AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of May 9, 2007 by and among

Agreement and Plan of Merger

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AG HOME HEALTH ACQUISITION CORP | AG Home Health LLC | NATIONAL HOME HEALTH CARE CORP

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Title: AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of May 9, 2007 by and among
Governing Law: Delaware Date: 5/10/2007
Industry: Healthcare Facilities Law Firm: Skadden Arps;Dechert;Troutman Sanders Sector: Healthcare

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of May 9, 2007 by and among, Parties: ag home health acquisition corp , ag home health llc , national home health care corp

Exhibit 10.1

EXECUTION VERSION

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

dated as of May 9, 2007

by and among

NATIONAL HOME HEALTH CARE CORP.,

AG HOME HEALTH ACQUISITION CORP.

and

AG HOME HEALTH LLC

Page


ARTICLE I. THE MERGER	2
Section 1.01. The Merger	2
Section 1.02. Effective Time	2
Section 1.03. Effects of the Merger	2
Section 1.04. Certificate of Incorporation and Bylaws of the Surviving Corporation	2
Section 1.05. Directors of the Surviving Corporation	3
Section 1.06. Officers of the Surviving Corporation	3
Section 1.07. Closing	3
Section 1.08. Company Actions	3
Section 1.09. Additional Actions	3
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY AND ACQUISITION CORP	4
Section 2.01. Effect on Shares of Capital Stock	4
Section 2.02. Options; Stock Plans	5
Section 2.03. Payment for Common Shares and Options in the Merger	6
Section 2.04. Adjustment of the Merger Consideration and the Option Consideration	8
Section 2.05. Dissenting Shares	9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY	9
Section 3.01. Organization and Qualification	9
Section 3.02. Charter Documents and Bylaws	10
Section 3.03. Capitalization	10
Section 3.04. Authority Relative to this Agreement	11
Section 3.05. Company Subsidiaries	11
Section 3.06. No Violation; Required Filings and Consents	12
Section 3.07. SEC Reports and Financial Statements	12
Section 3.08. Compliance with Applicable Laws	15
Section 3.09. Absence of Certain Changes or Events	15
Section 3.10. Change of Control	17
Section 3.11. Litigation	17
Section 3.12. Information in Proxy Statement	18

(continued)

Page



Section 3.13. Benefit Plans	18
Section 3.14. Taxes	22
Section 3.15. Intellectual Property	24
Section 3.16. Licenses and Permits	25
Section 3.17. Material Contracts	25
Section 3.18. Environmental Laws	27
Section 3.19. Opinion of Financial Advisor	28
Section 3.20. Brokers	28
Section 3.21. Special Committee and Company Board Recommendations	28
Section 3.22. Required Shareholder Vote	29
Section 3.23. Related Party Transactions	29
Section 3.24. Assets and Properties	29
Section 3.25. Labor and Employment Matters	30
Section 3.26. Insurance	31
Section 3.27. Company Expenses	32
Section 3.28. State Takeover Statutes	32
Section 3.29. Customers	32
Section 3.30. Accounts Receivable	33
Section 3.31. Compliance with Healthcare and Other Laws	33
Section 3.32. Capital or Surplus Maintenance	37
Section 3.33. Disclosure	38
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION CORP.	38
Section 4.01. Organization and Qualification	38
Section 4.02. Certificate of Incorporation Documents and Bylaws	38
Section 4.03. Authority Relative to this Agreement	38
Section 4.04. No Violation; Required Filings and Consents	39
Section 4.05. Litigation	40
Section 4.06. Brokers	40
Section 4.07. Information to be Supplied	40

(continued)

