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                                                                   Exhibit 10(e)

                              EMPLOYMENT AGREEMENT

        AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of the first day of
July, 1996 by and between NOVACARE, INC., a Delaware corporation (the
"Company"), and TIMOTHY E. FOSTER (the "Executive").

                              W I T N E S S E T H:

        WHEREAS, the Executive has served as President and Chief Operating
Officer of the Company since October 1994;

        WHEREAS, the Company and the Executive entered into an Employment
Agreement dated as of December 2, 1994; and 

        WHEREAS, the Company and the Executive wish to amend and restate said
agreement to set forth the terms and conditions on which the Executive will
continue to serve in his current positions.

        NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:

        1.  EMPLOYMENT, TERM, AUTOMATIC EXTENSION.

        1.1 Employment. The Company agrees to employ the Executive, and the
Executive agrees to serve in the employ of the Company, for the term set forth
in Section 1.2, in the positions and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set
forth in this Agreement.

        1.2 Term. The term of the Executive's employment under this Agreement
shall commence on the date hereof and shall terminate on the third anniversary
of the date hereof, unless extended or sooner terminated in accordance with
this Agreement.

        1.3 Automatic Extension. As of June 30, 1998, and as of each subsequent
June 30 (each, an "Automatic Renewal Date"), unless either party shall have
given a notice of non-extension prior to such Automatic Renewal Date, the term
of this Agreement shall be extended automatically for a period of one year to
the anniversary of the expiration date of the then-current term of this
Agreement. Once a notice of non-extension shall have been given by either party,
there shall be no further automatic extension of this Agreement. 

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        2. POSITION, DUTIES.

        The Executive shall serve in the positions of President and Chief
Operating Officer of the Company. The Executive shall perform, faithfully and
diligently, such duties, and shall have such responsibilities, appropriate to
said positions, as shall be assigned to him from time to time by the Chief
Executive Officer and the Board of Directors of the Company. The Executive shall
report to the Chief Executive Officer of the Company. The Executive shall devote
such time and attention to the performance of his duties and responsibilities
hereunder as shall be necessary for the proper discharge thereof, as determined
by the Chief Executive Officer of the Company.

        3. SALARY, INCENTIVE BONUS, STOCK OPTIONS.

        3.1 Salary. During the term of this Agreement, in consideration of the
performance by the Executive of the services set forth in Section 2 and his
observance of the other covenants set forth herein, the Company shall pay to
the Executive, and the Executive shall accept, a base salary at the rate of
$500,000 per annum, payable in accordance with the standard payroll practices of
the Company. The Executive shall be entitled to such increases in base salary
during the term hereof as shall be determined by the Chief Executive Officer of
the Company and approved by the Compensation Committee of the Board of Directors
of the Company in their sole discretion, taking account of the performance of
the Company and the Executive, the size of the Company from time to time, and
other factors generally considered relevant to the salaries of officers holding
similar positions with enterprises comparable to the Company. In no event shall
the base salary of the Executive be decreased during the term of this Agreement.

        3.2 Incentive Bonuses. (a) In addition to the base salary provided for
in Section 3.1, the Company shall pay to the Executive an incentive bonus with
respect to each fiscal year of the Company ending during the term of this
Agreement in accordance with this Section 3.2. The incentive bonus for each
fiscal year under this Section 3.2 shall be the greater of the amounts
determined under clause (X) or clause (Y):
         
        (X) an amount equal to the product of the Net Income (as hereinafter
defined) of the Company multiplied by the Applicable Percentage (as hereinafter
defined); provided that no incentive bonus shall be payable under this Section
3.2 with

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respect to a fiscal year in which Net Income is less than ninety percent (90%)
of Budgeted Net Income (as hereinafter defined).

