as
described in this instrument, as amended.

1.32 Plan Year means the 12 consecutive month period beginning on each July
1 and ending on the following June 30.

1.33 Retirement means a severance from service by a Participant for any
reason (other than death or termination of employment due to
Disability) after reaching age 65 or after reaching age 55 and
completing 10 years of service with the Employer. A year of service
shall mean a Year of Service as defined in the NCES/NovaCare, Inc.
401(k) Retirement Savings Plan; provided, however, that years of
service shall include service with a prior employer if so provided in
the applicable acquisition agreement or in any agreement executed by
the Participant and the Employer.

1.34 Total Compensation for a Plan Year means the Eligible Employee's Base
Pay for the current Plan Year plus any Bonus paid for services rendered
in the Plan Year; provided that, in determining compensation for
coverage for insurance benefits for any policy period, the Eligible
Employee's Base Pay shall be determined as of January 15 (or, if later,
the date an employee becomes an Eligible Employee) and, if actual Bonus
is unknown as of such date, anticipated bonus, as determined under the
applicable bonus plan, shall be substituted for actual Bonus.

1.35 Trust means any grantor trust established by the Employer under the
Agreement.

1.36 Trustee means the trustee or trustees of the Trust appointed by the
Boards.

1.37 Trust Fund means the fund established under the Agreement, consisting
of all contributions, together with the income and realized and
unrealized appreciation and depreciation thereon.

SECTION 2

PARTICIPATION IN THE PLAN

2.1 Commencement of Participation. Each Eligible Employee may elect to
become a Participant and to make Elective Deferrals beginning as of a
date described in Section 1.16A. He then shall be eligible to receive
Fixed and, if any, Performance Matching Contributions beginning as of
the date described in Section 1.16B. Each Eligible Employee shall
receive coverage for insurance benefits beginning as of the date
described in Section 1.16C.

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<PAGE> 9

Notwithstanding the foregoing or any provision in this Plan to the
contrary:

A. An Eligible Employee who does not meet the definition of
Eligible Employee set forth in Section 1.18(i), (ii) or (iii)
shall not be eligible to make Elective Deferrals or to receive
Fixed and Performance Matching Contributions, but shall be
considered a Group II Eligible Employee for purposes of
Section 5.1; and

B. An Eligible Employee who is hired or promoted into a position
with a Salary Grade or Equivalent Salary Grade of 33 or higher
after June 1, 1997 shall not be eligible to make Elective
Deferrals or to receive Fixed and Performance Matching
Contributions unless he executes a Confidentiality and
Non-Competition Agreement in a form approved by the
Administrator, but shall be considered a Group I or Group II
Eligible Employee (depending upon his Salary Grade or
Equivalent Salary Grade) for purposes of Section 5.1.

2.2 Procedure For and Effect of Admission. Each Eligible Employee who
desires to participate in the Plan shall complete such forms and
provide such data as are required by the Administrator.

2.3 Cessation of Participation. A Participant shall cease to be an active
Participant on the earlier of:

A. the date on which an Employer terminates the Plan as to
employees of such Employer;

B. the date on which the Participant ceases to be an Eligible
Employee; or

C. the date on which the Participant's Employer ceases to be an
affiliate of the Company.

As long as an Account is maintained for a former active Participant, he
shall be deemed a Participant for all purposes except that he shall not
be permitted to make contributions to the Plan, receive Fixed or
Performance Matching Contributions, or be entitled to Employer-provided
insurance benefits under Section 5.1; provided, however, that a
Participant may elect to continue insurance coverage at his own expense
(or, at the sole discretion of the Administrator, at the Employer's
expense) when he ceases to be an active Participant.

2.4 Transfer of Employee. If a Participant transfers his employment from
one Employer to another Employer, the Participant shall not be deemed
to have ceased being an active

- 6 -
<PAGE> 10

Participant under Section 2.3. Any obligations of a former Employer to
the Participant under the Plan shall become the obligations of the
Participant's new Employer.

2.5 Cessation of Employer's Affiliate Status. If a Participant ceases to be
an active Participant pursuant to Section 2.3C, the Administrator shall
determine in its absolute and unfettered discretion either to: (i)
fully vest the Participant in all Employer contributions made on his
behalf, transfer the vested portion of the Participant's Education
Account and Fixed Period Account, if any, to the Participant's
Retirement Account and distribute the vested value of the Retirement
Account to the Participant pursuant to Section 5.2D or (ii) transfer
the Participant's Accounts to a new trust to be maintained by the
employer for the benefit of the Participant.

