NEWCARE HEALTH CORP
8-K, 1997-09-11
SKILLED NURSING CARE FACILITIES
Previous: APARTMENT INVESTMENT & MANAGEMENT CO, 424B2, 1997-09-11
Next: FALCON BUILDING PRODUCTS INC, 424B1, 1997-09-11



                    U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                   FORM 8-K

                                CURRENT REPORT
                      Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                                 August 1, 1997
                 ------------------------------------------------
                 Date of Report (date of earliest event reported)

                           NEWCARE HEALTH CORPORATION
               ----------------------------------------------------
               Exact name of Registrant as Specified in its Charter

         Nevada                  0-24110              86-0594391
- ---------------------------   ---------------  ---------------------------
State or Other Jurisdiction   Commission File  IRS Employer Identification
     of Incorporation             Number                   Number

           6000 Lake Forrest Drive, Suite 315, Atlanta, Georgia  30328
           -----------------------------------------------------------
           Address of Principal Executive Offices, Including Zip Code

                                (404) 252-2923
               --------------------------------------------------
               Registrant's Telephone Number, Including Area Code

<PAGE>
ITEM 2.  ACQUISITION OR DISPOSITION OF ASSETS

     On August 1, 1997, a newly-formed, wholly-owned subsidiary of NewCare
Health Corporation (the "Company") purchased substantially all of the
assets of the Meadowbrook Rehabilitation Hospital located in Gardner,
Kansas.  The purchase price of this acquisition was approximately
$1,396,000.  Also on August 1, 1997, in a separate transaction, the
subsidiary acquired the building and the land where the Meadowbrook
Rehabilitation Hospital is located for $3,500,000.

     The Company financed these transactions through a loan of $4.5
million from HCFP Funding II, Inc. and approximately $396,000 from cash on
hand.  The loan is in the form of a secured bridge note which is due on
July 31, 1999.  The note bears interest at 3% over the prime rate and the
interest is payable monthly.  The Company paid the lender an origination
fee of 1% of the loan ($45,000) and will also pay the lender a success fee
equal to the greater of (i) 10% of the excess received from the sale,
refinancing or other disposition of the Meadow Rehabilitation Hospital over
$5 million or (ii) $150,000 if the disposition occurs within one year or
$300,000 if the disposition occurs after that time.  The note is secured by
all of the real estate and assets of the hospital.

     The Meadowbrook Rehabilitation Hospital is an 84 bed specialty
hospital located in Gardner, Kansas, approximately 20 miles southeast of
Kansas City, Kansas.  The facility focuses its care on acute and subacute
rehabilitation  as well as skilled nursing care.  The facility provides
physical therapy, occupational therapy, speech-language pathology and
respiratory therapy.

ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS.

     (a)  FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.  The financial
statements for the Meadowbrook Rehabilitation Hospital will be filed by
amendment on or before October 15, 1997.

     (b)  PRO FORMA FINANCIAL INFORMATION.  Pro forma financial
information will be filed by amendment on or before October 15, 1997.

     (c)  EXHIBITS.

         Exhibit 10.1   Asset Purchase Agreement with Meadowbrook 
                        Neurocare-Kansas City, Inc.

         Exhibit 10.2   Agreement of Sale (Real Estate)

         Exhibit 10.3   Secured Bridge Note and Security Agreement and
                        Mortgage, Assignment of Leases and Rents,
                        Security Agreement and Fixtures Filing

                                 SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, hereunto duly authorized.

                                    NEWCARE HEALTH CORPORATION

Dated: September 10, 1997           By/s/ James H. Sanregret
                                      James H. Sanregret,
                                      Chief Financial Officer


                       ASSET PURCHASE AGREEMENT
                               between
                      NEWCARE HEALTH CORPORATION
                                 and
                MEADOWBROOK NEUROCARE-KANSAS CITY, INC.
                        Dated as of June 18, 1997
<PAGE>
                           TABLE OF CONTENTS
                                                                    Page
1.  Sale and Transfer of Assets; Closing                             1
    1.1  Assets                                                      1
    1.2  Excluded Assets                                             2
    1.3  Assumed Liabilities                                         3
    1.4  Excluded Liabilities                                        3
    1.5  Purchase Price                                              4
    1.6  Closing                                                     4
    1.7  Closing Obligations                                         4
    1.8  Proration                                                   5
    1.9  Allocation of Purchase Price                                5

2.  Representations and Warranties of Seller                         6
    2.1  Organization and Good Standing                              6
    2.2  Authority; No Conflict                                      6
    2.3  Financial Statements                                        7
    2.4  Taxes                                                       7
    2.5  Employee Benefits                                           7
    2.6  Compliance With Legal Requirements; Governmental 
           Authorizations                                            8
    2.7  Legal Proceedings; Orders                                   8
    2.8  Absence of Certain Changes and Events                       9
    2.9  Contracts; No Defaults                                     10
    2.10 Insurance                                                  11
    2.11 Employees                                                  11
    2.12 Brokers or Finders                                         11
    2.13 Regulatory Compliance                                      12
    2.14 Title and Encumbrances                                     12

3.  Representations and Warranties of Buyer                         12
    3.1  Organization and Good Standing                             12
    3.2  Authority; No Conflict                                     12
    3.3  Certain Proceedings                                        13
    3.4  Brokers or Finders                                         13
    3.5  "AS IS" Purchase                                           13

4.  Covenants of Seller                                             13
    4.1  Access and Investigation                                   13
    4.2  Operation of the Businesses of Seller                      14
    4.3  Negative Covenant                                          14
    4.4  Required Approvals                                         14
    4.5  Notification                                               14
    4.6  Press Releases                                             15
    4.7  Reasonable Best Efforts                                    15

5.  Covenants of Buyer                                              15
    5.1  Approvals of Governmental Bodies                           15
    5.2  Reasonable Best Efforts                                    15
    5.3  Press Releases                                             15
    5.4  Employee Matters                                           15
                                  -i-
<PAGE>
6.  Conditions Precedent to Buyer's Obligation to Close             17
    6.1  Accuracy of Representations                                17
    6.2  Seller's Performance                                       17
    6.3  Consents                                                   17
    6.4  Sale of Real Property                                      17
    6.5  No Injunction                                              17

7.  Conditions Precedent to Seller's Obligation to Close            17
    7.1  Accuracy of Representations                                18
    7.2  Buyer's Performance                                        18
    7.3  No Injunction                                              18

8.  Termination                                                     18
    8.1  Termination Events                                         18
    8.2  Effect of Termination                                      19

9.  Indemnification                                                 19
    9.1  Survival                                                   19
    9.2  Indemnification and Payment of Damages by Seller           19
    9.3  Indemnification and Payment of Damages by Buyer            20
    9.4  Limitations on Amount -- Seller                            20
    9.5  Limitations on Amount -- Buyer                             20
    9.6  Procedure for Indemnification -- Third Party Claims        20
    9.7  Procedure for Indemnification -- Other Claims              21

10. Medicare, Medicaid and Insurance Reporting.                     21
    10.1  Notice of Transaction                                     21
    10.2  Cost Reports                                              21
    10.3  Access                                                    22
    10.4  Notice                                                    22

11. Definitions                                                     22

12. General Provisions                                              25
    12.1  Expenses                                                  25
    12.2  Confidentiality                                           26
    12.3  Notices                                                   26
    12.4  Further Assurances                                        27
    12.5  Waiver                                                    27
    12.6  Entire Agreement and Modification                         28
    12.7  Assignments, Successors and no Third-Party Rights         28
    12.8  Severability                                              28
    12.9  Section Headings, Construction                            28
    12.10 Time of Essence                                           28
    12.11 Governing Law                                             28
    12.12 Counterparts                                              29
                                  -ii-
<PAGE>
                       ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of June
18, 1997 by and between NEWCARE HEALTH CORPORATION, a Nevada corporation
("Buyer"), and MEADOWBROOK NEUROCARE-KANSAS CITY, INC., a Kansas
corporation ("Seller").

                              RECITALS

     WHEREAS, Seller operates Meadowbrook Hospital of Kansas, a 84-bed
specialty hospital located at 427 W. Main Street, Gardner, Kansas (the
"Hospital");

     WHEREAS, Seller desires to sell, and Buyer desires to purchase, the
assets used by Seller in the operation of the Hospital; and

     WHEREAS, concurrently with the execution of this Agreement by the
parties hereto, Buyer is entering into an agreement to purchase the real
estate on which the Hospital facility is located and the buildings and
improvements thereon from the owner thereof.

     AGREEMENT

     The parties, intending to be legally bound, agree as follows:

     1.  Sale and Transfer of Assets; Closing.

     1.1  Assets.  Subject to the terms and conditions of this Agreement,
at the Closing, Seller will sell, convey and transfer to Buyer, and Buyer
will purchase from Seller, the following assets (the "Assets"):

     (a)  All of Seller's right, title and interest in and to the
equipment, furniture, machinery, vehicles, tools and similar items of
tangible personal property owned by Seller as of the Closing;

     (b)  All of Seller's right, title and interest in and to the
Contracts listed in Schedule 2.9(a) hereto, to the extent the same are
transferable to Buyer;

     (c)  All of Seller's medical and financial records for patients
treated at the Hospital prior to the Closing, provided that Buyer agrees to
retain such records for the period required by law and to make them
available to Seller and its representatives as requested;

     (d)  All of Seller's right, title and interest in and to the
inventories of supplies, drugs, disposable goods, and other similar items
of tangible personal property owned by the Seller as of the Closing and
intended to be consumed, disposed of or sold in the ordinary course of
business of the Hospital;

     (e)  All of Seller's right, title and interest in and to the
Governmental Authorizations listed in Schedule 2.6; provided that such
Governmental Authorizations shall be included in the Assets only to the
extent that they are lawfully transferable;

     (f)  All of Seller's right, title and interest in and to the business
names set forth in Schedule 1.1(f);
                                  -1-
<PAGE>
     (g)  All of Seller's right, title and interest in and to unexpired
warranties as of the Closing that are transferable to Buyer which the
Seller has received from third parties with respect to the Assets,
including, but not limited to, such warranties as are set forth in any
construction agreement, lease agreement, equipment purchase agreement,
consulting agreement or agreement for architectural and engineering
services;

     (h)  All of Seller's right, title and interest in and to advance
payments, prepayments, prepaid expenses, deposits and the like (other than
pre-paid insurance) made by Seller with respect to which Buyer will receive
the benefit after the Closing, and other items recorded as prepaid expenses
by Seller;

     (i)  All of Seller's right, title and interest in and to the books,
records, files and papers as of the Closing, whether in tangible or
intangible form, used in, or relating in any way to, the Hospital or the
Assets, including sales and promotional literature, sales and purchase
correspondence, lists of present and former suppliers, lists of present and
former patients, and personnel and employment records; and

     (j)  All of Seller's right, title and interest in and to the goodwill
of the business evidenced by the Assets, and except for Excluded Assets,
any and all other assets of Seller utilized solely in the operations of the
Hospital as conducted prior to the Closing Date, whether or not such assets
have any value for accounting purposes.

     1.2  Excluded Assets.  The parties hereto agree that the following
assets of Seller are excluded from the purchase and sale contemplated
hereby (the "Excluded Assets"):

     (a)  All of Seller's right, title and interest in and to the cash and
cash equivalents of Seller as of the Closing;

     (b)  All of Seller's right, title and interest in and to assets
resulting from the finalization with cost-based payors of amounts due with
respect to cost reports to the extent that such cost reports cover any
period prior to the Closing Date;

     (c)  All Accounts Receivable (as defined in Section 11); and

     (d)  All of Seller's right, title and interest in and to any asset
resulting from Seller's request for an exception from the routine cost
limitation under the Medicare Program with respect to the operations of the
Hospital during any period prior to the Closing Date.

     1.3  Assumed Liabilities.  Subject to the terms and conditions set
forth in this Agreement, Buyer shall assume at the Closing and pay,
discharge and perform as and when due all liabilities and obligations
incurred by Buyer in the operation of the Hospital after the Closing and
the following obligations and liabilities, but excluding all Excluded
Liabilities as defined in Section 1.4 (collectively, the "Assumed
Liabilities"):

     (a)  All liabilities and obligations of the Seller which pertain to
or are to be performed during the period following the Closing and which
arise under any agreement specified in Schedule 2.9(a) (the "Assumed 
                                  -2-
<PAGE>
Contracts") or any Governmental Authorization specified in Schedule 2.6
(the "Assumed Permits") included in the Assets; and

     (b)  Seller's liabilities to employees of Seller as of the Closing
Date for accrued sick leave and accrued vacation time.

     1.4  Excluded Liabilities.  The parties hereto agree that liabilities
and obligations of Seller not expressly described in Section 1.3 are not
intended to be part of the Assumed Liabilities, and Buyer shall not assume
or become obligated with respect to any other obligation or liability of
Seller (collectively, "Excluded Liabilities"), including, but not limited
to, the liabilities and obligations described in this Section, all of which
shall remain the sole responsibility of Seller.  Without limiting the
generality of the foregoing, Buyer shall not assume and shall have no
liability or obligation of any kind for or with respect to any of the
following:

     (a)  Any of Seller's liabilities or obligations with respect to
Taxes.

     (b)  Liabilities or obligations of Seller arising from the breach by
Seller on or prior to the Closing Date of any term, covenant, or provision
of any of the Assumed Contracts or Assumed Permits;

     (c)  Liabilities or obligations of Seller now existing or which may
hereafter exist by reason of any alleged violation of any Legal Requirement
by Seller on or prior to the Closing Date; or

     (d)  Liabilities or obligations of Seller now existing or which may
hereafter exist by reason of any liability to refund any payment or
reimbursement received by Seller from any payor which is attributable to
any period of time ending on or prior to the Closing Date; or

     (e)  Accounts Payable (as defined in Section 11).

     1.5  Purchase Price.  (a) The purchase price (the "Purchase Price")
for the Assets will be one million five hundred thousand dollars
($1,500,000) less an amount equal to the sum of (i) Seller's estimate of
the aggregate dollar amount of accrued vacation time and (ii) Seller's
estimate of one-half of the aggregate dollar amount of accrued sick leave,
in each case of all employees of Seller as of the Closing Date.

     (b)  As soon as reasonably practicable after the Closing, Seller and
Buyer shall determine the actual sum of (i) the aggregate dollar amount of
accrued vacation time and (ii) one-half of the aggregate dollar amount of
accrued sick leave, in each case of all employees of the Company as of the
Closing Date.  If such amount is greater than the estimate used in
determining the Purchase Price pursuant to Section 1.5(a), then Seller
shall promptly deliver a check for the amount of such difference to Buyer. 
If such amount is less than the estimate used in determining the Purchase
Price pursuant to Section 1.5(a), then Buyer shall promptly deliver a check
for the amount of such difference to Seller.

     1.6  Closing.  The purchase and sale (the "Closing") provided for in
this Agreement will take place (a) at the offices of Seller, 427 W. Main
Street Gardner, Kansas, at 10:00 a.m. (local time) on the third business
day after which the last to be fulfilled or waived of the 
                                  -3-
<PAGE>
conditions set forth in Sections 6 and 7 (other than those conditions that
by their nature are to be satisfied at Closing, but subject to the
fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (b) at such other time and place as the
parties may agree (the "Closing Date").

     1.7  Closing Obligations.  At the Closing:

     (a)  Seller will deliver to Buyer:

          (i)  instruments of conveyance and assignment with respect to
the transfer of the Assets to Buyer;

          (ii) a certificate executed by Seller representing and
warranting to Buyer that each of Seller's representations and warranties in
this Agreement was accurate in all material respects as of the date of this
Agreement and is accurate in all material respects as of the Closing Date
as if made on the Closing Date (giving full effect to any supplements to
the Schedules hereto that were delivered by Seller to Buyer prior to the
Closing Date in accordance with Section 4.5); and

     (b)  Buyer will deliver to Seller:

          (i)  the Purchase Price by wire transfer of immediately
available funds to an account identified by Seller;

          (ii)  instruments of assumption with respect to the assumption
of the Assumed Liabilities by Buyer; and

          (iii)  a certificate executed by Buyer to the effect that,
except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in all
material respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date.

     1.8  Proration.

     (a)  Seller shall pay and perform all Excluded Liabilities (including
Accounts Payable) and Buyer shall pay and perform all Assumed Liabilities. 
Buyer and Seller shall cooperate after the Closing to effect the allocation
of liabilities and obligations referred to in the preceding sentence.  In
the event of liabilities or obligations that include Excluded Liabilities
and Assumed Liabilities (such as utility bills and property taxes that
cover periods before and after the Closing), such liabilities or
obligations shall be paid by Buyer and Buyer shall be reimbursed by Seller
within 30 days thereafter (on a prorated basis) with respect to that
portion of the liability or obligation that is an Excluded Liability.

     (b)  If after the Closing, Buyer or Seller receives any payment that
includes Assets and Excluded Assets such party shall promptly notify the
other.  Such payment shall be allocated to Buyer to the extent that it is
an Asset and to Seller to the extent that it is an Excluded Asset and
reimbursement in accordance with such allocation shall be made by the
appropriate party no later than 30 days after he first party's receipt of
such payment.
                                  -4-
<PAGE>
     1.9  Allocation of Purchase Price.  The Purchase Price of the Assets
shall be allocated in the manner set forth in Schedule 1.9 hereto.  Each of
the parties agrees to report this transaction for Tax purposes in
accordance with such allocation.

     2.  Representations and Warranties of Seller.

     Seller represents and warrants to Buyer as follows:

     2.1  Organization and Good Standing.  Seller is a corporation duly
organized, validly existing, and in good standing under the laws of Kansas,
with full corporate power and authority to conduct its business as it is
now being conducted.

     2.2  Authority; No Conflict.

     (a)  This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance with its
terms.  Seller has the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and to perform its
obligations hereunder.

     (b)  Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby
will, directly or indirectly (with or without notice or lapse of time)
contravene, conflict with, or result in a violation of:

          (i)  any provision of the Articles of Incorporation Bylaws of
Seller, or any resolution adopted by the board of directors or the
stockholders of Seller;

          (ii)  any Legal Requirement or any Order to which the Seller,
or any of the assets owned or used by Seller, may be subject;

          (iii)  any Governmental Authorization that is held by Seller or
that otherwise relates to the business of, or any of the assets owned or
used by, Seller;

          (iv)  any material Contract of Seller.

     (c)  Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby
will, directly or indirectly (with or without notice or lapse of time)
result in the imposition or creation of any Encumbrance upon or with
respect to any of the assets owned or used by Seller.

     (d)  Except as set forth in Schedule 2.2(d), Seller is not and will
not be required to give any notice to or obtain any consent from any Person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions contemplated hereby.

     2.3  Financial Statements.

     (a)  Schedule 2.3(a) sets forth the balance sheet of Seller as of
June 30, 1996, and the related statement of income and retained earnings
for the 12-month period ended June 30, 1996 (the "June 30, 1996 Financial
Statements").  The June 30, 1996 Financial Statements have been prepared
                                  -5-
<PAGE>
in accordance with generally accepted accounting principles consistently
applied by Seller through the period indicated, and fairly present the
financial position of Seller as of June 30, 1996 and the results of its
operations for the 12-month period then ended.

     (b)  Schedule 2.3(b) sets forth the balance sheet of Seller as of
March 31, 1997, and the related statement of income and retained earnings
for the 9-month period ended March 31, 1997 (the "March 31, 1997 Financial
Statements" and together with the June 30, 1996 Financial Statements, the
"Seller Financial Statements").  The March 31, 1997 Financial Statements
have been prepared in accordance with generally accepted accounting
principles consistently applied, subject to normal recurring year end
adjustments, and fairly present the financial position of Seller as of
March 31, 1997, and the results of its operations for the 9-month period
then ended.

     2.4  Taxes.

     (a)     Seller has filed or caused to be filed all Tax returns that it
is or was required to file pursuant to applicable Legal Requirements. 
Seller has made available to Buyer copies of all such Tax returns.  Seller
has paid, or made provision for the payment of, all Taxes that have or may
have become due pursuant to those Tax returns or otherwise, or pursuant to
any assessment received by Seller.

     (b)     There exists no proposed tax assessment against Seller.  All
Taxes that Seller is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Body or other Person.

     2.5  Employee Benefits.  Schedule 2.5 lists each pension benefit,
welfare benefit, stock option, stock purchase, disability, vacation pay,
incentive bonus, severance pay, deferred compensation, supplemental income
or other employee benefit plan, policy or arrangement or agreement,
including each "employee benefit plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by or contributed to by the Seller and its ERISA
Affiliates (collectively referred to as "Employee Plans") covering current
or former employees of Seller or their dependents or survivors.  Seller has
provided or, upon Buyer's reasonable request, will provide or make
available to Buyer prior to the Closing Date complete, accurate and current
copies of the plan document(s) of each Employee Plan, summary plan
descriptions and other descriptive materials provided to employees and, in
the case of an Employee Plan intended to qualify under section 401(a) of
the Code, a copy of the most recent Internal Revenue Service determination
letter of such Employee Plan's qualified status.

     2.6  Compliance With Legal Requirements; Governmental Authorizations.

     (a)  Seller is, and at all times since June 30, 1995 has been, in full
compliance with each Legal Requirement that is or was applicable to it or
to the conduct or operation of its business or the ownership or use of any
of its assets, other than those Legal Requirements the failure with which
to comply would not have a material adverse effect on Seller.
                                  -6-
<PAGE>
     (b)  Schedule 2.6 contains a complete and accurate list of each
Governmental Authorization that is held by Seller or that otherwise relates
to the business of, or to any of the assets owned or used by, Seller.  Each
Governmental Authorization listed or required to be listed in Schedule 2.6
is valid and in full force and effect.  Except as set forth in Schedule
2.6:

          (i)  Seller is, and at all times since June 30, 1995 has been, in
full compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Schedule 2.6 other
than those terms and conditions the failure with which to comply would not
have a material adverse effect on Seller; and

          (ii)  all applications required to have been filed for the
renewal of the Governmental Authorizations listed or required to be listed
in Schedule 2.6 have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.

The Governmental Authorizations listed in Schedule 2.6 constitute all of
the Governmental Authorizations necessary to permit Seller to lawfully
conduct its business in the manner currently conducted and to permit Seller
to own and use its assets in the manner in which they are currently owned
and used.

     2.7  Legal Proceedings; Orders.

     (a)  Except as set forth in Schedule 2.7, there is no pending
Proceeding:

          (i)  that has been commenced by or against Seller or that
otherwise relates to or may affect the business of, or any of the assets
owned or used by, Seller; or

          (ii)  that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated hereby.

To the Knowledge of Seller, after reasonable inquiry, (A) no such
Proceeding has been Threatened, and (B) no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any such Proceeding.

     (b)  There is no Order to which Seller, or any of the assets owned or
used by Seller, is subject.

     2.8  Absence of Certain Changes and Events.  Except as set forth in
Schedule 2.8, since June 30, 1996, Seller has conducted its business only
in the ordinary course of business and there has not been any:

     (a)  payment or increase by Seller of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business) employee, or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
                                  -7-
<PAGE>
     (b)  adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of Seller;

     (c)  damage to or destruction or loss of any asset or property of
Seller, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of Seller;

     (d)  sale (other than in the ordinary course of business), lease, or
other disposition of any asset or property of Seller or mortgage, pledge,
or imposition of any lien or other Encumbrance on any material asset or
property of Seller; or


     (e)  agreement, whether oral or written, by Seller to do any of the
foregoing.