        For purposes of this clause (X):

                (i)   the term "Net Income" shall mean, for any fiscal year of
the Company, the consolidated after-tax profit of the Company and its
wholly-owned subsidiaries for such year, without regard to extraordinary
non-operating profits and losses such as gain from sale of operating units, as
shown in the audited financial statements of the Company for such fiscal year.
In the event of any change in the fiscal year of the Company, appropriate
adjustments shall be made to the provisions of this Section 3.2 in order to
carry out the essential intent and principles of this Section 3.2;

               (ii)   the term "Applicable Percentage" shall mean one half of
one percent (0.5%) of Net Income for each fiscal year of the Company, beginning
with the fiscal year ending June 30, 1996; provided that in any Fiscal Year in
which Net Income is between 90% and 99% of Budgeted Net Income, the Applicable
Percentage shall be the Applicable Percentage for such Fiscal Year determined
without regard to this proviso multiplied by the "Adjustment Percentage" in the
table below opposite the percentage (rounded down to the nearest complete
percentage point) of Budgeted Net Income attained as Net Income in such Fiscal
Year:

<TABLE>
<CAPTION>
                Percentage of Budgeted
                  Net Income Attained                   Adjustment Percentage
                ----------------------                  ---------------------
                <S>                                     <C>
                        90%                                     45%
                        91%                                     51%
                        92%                                     56%
                        93%                                     62%
                        94%                                     67%
                        95%                                     73%
                        96%                                     78%
                        97%                                     84%
                        98%                                     89%
                        99%                                     95%
</TABLE>


              (iii)   the term "Budgeted Net Income" shall mean, for any fiscal
year of the Company, net income as set forth in the annual business plan of the
Company for such fiscal year  
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as prepared by the Company's management and approved by the Board of Directors
of the Company; and

                (iv) the term "extraordinary non-operating profits and losses
such as gain from sale of operating units" shall include capital transaction
outside the normal course of business but shall not include restructuring
charges, charges to increase accounts receivable reserves or similar charges
which relate to the operations of the Company or its business units.

        (Y) an amount of up to $100,000 for the fiscal year of the Company
ending June 30, 1996, and an amount of up to $160,000 for the fiscal year of
the Company ending June 30, 1997, based on achievement of the applicable
performance measures set forth in Exhibit A to this Agreement.

        (b) In the event of the termination of employment of the Executive
pursuant to Section 6.1 (Death), 6.2 (Disability), Section 6.4 (Without Cause),
6.5 (Voluntary Termination), 6.6 (Constructive Termination) or 6.7 (Change of
Control) of this Agreement, the Executive (or his estate or other legal
representative) shall be entitled to a bonus for the fiscal year in which such
termination takes place in an amount equal to the product of (i) the bonus for
such fiscal year determined pursuant to Section 3.2, multiplied by (ii) a
fraction, the numerator of which is the number of days from the beginning of
such fiscal year to the date of termination, and the denominator of which is
365. In the event of the termination of employment of the Executive pursuant to
Section 6.3 (Due Cause) of this Agreement, the Executive shall not be entitled
to a bonus for the fiscal year of the Company in which such termination takes
place. The Executive shall not be entitled to a bonus for any fiscal year of
the Company subsequent to the fiscal year in which the termination of his
employment pursuant to Section 6.1 (Death), 6.2 (Disability), 6.3 (Due Cause)
or 6.5 (Voluntary Termination) takes place.

        (c) The bonus payable to the Executive (or his estate or other legal
representative) for any fiscal year of the Company pursuant to this Section 3.2
shall be paid by the Company within ten (10) days of receipt by the Company of
the audited financial statements of the Company for such fiscal year.