SECTION 3

PLAN CONTRIBUTIONS

3.1 Deferral Contributions. Each Participant who is an employee may
authorize the Employer to reduce his (i) Base Pay and/or (ii) Bonus for
a Plan Year, and to have a corresponding amount credited to his
Accounts, in accordance with Section 4.2, by executing and filing a
Deferral Agreement with the Administrator during his initial Enrollment
Period or any subsequent Enrollment Period designated by the
Administrator. A Deferral Agreement specifying deferrals to be made
from Base Pay and/or Quarterly Bonus (if any) shall be executed and
filed during the Enrollment Period preceding the Plan Year during which
such Base Pay or Quarterly Bonus (if any) will be earned. A Deferral
Agreement specifying deferrals to be made from Annual Bonus shall be
executed and filed during the Enrollment Period preceding the Plan Year
during which such Bonus will be finally determined and paid. An
Eligible Employee who has previously executed and filed a Deferral
Agreement specifying deferrals to be made from the Bonus to be finally
determined and paid during the Plan Year beginning July 1, 1997 may
execute and file a new Deferral Agreement during the Enrollment Period
preceding the Plan Year beginning July 1, 1997, provided that the new
Deferral Agreement may increase, but may not decrease, the specified
Bonus deferrals.

Such Base Pay and Bonus deferrals shall be based on a fixed percentage.
Base Pay deferrals shall equal not less than 1% nor more than 25% of
Base Pay. Bonus deferrals shall equal not less than 1% nor more than
100% of Annual Bonus and/or Quarterly Bonus, respectively. The deferral
shall be made from Base Pay, Annual Bonus and/or Quarterly Bonus as the
Participant shall specify; however, to the extent the deferral is to be
made from Annual Bonus and/or Quarterly Bonus, but no Annual Bonus
and/or Quarterly Bonus is paid, the deferral shall be reduced.

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<PAGE> 11

Notwithstanding the foregoing, a Participant may not make contributions
to the Plan during any period for which contributions must be suspended
in accordance with Treas. Reg. Section 1.401(k)-1(d)(2)(iv)(B)(4), as a
condition of the Participant's receipt of a hardship withdrawal from
any retirement plan of the Employer that includes a qualified cash or
deferred arrangement under section 401(k) of the Code.

3.2 Rules Governing Deferral Contributions.

A. Each annual election to defer shall be irrevocable.

B. The amount that a Participant elects to defer shall be
credited to the Participant's Accounts as soon as practicable
after the date the amount would otherwise be paid to him as
cash compensation.

3.3 Fixed Matching Contributions. Each Employer shall make a fixed matching
contribution for each Group I Eligible Employee that shall equal 70% of
the first 5% of his Total Compensation that is contributed to the Plan
as a Deferral Contribution under Section 3.1. Each Employer shall make
a fixed matching contribution for each Group II Eligible Employee that
shall equal 30% of the first 5% of his Total Compensation that is
contributed to the Plan as a Deferral Contribution under Section 3.1.
Fixed Matching Contributions shall be credited to Participants'
Accounts when Deferral Contributions are so credited.

3.4 Performance Matching Contributions. Each Employer shall make a variable
matching contribution for each contributing Participant who is an
Eligible Employee as of the last day of the Plan Year for any Plan Year
in which the applicable Company attains between 90% and 110% of EPS
Budget. Unless otherwise determined by the Board for any Plan Year, if
the parameters set forth in the preceding sentence have been met, the
Performance Matching Contribution for each Group I Eligible Employee
shall equal the first 5% of his Total Compensation that is contributed
to the Plan as a Deferral Contribution under Section 3.1 multiplied by
the percentage of EPS Budget attained by the applicable Company, and
the Performance Matching Contribution for each Group II Eligible
Employee shall equal 40% of the first 5% of his Total Compensation that
is contributed to the Plan as a Deferral Contribution under Section 3.1
multiplied by the percentage of EPS Budget attained by the applicable
Company. Performance Matching Contributions shall be credited to
Participants' Accounts as soon as practicable following the annual
determination of whether EPS Budget has been attained by the applicable
Company.