Page



Section 4.08. Financing	40
ARTICLE V. COVENANTS	40
Section 5.01. Interim Operations	40
Section 5.02. Shareholders Meeting	44
Section 5.03. Filings and Consents	46
Section 5.04. Access to Information	46
Section 5.05. Notification of Certain Matters	47
Section 5.06. Public Announcements	47
Section 5.07. Further Assurances; Reasonable Best Efforts	48
Section 5.08. No Solicitation	48
Section 5.09. Third Party Standstill Agreements	51
Section 5.10. SEC Reports	51
Section 5.11. Delisting	51
Section 5.12. Financing	51
Section 5.13. Litigation	52
Section 5.14. Conveyance Taxes	52
Section 5.15. State Takeover Laws	53
Section 5.16. Monthly Financial Statements	53
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGER	54
Section 6.01. Conditions to the Obligations of Each Party	54
Section 6.02.Conditions to Obligations of Acquisition Corp. and Parent	54
Section 6.03.Conditions to Obligation of the Company	57
ARTICLE VII. TERMINATION	59
Section 7.01. Termination by Mutual Consent	59
Section 7.02. Termination by Acquisition Corp., Parent or the Company	59
Section 7.03. Termination by Acquisition Corp. and Parent	60
Section 7.04. Termination by the Company	60
Section 7.05. Effect of Termination	61
ARTICLE VIII. MISCELLANEOUS	61
Section 8.01. Payment of Fees and Expenses	61

iii

(continued)

Page



Section 8.02.No Survival of Representations, Warranties, Covenants and Agreements	62
Section 8.03.Modification or Amendment	62
Section 8.04.Entire Agreement; Assignment; Termination of Confidentiality Agreement	62
Section 8.05.Validity	62
Section 8.06.Notices	63
Section 8.07.Governing Law	64
Section 8.08.Descriptive Headings	64
Section 8.09.Counterparts	64
Section 8.10.Certain Definitions	64
Section 8.11.Specific Performance	66
Section 8.12.Extension; Waiver	66
Section 8.13.Third-Party Beneficiaries	66
Section 8.14.Company Disclosure Schedule	66
Section 8.15.Severability	66
Section 8.16.Submission to Jurisdiction; Waiver of Jury Trial	67

EXHIBITS


Exhibit A	Certificate of Merger
Exhibit B	Certificate of Incorporation of Surviving Corporation
Exhibit C	Bylaws of Surviving Corporation
Exhibit D	Directors of Surviving Corporation
Exhibit E	Officers of Surviving Corporation
Exhibit F	Form of Acknowledgement of Certain Optionholders
Exhibit G	Form of Contribution Agreement
Exhibit H	Lease
Exhibit I	Home Office Adjustments
Exhibit J	KPMG Calculation

INDEX OF DEFINED TERMS

Term	Location of Definition
1992 Plan	2.02
Accreditation Agencies	3.31
Acquisition Corp.	Introduction
Acquisition Corp. Common Stock	2.01
Acquisition Corp. Disclosure Schedule	4.04
Acquisition Corp. Material Adverse Effect	4.01
Acquisition Corp. Representatives	5.04
Acquisition Proposal	5.08
affiliate	8.10
Agent	2.03
Agreement	Introduction
Approved Acquisition	5.01
Benefit Plans	3.13
Business Day	8.10
Certificate of Incorporation	8.10
Certificate of Merger	1.02
Certificates	2.03
Closing	1.07
Closing Date	1.07
CMS	3.31
COBRA	3.13
Code	2.03
Common Share	Recitals
Company	Introduction
Company Board	Recitals
Company Break Up Fee	8.01
Company Disclosure Documents	3.12
Company Disclosure Schedule	3.01
Company Material Adverse Effect	3.01
Company Permits	3.16
Company Representatives	5.04
Confidentiality Agreement	5.04
Consolidating Financial Statements	3.07
Contract	8.10
Contribution Agreement	6.02
Credit Agreement	3.09
CT Consent Order	3.31
Debt Commitment	5.12
DGCL	Recitals
Dissenting Shares	2.05
EBITDA of the Company	8.10
EBITDA Period	8.10
Effective Time	1.02