     2.9  Contracts; No Defaults.

     (a)  Schedule 2.9(a) contains a complete and accurate list, and
Seller has delivered to Buyer true and complete copies, of:

          (i)  each Contract that involves performance of services or
delivery of goods or materials by or to Seller of an amount or value in
excess of $5,000;

          (ii)  each Contract that was not entered into in the ordinary
course of business and that involves expenditures or receipts by Seller in
excess of $5,000;

          (iii)  each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting
the ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $5,000 and with terms of less than one
year);

          (iv)  each joint venture, partnership, and other Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by Seller with any other Person;

          (v)  each Contract containing covenants that in any way purport
to restrict the business activity or limit the freedom of Seller to engage
in any line of business or to compete with any Person;

          (vi)  each Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for
goods;

          (vii)  each Contract for capital expenditures in excess of
$10,000;

          (viii)  each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by Seller
other than in the ordinary course of business; and
                                  -8-
<PAGE>
          (ix)  each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.

Schedule 2.9(a) identifies each such Contract, copies of which have been
furnished to Buyer.

     (b)  Each Contract identified or required to be identified in
Schedule 2.9(a) is in full force and effect and is valid and enforceable in
accordance with its terms.

     (c)  Seller is, and at all times since June 30, 1995 has been, in
full compliance with all material terms and requirements of each Contract
under which Seller has or had any obligation or liability or by which
Seller or any of the assets owned or used by Seller is or was bound.

     (d)  There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Seller under current or completed Contracts with any Person and, to the
Knowledge of Seller, no such Person has made written demand for such
renegotiation.

     2.10  Insurance.

     (a)  Seller has delivered to Buyer true and complete copies of all
policies of insurance and all pending applications for policies of
insurance to which Seller is a party or under which Seller is or has been
covered at any time within the two years preceding the date of this
Agreement.

     (b)(i)  Seller has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any policy is not willing or able to perform its obligations
thereunder.

          (ii)  Seller has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to which Seller is a
party or that provides coverage to Seller or a director thereof.

     2.11  Employees.  Schedule 2.11 contains a complete and accurate list
of the following information for each employee of Seller, including each
employee on leave of absence or layoff status: name; job title; current
compensation; vacation accrued; and service credited for purposes of
vesting and eligibility to participate under Seller's Employee Plans. 
Seller is not a party to or subject to any labor union or collective
bargaining agreement and there are no pending or threatened claims of
unfair labor practices against Seller.

     2.12  Brokers or Finders.  Seller and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with
this Agreement.

     2.13  Regulatory Compliance.
                                  -9-
<PAGE>
     (a)  The Hospital is licensed as a Specialty Hospital under the laws
of the State of Kansas.  The Hospital is in material compliance with the
terms of such license.

     (b)  The Hospital is qualified for participation in the Medicare and
Medicaid programs and has a provider contract and a provider number with
each such program.  The Hospital is in material compliance with all of the
laws, regulations and conditions of participation applicable to such
programs and has no knowledge of any pending or Threatened investigation
relating to such program by any Governmental Body.

     (c)  To Seller's Knowledge, neither Seller nor any of its employees
have committed a violation of the Medicare fraud and abuse provisions or
any similar provisions of any Legal Requirement relating to kickbacks,
illegal referrals, illegal billings or the like.

     2.14  Title and Encumbrances.  Seller has valid title to and
possession of, or holds a valid leasehold interest in, the Assets free and
clear of all Encumbrances, except for liens for taxes not yet due and
payable.

     3.   Representations and Warranties of Buyer.  Buyer represents and
warrants to Seller as follows:

     3.1  Organization and Good Standing.  Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Nevada.

     3.2  Authority; No Conflict.

     (a)  This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms.  Buyer has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and to perform its obligations
hereunder.

     (b)  Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby
will contravene, conflict with, result in a violation of or give any Person
the right to prevent, delay, or otherwise interfere with any of the
transactions contemplated hereby pursuant to:

          (i)  any provision of Buyer's Articles of Incorporation or
Bylaws;

          (ii)  any resolution adopted by the board of directors or the
stockholders of Buyer;

          (iii)  any Legal Requirement or Order to which Buyer may be
subject; or

          (iv)  any material Contract to which Buyer is a party or by
which Buyer may be bound.

          (c)     Buyer is not and will not be required to obtain any
consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
                                  -10-
<PAGE>
     3.3  Certain Proceedings.  There is no pending Proceeding that has
been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated hereby.  To Buyer's Knowledge, no such
Proceeding has been Threatened.

     3.4  Brokers or Finders.  Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or other similar payment in
connection with this Agreement.

     3.5  "AS IS" Purchase.  Buyer acknowledges and agrees that Seller
makes no representation or warranty, either express or implied, with
respect to the physical condition of the Assets, their fitness or
suitability for any particular purpose.  In this respect, Buyer confirms
that it is relying upon its investigation of the Assets to purchase the
same on an "AS IS" basis and in "WITH ALL FAULTS" condition.  Without
limiting the generality of the foregoing, Buyer hereby acknowledges that,
except as otherwise specifically provided in this Agreement, neither
Seller, nor any of its officers, employees or agents, has made any warranty
regarding the physical condition of the Assets, including, but not limited
to, any warranty of merchantability or warranty of suitability for a
particular purpose, and Buyer hereby expressly disclaims the implied
warranty of merchantability, the implied warranty of fitness for a
particular purpose, and all expressed or implied warranties relating to the
quality of or otherwise relating to the physical condition of the Assets.

     4.     Covenants of Seller.

     4.1  Access and Investigation.  Between the date of this Agreement
and the Closing Date, Seller will (a) afford Buyer and its representatives
reasonable access to Seller's personnel, properties, contracts, books and
records, and other documents and data, (b) furnish Buyer and Buyer's
representatives with copies of all such contracts, books and records, and
other existing documents and data regarding Seller as Buyer may reasonably
request, and (c) furnish Buyer and Buyer's representatives with such
additional financial, operating, and other data and information regarding
Seller as Buyer may reasonably request.

     4.2  Operation of the Businesses of Seller.  Between the date of this
Agreement and the Closing Date, Seller will:

     (a)  conduct its business only in the ordinary course;

     (b)  use its best efforts to preserve intact the current business
organization of Seller, keep available the services of the current
officers, employees, and agents of Seller, and maintain the relations and
goodwill with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with Seller; and

     (c)  confer with Buyer governing operational matters of a material
nature.
                                  -11-
<PAGE>
     4.3  Negative Covenant.  Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date,
Seller will not without the prior consent of Buyer, take any affirmative
action, or fail to take any reasonable action within their or its control,
as a result of which any of the changes or events listed in Section 2.8 is
likely to occur.

     4.4  Required Approvals.  As promptly as practicable after the date
of this Agreement, Seller will make all filings required by Legal
Requirements to be made by them in order to consummate the transactions
contemplated hereby.  Between the date of this Agreement and the Closing
Date, Seller will (a) cooperate with Buyer with respect to all filings that
Buyer elects to make or is required by Legal Requirements to make in
connection with the transactions contemplated hereby, and (b) cooperate
with Buyer in obtaining all consents identified in Schedule 2.2(d).

     4.5  Notification.  Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller
becomes aware of any fact or condition that causes or constitutes a breach
of any of Seller's representations and warranties as of the date of this
Agreement, or if Seller becomes aware of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition.  Should
any such fact or condition require any change to any Schedule if the
Schedule were dated the date of the occurrence or discovery of any such
fact or condition, Seller will promptly deliver to Buyer a supplement to
the Schedule specifying such change.  During the same period, Seller will
promptly notify Buyer of the occurrence of any breach of any covenant of
Seller in this Section 4 or of the occurrence of any event that may make
the satisfaction of the conditions in Section 6 impossible or unlikely.

     4.6  Press Releases.  Seller will not make any public statement or
issue any press release without first providing a copy of such statement or
release to Buyer for Buyer's review and approval, which approval shall not
be unreasonably withheld.

     4.7  Reasonable Best Efforts.  Between the date of this Agreement and
the Closing Date, Seller will use its reasonable best efforts to cause the
conditions in Sections 6 and 7 to be satisfied.

     5.  Covenants of Buyer.

     5.1  Approvals of Governmental Bodies.  As promptly as practicable
after the date of this Agreement, Buyer will make all filings required by
Legal Requirements to be made by it to consummate the transactions
contemplated hereby.  Between the date of this Agreement and the Closing
Date, Buyer will cooperate with Seller with respect to all filings that
Seller is required by Legal Requirements to make in connection with the
transactions contemplated hereby.

     5.2  Reasonable Best Efforts.  Between the date of this Agreement and
the Closing Date, Buyer will use its reasonable best efforts to cause the
conditions in Sections 6 and 7 to be satisfied.
                                  -12-
<PAGE>
     5.3  Press Releases.  Buyer will not make any public statement or
issue any press release without first providing a copy of such statement or
release to Seller for Seller's review and approval, which approval shall
not be unreasonably withheld.

     5.4  Employee Matters.

     (a)  Employment Terms.  Buyer shall offer to employ, effective as of
the Closing Date, those persons who were the employees of the Seller
immediately prior to the Closing ("Employees") and shall continue to employ
such Employees (to the extent that they accept such offer of employment)
for so long as Buyer deems appropriate in the operation of the Hospital's
business.  Buyer shall not reduce, at least until the 90th day following
the Closing Date, the compensation applicable to such Employees on the day
immediately prior to the Closing Date.  Buyer shall be liable for all
salary and benefit continuation and any severance payments payable on
account of the termination of employment of any Employee on or after the
Closing Date.  Buyer shall also be liable for all notices, payments, fines
or assessments due to any Government Body with respect to the employment,
discharge or layoff of Employees on or after the Closing Date, including
such liability as arises under the Worker Adjustment and Retraining
Notification Act.

     (b) 401(k) Plan.  Effective as of the Closing Date, the Employees
shall cease to be eligible to participate in the Meadowbrook Rehabilitation
Group, Inc. 401(k) Plan (the "Seller's Plan") for periods after the Closing
Date.  The Buyer will use reasonable best efforts to establish, on or
before December 31, 1997, a 401(k) plan, qualified under Code sections
401(a) and 401(k), offering participation to Employees (the "Buyer's
Plan").  In the event that Buyer's Plan is established, Seller and Buyer
shall arrange for the transfer of the Seller's Plan accounts for the
active, inactive and former employees of Seller (the "Accounts"), such
Accounts to be valued as of the last business day before the transfer is
effected from the Seller's Plan to the Buyer's Plan and Buyer agrees to
cooperate with Seller in directing the trustee of any trust in which the
assets of the Seller's Plan are invested to transfer the Accounts to the
new trustee or other funding agent appointed under the Buyer's Plan.  In
the event that Buyer's Plan is established, Buyer's Plan will preserve Code
section 411(d)(6) protected benefits with respect to Seller's Employees and
former employees.  The transfer of the Accounts shall occur as soon as
practicable after the receipt by Seller of Buyer's certification that Buyer
has received or requested a favorable determination letter for the Buyer's
Plan from the Internal Revenue Service.

     (c)  Health Plan.  Effective as of the Closing Date, the Employees
shall cease to be eligible to participate in the Meadowbrook Rehabilitation
Group, Inc. health, dental, vision, pharmacy, short-term disability and
long-term disability plans (the "Seller's Health Plans") for periods after
the Closing Date (except as required by COBRA).  Effective as of the
Closing Date, Employees (to the extent that they accept Buyer's offer of
employment pursuant to Section 5.4) shall commence participating in the
health plans of Buyer (the "Buyer's Health Plans").  Buyer shall use its
reasonable best efforts to cause the Buyer's Health Plans to provide
benefits comparable to those provided under Seller's Health Plans.  With
respect to the participation of Employees under the Buyer's Health Plans,
Buyer shall (i) waive all pre-existing conditions, limitations and waiting
periods other than
                                  -13-
<PAGE>
limitations and waiting periods that were in effect under the Seller's
Health Plans and that were not satisfied as of the Closing Date, and (ii)
provide each Employee with credit for co-payments, deductibles or other
out-of-pocket requirements paid prior to the Closing Date under the
Seller's Health Plans in satisfying the co-payment, deductibles or other
out-of-pocket requirements under the Buyer's Health Plans.

     (d)  Third Party Beneficiaries.  It is understood and agreed between
Buyer and Seller that all provisions contained in this Agreement with
respect to employee benefit plans or employee compensation or employment
are included for the sole benefit of Buyer and Seller and do not and shall
not create any right in any other person, including, but not limited to,
any employee, any participant in any benefit or compensation plan or any
beneficiary thereof.

     (e) Action by Buyer's Affiliates.  Any action required by Buyer
pursuant to this Section 5.4 shall be deemed satisfied to the extent such
action is taken by an affiliate of Buyer. 

     6.  Conditions Precedent to Buyer's Obligation to Close.  Buyer's
obligation to purchase the Assets and to take the other actions required to
be taken by Buyer at the Closing are subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):

     6.1  Accuracy of Representations.  All of Seller's representations
and warranties in this Agreement (considered collectively), and each of
these representations and warranties (considered individually), must have
been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if
made on the Closing Date, giving effect to any supplement to any Schedule.

     6.2  Seller's Performance.

     (a)  All of the covenants and obligations that Seller is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.

     (b)  Seller must have delivered each of the documents required to be
delivered by Seller pursuant to Section 1.7.

     6.3  Consents.  Each consent listed in Schedule 2.2(d) and marked
with an asterisk, must have been obtained and must be in full force and
effect.

     6.4  Sale of Real Property.  The closing under that certain Agreement
of Sale, dated the date hereof, between Buyer and Harvey William Glasser
shall occur simultaneously with the Closing hereunder.

     6.5  No Injunction.  There must not be in effect any Legal
Requirement or any injunction or other Order that prohibits the sale of the
Assets by Seller to Buyer.
                                  -14-
<PAGE>
     7.  Conditions Precedent to Seller's Obligation to Close.  Seller's
obligation to sell the Assets and to take the other actions required to be
taken by Seller at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be
waived by Seller, in whole or in part).

     7.1  Accuracy of Representations.  All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must
be accurate in all material respects as of the Closing Date as if made on
the Closing Date.

     7.2  Buyer's Performance.

     (a)  All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.

     (b)  Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 1.7 and must have made the payment
required to be made by Buyer pursuant to Section 1.7.

     7.3  No Injunction.  There must not be in effect any Legal
Requirement or any injunction or other Order that prohibits the sale of the
Assets by Seller to Buyer.

     7.4  Distribution of Information Statement.  Seller's parent
corporation, Meadowbrook Rehabilitation Group, Inc. ("Parent"), shall have
complied with its obligations under Regulation 14C under the Securities
Exchange Act of 1934, as amended, with respect to the transaction
contemplated hereby, including its obligation to provide an information
statement to stockholders of Parent at least 20 calendar days prior to the
Closing Date (this Agreement and the transactions contemplated hereby
having been approved prior to the date hereof by the written consent of
Parent's majority stockholder).

     8.  Termination.

     8.1  Termination Events.  This Agreement may, by notice given prior
to or at the Closing, be terminated:

     (a)  by either Buyer or Seller if a material breach of any provision
of this Agreement has been committed by the other party and such breach has
not been waived or cured within fifteen (15) days after the receipt of
notice of such breach;

     (b)  by mutual consent of Buyer and Seller; or

     (c)  by either Buyer or Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
July 31, 1997, or such later date as the parties may agree upon.
                                  -15-
<PAGE>
     8.2  Effect of Termination.  Each party's right of termination under
Section 8.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies.  If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement
will terminate, except that the obligations in Sections 12.1 and 12.2 will
survive; provided, however, that if this Agreement is terminated by a party
because of the breach of the Agreement by the other party or because one or
more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to
comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination
unimpaired.

     9.  Indemnification.

     9.1  Survival.  All representations, warranties, covenants, and
obligations in this Agreement, the Schedules hereto, any supplement to a
Schedule, and any certificate or document delivered pursuant to this
Agreement will survive for eighteen (18) months after the Closing.

     9.2  Indemnification and Payment of Damages by Seller. Seller will
indemnify and hold harmless Buyer and its representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified
Persons") for, and will pay to the Indemnified Persons the amount of, any
loss, liability, claim, damage, or expense (including costs of
investigation and defense and reasonable attorneys' fees), on an after-tax
basis, whether or not involving a third-party claim (collectively,
"Damages"), arising from or in connection with:

     (a)  any breach of any representation or warranty made by Seller in
this Agreement, the Schedules hereto, any supplements to a Schedule, or any
other certificate or document delivered by Seller pursuant to this
Agreement;

     (b)  any breach by Seller of any covenant or obligation of Seller in
this Agreement; 

     (c)  any liabilities or obligations of Seller that are Excluded
Liabilities; or

     (d)  the failure to comply with any bulk sales law applicable to the
transactions contemplated by this Agreement.

     9.3  Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of,
any Damages arising from or in connection with:

     (a)  any breach of any representation or warranty made by Buyer in
this Agreement, the Schedules hereto or any other certificate or document
delivered by Buyer pursuant to this Agreement;

     (b)  any breach by Buyer of any covenant or obligation of Buyer in
this Agreement; or

     (c)  any liabilities or obligations with respect to Assumed
Liabilities and any liabilities or obligations arising from Buyer's
operation of the Hospital after the Closing.
                                  -16-
<PAGE>
     9.4  Limitations on Amount -- Seller.  Seller will have no liability
(for indemnification or otherwise) with respect to the matters described in
Section 9.2 until the total of all Damages with respect to such matters
exceeds $25,000, and then only for the amount by which such Damages exceed
$25,000.

     9.5  Limitations on Amount -- Buyer.  Buyer will have no liability
(for indemnification or otherwise) with respect to the matters described in
Section 9.3 until the total of all Damages with respect to such matters
exceeds $25,000, and then only for the amount by which such Damages exceed
$25,000.

     9.6  Procedure for Indemnification -- Third Party Claims.

     (a)  Promptly after receipt by an indemnified party under Section 9.2
or 9.3, of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability that it may
have to any indemnified party, except to the extent that the indemnifying
party demonstrates that the defense of such action is prejudiced by the
indemnified party's failure to give such notice.

     (b)  If any Proceeding referred to in Section 9.6(a) is brought
against an indemnified party and it gives notice to the indemnifying party
of the commencement of such Proceeding, the indemnifying party will be
entitled to participate in such Proceeding and, to the extent that it
wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails
to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect
to such Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under
this Section 9 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of such
Proceeding.  If the indemnifying party assumes the defense of a Proceeding,
(i) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A) there
is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no adverse effect on any other
claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the
indemnifying party; and (ii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected
without its consent.  If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within
ten days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding,
the indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
                                 -17-
<PAGE>
     9.7  Procedure for Indemnification -- Other Claims.  A claim for
indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.

     10.  Medicare, Medicaid and Insurance Reporting.  

     10.1  Notice of Transaction.  In connection with the Closing, Buyer
and Seller shall prepare and file all notices that may be required in
connection with the transactions contemplated by this Agreement pursuant to
the laws, regulations and conditions of the Medicare and Medicaid programs
or any other public or private insurance provider.

     10.2  Cost Reports.  As soon as practicable after the Closing, Seller
shall prepare and file all cost reports relating to services provided by
Seller prior to the Closing Date that may be required in connection with
the transactions contemplated by this Agreement pursuant to the laws,
regulations and conditions of the Medicare and Medicaid programs or of any
other cost-based payor.

     10.3  Access.  Buyer shall cooperate with Seller (a) in the
preparation of the cost reports referred to in Section 10.2 hereof, (b) in
any audit or contest of any such cost reports, or (c) in connection with
the applications Seller intends to file after the Closing Date for
exceptions from the routine cost limitation under the Medicare program, in
all such cases with respect to the operation of the Hospital prior to the
Closing.  In this regard, Buyer shall maintain, and provide Seller with
reasonable access to, all of Seller's books, records and reports that
relate to the period up to and including the Closing Date, for so long as
Seller may be required or may reasonably desire such information.  The
parties agree that the costs and expenses incurred in the preparation of
any such cost reports, audits, contests or applications shall be borne by
Seller to the extent that they relate to Excluded Assets and Excluded
Liabilities.

     10.4  Notice.  If Buyer receives any notice concerning Seller's
participation in the Medicare or Medicaid programs that relates in whole or
in part to the period prior to the Closing, including, without limitation,
with respect to cost report settlements, notices of program reimbursements
and demand letters for payment, Buyer shall immediately forward a copy of
such notice to Seller.

     11.  Definitions.  For purposes of this Agreement, the following
terms have the meanings specified or referred to in this Section 11:

     "Accounts Payable" -- all payables that would be recorded as accounts
payable on a balance sheet of Seller prepared as of the Closing Date in
accordance with GAAP on a basis consistent with the application of such
principles in the preparation of Seller Financial Statements.

     "Accounts Receivable" -- all receivables, billed or unbilled, payable
to Seller for services rendered prior to the Closing Date, including,
without limitation, all amounts due from the Medicare or Medicaid programs
(including amounts receivable in the future in settlement with Medicare,
Medicaid or any other cost-based payor with respect to cost reimbursement
and with respect to exceptions from the routine cost limitation under the
Medicare and/or Medicaid program), Blue Cross, Blue Shield or any other
third party payor (including an insurance
                                  -18-
<PAGE>
company) or any health care provider (such as a health maintenance
organization, preferred provider organization or other managed care
program).

     "Code" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the Internal Revenue Service
pursuant to the Internal Revenue Code or any successor law.

     "Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that
is legally binding.

     "Encumbrance"-- any charge, claim, condition, equitable interest,
lien, option, pledge, security interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of
ownership.

     "Environment" -- soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.

     "Environmental Law" -- any Legal Requirement that requires or relates
to:

     (a)  advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;

     (b)  preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;

     (c)  reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;

     (d)  assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;

     (e)  protecting resources, species, or ecological amenities;

     (f)  reducing to acceptable levels the risks inherent in
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;

     (g)  cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such cleanup or prevention; or

     (h)  making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
                                  -19-
<PAGE>
     "ERISA Affiliate" -- means any entity that, together with Seller, is
treated as a single employer under section 414(b) and 414(c) of the Code.

     "GAAP" -- generally accepted United States accounting principles,
applied on a consistent basis.

     "Governmental Authorization" -- any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.

     "Governmental Body" -- any:

     (a)  nation, state, county, city, town, village, district, or other
jurisdiction of any nature;

     (b)  federal, state, local, municipal, foreign, or other government;

     (c)  governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);

     (d)  multi-national organization or body; or

     (e)  body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.

     "Income Tax" -- any federal, state, local or foreign income tax or
franchise tax measured by income or gain, including any interest, penalty
or addition thereto.

     "Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:

     (a)  such individual is actually aware of such fact or other matter;
or

     (b)  a prudent individual could be expected to discover or otherwise
become aware of such fact in the ordinary course of business.

A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or
trustee of such Person (or in any similar capacity) has, or at any time
had, Knowledge of such fact or other matter.

     "Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution,
law, ordinance, principle of common law, regulation, statute, or treaty,
including, without limitation, all Environmental Laws.
                                  -20-
<PAGE>
     "Order" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.