3.5 Vesting. Benefits derived from Deferral Contributions are not subject
to forfeiture for any reason other than corporate insolvency. Benefits
derived from Fixed Matching Contributions and Performance Matching
Contributions shall vest according to a schedule

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<PAGE> 12

based on "Years of Participation" in the Plan. The term "A Year of
Participation" means a full Plan Year during which an employee of the
Employer is an Eligible Employee as defined in the Plan. For these
purposes, the first Plan Year, though less than 12 months, shall
qualify as a full Year of Participation.

For an Eligible Employee on or before June 1, 1997, benefits derived
from Fixed Matching Contributions and Performance Matching
Contributions shall vest at the rate of 20% per completed Year of
Participation beginning with the sixth (6th) completed Year of
Participation, unless the Eligible Employee executes a Confidentiality
and Non-Competition Agreement in a form approved by the Administrator
before September 1, 1997, or during such other time period as the
Administrator may thereafter designate. For an Eligible Employee on or
before June 1, 1997 who timely executes a Confidentiality and
Non-Competition Agreement in a form approved by the Administrator, or
for any employee who becomes an Eligible Employee after June 1, 1997,
benefits derived from Fixed Matching Contributions and Performance
Matching Contributions shall become 100% vested upon completion of the
fifth (5th) Year of Participation.

Notwithstanding the foregoing, benefits derived from Fixed Matching
Contributions and Performance Matching Contributions shall become 100%
vested (i) upon a Participant's Retirement; (ii) if a Participant dies
or suffers a Disability while employed by the Employer; or (iii) upon a
Participant's Involuntary Termination by the Employer, provided that
either (a) the Participant has completed at least one Year of
Participation in the Plan and the combination of the Participant's age
and Years of Participation at the time of his Involuntary Termination
totals at least 50, or (b) the Participant's Involuntary Termination
occurs within 12 months after the applicable Company undergoes a Change
in Control. In addition, the Administrator may, in the Administrator's
absolute and unfettered discretion, determine to vest Employer
contributions made on a Participant's behalf if the Participant's
termination of employment with the Employer was caused by events beyond
the Participant's control.

If a Participant terminates employment before becoming fully vested,
any nonvested Employer contributions shall be forfeited and shall be
used to reduce Employer contributions to the Plan. Notwithstanding the
foregoing, if the distribution of a Participant's Retirement Account is
deferred under Section 5.2B(5), the Participant shall not forfeit any
unvested Employer contributions until the Participant's Retirement
Account is actually distributed. For purposes of determining a
Participant's vested interest in Employer contributions at the time the
Participant's Retirement Account is distributed, any nonsuccessive
Years of Participation in the Plan shall be aggregated to determine his
vested percentage.

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<PAGE> 13

SECTION 4

PARTICIPANT ACCOUNTS

4.1 Establishment of Accounts. The following Accounts shall be established
with respect to each Participant:

A. Retirement Account,

B. Education Account, and

C. Fixed Period Account.

4.2 Benefit Allocation. Each Participant may submit to the Administrator
before the close of the Enrollment Period for each Plan Year a written
statement specifying the Participant's allocation of future
contributions as to his respective Accounts. If a Participant does not
submit such a statement, all contributions for the Plan Year following
the Enrollment Period shall be allocated to the Participant's
Retirement Account. Matching Contributions shall be allocated in the
same manner as Deferral Contributions.

4.3 Irrevocable Allocation. A Participant may not modify, alter, amend or
revoke his allocation for a Plan Year after such Plan Year begins.

4.4 Adjustment of Accounts. A Participant may request in a writing
delivered to the Administrator that his Accounts be valued as if they
were hypothetically invested in one or more of the Investment Funds
listed on the Benefit Account Allocations/Accumulation Options form
provided by the Administrator. A Participant may request one or more
Investment Fund(s) in multiples of 25% and may make a separate request
with respect to each Account. A request shall be effective as of the
Determination Date next following timely delivery to the Administrator,
and shall apply to new contributions and previous accumulations as the
Participant specifies.

Each Participant's Accounts established under Section 4.1 shall be
valued no less than monthly based upon the performance of the
Investment Fund(s) requested by the Participant as determined by the
Administrator. A Participant shall submit his investment measurement
request to the Administrator in writing.

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<PAGE> 14

If any Participant fails to file a request, he shall be deemed to have
requested the fund which, in the opinion of the Administrator, has the
least risk of loss of principal. The Administrator shall be under no
obligation to invest Deferral Contributions in the manner requested by
the Participant.