    3.3  Stock Options. (a) On May 3, 1996, the Company granted to the
Executive options (the "Options") to purchase 1,000,000 shares of the Company's
common stock, par value $.01
                
        
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                                                                               5

per share ("Common Stock"), at an exercise price per share equal to the market
value of the Common Stock on the date of grant. The options were not granted
under the 1986 Stock Option Plan (the "1986 Plan"), and are subject to
stockholder approval. The Options:

                (i) have a term of seven (7) years from the date of grant;

               (ii) become exercisable as follows (but only after November 3,
1996):

        (A) 20% on the first to occur of the first anniversary of the date of
grant or the average price (as defined in the Stock Option Certificate) of the
common stock of NovaCare achieving $8 per share;

        (B) 40% on the first to occur of the second anniversary of the date of
grant or the average price of the common stock of NovaCare achieving $10 per
share;

        (C) 60% on the first to occur of the third anniversary of the date of
grant or the average price of the common stock of NovaCare achieving $12 per
share;

        (D) 80% on the first to occur of the fourth anniversary of the date of
grant or the average price of the common stock of NovaCare achieving $14 per
share;


        (E) 100% on the first to occur of the fifth anniversary of the date of
grant or the average price of the common stock of NovaCare achieving $16 per
share;
                
              (iii) except as provided in clause (iv) of this Section 3.3,
remain exercisable for a period of twelve (12) months commencing on the date of
termination of employment of the Executive, but only as to those shares as to
which the Options were exercisable at the date of termination; and

               (iv) become exercisable in full upon a Change in Control of the
Company (as defined in Section 6.7), whether or not the employment of the
Executive shall be terminated, and upon the termination of the employment of
the Executive pursuant to Section 6.1 (Death), Section 6.2 (Disability) or
Section 6.4 (Without Due Cause) and, in any such case, shall remain exercisable
for the balance of the ten year term.
        
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        The Options are or shall be evidenced by a Stock Option Certificate or
other appropriate documentation embodying the foregoing terms and other
standard terms and conditions not inconsistent with the foregoing terms.

                (b)  The Executive has heretofore been granted options to
purchase 500,000 shares of Common Stock pursuant to the Company's Option
Exchange Program, which grant was approved by the Compensation Committee of the
Board of Directors of the Company on May 2, 1996. The Executive has heretofore
also been granted options to purchase an aggregate of 7,200 shares of Common
Stock pursuant to the 1986 Plan.

        4.  EXPENSE REIMBURSEMENT.

        During the term of this Agreement, the Company shall reimburse the
Executive for all reasonable and necessary out-of-pocket expenses incurred by
him in connection with the performance of his duties hereunder, upon the
presentation of proper accounts therefor in accordance with the Company's
policies.

        5.  BENEFITS, PERQUISITES.

        5.1  Generally.  During the term of this Agreement, the Executive will
be eligible to participate in all employee benefit plans and programs offered
by the Company from time to time to its employees of comparable seniority,
subject to the provisions of such plans and programs as in effect from time to
time.

        5.2  Perquisites.  (a) During the term of this Agreement, the Company
shall provide the Executive with the use of the Company's private corporate jet
for personal travel in connection with two vacations annually; provided that
the Company shall have no obligation to provide the Executive with the use of a
private corporate jet under this Section 5.2 during any period that the Company
does not own or lease a private corporate jet.

        (b)  During the term of this Agreement, the Company shall also provide
the Executive with the following: (i) a telephone in his automobile (for which
the Company shall pay for all installation, service and other charges), (ii)
first class airfare for travel in connection with the performance of his duties
hereunder, (iii) a corporate credit card of the
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Executive's choosing and (iv) a four-week paid vacation each year.

        6.  TERMINATION OF EMPLOYMENT.

        6.1  Death.  In the event of the death of the Executive, the Company
shall (i) pay to the estate or other legal representative of the Executive (a)
the base salary provided for in Section 3.1 (at the annual rate then in effect)
accrued to the date of the Executive's death and not theretofore paid to the
Executive and (b) any incentive bonus which shall be or become payable pursuant
to Section 3.2. Rights and benefits of the estate or other legal representative
or transferee of the Executive (a) with respect to the Options shall be
determined in accordance with Section 3.3 and (b) under the benefit plans and
programs of the Company shall be determined in accordance with the provisions
of such plans and programs. Neither the estate or other legal representative of
the Executive nor the Company shall have any further rights or obligations
under this Agreement, except as provided in Section 15.