     "Person"-- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union, or
other entity or Governmental Body.

     "Proceeding"-- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted,
or heard by or before, or otherwise involving, any Governmental Body or
arbitrator.

     "Tax" -- any Income Tax and other taxes of any kind, levy or other
like assessment, custom, duty, impost, charge or fee (including, without
limitation, sales, use, gross receipts, ad valorem, transfer, transfer
gains, value added, real or personal property, stamp, lease, license,
payroll, transaction, utility, severance, production, environmental or
other governmental taxes), imposed or payable to any Governmental Body, and
in each instance such term shall include any interest, penalties or
additions to tax attributable to any such tax.

     "Threatened" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances
exists that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.

     12.  General Provisions.

     12.1 Expenses.  Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of
this Agreement and the transactions contemplated hereby, including all fees
and expenses of agents, representatives, counsel, and accountants.  In the
event of termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by the other party.

     12.2 Confidentiality.  Between the date of this Agreement and the
Closing Date, Buyer and Seller will maintain in confidence, and will cause
each of its respective directors, officers, employees, agents, and advisors
to maintain in confidence, any written, oral, or other information obtained
from another party in connection with this Agreement or the transactions
contemplated hereby, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b)
the use of such information is necessary in making any filing or obtaining
any consent or approval required for the consummation of the transactions
contemplated hereby, or (c) the furnishing or use of such information is
required by legal proceedings.
                                  -21-
<PAGE>
     If the transactions contemplated hereby are not consummated, each
party will return or destroy as much of such written information as the
other party may reasonably request.

     12.3 Notices.  All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed
to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written confirmation
of receipt), provided that a copy is mailed by registered mail, return
receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth
below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other party):

     Seller:

          Meadowbrook Rehabilitation Group, Inc.
          2200 Powell Street, Suite 800
          Emeryville, CA 94608
          Attention: Harvey Wm. Glasser, M.D.
          Telecopy No.: (510) 420-7008

     with a copy to:

          Pillsbury Madison & Sutro LLP
          235 Montgomery Street
          San Francisco, CA 94104
          Attention: Blair W. White, Esq.
          Telecopy No. (415) 983-1200

     Buyer:

          NewCare Health Corporation
          6000 Lake Forrest Drive, Suite 200
          Atlanta, GA 30328
          Attention: Chris Brogdon
          Telecopy No.: (404) 843-9677

     with a copy to:

          Philip M. Rees, Esq.
          6000 Lake Forrest Drive, Suite 200
          Atlanta, GA 30328
          Telecopy No.: (404) 255-5789

     12.4  Further Assurances.  The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver
to each other such other documents, and (c) to do such other acts and
things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in
this Agreement.

     12.5  Waiver.  The rights and remedies of the parties to this
Agreement are cumulative and not alternative.  Neither the failure nor any
delay by any party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or
                                  -22-
<PAGE>
partial exercise of any such right, power, or privilege will preclude any
other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege.  To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim
or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of
the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to
in this Agreement.

     12.6  Entire Agreement and Modification.  This Agreement supersedes
all prior agreements between the parties with respect to its subject matter
and constitutes a complete and exclusive statement of the terms of the
agreement between the parties with respect to its subject matter.  This
Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment.

     12.7  Assignments, Successors and no Third-Party Rights. Neither
party may assign any of its rights under this Agreement without the prior
written consent of the other party, which consent will not be unreasonably
withheld.  Notwithstanding the foregoing sentence, Buyer may assign this
Agreement to a subsidiary of Buyer without Seller's consent; provided,
however, that no such assignment shall relieve Buyer of its obligations
under this Agreement.  This Agreement will apply to, be binding in all
respects upon, and inure to the benefit of the successors and permitted
assigns of the parties.  Nothing expressed or referred to in this Agreement
will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement.  This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.

     12.8  Severability.  If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect.  Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid
or unenforceable.

     12.9  Section Headings, Construction.  The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation.  All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement.  All
words used in this Agreement will be construed to be of such gender or
number as the circumstances require.  Unless otherwise expressly provided,
the word "including" does not limit the preceding words or terms.

     12.10  Time of Essence.  With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.

     12.11  Governing Law.  This Agreement will be governed by the laws of
the State of Kansas without regard to conflicts of laws principles.
                                  -23-
<PAGE>
     12.12  Counterparts.  This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.

                         MEADOWBROOK NEUROCARE-KANSAS CITY,
                           INC.

                         By: /s/ Harvey Wm. Glasser, M.C.
                         Name:  Harvey Wm. Glasser, M.D.
                         Title: CEO and President

                         NEWCARE HEALTH CORPORATION

                         By: /s/ Chris Brogdon
                         Name: /s/ Chris Brogdon
                         Title:
                                  -24-
<PAGE>

                            AGREEMENT OF SALE

     This Agreement made this 2nd day of June 1997, by and between Harvey
William Glasser ("Seller") and NewCare Health Corporation or its assigns
("Buyer"). 

                             R E C I T A L S

     A.  Seller is the owner of that certain parcel of real property
described as Lot 1, Gardner Medical Center Addition, an Addition to the
City of Gardner, Johnson County, Kansas, according to the recorded plat
thereof (the "Real Property"). 

     B.  The Real Property is leased to Meadowbrook Neurocare - Kansas
City, Inc., a Kansas corporation ("Tenant") pursuant to a certain Lease
Agreement between Seller and Tenant effective as of September 1, 1987, an
Addendum to Lease Agreement dated May 1, 1988, an Addendum to Lease
Agreement dated April 1, 1989, a Third Amendment to Lease dated July 1,
1991, and a Fourth Amendment to Lease dated January 2, 1992 (said Lease
Agreement as amended is referred to as the "Lease"). The performance of the
obligations of Tenant under the Lease are guaranteed by Meadowbrook
Rehabilitation Group, Inc., a Delaware corporation ("Guarantor"). 

     C.  Concurrently with the execution of this Agreement Buyer is
entering into an agreement to acquire all of the outstanding stock of
Tenant. 

     D.  Seller wishes to Sell and Buyer wishes to buy the Real Property.

     NOW, THEREFORE, the parties agree as follows: 

                                   AGREEMENT

     1.  The recitals set forth here and above are incorporated herein by
reference. 

     2.  Subject to the terms and conditions hereof, Seller agrees to sell
and Buyer agrees to purchase the Real Property for a purchase price of
$3,500,000 payable in cash upon conveyance of the Real Property by Seller
to Buyer. 

     3.  Chicago Title Insurance Company (the "Escrow Holder"), has issued
an ALTA Commitment for the issuance of an ALTA Loan policy dated May 15,
1997, Commitment No. 97-2376 which is attached hereto as Exhibit A (the
"Commitment"). Title to the Real Property shall be conveyed subject only to
exceptions 1, 8 (excluding 1996 taxes), 13, 14, 15, 16, 17, 18 shown in
Schedule B of the Commitment, and to the Lease (the "Permitted
Exceptions"). If Seller is unable or unwilling to remove the remaining
exceptions set forth in the Commitment, Buyer may elect to terminate the
obligations of the parties hereunder and any deposits made by Buyer shall
be immediately released to Buyer. Evidence of title shall be in the form of
an ALTA Lenders Title Insurance Policy (10/17/92) issued by the Escrow
Holder. 
                                  -1-
<PAGE>
<PAGE>
     4.  Upon the execution of this Agreement, Buyer shall have the right
for a period ending June 25, 1997 to enter upon the Real Property and,
subject to the rights of Tenant, conduct such inspections and tests as
Buyer shall deem appropriate. If any test and inspection results in any
damage to the Real Property or the improvements thereon, Buyer agrees to
repair such damage. Buyer agrees to hold Seller harmless from any claim,
liability, damage or expense, arising on account of any injury to property,
or persons on account of any tests or inspections conducted by Buyer, its
employees or agents. Prior to performing any invasive tests, Buyer shall
provide evidence of liability insurance which will insure Seller and Buyer
against any claims for personal injury or property damage arising on
account of any tests or inspections. 

     If Buyer, for any reason, or for no reason, elects not to purchase
the Real Property and gives Seller written notice of such election, on or
before June 25, 1997, the obligations of the parties hereunder shall
terminate. If Buyer does not terminate this agreement, it shall deposit the
sum of one hundred thousand dollars ($100,000.00) with the Escrow Holder as
an advance upon the payment of the purchase price. 

     5.  The parties shall open an escrow with the Escrow Holder. Prior to
the Closing Date, Seller shall deposit with the escrow holder, a Deed to
the Real Property, and all of the documents which may be required by the
Escrow Holder in order to convey title to the Real Property to Buyer
subject to the Permitted Exceptions. On or before the Closing Date Buyer
shall deposit the purchase price in cash. Both parties shall execute such
escrow instructions and other documents that may be required by the Escrow
Holder. 

     6.  Rents and any expenses of the Real Property shall be pro-rated
between Seller and Buyer as of the date of the conveyance of the Real
Property. Seller shall pay all costs related to the removal of the
exceptions in the Commitment which are to be removed. Each party shall pay
one-half (1/2) of any taxes or fees payable upon conveyance of the Real
Property, escrow fees, and any other incidental expenses incurred in
connection with the conveyance of the Real Property. Buyer shall pay the
cost of an owners policy of title insurance insuring title to the Real
Property in the name of Buyer. Each party shall pay its own attorneys'
fees, accountants' fees, or other expenses incurred in connection with the
preparation of this Agreement, the conveyance of the property, or in
connection with any investigation or tests relating to the Real Property. 

     7.  Seller represents and warrants to Buyer that: (a) Seller has not
received any notice of noncompliance of the property under any
environmental law or regulation and that Seller is not aware of any
hazardous substances on the Real Property as such substances are defined by
any environmental law or regulation of any governmental authority having
jurisdiction over the Real Property, except such hazardous substances as
may be used by the Tenant in the operation of the medical facilities on the
Real Property. Insofar as is known to Seller, all such substances used by
the Tenant are being used in accordance with applicable environmental laws
and regulations; (b) Seller has not received any notice of noncompliance
from any governmental authority and insofar as is known to Seller the Real
Property and the improvements thereon are currently being used in
accordance with all zoning laws, building codes, and other laws affecting
the use of the Real Property; and (c) Seller is not aware of any material
defect in the construction of the improvements upon the Real Property. 
                                  -2-
<PAGE>
     Except as represented herein, Seller makes no other representation or
warranty with respect to the Real Property, and it will be conveyed in its
present condition, subject to the Permitted Exceptions. The warranties
provided herein shall survive the Closing. 

     8.  The obligations of Buyer are conditioned upon Buyer acquiring the
stock of Tenant on or before July 31, 1997, and in the event that the stock
is not acquired on or before that date, the obligations of the parties
hereunder shall terminate and any deposits shall be immediately released to
Buyer. The Real Property shall be conveyed and the purchase price shall be
paid concurrently with the close of the escrow whereby Buyer acquires the
stock of Tenant (the "Closing Date"). 

     Upon conveyance of the Real Property to Buyer the obligations of
Guarantor under the Lease shall terminate and both Buyer and Seller shall
deposit a release of the Guaranty in the escrow to be delivered to
Guarantor upon the closing. 

     9.  The parties agree to cooperate with each other in the event that
a party wishes to enter into a tax deferred exchange in connection with the
acquisition or disposition of the Real Property.  Provided that the party
making such an exchange shall bear all the additional costs incurred and
the other party shall not be required to incur any recourse liability. 

     10.  In the event that either party shall default in the performance
of its obligations hereunder, and the other party shall commence a legal
action to enforce the provisions of this agreement, the party prevailing in
such action shall be entitled to receive from the other party all costs and
expenses incurred therein, including a reasonably attorney's fee to be
fixed by the Court. 

     11.  Any notice which is required or which may be given hereunder may
be personally delivered, or may be sent by facsimile, or by certified or
priority mail postage prepaid, or by overnight courier. Any notice shall be
deemed to have been delivered upon receipt by the other party, at the
addresses set forth herein, or at such other addresses as the parties
designate by notice to the other party hereafter: 

      Seller:  Harvey William Glasser
               Western Hospital Properties
               2000 Powell Street, Suite 1650
               Emeryville, California, 94608
               Facsimile (510) 601-8631

      Buyer:   NewCare Health Corporation
               6000 Lake Forrest Drive, Suite 200
               Atlanta, Georgia 30328
               Attn: General Counsel
               Facsimile (404) 255-5789

     12.  This Agreement shall be binding upon and shall inure to the
benefit of the parties and their successors and interest. Buyer may assign
its rights under this Agreement without the consent of Seller, but such
assignment shall not relieve Buyer of its obligations hereunder in the
event of a default by the assignee. 
                                  -3-
<PAGE>
     13.  This Agreement constitutes the entire agreement of the parties
with respect to the option and conveyance of the Real Property. 

     IN WITNESS WHEREOF, the parties have executed this Agreement upon the
date above written.

Seller:                            Buyer:

                                   NewCare Health Corporation

/s/ Harvey William Glasser         /s/ Chris Brogdon
Harvey William Glasser             Chris Brogdon
                                -4-
<PAGE>
                          SECURED BRIDGE NOTE

 $4,500,000.00                                             July 31, 1997

      For value received, the undersigned, NEWCARE HOSPITAL CORPORATION, a
Georgia corporation ("Borrower"), promises to pay, in lawful money of the
United States, to the order of HCFP  FUNDING II, INC., a Delaware
corporation, its successors and assigns ("Lender"), the principal sum of 
FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00) (the
"Principal Sum") together with interest, costs of collection and other fees
as further set forth in this Secured Bridge Note, to be paid in accordance
with the terms set forth below.  All terms not defined in this Secured
Bridge Note shall have the meanings ascribed to them in the Security
Agreement of even date by and between Borrower and Lender (the "Security
Agreement").

     1.  Success Fee.  Borrower acknowledges and agrees that the financing
provided by Lender pursuant to this Secured Bridge Note is essential to
Borrower in financing the operations of Borrower.  Accordingly, in
consideration for the extension of credit by Lender as evidenced by this
Secured Bridge Note and as a material inducement to Lender to provide the
financing evidenced by this Secured Bridge Note, Borrower shall pay to
Lender, in cash, a success fee (the "Success Fee") equal to the greater of
(i) ten percent (10%) of the excess of the total consideration received
from any sale, financing, refinancing or other disposition (collectively a
"Disposition") of Meadowbrook Rehabilitation Hospital in Gardner, Kansas
(the "Facility") over $5,000,000.00, whether the consideration is in the
form of cash, seller take-back financing, offsets, reduction in
indebtedness, promissory note, or other form of non-cash consideration, or
(ii) (A) $150,000.00 if the Disposition is consummated on or before the
first anniversary of the date of this Secured Bridge Note, or (B)
$300,000.00 if the Disposition is consummated after the first anniversary
of the date of this Secured Bridge Note.   The Success Fee shall be due and
payable on the date that the Disposition is consummated; if no such
Disposition is consummated before July 31, 1999 (the "Maturity Date"), then
the Success Fee shall be due and payable on the Maturity Date.  If not paid
when due, the Success Fee shall be added to, and become a part of, the
Principal Sum.

     2.  Commitment Fee.  In consideration for the extension of credit by
Lender as evidenced by this Secured Bridge Note, Borrower shall pay to
Lender a Commitment Fee equal to one percent (1%) of the Principal Sum, or
Forty-Five Thousand and No/100 Dollars ($45,000.00), which sum shall be
paid by a deduction from the initial funding.  If  all principal and
interest under this Secured Bridge Note, including, but not limited to the
Success Fee, is not paid on or before the first anniversary of the date of
this Secured Bridge Note, then Borrower shall pay to Lender on such
anniversary date an additional fee equal to one percent (1%) of the initial
Principal Sum, or Forty-Five Thousand and No/100 Dollars ($45,000.00).

     3.  Principal and Interest.  If not sooner repaid, Borrower promises
to pay to Lender the entire Principal Sum on the Maturity Date.  In
addition to the repayment of the Principal Sum, Borrower promises to pay
interest on the Principal Sum on a monthly basis from the date of this Secured
Bridge Note until the Maturity Date, at a fluctuating rate per annum (on the
basis of the actual number of days elapsed over a year of 360 days) equal to
three percent (3%) over the Prime Rate (the "Base Rate"), provided that after an
Event of Default (as defined in Section 12 of this Secured Bridge Note) the rate
shall be equal to the Base Rate plus five percent (5%) (the "Default Interest
Rate").  For purposes of the foregoing, the term "Prime Rate" means that rate of
interest designated as such by Fleet National Bank of Connecticut, N.A.,or any
<PAGE>
successor thereto, as the same may from time to time fluctuate.  Accrued 
interest shall be payable monthly in arrears on the last Business Day (as 
defined in Section 5 below) of each month, beginning on August 31, 1997 and 
continuing through and including the Maturity Date.  After the Maturity Date,
and thereafter until the full amount of the Principal Sum plus any other 
amounts due and unpaid shall be paid in full, including but not limited to 
the Success Fee, all outstanding amounts of the Principal Sum shall bear 
interest, payable on demand, at the Default Interest Rate, but in no event 
shall the interest payable exceed the maximum lawful rate. 
          
     4.  Additional Payments.  Borrower further promises to pay to Lender,
within five (5) business days after notice and demand, any and all other
sums and charges that may at the time become due and payable hereunder, and
all reasonable legal fees, costs, disbursements and documentation
preparation fees in connection with the preparation of this Secured Bridge
Note and the related documents described in Section 5 below, and in the
collection of any payments due under this Secured Bridge Note and in any
action, suit or proceeding to protect, sustain or enforce the rights and
remedies of Lender under this Secured Bridge Note or the other Loan
Documents (as defined in Section 5 below). 

     5.  Conditions to Borrowing; Prepayment.

          a.  Subject to the terms and conditions hereof, Lender shall
make available to Borrower the Principal Sum, in immediately available
funds, not later than 12:00 Noon (Eastern time) on the Business Day on
which the following conditions precedent are satisfied: (i) Borrower shall
have executed and delivered to Lender this Secured Bridge Note, the
Security Agreement, the first priority Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing of even date executed by
Borrower in favor of Lender encumbering that certain real property at 427
West Main Street, Gardner, Johnson County, Kansas 66030 (the "Mortgage"),
the Environmental Indemnity Agreement of even date with this Secured Bridge
Note (the "Environmental Indemnity Agreement"), and all other documents,
certificates and agreements executed or delivered in connection with this
transaction (this Secured Bridge Note, the Security Agreement, the
Mortgage, the Environmental Indemnity Agreement, and all such other
documents are collectively referred to in this Secured Bridge Note as the
"Loan Documents"); (ii) no Event of Default under this Secured Bridge Note
or the Security Agreement, no Default under the Mortgage, and no material
breach under any other Loan Documents shall have occurred and be
continuing; (iii) no Event of Default shall have occurred under that
certain Loan and Security Agreement dated June 30, 1997 between NewCare
Health Corporation, the parent of Borrower, and certain of its affiliates
and HCFP Funding, Inc., an affiliate of Lender ("HCFP"), as it may be
amended from time to time (the "Loan Agreement"); (iv) all  warranties
contained in this Secured Bridge Note, the other Loan Documents or
otherwise made in writing in connection with this transaction by or on
behalf of Borrower or any party to any Loan Document shall be true and correct
in all material respects; (v) Lender shall have received Uniform Commercial Code
("UCC"), judgment and tax lien searches with the Secretary of State and local
filing offices of each jurisdiction where Borrower maintains a place of 
business, which searches yield results consistent with the representations 
and warranties contained in this Secured Bridge Note;  (vi) Borrower shall 
have provided title insurance covering Lender's interest in the real property
subject to the Mortgage, in the amount of Four Million Five Hundred Thousand 
and No/100 Dollars ($4,500,000.00), and containing only those exceptions that
are acceptable to Lender in its sole discretion; (vii) Borrower shall have 
contributed the 
                               -2-
<PAGE>
sum of Five Hundred Thousand and No/100 Dollars ($500,000.00) to the
purchase of the Facility, and (viii) Borrower shall have caused to be
executed and delivered to Lender the Amendment No. 1 to the Loan Agreement,
containing appropriate cross-default provisions.

          b.  Borrower hereby irrevocably authorizes Lender to disburse
the Principal Sum by wire transfer to such bank account as may be
designated by Borrower or elsewhere if pursuant to written direction from
Borrower.

          c.  Lender shall enter all advances of the Principal Sum as
debits to a loan account in the name of Borrower and shall also record as
credits in the loan account all payments made by Borrower and all proceeds
of Collateral that are indefeasibly paid to Lender, and may record in the
loan account, in accordance with customary accounting practice, other
debits and credits with respect to the extension of credit contemplated by
this Secured Bridge Note.

          d.  Lender will account to Borrower monthly with a statement of
advances, charges and payments made pursuant to this Secured Bridge Note,
and the account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower absent Borrower's demonstration to Lender's
reasonable satisfaction that an error has occurred.

          e.  Borrower may prepay all or any part of the Principal Sum
outstanding without penalty, together with all interest accrued on the
outstanding Principal Sum, and all other sums that are  payable pursuant to
this Secured Bridge Note.

     6.  Payment Office.  The Principal Sum, the interest on the Principal
Sum and any other amounts payable under this Secured Bridge Note, including
but not limited to the Success Fee,  are payable in lawful money of the
United States of America at the office of Lender, at 2 Wisconsin Circle,
Suite 320, Chevy Chase, Maryland 20815, Attention:  Ethan D. Leder,
President, or at such other place as Lender may specify in writing to
Borrower.  Any payment by other than immediately available funds shall be
subject to collection.  Interest shall continue to accrue until the funds
by which payment is made are available to Lender for its use.  Any payment
stated to be due on a day on which banks in Maryland are required or
permitted to be closed for business shall be due and payable on the next
business day (each such day, a "Business Day") and such extension of time
shall be included in the computation of interest in connection with such
payment.

     7.  No Presentment; Acceleration.  On the Maturity Date or upon the
occurrence and the declaration of an Event of Default (as defined in
Section 12 below),  the outstanding Principal Sum, accrued and unpaid
interest on the Principal Sum, and all other sums owed by Borrower to
Lender in connection with this Secured Bridge Note or the other Loan
Documents shall, upon the giving to Borrower of written notice of
acceleration by Lender,  immediately become due and payable.  Borrower
hereby expressly waives any presentment for payment, demand for payment,
notice of nonpayment or dishonor, protest and notice of protest of any
kind. 