4.5 Suballocation Within the Education Account. If a Participant allocates
a portion of his anticipated contributions to his Education Account,
the Participant may further allocate among subaccounts on behalf of any
Eligible Dependent. In the absence of such suballocation, all
contributions to the Participant's Education Account shall be equally
allocated to the Participant's Eligible Dependents. A Participant's
directed adjustment request pursuant to Section 4.4 shall apply
uniformly to each subaccount.

4.6 Investment Obligation of the Employer. Benefits are payable as they
become due irrespective of any actual investments the Employer may make
to meet its obligations.

Notwithstanding, neither the Employer nor any trustee (in the event the
Employer elects to use a grantor trust to accumulate funds) shall be
obligated to purchase or maintain any asset, and any reference to
investments or Investment Funds is solely for the purpose of computing
the value of benefits. To the extent a Participant or any person
acquires a right to receive payments from the Employer under this Plan,
such right shall be no greater than the right of any unsecured creditor
of the Employer. Neither this Plan nor any action taken pursuant to the
terms of this Plan shall be considered to create a fiduciary
relationship between the Employer and the Participants or any other
persons, or to establish a trust in which the assets are beyond the
claims of any unsecured creditor of the Employer.

SECTION 5

BENEFITS

5.1 Employer Provided Insurance Benefits.

A. The Employer shall purchase or otherwise provide additional
life insurance for all Participants; provided that the
Administrator shall have first received all information and
executed documents from the Participants as the Administrator
has requested. Group I Eligible Employees shall be provided
additional life insurance coverage, subject to the terms of
available coverage, equal to two times their Total
Compensation for a Plan Year. Group II Eligible Employees
shall be provided additional life insurance coverage, subject
to the terms of available coverage, equal to their Total
Compensation for a Plan Year. Notwithstanding the foregoing,
the

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<PAGE> 15

Administrator may, in its sole discretion, set a maximum limit
on the amount of coverage to be provided to any class of
Participants and reduce the amount of benefits available to
Participants based on the cost thereof, consistent with
applicable law.

B. The Employer shall purchase or otherwise provide individual
Disability insurance coverage for all Participants at a rate
of 70% of Total Compensation, to a maximum of $15,000 per
month; provided that the Administrator shall have first
received all information and executed documents from the
Participants as the Administrator has requested.
Notwithstanding the foregoing, the Administrator may, in its
sole discretion, limit the amount or time period of Disability
insurance coverage consistent with applicable law.

5.2 Retirement Account.

A. If a Participant terminates employment for any reason,
including death, the Employer shall pay such Participant a
benefit in the form determined under Section 5.2B based on the
vested value of his Retirement Account. If the Participant is
deceased, the benefit shall be paid to his Beneficiary.

B. Form of Payment:

(1) If the Participant's termination of employment occurs
due to Retirement, payment of the benefit shall begin
within 120 days of Retirement.

A Participant shall elect one of the following
payment options at the time he establishes his
Retirement Account, and at such other times as shall
be determined by the Administrator, provided that any
such subsequent election by the Participant shall
apply only to amounts attributable to contributions
to the Retirement Account to be made in Plan Years
beginning after the Plan Year in which the election
is made:

(a) 100% joint and survivor annuity;

(b) an annual benefit to be paid for a fixed
period of 10 years, the amount to be paid in
any one year to equal the vested value of
the Retirement Account at the time of
payment multiplied by a fraction, the
numerator of which shall be one and the
denominator of which shall be ten minus the
number of benefit payments previously made
under this option; or

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<PAGE> 16

(2) If the Participant's termination of employment occurs
due to Disability, the benefit described in Section
5.2A shall be paid either as a lump sum or annually
over a fixed period of 10 years (as calculated in
(1)(b) above), as determined by the Administrator.

(3) If a Participant's termination of employment occurs
for any reason other than Retirement or Disability,
the benefit described in Section 5.2A shall be paid
in a lump-sum payment within 120 days from the date
of termination.

(4) Notwithstanding any provision to the contrary, if the
Participant's Retirement Account has a value less
than $20,000 at the time benefits are to commence,
then the Participant's benefit may, at the discretion
of the Administrator, be paid as a lump sum as soon
as administratively feasible following the
Participant's termination.

(5) Notwithstanding anything to the contrary, if the
Administrator determines at the time of a
Participant's termination of employment with the
Employer that a reasonable probability exists that
the Participant will return to employment with the
Employer, the Participant's Retirement Account shall
not be distributed to the Participant. The
Participant's Retirement Account shall instead be
held under the Plan until (i) the Administrator
determines that the Participant's return to
employment with the Employer is no longer reasonably
probable, or (ii) the Participant returns to
employment with the Employer, at which point the
Participant's Retirement Account shall be subject to
distribution in accordance with this Section 5.2.