        6.2  Disability.  If the Executive shall become incapacitated by reason
of sickness, accident or other physical or mental disability and shall be
unable to perform his normal duties hereunder for a period of six (6)
consecutive months, then, at any time following the conclusion of such six (6)
month period, the employment of the Executive hereunder may be terminated by
the Company or the Executive, upon thirty (30) days' notice to the other. In the
event of such termination, the Company shall (a) pay to the Executive the base
salary provided for in Section 3.1 (at the annual rate then in effect) accrued
to the date of such termination and not theretofore paid and (b) pay to the
Executive any incentive bonus which shall be or become payable under Section
3.2. Rights and benefits of the Executive or his transferee (a) with respect
to the Options shall be determined in accordance with Section 3.3 and (b) under
the other benefit plans and programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs. Neither
the Executive nor the Company shall have any further rights or obligations
under this Agreement, except as provided in Sections 7, 8, 9 and 15.

        6.3  Due Cause.  The employment of the Executive hereunder may be
terminated by the Company at any time for Due Cause (as hereinafter defined).
In the event of such termination, the Company shall pay to the Executive the
base
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salary provided for in Section 3.1 (at the annual rate then in effect) accrued
to the date of such termination and not theretofore paid to the Executive. The
Company shall also pay to the Executive any incentive bonus which shall be or
become payable to the Executive under Section 3.2 with respect to any fiscal
year of the Company ended prior to the date of such termination. Rights and
benefits of the Executive or his transferee (a) with respect to the Options
shall be determined in accordance with Section 3.3 and (b) under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. For purposes hereof, "Due Cause" shall
mean (i) willful, gross neglect or willful, gross misconduct in the Executive's
discharge of his duties and responsibilities under this Agreement, or (ii) the
Executive's conviction of a felony; provided, however, that the Executive shall
be given written notice by the Chief Executive Officer of the Company that it
intends to terminate the Executive's employment for Due Cause, which written
notice shall specify the act or acts upon which the Chief Executive Officer of
the Company intends so to terminate the Executive's employment, and the
Executive shall then be given the opportunity, within fifteen (15) days of his
receipt of such notice, to have a meeting with the Chief Executive Officer of
the Company to discuss such act or acts. If the basis of such written notice is
other than an act or acts described in clause (ii), the Executive shall be given
seven (7) days after such meeting within which to cease or correct the
performance (or nonperformance) giving rise to such written notice and, upon
failure of the Executive within such seven (7) days to cease or correct such
performance (or nonperformance), the Executive's employment by the Company shall
automatically be terminated hereunder for Due Cause. Neither the Executive nor
the Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8, 9 and 15.

        6.4  Termination by the Company Without Cause. (a) The Company may
terminate the Executive's employment at any time for whatever reason it deems
appropriate or without reason; provided, however, that in the event that such
termination is not pursuant to Section 6.1 (Death), 6.2 (Disability), 6.3 (Due
Cause) or 6.5 (Voluntary Termination), the Company shall pay to the Executive:

                (A) on the date of termination, the base salary provided for in
Section 3.1 (at the annual rate then in

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                                                                               9


effect) accrued to the date of termination and not theretofore paid to the
Executive;

            (B) severance pay, in the form of salary continuation for a period
("Severance Pay Period") of two (2) years commencing on the date of termination,
at a rate equal to the base salary provided for in Section 3.1 (at the annual
rate then in effect);

            (C) any incentive bonus which shall be or become payable to the
Executive pursuant to Section 3.2;