     8.  Use of Funds.  Borrower covenants and agrees that the Principal
Sum shall be used to acquire the Facility.
                               -3-
<PAGE>
     9.  Representations.  Each entity constituting Borrower hereby
warrants and represents to Lender that:

          a.  Borrower is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Georgia, is in good
standing as a foreign corporation in each jurisdiction in which the
character of the properties owned or leased by it or the nature of its
business makes such qualification necessary, has the corporate power and
authority to own its assets and transact the business in which it is
engaged, and has obtained all certificates, licenses and qualifications
required under all laws, regulations, ordinances, or orders of public
authorities necessary for the ownership and operation of all of its
properties and transaction of all of its business. 

          b.  Borrower has full corporate power and authority to enter
into, execute, and deliver this Secured Bridge Note and to perform its
obligations under this Secured Bridge Note and the other Loan Documents,
all of which have been duly authorized by all necessary corporate action. 
This Secured Bridge Note constitutes a valid and binding obligation of
Borrower, enforceable in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights generally and general
principles of equity.

          c.  The execution, delivery or performance of or under this
Secured Bridge Note will not violate or conflict with any law, rule,
regulation, order, judgment, indenture, instrument, or agreement by which
Borrower or Borrower's properties or assets are bound or affect, or
conflict with or be inconsistent with, or result in any breach of, any of
the terms, covenants or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, security interest, charge
or other encumbrance upon any of the properties or assets of Borrower,
pursuant to the terms of any indenture, mortgage, deed of trust, agreement
or other instrument to which Borrower is a party or by which Borrower's
properties or assets may be bound or to which they may be subject other
than a lien, security interest, charge or other encumbrance in favor of
Lender.

          d.  There are no actions, suits or other proceedings pending,
including, without limitation, any condemnation proceeding, or to the
knowledge of Borrower, threatened against or adversely affecting Borrower's
properties or assets or the validity or enforceability of this Secured
Bridge Note.  To the best of Borrower's knowledge, Borrower is not in
default with respect to any order, writ, injunction, decree or demand of
any court or governmental authority.  There is no litigation or proceeding,
including, without limitation, any condemnation proceeding, pending or, to
the knowledge of Borrower, threatened against or affecting Borrower's
properties or assets, or any circumstances existing that would in any manner 
have a material adverse effect on Borrower's properties or assets or on the 
validity or ability of Borrower to perform any obligations under this Secured
Bridge Note.

          e.  The financial statements of Borrower previously delivered
to Lender are true, correct and complete and fairly present the financial
condition of Borrower as of the date thereof.  No material adverse change
in the financial condition of Borrower has occurred since the date of such
financial statements.

          f.  Borrower is the sole owner of all right, title and interest
in and to all of the Note Collateral (which term shall include the
                               -4-
<PAGE>
"Collateral" as it is defined in the Security Agreement and also the real
property subject to the Mortgage),  free and clear of any lien, security
interest, charge or encumbrance.

     10.  Affirmative Covenants.

     Borrower covenants and agrees that until this Secured Bridge Note
shall be repaid in full:

          a.  Financial Statements.  Borrower will furnish to Lender (i)
quarterly profit and loss statements, balance sheets, cash flow reports and
projections within sixty (60) days following the end of the applicable
period,  (ii) internally prepared annual projections and annual financial
statements for Borrower within sixty (60) days after the end of each of
Borrower's fiscal years; (iii) audited financial statements for each of
Borrower's fiscal years, prepared by Laney, Boteler & Killinger or another
accounting firm reasonably acceptable to Lender, within one hundred
thirty-five (135) days after the end of each such fiscal year; and (iv)
promptly upon receipt thereof, copies of any reports submitted to Borrower
by its independent accountants in connection with any interim audit of the
books of Borrower and copies of each management control letter provided to
Borrower by its independent accountants.

          b.  Existence, Good Standing, and Compliance with Laws. 
Borrower will do or cause to be done all things necessary to obtain and
keep in full force and effect all corporate existence, rights, licenses,
privileges, and franchises of Borrower necessary to the ownership of its
property or the conduct of its business, and comply with all applicable
present and future laws, ordinances, rules, regulations, orders and decrees
of any governmental authority having or claiming jurisdiction over
Borrower.

          c.  Taxes and Charges.  Borrower will timely file all tax
reports and pay and discharge all taxes, assessments and governmental
charges or levies imposed upon Borrower, or its income or profits or upon
its properties or any part thereof, before the same shall be in default and
before the date on which penalties attach thereto, as well as all lawful
claims for labor, material, supplies or otherwise that, if unpaid, might
become a lien or charge upon the properties,  or any part, of Borrower;
provided, however, that Borrower shall not be required to pay and discharge
or cause to be paid and discharged any such tax, assessment, charge, levy
or claim so long as the validity or amount thereof shall be contested in
good faith and by appropriate proceedings by Borrower, and Borrower shall have
set aside on its books adequate reserve therefor; and provided further, that 
such deferment of payment is permissible only so long as Borrower's title to,
and its right to use, the Note Collateral is not adversely affected thereby 
and Lender's lien and priority on the Note Collateral are not adversely 
affected, altered or impaired thereby.

          d.  Insurance.  Borrower will carry adequate public liability
and professional liability insurance with licensed companies reasonably
satisfactory to Lender in such amounts and against such risks as is
customarily maintained by similar businesses and by owners of similar
property in the same general area. 

          e.  Maintenance of Property.  Borrower will maintain, keep and
preserve all of the Note Collateral in good repair, working order and
condition and from time to time make all necessary and proper repairs,
                               -5-
<PAGE>
renewals, replacements, betterments and improvements thereto, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.

          f.  Litigation and Other Proceedings.  Borrower shall give
prompt notice to Lender of any litigation, arbitration, or other proceeding
before any court or governmental authority against or affecting Borrower if
the uninsured amount claimed is more than $50,000.00.

          g.  Licensure; Medicare/Medicaid Cost Reports.  Borrower will
maintain all certificates of need, provider numbers and licenses necessary
to conduct its business as presently conducted, and take any steps required
to comply with any such new or additional requirements that may be imposed
on providers of medical products and services.  If required, all
Medicaid/Medicare cost reports will be properly filed.

          h.  Visits and Inspections.  Borrower agrees to permit
representatives of Lender, from time to time, as often as may be reasonably
requested (but not more than four (4) times per year unless there is an
Event of Default), but only after reasonable advance written notice and
during normal business hours, to visit and inspect the properties of
Borrower, and to inspect, audit and make extracts from its books and
records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.

          i.  Further Assurances.  Borrower will defend its title to the
Note Collateral against all persons and will, upon request of Lender, (i)
furnish such further assurances of title as may be reasonably required by
Lender, (ii) deliver and execute or cause to be delivered and executed, in
form and content reasonably satisfactory to Lender, any financing
statements, notices, certificates of title, and other documents and pay the
cost of filing or recording the same in all public offices deemed
reasonably necessary by Lender, as well as any recordation, documentary, or
transfer tax required by law to be paid in connection with such filing or
recording, and (iii) do such other acts as Lender may reasonably request in
order to perfect, preserve, maintain, or continue the perfection of
Lender's security interest in the Note Collateral and/or its priority.

          j.  Debt Service Coverage.  Beginning after the first
anniversary of the date of this Secured Bridge Note and continuing during
each calendar month while this Secured Bridge Note remains outstanding,
Borrower's EBITDA shall equal or exceed 1.25 times the aggregate of
Borrower's interest and principal obligations with respect to such month,
determined in accordance with GAAP, and based upon the financial statements
delivered to Lender in accordance with Section 10(a) above.  "EBITDA" is
defined to mean, for any period, the net income or net loss of Borrower,
determined in accordance with generally accepted accounting principles
("GAAP"), plus the sum of (i) interest expense, (ii) income tax expense,
(iii) depreciation expense, and (iv) amortization expense of Borrower,
determined in each case in accordance with GAAP.

     11.  Negative Covenants.

     Borrower covenants and agrees that until this Secured Bridge Note
shall be repaid in full:
                               -6-
<PAGE>
          a.  Borrowing.  Borrower will not create, incur, assume or
suffer to exist any liability for borrowed money except: (i) indebtedness
to Lender or HCFP; (ii) indebtedness of Borrower secured by mortgages,
encumbrances or liens; (iii) accounts payable to trade creditors and
current operating expenses (other than for borrowed money) that are not
aged more than ninety (90) days from the billing date, in each case
incurred in the ordinary course of business and paid within such time
period, unless the same are being contested in good faith and by
appropriate and lawful proceedings, and Borrower shall have set aside such
reserves, if any, with respect thereto as are required by generally
accepted accounting principles and deemed adequate by Borrower and its
independent accountants;  (iv) unsecured borrowings incurred in the
ordinary course of its business and not exceeding $250,000.00 in the
aggregate outstanding at any one time. 

          b.  Joint Ventures.  Borrower will not invest, directly or
indirectly, an aggregate of more than $50,000.00 in any joint venture for
any purpose without the prior written consent of Lender.

          c.  Liens and Encumbrances.  Borrower will not create, incur,
assume or suffer to exist any mortgage, pledge, lien or other encumbrance
of any kind (including the charge upon property purchased under a
conditional sale or other title retention agreement) upon, or any security
interest in, any of the Note Collateral, whether now owned or hereafter
acquired, except those set forth on Schedule 11(c) to this Secured Bridge
Note.

          d.  Merger, Acquisition, or Sale of Assets.  Borrower will not
enter into any merger or consolidation with or acquire all or substantially
all of the assets of any Person unless (i) Borrower gives prior written
notice of the proposed transaction to Lender and (ii) either (A) Borrower
is the surviving entity of such transaction for accounting purposes under
GAAP, or (B) Borrower holds a controlling interest in the surviving entity
and, in either case, the surviving legal entity executes and delivers to
Lender all documents deemed necessary by Lender (as determined solely by
Lender in its reasonable commercial judgment) to protect Lender's rights
under this Secured Bridge Note and the other Loan Documents and any other
of its rights to the Note Collateral, all at Borrower's cost (including,
without limitation, all lien search costs and recording fees).  Borrower will 
not sell, lease, or otherwise dispose of any of its assets except in the 
ordinary course of its business without the prior written notice to, and the 
prior express written consent of, Lender, which consent may be withheld in 
Lender's discretion.

          e.  Intentionally deleted.

          f.  Distributions.  Upon the occurrence, and during the
continuation of, an Event of Default, Borrower will not make, declare or
pay any dividends or distributions.

          g.  Loans.  Without the prior written consent of Lender, which
consent will not be unreasonably withheld, Borrower will not make loans or
advances to any third person or entity other than (i) trade credit extended 
in the ordinary course of its business, (ii) advances for business travel
and similar temporary advances in the ordinary course of business to
officers, members, directors, and employees, or (iii) loans or advances to
Affiliates in an aggregate amount less than $50,000.00.
                               -7-
<PAGE>
          h.  Contingent Liabilities.  Borrower will not assume,
guarantee, endorse, contingently agree to purchase or otherwise become
liable upon the obligation of any third person or entity, except (i) by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business or (ii) for obligations of
Affiliates or Subsidiaries in an aggregate amount less than $50,000.00.

          i.  Intentionally deleted.

          j.  Certificates of Need.  Borrower will not amend, alter,
suspend or terminate or make provisional in any material way, any
certificate of need or provider number without the prior written consent of
Lender, which consent shall not be unreasonably withheld.

          k.  Transactions with Affiliates and Subsidiaries. Borrower
will not enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property, or the loaning or giving of funds
to any Affiliate or subsidiary, except in the ordinary course of business
and pursuant to the reasonable requirements of Borrower's business and upon
terms substantially the same and no less favorable to Borrower as it would
obtain in a comparable arm's length transaction with any Person not a
subsidiary, and so long as the transaction is not otherwise prohibited
under this Secured Bridge Note.  

          For purposes of the foregoing, the term "Affiliate" means, with
respect to a specified Person, any Person directly or indirectly
controlling, controlled by, or under common control with the specified
Person, including without limitation their stockholders, members and any
Affiliates of such Persons. A Person shall be deemed to control a
corporation, limited liability company or other entity if the Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and business of the corporation or other
entity, whether through the ownership of voting securities, by contract, or
otherwise.  For purposes of the foregoing definition, the term "Person"
means an individual, partnership, corporation, trust, joint venture, joint
stock company, limited liability company, association, unincorporated
organization, governmental authority, or any other entity.

          l.  Change in Capital Structure.   There shall occur no change
in Borrower's ownership structure as set forth in Schedule 11(1) that would
cause any change in the control of Borrower without the prior written
consent of Lender.

          m.  Contracts and Agreements.  Borrower will not become or be a
party to any contract or agreement that would breach this Secured Bridge
Note, or breach any other instrument, agreement, or document to which
Borrower is a party or by which it is or may be bound.

          n.  Truth of Statements and Certificates.  Borrower will not
furnish to Lender any certificate or other document that contains any
untrue statement of a material fact or that omits to state a material fact
necessary to make it not misleading in light of the circumstances under
which it was furnished.

     12.  Events of Default.  The following events are each an "Event of
Default " under this Secured Bridge Note:
                               -8-
<PAGE>
          a.  Borrower (i) fails to make any payment of principal within
five (5) days of the date due,  or (ii) fails to make any payment of
interest, fees or other amounts owed to or for the account of Lender within
five (5) days of the date under this Secured Bridge Note and the payment of
such interest, fees or other amounts  remains unpaid for five (5) days
after the date that the payment is due; or

          b.  Borrower has made any representations or warranties in this
Secured Bridge Note, the other Loan Documents, any financial statement
delivered to Lender or in any other writing in connection with this
transaction that contains any untrue statement of a material fact or omits
a material fact necessary to make the statements contained in this Secured
Bridge Note, the other Loan Documents, the financial statements or the
other documents not misleading; or

          c.  Borrower shall fail to perform or observe, or cause to be
performed or observed, any other term, obligation, covenant, condition or
agreement contained in this Secured Bridge Note, and any such failure shall
have continued for a period of twenty (20) days after Lender shall have
given written notice of the failure to Borrower; provided, however, that if
the default is susceptible to cure but cannot be cured within the twenty
(20) day period, but Borrower promptly commences the cure of the default
and diligently prosecutes the cure to completion, then no Event of Default
shall be deemed to occur under this Secured Bridge Note unless the default
remains uncured forty-five (45) days after the giving of the written notice
by Lender; or

          d.  Borrower shall (i) apply for, or consent in writing to, the
appointment of a receiver, trustee or liquidator; or (ii) file a voluntary
petition seeking relief under the Bankruptcy Code, or be unable, or admit
in writing Borrower's inability, to pay their debts as they become due; or
(iii) make a general assignment for the benefit of creditors; or (iv) file
a petition or an answer seeking reorganization or an arrangement or a
readjustment of debt with creditors, apply for or  take advantage of any
insolvency, bankruptcy, suspension of payments, reorganization, debt
arrangement, liquidation, dissolution or similar event, under the law of
the United States or of any state in which Borrower is a resident; or (v)
file an answer admitting the material allegations of a petition filed against
Borrower in any such bankruptcy, reorganization or insolvency case or proceeding
or (vi) take any action authorizing, or in furtherance of, any of the foregoing;
or 

          e.  (i)  an involuntary case is commenced against Borrower and
the petition is  not dismissed within sixty (60) days after the
commencement of the case or (ii) an order, judgment or decree shall be
entered by any court of competent jurisdiction on the application of a
creditor adjudicating Borrower bankrupt or insolvent, or appointing a
receiver, trustee or liquidator of Borrower or ordering the sale of all or
substantially all of the assets of Borrower, and the order, judgment or
decree shall continue unstayed and in effect for a period sixty (60) days
or shall not be discharged within ten (10) days after the expiration of any
stay thereof; or

          f.  Any obligation of Borrower for the payment of borrowed
money the outstanding amount of which is greater than $100,000 is not paid
when due or within any applicable grace period, or the obligation becomes
or is declared to be due and payable before its expressed maturity; or
                               -9-
<PAGE>
          g.  One or more final judgments against Borrower or attachments
against its property that are not fully and unconditionally covered by
insurance shall be rendered by a court of record and shall remain unpaid,
unstayed on appeal, undischarged, unbonded and undismissed for a period of
twenty (20) days; or

          h.  An Event of Default occurs under the Security Agreement 
(as the term is defined in the Security Agreement), a Default occurs under
the Mortgage (as the term is defined in the Mortgage), or a breach occurs
under any of the other Loan Documents; or

          i.  An Event of Default occurs under the Loan Agreement; or

          j.  Borrower ceases any material portion of its business
operations as currently conducted; or

          k.  There shall occur a material adverse change in the
financial condition or business of Borrower, which change shall have
continued unremedied for a period of twenty (20) days after written notice
from Lender.

     13.  Lender's Rights.  

          a.  Upon the occurrence of an Event of Default, Lender may, in
addition to the remedies set forth in Section 7 above,  proceed, to the
extent permitted by law, to protect and enforce its rights either by suit
in equity or by action at law, or both, whether for the specific
performance of any covenant, condition or agreement contained in this
Secured Bridge Note or in aid of the exercise of any power granted in this
Secured Bridge Note, or proceed to enforce the payment of this Secured
Bridge Note or to enforce any other legal or equitable right of Lender.  No
right or remedy in this Secured Bridge Note, the other Loan Documents or in
other agreement or instrument to the benefit of Lender is intended to be
exclusive of any other right or remedy, and each and every such right or
remedy shall be cumulative and shall be in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise. 

          b.  If  an Event of Default has occurred pursuant to this
Secured Bridge Note and Borrower has not paid all amounts outstanding,
together with interest accrued on such outstanding amounts,  upon demand by
Lender, then Borrower shall pay to Lender interest on such outstanding
amounts at the Default Interest Rate until the date this Secured Bridge
Note is paid in full.  Borrower promises to pay all costs of collection,
including reasonable attorneys' fees, if this Secured Bridge Note is
referred to an attorney for collection after the Event of Default.

     14.  No Defenses.  Borrower's obligations under this Secured Bridge
Note shall not be subject to any set-off, counterclaim or defense to
payment that Borrower now has.

     15.  No Waiver.  No failure or delay on the part of Lender in
exercising any right, power or privilege under this Secured Bridge Note or
the other Loan Documents, nor any course of dealing between Borrower and
Lender, shall operate as a waiver of the right, power or privilege nor
shall a single or  partial exercise of any right, power or privilege
preclude any other or further exercise or the exercise of the right, power
or privilege.
                               -10-
<PAGE>
     16.  Writing Required.  No modification or waiver of any provisions
of this Secured Bridge Note or any other Loan Document, nor consent to any
departure by Borrower, shall in any event be effective, irrespective of any
course of dealing between the parties, unless the modification, waiver or
consent shall be in a writing executed by Lender,  and then the
modification, waiver or consent shall be effective only in the specific
instance and for the purpose for which given.  No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice
or demand in the same, similar or other circumstances.

     17.  Usury Limitation.  Notwithstanding anything to the contrary in
this Secured Bridge Note,  Lender shall never be entitled to receive,
collect or apply as interest any amount in excess of the maximum rate of
interest permitted to be charged by applicable law; and if Lender receives,
collects or applies as interest any such excess, the amount that would be
excessive interest shall be applied to the reduction of the Principal Sum;
and if the Principal Sum is paid in full, any remaining excess shall be
paid to Borrower.  In determining whether or not the interest paid or
payable in any specific case exceeds the highest lawful rate, Lender and
Borrower shall, to the maximum extent permitted under applicable law,  (i)
characterize any non-principal payment as an expense, fee or premium rather
than as interest; and (ii) "spread" the total amount of interest throughout
the entire term of the obligation so that the interest rate is deemed to
have been uniform throughout the entire term.

     18.  Notices.  Any notice or demand given under this Secured Bridge
Note shall be given by delivering it, by mailing it by certified or
registered mail, postage prepaid, return receipt requested, or by sending
it by prepaid overnight courier service, in each case addressed to Borrower
at c/o NewCare Health Corporation, 6000 Lake Forrest Drive, Suite 200,
Atlanta, Georgia 30328 Attention: President and General Counsel.  Any
notice to be given to Lender under this Secured Bridge Note shall be given
by delivering it, by mailing it by certified or registered mail, return
receipt requested, or by sending it by prepaid overnight courier service,
in each case addressed to Lender at:  2 Wisconsin Circle, Suite 320, Chevy
Chase, Maryland 20815, Attention: Ethan D. Leder, President, or at such other
place as Lender may specify in writing to Borrower.  Each party may designate a
change of address by notice to the other given in accordance with this Section
18 at least fifteen (15) days before the change of address is to become
effective.  A notice given under this Secured Bridge Note shall be deemed
received five (5) days after it is sent by regular mail, or upon receipt when it
is delivered according to the requirements of this Section 18,  or if sent by
courier on the next Business Day following deposit with the courier.

     19.  Section Headings.  The headings of the several paragraphs of
this Secured Bridge Note are inserted solely for convenience of reference
and are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision.

     20.  Severability.  Any provision contained in this Secured Bridge
Note that is prohibited or unenforceable in any respect in any jurisdiction
shall, as to that jurisdiction,  be ineffective to the extent of the
prohibition or unenforceability without invalidating the remaining
provisions. Moreover, any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable the provision in
any other jurisdiction.
                               -11-
<PAGE>
     21.  Survival of Terms.  All covenants, agreements, representations
and warranties made in this Secured Bridge Note or in any financial
statements delivered pursuant to this Secured Bridge Note shall survive
Borrower's execution and delivery of this Secured Bridge Note to Lender and
shall continue in full force and effect so long as this Secured Bridge Note
or any other obligation of Borrower under this Secured Bridge Note shall be
outstanding and unpaid or any other obligation of Borrower to Lender or its
affiliates shall remain unperformed.

     22.  Choice of Law; Consent to Jurisdiction. THIS SECURED BRIDGE NOTE
IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE CONFLICTS-OF-LAWS
PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE, AND THE PARTIES
EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN MARYLAND, WAIVING ALL
CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE,
INCONVENIENT FORUM OR THE LIKE.  BORROWER HEREBY CONSENTS TO SERVICE OF
PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR
REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN
SECTION 18 ABOVE. 

     23.  Waiver of Trial by Jury.  EACH OF BORROWER AND LENDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUES TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW HEREAFTER EXIST.  THIS WAIVER OF RIGHT
TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH OF
BORROWER AND LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY
EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD
OTHERWISE ACCRUE.  EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT
THIS SECURED BRIDGE NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT
MATTER AND THE PARTIES TO THIS NOTE, SO AS TO SERVE AS CONCLUSIVE EVIDENCE
OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL.  FURTHER, EACH OF
BORROWER AND LENDER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY 
WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.

IN WITNESS WHEREOF, the undersigned has executed this Secured Bridge Note
as of the day and year first above written.

                                 BORROWER:

ATTEST:                          NEWCARE HOSPITAL CORPORATION.
                                 a Georgia corporation

By:   /s/ Philip M. Rees         By:   /s/ Chris Brogdon
Name:     Philip M. Rees         Name:     Chris Brogdon
Its:      Secretary              Its:      President
                                  -13-
<PAGE>
                        SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (this "Agreement") is made as of the 31st day
of July, 1997, by NEWCARE HOSPITAL CORPORATION, a Georgia corporation
("Pledgor"), in favor of HCFP FUNDING II, INC., a Delaware corporation
("Lender").