Upon a Participant's reemployment by the Employer,
any funds transferred to the Participant's Retirement
Account from his Education Account or Fixed Period
Account shall be re-transferred to the respective
Account or Accounts.

C. If benefits are payable in a form of payment under Section
5.2B(1)(a), the amount of each payment shall be determined
based on the payments that would have been made if the
Employer applied the Participant's Retirement Account on the
date payments are to begin to purchase an annuity contract
providing such payments from an insurance carrier selected by
the Administrator.

D. Subject to Section 5.2B(5) hereof, if a Participant continues
to be employed by an entity that ceases to be an affiliate of
either Company and the Administrator

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<PAGE> 17

determines to fully vest and distribute the Participant's
Account, the Employer shall, at the direction of the
Administrator, pay such Participant a benefit based on the
vested value of his Retirement Account. The benefit shall be
paid in a lump sum as soon as administratively feasible
following the later of the date the applicable entity ceases
to be an affiliate of either Company and the date that all
determinations have been made hereunder.

5.3 Education Account.

A. If a Participant remains continuously employed by the Employer
until January 1 of the calendar year in which an Eligible
Dependent reaches age 18, the Employer shall pay to the
Participant a benefit, as soon after such January 1st and each
of the next three anniversaries thereof as administratively
practicable, determined as follows:

<TABLE>
<CAPTION>
Distribution
Percentage of Eligible
January 1st Dependent's Subaccount
<S> <C>
1 25%
2 33-1/3%
3 50%
4 100%
</TABLE>

B. A Participant may establish subaccounts under his Education
Account, with separate payments for each. A Participant may
have a maximum of five subaccounts at any time.

C. If a Participant terminates his employment for any reason with
a balance in his Education Account, the vested portion of the
balance shall be transferred to his Retirement Account and
distributed in accordance with Section 5.2.

D. Notwithstanding any provision to the contrary, if on the
January 1 of the calendar year in which an Eligible Dependent
of a Participant reaches age 18, the Eligible Dependent's
subaccount has a balance of less than $10,000, then the
Administrator, at its discretion, may direct that the balance
be paid to the Participant in one lump sum.

E. If any portion of an Education Account is not vested on the
date such portion is to be paid, distribution shall be
postponed until the January 1 following the date it is vested.

-14-
<PAGE> 18
5.4 Fixed Period Account.

A. A benefit equal to the lump sum value of the vested portion of
a Participant's Fixed Period Account shall be paid to him as
soon as administratively practicable after January 1 of the
payment year specified by the Participant. Nonvested amounts
will be paid as soon as administratively practicable after
January 1 following the year the Participant becomes vested.

B. A Participant may establish subaccounts under his Fixed Period
Account, with separate payment years for each. A Participant
may have a maximum of five subaccounts at any time.

C. If a Participant's employment terminates for any reason and
the Participant has a balance in his Fixed Period Account, the
vested portion of the balance shall be transferred to his
Retirement Account and be distributed in accordance with
Section 5.2.

5.5 Tax Withholding. To the extent required by law, the Employer shall
withhold or cause to be withheld taxes from payments made under the
Plan.

SECTION 6

ADMINISTRATION

6.1 Appointment of Administrator. The Boards shall appoint an individual or
a committee to serve as Administrator. The Administrator (or any member
of a committee) may be removed by the Boards at any time; and any
individual may resign at any time by submitting his resignation in
writing to the Boards. A new Administrator (or committee member) shall
be appointed as soon as practicable in the event of a removal or
resignation.

6.2 Administrator's Responsibilities. The Administrator is responsible for
the administration of the Plan. The Administrator may appoint other
persons or entities to perform any of its fiduciary functions. Such
appointment shall be made and accepted by the appointee in writing. The
Administrator and any such appointee may employ advisors and other
persons necessary or convenient to help him carry out his duties,
including his fiduciary duties. The Administrator shall have the right
to remove any such appointee from his position. Any person, group of
persons or entity may serve in more than one fiduciary capacity.

-15-
<PAGE> 19
6.3 Records and Accounts. The Administrator shall maintain or cause to be
maintained accurate and detailed records and accounts of Participants,
Employers and their respective rights under the Plan, and of all
investments, receipts, disbursements and other transactions. Such
accounts, books and records relating thereto shall be open at all
reasonable times to inspection and audit by the Employer and by persons
designated thereby.

