<PAGE>

                                                                    Exhibit 10.1

                              EMPLOYMENT AGREEMENT
                              --------------------

          THIS AGREEMENT, made and entered into this lst day of January, 1995,
by and between KEYSTONE REHABILITATION SYSTEMS, INC., d/b/a KEYSTONE
REHABILITATION SYSTEMS, a Pennsylvania corporation, with its principal executive
offices located at The Atrium, 665 Philadelphia Street, P. O. Box 1289, Indiana,
Pennsylvania, 15701 (hereinafter referred to as "KRS");

                                      AND

RALPH SWEITHELM, of 170 Mill Run Road, Indiana, Pennsylvania, 15701
(hereinafter referred to as "PT").



                               PART I - RECITALS
                               -----------------

1.01      WHEREAS, all employees providing services on behalf of Keystone
          Rehabilitation Systems, Inc. or subsidiary companies are employed by
          KRS; and

1.02      WHEREAS, KRS or other subsidiary corporations of Keystone
          Rehabilitation Systems, Inc. are the owners and/or operators of
          outpatient facilities in several states which provide outpatient
          physical therapy and rehabilitation services to patients on site, as
          well as physical therapy and rehabilitation services by contract
<PAGE>

          to other institutions and agencies which provide physical therapy and
          rehabilitation services; and

1.03      WHEREAS, PT has the managerial and clinical capabilities to manage and
          provide direct services to facilities providing physical therapy and
          rehabilitation services; and

1.04      WHEREAS, the cooperation of KRS and PT will permit comprehensive,
          economical and lawful services to be rendered to patients seeking such
          services at KRS, as well as patients of other institutions and
          agencies currently under contract with KRS or other Keystone
          Rehabilitation Systems, Inc.'s subsidiary corporations in Indiana
          Borough and/or White Township, Pennsylvania, and other mutually
          agreeable areas; and

1.05      WHEREAS, KRS therefore desires to provide through employment the
          necessary rehabilitation management and clinical services for its
          patients, as well as the institutions and/or agencies under contract
          with KRS or other subsidiary corporations of Keystone Rehabilitation
          Systems, Inc., from PT in Indiana Borough and/or White Township,
          Pennsylvania; and

1.06      WHEREAS, PT, therefore desires to be employed by KRS for the
          purposes of providing comprehensive physical therapy
<PAGE>

          and rehabilitation management to patients and institutions seeking
          such services at KRS and/or other institutions and/or agencies where
          KRS or other Keystone Rehabilitation Systems' subsidiary corporations
          provide physical therapy and other rehabilitation services by
          contract.

1.07      WHEREAS, immediately prior to this Employment Agreement, PT owned a
          twenty-five (25%) percent interest in a general partnership that owned
          KRS of Indiana; and

1.08      WHEREAS, this Employment Agreement has been designed as a replacement
          for the General Partnership Agreement; and

1.09      WHEREAS, the purpose behind the transition of the General Partnership
          Agreement into an Employment Agreement was and is to maximize third
          party reimbursement and streamline accounting; and

1.10      WHEREAS, the intent of both parties is to make this Employment
          Agreement address issues raised in the General Partnership Agreement
          in order that neither party loses any rights or privileges enjoyed in
          the General Partnership Agreement that immediately preceded this
          Employment Agreement; and

1.11      WHEREAS, the previously mentioned General Partnership Agreement was
          developed for the purposes of PT
<PAGE>

          establishing a general partnership with Thomas W. Zaucha, the sole
          stockholder of KRS, and now agree that if Thomas W. Zaucha does not
          own controlling interest in KRS at any time in the future,, this
          Employment Agreement will address the options of the PT in the event
          he/she wishes not to be a partner of the new stockholder of KRS, or
          wishes to change his/her employment with the new stockholder; and

1.12      WHEREAS, the options of PT mentioned in 1.11 above are addressed in
          5.04 of this Employment Agreement.

          THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound hereby, the parties agree as follows:

                       PART II - SERVICES PROVIDED BY PT
                       ---------------------------------

2.01      KRS shall employ PT as Facility Director at the Keystone
          Rehabilitation SystemS of Indiana facility located at 119 Professional
          Center, 1265 Wayne Avenue, Suite 312, Indiana, Pennsylvania, 15701
          (herein referred to as "Facility") or wherever in Indiana Borough
          and/or White Township that Facility may be relocated during the term
          of this Agreement, and PT accepts and agrees to remain in the
          employ of KRS in the aforesaid capacity upon the terms, conditions and
          provisions herein stated from the date of execution hereby, and during
          such periods of renewal as KRS and PT may agree upon in writing.
<PAGE>

2.02      During the term of employment, PT agrees to devote his/her primary
          employment efforts, attention and skill to act as Facility Director
          and perform the executive, administrative, supervisory and clinical
          functions of a Facility Director outlined below and further agrees to
          notify, in writing, the President of KRS of other employment or
          contractual arrangements in the field of physical therapy and/or
          rehabilitation outside of KRS.

2.03      PT agrees to make a reasonable effort to provide the time and services
          required to meet the needs of KRS to render physical therapy and
          rehabilitation services to patients of KRS and/or other
          institutions/agencies currently under contract with KRS as the
          Keystone Rehabilitation Systems of Indiana Facility Director. These
          duties shall include high quality services meeting the standards
          established by the American Physical Therapy Association, the
          Pennsylvania Licensure Acts, the Pennsylvania Department of Health,
          Medicare and third-party reimbursing agencies.

2.04      PT agrees to perform the following duties in his/her capacity as
          Facility Director of Keystone Rehabilitation Systems of Indiana: PT
          will have overall supervisory responsibility and accountability for
          the Facility on a day-to-day basis. He/She will administer and direct
          in accordance with the Facility and corporate policy, and will be
          responsible for Facility policy, planning,
<PAGE>

          directing, personnel hiring and management, purchasing, consulting and
          patient care, including the following:

               (a)  The supervision of the Facility.
               (b)  Maintaining timely records of purchases, as well as being
                    responsible for purchase order tracking, as required, and
                    logging of expenses as they pertain to the Facility chart of
                    accounts.
               (c)  Obtaining reasonable prices for items purchased for the
                    Facility.
               (d)  Monitoring the purchase of all needed Facility items and
                    maintaining adequate inventory where needed.
               (e)  Assisting in the hiring and management of qualified staff
                    for the Facility to perform needed rehabilitation services
                    at an optimal level.

                        (1) Informing the Regional Vice President of the need
                            for the hiring of new staff at the Facility.
                        (2) Assisting in interviewing and the selection of
                            candidates best suited to fill job openings at the
                            Facility.
                        (3) Administering and overseeing proper orientation of
                            new employees in order to maintain smooth and
                            efficient Facility operation.
<PAGE>

                        (4) Monitoring Facility professional staff to assure
                            skill levels are maintained and that all continuing
                            education credit requirements are met.
                        (5) Reviewing all Facility employees on a regular basis
                            as outlined in the KRS employee manual and providing
                            performance appraisals as required by KRS.
               (f)  Supervising Facility personnel on a day-to-day basis.
                        (1) Delegating and assigning responsibilities to staff,
                            as needed.
               (g)  Participating as a member of standing committees as required
                    in the Facility, including: Patient Care, Safety, Infection
                    Control, Utilization Review, Pharmacy.
               (h)  Participating in Facility's in-service programs.
                        (1) Presenting programs and acting as a resource person
                            for the in-service coordinator or like person.
               (i)  Representing the Facility in meetings or assigning
                    appropriate representatives, as deemed necessary.
               (j)  Supervising and/or participating in the screening and/or
                    evaluating of all Facility
<PAGE>

                    incoming admissions and assisting in the formulation of a
                    specific regiment of therapy including goals and objectives.
               (k)  Supervising the collection of all pertinent statistical
                    information in the Facility. Providing treatment projections
                    for the Facility and KRS.
               (l)  Acting as primary consultant to the Facility Utilization
                    Review Committee with respect to all patients.
               (m)  Acting as Facility clinical supervisor of physical therapy
                    students from local schools on clinical affiliations.
               (n)  Assisting in the development of Facility studies which will
                    conceivably provide for better and more efficient patient
                    care in the future.
               (o)  Assisting in arranging for homebound instruction and
                    discharge planning with regard to all Facility patients.
               (p)  Maintaining a caseload of Facility patients and
                    administering routine daily planning with regard to
                    patients.
               (q)  Maintaining effective public relations for the Facility.
                        (1) Being available for community events and
                            presentations that will increase
<PAGE>