                             RECITALS

     WHEREAS, Lender has agreed to make a loan (the "Loan") in the initial
principal amount of  FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($4,500,000.00) to Pledgor, which loan is evidenced by that certain Secured
Bridge Note of even date executed by Pledgor in favor of Lender (the
"Secured Note"); and 

     WHEREAS, the proceeds of the Loan are to be used by Pledgor for the
purposes described in the Secured Note; and

     WHEREAS, Lender has required, as a condition to extending these
financial accommodations, the execution and delivery of this Agreement by
Pledgor; 

     NOW, THEREFORE, to secure the prompt payment of all past, present,
and future indebtedness, liabilities, and obligations of  Pledgor to Lender
of any nature whatsoever in connection with the Loan, together with all
obligations of Pledgor to Lender under this Agreement,  the Secured Note,
the first priority Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing of even date executed by Pledgor in favor of
Lender encumbering that certain real property at 427 West Main Street,
Gardner, Kansas 66030 (the "Mortgage") (this Agreement, the Secured Note,
the Mortgage are collectively referred to as the "Term Loan Documents"),
and under that certain Loan and Security Agreement dated June 30, 1997, as
amended, by and between Pledgor, NewCare Health Corporation and certain of
its affiliates and HCFP Funding, Inc. ("HCFP"), as it may be amended or
restated from time to time (the "Revolving Loan Agreement"), the Revolving
Credit Note of even date in favor of HCFP and the other documents related
to the Revolving Loan Agreement (collectively, the "Revolving Loan
Documents"), and the performance by Pledgor of all of the terms,
conditions, and provisions of the Term Loan Documents and the Revolving
Loan Documents (the Term Loan Documents and the Revolving Loan Documents
are collectively referred to as the "Loan Documents"),  Pledgor agrees with
Lender as follows:

     1.   Collateral.  To secure the payment and performance of Pledgor's
Liabilities and Pledgor's performance of its obligations under the Loan
Documents, Pledgor hereby grants to Lender a security interest in and a
lien upon the following property of Pledgor: 

          (a)  Inventory.  All of Pledgor's now owned or hereafter
acquired inventory of every description which is held by Pledgor for sale
or lease or is furnished by Pledgor under any contract of service or is
held by Pledgor as raw materials, work in process or materials used or
consumed in a business, whether now owned or hereafter acquired, wherever
located, and as the same may now and hereafter from time to time be
constituted, together with all cash and non-cash proceeds and products
thereof (the "Inventory").
                                  -1-
<PAGE>
          (b)  Accounts.  All of Pledgor's accounts (as defined in the
applicable Uniform Commercial Code) and each and every right of Pledgor to
(i) the payment of money or (ii) the receipt or disbursement of products,
goods, services or other valuable consideration, whether such right now
exists or hereafter arises, whether such right arises out of a sale, lease
or other disposition of property or out of a rendering of services, or any
other transaction or event, whether such right is created, generated or
earned by Pledgor or by some other person who subsequently transfers its
interest to Pledgor, whether such right is or is not already earned by
performance and howsoever such right may be evidenced, together with all
other rights and interests (including all liens and security interests)
which Pledgor may at any time by law or agreement have against any person
obligated to make any such payment or against any property of any such
person (including, without limitation, all notes, notes receivable, drafts,
acceptances, and similar instruments and documents) ("Accounts"), together
with (i) all cash and non-cash proceeds thereof,  (ii) all of Pledgor's
right, title and interest in, to and in respect of all goods relating to,
or which by sale have resulted in, Accounts, including, without limitation,
all goods described in invoices or other documents or instruments with
respect to, or otherwise representing or evidencing, any Account, and all
returned, reclaimed or repossessed goods, and all cash and non-cash
proceeds and products of all such goods,  and (iii) all of Pledgor's right,
title and interest, and all of Pledgor's rights, remedies, security and
liens, in, to and in respect of the Accounts, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or
secured party, guaranties or other contracts of suretyship with respect to
the Accounts, deposits or other security for the obligation of any Account
debtor, and credit and other insurance. 

          (c)  Deposit Accounts.  All of Pledgor's Deposit Accounts, as
that term is defined in the UCC.

          (d)  General Intangibles.  All of Pledgor's general intangibles
(including, without limitation, any proceeds from insurance policies after
payment of prior interests), patents, unpatented inventions, trade secrets,
copyrights, contract rights, goodwill, literary rights, rights to
performance, rights under licenses, choses-in-action, claims, information
contained in computer media (such as data bases, source and object codes,
and information therein), things in action, trademarks and trademarks
applied for (together with the goodwill associated therewith) and
derivatives thereof, trade names, including the right to make, use, and
vend goods utilizing any of the foregoing, and permits, licenses,
certifications, authorizations and approvals, and the rights of Pledgor
thereunder, issued by any governmental, regulatory, or private authority,
agency, or entity whether now owned or hereafter acquired, together with
all cash and non-cash proceeds and products thereof.

          (e)  Chattel Paper.  All of Pledgor's chattel paper, whether
now owned and hereafter existing, acquired, or created, together with (i)
all moneys due and to become due thereon, (ii) all cash and non-cash
proceeds thereof, and (iii) all returned, rejected, or repossessed goods,
the sale or lease of which shall have given or shall give rise to chattel
paper, and all cash and non-cash proceeds and products of all such goods. 
Additionally, Pledgor assigns and grants to Lender a security interest in 
                                  -2-
<PAGE>
all property and goods both now owned and hereafter acquired by Pledgor
which are sold, leased, secured, are the subject of, or otherwise covered
by, Pledgor's chattel paper, together with all rights incident to such
property and goods and all cash and non-cash proceeds thereof (the "Chattel
Paper").

          (f)  Records.  All books, records, ledger cards, computer
programs and other property at any time evidencing or relating to the
Accounts ("Records").

          (g)  All Furniture, Fixtures and Equipment.  All of Pledgor's
machinery, equipment, computer equipment, tools, tooling, furniture,
fixtures, goods, supplies, materials and work in process, whether now owned
or hereafter acquired, together with (i) all additions, parts, fittings,
accessories, special tools, attachments, and accessions now and hereafter
affixed thereto and/or used in connection therewith, (ii) all replacements
thereof and substitutions therefor, and (iii) all cash and non-cash
proceeds and products thereof. All such fixtures are or will be attached to
the real property encumbered by the Mortgage.  (Such equipment and fixtures
are collectively referred to as the "Fixtures and Equipment").

          (h)  Cash and Securities.  Any and all moneys, reserves,
securities, cash, cash equivalents, balances, credits, investment property 
and interest and dividends on and proceeds of any of the foregoing now or
hereafter held or received by, or in transit to, Lender from or for
Pledgor, whether for safekeeping, pledge, custody, transmission, collection
or otherwise, and all of Pledgor's deposits (general or special), balances,
sums and credits with Lender at any time existing ("Cash").

          The term "Collateral" as used herein means each and all of the
items of Collateral described above, and the term "proceeds" as used herein
includes, without limitation, the proceeds of all insurance policies
covering all or any part of such items of Collateral.

     2.  Title to Collateral.  Pledgor warrants and represents that (i) it
is the lawful owner of the Collateral, and has the full right, power, and
authority to convey, transfer, and grant the security title and security
interest in the Collateral granted herein to Lender; (ii) the Collateral is
not, and so long as this Agreement is in effect will not be, subject to any
liens, claims, security interests, encumbrances, taxes, or assessments,
however described or denominated, except as set forth on Schedule A to this
Agreement; (iii) no financing statement, mortgage, notice of lien, deed of
trust, deed to secure debt, security agreement, or any other agreement or
instrument creating an encumbrance, lien, or charge against any of the
Collateral is in existence or on file in any public office, other than as
set forth on Schedule A to this Agreement; and (iv) all information with
respect to the Collateral and Pledgor's Liabilities, or any of them, set
forth in any written schedule, certificate, or other document at any time
heretofore or hereafter furnished by Pledgor to Lender, and all other
written information heretofore or hereafter furnished by Pledgor to Lender,
is and will be true and correct in all material respects as of the date
furnished.

     3.  Further Assurances.  Pledgor will defend its title to the
Collateral against all persons and will, upon request of Lender, (a)
furnish such further assurances of title as may be required by Lender, 
                                  -3-
<PAGE>
(b) deliver and execute or cause to be delivered and executed, in form and
content reasonably satisfactory to Lender, any financing statements,
notices, certificates of title, and other documents and pay the cost of
filing or recording the same in all public offices reasonably deemed
necessary by Lender, as well as any recordation, documentary, or transfer
tax required by law to be paid in connection with such filing or recording,
and (c) do such other acts as Lender may reasonably request in order to
perfect, preserve, maintain, or continue the perfection of Lender's
security interest in the Collateral and/or its priority.

     4.  Accounts, etc.   Until such time as Lender shall notify Pledgor
in writing of the revocation of such power and authority, Pledgor will, at
its own expense, diligently attempt to collect, as and when due, all
amounts owing under the Accounts, and hold all funds received from the
Accounts separately and in trust for Lender.  Until an Event of Default
shall occur, however, Pledgor may use or consume in the ordinary course of
its business any such collections on the Accounts, any Cash, and any other
proceeds of any Collateral that Pledgor has the right to sell under this
Agreement,  in any lawful manner not inconsistent with this Agreement and
the other Loan Documents.  After an Event of Default, upon request of
Lender, Pledgor will, at its own expense, notify any parties obligated on
any of the Accounts to make payments to Lender and will hold in trust and
immediately forward to Lender all payments received by Pledgor in the form
received, with all necessary endorsements thereon for collection by Lender. 
Pledgor hereby indemnifies and holds Lender harmless from and against all
liabilities and expenses, including attorney's fees, on account of any
claim asserted against Lender with respect to any Account.

     5.  Transfer and Other Liens.  Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part
thereof, except for sales and dispositions of Collateral that is obsolete
and being replaced and of Inventory in the ordinary course of business,
without the prior written consent of Lender,  and Pledgor will not permit
any lien, security interest, or other encumbrance to attach to the
Collateral, or any part thereof, other than those in favor of Lender or
those set forth on Schedule A to this Agreement or those specifically
permitted by Section 3(b) of the Mortgage.

     6.  Books and Records. Pledgor will furnish to Lender promptly upon
request, certified by an officer of Pledgor and in the form and content
specified by Lender, lists of purchasers of inventory, aging of accounts,
aggregate cost or wholesale market value of inventory, schedules of
equipment, and other data concerning the Collateral as Lender may from time
to time specify, and mark its books and records in a manner satisfactory to
Lender so that Lender's rights in and to the Collateral will be shown.

     7.  Name of Pledgor, Place(s) of Business, and Location of
Collateral.  Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or
trade name of Pledgor for the previous five (5) years (if different from
Pledgor's current legal name) is as specified below the signature lines of
this Agreement.  Without the prior written consent of Lender, which consent
shall not be unreasonably withheld, Pledgor will not change its name,
dissolve, merge, or consolidate with any other person.  Pledgor warrants
that the address of Pledgor's chief executive office and the
                                  -4-
<PAGE>
address of each other place of business of Pledgor are as specified below
the signature lines of this Agreement.  Except for mobile equipment,  the
Collateral and all books and records pertaining to the Collateral have
been, are, and will be located at Pledgor's chief executive office
specified below or at any other place of business which may be specified
below.  Without the prior written consent of Lender, which consent shall
not be unreasonably withheld, Pledgor will not change the location of any
Collateral to any place not specified below.

Without prior written notice to Lender, Pledgor will not open any new place
of business.  Pledgor will immediately advise Lender in writing of the
opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and
records concerning the Collateral or any part thereof, are kept.

     8.  Care of Collateral.  Pledgor will maintain the Collateral in good
condition, reasonable wear and tear excepted, and excepting any loss,
damage, or destruction that is fully covered by proceeds of insurance, and
will not do or permit anything to be done to the Collateral that may impair
its value or that may violate the terms of any insurance covering the
Collateral, or any part.   Lender shall have no duty to, and Pledgor hereby
releases Lender from all claims for loss or damage caused by the failure
to, collect or enforce any Account or Chattel Paper or to preserve rights
against prior parties to the Collateral.  Pledgor will use the Collateral
for lawful purposes only, with all reasonable care and caution and in
conformity in all material respects with all applicable laws, ordinances,
and regulations.

     9.  Insurance.  Pledgor will maintain the insurance required by the
Note and the Mortgage.  

     10.  Taxes.  Subject to Pledgor's right to contest as provided in the
Secured Note, Pledgor will pay as and when due and payable all taxes,
levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.

     11.  Specific Assignments.  After the occurrence of an Event of
Default, promptly upon request by Lender, Pledgor will execute and deliver
to Lender written assignments, endorsements, and/or schedules, in form and
content satisfactory to Lender, of specific Chattel Paper and Accounts or
groups of Accounts or Chattel Paper, but the security interest of Lender
hereunder shall not be limited in any way by such assignments.  

     12.  Delivery of Chattel Paper.  After the occurrence of an Event of
Default, promptly upon request by Lender, Pledgor will deliver, assign, and
endorse to Lender all Chattel Paper and all other documents held by Pledgor
in connection therewith.

     13.  Government Contracts.  If any Account or Chattel Paper arises
out of a contract or contracts with the United States of America or any
department, agency, or instrumentality thereof,  other than contracts of
the type specified on Schedule B to this Agreement, Pledgor shall promptly
notify Lender thereof in writing and execute any instruments or take any
steps required by Lender in order that all moneys due or to
                                  -5-
<PAGE>
become due under such contract or contracts shall be assigned to Lender and
notice thereof given under the Federal Assignment of Claims Act or other
applicable law.

     14.  Collateral Account.  If all or any part of the Collateral at any
time consists of Inventory, Accounts, or Chattel Paper, other than those
arising from contracts of the type specified on Schedule B to this
Agreement, Pledgor will, upon the request of Lender at any time and from
time to time after the occurrence, and during the continuation of, an Event
of Default hereunder, deposit or cause to be deposited to a bank account
designated by Lender and from which Lender alone has power of access and
withdrawal (the "Collateral Account") all checks, drafts, cash, and other
remittances in payment or on account of payment of such Inventory,
Accounts, or Chattel Paper and the cash proceeds of any returned goods, the
sale or lease of which gave rise to an Account or Chattel Paper (all of the
foregoing herein collectively referred to as "Items of Payment").  Pledgor
shall deposit the Items of Payment for credit to the Collateral Account
within two (2) business days of the receipt thereof, and in precisely the
form received, except for the endorsement of Pledgor where necessary to
permit the collection of the Items of Payment, which endorsement Pledgor
hereby agrees to make.  Pending such deposit, Pledgor will not commingle
any of the Items of Payment with any of its other funds or property but
will hold them separate and apart.  Lender may at any time and from time to
time apply the whole or any part of the collected funds credited to the
Collateral Account against Pledgor's Liabilities or credit such collected
funds to a banking account of Pledgor with Lender, the order and method of
such application to be in the sole discretion of Lender.

     15.  Rights of Lender and Duties of Pledgor.  If all or any part of
the Collateral at any time consists of Inventory, Accounts, or Chattel
Paper, Lender may at any time and from time to time after the occurrence of
an Event of Default hereunder (a) notify the account debtors obligated on
any of the Collateral to make payments thereon directly to Lender, and to
take control of the cash and non-cash proceeds of any such Collateral; (b)
charge to any banking account of Pledgor with Lender any Item of Payment
credited to the Collateral Account which is dishonored by the drawee or
maker thereof; (c) compromise, extend, or renew any of the Collateral or
deal with the same as it may deem advisable; (d) release, make exchanges or
substitutions for, or surrender all or any part of the Collateral; (e)
place under Lender's control at Pledgor's place of business all books,
records, ledger sheets, correspondence, invoices, and documents relating to
or evidencing any of the Collateral or, without cost or expense to Lender,
make such use of Pledgor's place(s) of business as may be reasonably
necessary to administer, control, and collect the Collateral; (f) repair,
alter, or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any account debtor; (g) demand, collect, receipt for,
and give renewals, extensions, discharges, and releases of any of the
Collateral; (h) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (i) settle,
renew, extend, compromise, compound, exchange, or adjust claims with
respect to any of the Collateral or any legal proceedings brought with
respect thereto; (j) endorse the name of Pledgor upon any Items of Payment
relating to the Collateral or upon any proof of claim in bankruptcy against
an account debtor; and (k) receive and open all mail addressed to Pledgor
and notify postal authorities to change the address for the delivery of
mail to Pledgor to such address as Lender may designate.  For
                                  -6-
<PAGE>
purposes of taking the actions described in subsections (a) through (k)
only,  Pledgor hereby irrevocably appoints Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any
of Pledgor's Liabilities remain unpaid), with power of substitution, in the
name of Lender or in the name of Pledgor or otherwise, for the use and
benefit of Lender, but at the cost and expense of Pledgor and without
notice to Pledgor.  

     16.  Performance by Lender.  If Pledgor fails to perform, observe, or
comply with any of the conditions, terms, or covenants contained in this
Agreement, Lender, after twenty (20) days prior written notice to Pledgor
but without waiving or releasing any of Pledgor's Liabilities or any Event
of Default, may  (but shall be under no obligation to) at any time
thereafter perform such conditions, terms, or covenants for the account and
at the expense of Pledgor, and may enter upon any place of business or
other premises of  Pledgor for that purpose and take all such action
thereon as Lender may consider necessary or appropriate for such purpose. 
All sums paid or advanced by Lender in connection with the foregoing and
all costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred in connection therewith
(collectively, the "Expense Payments") together with interest thereon at a
simple per annum rate of interest which is equal to the then highest rate
of interest charged on the principal of any of Pledgor's Liabilities, plus
one percent (1%) per annum, (but in no event higher than the maximum
interest rate permitted by applicable law) from the date of payment until
repaid in full, shall be paid by Pledgor to Lender on demand and shall
constitute and become a part of Pledgor's Liabilities secured hereby.

     17.  Default.  The occurrence of any one or more Events of Default
under the Secured Note or any Default under the Mortgage shall constitute
an event of default (an "Event of Default") under this Agreement.

     18.  Rights and Remedies upon Default.  Upon the occurrence of an
Event of Default under this Agreement, (and in addition to all of its other
rights, powers, and remedies under this Agreement), Lender may, at its
option, and immediately upon delivery of notice to Pledgor, declare the
unpaid balance of Pledgor's Liabilities to be immediately due and payable. 
The occurrence or non-occurrence of an Event of Default shall in no manner
impair the ability of Lender to demand payment of any portion of Pledgor's
Liabilities which are payable on demand.  Lender shall have all of the
rights and remedies of a secured party under the applicable Uniform
Commercial Code.  Upon the occurrence of an Event of Default hereunder,
Pledgor, upon demand by Lender, shall assemble the Collateral and make it
available to Lender at a place designated by Lender which is mutually
convenient to both parties.  Upon the occurrence of an Event of Default
under this Agreement, Lender or its agents may enter upon Pledgor's
premises to take possession of the Collateral, to remove it, to render it
unusable, or to sell or otherwise dispose of it, all without judicial
process or proceedings.

          Any written notice of the sale, disposition, or other intended
action by Lender with respect to the Collateral that is required by
applicable laws and that is sent by certified mail, postage prepaid, to
Pledgor at the address of Pledgor's chief executive office specified below,
or such other address of Pledgor that may from time to time be shown on
Lender's records, at least ten (10) business days prior to such sale,
disposition, or other action, shall constitute reasonable notice to
                                  -7-
<PAGE>

Pledgor.  Pledgor shall pay on demand all costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses, incurred by or
on behalf of Lender (a) in enforcing Pledgor's Liabilities, and (b) in
connection with the taking, holding, preparing for sale or other
disposition, selling, managing, collecting, or otherwise disposing of the
Collateral.  All of such costs and expenses (collectively, the "Liquidation
Costs") together with interest thereon at a simple per annum rate of
interest which is equal to the then highest rate of interest charged on the
principal of any of Pledgor's Liabilities, plus one percent (1%) per annum,
(but in no event higher than the maximum interest rate permitted by
applicable law) from the date of payment until repaid in full, shall be
paid by Pledgor to Lender on demand and shall constitute and become a part
of Pledgor's Liabilities secured hereby.  Any proceeds of sale or other
disposition of the Collateral will be applied by Lender to the payment of
Liquidation Costs and Expense Payments, and any balance of such proceeds
will be applied by Lender to the payment of the remaining Pledgor's
Liabilities in such order and manner of application as Lender may from time
to time in its sole discretion determine.

     19.  Remedies Cumulative.  Each right, power, and remedy of Lender as
provided for in this Agreement or in the other Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Agreement or in the other Loan
Documents or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Lender or any
one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by Lender of any or all such other rights,
powers, or remedies.

     20.  Waiver.  No failure or delay by Lender to insist upon the strict
performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power,
or remedy consequent upon a breach thereof, shall constitute a waiver of
any such term, condition, covenant, or agreement or of any such breach, or
preclude Lender from exercising any such right, power, or remedy at any
later time or times.  By accepting payment after the due date of any of
Pledgor's Liabilities, Lender shall not be deemed to have waived the right
either to require payment when due of all other Pledgor's Liabilities or to
declare an Event of Default for failure to effect such payment of any such
other Pledgor's Liabilities.  Pledgor waives presentment, notice of
dishonor, and notice of non-payment with respect to Accounts and Chattel
Paper.

     21.  Governing Law.  This Agreement shall be governed by the laws of
the State of Maryland, without respect to any other conflicts-of-laws
provisions.

     22.  Miscellaneous.  

          (a)  Time is of the essence in this Agreement. 

          (b)  The section headings of this Agreement are for convenience
only and shall not limit or otherwise affect any of the terms hereof. 
                                  -8-
<PAGE>
          (c)  Neither this Agreement nor any term, condition, covenant,
or agreement hereof may be changed, waived, discharged, or terminated
orally but only by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge, or termination is
sought.  

          (d)  This Agreement shall be binding upon Pledgor and its
heirs, executors, administrators, legal representatives, successors, and
assigns, and shall inure to the benefit of Lender and its successors and
assigns. 

          (e)  As used herein, the singular number shall include the
plural, the plural the singular, and the use of the masculine, feminine, or
neuter gender shall include all genders, as the context may require, and
the term "person" shall include an individual, a corporation, an
association, a partnership, a trust, and an organization. 

          (f)  Invalidation of any one or more of the provisions of this
Agreement shall in no way affect any of the other provisions hereof, which
shall remain in full force and effect.  

          (g)  All references herein to any document, instrument, or
agreement shall be deemed to refer to such document, instrument, or
agreement as the same may be amended, modified, restated, supplemented, or
replaced from time to time.  

          (h)  Unless varied by this Agreement, all terms used herein
which are defined by the applicable Uniform Commercial Code shall have the
same meaning hereunder as assigned to them by such Uniform Commercial Code.

          (i)  Upon full, final and irrevocable payment of all
obligations under the Note and other Loan Documents, and termination of any
further obligation of Lender to make advances or extensions of credit to
Pledgor under the Note, this Agreement shall terminate and Lender shall
immediately execute appropriate documents to evidence the termination.

     IN WITNESS WHEREOF, Pledgor has caused its duly authorized officer to
execute this Agreement as of the day and year first written above.