6.4 Administrator's Specific Powers and Duties. In addition to any powers,
rights and duties set forth elsewhere in the Plan, the Administrator
shall have the following powers and duties:

A. to adopt such rules and regulations consistent with the
provisions of the Plan;

B. to enforce the Plan in accordance with its terms and any rules
and regulations it establishes;

C. to maintain records concerning the Plan sufficient to prepare
reports, returns and other information required by the Plan or
by law;

D. to construe and interpret the Plan and to resolve all
questions arising under the Plan;

E. to direct the Employer or the Trustee to pay benefits under
the Plan, and to give such other directions and instructions
as may be necessary for the proper administration of the Plan;
and

F. to be responsible for the preparation, filing and disclosure
on behalf of the Plan of such documents and reports as are
required by any applicable federal or state law.

6.5 Employer's Responsibility to Administrator. The Employer shall furnish
the Administrator such data and information as it may reasonably
require. The records of the Employer shall be determinative of each
Participant's period of employment, termination of employment and the
reason therefor, leave of absence, reemployment, years of service,
personal data, and compensation reductions. Participants and their
Beneficiaries shall furnish to the Administrator such evidence, data or
information, and execute such documents, as the Administrator requests.

6.6 Liability. Neither the Administrator nor the Employer shall be liable
to any person for any action taken or omitted in connection with the
administration of the Plan unless attributable to its own fraud or
willful misconduct; nor shall the Employer be liable to any person for
such action unless attributable to fraud or willful misconduct on the
part of a director, officer or employee of the Employer.

- 16 -
<PAGE> 20

6.7 Payment of Expenses. All expenses of the Administrator incurred in the
operation or administration of the Plan shall be paid by the Employer.

6.8 Indemnity of Administrator. The Employer shall indemnify the
Administrator (or any individual who is a delegate) against any and all
claims, loss, damage, expense or liability arising from any action or
failure to act, except when due to gross negligence, willful misconduct
or breach of fiduciary duty.

SECTION 7

CLAIMS PROCEDURE

7.1 Claim. If a Participant or Beneficiary is denied all or a portion of an
expected Plan benefit for any reason, he must file a written
notification of his claim with the Administrator. The Administrator
shall notify the Participant or Beneficiary within 60 days of allowance
or denial of the claim. If the Administrator fails to notify the
claimant of his decision to grant or deny the claim within 60 days,
such claim shall be deemed to have been denied; and the review
procedure described in Section 7.2 shall become available to the
claimant.

The notice provided by the Administrator under this Section shall be in
writing, sent by mail to the Participant's last known address and, if a
denial, must contain the following information:

A. the specific reasons for the denial;

B. the specific reference to the pertinent Plan provision on
which the denial is based;

C. if applicable, a description of any additional information or
material necessary to perfect the claim, and an explanation of
why such information or material is necessary; and

D. an explanation of the claims review procedure and the time
limitations of the review procedure applicable thereto.

7.2 Review Procedure. A Participant or Beneficiary is entitled to request a
review of any denial of his claim by the Administrator. The request for
review must be submitted in writing within 60 days of mailing of notice
of the denial. Absent a request for review within the 60-day period,
the claim will be deemed to be conclusively denied. The Participant or
Beneficiary or his representative shall be entitled to review all
pertinent documents and to

- 17 -
<PAGE> 21

submit issues and comments in writing. The Administrator shall provide
a full and fair review of the claim and render the final decision.

7.3 Final Decision. Within 60 days of mailing of a request for review, the
Administrator shall allow or deny the claim, unless special
circumstances require an extension (such as for a hearing); provided,
however, that in no event shall the decision be delayed beyond 120 days
after receipt of the request for review. The decision shall be
communicated in writing to the Participant or Beneficiary. The decision
shall recite the facts and reasons for denial, with specific reference
to the pertinent Plan provisions.

SECTION 8

AMENDMENT AND TERMINATION

8.1 Plan Amendment. The Plan may be amended in whole or in part by the
Boards at any time.

8.2 No Premature Distribution. Subject to Section 8.3, no amendment hereto
shall permit amounts accumulated prior to the amendment to be paid to a
Participant or Beneficiary prior to the time he would otherwise be
entitled thereto.