            (D) on a date (the "Payment Date") within ten (10) days of receipt
by the Company of the audited financial statements of the Company for the fiscal
year in which such termination  shall have occurred, an amount equal to the
Final Bonus (as hereinafter defined) and, on the first anniversary of the
Payment Date, an amount equal to one-half of the Final Bonus. As used herein,
(X) if the date of termination of the Executive's employment shall occur during
the first six months of any fiscal year of the Company, the term "Final Bonus"
shall mean an amount equal to the bonus earned by the Executive for the last
completed fiscal year of the Company preceding the date of termination of his
employment and (Y) if the date of termination of the Executive's employment
shall occur during the last six months of any fiscal year of the Company, the
term "Final Bonus" shall mean an amount equal to the greater of (i) the bonus
earned by the Executive for the last completed fiscal year of the Company
preceding the date of termination of his employment or (ii) the bonus for the
fiscal year in which the termination of employment occurs, as determined
pursuant to Section 3.2(a) and before prorating pursuant to Section 3.2(b).

        (b) During the Severance Pay Period, the Executive shall diligently seek
other full-time employment which is suitable and appropriate in light of his
background, experience, seniority and stature. Amounts payable to the Executive
pursuant to Section 6.4(a)(B) and 6.4(a)(D) shall be offset by amounts earned
from other employment (whether as an employee, a consultant or otherwise) during
the Severance Pay Period (provided that the Executive shall in no event be
required to refund any amounts which he has previously received from the Company
and provided, further, that there shall be no offset for the amounts earned by
the Executive during the Severance Period from positions held by the Executive
prior to commencement of the Severance Period).

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        (c) Rights and benefits of the Executive or his transferee (a) with
respect to the Options shall be determined in accordance with Section 3.3 and
(b) under the other benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs.
Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Sections 7, 8, 9 and 15.

        6.5  Voluntary Termination. The Executive may terminate his employment
with the Company at any time upon thirty (30) days' prior written notice to the
Company. In the event of such termination (unless such termination is within
one year following a Change in Control of the Company, in which case the
provisions of Section 6.7 hereof shall be applicable), the Company shall pay
to the Executive the base salary provided for in Section 3.1 (at the annual
rate then in effect) accrued to the date of such termination and not therefore
paid to the Executive. The Company shall also pay to the Executive any
incentive bonus which shall be or become payable pursuant to Section 3.2.
Rights and benefits of the Executive or his transferee (a) with respect to the
Options shall be determined in accordance with Section 3.3 and (b) under the
benefit plans and programs of the Company shall be determined in accordance
with the provisions of such plans and programs. Neither the Executive nor the
Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8, 9 and 15.

        6.6 Constructive Termination. Anything herein to the contrary
notwithstanding, if the Company:

                (A)  demotes the Executive to a lesser position than provided
in Section 2;

                (B)  causes a material change in the nature or scope of the
authorities, powers, functions, duties, or responsibilities attached to the
Executive's position as described in Section 2;

                (C)  decreases the Executive's base salary, changes the bonus
formula provided for in Section 3 or eliminates any of the benefits or
perquisites provided for in Section 5; or
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                (D) fails to cause the election of the Executive to the Board
of Directors of the Company;

then, within thirty (30) days after learning of the action (or inaction), the
Executive may advise the Company in writing that the action (or inaction)
constitutes a termination of his employment by the Company pursuant to Section
4.4 (Without Cause), in which event the Company shall have thirty (30) days (the
"Correction Period") in which to correct such action (or inaction). If the
Company does not correct such action (or inaction) during the Correction
Period, such action (or inaction) shall (unless consented to in writing by the
Executive) constitute a termination of the Executive's employment by the
Company pursuant to Section 6.4 (Without Cause) effective on the first business
day following the end of the Correction Period.