                                   PLEDGOR:

ATTEST:                            NEWCARE HOSPITAL CORPORATION
                                   a Georgia corporation

By:/s/ Philip M. Rees              By:/s/ Chris Brogdon                   
Name:  Philip M. Rees              Name:  Chris Brogdon
Title: Secretary                   Title: President

Address of Pledgor's executive office:

6000 Lake Forrest Drive #200
Atlanta, Georgia 30328
                                  -9-
<PAGE>
Addresses where Collateral is      Addresses of other places
or is to be located:               of business of Pledgor:

427 West Main Street
Gardner, Kansas 66030

6000 Lake Forrest Drive, #200
Atlanta, Georgia 30328

Previous legal and/or trade
names of Pledgor:

                            ACKNOWLEDGMENT
STATE OF GEORGIA   )
                   ) ss:
COUNTY OF FULTON   )

     On this 23rd day of July, 1997, before me, the undersigned officer,
personally appeared Chris Brogdon, personally known to me,
or proved to me on the basis of satisfactory evidence, and who acknowledged
that he is the President of  NEWCARE HOSPITAL CORPORATION and that
as such officer, being duly authorized to do so pursuant to the
corporation's bylaws or a resolution of its board of directors, executed,
subscribed and acknowledged the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself in his
authorized capacity as such officer, as his free and voluntary act and deed
and the free and voluntary act and deed of the corporation.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

[NOTARIAL SEAL]                    /s/ Kathryn Pifer                 
                                   Notary Public

                                   My Commission Expires:
                                   2.14.98                            
                                  -10-
<PAGE>

After recording, return to:  

     Gaylord G. Smith, Esq.
     Blackwell Sanders Matheny Weary & Lombardi, P.C.
     Suite 1100 - Two Pershing Square
     2300 Main Street
     Kansas City, Missouri 64108

            MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
              SECURITY AGREEMENT AND FIXTURE FILING

                          $4,500,000.00

     MORTGAGOR:  NEWCARE HOSPITAL CORPORATION

     MORTGAGEE:  HCFP FUNDING II, INC.

                         July 31, 1997
<PAGE>
                              MORTGAGE,
                    ASSIGNMENT OF LEASES AND RENTS,
                 SECURITY AGREEMENT AND FIXTURE FILING

     THIS INSTRUMENT ("Mortgage") WITNESSES:  That NEWCARE HOSPITAL
CORPORATION, a Georgia corporation, ("Mortgagor"), in consideration of One
Dollar ($1.00) and other good and valuable consideration, the receipt of which
is hereby acknowledged, hereby MORTGAGES and WARRANTS to HCFP FUNDING II,
INC., a Delaware corporation ("Mortgagee"), certain real estate in Johnson
County, Kansas, commonly known as  427 West Main Street, Gardner, Kansas 66030
and described more particularly on Exhibit A attached hereto and made a part
hereof for all purposes (all of such real estate being hereinafter referred to
as the "Real Estate"), together with all rights, title and interests of
Mortgagor, now existing or hereafter arising, in and to:

     (i)  All rights, privileges, interests, tenements, hereditaments,
easements and appurtenances in any way now or hereafter benefitting, belonging
or appertaining to all or any of the Real Estate, including (without limiting
the generality of the foregoing) all land lying within any roadway and strips
adjoining all or any of the Real Estate, all minerals, oil, gas and other
hydrocarbon substances thereon or therein and all air rights and water rights
(collectively, the "Easements and Appurtenances");

     (ii) All buildings, structures and other improvements of every kind and
description now or hereafter erected, constructed or placed on the Real
Estate, together with all fixtures, equipment, machinery, apparatus,
furniture, furnishings and other articles of personal property now or
hereafter located in or upon, attached to or regularly used or intended to be
regularly used in connection with the Real Estate, and all replacements
thereof (collectively, the "Improvements");

     (iii)     All extensions, improvements, betterments, substitutes,
replacements, renewals, additions and appurtenances of or to the Easements and
Appurtenances and of or to the Improvements (collectively, the "Additions");

     (iv) All rights, title, estate and interest of Mortgagor in and to all
rents, royalties, revenues, rates, issues, income, profits, charges and
proceeds from accounts due or becoming due from use of the Mortgaged Property
or the operation of the Mortgaged Property (as defined below) including, but
not limited to, payments for the operation or use of the Mortgaged Property,
for all services rendered, whether or not earned by performance, for goods
sold or leased on the Mortgaged Property, and all proceeds of the foregoing,
whether cash or non-cash (collectively, the "Rents");
     
     (v)  All awards, payments and proceeds of conversion, whether voluntary
or involuntary, of any of the Real Estate, Easements and Appurtenances,
Improvements, Additions and Rents, including (without limitation) all
insurance, condemnation and tort claims, rent claims and other obligations
dischargeable in cash or cash equivalent (collectively, the "Proceeds").

Hereinafter, the Real Estate, the Easements and Appurtenances, the
Improvements, the Additions, the Rents and the Proceeds are referred to
collectively as the "Mortgaged Property."

     This Mortgage is given to secure performance by Mortgagor of the
covenants and agreements contained in this Mortgage, and to secure:

     (i)  Payment of the principal of, and interest on, the indebtedness
evidenced by the Secured Bridge Note, dated of even date herewith, executed by
Mortgagor to the order of Mortgagee in the principal amount of Four Million
<PAGE>
Five Hundred Thousand and No/100 Dollars ($4,500,000.00), (the "Note"),
together with all other amounts now or hereafter owing under the Note;

     (ii) All of the obligations, indebtedness and liabilities of Mortgagor
to Mortgagee, now existing or hereafter arising, under the Loan Documents, as
that term is defined in the Note;

     (iii)     Any and all modifications, restatements, renewals and extensions
of one or more of the indebtedness, liabilities, obligations, Loan Documents,
and other instruments secured hereby, including without limitation:
(a) modifications of the required principal payment dates or interest payment
dates, deferring or accelerating payment dates wholly or partly, and
(b) modifications, extensions or renewals at a different rate of interest
whether or not, in the case of a promissory note or contract, the
modification, extension or renewal is evidenced by a new or additional
promissory note or other contract; and

     (iv) The obligations of NewCare Health Corporation, an affiliate of
Mortgagor ("NewCare Health") to HCFP Funding, Inc, an affiliate of Mortgagee
("HCFP"), under that certain Loan and Security Agreement by and between
NewCare Health and certain of its affiliates, as borrower, and HCFP, as
lender, dated as of June 30, 1997 (the "Loan and Security Agreement").

     This Mortgage secures all future advances made by Mortgagee to
Mortgagor.  The total amount of obligations and advances secured hereby may
decrease or increase from time to time, but at no time shall the total
principal amount of obligations and advances secured by the lien of this
Mortgage, not including sums expended or incurred for the reasonable
protection of the security interest hereby created in the Mortgaged Property,
exceed the sum of Four Million Five Hundred Thousand and 00/100 Dollars
($4,500,000.00).

     The indebtedness, liabilities and obligations secured by this Mortgage
are hereinafter collectively called the "Indebtedness."

     All persons who have or may acquire an interest in the Mortgaged
Property shall be deemed to have notice of and shall be bound by the terms of
the Note, this Mortgage, and any other instruments or documents made or
entered into in connection herewith and the terms of the Indebtedness. 

     Mortgagor hereby further covenants with the Mortgagee as follows:

     1.  Payment of Sums Due.  Mortgagor promptly will pay as and when due
the Indebtedness, including all costs of collection and attorneys' and
paralegals' fees.  Mortgagor waives demand, presentment for payment, notice of
protest and notice of nonpayment or dishonor of the Note and of the
Indebtedness.

     2.   Care and Condition of Mortgaged Property.  Mortgagor shall
(a) promptly repair, restore or rebuild any part of the Mortgaged Property
which may become damaged or be destroyed; (b) keep the Mortgaged Property in
good condition and thorough repair, without waste, and free from encroachments
and mechanic's or materialman's liens or claims for liens, provided that if
Mortgagor dispute such a lien or claim for lien Mortgagor may post a bond
within fifteen (15) days after a lien is filed or a claim for lien is made in
an amount sufficient to satisfy the lien or claim; (c) pay any indebtedness
when due which may be secured by a lien or charge on the Mortgaged Property,
whether or not superior, equal or junior to the lien of this Mortgage;
                               -2-
<PAGE>
(d) complete, or cause to be completed, within a reasonable time and in a good
and workmanlike manner, any Improvements now or at any time hereafter in the
process of erection, construction or installation; (e) comply, and cause any
lessees and sublessees of the Mortgaged Property to comply, with all
requirements of law, municipal ordinances, restrictions of record or insurance
covenants with respect to the Mortgaged Property and its use; (f) permit no
removal, demolition or material alteration or modification of the Mortgaged
Property aggregating more than $10,000.00 (other than removal of items of the
Mortgaged Property which have become obsolete, undesirable or unnecessary or
are being replaced) without the prior written consent of Mortgagee;
(g) observe and comply with all conditions and requirements necessary to
preserve and extend any and all rights, licenses, permits (including without
limitation all uses), privileges, franchises and concessions which are
applicable to any part of the Mortgaged Property or which have been granted to
or contracted for by Mortgagor in connection with any existing or contemplated
use of any part of the Mortgaged Property; (h) permit Mortgagee to enter upon
and inspect the Mortgaged Property at all reasonable times and from time to
time following reasonable prior notice to Mortgagor; and (i) promptly notify
Mortgagee of the assertion of any claim, or the filing of any action or
proceeding affecting the Mortgaged Property, of the occurrence of any damage
to the Mortgaged Property, or of any act or default under any contract,
mortgage, lease, license or federal, state or local law or regulation in
connection with or affecting in any way, the Mortgaged Property.  

     3.   Warranties.  Mortgagor covenants and warrants that: (a) Mortgagor
is lawfully seized of the Real Estate and Improvements in fee simple, has
valid and indefeasible title to the Mortgaged Property and has a good and
legal right to mortgage the Mortgaged Property to Mortgagee; (b) all of the
Mortgaged Property is and will remain free from all liens and encumbrances
excepting only the lien of real estate taxes not yet due and payable, those
easements and encumbrances set forth on the Mortgagor's policy of title
insurance issued to Mortgagor on the date hereof, which exceptions are set
forth on Schedule 3(b) hereto, those liens and encumbrances which are in favor
of Mortgagee, those other liens and encumbrances set forth on Schedule 3(b)
hereto, and those purchase money security interests in personal property
acquired by Mortgagor in the ordinary course of business, and Mortgagor will
warrant and defend, at Mortgagor's expense, Mortgagor's rights, title and
interests in and to the Mortgaged Property (subject to those matters to which
this Mortgage is hereinabove expressly made subject) against all claims made
thereon; (c) the Real Estate is properly zoned and its present development and
uses comply in all respects with all applicable zoning and other ordinances,
laws and legal restrictions regulating development and use of the Real Estate;
(d) Mortgagor is and will continue to be a corporation duly organized under
the laws of the State of Georgia; (e) Mortgagor has full right, power and
authority to own the Mortgaged Property and to execute and deliver the Note
and the other Loan Documents, to operate the Mortgaged Property, to borrow
funds, and to otherwise consummate the transactions contemplated by the Note,
this Mortgage and the other Loan Documents; (f) there is no action, litigation
or proceeding pending or threatened against or involving Mortgagor in any
court or by any agency or regulatory body which could result in a judgment or
liability against Mortgagor or which could materially adversely affect any
material asset of Mortgagor, including (without limitation) the Mortgaged
Property, or the income of Mortgagor or the right of Mortgagor to carry on its
business as now conducted or intended to be conducted; no condemnation,
adverse zoning, environmental or usage change or other adverse legal
proceeding has been commenced or, to the best of Mortgagor's knowledge,
threatened with respect to the Mortgaged Property or any part thereof; (g)
Mortgagor is not in default with respect to any order, writ, injunction,
                               -3-
<PAGE>
decree or command of any court or regulatory body and, to the best of
Mortgagor's knowledge,  is not in violation of any material ordinance, law or
regulation of any governmental authority applicable to Mortgagor or its
businesses or properties; (h) neither the execution of, nor the consummation
of the transactions and the borrowings contemplated by the Note and the other
Loan Documents nor the compliance with the terms and provisions of the Note
and the other Loan Documents will conflict with, result in a breach of or
constitute a default under any of the terms, conditions or provisions of any
agreement, lease, indenture, mortgage, deed of trust, land contract, license
or other instrument to which Mortgagor is a party or by which Mortgagor or any
of its assets are or may be bound or affected or to which Mortgagor is subject
or, to the best of Mortgagor's knowledge, any law, regulation, order, writ,
injunction or decree of any court or agency or regulatory body having
jurisdiction; (i) no authorization or approval of any third party, including
(without limitation) any governmental authority (other than that which has
already been obtained), is required for the execution, delivery and
performance of the Note or the other Loan Documents by Mortgagor; (j) there
are no governmental authorizations, permits, certificates, licenses, filings,
registrations, approvals or consents which must be obtained, received or made
or which have not been obtained, received or made for Mortgagor lawfully to
make, execute and deliver the Note and the other Loan Documents, perform all
of its obligations thereunder and/or own, use and operate the Mortgaged
Property, except for those listed on Schedule 3(i) hereto;  (k) all utility
service necessary for the full, proper and sufficient operation of the
Mortgaged Property has been installed and/or connected and is presently in
operation, including without limitation water, sewer, electric, gas and
telephone facilities; (l) the Mortgaged Property constitutes a single tax
parcel and no other property, building or improvement relies upon the
Mortgaged Property or any part thereof or interest therein and the Mortgaged
Property relies on no other property, building or improvement to fulfill any
legal requirement; (m) the Mortgaged Property is in sound physical condition
and good working order, and no casualty thereto has occurred within the
previous one year period which has not been fully repaired or restored;
(n) the Mortgaged Property:  (i) contains no facilities that are subject to
reporting under Section 312 of the federal Emergency Planning and Community
Right-to-Know Act of 1986 (42 U.S.C. Section 11022), (ii) is not the site of any
underground storage tanks for which notification is required under 42 U.S.C.
Section 6991a, and (iii) is not listed on the Comprehensive Environmental 
Response, Compensation and Liability Information System ("CERCLIS") in 
accordance with Section 116 of CERCLA (42 U.S.C. Section 9616); (o) neither 
Mortgagor nor, to the best of Mortgagor's knowledge, any prior owner of the 
Real Estate or any current or prior tenant, subtenant or other occupant 
thereof has used, generated, manufactured, produced or stored Hazardous 
Substances (as defined in paragraph 6(h)) on, from or about or in any way 
affecting the Mortgaged Property, other than in the ordinary course of 
business and in compliance with all Environmental Laws (as defined in 
paragraph 6(h))or has released, discharged or disposed of Hazardous 
Substances on, under or about the Mortgaged Property.  To the best of 
Mortgagor's knowledge, the Mortgaged Property does not contain and has not 
in the past contained any asbestos containing material in friable form, and 
there is no current or potential airborne contamination of the Mortgaged 
Property by asbestos fiber, including any potential contamination that would 
be caused by maintenance or tenant finish activities in the Improvements; and
(p) all statements, financial or otherwise, submitted to Mortgagee in 
connection with the transactions contemplated by the Note, this Mortgage and 
the other Loan Documents are true, correct and complete in all material 
respects, and there has been no material adverse change in the finances, 
business, operations, or affairs of Mortgagor or to the Mortgaged Property 
since the date of such submissions.
                               -4-
<PAGE>
     4.   Insurance.  

          (a)  Mortgagor, at its sole cost and expense, shall obtain and
keep in full force and effect such policies of insurance in such amounts, with
such loss deductibles and covering such risks as Mortgagee shall from time to
time require in its sole discretion, including (without limitation) the
following:

          (i)  Insurance in the aggregate amount of $4,500,000.00 against
loss or damage to any of the Mortgaged Property by fire and any of the risks
covered by insurance commonly known as "fire and extended coverage" and, if
the Mortgaged Property or any part thereof is located in a flood area, flood
insurance; 

          (ii) Comprehensive general public liability insurance in the
general aggregate amount of $5,000,000.00, including, without limitation,
against claims for personal injury, bodily injury, death or property damage
occurring on, in or about the Mortgaged Property and the adjoining streets,
sidewalks and passageways;

          (iii)     During the course of all construction or repair,
(A) workers' compensation insurance (including employer's liability insurance)
in the aggregate amount of $3,000,000.00 for all persons engaged on or with
respect to the Mortgaged Property in such amounts as are reasonably
satisfactory to Mortgagee or, if such limits are established by law, in such
amounts, and (B) builder's completed value risk insurance against "all risks
of physical loss" during construction, covering the total value of work
performed and equipment, supplies and materials furnished; and

          (b)  All insurance required to be obtained and maintained by
Mortgagor by the terms of this Mortgage (the "Required Insurance") shall be
provided by policies written in terms, amounts and by companies rated "A+" or
better by A.M. Best Company and with a Size Class of IX which are acceptable
to Mortgagee.  Mortgagee shall be named as an additional insured on all
liability policies; and losses under all other policies shall be payable to
Mortgagee pursuant to a standard mortgagee endorsement satisfactory to
Mortgagee.  Mortgagor shall deliver to Mortgagee true and correct copies of
all policies of insurance (including, but not limited to, all policies of
Required Insurance)  and renewals thereof acquired by Mortgagor to insure
against any loss or damage to the Mortgaged Property.

          (c)  Mortgagor hereby authorizes Mortgagee to obtain and/or
maintain in effect any and all policies of Required Insurance in the event
Mortgagor fails to do so and further fails to so obtain or maintain such
policies within five (5) business days after Mortgagor's receipt of written
notice from Mortgagee of its intent to obtain or maintain such policies, and
Mortgagor agrees to reimburse Mortgagee as provided in paragraph 7 hereof for
any premiums or other costs associated with obtaining Required Insurance which
Mortgagee may pay.

          (d)  At least 30 days prior to the expiration of each policy of
Required Insurance, Mortgagor shall furnish Mortgagee with evidence
satisfactory to Mortgagee of the issuance of a renewal or replacement policy
continuing such insurance in force as required by this Mortgage.  All policies
of Required Insurance shall contain a provision that such policies may not be
canceled or amended (including any reduction of the scope or limits of
coverage) without at least 30 days prior written notice to Mortgagee and a
                               -5-
<PAGE>
provisions to the effect that the waiver of subrogation rights by the insured
does not void the coverage.  Upon Mortgagee's request, Mortgagor shall cause
copies of all bills, statements or other documents relating to the Required
Insurance to be sent or mailed to Mortgagee.

          (e)  In the event of a foreclosure sale of all or any part of the
Mortgaged Property pursuant to the enforcement of this Mortgage, the purchaser
of the Mortgaged Property shall succeed to all rights of Mortgagor, including
any rights to the proceeds of insurance and to unearned premiums, in and to
all of the policies of Required Insurance.  In the event of foreclosure sale,
Mortgagee is hereby authorized, without the further consent of Mortgagor, to
assign any and all policies of Required Insurance to the purchaser at the
sale, or to take such other steps as Mortgagee may deem advisable to cause the
interest of such purchaser to be protected by any of such policies.

          (f)  Mortgagor shall give Mortgagee immediate notice of any loss
or damage covered by any Required Insurance, including a brief description of
the nature and extent of any damage to the Mortgaged Property, and:

          (i)  Mortgagee shall have the right to adjust such loss or damage
and to execute and deliver on behalf of Mortgagor all proofs of loss,
receipts, vouchers and acquittance in connection therewith, and Mortgagor
agrees to execute all of the foregoing on demand of Mortgagee; 

          (ii) Any monies received as payment for any loss under any of the
Required Insurance shall be paid over to Mortgagee and be applied, at the
option of Mortgagee, after payment of all costs and expenses incurred by
Mortgagee in obtaining such insurance proceeds, to the payment of any portion,
as Mortgagee may select, of the Indebtedness or to the reimbursement of
Mortgagor for expenses incurred by Mortgagor in the restoration, repair and/or
replacement of the Mortgaged Property which has been lost, damaged or
destroyed.  Each insuring company concerned is hereby authorized and directed
to make payment for any such loss directly to Mortgagee rather than jointly to
Mortgagee and any other party or parties.

          (iii)     If Mortgagee elects to apply the proceeds (or any part
thereof) of any Required Insurance to the reimbursement of Mortgagor for
expenses incurred by Mortgagor in the restoration, repair and/or replacement
of the Mortgaged Property, the proceeds shall be disbursed by Mortgagee in
such manner and subject to such conditions as Mortgagee shall determine in its
sole discretion.  If upon completion of the repairs, restoration and/or
replacement of the Mortgaged Property there shall be unexpended insurance
proceeds held by Mortgagee, Mortgagee may, in its sole discretion, apply the
amount of any such remaining proceeds to the payment of the Indebtedness.

          (iv) Notwithstanding any prior election by Mortgagee, at any time
Mortgagor is in default hereunder or under any other Loan Document, Mortgagee
may apply all or any part of such insurance proceeds to the payment of the
Indebtedness.

          (v)  No application of insurance proceeds to the payment of the
Indebtedness shall have the effect of reducing or otherwise affecting the
obligation of Mortgagor to make any payments as and when the same become due
and payable in accordance with the terms of the Note.  Any balance of such
insurance proceeds remaining after payment in full of the Indebtedness shall
be paid by Mortgagee to Mortgagor.  Application of all or any portion of such
insurance proceeds shall not cure or waive any Default (defined in
paragraph 11) or notice thereof.
                               -6-
<PAGE>
     In no event shall Mortgagor do or permit any action with respect to the
Mortgaged Property which will increase the risk of hazard to the Mortgaged
Property without first causing such increased risk to be fully insured.

          (g)  Mortgagor hereby waives any and all right to claim or
recover against Mortgagee, its employees, agents, officers, and directors, for
loss of or damage to Mortgagor, the Mortgaged Property, Mortgagor's property
or the property of others under Mortgagor's control from any cause insured
against or required to be insured against by the provisions of this
paragraph 4.

     5.   Taxes.  Mortgagor will pay and discharge or cause to be paid and
discharged when due, and before any penalty attaches, all taxes of every kind
and nature (including real and personal property taxes), general and special
assessments, water rates and sewer rents, and all other governmental,
municipal and public dues, charges, fines and impositions whether of a like or
different nature, imposed upon or assessed against Mortgagor or the Mortgaged
Property or arising in respect of the occupancy, use or possession thereof;
provided, however, that Mortgagor shall not be required to pay and discharge
or cause to be paid and discharged any such tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good
faith and by appropriate proceedings by Mortgagor and Mortgagor shall have set
aside on its books adequate reserve therefor; and provided further, that such
deferment of payment is permissible only so long as Mortgagor's title to, and
its right to use, the Mortgaged Property is not adversely affected thereby and
Mortgagee's lien and priority on the Mortgaged Property are not adversely
affected, altered or impaired thereby.  Mortgagor will deliver to Mortgagee,
not later than 30 days after date on which any such taxes, assessments or
other charges are due and payable, duplicate receipts evidencing the payment
of all such taxes, assessments and other charges.  If Mortgagor fails to pay
any such taxes, assessments or other charges, Mortgagee may (but shall not be
obligated to) make such payment and Mortgagor agrees to reimburse Mortgagee as
provided in paragraph 7 hereof for all monies so paid. 