8.3 Termination of the Plan. The Employer reserves the right to terminate
the Plan and/or the Deferral Agreement pertaining to any Participant at
any time prior to the commencement of benefits. In the event of any
such termination, the Employer shall pay a benefit to the Participant
or the Beneficiary of any deceased Participant, in addition to other
insurance benefits hereunder, equal to the vested value of the
Participant's Accounts.

SECTION 9

MISCELLANEOUS

9.1 Supplemental Benefits. The benefits provided for the Participants under
the Plan are in addition to benefits provided by any other plan or
program of the Employer and, except as otherwise expressly provided
herein, the benefits of the Plan shall supplement and shall not
supersede any plan or agreement between the Employer and any
Participant or any provisions contained herein.

- 18 -
<PAGE> 22

9.2 Governing Law; Jurisdiction. The Plan shall be governed and construed
under the laws of the Commonwealth of Pennsylvania, and the courts of
the Commonwealth of Pennsylvania shall have exclusive jurisdiction in
any or all actions not superseded by federal law.

9.3 No Assignment Permitted. No Participant, Beneficiary or anyone claiming
through them shall have any right to commute, sell, transfer, assign or
otherwise convey the right to receive any payment under the terms of
the Plan. Any such attempted assignment shall be considered null and
void.

9.4 Binding Terms. The terms of the Plan shall be binding upon and inure to
the benefit of the parties hereto, their respective heirs, executors,
administrators and successors.

9.5 Spendthrift Provision. The interest of any Participant or any
Beneficiary receiving payments hereunder shall not be subject to
anticipation, nor to voluntary or involuntary alienation, until
distribution is actually made.

9.6 Headings. All headings preceding the text of the several Sections
hereof are inserted solely for reference and shall not constitute a
part of this Plan, nor affect its meaning, construction or effect.

9.7 Rule of Interpretation. Where appropriate, words in the masculine
gender shall include the feminine and neuter genders.

- 19 -
<PAGE> 23

IN WITNESS WHEREOF, to record the adoption of the amendment
and restatement of the Plan, NovaCare and NCES have caused their respective
authorized officers to affix their corporate names and seals as of the day and
year first written above.

[CORPORATE SEAL] NOVACARE, INC.

Attest:_____________________________ By:__________________________________
Name:
Title:

[CORPORATE SEAL] NOVACARE EMPLOYEE
SERVICES, INC.

Attest:_____________________________ By:__________________________________
Name:
Title:

- 20 -

<PAGE> 1
EXHIBIT 11
NOVACARE EMPLOYEE SERVICES, INC.
CALCULATION OF PRO FORMA AND SUPPLEMENTAL PRO FORMA INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The following unaudited Pro Forma and Supplemental Pro Forma information should
be read in conjunction with the Company's Consolidated Financial Statements.

<TABLE>
<CAPTION>
Supplemental
Pro Forma Pro Forma
Information (1) Information (1)
--------------- ---------------

<S> <C> <C>
Net income ................................................ $ 692 $ 1,100
======= =======

Weighted average number of common shares outstanding
at June 30, 1997 ..................................... 18,576 18,576
Common shares issued and outstanding subsequent to
June 30, 1997 ........................................ 750 750
Assumed exercise of stock options, net of treasury shares
acquired ............................................. 284 284
Issuance of manditorily redeemable stock deemed a
common stock equivalent .............................. 663 663
Guaranteed shares, payable within two years of the date of
acquisition .......................................... 301 301
Additional shares required to be sold to retire outstanding
debt ................................................. -- 3,824
------- -------
Weighted average number of shares used in earnings per
share calculation .................................... 20,574 24,398
======= =======

Net income per common and common equivalent
share ................................................ $ .03 $ .05
======= =======
</TABLE>

(1) The put option associated with the manditorily redeemable common shares is
rendered inoperative if the Company files an initial public offering of its
common stock prior to two years from the date of acquisition (see Note 10 to the
Consolidated Financial Statements); such an event will have a significant impact
on the Company's capital structure and will affect earnings per share ("EPS").
Given the Company's plans to file a registration statement with the Securities
and Exchange Commission (see Note 13 to the Consolidated Financial Statements),
historical EPS has been excluded from the accompanying financial statements. Pro
Forma Net Income Per Common Share (unaudited) is computed by dividing net
income, without consideration to the accretion of manditorily redeemable common
stock (see Note 10 to the Consolidated Financial Statements), by the number of
shares of common stock and common stock equivalent outstanding as of July 31,
1997. Given that all shares issued prior to July 31, 1997 were issued at prices
significantly below the estimated offering price in the Company's initial public
offering, all shares and options issued are considered to be outstanding since
inception of the Company, using the treasury stock method, for the purposes of
calculating the Pro Forma EPS (unaudited).

