AGREEMENT AND PLAN OF MERGER

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

NORTH AMERICAN SENIOR CARE, INC.,

NASC ACQUISITION CORP.,

BEVERLY ENTERPRISES, INC.

and

SBEV PROPERTY HOLDINGS LLC (solely for purposes of Article 9)

Dated as of

August 16, 2005

TABLE OF CONTENTS

     AGREEMENT AND PLAN OF MERGER, dated as of August 16, 2005, by and among North American Senior Care, Inc., a Delaware corporation (“ Parent ”), NASC Acquisition Corp., a Delaware corporation and a wholly-owned direct Subsidiary of Parent (“ Merger Sub ”), Beverly Enterprises, Inc., a Delaware corporation (the “ Company ”) and, solely for purposes of Article 9 hereof, SBEV Property Holdings LLC, a Delaware limited liability company (“ SBEV ”).

     WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company have approved and declared advisable the merger of Merger Sub with and into the Company (the “ Merger ”) upon the terms and subject to the conditions of this Agreement and Plan of Merger, including the exhibits and disclosure schedules attached hereto (the “ Agreement ”) and in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”);

     WHEREAS, the respective Boards of Directors of Parent and the Company have determined that the Merger is in furtherance of, and consistent with, their respective business strategies and is in the best interest of their respective stockholders, and Parent has approved this Agreement and the Merger as the sole stockholder of Merger Sub; and

     WHEREAS, Parent, Merger Sub and the Company wish to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

     NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the Parties agree as follows:

Article 1
Defined Terms and Interpretation

     Section 1.1 Certain Definitions . For purposes of this Agreement, the term:

          “ Affiliate ” shall mean a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first-mentioned Person, where “ control ” shall mean the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or otherwise.

           “Ancillary Health Care Business” shall mean those entities engaged in the provision of products or services to the Health Care Facilities or residents or patients residing in the Health Care Facilities or to unrelated Third Party health care providers and their residents or patients or directly to their own residents or patients (such as therapy, hospice, home health care, durable medical equipment, pharmacy, imaging and respiratory services), and includes the Company Subsidiaries owning or operating each Ancillary Health Care Business.

           “Benefit Plan” shall mean any employment, consulting, severance, termination, retirement, profit sharing, bonus, incentive or deferred compensation, retention bonus or change in control agreement, pension, stock option, restricted stock or other equity-based benefit, profit sharing, savings, life, health, disability, accident, medical, insurance, vacation, paid time off, long term care, executive or other employee allowance program, other welfare fringe benefit or other employee compensation or benefit plan, program, arrangement, agreement, fund or commitment, including any “employee benefit plan” as defined in Section 3(3) of ERISA.

          “ Blue Sky Laws ” shall mean state securities or “blue sky” laws.

          “ Business Day ” shall mean any day other than a Saturday, Sunday and any day which is a legal holiday under the Laws of the State of New York or is a day on which banking institutions located in the State of New York are authorized or required by Law or other governmental action to close.

          “ Code ” shall mean the United States Internal Revenue Code of 1986, as amended.

           “Company Benefit Plan” shall mean any Benefit Plan for the benefit or welfare of any director, officer or employee of the Company or any Company Subsidiary.

          “ Company Health Care Business ” shall mean any of the Company Health Care Facilities or any Ancillary Health Care Business operated by the Company or any Company Subsidiary.

          “ Company Health Care Facility ” shall mean any skilled nursing home facility or assisted living facility of the Company or any Company Subsidiary.

           “Company Health Care Permits” shall mean all permits, licenses, approvals, registrations, qualifications, certifications, consents, certificates of need and other authorizations of every nature whatsoever required by, or issued by, any Health Care Governmental Entity, but excluding any Provider Agreements, participation agreements or other contractual or health plan obligations arising under or related to any Company Health Care Program.

           “Company Health Care Program” shall mean any Third Party health care payment program in which the Company or any Company Subsidiary participates with regard to any of their Company Health Care Facilities or other Company Health Care Businesses, including, without limitation, any program, plan, insurance or assistance program ( e.g., the Medicare, Medicaid, TRICARE programs, the Veterans Administration or any private insurance, health maintenance organizations, or preferred provider organizations).

          “ Company Material Adverse Effect ” shall mean any change, circumstance, event or effect that is materially adverse to (i) the business, properties, assets, results of operations, or financial condition of the Company and the Company Subsidiaries taken as a whole or (ii) the ability of the Company to perform its obligations pursuant to this Agreement, other than any of the following or any change, circumstance, event or effect resulting from any of the following: (a) the execution, delivery or public announcement of this Agreement or the transactions provided for herein or any actions required to be taken hereunder or otherwise taken with the consent of Parent, (b) any change in federal or state health care program reimbursement law, regulations, policies or procedures, or interpretations thereof applicable or potentially applicable to the services rendered by the Company or any of the Company Subsidiaries, (c) changes generally affecting the industries in which the Company or the Company Subsidiaries operate, (d) changes in economic conditions in the United States, or in any region thereof, and (e) changes in Law or GAAP (or any interpretation thereof), unless, in the case of the foregoing clauses (b), (c) and (e), such changes would reasonably be expected to have a materially disproportionate impact on the business, properties, assets, results of operation or financial condition of the Company and the Company Subsidiaries taken as a whole relative to other major industry participants.