     6.   Affirmative and Negative Covenants of Mortgagor.  Mortgagor
covenants and agrees that, unless Mortgagee shall otherwise consent in
writing, it will:

          (a)  Maintain a standard system of accounting in accordance with
general accepted accounting principles and furnish or cause to be furnished to
Mortgagee:  (i) as soon as available and in any event on or before the last
day of the third month following the end of Mortgagor's fiscal year, annual
financial statements prepared in reasonable detail satisfactory to Mortgagee,
showing the financial condition of Mortgagor as at the close of such fiscal
year and for such year, all prepared in accordance with general accepted
accounting principles and certified to Mortgagee by the president or chief
financial officer of Mortgagor.  Such financial statement shall include a
balance sheet and a profit and loss statement; (ii) as soon as available and
in any event on or before the last day of the month following the end of each
fiscal quarter of Mortgagor after the date hereof, quarterly operating
statements with respect to the Mortgaged Property on a fiscal quarter basis
prepared in accordance with generally accepted accounting principles and a
quarterly patient census and payor mix at the Mortgaged Property for such
quarter, in each case certified to Mortgagee by the president or chief
financial officer of Mortgagor; (iii) as soon as available and in any event on
or before the last day of the third month following the end of each of
Mortgagor's fiscal years, an annual operating statement with respect to the
Mortgaged Property audited by an independent certified public accountant
                               -7-
<PAGE>
acceptable to Mortgagee and prepared in accordance with generally acceptable
accounting principles and, as soon as available and in any event on or before
the last day of the first month following the end of Mortgagor's fiscal year,
an annual patient census and payor mix at the Mortgaged Property, in each case
certified by the president or chief financial officer of Mortgagor; and (iv)
such other reports and additional financial and other information relating to
the business, affairs and financial condition of Mortgagor and with respect to
the collateral for the Indebtedness as Mortgagee reasonably may request in
writing from time to time.  All such reports and financial information shall
be in form acceptable to Mortgagee.  If Mortgagor fails to provide any of the
foregoing statements and reports as and when required by this subparagraph
(a), Mortgagee shall have the right to conduct an independent audit at
Mortgagor's expense. 

          (b)  At all reasonable times and as often as Mortgagee may
request, but not more than four (4) times per year unless there has been a
Default, following reasonable written notice by Mortgagor, permit authorized
representatives of Mortgagee to:  (i) have access to the collateral and to the
financial records of Mortgagor and other records relating to the operations
and procedures of Mortgagor; and (ii) discuss the affairs, finances and
accounts of Mortgagor with, and be advised as to the same by, the managers of
the Mortgaged Property and financial personnel of Mortgagor, all as shall be
relevant to the performance or observance of the terms, covenants and
conditions of this Mortgage or the other Loan Documents or the financial
condition of Mortgagor.

          (c)  Notify Mortgagee in writing, promptly upon learning thereof,
of any:  (i) litigation commenced against Mortgagor which may have a material
adverse effect on the business, assets, operations, prospects or financial or
other condition of Mortgagor, Mortgagor's ability to pay the Indebtedness in
accordance with the terms of the Note and the other Loan Documents, or the
collateral; and (ii) mechanic's lien or other lien filed or asserted against
the Real Estate or Improvements.

          (d)  Immediately inform Mortgagee by written notice of the
occurrence of any event or condition of any nature which may, upon the giving
of notice or a lapse of time or both, constitute or may lead to or result in
Default (an "Unmatured Default").

          (e)  Perform and promptly comply, and cause the Mortgaged
Property to be maintained, used and operated in accordance, in each case in
all material respects, with all:  (i) present and future laws, ordinances,
rules, regulations, orders and requirements (including, without limitation,
zoning ordinances, building codes and Environmental Laws (as that term is
defined in the following subparagraph (h)), and the regulations adopted
pursuant thereto and any other similar applicable federal, state or local
laws, rules, regulations or ordinances) of every duly constituted governmental
or quasi-governmental authority or agency applicable thereto; (ii) similarly
applicable orders, rules and regulations of any regulatory, licensing,
accrediting, insurance underwriting or rating organization or other body
exercising similar functions, to the extent usually complied with by companies
owning similar properties in the same general area as the Mortgaged Property;
and (iii) similarly applicable duties or obligations of any kind imposed under
any certificate of occupancy or otherwise by law, covenant or conditions
running with the land, material agreement or easement, public or private.

          (f)  Not, nor will it permit any person or entity to, sell,
transfer or otherwise dispose of a controlling interest in Mortgagor  without
                               -8-
<PAGE>
first receiving the written consent of Mortgagee, which consent may be granted
or withheld in Mortgagee's sole discretion.

          (g)  Not enter into any contract or transaction of any nature
whatsoever with any Affiliate unless the contract or transaction is on terms
as favorable to Mortgagor as those that could be obtained from an unaffiliated
third party. The term "Affiliate" shall mean, with respect to any person or
entity, any partner, officer, shareholder or director of such person or entity
or any member of their immediate family and any person or entity or group
acting in concert in respect of the person or entity in question that,
directly or indirectly, controls or is controlled by or is under common
control with such person or entity.  For the purposes of this definition, the
term "control" (including, with correlative meanings, the terms "controlled
by" and "under common control with"), as used with respect to any person or
entity or group of persons or entities, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise.

          (h)  Not use, generate, manufacture, produce, store, release,
discharge, or dispose of on, under or about the Mortgaged Property or
transport to or from the Mortgaged Property any Hazardous Substances
(hereinafter defined) or allow any other person or entity to do so except in
minor amounts under conditions permitted by applicable laws including, without
limitation, all Environmental Laws.  Mortgagor shall keep and maintain the
Mortgaged Property in compliance with, and shall not cause or permit the
Mortgaged Property to be in violation of any Environmental Laws.  The term
"Environmental Laws" shall mean all federal, state and local laws and
implementing regulations, now or hereafter effective, relating to pollution or
protection of the environment, including laws or regulations relating to or
permitting emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including without limitation
ambient air, surface water, ground water, or land), or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, industrial wastes, or
hazardous substances.  Environmental Laws shall include, but not be limited
to: (a) the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601 et seq. ("CERCLA"); (b) the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.,
including the statutes regulating underground storage tanks, 42 U.S.C.
Section 6991-6991h; (c) the Clean Air Act, as amended, 42 U.S.C. Section 7401
et seq.; and (d) the Federal Water Pollution Control Act, as amended,
33 U.S.C. Section 1251 et seq., including the statute regulating the National
Pollutant Discharge Elimination System ("NPDES"), 33 U.S.C. Section 1342 and
any similar or implementing law of the State of Kansas, and all amendments,
rules and regulations promulgated hereunder.  "Hazardous Substances" shall
mean and include each and all of the following:

          (i)  Those substances now or hereafter included within the
definitions of "hazardous substances," "hazardous materials," "toxic
substances," "hazardous waste," "pollutant", "contaminant" or "solid waste" in
CERCLA, the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.) ("RCRA"), and the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801 et seq., and in the regulations promulgated
pursuant to said laws, all as amended from time-to-time.

          (ii) Those substances now or hereafter listed in the United
States Department of Transportation Table (49 CFR 172.101 and amendments
                               -9-
<PAGE>
thereto) or by the Environmental Protection Agency (or any successor agency)
as hazardous substances (40 CFR Part 302 and amendments thereto).

          (iii)     Any material, waste or substance which is (A) crude oil or
any fraction thereof which is liquid at standard conditions of temperature and
pressure, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (E) flammable
substances; (F) explosives; (G) radioactive materials; or (H) listed or
designated, now or hereafter, as a "hazardous" or "toxic" air pollutant under
the Clean Air Act (42 U.S.C. Section 7401), as amended.

          (iv) Those substances defined as "hazardous chemicals" by the
Occupational Safety and Health Administration (29 C.F.R. Section 1910.1200 and
amendments thereto).

          (v)  Such other substances, materials and wastes which are or
become regulated as pollutants, contaminants, hazardous or toxic under
applicable local, state or federal law, or by the United States government, or
which are classified as hazardous or toxic under federal, state, or local laws
or regulations.  

     Mortgagor shall defend, indemnify and hold harmless Mortgagee, its
employees, agents, officers and directors, from and against any claims,
liabilities, damages, losses, fines, penalties, costs and expenses (including,
without limitation, attorneys' and paralegals' fees and court costs) arising
out of or in any way related to (i) any breach or default by Mortgagor in the
observance or performance of its covenants under this subparagraph (h),
(ii) any obligation or any liability of Mortgagee under any Environmental Laws
to clean up any contamination of the soil or the ground water on, under or
about the Mortgaged Property or perform any remediation of the Mortgaged
Property in connection with events occurring before the date on which
Mortgagee acquires title to the Mortgaged Property by any foreclosure or other
proceeding, (iii) any claims by or liabilities to any third parties arising
out of or deriving from existing or future presence, discharge or disposal of
Hazardous Substances on the Mortgaged Property, the release of any Hazardous
Substances from the Mortgaged Property or any violation of any Environmental
Laws originating or occurring during the period prior to the date on which
Mortgagor ceases to possess and control the Mortgaged Property.  The
provisions of this paragraph shall be in addition to any and all other
obligations and liabilities Mortgagor may have to Mortgagee at law or in
equity and shall survive the repayment of the Note, the release or foreclosure
of this Mortgage or the transfer of the Mortgaged Property to Mortgagee or its
nominee or assignee in lieu of foreclosure; provided, however, that in the
event Mortgagee acquires title to the Real Estate by foreclosure of this
Mortgage or deed in lieu thereof, the indemnity obligations of Mortgagor under
this subparagraph (h) shall cease and terminate five (5) years from the date
Mortgagee so acquires title to the Real Estate unless Mortgagee has advised
Mortgagor by notice of an event or circumstance that had occurred or was
existing on the date of the foreclosure or receipt of the deed in lieu
thereof; which may give rise to a claim by Mortgagee against Mortgagor for
indemnification hereunder, in which event the indemnity obligations under this
subparagraph (h) shall survive and continue in full force and effect as to
such event or circumstance and any claims, liabilities, damages, losses,
fines, penalties, costs and expenses arising therefrom or in any way related
thereto.
                               -10-
<PAGE>
     (i)  Notify Mortgagee in writing, promptly upon learning thereof, of
any suspected violation of Environmental Laws or threatened investigation or
inquiry by any governmental authority in connection with any Environmental
Laws.

     (j)  Not enter into any consolidation or merger with any person or
entity without the prior written consent of Mortgagor.  The acquisition or
disposition by Mortgagor, by lease, purchase or otherwise, of all or
substantially all of the assets of any person or entity aggregating more than
$100,000.00 shall be deemed a merger hereunder.

     7.   Protection of Security by Mortgagee.  Each and every covenant of
Mortgagor in this Mortgage shall be performed and kept by Mortgagor solely at
Mortgagor's expense.  At its option, but without any duty or obligation of any
sort to do so and without in any way waiving or relieving any Default by
Mortgagor under this Mortgage, and after giving Mortgagor five (5) business
days notice, Mortgagee may make any payment and perform any act required of
Mortgagor to be made or performed by this Mortgage, in the event Mortgagor
fails to make such payment when due or timely perform any such act, including
but not limited to: payment of insurance premiums, taxes, charges and
assessments; payment of prior encumbrances; and purchase, discharge,
compromise or settlement of any tax lien or other lien or title, prior or on a
parity with the lien of this Mortgage.  As between Mortgagor and Mortgagee,
all such liens and taxes shall be deemed valid.  All monies so paid and all
expenses incurred in connection therewith, including attorneys' and
paralegals' fees, and any other monies advanced and expenses incurred by
Mortgagee to protect the Mortgaged Property, and the security intended to be
given by this Mortgage, including all costs, expenses and attorneys' and
paralegals' fees, incurred by Mortgagee in respect of any and all legal or
equitable proceedings which relate to this Mortgage or to the Mortgaged
Property, shall constitute Indebtedness secured by this Mortgage and shall be
due and payable by Mortgagor five (5) business days  after notice and demand
by Mortgagee with interest thereon accruing after such due date at the Default
Interest Rate (as defined in the Note).

     8.   Transfer or Encumbrance of Mortgaged Property.  Mortgagor shall
not, without the prior written consent of Mortgagee, directly or indirectly
(whether voluntarily, involuntarily, by operation of law or otherwise) sell
(whether outright or by land contract, conditional sales contract or any other
such agreement), lease, alienate, convey, transfer or in any way further
encumber, mortgage, pledge, or assign the Mortgaged Property or any of
Mortgagor's rights, title or interests therein (whether legal or equitable),
nor shall any stock or any beneficial interest, voting rights, title or other
interest in Mortgagor be transferred, directly or indirectly (whether
voluntarily, involuntarily, by operation of law or otherwise), by any of the
owners or holders thereof, other than transfers to family members or living
trusts made for estate planning purposes, without the prior written consent of
Mortgagee (each of such actions or events being hereinafter called a
"Transfer"), except for sales and dispositions of items of the Mortgaged
Property that are obsolete, undesirable, or unnecessary and are being
replaced.  Mortgagee's consent thereto shall be at its sole discretion and may
be conditioned on an increase in the interest rate payable under the Note,
payment of fees and charges or otherwise.  

     9.   Condemnation Proceeds.  Mortgagor shall cause all awards of
damages and all other compensation payable directly or indirectly by reason of
a condemnation for public or private use affecting any interest in the
Mortgaged Property to be paid to Mortgagee.  Mortgagee shall hold such
                               -11-
<PAGE>
proceeds from condemnation and payments in lieu thereof and may, at its sole
and absolute discretion, apply such proceeds, after deducting Mortgagee's
costs and expenses, to the Indebtedness in whatever order and amounts
Mortgagee elects or make the same available for acquisition of property in
replacement of the portion of the Mortgaged Property which was taken or for
the repair or rebuilding of the portion of the Mortgaged Property which
suffered damage or loss, as the case may be, in such manner and subject to
such conditions as the Mortgagee shall determine in its sole discretion.  No
such application of such proceeds to the payment of the Indebtedness shall
have the effect of reducing or otherwise affecting the obligation of Mortgagor
to make any payments as and when the same become due and payable in accordance
with the terms of the Note.  Any balance of such proceeds remaining after
payment in full of the Indebtedness shall be paid by Mortgagee to Mortgagor. 
Application of all or any portion of such proceeds shall not cure or waive any
Default or notice thereof.

     10.  Security Agreement; Financing Statement.

          (a)  This Mortgage is intended to be a security agreement
pursuant to the Kansas Uniform Commercial Code ("UCC") for (i) any and all
items of personal property specified above as part of the Mortgaged Property
which, under applicable law, may be subject to a security interest pursuant to
the UCC and which are not herein effectively made part of the real property,
and (ii) any and all items of property specified above as part of the
Mortgaged Property which, under applicable law, constitute fixtures and may be
subject to a security interest under Article 9 of the UCC (collectively, the
"Collateral"); and Mortgagor hereby grants Mortgagee a security interest in
the Collateral and in all accessions and additions thereto, substitutions
therefor and proceeds thereof, for the purpose of securing all Indebtedness
now or hereafter secured by this Mortgage.  Mortgagor agrees to execute and
deliver financing and continuation statements and amendments and supplements
thereto covering the Collateral from time to time and in such form as
Mortgagee may reasonably require to perfect and continue the perfection of
Mortgagee's lien or security interest with respect to the Collateral. 
Mortgagee shall have full authority to execute and file financing and
continuation statements and amendments and supplements thereto signed only by
a representative of Mortgagee to protect, preserve and perfect Mortgagee's
security interest in the Collateral.  Mortgagor shall pay all costs of filing
such statements and renewals and releases thereof and shall pay all costs and
expenses of any record searches for financing statements Mortgagee may
reasonably require. Upon the occurrence of any Default hereunder, Mortgagee
shall have the rights and remedies of a secured party under the UCC, as well
as all other rights and remedies available at law or in equity, and, at
Mortgagee's option, Mortgagee may also invoke the remedies provided elsewhere
in this Mortgage as to the Collateral.

          (b)  This Mortgage constitutes a financing statement filed as a
fixture filing under the UCC in the real estate records of the county in which
the Mortgaged Property is located with respect to any and all fixtures
included within the term Mortgaged Property and with respect to any goods or
other personal property that may now be or hereafter become such a fixture. 
PARTS OF THE MORTGAGED PROPERTY ARE, OR ARE TO BECOME, FIXTURES ON THE REAL
ESTATE.  For purposes thereof, the following information is set forth:

          Name and address of debtor:

          NewCare Hospital Corporation
          6000 Lake Forrest Drive, Suite 200
          Atlanta, Georgia 30328
                               -12-
<PAGE>
          Name and address of secured party:

          HCFP Funding II, Inc.
          2 Wisconsin Circle, Suite 320
          Chevy Chase, Maryland 20815        

     11.  Default and Acceleration.  It is expressly agreed by Mortgagor
that time is of the essence of this Mortgage.  Upon the occurrence of any
Default and the expiration of any applicable cure period and at any time
thereafter, then, in any and every such case, the entire Indebtedness shall,
at the option of Mortgagee, become immediately due and payable without any
notice, presentment, demand, protest, notice of protest, or other notice of
dishonor or demand of any kind, all of which are hereby expressly waived by
Mortgagor, and Mortgagee shall have the right immediately to foreclose the
lien created by this Mortgage against the Mortgaged Property, to enforce every
other security interest created by this Mortgage and to institute any action,
suit or other proceeding which Mortgagee may deem necessary or proper for the
protection of its interests; provided that if an event described in
paragraph 11(j) or (k) below shall occur, all Indebtedness shall become
immediately due and payable without any need for a declaration of Default. 
The following shall each constitute a "Default" for purposes of this Mortgage:

          (a)  Failure to pay the Indebtedness or any part thereof within
five (5) days when due; 

          (b)  Default in the performance of observance by Mortgagor of any
other covenant, condition or term of this Mortgage, the Note or the other Loan
Documents in any material respect, which continues uncured for a period of
twenty (20) days after Mortgagee shall have given written notice of such
default to Mortgagor; provided, however, that if the default is susceptible to
cure but cannot be cured within the twenty (20) day period, but Borrower
promptly commences the cure of the default and diligently prosecutes the cure
to completion, then no Default shall be deemed to occur under this Mortgage
unless the default remains uncured forty-five (45) days after the giving of
the written notice by Lender; or

          (c)  If  any warranty of Borrower contained in this Mortgage or
in any other Loan Document was untrue or misleading on the date made in any
material respect;

          (d)  The occurrence of any Transfer prohibited by this Mortgage;

          (e)  The condemnation, seizure or appropriation of, or the
occurrence of an uninsured casualty with respect to, any material portion of
the Real Estate or Improvements;

          (f)  The enactment of any law which deducts from the value of the
Mortgaged Property for the purpose of taxation any lien thereon or imposes
upon Mortgagee the payment of the whole or any part of the taxes, assessments,
charges or liens required by the terms of this Mortgage to be paid by
Mortgagor or changes in any way the laws relating to the taxation of mortgages
or debts secured by mortgages or Mortgagee's interest in the Real Estate, the
Improvements or any other of the Mortgaged Property or the manner of
collection of taxes so as to affect this Mortgage or any other of the
Indebtedness or the holder thereof or impose a tax, other than a federal or
state income tax, on or payable by Mortgagee by reason of its ownership of the
Indebtedness and, in such event Mortgagor, within five (5) business days after
notice and after demand by Mortgagee, does not pay such taxes or assessments
                               -13-
<PAGE>
or reimburse Mortgagee therefor or, in the opinion of counsel for Mortgagee,
it might be unlawful to require Mortgagor to make such payment or the making
of such payment might result in the imposition of interest costs beyond the
maximum amount permitted by applicable law;

          (g)  Any part of the Mortgaged Property or all or any substantial
part of the property or assets of Mortgagor is placed in the hands of any
receiver, trustee or other officer or representative of any court, or
Mortgagor consents, agrees or acquiesces to the appointment of any such
receiver or trustee;

          (h)  Mortgagor does, or permits to be done, anything that in any
way materially impairs the lien of this Mortgage or makes any material
alterations to the Mortgaged Property with an aggregate cost of over
$150,000.00 without the prior consent of Mortgagee.

          (i)  Any lienholder or creditor shall initiate an action to
foreclose a lien or security interest on all or any part of the Mortgaged
Property, whether such security interest or lien is superior, equal or junior
to the security interest or lien held by Mortgagee on the Mortgaged Property,
and the action shall remain undismissed for a period of sixty (60) days or
Mortgagor shall fail to contest the proceeding within twenty (20) days after
notice thereof; or

          (j)  Mortgagor shall (i) apply for, or consent in writing to, the
appointment of a receiver, trustee or liquidator; or (ii) file a voluntary
petition seeking relief under the Bankruptcy Code, or be unable, or admit in
writing its inability, to pay its debts as they become due; or (iii) make a
general assignment for the benefit of creditors; or (iv) file a petition or an
answer seeking reorganization or an arrangement or a readjustment of debt with
creditors, apply for or  take advantage of any insolvency, bankruptcy,
suspension of payments, reorganization, debt arrangement, liquidation,
dissolution or similar event, under the law of the United States or of any
state in which Mortgagor is a resident; or (v) file an answer admitting the
material allegations of a petition filed against Mortgagor in any such
bankruptcy, reorganization or insolvency case or proceeding or (vi) take any
action authorizing, or in furtherance of, any of the foregoing; or

          (k)  an involuntary case is commenced against Mortgagor and the
petition is not dismissed within sixty (60) days after the commencement of the
case or (ii) an order, judgment or decree shall be entered by any court of
competent jurisdiction on the application of a creditor adjudicating Mortgagor
bankrupt or insolvent, or appointing a receiver, trustee or liquidator of
Mortgagor or of ordering the sale of all or substantially all of the assets of
Mortgagor and such order, judgment or decree shall continue unstayed and in
effect for a period sixty (60) days or shall not be discharged within ten (10)
days after the expiration of any stay thereof.

     12.  Possession of Mortgaged Property During Default.  After a Default,
Mortgagee (or any person, firm or corporation designated to act on behalf of
Mortgagee), with the irrevocable consent of Mortgagor herein given (a) may,
subject to the right of tenants in possession, enter into and upon all or any
part of the Mortgaged Property, may exclude Mortgagor therefrom and may hold,
use, administer, operate, manage and control the Mortgaged Property, exercise
all rights, privileges and powers of Mortgagor with respect thereto and
conduct the business thereof, all to the same extent Mortgagor could do so,
and in accordance with applicable law and (b) at the expense of Mortgagor and
from time to time, may maintain and restore or complete the Improvements and
                               -14-
<PAGE>
in the course of completion may make such changes in the Improvements as
Mortgagee reasonably deems necessary.  After a Default and the expiration of
any applicable cure period, Mortgagee shall be entitled to collect and receive
all the Rents and to deduct therefrom the expenses of operating and conducting
the business of the Mortgaged Property and of all maintenance, repairs,
renewals, replacements, alterations, additions, betterments and improvements
and amounts necessary to pay for taxes, assessments, Required Insurance and
prior or other proper charges upon the Mortgaged Property as well as
reasonable compensation for the services of Mortgagee.  Any expenses of
operating and conducting the business of the Mortgaged Property or as are
otherwise incurred by Mortgagee pursuant to the provisions of this paragraph
which remain unpaid after application of such Rents shall constitute
Indebtedness secured by this Mortgage and shall be immediately due and payable
by Mortgagor without notice and with interest thereon at the Default Interest
Rate.  If Mortgagee shall exercise its rights as stated in this paragraph,
Mortgagee shall apply the net amounts received or collected by it, after
payment of expenses as aforesaid, to the payment of the Indebtedness, when and
as the same shall become due and payable.