The Company intends to use a portion of the net proceeds from the offering of
4,500,000 shares of its common stock to retire certain indebtedness (see Note 13
to the Consolidated Financial Statements), the Company has presented
Supplemental Pro Forma Net Income Per Common Share (unaudited) in the
accompanying financial statements. Supplemental EPS (unaudited) is computed by
dividing net income, adjusted for the elimination of applicable interest
expense, net of related income tax effect, by total outstanding shares as of
July 31, 1997 plus estimated additional shares required to be sold to retire
outstanding debt.

<PAGE> 1
EXHIBIT 21

EXHIBIT 21 - LIST OF SUBSIDIARIES

NovaCare Employee Services Resource One, Inc.
NovaCare Employee Services of Orlando, Inc.
Professional Insurance Planners of Florida, Inc.
Rx One, Inc.
NovaCare Employee Services TPI, Inc.
NovaCare Administrative Employee Services of New York, Inc.
NovaCare Employee Services Northeast, Inc.
NovaCare Employee Services of Boston, Inc.
NovaCare Employee Services of New York, Inc.
Staffing Technologies, Inc.
Herotech, Inc.
NovaCare Employee Services of America, Inc.
Employee Benefits Management, Inc.
Employee Services, Inc. of North Carolina
Employers' Risk Management, Inc.
NovaCare Administrative Employee Services, Inc.
NovaCare Employee Services Club Staff, Inc.
NovaCare Employee Services of Bradenton, Inc.
NovaCare Employee Services of Florida, Inc.

<PAGE> 1
Exhibit 23(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 31, 1997, relating
to the financial statements of NovaCare Employee Services, Inc., which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the year ended June 30, 1997 listed under Item
16(b) of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audit referred to
in such report also included this schedule. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."

Price Waterhouse LLP

Philadelphia, Pennsylvania
September 4, 1997

<PAGE> 1
Exhibit 23(c)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 4, 1997, relating
to the financial statements of Resource One, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Brewer, Beemer, Kuehnhackl & Koon, P.A. has not prepared or audited such
"Selected Financial Data."

BREWER, BEEMER, KUEHNHACKL & KOON, P.A.

Orlando, Florida
September 5, 1997

<PAGE> 1
Exhibit 23(d)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated March 8, 1997 and April
17, 1997, relating to the combined financial statements of Employee Services of
America, Inc. and subsidiaries, which appears in such Prospectus. We also
consent to the references to our Firm under the heading "Experts" in such
Prosepectus.

Varnadore, Tyler, Hoffner, King,
Hawthorne, Hammer & Stathis, P.A.

Bradenton, Florida

September 5, 1997

<PAGE> 1
Exhibit 23(e)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We hereby consent to the use in this Registration Statement of our reports dated
March 7, 1997 and April 11, 1997, relating to the consolidated financial
statements of The TPI Group Ltd. and subsidiaries, and to the reference to our
firm under the caption "Experts" in the Prospectus.

LAZAR, LEVINE & COMPANY LLP

New York, New York
September 5, 1997

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM OCTOBER 1, 1996
(INCEPTION) TO JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK>
<NAME> NOVACARE EMPLOYEE SERVICES, INC.
<MULTIPLIER> IN THOUSANDS
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,782
<SECURITIES> 0
<RECEIVABLES> 36,758
<ALLOWANCES> (26)
<INVENTORY> 0
<CURRENT-ASSETS> 39,879
<PP&E> 1,491
<DEPRECIATION> (165)
<TOTAL-ASSETS> 95,998
<CURRENT-LIABILITIES> 88,721
<BONDS> 0
0
0
<COMMON> 192
<OTHER-SE> 109
<TOTAL-LIABILITY-AND-EQUITY> 95,998<F1>
<SALES> 0
<TOTAL-REVENUES> 394,193
<CGS> 0
<TOTAL-COSTS> 381,955
<OTHER-EXPENSES> 9,281
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> 2,234
<INCOME-TAX> 1,542
<INCOME-CONTINUING> 692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 692
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
<FN>
<F1>TOTAL LIABILITIES AND EQUITY INCLUDES MANDATORILY REDEEMABLE COMMON STOCK
OF $2,731
</FN>

</TABLE>