        6.7 Termination of Employment Following a Change in Control.  Anything
herein to the contrary notwithstanding, the Executive may terminate his
employment with the Company during the one (1) year period following a Change
in Control, and such termination shall constitute a termination of the
Executive's employment by the Company pursuant to Section 6.4 (Without Cause);
provided, however, that the amounts referred to in paragraphs (A) and (B) of
Section 6.4 shall be paid to the Executive in a lump sum on the date of
termination and the amounts referred to in paragraph (D) of Section 6.4 shall
be paid to the Executive in a lump sum on the Payment Date; and further
provided that the Executive shall be under no obligation to seek other
employment and shall be under no obligation to offset any amounts earned from
such other employment (whether as an employee, a consultant or otherwise)
against such payments. For purposes of this Agreement, a Change in Control of
the Company shall be deemed to have occurred if:

                (A) a "person" (meaning an individual, a partnership, or other
group or association as defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, other than the Executive or a group including the
Executive), either (i) acquires twenty percent (20%) or more of the combined
voting power of the outstanding securities of the Company having a right to
vote in elections of directors and such acquisition shall not have been
approved within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as hereinafter defined) then in office or (ii) acquires
fifty percent (50%) or more of the combined voting power of the
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outstanding securities of the Company having a right to vote in elections of
directors; or

                (B)     Continuing Directors shall for any reason cease to
constitute a majority of the Board of Directors of the Company; or

                (C)     all or substantially all of the business and/or assets
of the Company is disposed of by the Company to a party or parties other than a
subsidiary or other affiliate of the Company, pursuant to a partial or complete
liquidation of the Company, sale of assets (including stock of a subsidiary of
the Company) or otherwise.

        For purposes of this Agreement, the term "Continuing Director" shall
mean a member of the Board of Directors of the Company who either was a member
of the Board of Directors on the date hereof or who subsequently became a
Director and whose election, or nomination for election, was approved by a vote
of at least two-thirds of the Continuing Directors then in office.

        6.8     Acceleration of Payments.  In the event that the Company shall
fail to pay to the Executive any amount payable pursuant to this Section 6 at
the time such payment is due, all amounts to be paid to the Executive (or his
estate or legal representative) pursuant to this Section 6, Section 3 and any
other provision of this Agreement shall become immediately due and payable
without any further action by the Executive (or his estate or legal
representative).

        7.      CONFIDENTIAL INFORMATION.

        7.1     Nondisclosure. The Executive shall, during the term of this
Agreement and at all times thereafter, treat as confidential and, except as
required in the performance of his duties and responsibilities under this
Agreement, not disclose, publish or otherwise make available to the public or to
any individual, firm or corporation any confidential information (as
hereinafter defined).

        7.2     Confidential Information Defined. For the purposes hereof, the
term "confidential information" shall mean all information acquired by the
Executive in the course of the Executive's employment with the Company in any
way concerning the products, projects, activities, business or affairs of the
Company or the Company's customers, including, without
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limitation, all information concerning trade secrets and the products or
projects of the Company and/or any improvements therein, all sales and
financial information concerning the Company, all customer and supplier lists,
all information concerning projects in research and development or marketing
plans for any such products or projects, and all information in any way
concerning the products, projects, activities, business or affairs of customers
of the Company which is furnished to the Executive by the Company or any of its
agents or customers, as such; provided, however, that the term "confidential
information" shall not include information which (a) becomes generally
available to the public other than as a result of a disclosure by the
Executive, (b) was available to the Executive on a non-confidential basis prior
to his employment with the Company or (c) becomes available to the Executive on
a non-confidential basis from a source other than the Company or any of its
agents or customers provided that such source is not bound by a confidentiality
agreement with the Company or any of such agents or customers.

        8.  INTERFERENCE WITH THE COMPANY.

        8.1 Restrictions. The Executive acknowledges that the services to be
rendered by him to the Company are of a special and unique character. In order
to induce the Company to enter into this Agreement, and in consideration of his
employment hereunder, the Executive agrees, for the benefit of the Company,
that he will not, during the period of his employment with the Company and
thereafter, for the Applicable Period (as hereinafter defined) commencing on
the date of termination of his employment with the Company:

            (a) engage, directly or indirectly, whether as principal,
consultant, employee, partner, stockholder, limited partner or other investor
(other than a passive investment of (i) not more than five percent (5%) of the
stock or equity of any corporation the capital stock of which is publicly
traded or (ii) not more than five percent (5%) of the ownership interest of any
partnership or other entity) or otherwise, within the United States of America,
with any firm or person in any activity or business venture which is in
competition with any line or lines of business being conducted by the Company
or any subsidiary of the Company at the date of termination of the Executive's
employment with the Company, accounting for ten percent (10%) or more of the
Company's consolidated gross sales, revenues or


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earnings before taxes for the fiscal year ended immediately prior to the
conduct in question (the "Competition Restriction"); or

             (b) solicit or entice or endeavor to solicit or entice away from
the Company any person who was an employee of the Company at job grade numbering
32 or higher, either for his own account or for any individual, firm or
corporation, whether or not such person would commit any breach of his contract
of employment by reason of leaving the service of the Company (the "Solicitation
Restriction"); or

             (c) employ, directly or indirectly, any person who was an employee
of the Company at job grade numbering 32 or higher at any time during the one
year period ending on the date of termination of the Executive's employment with
the Company, except that this restriction shall not apply in the case of any
person whose employment shall have been terminated by the Company (the "Hiring
Restriction").

        8.2  Time Periods. As used in this Section 8, the term "Applicable
Period" shall mean:

             (a) twenty-four (24) months in the case of a termination of
employment pursuant to Section 6.3 (Due Cause), Section 6.4 (Without Due
Cause), Section 6.6 (Constructive Termination), or Section 6.7 (Change in
Control); and

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                (b) twenty-four (24) months in the case of a termination 
pursuant to Section 6.2 (Disability) or Section 6.5 (Voluntary Termination),
but only if the Company gives notice to the Executive within thirty (30) days
of the date of termination of employment of its intention to enforce such
restrictions against the Executive, and subject to the Company's continued
payment to the Executive during such twenty-four (24) month period of the base
salary provided for in Section 3.1 (at the annual rate in effect at the date of
termination).

        9.      EQUITABLE RELIEF.

        In the event of a breach or threatened breach by the Executive of any
of the provisions of Sections 7 or 8 of this Agreement, the Executive hereby
consents and agrees that the Company shall be entitled to an injunction or
similar equitable relief from any court of competent jurisdiction restraining
the Executive from committing or continuing any such breach or threatened
breach or granting specific performance of any act required to be performed by
the Executive under any of such provisions, without the necessity of showing
any actual damage or that money damages would not afford an adequate remedy and
without the necessity of posting any bond or other security. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies
at law or in equity which it may have.

        10.     SUCCESSORS AND ASSIGNS.

        10.1    Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.

        10.2    Assignment by the Executive. The Executive may not assign this
Agreement or any part thereof without the prior written consent of a majority
of the Board of Directors of the Company; provided, however, that nothing
herein shall preclude
<PAGE>   16
                                                                              16

one or more beneficiaries of the Executive from receiving any amount that may be
payable following the occurrence of his legal incompetency or his death and
shall not preclude the legal representative of his estate from receiving such
amount or from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries", as used in this Agreement, shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of the Executive (in the event of
his incompetency) or the Executive's estate.

        11. GOVERNING LAW.

     This Agreement shall be deemed a contract made under, and for all purposes
shall be construed in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts to be performed entirely within such state.
In the event that a court of any jurisdiction shall hold any of the provisions
of this Agreement to be wholly or partially unenforceable for any reason, such
determination shall not bar or in any way affect the Company's right to relief
as provided for herein in the courts of any other jurisdiction. Such provisions,
as they relate to each jurisdiction, are, for this purpose, severable into
diverse and independent covenants. Service of process on the parties hereto at
the addresses set forth herein shall be deemed adequate service of such process.

        12. ENTIRE AGREEMENT.

     This Agreement contains all the understandings and representations between
the parties hereto pertaining to the subject matter hereof and supersedes all
undertakings and agreements, whether oral or in writing, if any there be,
previously entered into by them with respect thereto.

        13. AMENDMENT, MODIFICATION, WAIVER.

     No provision of this Agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by the Executive
and by a duly authorized representative of the Company other than the Executive.
Except as otherwise specifically provided in this Agreement, no waiver by either
party hereto of any breach by the other party hereto of any condition or
provision of this Agreement to be performed by


        
<PAGE>   17
                                                                              17

such other party shall be deemed a waiver of a similar or dissimilar provision
or condition at the same or any prior or subsequent time, nor shall the failure
of or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.

        14. ARBITRATION.

        Any controversy or claim arising out of or relating to this Agreement,
or any breach thereof, shall, except as provided in Section 9, be settled by
arbitration in accordance with the rules of the American Arbitration Association
then in effect and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the area where the Company then has its principal place of business. The
arbitration award shall include attorneys' fees and costs to the prevailing
party.

        15. ADVANCE OF DEFENSE EXPENSES.

        In the event of any action, proceeding or claim against the Executive
arising out of his serving or having served in his capacity as an officer
and/or director of the Company, which in the Executive's sole judgment requires
him to retain counsel (such choice of counsel to be made in his sole and
absolute discretion) or otherwise expend his personal funds for his defense in
connection therewith, the Company shall be obligated to advance to the
Executive (or pay directly to his counsel) counsel fees and other costs
associated with the Executive's defense of such action, proceeding or claim;
provided, however, that in such event the Executive shall first agree in
writing, without posting bond or collateral, to repay all sums paid or advanced
to him pursuant to this Section 15 in the event that the final disposition of
such action, proceeding or claim is one for which the Executive would not be
entitled to indemnification pursuant to the provisions of the laws of the
State of Delaware or the Certificate of Incorporation or By-laws of the Company.

        16. NOTICES.

        Any notice to be given hereunder shall be in writing and delivered
personally or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party
<PAGE>   18
                                                                            18


concerned at the address indicated below or at such other address as such party
may subsequently designate by like notice:

        If to the Company:

                NovaCare, Inc.
                1016 West Ninth Avenue
                King of Prussia, Pennsylvania 19406
                Attention: Chief Executive Officer

        If to the Executive:





        17. SEVERABILITY.

        Should any provision of this Agreement be held by a court or
arbitration panel of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court or
arbitration panel is expressly authorized to modify any such unenforceable
provision of this Agreement in lieu of severing such unenforceable provision
from this Agreement in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree that
this Agreement as so modified by the court or arbitration panel shall be
binding upon and enforceable against each of them. In any event, should one or
more of the provisions of this Agreement be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be
construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.

<PAGE>   19
                                                                           19


        18.  WITHHOLDING.

        Anything to the contrary notwithstanding, all payments required to be
made by the Company hereunder to the Executive or his beneficiaries, including
his estate, shall be subject to withholding of such amounts relating to taxes
as the Company may reasonably determine it should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company, may, in its sole discretion, accept other provision for
payment of taxes as permitted by law, provided it is satisfied in its sole
discretion that all requirements of law affecting its responsibilities to
withhold such taxes have been satisfied.

        19.  SURVIVORSHIP.

        The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.

        20.  TITLES.

        Titles of the sections and paragraphs of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section or paragraph.

        21.  COUNTERPARTS.

        This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the same instrument.

                           *           *            *

<PAGE>   20
                                                                            20


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

                                        NOVACARE, INC.


                                        By  /s/ John H. Foster
                                          --------------------------------
                                                John H. Foster
                                                Chairman of the Board


                                            /s/ Timothy E. Foster
                                          --------------------------------
                                                Timothy E. Foster

                                            
The foregoing Agreement has been
Approved by the Compensation Committee
of the Board of Directors:


/s/       Robert G. Stone
----------------------------------
          Robert G. Stone
Chairman of Compensation Committee