     13.  Expenses. After a Default, all expenses, costs and other
liabilities, including reasonable attorneys' and paralegals' fees, which
Mortgagee may incur (i) in enforcing, defending, construing or administering
this Mortgage (or defending its priority) or any other Loan Documents,
(ii) for any inspection, evaluation (including environmental valuation),
appraisal, survey or other service in connection with the Mortgaged Property,
(iii) for any title examination or title insurance policy relating to the
title to any of the Mortgaged Property, (iv) in connection with any
environmental clean-up or decontamination or any other expenses, costs, fines,
penalties or other liabilities incurred by Mortgagee with respect to the
Mortgaged Property under or pursuant to any Environmental Laws or in an
attempt to comply therewith, or (v) in the exercise by Mortgagee of any rights
or remedies granted by this Mortgage or any other Loan Documents, shall be
paid by Mortgagor upon demand by Mortgagee, together with interest thereon
from the date of expenditure until payment in full, at the Default Interest
Rate and shall constitute a part of the Indebtedness secured by this Mortgage.

     14.  Foreclosure Proceedings and Receiver.  Upon the commencement of
any proceedings to foreclose this Mortgage or to enforce the specific
performance hereof or in aid thereof or upon the commencement of any other
judicial proceeding to enforce any right of Mortgagee, Mortgagee shall be
entitled forthwith, as a matter of right, if it shall so elect, without regard
to the adequacy or inadequacy of any security for the Indebtedness and without
the requirement of any bond, to the appointment of a receiver or receivers of
the Mortgaged Property, and Mortgagor hereby irrevocably agrees and consents
to such appointment.  To the extent it lawfully may do so, Mortgagor will not
at any time insist upon, plead or in any other manner whatever claim or take
any benefit or advantage of any valuation or appraisement law now or hereafter
in force, or of any exemption from execution or sale of the Mortgaged Property
now or at any time hereafter in force, which may affect the covenants and
terms of performance of this Mortgage.  Mortgagor hereby expressly waives, to
the extent allowed by law, all right to have the Mortgaged Property marshaled
upon any foreclosure of this Mortgage.  Upon any sale made under or by virtue
of this Mortgage, Mortgagee may bid for and acquire the Mortgaged Property, or
any part thereof, and, in lieu of paying cash therefor, may make settlement
for the purchase price by crediting the net sales price upon the Indebtedness. 
Mortgagor hereby expressly waives and/or releases any and all rights of
redemption to which Mortgagor would otherwise be entitled if this Mortgage is
at any time foreclosed.  Mortgagor expressly waives any claim or right to
claim that any part of the Mortgaged Property constitutes "homestead."
                               -15-
<PAGE>
     15.  No Exclusive Remedy.  Each and every right, power and remedy
herein conferred upon or reserved to Mortgagee is cumulative and is not
intended to be exclusive of any other remedy or remedies, and shall be in
addition to every other right, power and remedy given hereunder or now or
hereafter existing at law or in equity or by statute.  No delay or omission of
Mortgagee in the exercise of any right, power or remedy or any other right,
power or remedy then or thereafter existing, shall constitute or shall be
construed to be a waiver of any Default or any acquiescence therein; and every
right, power and remedy given by this Mortgage to Mortgagee may be exercised
from time to time as often as and in such order as may be deemed expedient by
Mortgagee.

     16.  Assignment of Leases and Rents.  

          (a)  To secure payment and performance by Mortgagor of the
Indebtedness, Mortgagor hereby grants, transfers and assigns to Mortgagee all
of Mortgagor's rights, title and interests in, to and under all leases and
tenancies now existing or hereafter entered into by and between Mortgagor and
each and any lessee or tenant of the Mortgaged Property or any part thereof as
said Leases may have been, or may from time to time be hereafter modified,
extended or renewed (the "Leases"), and all Rents, including (without
limitation) all rentals reserved in any of the Leases now or hereafter due and
any amendments, modifications, extensions and renewals thereof.  Mortgagor
will, on request of Mortgagee, execute further assignments of its rights,
interests and privileges and any future leases affecting any part of the
Premises. 

          After a Default, Mortgagor shall have the right to collect and
receive, upon but not prior to accrual, all Rents under and from the Leases
and with respect to the Mortgaged Property.  Upon or at any time after the
occurrence of a  Default and the expiration of any applicable cure period,
Mortgagee at its option and without notice or demand, may enter upon, take
possession of and operate the Mortgaged Property, as lessor, enforce, modify,
and accept the surrender of any or all of the Leases, obtain and evict any of
the lessees or sublessees under any of the Leases, fix or modify rentals under
the Leases, and do any acts which Mortgagee deems proper to protect the
security hereof, and, in its own name, sue for or otherwise collect and
receive all Rents and security and other tenant deposits due to Mortgagor
under or pursuant to the Leases, including those past due and unpaid.  Such
rights may be exercised by Mortgagee without regard to other security, if any,
for payment of the Indebtedness and without releasing Mortgagor from any
obligation.  Mortgagor hereby irrevocably appoints and constitutes Mortgagee
as its true and lawful attorney-in-fact with full power of substitution for
and on behalf of Mortgagor to request, demand, enforce payment of, collect and
receive the rentals payable under the Leases, to change, modify, release,
waive, terminate, alter, or amend the Leases or any of the terms or provisions
thereof, including the rentals thereunder, to endorse any checks, drafts or
orders evidencing payment of rentals under the Leases, and to do and perform
any acts which Mortgagor might do for and on Mortgagor's own behalf. 
Notwithstanding anything to the contrary, unless and until there exists a
Default, Mortgagor may collect, retain and use all Rents and security and
other deposits due under the Lease.

          All Rents collected by Mortgagee or a receiver pursuant to this
paragraph 16 shall be applied in such amounts and in such order as Mortgagee
shall determine in its sole discretion to the payment of the outstanding
Indebtedness secured hereby or, at the option of Mortgagee and without
obligation to do so, against the costs of taking control of, and managing and
                               -16-
<PAGE>
operating, the Mortgaged Property and collecting the Rents, including, but not
limited to, reasonable attorneys' and paralegals' fees, receiver's fees,
premiums on receiver's bonds, costs of repairs to the Mortgaged Property,
premiums on insurance policies, taxes, assessments and other charges on the
Mortgaged Property, and the costs of discharging any obligation or liability
of Mortgagor as lessor or landlord of the Mortgaged Property ("Operating
Expenses").  Any and all Rents applied against Operating Expenses shall not
reduce or be deemed to reduce the amount of outstanding Indebtedness secured
hereby.  Mortgagee shall have access to the books and records used in the
operation and maintenance of the Mortgaged Property and shall be liable to
account only for those Rents actually received.  Mortgagee shall not be liable
to anyone claiming under or through Mortgagor or anyone having an interest in
the Mortgaged Property by reason of anything done or left undone by Mortgagee
under the assignment made by this paragraph 16.

               If the Rents are not sufficient to meet the Operating
Expenses, any funds expended by Mortgagee for such purposes shall become
Indebtedness of Mortgagor to Mortgagee secured by this Mortgage, and such
amounts shall be payable upon notice from Mortgagee to Mortgagor requesting
payment thereof and shall bear interest from the date of disbursement until
repaid at the Default Interest Rate.

               The entering upon and taking and maintaining of control of
the Mortgaged Property by Mortgagee or a receiver and the application of Rents
as provided herein shall not cure or waive any Default.

          (b)  Mortgagor hereby covenants and warrants to Mortgagee that
(i) Mortgagor is and will remain the lawful owner of the Leases and has not
made any prior assignment of Mortgagor's right, title and interest in, to and
under any of the Leases or the Rents; (ii) Mortgagor has not and will not
accept any advance rental payments under the Leases other than one month's
advance and security deposits; (iii) Mortgagor has not granted and will not
grant any oral modification or amendment of any of the existing Leases; and
(iv) Mortgagor has not done and will not do anything which impairs the
validity or security of this assignment.

          (c)  The assignment made by this paragraph 16 shall not operate
to release or relieve Mortgagor, as lessor under the Leases, from the full
performance of all of Mortgagor's obligations and covenants under the Leases.
Mortgagor shall:  faithfully abide by, perform and discharge each and every
material obligation, covenant and agreement to be performed by Mortgagor under
the Leases; give prompt notice to Mortgagee of any notice of claim of default
on the part of Mortgagor given or made by any tenant under any of the Leases;
and, at the sole cost and expense of Mortgagor, use all reasonable efforts to
enforce or secure the performance of each and every material  obligation,
covenant, condition and agreement to be performed by the tenants under the
Leases.  Without the prior written consent of Mortgagee, Mortgagor shall not
further encumber its rights, title and interest in and to the Leases or the
Rents.  Mortgagor shall not anticipate rentals under the Leases more than one
month in advance or, except in the ordinary course of Mortgagor's business,
waive, excuse, condone or in any manner release or discharge any lessee
thereunder of or from the material obligations, covenants, conditions and
agreements to be performed by such lessees, including the obligation to pay
rentals in the manner and at the place and time specified therein.  Mortgagor
further covenants and agrees that (i) upon request, Mortgagor shall furnish
Mortgagee with executed copies of all Leases, (ii) all renewals of Leases and
all proposed Leases shall provide for rentals comparable to existing local
                               -17-
<PAGE>
market rates and shall be for a stated term of not more than one (1) year,
(iii) all proposed Lease forms shall be subject to the prior written approval
of Mortgagee, and (iv) all Leases shall provide that they are subordinate to
this Mortgage and that the lessee agrees to attorn to Mortgagee.

          (d)  Mortgagor shall, at Mortgagor's sole cost and expense,
appear in and defend any action or proceeding arising under, growing out of or
in any manner connected with the Leases or the obligations, duties or
liabilities of Mortgagor or the lessees or sublessees under the Leases, and
shall pay all costs and expenses, with interest thereon at the Default
Interest Rate, including reasonable attorneys' and paralegals' fees incurred
by Mortgagee in any such action or proceeding in which Mortgagee may appear,
all such expenses being Indebtedness secured by this Mortgage.

          (e)  After a Default, Mortgagee, at its option but without the
assumption of any of Mortgagor's obligations as lessor and without notice to
or demand on Mortgagor, and without releasing Mortgagor from any obligation
under the Leases or this Mortgage, may perform any obligation of Mortgagor
under any of the Leases.  In the exercise of such power, Mortgagee shall be
entitled to reimbursement by Mortgagor for all of Mortgagee's costs and
expenses, including reasonable attorneys' and paralegals' fees, and the same
shall be payable upon demand, with interest thereon from the date paid or
incurred at the Default Interest Rate, and shall be Indebtedness secured by
this Mortgage.

          (f)  Mortgagee shall not be obligated to perform or discharge,
nor does it hereby undertake to perform or discharge any obligation, duty or
liability of Mortgagor under the Leases or otherwise.  Mortgagee shall not be
liable for any loss sustained by the Mortgagor resulting from Mortgagee's
failure to let the Mortgaged Property after Default or from any other act or
omission of the Mortgagee in managing the Mortgaged Property after Default,
unless such loss is caused by the gross negligence, willful misconduct or bad
faith of Mortgagee. Mortgagor agrees to indemnify Mortgagee against and hold
it harmless from any and all liability, loss or damage which it may or might
incur under the Leases or under or by reason of this assignment and of and
from any and all claims and demands whatsoever which may be asserted against
Mortgagee by reason of any alleged obligation or undertaking on its part to
perform or discharge any of the terms, covenants or agreements contained in
the Leases.  In the event Mortgagee incurs any such liability, loss or damage,
the amount thereof, including costs, expenses and reasonable attorneys' and
paralegals' fees incurred, together with interest at the Default Interest
Rate, shall be payable by Mortgagor upon demand and is Indebtedness secured by
this Mortgage.  This assignment shall not operate to place responsibility for
the control, care, management or repair of the Mortgaged Property or any
improvements thereon upon Mortgagee, nor shall it operate to make the
Mortgagee responsible or liable for any waste committed on the Mortgaged
Property or for any dangerous or defective condition of the property.

          (g)  Mortgagor hereby authorizes and directs each and every
tenant and occupant of the Mortgaged Property, or any part thereof, upon
receipt from Mortgagee of written notice to the effect that a Default exists
(and was not cured within any applicable cure period) under this Mortgage, to
pay over to Mortgagee all Rents arising or accruing from the Mortgaged
Property, and to continue to do so until otherwise notified by the Mortgagee. 
Mortgagor agrees to facilitate in all reasonable ways Mortgagee's collection
of such rents, and upon request will execute a written notice to each tenant
and occupant directing payment to the Mortgagee.  Upon the payment in full of
all of the Indebtedness secured hereby, the assignment made in this
paragraph 16 shall terminate.
                               -18-
<PAGE>
     17.  Provisions Severable.  In the event any one or more of the
provisions contained in this Mortgage, the Note, or any of the other Loan
Documents  shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall, at the option of the Mortgagee, not affect any other provision of this
Mortgage, but this Mortgage shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein or therein.  The
invalidity of any provision of this Mortgage in any jurisdiction shall not
affect the validity or enforceability of such provision in any other
jurisdiction.

     18.  Further Assurances and Fees.  Mortgagor will, at the cost of
Mortgagor and without expense to Mortgagee, do, execute, acknowledge and
deliver all and every such further act, deed, conveyances, mortgage, security
agreement, assignment, notice of assignment, transfer and assurance as
Mortgagee shall from time to time reasonably require, for the better assuring,
conveying, assigning, transferring, securing and confirming unto Mortgagee the
property and rights hereby conveyed or assigned or intended now or hereafter
so to be, or which Mortgagor may be or may hereafter become bound to convey or
assign to Mortgagee, or for carrying out the intention or facilitating the
performance of the terms of this Mortgage, or for filing, registering or
recording this Mortgage. Mortgagor will pay for filing, registration or
recording fees, and all expenses incident to the execution and acknowledgment
of this Mortgage, any mortgage supplemental hereto, any financing statement
and continuation statement and any instrument of further assurance, and all
federal, state, county and municipal stamp taxes and other taxes, duties,
imposts, assessments and charges arising out of or in connection with the
execution and delivery of this Mortgage, any mortgage supplemental hereto, or
any instrument of further assurance.  Such amounts shall be payable five (5)
business days after notice and demand by Mortgagee and shall bear interest
from such due date of expenditure until payment in full at the Base Rate.

     19.  Defense of Claims--Expenses and Indemnification of  Mortgagee--
Subrogation. Mortgagor promptly shall notify Mortgagee in writing of the
commencement, or threat of institution, of any legal proceedings affecting or
which may affect Mortgagee's interest in the Mortgaged Property, or any part
thereof, and shall take such action, employing attorneys reasonably
satisfactory to Mortgagee, as may be necessary fully to preserve, protect and
defend Mortgagor's and Mortgagee's rights affected thereby.  Mortgagee may
take such independent action in connection therewith as Mortgagee in its
discretion may deem proper. Mortgagor will indemnify and save Mortgagee
harmless from any loss, damage, expense, and reasonable attorneys' and
paralegals' fees which may be incurred by Mortgagee by reason of any suit or
proceeding to which Mortgagee is made a party on account of this Mortgage, and
any loss, damage, expense and attorneys' and paralegals' fees so incurred by
Mortgagee shall be a part of the Indebtedness secured by this Mortgage and
shall be due and payable by Mortgagor five (5) business days after notice and
demand by Mortgagee with interest thereon accruing from such date at the
Default Interest Rate.  In the event Mortgagee pays, discharges or satisfies,
in whole or in part, any prior lien or encumbrance upon the Mortgaged
Property, or any part thereof, from the proceeds of this Mortgage, Mortgagee
shall be subrogated to the rights of the holder of such lien as fully as if
such lien had been assigned to Mortgagee.

     20.  No Marshalling.  Mortgagor, on its own behalf and on behalf of its
successors and assigns hereby expressly waives all rights, if any, to require
a marshalling of assets by Mortgagee or to require that Mortgagee first resort
to some or any portion of the collateral before foreclosing upon selling or
otherwise realizing on any other portion thereof.
                               -19-
<PAGE>
     21.  Reinstatement of Obligations and Security.  To the extent that
Mortgagor makes a payment to Mortgagee or Mortgagee receives any payment(s) or
proceeds of the collateral for Mortgagor's benefit, which payment(s) or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable doctrine, then, to the extent of such
payment(s) or proceeds received, Mortgagor's obligations or part thereof
intended to be satisfied thereby shall be reinstated and continue in full
force and effect, and all collateral security therefor shall remain in full
force and effect (or be reinstated), as if such payment(s) or proceeds had not
been received by Mortgagee, and an appropriate adjustment to the Mortgagor's
loan balance may be recorded, until payment shall have been made to Mortgagee,
which payment shall be due to Mortgagee within five (5) business days after
notice and demand by Mortgagee.

     22.  Stamp or Tax.  Should any stamp tax, intangible tax, or other tax
(excluding income, franchise, gross receipts or similar taxes with respect to
Mortgagee), now or hereafter become payable with respect to this Mortgage, the
Note, or any of the other Loan Documents executed in connection herewith or
their execution or delivery, Mortgagor will pay the tax before its due date
and hold Mortgagee harmless from the cost of the tax.

     23.  Assignment of Loan Documents.  Mortgagee may assign to any person
or entity all or any part of, or any interest in, Mortgagee's rights and
benefits under this Mortgage, the Note and the other Loan Documents and to the
extent of the assignment, the assignee shall have the same rights and benefits
against Mortgagor as it would have had if it were Mortgagee under this
Mortgage.  Mortgagee shall have the right to participate and syndicate the
Loan with other lending institutions.  The rights of Mortgagor under this
Mortgage, the Note and the other Loan Documents are not assignable.

     24.  Conflicts and Inconsistencies.  In the event of any conflicts or
inconsistencies between the terms of the Note and this Mortgage, the terms of
the Note shall govern and control.

     25.  Statutory Provisions.  All covenants in this Mortgage shall be
construed as affording Mortgagee rights additional to and not exclusive of the
rights conferred under the provisions of the Laws of the State of Kansas.

     26.  Lien Law Compliance.  Mortgagor will receive all advances secured
by this Mortgage and will hold the right to receive all such advances as a
trust fund to be applied first for the purpose of paying the cost of
improvement before using any part of such proceeds for any other purpose.

     29.  Applicable Law.  This Mortgage was executed and delivered in the
State of Kansas, and shall be governed by the laws of the State of Kansas.

     30.  Successors and Assigns.  The grants, covenants, terms, provisions
and conditions of this Mortgage shall (i) run with the land, (ii) apply and
extend to, be binding upon and inure to the benefit of Mortgagor, Mortgagor's
successors and assigns and all persons claiming under or through Mortgagor,
and the word "Mortgagor," when used herein, shall include all such persons,
and (iii) shall apply and extend to, be binding upon and inure to the benefit
of Mortgagee and its successors and assigns.  The word "Mortgagee" when used
herein shall include the successors and assigns of Mortgagee.
                               -20-
<PAGE>
     31.  Waiver of Claims.  To the extent permitted by applicable law,
Mortgagor hereby waives the right to bring any claim or counterclaim against
Mortgagee for an amount in excess of the outstanding principal balance of the
Note and all accrued and unpaid interest thereon (but specifically reserves
the right to raise any defenses, affirmative defenses and compulsory
counterclaims) in any suit or action in any court of law or equity in which
Mortgagor and Mortgagee are parties arising out of or in any way related to
this Mortgage or any of the other Loan Documents or in any way connected with,
related to or incidental to any dealings of Mortgagor and Mortgagee with
respect to this Mortgage or the other Loan Documents or the transactions
contemplated thereby, whether now existing or hereafter arising and whether
sounding in contract, tort or otherwise.

     32.  Notices.  All notices pursuant to this Mortgage shall be in
writing and shall be deemed to have been sufficiently given or served for all
purposes when presented personally or five (5) days after being sent by
registered or certified United States mail addressed as follows:

To Mortgagor:

          NewCare Hospital Corporation
          6000 Lake Forrest Drive
          Suite 200
          Atlanta, Georgia 30328
          Attention: -------------------, President and General Counsel

with a copy to:

          Gregory P. Youra, Esq.
          Vincent, Berg, Stalzer & Menendez
          The Lenox Building
          3399 Peachtree Road, Suite 1400
          Atlanta, Georgia 30326


To Mortgagee:

          HCFP Funding II, Inc.
          2 Wisconsin Circle, Suite 320
          Chevy Chase, Maryland 20815
          Attention: Ethan D. Leder, President

with a copy to:

          David A. Fenley, Esq.
          Blackwell Sanders Matheny Weary & Lombardi, P.C.
          Suite 1100 - Two Pershing Square
          2300 Main Street
          Kansas City, Missouri 64108

or at such other place or address as either party may, by similarly given
notice, designate as a place or address for service of notice.
 
     33.  Miscellaneous.  The captions used in this Mortgage are for
convenience only and are not to be construed as defining or limiting the
provisions of this Mortgage.  Any and all covenants in this Mortgage from time
to time may by instrument in writing signed by Mortgagee be waived to such
extent and in such manner as Mortgagee may desire, but no such waiver shall

                               -21-
<PAGE>
affect or impair Mortgagee's rights hereunder, except to the extent
specifically stated in such written instrument.  No waiver by Mortgagee of any
Default shall constitute a waiver of, or consent to, any subsequent Default. 
All changes to or modifications of this Mortgage must be in writing signed by
Mortgagee and Mortgagor.  Wherever used, the singular number shall include the
plural, the plural the singular, and the use of any gender shall be applicable
to all genders.  Nothing herein contained shall be construed as constituting
Mortgagee a mortgagee in possession of the Mortgaged Property in the absence
of a taking of actual possession of the Mortgaged Property by Mortgagee. 

     34.  Waiver of Jury Trial.  THE UNDERSIGNED HEREBY (A) COVENANTS AND
AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY,
AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EXIST.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY THE UNDERSIGNED, AND THIS WAIVER IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH
THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE.  MORTGAGEE IS HEREBY
AUTHORIZED AND REQUESTED TO SUBMIT THIS MORTGAGE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS
CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY TRIAL. 
FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
MORTGAGEE (INCLUDING MORTGAGEE'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, TO ANY MORTGAGOR THAT MORTGAGEE WILL NOT SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION.

     IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of this 31st
day of July, 1997.

                                NEWCARE HOSPITAL CORPORATION 
                                 A Georgia corporation

                                By:   /s/Chris Brogdon
                                Name:    Chris Brogdon
                                Its:     President

                          ACKNOWLEDGMENT

STATE OF GEORGIA    )
                    ) ss:
COUNTY OF FULTON    )

     On this 23rd day of July, 1997, before me, the undersigned officer,
personally appeared Chris Brogdon, personally known to me, or proved to me on
the basis of satisfactory evidence, and who acknowledged that he is the
President of NewCare Hospital Corporation and that as such officer, being duly
authorized to do so pursuant to the corporation's bylaws or a resolution of
its board of directors, executed, subscribed and acknowledged the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself in his authorized capacity as such officer, as his free
and voluntary act and deed and the free and voluntary act and deed of the
corporation.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

[NOTARIAL SEAL]                     /s/ Kathryn Pifer
                                    Notary Public

                                    My Commission Expires: 2.14.98
                               -22-
<PAGE>
                          LIST OF SCHEDULES

Schedule 3(b)  -  Liens, Encumbrances and Exceptions
Schedule 3(i)  -  Governmental Authorizations and Permits
<PAGE>
                               EXHIBIT "A"
                               Real Estate


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission