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

6.  Conditions Precedent to Buyer's Obligation to Close...................... 17
<PAGE>
    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

<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;

<PAGE>
     (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);

     (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
<PAGE>

     (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  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

<PAGE>

     (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  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

<PAGE>
      
     (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.

     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:

<PAGE>

     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  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.

<PAGE>

     (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.

<PAGE>
     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.

     (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;

     (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

           (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.

     (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.

     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.

     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.

     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  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.

     (h) 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.

     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.

     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.

     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.

     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  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.

     "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.

     "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.

     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 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.

     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.D.
                                                  Name: Harvey Wm. Glasser, M.D.
                                                  Title: President/CEO


                                         NEWCARE HEALTH CORPORATION


                                                  By: /s/ Chris Brogden
                                                  Name: Chris Brogden
                                                  Title: Director