AGREEMENT AND PLAN OF MERGER BY AND AMONG PSYCHIATRIC SOLUTIONS, INC., PANTHER ACQUISITION SUB, INC

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

PSYCHIATRIC SOLUTIONS, INC.,

PANTHER ACQUISITION SUB, INC.,

and

HORIZON HEALTH CORPORATION

Dated as of

December 20, 2006

TABLE OF CONTENTS

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EXHIBITS AND SCHEDULES

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of December 20, 2006, is by and among Psychiatric Solutions, Inc., a Delaware corporation (" Parent "), Panther Acquisition Sub, Inc., a Delaware corporation and wholly-owned direct Subsidiary of Parent (" Merger Sub "), and Horizon Health Corporation, a Delaware corporation (the " Company ").

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 attached hereto and the disclosure schedules delivered by the Company or Parent, as the case may be, to the other such Party concurrently with the execution and delivery of this Agreement (the " Agreement "), and in accordance with the General Corporation Law of the State of Delaware (as amended, the " DGCL "); 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 I
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 Equity Interests or as trustee or executor, by contract or otherwise.

"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 and any program to which Section 6039D of the Code applies.

"Blue Sky Laws" shall mean state securities or "blue sky" Laws.

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"Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) any day that is a legal holiday under the Laws of either of the States of Texas or New York or is a day on which banking institutions located in either of the States of Texas or 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 current or former director, officer or employee of the Company or any Company Subsidiary or under which the Company or any Company Subsidiary has any present or future liability to any current or former 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 health care business operated by the Company or any Company Subsidiary.

"Company Health Care Facility" shall mean any health care facility that is leased or owned, and operated, by the Company or any Company Subsidiary.

"Company Material Adverse Effect" shall mean any event, change, circumstance, state of facts or effect that has had a material adverse effect on (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 consummate the transactions contemplated by this Agreement. In no event shall any of the following (or the effects or consequences thereof) constitute a "Company Material Adverse Effect" or be considered in determining whether a "Company Material Adverse Effect" has occurred: (a) any event, occurrence, circumstance or trend, including a diminution in value, related to the Company, any Company Subsidiary, or any of its respective businesses, properties, assets, results of operations or financial condition that is described with reasonable specificity in the Company Disclosure Schedule or the Company SEC Filings filed prior to the date hereof, (b) any failure by the Company to meet any internal projections or forecasts or published revenue or earnings estimates or predictions for any period ending (or for which revenues or earnings are released) on or after the date hereof (it being understood, however, that any facts, events, changes or developments causing or contributing to such failures to meet expectations or projections may (unless addressed otherwise in this definition) constitute a Company Material Adverse Effect and may be taken into account in determining whether a Company Material Adverse Effect has occurred), (c) any change in Law or any interpretation thereof, including any change in federal or state health care program reimbursement laws, regulations, policies or procedures, or interpretations thereof, applicable or potentially applicable to the services rendered by or operations of, the Company or any of the Company Subsidiaries, in each case to the extent that such changes in Law or interpretations thereof do not have a disproportionate impact on the Company Health Care Businesses as compared to other companies in industries similar to the Company Health Care Businesses, (d) changes generally affecting the industries in which the Company or the Company Subsidiaries operate, in each case to the extent that such changes do not have a disproportionate impact on the Company Health Care Businesses as compared to other companies in industries similar to the Company Health Care Businesses, (e) changes in economic, market or political conditions in the United States, in any region thereof, or in any non-U.S. or global economy, (f) acts of war (whether or not declared), sabotage or terrorism, military actions or the escalation

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thereof occurring on or after the date hereof, (g) changes in GAAP (or any interpretation thereof), and (h) if the provisions of Section 2.3 become applicable in accordance with the terms of Section 2.2 , any event, change, circumstance, state of facts or effect arising or occurring after the Certification Date.  Further, in no event shall any adverse effects or consequences suffered by the Company or any Company Subsidiary arising out of or relating to any of the following be considered or taken into account in determining whether a "Company Material Adverse Effect" has occurred:  (x) any breach by Parent or Merger Sub of any provision of this Agreement, or (y) the provisions of Section 6.8.2 or Section 6.8.7 as the same relate to employees of the Company, the Surviving Corporation or any of their respective Subsidiaries, or the performance of or compliance with the provisions of Section 6.8.2 or Section 6.8.7 .

"Company Permits" shall mean all permits, licenses, franchises, certificates of occupancy, approvals, registrations, qualifications, rights, variances, permissive uses, accreditations, certificates, certificates of need, certifications, consents, contracts, interim licenses, permits and other authorizations of every nature whatsoever required by or issued under any Laws benefiting, relating to or affecting the Company, the Company Subsidiaries or any of the Company Health Care Businesses, or the construction, development, expansion, maintenance, management, use or operation thereof, or the operation of any programs or services in conjunction with any of the Company Health Care Businesses and all renewals, replacements and substitutions therefor, required or issued by any Governmental Entity.

"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, contract or other agreement.

"Environmental Laws" shall mean any applicable Laws relating to pollution or protection of the environment (including ambient air, surface water, ground water, land surface or sub-surface strata), including Laws relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern.

"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, as amended.

"Expenses" shall mean all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a Party hereto) incurred by a Party or on its behalf in connection with or related to the sale of the Company or the transactions contemplated hereby, including expenses in connection with due diligence, the authorization, preparation, negotiation, execution and performance of this Agreement and the

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transactions contemplated hereby, the preparation, printing, filing and mailing of the Proxy Statement and the solicitation of stockholder approval of this Agreement and the Merger.

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

"Governmental Entity" shall mean any domestic or foreign governmental, administrative, judicial or regulatory authority or any entity acting as an agent for such authority, including fiscal intermediaries and carriers.

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

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

"Indemnified Party" shall mean any present or former director, officer, employee or agent of the Company or any Company Subsidiary.

"Intellectual Property" means, collectively, all (i) patents, (ii) trademarks, service marks, trade dress, logos, trade names, corporate names and domain names, (iii) copyrights and copyrightable works, and (iv) trade secrets.

"Knowledge" shall mean (a) with respect to a natural Person, if such Person has actual knowledge, after reasonable investigation, of the fact or matter, (b) in the case of the Company, if any of the Persons listed on Exhibit A.1 has Knowledge of that fact or other matter (as set forth in (a) above), and (c) in the case of Parent or Merger Sub, if any of the Persons listed on Exhibit A.2 has Knowledge of that fact or other matter (as set forth in (a) above).

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

"Lien" shall mean any mortgage, pledge, security interest, lien or encumbrance of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof).

"Materials of Environmental Concern" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, medical waste, toxic substances, petroleum and petroleum products and by-products, asbestos-containing materials, polychlorinated biphenyls and any other chemicals, pollutants, substances or wastes, in each case so defined, identified or regulated under any Environmental Law.

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

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"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., as amended) 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.

"NASDAQ" shall mean the Nasdaq Stock Market, LLC.

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

"Parent Health Care Business" shall mean any of the Parent Health Care Facilities or any health care business operated by Parent or any Parent Subsidiary.

"Parent Health Care Facility" shall mean any health care facility that is leased or owned, and operated, by Parent or any Parent Subsidiary.

"Parent Material Adverse Effect" shall mean any event, change, circumstance, state of facts or effect that has had a material adverse effect on (i) the business, properties, assets, results of operations or financial condition of Parent and the Parent Subsidiaries taken as a whole or (ii) the ability of Parent or Merger Sub to consummate the transactions contemplated by this Agreement. In no event shall any of the following (or the effects or consequences thereof) constitute a "Parent Material Adverse Effect" or be considered in determining whether a "Parent Material Adverse Effect" has occurred: (a) any event, occurrence, circumstance or trend, including a diminution in value, related to Parent, any Parent Subsidiary, or any of its respective businesses, properties, assets, results of operations or financial condition that is described with reasonable specificity in the Parent Disclosure Schedule or the Parent SEC Filings filed prior to the date hereof, (b) any failure by Parent to meet any internal projections or forecasts or published revenue or earnings estimates or predictions for any period ending (or for which revenues or earnings are released) on or after the date hereof (it being understood, however, that any facts, events, changes or developments causing or contributing to such failures to meet expectations or projections may (unless addressed otherwise in this definition) constitute a Parent Material Adverse Effect and may be taken into account in determining whether a Parent Material Adverse Effect has occurred), (c) any change in Law or any interpretation thereof, including any change in federal or state health care program reimbursement laws, regulations, policies or procedures, or interpretations thereof, applicable or potentially applicable to the services rendered by or operations of, Parent or any of the Parent Subsidiaries, in each case to the extent that such changes in Law or interpretations thereof do not have a disproportionate impact on the Parent Health Care Businesses as compared to other companies in industries similar to the Parent Health Care Businesses, (d) changes generally affecting the industries in which Parent or the Parent Subsidiaries operate, in each case to the extent that such changes do not have a disproportionate impact on the Parent Health Care Businesses as compared to other companies in industries similar to the Parent Health Care Businesses, (e) changes in economic, market or political conditions in the United States, in any region thereof, or in any non-U.S. or global economy, (f) acts of war (whether or not declared), sabotage or terrorism, military actions or the

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escalation thereof occurring on or after the date hereof, and (g) changes in GAAP (or any interpretation thereof).

"Parent Subsidiary" shall mean any Subsidiary of Parent, including Merger Sub.

"Party" shall mean Parent, Merger Sub or the Company.

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

"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, as amended.

"Subsidiary" or "Subsidiaries" of a Person shall mean any corporation, limited liability company, partnership or other legal entity of which such Person (either alone or through or together with any other Subsidiary or Subsidiaries of such Person) owns, directly or indirectly, a majority of the outstanding 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 50%) that is not solicited by the Company after the date of this Agreement and that the Company Board determines in good faith (after consultation with the Company Financial Advisor or other independent financial advisors of the Company Board, and outside legal counsel) to be (i) more favorable from a financial point of view (taking into account, among other things, the Person or Group making such Takeover Proposal and all legal, financial, regulatory, fiduciary and other aspects of this Agreement and such Takeover Proposal, including any conditions relating to financing, regulatory approvals or other events or circumstances beyond the control of the Person invoking the condition and taking into account any written offer by Parent and Merger Sub that if executed by the Company would become a Top-Up Amendment) to the holders of Company Common Stock than the transactions provided for in this Agreement and (ii) reasonably capable of being consummated upon the terms proposed; provided, however, for the avoidance of doubt, a Superior Proposal may be a transaction where the consideration is comprised of cash and/or other property or securities.

"Surviving Corporation Benefit Plan" shall mean any Benefit Plan for the benefit or welfare of any Continuing Employee or that applies to all or substantially all employees of Parent, the Surviving Corporation and their respective Subsidiaries, and in each case whether maintained by Parent, the Surviving Corporation or any of their respective Subsidiaries.

"Takeover Proposal" shall mean any inquiry, proposal or offer relating to (i) the acquisition by any Third Party of 25% or more of the shares of capital stock or any other voting securities of the Company outstanding immediately prior to such transaction, (ii) a merger, consolidation, business combination, reorganization, share exchange, sale of assets, recapitalization, liquidation, dissolution or similar transaction that would result in any Third

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Party acquiring 25% or more of the fair market value of the assets of the Company and the Company Subsidiaries, taken as a whole (including capital stock of the Company Subsidiaries), immediately prior to such transaction, or (iii) any combination of the foregoing.

"Taxes" shall mean any and all taxes, fees, levies, duties, tariffs, imposts and other similar charges (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity, including those on or measured by or referred to as income, franchise, windfall or other profits, gross receipts, property, sales, use, net worth, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation, excise, withholding, ad valorem, stamp, transfer, value-added and provider taxes.

"Tax Returns" shall mean any report, return (including any information return), declaration, claim for refund or statement required to be filed with any Governmental Entity relating to Taxes, including any Schedule or attachment thereto, and including any amendment thereof.

"Third Party" shall mean any Person or Group other than the Company, any Company Subsidiary, Parent or any Parent Subsidiary.

"Top-Up Amendment" shall mean a binding (with respect to Parent and Merger Sub) amendment to this Agreement (containing no changes to this Agreement other than an increase in the amount of the Merger Consideration per share provided for in this Agreement) which the Company Board determines in good faith (after consultation with the Company Financial Advisor or other independent financial advisors of the Company Board, and outside legal counsel) to be more favorable from a financial point of view to the holders of the Company Common Stock than the transactions contemplated by the Superior Proposal to which it relates.

Section 1.2.            Terms Defined Elsewhere . The following terms are defined elsewhere in this Agreement, as indicated below:

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

• • (a)           references to Articles, Sections, Subsections, Schedules, Exhibits, Clauses and Parties are references to articles, sections, subsections, schedules, exhibits and clauses of, and parties to, this Agreement;

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

    (c)           any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular;

    (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 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, any Company Subsidiary or any Company Representative has made such information or document available (or delivered or provided such information or document) to any of Parent, Merger Sub, or any Parent Representative; and

    (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.

ARTICLE II
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 ").

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Section 2.2.            Closing . Subject to the terms and conditions of this Agreement, the closing of the Merger (the " Closing ") shall take place (i) at the offices of Strasburger & Price, L.L.P., 901 Main Street, Suite 4400, Dallas, Texas 75202 at 10:00 a.m., Dallas time, on the last Business Day of the first calendar month during which the conditions set forth in Article VII have been satisfied (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 but subject to satisfaction of such conditions at the Closing) or (ii) at such other place, time and/or date as the Parties may otherwise agree upon in writing.  The date on which the Closing occurs is referred to herein as the " Closing Date ."  Notwithstanding anything in this Section 2.2 to the contrary, in the event the date provided above for the Closing is a date later than the second Business Day following the date on which all conditions set forth in Article VII have been satisfied (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 but subject to satisfaction of such conditions at the Closing) (the " Certification Date "), then the provisions of Section 2.3 below shall apply.

Section 2.3             Certification Closing .  In the event this Section 2.3 becomes applicable in accordance with the last sentence of Section 2.2 , then notwithstanding any provision in this Agreement to the contrary: (i) each of the representations and warranties of the Company contained in this Agreement shall only relate to facts and events occurring on or prior to the Certification Date, and any facts or events occurring after the Certification Date shall be of no force or effect in determining the truthfulness and correctness of such representations and warranties, and (ii) Section 7.2.1 and Section 7.2.2 shall each be deemed amended such that the references to the term "Effective Time" contained therein shall be deemed to refer to the Certification Date.

Section 2.4.            Effective Time . If all of the conditions to the Merger set forth in Article VII have been satisfied or waived and this Agreement shall not have been terminated as provided in Article VIII , the Parties shall cause a certificate of merger (the " Certificate of Merger ") to be properly executed and filed with the Secretary of State of the State of Delaware on the Closing Date, in accordance with the DGCL and the terms of this Agreement.  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 mutually agreed to in writing by Parent and the Company and specified as the effective time of the Merger in the Certificate of Merger (the date and time at which the Merger becomes effective, the " Effective Time ")."

Section 2.5.            Effect of the Merger . The Merger shall have the effects set forth in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL.

Section 2.6.            Certificate of Incorporation; Bylaws . At the Effective Time, the Company Certificate and the Company Bylaws in effect immediately prior to the Effective Time shall continue to be the Certificate of Incorporation and Bylaws of the Surviving Corporation, until thereafter amended in accordance with their respective terms and applicable Law.

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Section 2.7.            Directors and Officers . The directors of Merger Sub immediately prior to the Effective Time shall at the Effective Time become the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall at the Effective Time become the officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation.

ARTICLE III
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 or the Company or its stockholders, the following shall occur.

Section 3.1.1.               Each share of common stock, par value $.01 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 that are held by stockholders exercising appraisal rights pursuant to Section 262 of the DGCL (" Dissenting Stockholders ")) (and for purposes hereof each share of Company Common Stock shall be deemed to include the associated rights of the Company (the " Company Rights ") attributable to such share pursuant to the Rights Agreement, dated as of February 6, 1997, between the Company and American Stock Transfer & Trust Company, as Rights Agent, as amended (the " Company Rights Agreement ")), shall be converted, subject to Section 3.2.4 , into the right to receive Twenty Dollars ($20.00) in cash, payable to the holder thereof, without interest (the " Merger Consideration ").  All such 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 that immediately prior to the Effective Time represented such shares shall thereafter represent the right to receive the Merger Consideration therefor; provided, however, that shares of the Company held by Dissenting Stockholders (" Dissenting Shares ") will be treated in accordance with Section 3.3 , and shares to be canceled pursuant to Section 3.1.2 shall be treated as provided in Section 3.1.2 .  Certificates previously representing shares of Company Common Stock (other than Dissenting Shares or shares to be canceled pursuant to Section 3.1.2 ) 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.               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.               Each share of common stock, par value $.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

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ownership of shares of Merger Sub common stock shall evidence ownership of such shares of the Surviving Corporation.

Section 3.1.4.               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, then the Merger Consideration, the Option Payments and the Restricted Stock Payments 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.               At the Closing, Parent shall deposit, or shall cause to be deposited, with StockTrans, Inc. or another bank or trust company designated by Parent and 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 III through the Exchange Agent, cash in U.S. dollars in an amount sufficient to pay the aggregate amount of the Merger Consideration (the " Exchange Fund ").  The Exchange Agent shall, pursuant to irrevocable instructions, deliver out of the Exchange Fund the Merger Consideration contemplated to be paid pursuant to Section 3.1 . The cash included in the Exchange Fund shall be invested by the Exchange 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 (a) 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, (b) 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 (c) 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 cash in the Exchange Fund shall not be used for any other purpose.

Section 3.2.2.               Promptly following the Effective Time (but in no event later than two (2) 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 the form of which 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

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other uncertificated form, upon the entry through a book-entry transfer agent of the surrender of such shares 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 that 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 that 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.               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 (and each Company Right associated therewith) in respect of which such payment is made.

Section 3.2.4.               Any portion of the Exchange Fund that remains undistributed to the holders of Company Common Stock one 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 III shall thereafter look only to the Surviving Corporation for the Merger Consideration, without any interest thereon.

Section 3.2.5.               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.               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 payable in respect thereof, without any interest thereon.

Section 3.2.7.               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 is 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,

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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 (which shall be deemed to include the Company Rights associated with such shares) 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 give Parent and Merger Sub prompt notice of any written demands for appraisal, withdrawals of demands for appraisal, and any other instrument served pursuant to Section 262 of the DGCL received by the Company. 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 the fair value of a Dissenting Stockholder’s shares of Company Common Stock prior to the Effective Time. 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 payable in respect thereof 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 of Certificates described in Section 3.2.2 ) 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 represent the right to receive the Merger Consideration payable in respect thereof as provided herein.

• • • • Section 3.5.                                    Company Equity Awards .

        • • Section 3.5.1.

    (a)           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 to provide that, concurrent with the Effective Time:

    • • (i)            each outstanding, unexpired and unexercised option to purchase Company Common Stock (the " Company Options ") granted pursuant to the equity compensation plans set forth in Schedule 3.5.1(a) of the Company

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• • • • Disclosure Schedule, whether or not then exercisable, conditioned or vested, and irrespective of the exercise price per share thereof, shall fully vest and be deemed to be exercised in full 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 cash payment (such consideration being the " Option Payments ") in an amount equal to the product of (i) the amount of the per share Merger Consideration, less the applicable exercise price per share of such Company Option, and (ii) 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), without interest and subject to any applicable withholding or other Taxes required by applicable Law to be withheld; and

        (ii)           each outstanding and unvested restricted stock award granted by the Company (" Company Restricted Stock Awards ") pursuant to the equity compensation plans set forth in Schedule 3.5.1(a)  of the Company Disclosure Schedule, whether or not then conditioned, shall be deemed to be fully vested and cancelled and each holder of a Company Restricted Stock Award shall be entitled to receive at the Effective Time, in consideration of the deemed cancellation of such Company Restricted Stock Award, a cash payment (such consideration being the " Restricted Stock Payments ") equal to the product of (x) the total number of shares of Company Common Stock subject to such Company Restricted Stock Award immediately prior to the Effective Time and (y) the amount of the per share Merger Consideration; provided, however, that the Restricted Stock Payments shall be paid without interest and shall be subject to any applicable withholding or other Taxes required by applicable Law to be withheld.

    Concurrent with the Effective Time, each Company Option and each Company Restricted Stock Award shall be canceled and terminated and shall only entitle the Person who previously held the same to payment of the Option Payment and/or Restricted Stock Payment, as the case may be, payable to such Person as described in this Section 3.5.1 .  At the Closing, Parent shall take all steps necessary to ensure that the Surviving Corporation or the Company makes all Option Payments and Restricted Stock Payments to the respective Persons entitled thereto in accordance with this Section 3.5.1 .  Each Option Payment and each Restricted Stock Payment pursuant to this Section 3.5.1(a) shall be made by check, dated the Closing Date, (i) made payable to the respective Person entitled thereto, and (ii) delivered to such Person by hand, or mailed via overnight courier to such Person, on the Closing Date.

    (b)           Notwithstanding the foregoing, payments pursuant to Section 3.5.1(a) to Persons listed on Schedule 3.5.1(b) of the Company Disclosure Schedule shall be subject to Section 6 of their respective Executive Agreements relating to certain tax matters.

    (c)           Concurrently with the execution and delivery of this Agreement, the Company has made available to Parent a schedule stating the name of the holder of each Company Option and each Company Restricted Stock Award, the number of shares of Company Common Stock subject to each such Company Option and Company Restricted

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• • Stock Award, and the exercise price of each such Company Option, in each case as of November 30, 2006.  Not less than five (5) Business Days prior to the Closing Date, the Company shall update such schedule as necessary so that it will be accurate as of the Closing Date.  Such updated schedule shall also reflect (i) the amount of the Option Payment to be made pursuant to this Section 3.5.1 to each holder of a Company Option, (ii) the amount of the Restricted Stock Payment to be made pursuant to this Section 3.5.1 to each holder of a Company Restricted Stock Award, and (iii) the mailing address of each such holder of a Company Option or Company Restricted Stock Award.

Section 3.5.2.               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 or Company Restricted Stock Awards, and their respective heirs, beneficiaries and representatives.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to (i) any information contained, or incorporated by reference, in any of the Company SEC Filings filed prior to the date hereof (but excluding any event or occurrence that (x) is contemplated in the sections entitled "Risk Factors" and "Disclosure Regarding Forward-Looking Statements" in such Company SEC Filings and (y) occurred or occurs after August 31, 2006) and (ii) such exceptions as are disclosed in the disclosure schedule delivered by the Company to Parent concurrently with the execution and delivery of this Agreement (the " Company Disclosure Schedule ") (it being understood that (a) any matter or item disclosed in any Schedule of the Company Disclosure Schedule shall be deemed also to be disclosed in (1) any other Schedule of the Company Disclosure Schedule that specifically references or cross-references such first Schedule and (2) other Schedules of the Company Disclosure Schedule to the extent it is reasonably apparent (notwithstanding the absence of a specific cross-reference) from a reading of the disclosure that such disclosure applies to such other Schedules of the Company Disclosure Schedule, and (b) 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 "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, have or 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 Subsidiary of the Company (" 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.  Schedule 4.1 of the Company Disclosure Schedule contains a complete list of all of the Company Subsidiaries. Each of the Company and the Company Subsidiaries has the requisite organizational power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Each of the Company and the Company Subsidiaries is duly qualified to do business, and is in good standing, in each

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jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or good standing necessary, except for such failures to be so qualified or in good standing that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect. The Company has made available or will make available to Parent complete and correct copies of the certificate of incorporation and bylaws (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 Bylaws; Corporate Books . The copies of the Company’s Certificate of Incorporation, as amended (the " Company Certificate "), and Amended and Restated Bylaws, as amended (the " Company Bylaws "), that are filed, or incorporated by reference, as exhibits to the Company’s Form 10-K for the year ended August 31, 2006 (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 will be 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 40,000,000 shares of Company Common Stock and 500,000 shares of preferred stock, par value $.10 per share (the " Company Preferred Stock "). As of December 1, 2006, there were (i) 15,062,941 shares of Company Common Stock (other than treasury shares) issued and outstanding, (ii) 19,100 shares of Company Common Stock held in the treasury of the Company, (iii) 1,177,440 shares of Company Common Stock issuable upon exercise of outstanding Company Options, (iv) 348,328 shares of Company Common Stock issuable upon vesting of outstanding Company Restricted Stock Awards, and (v) 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 and were not issued in violation in any material respect of any federal or state securities Laws. Except as set forth in Section 4.3.1 or in Schedule 4.3.2 of the Company Disclosure Schedule, (i) there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which the Company is a party or by which the Company is bound obligating the Company to issue or sell any Equity Interests, or securities convertible into or exchangeable for Equity Interests, (ii) there are no outstanding contractual obligations of the Company affecting the voting rights of or requiring the repurchase, redemption or disposition of any Equity Interests in the Company, and (iii) since December 1, 2006, the Company has not issued any Equity Interests, or securities convertible into or exchangeable for Equity Interests, other than as would otherwise be permitted by this Agreement.

Section 4.3.3.               All of the outstanding shares of capital stock or other Equity Interests of each Company Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights and, except as set forth in Schedule 4.3.3 of the Company Disclosure Schedule, are held, directly or indirectly, by the Company or another Company Subsidiary free and clear of all Liens. Except as set forth in Schedule 4.3.3 of the Company Disclosure Schedule, (i) there are no options, warrants or other rights, agreements,

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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 obligating any Company Subsidiary to issue or sell any Equity Interests, or securities convertible into or exchangeable for Equity Interests, (ii) 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 any Company Subsidiary, and (iii) since December 1, 2006, no Company Subsidiary has issued any Equity Interests, or securities convertible into or exchangeable for Equity Interests, other than as would otherwise be permitted by this 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 on the part of the Company, and no other corporate proceedings on the part of the Company and no votes of the stockholders of the Company 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 the 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.

Section 4.4.2.               Assuming the accuracy of the representation and warranty in Section 5.12 , 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 of the Company 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 do not (i) assuming the Stockholder Approval is obtained, conflict with or violate any provision of the Company Certificate or the Company Bylaws or any similar organizational documents of any Company Subsidiary, (ii) assuming that all consents, approvals or authorizations 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 any Law applicable to the Company or any Company Subsidiary or by which any property or asset of the Company or any Company Subsidiary is bound or affected or (iii) except as shown on Schedule 4.5.1 of the Company Disclosure Schedule, require any consent or approval under, result in any breach of or any loss of any benefit under, constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to

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others any right of termination, vesting, amendment, acceleration or cancellation of, or result in the creation of a Lien on any property or asset of the Company or any Company Subsidiary pursuant to, any Contract to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets are bound, except, with respect to clauses (ii) and (iii), for matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect.

Section 4.5.2.               The execution, delivery and performance of this Agreement by the Company do not require any consent, approval or authorization of, or filing by the Company with or notification by the Company to, any Governmental Entity, except (i) under the Exchange Act, any applicable Blue Sky Law, the rules and regulations of NASDAQ, applicable Health Care Laws, 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 Health Care Program, (iv) under any matter listed on Schedule 4.5.2 of the Company Disclosure Schedule, and (v) where failure to obtain such consents, approvals, or authorizations, 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 this Agreement, or (c) individually or in the aggregate have or reasonably be expected to have a Company Material Adverse Effect.

• • • • Section 4.6.                                    Compliance with Laws .

Section 4.6.1.               Except for matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, (i) the Company and the Company Subsidiaries hold all Company Permits necessary for the lawful conduct of its business or ownership, use, occupancy and operation of its assets and properties, (ii) except as shown on Schedule 4.6.1 of the Company Disclosure Schedule, the Company and each Company Subsidiary is in compliance with the terms of such Company Permits, except for such matters for which the Company or a Company Subsidiary has received written notice from a Governmental Entity, which notice asserts a lack of compliance with a particular Company Permit, but which permits the Company or a Company Subsidiary to cure such non-compliance within a reasonable period of time following the issuance of such notice, to the extent such cure is being undertaken by the Company or a Company Subsidiary, and (iii) except as shown on Schedule 4.6.1 of the Company Disclosure Schedule, none of the businesses of the Company or any Company Subsidiary is being conducted in violation of any Law applicable to the Company or such Company Subsidiary or by which any property or asset of the Company or such Company Subsidiary is bound, except where such violation is subject to cure within a reasonable period of time by the Company or Company Subsidiary, to the extent such cure is being undertaken by the Company or such Company Subsidiary.

Section 4.6.2.               Schedule 4.6.2 of the Company Disclosure Schedule lists all Company Health Care Facilities that participate in or otherwise seek payments or services from the Medicare, Medicaid, TRICARE or any other state or federal health care programs (collectively, " Health Care Programs ").  Except for matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, each Company Health Care Facility listed on Schedule 4.6.2 of the Company Disclosure Schedule is in compliance with the requirements for participation in the Health Care Programs in

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which such Company Health Care Facility participates as shown on Schedule 4.6.2 of the Company Disclosure Schedule.  Except for matters set forth on Schedule 4.6.2 of the Company Disclosure Schedule or matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, there is no claim, action, litigation, proceeding, notice of noncompliance or demand letter (" Adverse Action ") before any Governmental Entity pending, received or, to the Knowledge of the Company, threatened against the Company, any Company Subsidiary or any Company Health Care Facility that relates in any way to a violation of any Law pertaining to the Health Care Programs or that could result in the imposition of penalties on any Company Health Care Business or the exclusion of any Company Health Care Business from participation in any Health Care Programs.

Section 4.6.3.               Except for matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, the operations of each Company Health Care Business are in compliance with (i) all relevant state and federal civil or criminal health care Laws applicable to, or governing payment and reimbursement for the services provided at, such Company Health Care Business, including the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b(b)), the Stark Law (42 U.S.C. § 1395nn), the civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Civil Money Penalties Law (42 U.S.C. § 1320a-7a; 42 U.S.C. § 1320c-8(a)), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), the exclusion Laws (42 U.S.C. § 1320a-7), or the regulations promulgated pursuant to such Laws, and comparable state Laws, and (ii) accreditation standards and all other state and federal Laws, regulations, manual provisions, policies and administrative guidance relating to the regulation of such operations, including licensure, claim submission, billing, coding, staffing requirements, medical waste storage and disposal and applicable health and fire safety codes (all of the foregoing referred to in subclauses (i) and (ii) of this Section 4.6.3 , collectively, " Health Care Laws "), except in each case for such matters for which the Company or a Company Subsidiary has received written notice from a Governmental Entity or accrediting body, which notice asserts a lack of compliance with a particular Health Care Law, but which permits the Company or a Company Subsidiary to cure such non-compliance within a reasonable period of time following the issuance of such notice, to the extent such cure is being undertaken by the Company or a Company Subsidiary.

Section 4.6.4.               Except for matters set forth on Schedule 4.6.4 of the Company Disclosure Schedule or matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, (i) there are no Adverse Actions pending or, to the Knowledge of the Company, threatened with respect to a violation by the Company or any Company Health Care Business of any Health Care Law, and (ii) to the Company’s Knowledge, there are no events or circumstances that, if brought to the attention of a Governmental Entity, could reasonably be expected to result in a violation by the Company or any Company Health Care Business of any Health Care Law.

Section 4.6.5.               Except for matters that, individually or in the aggregate, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect, all claims for payment or cost reports filed or required to be filed by the Company or any Company Subsidiary with respect to the Company Health Care Businesses under any Health Care Program

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or any private payor programs have been prepared and filed in accordance with all applicable state and federal Laws and other legal requirements.

• • • • Section 4.7.                                    SEC Filings; Financial Statements .

Section 4.7.1.               The Company has timely filed or furnished all forms, reports and other documents required to be filed or furnished by it under the Securities Act or the Exchange Act, as the case may be, since September 1, 2005 (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.               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 financial statements, as permitted by the Securities Act or the Exchange Act, as applicable, and the applicable form thereunder) 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, have not resulted in or would not reasonably be expected to have a Company Material Adverse Effect).

Section 4.7.3.               The Company and the Company Subsidiaries have no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on a consolidated balance sheet of the Company or in notes thereto prepared in accordance with GAAP, except for liabilities or obligations (i) that are reflected in the consolidated financial statements (including the notes thereto) filed by the Company as part of the Company Form 10-K, (ii) that were incurred after August 31, 2006 in the ordinary course of business and consistent with past practice or (iii) that were incurred under this Agreement or in connection with the transactions contemplated hereby.

Section 4.7.4.               The Company has designed internal controls to ensure that material information relating to the Company’s consolidated financial statements and other financial information is made known to its executive officers by other officers and employees of the Company and the Company Subsidiaries.  Except as set forth in Schedule 4.7.4 of the Company Disclosure Schedule, there are no significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize, and report financial data.

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• • • • Section 4.8.                                    Benefit Plans; Employees and Employment Practices .

Section 4.8.1.               Schedule 4.8.1 of the Company Disclosure Schedule contains a list of each material Company Benefit Plan. The Company has made available to Parent copies of (i) each material Company Benefit Plan, (ii) the annual report (Form 5500), if any, filed with the U.S. Department of Labor with respect to each such Company Benefit Plan for each of the last three (3) years, (iii) the most recent summary plan description for each such Company Benefit Plan for which a summary plan description is required, and (iv) the most recent determination letter issued by the U.S. Internal Revenue Service (" IRS ")