                            awareness of the Facility as deemed necessary by the
                            KRS Facility administrator and Regional Vice
                            President.

2.05      PT agrees to provide quality physical therapy and rehabilitation
          services to patients seeking such services at the Facility on behalf
          of KRS regardless of race, creed, color or national origin.

2.06      PT agrees to work within the KRS organizational framework including
          all policies and procedures of KRS as well as the
          institutions/agencies where PT may be responsible for providing
          services on behalf of KRS.

2.07      PT agrees to provide the necessary public relations, marketing and
          personal physician contact necessary and required for the development
          and expansion of the Facility's rehabilitation services in Indiana
          Borough and/or White Township, Pennsylvania.

2.08      PT agrees to provide KRS with descriptive statistical reports of
          services rendered at the Facility, analysis for demands of services in
          the Indiana Borough and/or White Township area and assistance in
          developing quality, as well as quantity physical therapy and
          rehabilitation services.
<PAGE>

2.09      PT agrees to an annual physical examination conducted by a licensed
          physician selected by PT at KRS' expense or KRS' physician.

2.10      PT agrees not to directly bill the patient, patient's family or other
          health insurance programs or the institutions/agencies currently under
          contract by KRS or placed under contract by KRS during the terms of
          this Agreement for physical therapy and rehabilitation services during
          the term of this contract.

2.11      PT agrees to work cooperatively with KRS' Regional and Corporate
          Management Staff as it currently stands or as future re-organization
          may require in matters associated with overall management and
          development of his/her Facility. Furthermore, KRS shall work
          cooperatively with PT in providing him/her with the same
          Corporate/Regional services as received by other facilities. Such
          Corporate/Regional services include, but are not limited to, policies
          and procedures associated with day-to-day management and mechanisms
          for implementation, programs in marketing and public relations,
          direction and assistance in development of new contracts, physician
          partnerships, wholly owned outpatient centers and/or other mutually
          agreeable for-profit businesses, all aspects of human relation
          services as well as programs necessary for finance including
          accounting services,
<PAGE>

          computer services, management and financial information services,
          billings and accounts receivables, accounts payable, and all aspects
          of business associated with taxes.

                      PART III - SERVICES PROVIDED BY KRS
                      -----------------------------------

3.01      KRS shall work cooperatively with PT in providing quality and quantity
          physical therapy and rehabilitation services as previously stated in
          this contract. KRS shall supply management services and accounting to
          the Facility on the same basis as in the calendar year of 1994 or as
          otherwise mutually agreed upon subject to its requirement to permit PT
          equal rights with it in the management and conduct of Facility
          activities.

3.02      For physical therapy and rehabilitation services provided at the
          Facility, KRS shall be responsible for maximizing and collecting all
          fees associated with services including contractual arrangements with
          various governmental and private institutions/agencies and shall
          permit PT access to all records of KRS that relate to the Facility.

3.03      KRS shall provide equipment, supplies and facilities necessary for PT
          to render services to patients and/or institutions under contract with
          KRS and to maintain the Facility's certification as a medicare
          rehabilitation agency.
<PAGE>

3.04      KRS shall maintain records that segregate the equipment and account
          receivables associated with the operation of the Facility from other
          equipment and account receivables of KRS. No equipment or account
          receivables so identified shall be transferred or sold without the
          prior written consent of PT. PT shall be supplied by KRS with a
          statement of the equipment and account receivables of the Facility on
          at least an annual basis and more frequently if requested by PT.

3.05      Without the written consent of PT and regarding the equipment and
          accounts receivable of the Facility (as mentioned above), KRS shall
          not:
               (a)  Do any act in contravention of this Agreement;
               (b)  Do any act that would make it impossible to carry on the
                    business of the Facility;
               (c)  Possess Facility property or assign Facility property for
                    other than a Facility purpose;
               (d)  Make, execute, or deliver any assignments for the benefit of
                    creditors, or on the assignee's promise to pay the debts of
                    the Facility, or any bond, guaranty, indemnity bond, or
                    surety bond;
               (e)  Assign, transfer, pledge, compromise, or release any claim
                    of the Facility except for full payment, or arbitrate, or
                    consent to the
<PAGE>

                    arbitration of, any of it disputes or controversies;
               (f)  Sell all or any part of any Facility property without first
                    having obtained the written consent of all parties; or
               (g)  Do any of the following without the consent of all the
                    parties:
                        (1) Make, execute, or deliver for the Facility any
                            bond, mortgage, deed of trust, guarantee, indemnity
                            bond, surety bond, or accommodation paper or
                            accommodation endorsement;
                        (2) Amend or otherwise change this Agreement so as to
                            modify the rights or obligations of the parties as
                            set forth in this Agreement; or
                        (3) Create any personal liability for any party other
                            than that personal liability to which any party may
                            have agreed to in writing.

                            PART IV - COMPENSATION
                            ----------------------

4.01      The annual base salary of PT shall be at the rate of EIGHTY-TWO
          THOUSAND FOUR HUNDRED AND N0/100 ($82,400.00) Dollars per year,
          payable in equal bi-weekly installments. The annual base salary shall
          be increased each lst day of January, at a minimum, by the most
          recently published consumer price index.
<PAGE>

4.02      PT shall be a participant in all benefits offered by KRS that are
          usual and customary for Facility Directors; at no time shall these
          benefits be less than those in effect as of the lst day of January,
          1995, unless otherwise mandated by law, and KRS shall provide and pay
          for the expense of company malpractice insurance issued to cover all
          employees with respect to any liability arising from employment. Such
          insurance shall be in the amount of $5,000,000.00 per case and/or
          $5,000,000.00 in the aggregate. KRS shall maintain the same throughout
          this Agreement.

4.03      In addition to the annual base salary of PT and in consideration of
          the sum of TWO HUNDRED SEVEN THOUSAND EIGHT HUNDRED TWENTY-FIVE AND
          NO/100 ($207,825.00) DOLLARS paid by PT to KRS, receipt of which is
          hereby acknowledged by KRS, KRS hereby agrees to pay PT a monthly
          commission equal to twenty-five (25%) percent of Pre-Commission Net
          Income of the Keystone Rehabilitation Systems of Indiana Facility,
          Cost Center No. 130.

               Pre-Commission Net Income is defined for this purpose as it has
          been used and defined by KRS's past practice in treating each of it's
          facilities as "cost centers".

               It is further agreed that the Corporate and Regional Overhead in
          the "cost center" statement shall be defined as the product of the Net
          Revenues, as presented on the
<PAGE>

          monthly Facility Profit and Loss Statement, multiplied by 8.6%. The
          services and expenses provided to the Facility by KRS are listed on
          Exhibit "A".

4.04      Other than losses in the monthly Profit and Loss Statements at the
          Facility which will be carried forward to be offset against profits,
          but otherwise not payable by PT, in no event shall PT be responsible
          for any obligations or liability of KRS with respect to any
          liabilities and losses in connection with the business of the Facility
          or any other business of KRS whether under this Agreement, under prior
          Agreements, or otherwise.

4.05      Payment of commissions to the PT for each calendar month during the
          year shall be made within ninety (90) days of the last day of such
          calendar month. Monthly reports of Facility operations shall be
          provided to PT within a reasonable time following the end of such
          calendar month, and payment of commission shall be based upon such
          reports. However, in order for both parties to make a reasonable
          transition for payment of commissions to the PT from forty-five (45)
          days to ninety (90) days, the following schedule shall be adopted:

          January Commission      45 days                    Paid in first pay
                                                             period in March

          February Commission     60 days                    Paid in last pay
                                                             period of April
<PAGE>

          March Commission        75 days                    Paid in first pay
                                                             period in June

          April Commission        90 days                    Paid in last pay
                                                             period in July

          All additional months shall be paid in the last pay period of the
          month, but within ninety (90) days of the month of services rendered.

                      PART V - NONCOMPETITION AND SECRECY
                      -----------------------------------

5.01      In the event that PT voluntarily terminates this Agreement by default
          or withdrawal, as provided below, PT agrees to be bound by the non-
          competition provisions of this Agreement defined below and KRS shall
          be entitled to conduct the same business within Indiana Borough and/or
          White Township, Pennsylvania free of competition from PT for a period
          of 12 months from the effective date of termination. In the event that
          KRS voluntarily terminates this Agreement by default or withdrawal, as
          provided below, KRS agrees to be bound by the non-competition
          provision of this Agreement defined below and PT shall be entitled to
          conduct the same business within Indiana Borough and/or White
          Township, Pennsylvania free of Competition from KRS for a period of 12
          months from the effective date of termination. KRS and PT agree not to
          open or purchase another physical therapy or rehabilitation facility
          within Indiana Borough and/or White Township, Pennsylvania unless
          mutually agreed upon, in writing.
<PAGE>

               In the event the parties by mutual consent terminate this
          Agreement, neither Party shall be bound by the non-competition
          provisions defined below.

               "Non-competition" for the purposes and intent of this Agreement,
          is defined as not directly or indirectly becoming or serving as an
          officer, agent, consultant to, independent contractor with or employee
          of an individual, partnership, corporation or other business entity,
          or owner, partner or shareholder of any business entity, which
          conducts a business in direct competition with the party who, by
          virtue of the terms and conditions of this paragraph, is entitled to
          conduct business operations contemplated by this Agreement, within
          Indiana Borough and/or White Township, Pennsylvania.

5.02      At all times, both during and after the termination of his/her
          employment, PT shall keep and retain in confidence and shall not
          disclose to any persons, firm or corporation (except with the written
          consent of KRS first obtained) any of the proprietary, confidential or
          secret information or trade secrets of KRS.

5.03      PT agrees not to take employment or be a subcontractor at any agency
          currently under contract with KRS or other Keystone Rehabilitation
          Systems, Inc.'s subsidiary corporations or other agencies under
          contract with KRS that PT has direct responsibility to manage during
          the
<PAGE>

          term of this Agreement and for twelve (12) months following
          termination, unless agreed to in writing by the President of KRS.

5.04      In the event that Thomas W. Zaucha does not own controlling interest
          in KRS, then, in that event, PT may either immediately or at a later
          date exercise one of the following:

               (a)  With sixty (60) days written notice to the President of KRS,
                    PT may withdraw from the. 25% Pre-Commission Net Income
                    provisions of Section 4.03 of this Agreement, be reimbursed
                    PT's payment under Section 4.03 of this Agreement by KRS or
                    its successor within sixty (60) days, and not be bound by
                    the non-compete provisions of this Agreement. Either party
                    may then terminate employment under the provisions of this
                    Agreement or negotiate a new agreement.
               (b)  With sixty (60) days written notice to the President of KRS,
                    PT may withdraw from the 25% Pre-Commission Net Income
                    provisions of Section 4.03 of this Agreement, be reimbursed
                    a minimum of two (2) times the most recent twelve (12)
                    months of the PT's share of Pre-Commission Net Income by KRS
                    or its successor within sixty (60) days, and not be bound by
                    the non-compete provisions of this Agreement. Either party
                    may
<PAGE>

                    then terminate employment under the provisions of this
                    Agreement or negotiate a new agreement.

                           SECTION VI - TERMINATION
                           ------------------------

6.01      Any party may withdraw from this Agreement by giving the other party
          ninety (90) days written notice of such party's intention to withdraw
          (withdrawing party). The withdrawing party agrees to be bound by the
          non-competition provisions defined in 5.01. The non-withdrawing party
          has the option to continue the Facility by purchasing the withdrawing
          party's interest pursuant to 6.03. In any event, should the
          withdrawing party be PT, KRS is bound to reimburse PT his/her
          contribution under 4.03 or two (2) times the most recent twelve (12)
          months of the PT's share of Pre-Commission Net Income, whichever is
          greater, within sixty (60) days, and PT shall have the option to
          remain as a Facility Director of KRS at the compensation equal to the
          base salary established in this Agreement pursuant to 4.01 with
          routine six (6%) percent Pre-Commission Net Income and on the same
          basis as other employed facility directors.

6.02      This Agreement may be terminated by either party upon a material
          breach of the terms and conditions of this Agreement by the other
          party, provided written notice is delivered to the other party setting
          forth the nature of the material breach and the defaulting party has
          not cured the breach within thirty (30) days of said notice.
<PAGE>

          The party that breaches the terms and conditions of this Employment
          Agreement (defaulting party) agrees to be bound by the non-
          competition provisions in 5.01. The non-defaulting party has the
          option to continue the business by purchasing the defaulting party's
          interest pursuant to 6.03. In any event, should the defaulting party
          be PT, KRS is bound to reimburse PT his/her contribution under 4.03,
          within sixty (60) days.

6.03      The purchase price of a party's interest as a result of a termination
          of this Agreement shall be as follows:
               (a)  If the defaulting or withdrawing party is PT, then
                    $207,825.00 and PT's share of unpaid Pre-Commission Net
                    Income produced at the Facility; and
               (b)  If the defaulting or withdrawing party is KRS, then
                    $623,475.00 and KRS's share of unpaid Pre-Commission Net
                    Income produced at the Facility.
               (c)  In either (a) or (b) of the above, payment shall be made
                    within sixty (60) days of the termination of this Agreement.

6.04      In the event of the death or total and permanent disability of PT,
          this Agreement is terminated and, in lieu of distributions as set
          forth in Section 6.03, KRS shall pay PT or his/her estate an amount
          equal to two (2) times PT's most recent twelve (12) months Pre-
          Commission Net Income, and PT's share of unpaid Pre-Commission Net
<PAGE>

          Income and the amount of PT's payment under Section 4.03 of this
          Agreement. Such payment shall be made within sixty (60) days following
          the death of PT or the date PT is declared by a licensed physician to
          be totally and permanently disabled.

                       SECTION VII - GENERAL PROVISIONS
                       --------------------------------

7.01      This Agreement shall be governed by and construed in accordance
          with the laws of the Commonwealth of Pennsylvania.

7.02      This Agreement is not assignable by either party hereto without the
          prior written consent of the other party. Subject to the foregoing,
          however, this Agreement shall be binding upon and inure to the benefit
          of the parties hereto and their respective successors, assigns, heirs
          and representatives, including but not limited to any trustee of the
          estate, estate administrator, or any other party responsible for the
          affairs of the estate.

7.03      This Agreement constitutes the entire understanding of the parties
          with respect to the subject matter hereof and supersedes all prior or
          contemporaneous understanding and writings. This Agreement may be
          modified or amended only by a writing executed by all parties
          hereto. The waiver by any party of any breach or default hereunder by
          the other party shall not be construed as a waiver by such party of
          any subsequent breach or default.
<PAGE>

7.04      Any notices required or permitted to be given under this Agreement
          shall be sufficient, if in writing, sent certified mail, return
          receipt requested, as follows:

          If to KRS:

          Thomas W. Zaucha
          KEYSTONE REHABILITATION SYSTEMS
          The Atrium
          665 Philadelphia Street
          P.O. Box 1289
          Indiana PA 15701


          If to Employee:

          RALPH SWEITHELM
          170 Mill Run Road
          Indiana PA 15701



    EXECUTED on this   26   day of   January  ,
                     ------        -----------
1995,  at   Indiana, PA   .
  --      ----------------


                                      KEYSTONE REHABILITATION SYSTEMS
                                      665 Philadelphia Street
                                      P.O. Box 1289
                                      Indiana PA 15701


/s/ Sheree Frederick
------------------------------        BY: /s/Thomas W. Zaucha
Witness                                  ----------------------
                                         Thomas W. Zaucha


                                      Employee:

                                      RALPH SWEITHELM
                                      170 Mill Run Road
                                      Indiana PA 15701

/s/ Theresa M. Sweithelm
------------------------------        /s/RALPH SWEITHELM
Witness                               -------------------------
                                      RALPH SWEITHELM
<PAGE>

                                  EXHIBIT "A"
                                  -----------


1.    Monitor charges affecting Physical Therapy services at the Local, State
      and National level.

2.    The Facility Director is named as an additional insured on KRS policies of
      general liability, professional liability, and property insurance

3.    KRS is responsible for assuring the Facilities certification as a
      rehabilitation agency and maintaining the same throughout the term of this
      Agreement.

4.    KRS shall indemnify and save Facility Director harmless from and against
      actions of any third parties including without limitation any and all
      claims, suits, costs, loses, and expenses that may in any manner result
      from or arise out of KRS's performance of its duties under this Agreement
      together with all costs and attorneys fees that the Facility Director may
      incur as a result of the acts or omissions of KRS hereunder.

5.    Assure that all KRS staff follow Personnel Policies that are supported by
      appropriate written documentation including job descriptions,
      qualifications, licensure, performance evaluation, and health examinations
      as required.

6.    Assure all practices and procedures are supported by written policies and
      procedures covering the scope of services offered, patient care plans,
      clinical records, administrative records, use and maintenance of service
      related equipment and program evaluation.

7.   Assure that all Medicare, CARF, ADA, OSHA and Labor and Industry
     requirements are followed on a timely basis.

8.   Maintain all patient records for at least seven (7) years after termination
     of services.

9.   Develop, review and update when necessary all fees for services of the
     Facility.

10.  Prepare requests and appropriate documents for Facility regarding all
     capital equipment.

11.  Establish and assure the Facility of a reasonable staffing pattern that
     permits economic but quality rehabilitation therapy services.

12.  Establish and implement a mechanism to evaluate the business and clinical
     activities of the Facility.
<PAGE>

13.  Provide all internal bookkeeping, Profit and Loss Statements, Internal
     financial statements, and statistical reports.

14.  Provide for all communications with financial institutions regarding any
     matters appropriate to the financing of equipment purchased for the
     Facility.

15.  Maintain all hardware and software associated with computers including
     consulting and programming for systems enhancement and new applications.

16.  Provide data transmission lines between MIS Department and the Facility.

17.  Provide for billing invoices and envelopes, payroll checks and envelopes,
     accounts payable checks and envelopes, purchase orders, financial operation
     guidelines, etc.

18.  Provide for adequate documentation of depreciation and/or amortization for
     furnishing and equipment and leasehold improvements as well as computer
     equipment where applicable.

19.  Assume all financial responsibility associated with the collection of fees
     for services provided.

20.  Provide for provisions for outside collection agencies when necessary.

21.  Assure that appropriate mailing of accounts payable checks, payroll checks,
     and billing invoices and other mail in general on an as needed basis.

22.  Establish and recommend future business opportunities of the Facility which
     may include but is not limited to the development of contracts with skilled
     nursing facilities, home health agencies, hospitals, school districts, etc.

23.  Expansion of existing services to include industrial rehabilitation,
     orthotics services, sports medicine services, back testing services, etc.,
     where applicable.

24.  Develop a marketing and public relations program.

     The following expenses will be charged directly to the cost centers and are
not included in the 8.6% of Net Revenue charge:

1.   External legal fees associated with actions arising directly as a result of
     services at the Facility except to the extent reimbursed or covered by
     insurance.
<PAGE>

2.   Expenses associated with marketing programs/public relations programs
     specifically for the Facility and approved by the Facility Director.

3.   Salaries, fringe benefits, and reimbursable expenses of the KRS staff at
     the Facility.

4.   Reasonable recruitment expenses for the Facility as necessary when approved
     by Facility Director.

5.   Other reasonable expenses associated with the day-to-day operation of the
     Facility which include but are not limited to rent, taxes, utilities,
     supplies, etc.