          “ Company Permits ” shall mean all Company Health Care Permits and all Other Company Permits.

          “ Continuing Employee ” shall mean any Person who is employed by the Company or any Company Subsidiary as of the Effective Time (including persons on disability or leave of absence, whether paid or unpaid).

          “ Contract ” shall mean any note, bond, mortgage, indenture, lease, license, occupancy agreement, management agreement, permit, concession, franchise, contract, agreement or other instrument or obligation, including without limitation, any Governmental Agreement and any Provider Agreement.

          “ Environmental Laws ” shall mean any applicable Law relating to the protection of the environment or to occupational health and safety.

          “ Equity Interest ” shall mean any share, capital stock, partnership, member or similar interest in any entity and any option, warrant, right or security convertible, exchangeable or exercisable therefor.

          “ Exchange Act ” shall mean the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

          “ GAAP ” shall mean generally accepted accounting principles as applied in the United States.

          “ Governmental Entity ” shall mean any federal or state governmental, administrative, judicial or regulatory authority.

          “ Group ” shall have the meaning provided in Section 13(d) of the Exchange Act, except where the context otherwise requires.

          “ Hazardous Materials ” shall mean (i) any petroleum products or byproducts, radioactive materials, friable asbestos or polychlorinated biphenyls or (ii) any waste, material or substance defined as a “hazardous substance,” “hazardous material,” or “hazardous waste,” under any applicable Environmental Law.

           “Health Care Governmental Entity” shall mean any Governmental Entity having jurisdiction over the certification, licensing, evaluation or operation of any of the Company Health Care Businesses.

          “ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

           “Institutional Lender” shall mean any bank, investment bank or other financial institution providing loans or other financing in connection with the Merger pursuant to the Debt Commitment Letters.

          “ Intellectual Property ” shall mean, collectively, all (i) patents, (ii) trademarks, service marks, trade dress, logos, trade names, corporate names and domain names, (iii) copyrights and copyrightable works, (iv) computer software, and (v) trade secrets, and (vi) any applications or registrations relating to the foregoing.

          “ Knowledge ” shall mean, with respect to any specific matter, (i) in the case of the Company, the actual knowledge of the Persons listed on Section 1.1(a) of the Company Disclosure Schedule, including the knowledge they have or would have after making reasonable inquiry of the employee of the Company having principal responsibility for such matter, and (ii) in the case of Parent, Merger Sub or any other member of the Parent Group, the actual knowledge of the Persons listed on Schedule 1.1(b), including the knowledge they have or would have after making reasonable inquiry of the employee of the Parent Group having principal responsibility for such matter.

          “ Law ” shall mean any foreign or domestic law, statute, code, ordinance, rule, regulation, or Order.

           “Legal Requirement” shall mean all applicable Laws, bylaws, restrictions, corporate integrity agreements and Orders (including, without limitation, all applicable building, fire, health code, occupational safety and health, zoning, subdivision and other land use, ADA, payment, certificate of need and health care licensing statutes, ordinances, bylaws, codes, rules, manuals and regulations), promulgated or issued by any Governmental Entity. Without limiting the generality of the foregoing, the term Legal Requirements includes all Company Health Care Permits issued or entered into by any Health Care Governmental Entity.

           “License” shall mean a license issued by a Health Care Governmental Entity to operate a facility or services of the Company or any Company Subsidiary.

           “Lien” shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof) other than liens incurred in connection with sale and leaseback transactions in the ordinary course of business.

           “Medicaid” shall mean the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. Sections 1396 et seq .) and any statute succeeding thereto.

           “Medicare” shall mean the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. Sections 1395 et seq .) and any statute succeeding thereto.

          “ Multiemployer Plan ” shall mean any “multiemployer plan” within the meaning of Section 3(37) or 4001(a)(3) of ERISA.

          “ NYSE ” shall mean the New York Stock Exchange, Inc.

          “ Order ” shall mean any order, judgment, writ, stipulation, award, injunction, decree, arbitration award or finding of any Governmental Entity.

           “Other Company Permits” shall mean all permits, licenses, franchises, certificates of occupancy, approvals, registrations, qualifications, variances, accreditations, certifications, consents and other authorizations of every nature whatsoever other than Company Health Care Permits, that are required by, or issued under, any Laws benefiting, relating to or affecting the Company’s business or the Company Properties, or the construction, development, expansion, maintenance, management, use or operation thereof, or the operation of any programs or services in conjunction with the Company’s business and all renewals, replacements and substitutions therefor, required or issued by any Governmental Entity.

           “Parent Expenses” shall mean all reasonable and documented out-of-pocket expenses (including, without limitation, all reasonable fees and expenses of counsel, accountants, investment bankers, experts and consultants to a Party hereto) incurred by or on behalf of Parent in connection with or related to the transactions contemplated hereby, including, without limitation, expenses in connection with due diligence, and the negotiation, execution and performance of this Agreement and the transactions contemplated hereby.

           “Parent Group” shall mean, collectively, Parent, Merger Sub, the Provider Affiliates, and the Post-Transaction Operators, if any.

           “Permitted Encumbrances” shall mean any and all of the following, whether individually or collectively: (i) Permitted Liens (except, solely with respect to this definition, Section (ii) of the definition of “Permitted Liens” shall not apply), (ii) (A) standard and customary exceptions to title, (B) encumbrances of public record (except to the extent that any such encumbrance is not a Permitted Lien), utility easements, restrictive covenants and similar defects, imperfections or irregularities of title and (C) such state of facts as an accurate survey would show, in each case under (ii)(A) – (C) above, such as would generally be acceptable as encumbrances on collateral in the reasonable business judgment of banks, investment banks or other financial institutions that generally conduct business in a marketplace similar to that of an institutional lender similar to Wachovia Bank, National Association, CapitalSource Finance LLC and Credit Suisse First Boston, LLC, (iii) encumbrances created by Parent, or its affiliates, successors, or assigns (other than the Company and the Company Subsidiaries), and (iv) encumbrances imposed under this Agreement. In no event shall any mark-up of any title commitment provided to the Company by or on behalf of Parent be deemed to limit, expand, or otherwise modify the definition of “Permitted Encumbrances” or the interpretation thereof.

          “ Person ” shall mean an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization or other entity.

           “Post-Transaction Operator” shall mean any Person who must obtain licenses, certifications, Company Health Care Permits, approvals, provider numbers and/or authorizations for the operation of any of the Company Health Care Businesses following the Effective Time, excluding Parent, Merger Sub and the Provider Affiliates.

           “Provider Affiliate” shall mean (i) any Affiliate of Parent or (ii) any Affiliate of any signatory to the Equity Commitment Letter that owns, operates or leases any health care facility.

           “Provider Agreements” shall mean those agreements or provisions of other agreements pursuant to which the Company or any Company Subsidiary obtains a provider or supplier number and is authorized to submit claims for payment for any of its Company Health

Care Businesses, including all participation, provider and supplier agreements, whether such Provider Agreement is express, in writing or as evidenced by tie-in notices or other evidence.

           “Reimbursement Source Obligations” shall mean (a) Medicaid, Medicare or Company Health Care Program overpayments, recoupments, denials of payment or any other financial obligations arising from any adjustments or reductions specific to the Company or Company Subsidiary in Medicaid, Medicare or Company Health Care Program reimbursement; or (b) all other monetary obligations or liabilities of any kind or nature whatsoever that have arisen or may arise in any manner from the Company or any Company Subsidiary’s participation in Company Health Care Programs.

           “SEC” shall mean the United States Securities and Exchange Commission.

          “ Securities Act ” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

           “Significant” shall mean, when used with respect to any individual item or group of items, an item or group of items with an aggregate value to the Company of more than $10,000,000.

          “ Subsidiary ” or “ Subsidiaries ” of the Company, the Surviving Corporation or any other Person shall mean any corporation, partnership, joint venture or other legal entity of which the Company, the Surviving Corporation or such other Person, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, a majority of the stock or other Equity Interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity.

          “ Superior Proposal ” shall mean a bona fide written Takeover Proposal (with all of the percentages included in the definition of Takeover Proposal increased to fifty (50) percent) that is not subject to a financing contingency that results in conditionality less favorable to the Company than the conditions contained in Article 7 (after giving effect to any adjustments to the terms and provisions of this Agreement committed to in writing by Parent in response to such Takeover Proposal) and that is reasonably capable of being consummated, taking into account all legal, financial, regulatory, timing, and similar aspects of, and conditions to, such Takeover

     Section 1.3 Interpretation . In this Agreement, unless otherwise specified, the following rules of interpretation apply:

          (a) references to Sections, Subsections, Schedules, Annexes, Exhibits, Clauses and Parties are references to sections or sub-sections, schedules, annexes, exhibits and clauses of, and parties to, this Agreement;

          (b) references to any Person include references to such Person’s successors and permitted assigns;

          (c) words importing the singular include the plural and vice versa;

          (d) words importing one gender include the other gender;

          (e) references to the word “including” do not imply any limitation;

          (f) references to months are to calendar months;

          (g) the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

          (h) references to “$” or “dollars” refer to U.S. dollars;

          (i) to the extent this Agreement refers to information or documents having been made available (or delivered or provided) to Parent or Merger Sub, the Company shall be deemed to have satisfied such obligation if the Company or any Company Representatives have made such information or document available (or delivered or provided such information or document) to any of Parent, Merger Sub, or any Parent Representatives; provided , that the making available of a document, unless otherwise provided herein, shall not itself be deemed disclosure on the Company Disclosure Schedule;

          (j) a defined term has its defined meaning throughout this Agreement and in each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined; and

          (k) references to the “Company’s business” or “the business of the Company” or similar phrases shall be deemed to include the Company Subsidiaries.

Article 2
The Merger

     Section 2.1 The Merger . Upon the terms and subject to satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DGCL, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the “ Surviving Corporation ”).

     Section 2.2 Closing . Subject to the terms and conditions of this Agreement, the closing of the Merger (the “ Closing ”) shall take place on a day that is a Business Day (i) at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, New York 10022 at 10:00 a.m., New York City time, no later than the second Business Day following the satisfaction of the conditions set forth in Article 7 (other than (a) those conditions that are waived in accordance with the terms of this Agreement by the Party or Parties for whose benefit such conditions exist and (b) any such conditions, which by their terms, are not capable of being satisfied until the Closing) or (ii) at such other place, time and/or date as the Parties may otherwise agree. The date upon which the Closing shall occur is referred to herein as the “ Closing Date ”.

     Section 2.3 Effective Time . If all of the conditions to the Merger set forth in Article 7 have been fulfilled or waived and this Agreement shall not have been terminated as provided in Article 8, the Parties shall cause a certificate of merger (the “ Certificate of Merger ”) to be properly executed and filed in accordance with the DGCL and the terms of this Agreement on the Closing Date. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware or at such other time as is specified by the Parties as the Effective Time in the Certificate of Merger (the “ Effective Time ”).

     Section 2.4 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

     Section 2.5 Certificate of Incorporation; By-laws . At the Effective Time, the Certificate of Incorporation and the By-laws of the Surviving Corporation shall, subject to Section 6.9 hereof, be amended in their entirety to contain the provisions set forth in the Certificate of Incorporation and the By-laws of Merger Sub, attached as Exhibit A hereto, except that the name of the Surviving Corporation shall at the Effective Time be changed to the name of the Company.

     Section 2.6 Directors and Officers . The directors of Merger Sub immediately prior to the Effective Time (and identified as Surviving Corporation Directors in Schedule 2.6) shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation. The officers of the Company immediately prior to the Effective Time, and such other persons as Parent may designate in writing prior to the Effective Time, shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation, and with respect to such officers, as otherwise provided in this Agreement.

Article 3
Conversion of Securities; Exchange of Certificates

     Section 3.1 Conversion of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or its stockholders, the following shall occur.

           Section 3.1.1 Conversion Generally . Each share of common stock, par value $.10 per share, of the Company (“ Company Common Stock ”) issued and outstanding immediately prior to the Effective Time (other than any shares of Company Common Stock to be canceled pursuant to Section 3.1.2 and any shares of Company Common Stock which are held by stockholders exercising appraisal rights pursuant to Section 262 of the DGCL (“ Dissenting Stockholders ” and such shares being “ Dissenting Shares ”), including the associated rights of the Company (the “ Company Rights ”) pursuant to the Rights Agreement, dated January 26, 2005, between the Company and The Bank of New York, as Rights Agent, as amended (the “ Company Rights Agreement ”), shall be converted, subject to Section 3.2.4, into the right to receive $12.80 in cash, payable to the holder thereof, without interest (the “ Merger Consideration ”). All shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each Certificate which immediately prior to the Effective Time represented such shares shall thereafter represent the right to receive the Merger Consideration therefor or the right, if any, to receive payment from the Surviving Corporation of the “fair value” of such shares of Company Common Stock as determined in accordance with Section 262 of the DGCL. Certificates previously representing shares of Company Common Stock (other than Dissenting Shares) shall be exchanged for the Merger Consideration, without interest, upon the surrender of such Certificates in accordance with the provisions of Section 3.2.

           Section 3.1.2 Cancellation of Certain Shares . Each share of Company Common Stock held by Parent, Merger Sub, any Subsidiary of Parent or Merger Sub, in the treasury of the Company or by any Company Subsidiary immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto.

           Section 3.1.3 Merger Sub . Each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be

converted into and be exchanged for one newly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Following the Effective Time, each certificate evidencing ownership of shares of Merger Sub common stock shall evidence ownership of such shares of the Surviving Corporation.

           Section 3.1.4 Change in Shares . If between the date of this Agreement and the Effective Time the outstanding shares of Company Common Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Merger Consideration shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares.

     Section 3.2 Exchange of Certificates .

           Section 3.2.1 Exchange Agent . At the Closing, Parent shall deposit, or shall cause to be deposited (which, for these purposes, shall be deemed to include (i) the BIF Deposit and (ii) funds provided to the Company as part of Parent’s financing plan and/or real estate sales in each case to the extent that Parent requests the Company to deposit them), with The Bank of New York or another bank or trust company designated by Parent and reasonably satisfactory to the Company (the “ Exchange Agent ”), for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article 3, through the Exchange Agent, cash in U.S. dollars in an amount sufficient to pay the Merger Consideration (such cash being hereinafter referred to as the “ Exchange Fund ”) payable pursuant to Section 3.1 in exchange for outstanding shares of Company Common Stock. The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration contemplated to be paid pursuant to Section 3.1 out of the Exchange Fund. The Exchange Fund shall be invested by the Paying Agent as directed by Parent; provided , however , that: (i) no such investment or losses thereon shall affect the Merger Consideration payable to the holders of Company Common Stock and following any losses Parent shall promptly provide additional funds to the Exchange Agent for the benefit of the holders of the shares of the Company Common Stock in the amount of any such losses; and (ii) such investments shall be in obligations of or guaranteed by the United States of America or any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by

Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively, or in certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with capital exceeding $1 billion (based on the most recent financial statements of such bank that are then publicly available). Any net profit resulting from, or interest or income produced by, such investments shall be payable to the Surviving Corporation or Parent, as Parent directs. The Exchange Fund shall not be used for any other purpose.

           Section 3.2.2 Exchange Procedures . Promptly following the Effective Time (but in no event later than three (3) Business Days following the Effective Time), Parent shall instruct the Exchange Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the “ Certificates ”) (i) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be subject to the consent of the Company prior to the Effective Time, such consent not to be unreasonably withheld) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, properly completed and duly executed, and such other documents as may be required pursuant to such instructions (or, if such Shares are held in book-entry or other uncertificated form, upon the entry through a book-entry transfer agent of the surrender of such Shares to the Exchange Agent on a book-entry account statement (it being understood that any references herein to “Certificates” shall be deemed to include references to book-entry account statements relating to the ownership of shares of Company Common Stock)), the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration which such holder has the right to receive in respect of the shares of Company Common Stock formerly represented by such Certificate, and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on any Merger Consideration payable to holders of Certificates. In the event of a transfer of ownership of shares of Company Common Stock which is not registered in the transfer records of the Company, the Merger Consideration may be issued to a transferee if the Certificate representing such shares of Company Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect

such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 3.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration or the right to demand to be paid the “fair value” of the shares represented thereby as contemplated by Section 3.3.

           Section 3.2.3 Further Rights in Company Common Stock . All Merger Consideration paid in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock.

           Section 3.2.4 Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the holders of Company Common Stock for one (1) year after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any holders of Company Common Stock who have not theretofore complied with this Article 3 shall thereafter look only to the Surviving Corporation for the Merger Consideration, without any interest thereon.

           Section 3.2.5 No Liability . None of Parent, the Company or the Surviving Corporation shall be liable to any holder of shares of Company Common Stock for any cash from the Exchange Fund delivered to a public official pursuant to any abandoned property, escheat or similar Law.

           Section 3.2.6 Lost Certificates . If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the posting by such Person of a bond, in such reasonable and customary amount as Parent may direct, as indemnity against any claim that may be made against it with respect to such lost, stolen or destroyed Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration without any interest thereon. If any certificate representing Company Options shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate representing Company Options to be lost, stolen or destroyed, the Company will issue in exchange for such lost, stolen or destroyed certificate representing Company Options, the Option Payment, without any interest thereon.

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           Section 3.2.7 Withholding . Parent, the Surviving Corporation or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Common Stock such amounts as Parent, the Surviving Corporation or the Exchange Agent are required to deduct and withhold under the Code, or any provision of state, local or foreign tax Law, with respect to the making of such payment. To the extent that amounts are so withheld by Parent, the Surviving Corporation or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Stock in respect of whom such deduction and withholding was made by Parent, the Surviving Corporation or the Exchange Agent.

          Section 3.3 Dissenters’ Rights . Notwithstanding anything in this Agreement to the contrary, if any Dissenting Stockholder shall demand to be paid the “fair value” of such Dissenting Stockholder’s shares of Company Common Stock, as provided in Section 262 of the DGCL, such shares of Company Common Stock shall not be converted into or exchangeable for the right to receive the Merger Consideration (except as provided in this Section 3.3) and shall entitle such Dissenting Stockholder only to payment of the fair value of such shares of Company Common Stock, in accordance with Section 262 of the DGCL, unless and until such Dissenting Stockholder withdraws (in accordance with Section 262(k) of the DGCL) or effectively loses the right to dissent. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to, or settle or offer to settle, any such demand for payment of fair value of a Dissenting Stockholder’s shares of Company Common Stock prior to the Effective Time. The Company shall give Parent notice thereof prior to the Effective Time and Parent shall have the right to participate at its own expense in all negotiations and proceedings with respect to any such demands. If any Dissenting Stockholder shall have effectively withdrawn (in accordance with Section 262(k) of the DGCL) or lost the right to dissent, then as of the later of the Effective Time or the occurrence of such event, the shares of Company Common Stock held by such Dissenting Stockholder shall be cancelled and converted into and represent the right to receive the Merger Consideration, without interest, upon surrender of the Certificates therefor, pursuant to Section 3.1.

          Section 3.4 Stock Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed (after giving effect to the Exchange) and thereafter, there shall be no

further registration of transfers of shares of Company Common Stock theretofore outstanding on the records of the Company. From and after the Effective Time, the holders of Certificates shall cease to have any rights with respect to such shares of Company Common Stock except as otherwise provided herein or by Law. On or after the Effective Time, any Certificates presented to the Exchange Agent or Parent for any reason shall be converted into the Merger Consideration.

     Section 3.5 Company Equity and Long-Term Incentive Awards .

           Section 3.5.1 Prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee thereof) (the “ Company Board ”) shall adopt appropriate resolutions and take all other actions necessary and appropriate, including actions that the Company determines are necessary to ensure compliance with a reasonable good faith interpretation of Code Section 409A, to provide that, concurrent with the Effective Time:

               (i) each outstanding, unexpired and unexercised option to purchase Company Common Stock (the “ Company Options ”) granted to a director or employee pursuant to the equity compensation plans set forth in Section 3.5.1 of the Company Disclosure Schedule (which Section also contains a list of all outstanding Company Options, their respective exercise prices, and their respective holders), whether or not then exercisable, conditioned or vested, shall fully vest and be deemed to be exercised and cancelled and each holder of a Company Option shall be entitled to receive at the Effective Time, in consideration of the deemed exercise and cancellation of such Company Option, a payment by the Surviving Corporation (or, at Parent’s option, Parent) in cash (subject to any applicable withholding or other taxes required by applicable Law to be withheld), in an amount equal to the product of (x) the total number of shares of Company Common Stock subject to such Company Option (determined on the basis that such Company Option is fully vested and currently exercisable) and (y) the excess, if any, of the Merger Consideration over the exercise price per share of Company Common Stock subject to such Company Option (such amounts payable hereunder being referred to as the “ Option Payments ”); provided, that any holder of certificates representing Company Options shall be required to surrender such certificate prior to receipt of the Option Payments with respect to the Company Options represented thereby; and

   (ii) all shares of restricted stock (“ Company Restricted Stock ”) under the equity compensation plans of the Company as set forth in Section 3.5.1 of the Company Disclosure Schedule (which Section also contains a list of all shares of Company Restricted Stock and their respective holders), whether or not then vested, shall fully vest and each holder of Company Restricted Stock shall be entitled to, and shall be paid pursuant to Section 3.2, the Merger Consideration pursuant to Section 3.1.1 of this Agreement.

   (iii) at and after the Effective Time, each Company Option shall be cancelled and terminated and shall only entitle such holder to payment of the Option Payment as described in this Section 3.5.

           Section 3.5.2 Prior to the Effective Time, the Company Board (or the relevant committee thereof) shall adopt appropriate resolutions and take all other actions necessary and appropriate to provide that, subject to obtaining waivers and releases deemed appropriate under the circumstances in the Company’s reasonable judgment, (i) prior to or concurrent with the Effective Time, each performance unit set forth in Section 3.5.2 of the Company Disclosure Schedule (a “ Performance Unit Award ”) shall be treated as fully vested, cancelled and terminated, and payable in the manner and amount set forth in that Section of the Company Disclosure Schedule, (ii) concurrent with the Effective Time, each director deferred unit set forth in Section 3.5.2 of the Company Disclosure Schedule (a “ Director Deferred Uni t”) shall be cancelled and terminated, and converted to a share of Company Common Stock, which share shall be converted into the right to receive the Merger Consideration in cash, and (iii) concurrent with the Effective Time, restricted stock unit awards that were deferred by directors (as set forth in Section 3.5.2 of the Company Disclosure Schedule) shall be treated as fully vested and converted to shares of Company Common Stock, which shares shall be converted into the right to receive the Merger Consideration in cash.

           Section 3.5.3 The provisions of this Section 3.5 shall survive the consummation of the Merger and are intended to be for the benefit of, and shall be enforceable by, each holder of any Company Options, Company Restricted Stock or Performance Unit Awards, and their respective heirs, beneficiaries and representatives.

Article 4
Representations and Warranties of the Company

          Subject to such exceptions as are disclosed, in accordance with Section 9.12, in the disclosure schedule (the “ Company Disclosure Schedule ”) delivered by the Company to Parent concurrently with the execution and delivery of this Agreement (it being understood that the disclosure of any matter or item in the Company Disclosure Schedule shall not be deemed to constitute an acknowledgement that such matter or item is required to be disclosed therein or is material to a representation or warranty set forth in this Agreement and shall not be used as a basis for interpreting the terms “Significant,” “material,” “materially,” “materiality” or “Company Material Adverse Effect” or any word or phrase of similar import and does not mean that such matter or item would, alone or together with any other matter or item, be reasonably expected to have a Company Material Adverse Effect), the Company represents and warrants to Parent and Merger Sub as follows:

     Section 4.1 Organization and Qualification; Subsidiaries . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Company Subsidiary (“ Company Subsidiary ”) has been duly organized, and is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be. Section 4.1 of the Company Disclosure Schedule contains a complete list of all of the Company Subsidiaries. The Company and each Company Subsidiary has the requisite power and authority and all governmental approvals necessary to own, lease and operate its properties and to carry on its business as it is now being conducted, except for such government approvals, the absence of which, individually or in the aggregate, is not reasonably expected to have a Company Material Adverse Effect. The Company and each Company Subsidiary is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification, licensing or good standing necessary, except for such failures to be so qualified, licensed or in good standing that, individually or in the aggregate, are not reasonably expected to have a Company Material Adverse Effect. The Company has heretofore made available to Parent complete and correct copies of the certificate of incorporation and by-laws (or similar organizational documents) of the Company and each Company Subsidiary, and all amendments thereto, as currently in effect.

     Section 4.2 Certificate of Incorporation and By-laws; Corporate Books . The copies of the Company’s Restated Certificate of Incorporation, as amended (the “ Company Certificate ”) and By-laws (the “ Company By-laws ”) that are filed as exhibits to the Company’s Form 10-K for the year ended December 31, 2004 (the “ Company Form 10-K ”) are complete and correct copies thereof as in effect on the date hereof. True and complete copies of all minute books of the Company have been made available by the Company to Parent.

     Section 4.3 Capitalization; Subsidiaries .

           Section 4.3.1 The authorized capital stock of the Company consists of 325,000,000 shares of Company Common Stock and 10,000,000 shares of preferred stock, par value $1.00 per share (the “ Company Preferred Stock ”), of which 300,000 shares have been designated shares of Series A Junior Participating Preferred Stock. As of June 30, 2005, there were (a) 109,495,202 shares of Company Common Stock (other than treasury shares) issued and outstanding, (b) 8,283,316 shares of Company Common Stock held in the treasury of the Company, (c) 5,836,703 shares of Company Common Stock issuable upon exercise of outstanding Company Options, (d) 1,231,078 shares of Company Common Stock issuable pursuant to Performance Unit Awards, (e) 15,432,080 shares of Company Common Stock issuable upon conversion of the Company’s Convertible Notes and (f) no shares of Company Preferred Stock issued and outstanding.

           Section 4.3.2 All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. Except for the shares of Company Common Stock issuable upon the conversion of the Convertible Notes and as set forth in Section 4.3.1, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound relating to the issued or unissued Equity Interests of the Company, or securities convertible into or exchangeable for such Equity Interests, or obligating the Company to issue or sell any shares of its capital stock or other Equity Interests, or securities convertible

into or exchangeable for such capital stock of, or other Equity Interests in, the Company. Except as set forth in Section 4.3.1, there are no outstanding contractual obligations of the Company or any Company Subsidiary affecting the voting rights of or requiring the repurchase, redemption or disposition of, any Equity Interests in the Company. Except as set forth in Section 4.3.1, upon the conversion of the Convertible Notes or as would otherwise be permitted by this Agreement, since June 30, 2005, the Company has not issued any shares of its capital stock, or securities convertible into or exchangeable for such capital stock or any other Equity Interests in the Company.

           Section 4.3.3 Each outstanding share of capital stock or other equity interest of each Company Subsidiary is duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights and is held, directly or indirectly, by the Company or another Company Subsidiary free and clear of all claims, liens and encumbrances. Except as set forth in Section 4.3.1, there are no subscriptions, options, warrants, rights, calls, contracts or other commitments, understandings, restrictions or arrangements relating to the issuance or sale with respect to any shares of capital stock or other ownership interests of any Company Subsidiary, including any right of conversion or exchange under any outstanding security, instrument or agreement.

     Section 4.4 Authority .

           Section 4.4.1 The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company and no stockholder votes are necessary to authorize this Agreement or to consummate the transactions contemplated hereby other than, with respect to the Merger, the affirmative vote of holders of a majority of outstanding shares of Company Common Stock to adopt this Agreement and approve the transactions provided for herein (the “ Stockholder Approval ”). This Agreement has been duly authorized and validly executed and delivered by the Company and, assuming this Agreement is a valid and binding obligation of Parent and Merger Sub, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles (the “ Bankruptcy and Equity Exception ”).

           Section 4.4.2 The Company has taken all appropriate actions so that the restrictions on business combinations contained in Section 203 of the DGCL will not apply with respect to or as a result of this Agreement and the transactions contemplated hereby, including the Merger, without any further action on the part of the stockholders or the Company Board.

     Section 4.5 No Conflict; Required Filings and Consents .

           Section 4.5.1 The execution, delivery and performance by the Company of this Agreement does not (i) assuming the Stockholder Approval is obtained, conflict with or violate any provision of the Company Certificate or the Company By-laws or any equivalent organizational documents of any Company Subsidiary, (ii) assuming that all consents, approvals, authorizations and Company Permits described in Section 4.5.2 will have been obtained prior to the Effective Time and all filings and notifications described in Section 4.5.2 will have been made and any waiting periods thereunder will have terminated or expired prior to the Effective Time, conflict with or violate, in any material respect, any Law applicable to the Company or by which any Company Owned Health Care Facility, Company Leased Health Care Facility, Company Other Owned Property, Company Other Leased Property, or other material asset of the Company is bound or affected or (iii) require the Company to obtain any consent or approval under, result in any material breach of or any loss of any material benefit under, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any right of termination, vesting, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any Company Property that constitutes a Company Owned Health Care Facility, Company Leased Health Care Facility, Company Other Owned Property, Company Other Leased Property, or other material asset of the Company pursuant to, any Company Selected Contracts having an aggregate value to the Company over $10,000,000.

           Section 4.5.2 The execution, delivery and performance of this Agreement by the Company does not require any consent, approval, authorization or Company Permit of, or filing with or notification to, any Governmental Entity, except (i) under the Exchange Act, any applicable Blue Sky Law, the rules and regulations of the NYSE, the HSR Act or any other antitrust, competition, trade or other regulatory Laws, (ii) the filing and recordation of the Certificate of Merger as required by the DGCL, (iii) under any Company Health Care Program or as required to transfer or continue operation under a Company Health Care Permit, (iv) with respect to matters other than those referred to in the previous clauses (i), (ii) and (iii), where failure to obtain such consents, approvals, authorizations or Company Permits, or to make such filings or notifications would not (a) prevent or materially delay the consummation of the Merger, (b) otherwise prevent or materially delay performance by the Company of any of its material obligations under the Agreement, (c) inhibit the ability to obtain Government Consents necessary for the continued operation consistent with past practice of any Company Health Care Program, any Company Health Care Facility or the transfer of any Company Health Care Permit, or (d) result in a material violation of any Legal Requirement.

     Section 4.6 Compliance with Laws . The Company and each Company Subsidiary holds all Other Company Permits necessary for the lawful conduct, in all material respects, of its business or ownership, use, occupancy and operation of the Company Owned Health Care Facilities, Company Leased Health Care Facilities, Company Other Owned Properties, Company Other Leased Properties and its other material assets. The Company and each Company Subsidiary is in compliance, in all material respects, with the terms of such Other Company Permits, except for such matters for which the Company or Company Subsidiary has received written notice from a Governmental Entity, which notice asserts a lack of compliance with a particular Other Company Permit (and, in the case of any such notice received prior to the date hereof, such item is disclosed in Section 4.6 of the Company Disclosure Schedule), but which permits the Company or Company Subsidiary to cure such non-compliance within a reasonable period of time following the issuance of such notice and which cure is being undertaken by the Company or Company Subsidiary, and such cure period has not expired and the cure is reasonably expected to be completed within such cure period and none of the businesses of the Company or any Company Subsidiary is being conducted in violation, in any material respect, of any Law (other than any such violations addressed in Section 4.21 hereof) applicable to the Company or such Company Subsidiary or by which any Company Owned Health Care Facility,

Company Leased Health Care Facility, Company Other Owned Property, Company Other Leased Property or other material asset of the Company or Company Subsidiary is bound, except where such violation is subject to a cure within a reasonable period of time by the Company or Company Subsidiary, which cure is being undertaken by the Company or Company Subsidiary and such cure period has not expired and the cure is reasonably expected to be completed within such cure period (and, in the case of any violation existing on the date hereof, such item is disclosed in Section 4.6 of the Company Disclosure Schedule).

     Section 4.7 SEC Filings; Financial Statements .

           Section 4.7.1 Company SEC Filings . The Company has timely filed all forms, reports and other documents required to be filed by it under the Securities Act or the Exchange Act, as the case may be, since January 1, 2003 (collectively, the “ Company SEC Filings ”). Each Company SEC Filing (i) as of its date, complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not, at the time it was filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. As of the date of this Agreement, no Company Subsidiary is subject to the periodic reporting requirements of the Exchange Act.

           Section 4.7.2 Financial Statements . Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Filings was prepared in accordance with GAAP applied (except as may be indicated in the notes thereto and, in the case of unaudited quarterly financial statements, as permitted by Form 10-Q under the Exchange Act) on a consistent basis during the periods indicated (except as may be indicated in the notes thereto), and each presented fairly, in all material respects, the consolidated financial position of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the Company for the respective periods indicated therein (subject, in the case of unaudited statements, to normal adjustments which, individually or in the aggregate, are not reasonably expected to have a Company Material Adverse Effect).

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           Section 4.7.3 No Undisclosed Liabilities . None of the Company or any consolidated Company Subsidiary has any Significant liabilities or obligations, individually or in the aggregate, of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with GAAP, except for liabilities or obligations (i) which are recorded or reserved for in compliance with GAAP on the balance sheet included in either the Company’s Annual Report on Form 10-K as of December 31, 2004, with any amendment thereto, or the Company’s Quarterly Report on Form 10-Q as of June 30, 2005, (ii) that were incurred or determined after June 30, 2005 in the ordinary course of business, consistent with past practice and not in violation of any of the covenants of the Company set forth in this Agreement or (iii) that were incurred under this Agreement or in connection with the transactions contemplated hereby.

     Section 4.8 Proxy Statement and SEC Filings . Subject to the last sentence of this Section 4.8, the Proxy Statement and any other document filed or to be filed with the SEC in connection with the transactions contemplated hereby will, at the time such documents, correspondence or supplements thereto, are first mailed to holders of shares of Company Common Stock or filed with the SEC and, as supplemented by any other such documents, at the time of the Company Stockholders’ Meeting, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, and will comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any statements made or incorporated by reference in the Proxy Statement based on information supplied by Parent or Merger Sub for inclusion or incorporation by reference therein.

     Section 4.9 Absence of Certain Changes or Events . Since December 31, 2004, there has not been any Company Material Adverse Effect.

     Section 4.10 Benefit Plans; Employees and Employment Practices .

           Section 4.10.1 Section 4.10.1 of the Company Disclosure Schedule contains a true, correct and complete list of each material Company Benefit Plan maintained or contributed to by the Company or any Company Subsidiary. The Company has made available to Parent or its agents or representatives copies of (i) each material Company Benefit Plan, (ii) the most recent annual report (Form 5500), if any, filed with the U.S. Department of Labor with respect to each such Company Benefit Plan, and (iii) the summary plan description in effect on June 30, 2005 for each such Company Benefit Plan for which a summary plan description is required.

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