Term	Location of Definition

Employees	3.13
Environmental Laws	3.18
ERISA	3.13
Exchange Act	2.02
Expenses	8.01
Financing	5.12
Four Day Period	5.08
Future SEC Reports	3.07
GAAP	3.07
Governmental Authority	3.06
Healthcare Laws	3.31
Healthcare Programs	3.31
Healthcare Providers	3.31
HIPAA privacy regulation	3.31
Home Office Adjustments	8.10
Houlihan Lokey	3.20
HSR Act	3.06
Indebtedness	3.07
Intellectual Property	3.15
knowledge	8.10
KPMG Calculation	8.10
Law	3.06
Leased Real Property	8.10
Leases	8.10
Liability	3.07
Liabilities	3.07
Lien	3.06
managing employee	3.31
Material Contracts	3.17
Maximum Amount	5.17
Merger	1.01
Merger Consideration	2.01
Monthly Financial Statements	5.16
Nasdaq	3.06
Option	2.02
Option Consideration	2.02
Order	6.01
Original Agreement	Recitals
Owned Real Property	8.10
Parent	Introduction
Payment Fund	2.03
Pension Plans	3.13
Permits	3.16
Permitted Liens	3.24
Person	8.10

Term	Location of Definition

Press Release	5.06
Principal Shareholders	Recitals
Proxy Statement	3.12
SEC	2.02
SEC Reports	3.07
Securities Act	3.06
Shareholder Approval	3.22
Shareholders Meeting	5.02
Significant Customers	3.29
Special Committee	Recitals
Stock Plan	2.02
Subsidiary	8.10
Superior Proposal	5.08
Survey	3.31
Surviving Corporation	1.01
Surviving Corporation Common Stock	2.01
Tax	3.14
Tax Return	3.14
Terminating Acquisition Corp. Breach	7.04
Terminating Company Breach	7.03
Termination Date	7.02
Transactions	3.01
Voting Agreement	Recitals

LIST OF SCHEDULES

Schedule	Content
Options Schedule	Outstanding Options and optionholders
Schedule 3.01	Foreign qualification and good standing
Schedule 3.02	Violation of Charter and Bylaws
Schedule 3.03(a)	Optionholders and description of options
Schedule 3.05	Subsidiaries and investment in securities
Schedule 3.06(a)	Conflicts with Material Contracts
Schedule 3.06(b)	Approvals of Governmental Authorities
Schedule 3.07(b)	Exceptions of Financial Statement from SEC rules and GAAP / List of outstanding Indebtedness
Schedule 3.07(c)	Interim financial statements
Schedule 3.07(d)	Summary of disclosures and correspondences related to SEC matters
Schedule 3.07(e)	Liabilities
Schedule 3.08	Compliance with Laws
Schedule 3.09	Absence of changes
Schedule 3.10	Change of control obligations
Schedule 3.11	Litigation
Schedule 3.13(a)	Employee benefit agreements and arrangements
Schedule 3.13(b)	List of Benefit Plans
Schedule 3.13(c)	Qualification of Benefit Plans
Schedule 3.13(d)	Compliance of Benefit Plans
Schedule 3.13(e)	Claims related to Benefit Plans
Schedule 3.13(f)	Insurance regarding Benefit Plans
Schedule 3.13(g)	Severance and similar payments under Benefit Plans
Schedule 3.13(i)	Changes in Benefit Plans
Schedule 3.14(a)	Tax returns


Schedule 3.14(b)	Tax liabilities
Schedule 3.14(c)	Deductibility under Code Sections 280G and 162(m)
Schedule 3.14(e)	Tax groups and affiliations
Schedule 3.14(f)	Future tax liabilities
Schedule 3.14(h)	Transactions governed by Code Sections 355 and 361
Schedule 3.15(a)	List of Intellectual Property
Schedule 3.15(b)	Ownership of Intellectual Property
Schedule 3.15(c)	Loss of Intellectual Property
Schedule 3.15(d)	Enforcement and infringement of Intellectual Property
Schedule 3.15(e)	Computer hardware and software
Schedule 3.16	Termination of Company Permits
Schedule 3.17(a)	List of Material Contracts
Schedule 3.17(b)	Defaults under Material Contracts
Schedule 3.17(c)	Purchase or sale of businesses or assets
Schedule 3.18	Environmental matters
Schedule 3.23	Related party transactions
Schedule 3.24(a)	Condition of assets
Schedule 3.24(c)	Leased Real Property and Leases
Schedule 3.25	Labor matters
Schedule 3.25(c)	Notices under collective bargaining agreements
Schedule 3.26	List of insurance policies / termination of insurance / insurance claims / self-insurance
Schedule 3.27	Company Expenses
Schedule 3.29	Significant Customers and billed amounts
Schedule 3.31(b)	Claims regarding employees
Schedule 3.31(c)	Good standing of employees
Schedule 3.31(d)	List of healthcare provider permits


Schedule 3.31(e)	List of provider agreements and provider numbers
Schedule 3.31(f)	Change in coverage or reimbursement status, and claims related thereto
Schedule 3.31(g)	List of accreditations
Schedule 3.31(h)	Survey results
Schedule 3.31(i)	Compliance with Healthcare Laws and other Laws
Schedule 3.32	Capital or surplus maintenance requirements
Schedule 4.04(a)	Conflicts with Contracts
Schedule 4.06	Brokers
Schedule 5.01	Exceptions to interim operations covenant
Schedule 5.01(b)	Acceleration of vesting of options
Schedule 5.01(e)	Increase in compensation and bonuses / new Benefits Plans or amendments to Benefit Plans
Schedule 5.01(g)	Interim operations regarding selling or incurring Liens on assets
Schedule 5.01(i)	Interim operations regarding amendments to Contracts and waivers or assignments of rights
Schedule 5.01(j)	Interim operations regarding Capital Expenditures
Schedule 5.01(l)	Interim operations regarding collective bargaining agreements
Schedule 5.01(o)	Interim operations regarding tax matters
Schedule 5.13	Settlement and compromise of litigation
Schedule 5.17(b)	D&O indemnification agreements

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of May 9, 2007, is entered into by and among National Home Health Care Corp., a Delaware corporation (the “ Company ”), AG Home Health Acquisition Corp., a Delaware corporation (“ Acquisition Corp. ”), and AG Home Health LLC,a Delaware limited liability company (“ Parent ”).

RECITALS

WHEREAS, the Company, Acquisition Corp. and Parent are parties to an Agreement and Plan of Merger, dated as of November 28, 2006 (as amended, the "Original Agreement"), which the parties intend to amend and restate in its entirety hereby;

WHEREAS, a special committee consisting solely of disinterested directors (the “ Special Committee ”) of the board of directors of the Company (the “ Company Board ”) has recommended to the Company Board that it approve of the transactions contemplated by this Agreement;

WHEREAS, the Company Board and the boards of directors of each of Parent and Acquisition Corp. have approved, and deem it advisable and in the best interests of their respective shareholders to consummate, the acquisition of the Company by Parent upon the terms and subject to the conditions set forth herein;

WHEREAS, the Special Committee, the Company Board and the boards of directors of each of Parent and Acquisition Corp. have approved this Agreement and the Merger in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”) upon the terms and subject to the conditions set forth herein;

WHEREAS, the Special Committee and the Company Board have each determined that the consideration to be paid for each share of the Company’s common stock, par value $.001 per share (each a “ Common Share ”), in the Merger is fair to the holders of the Common Shares and the Company Board has resolved to recommend that the holders of the Common Shares approve this Agreement, the Merger and the other transactions contemplated hereby, in each case upon the terms and subject to the conditions set forth herein;

WHEREAS, Parent, Acquisition Corp. and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger; and

WHEREAS, as a condition and inducement to Parent and Acquisition Corp. entering into this Agreement and incurring the obligations set forth herein, Bernard Levine, M.D. and Frederick Fialkow (the “ Principal Shareholders ”) have on November 28, 2006 entered into an agreement (the “ Voting Agreement ”) with Parent and Acquisition Corp. pursuant to which the Principal Shareholders have agreed to take specified actions in furtherance of the Merger.

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE I

THE MERGER

Section 1.01

The Merger.

At the Effective Time (as defined in Section 1.02 ), subject to the terms and conditions of this Agreement and in accordance with the provisions of the DGCL, Acquisition Corp. shall be merged with and into the Company (the “ Merger ”). Following the Merger, the separate corporate existence of Acquisition Corp. shall cease, and the Company shall continue as the surviving corporation of such Merger (sometimes hereinafter referred to as the “ Surviving Corporation ”) and shall continue to be governed by the laws of the State of Delaware.

Section 1.02.

Effective Time .

As soon as practicable following the Closing (as defined in Section 1.07 ), and provided that this Agreement has not been terminated or abandoned pursuant to Article 7 hereof, the Company and Acquisition Corp. will cause a certificate of merger substantially in the form attached hereto as Exhibit A (the “ Certificate of Merger ”) to be duly executed, acknowledged and filed, in the manner required by the DGCL, with the Secretary of State of the State of Delaware, and the parties shall take such other and further actions as may be required by law to make the Merger effective. The date and time the Merger becomes effective in accordance with applicable law is referred to herein as the “ Effective Time .”

Section 1.03.

Effects of the Merger .

The Merger shall have the effects set forth herein, in the Certificate of Merger and in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Acquisition Corp. shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Acquisition Corp. shall become the debts, liabilities and duties of the Surviving Corporation.

Section 1.04.

Certificate of Incorporation and Bylaws of the Surviving Corporation .

(a) The Certificate of Incorporation of the Company as in effect immediately prior to the Effective Time shall be amended in its entirety as provided in Exhibit B attached hereto, and, as so amended, shall be the Certificate of Incorporation of the Surviving Corporation until duly amended.

(b) The Bylaws of the Company as in effect immediately prior to the Effective Time shall be amended in its entirety as provided in Exhibit C attached hereto, and, as so amended, shall be the Bylaws of the Surviving Corporation until duly amended.

Section 1.05.

Directors of the Surviving Corporation .

The directors of Acquisition Corp. immediately prior to the Effective Time, as set forth in Exhibit D attached hereto, shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal in accordance with applicable law and the Surviving Corporation’s Certificate of Incorporation and Bylaws.

Section 1.06.

Officers of the Surviving Corporation .

The officers designated by Acquisition Corp., as set forth on Exhibit E attached hereto, shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Section 1.07.

Closing .

Subject to the conditions contained in this Agreement, the closing of the Merger (the “ Closing ”) shall take place (i) at the offices of Dechert LLP, 30 Rockefeller Plaza, New York, NY 10112, as promptly as practicable but in no event later than the third Business Day following the satisfaction (or waiver if permissible) of the conditions set forth in Article 6 (other than those that by their terms may not be satisfied at the Closing) or (ii) at such other place and time and/or on such other date as the Company and Acquisition Corp. may agree in writing. The date on which the Closing occurs is hereinafter referred to as the “ Closing Date .”

Section 1.08.

Company Actions .

The Company hereby approves and consents to the Merger and the other Transactions and represents that the Company Board has, at a meeting duly called and held, unanimously (A) approved this Agreement and the Transactions, including the Merger, (B) recommended that the holders of Common Shares approve and adopt this Agreement and the Merger, (C) determined that this Agreement and the Transactions, including the Merger, are fair to and in the best interests of the shareholders of the Company, (D) determined that the consideration to be paid for each Common Share in the Merger is fair to the shareholders of the Company, (E) declared that this Agreement is advisable, and (F) consented to the Merger and the other Transactions.

Section 1.09.

Additional Actions .

If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances in law or any other acts are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of the Company or Acquisition Corp., the Company and its officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments and assurances in law and to take all acts necessary, proper or desirable to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation, and the officers of the Surviving Corporation are authorized in the name of the Company to take any and all such action.

ARTICLE II.

EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND ACQUISITION CORP.

Section 2.01.

Effect on Shares of Capital Stock .

(a) Common Shares of the Company . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Common Shares, the Company or Acquisition Corp., each Common Share that is issued and outstanding immediately prior to the Effective Time but after giving effect to the transactions contemplated by the Contribution Agreement (other than those Common Shares to be canceled pursuant to Section 2.01(b) ) shall be canceled and extinguished and converted into the right to receive $12.50 per share in cash (the “ Merger Consideration ”) payable to the holder thereof, without interest or dividends thereon, less any applicable withholding of taxes, in the manner provided in Section 2.03 . All such Common Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and each holder of a certificate or certificates representing any such Common Shares shall cease to have any rights with respect thereto, except the right to receive the consideration specified in the preceding sentence.

(b) Cancellation of Certain Common Shares . As of the Effective Time (after giving effect to the transactions contemplated by the Contribution Agreement), by virtue of the Merger and without any action on the part of the holder of any Common Shares, the Company or Acquisition Corp., each Common Share that is owned by the Company or any wholly owned Subsidiary as treasury stock or otherwise or owned by Acquisition Corp. or Parent or any of their respective Subsidiaries immediately prior to the Effective Time (but after giving effect to the transactions contemplated by the Contribution Agreement) shall automatically be canceled and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor.

(c) Capital Stock of Acquisition Corp. As of the Effective Time, each share of common stock, par value $.001 per share, of Acquisition Corp. (“ Acquisition Corp. Common Stock ”) issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holders of Acquisition Corp. Common Stock, the Company or Acquisition Corp., be converted into one (1) validly issued, fully paid and non-assessable share of common stock, par value $.001 per share, of the Surviving Corporation (“ Surviving Corporation Common Stock ”). Each certificate that, immediately prior to the Effective Time, represented issued and outstanding shares of Acquisition Corp. Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the shares of the Surviving Corporation Common Stock into which such shares have been converted pursuant to the terms hereof; provided , however , that the record holder thereof shall receive, upon surrender of any such certificate, a certificate representing the shares of Surviving Corporation Common Stock into which the shares of Acquisition Corp. Common Stock formerly represented thereby shall have been converted pursuant to the terms hereof.

Section 2.02.

Options; Stock Plans .

(a) For purposes of this Agreement, the term “ Option ” means each outstanding unexercised option to purchase Common Shares, whether or not then vested or fully exercisable, granted on or prior to the date hereof to any current or former employee or director of the Company or any Subsidiary of the Company or any other person, whether under any stock option plan or otherwise (including, without limitation, under the Company’s 1992 Stock Option Plan (the “ 1992 Plan ”) and the Company’s 1999 Stock Option Plan (together with the 1992 Plan, collectively, the “ Stock Plans ”)).

(b) At the Effective Time, all Options issued under the Stock Plans shall be converted into the right to receive Option Consideration (as defined below) and the Company shall take all actions necessary so that (A) immediately prior to the Effective Time, each outstanding Option granted under the Stock Plans, including each outstanding Option held by those holders of record listed on the Options Schedule attached hereto, shall become immediately vested and exercisable in full and (B) at the Effective Time, all Options shall be canceled, in each case, in accordance with and pursuant to the terms of the Stock Plans under which such Options were granted. In consideration of such cancellation, each holder of an Option canceled in accordance with this Section 2.02(b) will be entitled to receive in settlement of such Option as promptly as practicable following the Effective Time, but in no event later than five (5) Business Days after the Effective Time, a cash payment from the Payment Fund (as defined in Section 2.03 ), subject to any required withholding of taxes, equal to the product of (i) the total number of Common Shares otherwise issuable upon exercise of such Option and (ii) the amount, if any, by which the Merger Consideration per Common Share exceeds the applicable exercise price per Common Share otherwise issuable upon exercise of such Option (the “ Option Consideration ”); provided , however , that with respect to any person subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), any such amount shall be paid as soon as practicable after the first date payment can be made without liability to such person under Section 16(b) of the Exchange Act.

(c) The Company shall use commercially reasonable efforts to obtain from each holder of an Option issued pursuant to the Stock Plans a written acknowledgment of such holder that effective as of the Effective Time, (i) the payment of the Option Consideration, if any, will satisfy in full the Company’s obligation to such person pursuant to such Option and (ii) subject to the payment of the Option Consideration, if any, all Options held by such holder shall, without any action on the part of the Company or the holder, be deemed terminated, canceled, void and of no further force and effect as between the Company and the holder and neither party shall have any further rights or obligations with respect thereto. Such written acknowledgment shall be substantially in the form attached hereto as Exhibit F .

(d) Prior to the Effective Time, the Company shall take all actions (including, if appropriate, amending the terms of the relevant Stock Plans or amending or waiving relevant agreements providing for vesting conditions on Common Shares or Options therefor) that are necessary to give effect to the transactions contemplated by this Section 2.02 .

(e) Except as otherwise provided herein or agreed to in writing by Parent and the Company or as may be necessary to administer Options remaining outstanding following the Effective Time, the Stock Plans shall terminate effective as of the Effective Time and no participant in the Stock Plans shall thereafter be granted any rights thereunder to acquire any equity securities of the Company, the Surviving Corporation, Parent or any Subsidiary of any of the foregoing.

(f) The Company covenants that prior to the Effective Time it will take all actions necessary under that certain United States Securities and Exchange Commission (“ SEC ”) no-action letter, dated January 12, 1999, to Skadden, Arps, Slate, Meagher & Flom LLP, to provide that the cancellation, cash-out and conversion of Options, pursuant to this Section 2.02 , will qualify for exemption under Rule 16b-3(d) or (e), as applicable, under the Exchange Act.

Section 2.03.

Payment for Common Shares and Options in the Merger .

(a) Prior to the Effective Time, Acquisition Corp. shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange and paying agent, registrar and transfer agent (the “ Agent ”) for the purpose of (i) exchanging certificates representing, immediately prior to the Effective Time, Common Shares for the aggregate Merger Consideration and (ii) making payment of the aggregate Option Consideration in exchange for the cancellation of all then-outstanding Options. Subject to the Company’s obligations to deposit cash in the Payment Fund described in this Section 2.03(a) , at or prior to the Effective Time, Acquisition Corp. shall deposit, or Acquisition Corp. shall otherwise take all steps necessary to cause to be deposited, in trust with the Agent for the benefit of the holders of Common Shares and Options, as the case may be, cash in an aggregate amount equal to the sum of (i) the product of (A) the number of Common Shares issued and outstanding immediately prior to the Effective Time and entitled to receive the Merger Consideration in accordance with Section 2.01(a) and (B) the Merger Consideration and (ii) the amount necessary for the payment in full of the Option Consideration (such aggregate amount described in (i) and (ii) being hereinafter referred to as the “ Payment Fund ”). The Agent shall, pursuant to instructions provided by Acquisition Corp., make the payments provided for in Section 2.01 and Section 2.02 of this Agreement out of the Payment Fund (it being understood that any and all interest earned on funds made available to the Agent pursuant to this Agreement shall be turned over to the party depositing such funds with the Agent). The Payment Fund shall not be used for any purpose except as provided in this Agreement.

(b) Promptly after the Effective Time, but in no event later than five (5) Business Days after the Effective Time, the Surviving Corporation shall cause the Agent to (x) mail to each record holder of certificates (the “ Certificates ”) that immediately prior to the Effective Time represented Common Shares (i) a notice of the effectiveness of the Merger, (ii) a form letter of transmittal 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 Agent, and (iii) instructions for use in surrendering such Certificates and receiving the Merger Consideration in respect thereof; and (y) pay to each holder of an Option granted under the Stock Plans and outstanding immediately prior to the Effective Time the Option Consideration with respect to such Option;

(c) Upon surrender to the Agent of a Certificate, together with such letter of transmittal duly executed and completed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive, within five (5) Business Days after such surrender, in exchange therefor, in the case of Common Shares (other than Common Shares to be canceled pursuant to Section 2.01(b) ), cash in an amount equal to the product of (i) the number of Common Shares formerly represented by such Certificate and (ii) the Merger Consideration, which amounts shall be paid by Agent by check or wire transfer in accordance with the instructions provided by such holder. No interest or dividends will be paid or accrued on the consideration payable upon the surrender of any Certificate. If the consideration provided for herein is to be delivered in the name of a person other than the person in whose name the Certificate surrendered is registered, it shall be a condition of such delivery that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such delivery shall pay any transfer or other taxes required by reason of such delivery to a person other than the registered holder of the Certificate, or that such person shall establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 2.03 , each Certificate (other than Common Shares to be canceled pursuant to Section 2.01(b) ) shall represent, for all purposes, in the case of Certificates representing Common Shares (other than Common Shares to be canceled pursuant to Section 2.01(b) ), only the right to receive an amount in cash equal to the Merger Consideration multiplied by the number of Common Shares formerly evidenced by such Certificate without any interest or dividends thereon.

(d) The consideration issued upon the surrender of Certificates in accordance with this Agreement shall be deemed to have been issued in full satisfaction of all rights pertaining to such Common Shares formerly represented thereby, and such Certificates shall represent solely the right to receive Merger Consideration. After the Effective Time, there shall be no transfers on the stock transfer books of the Surviving Corporation of any Common Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged as provided in this Article 2 .

(e) Any portion of the Payment Fund (including any amounts that may be payable to the former shareholders of the Company in accordance with the terms of this Agreement) which remains unclaimed by the former shareholders of the Company upon the 180th day immediately following the Closing Date shall be returned to the Surviving Corporation, upon demand, and any former shareholders of the Company who have not theretofore complied with this Article 2 shall, subject to Section 2.03(f) , thereafter look to the Surviving Corporation only as general unsecured creditors thereof for payment of any Merger Consideration, without any interest or dividends thereon, that may be payable in respect of each Common Share held by such shareholder. Following the Closing, the Agent shall retain the right to invest and reinvest the Payment Fund on behalf of the Surviving Corporation in securities listed or guaranteed by the United States government or certificates of deposit of commercial banks that have, or are members of a group of commercial banks that has, consolidated total assets of not less than $500,000,000 and the Surviving Corporation shall receive the interest earned thereon.

(f) None of Acquisition Corp., the Company nor Agent shall be liable to a holder of Certificates or any other person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered upon the second anniversary of the Closing Date (or immediately prior to such earlier date on which any Merger Consideration, dividends (whether in cash, stock or property) or other distributions with respect to Common Shares in respect of such Certificate would otherwise escheat to or become the property of any Governmental Authority (as defined in Section 3.06(b) )), any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any person previously entitled thereto.

(g) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit (in form and substance acceptable to the Surviving Corporation) of that fact by the person (who shall be the record owner of such Certificate) claiming such Certificate to be lost, stolen or destroyed, the agreement to indemnify the Surviving Corporation against any claim that may be made against it with respect to such Certificate and, if required by the Surviving Corporation, the posting by such person of a bond in such amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement.

(h) Each of the Agent, the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of Common Shares or Options pursuant to this Agreement such amounts as may be required to be deducted or withheld with respect to the making of such payment or any other payment in connection with the transactions contemplated by this Agreement under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any applicable provision of state, local or foreign tax law. To the extent that amounts are so deducted or withheld and paid over to the appropriate taxing authority by Agent, the Surviving Corporation or Parent, such amounts shall be treated for all purposes of this Agreement as having been paid to the person to whom such amounts would otherwise have been paid.

Section 2.04.

Adjustment of the Merger Consideration and the Option Consideration .

The Merger Consideration and the Option Consideration, each payable pursuant to this Article 2 , have been calculated based upon the representations and warranties made by the Company in Section 3.03 . In the event that, at the Effective Time, the sum of the actual number of Common Shares outstanding and the actual number of Common Shares issuable upon the exercise of Options or similar agreements or upon conversion of securities (including without limitation, as a result of any stock split, reclassification, stock dividend (including any dividend or distribution of securities convertible into Common Shares) or recapitalization) is more than as described in Section 3.03 or if the weighted average exercise price of the Options is lower than described in Section 3.03 hereof (except for reductions in the weighted average exercise price resulting from the termination or exercise of outstanding Options), the Merger Consideration and the Option Consideration shall be equitably adjusted downward.

Section 2.05.

Dissenting Shares .

(a) Notwithstanding any other provision of this Agreement to the contrary, Common Shares that are issued and outstanding immediately prior to the Effective Time and are held by shareholders who have not voted such Common Shares in favor of the approval and adoption of this Agreement and who shall have properly demanded appraisal of such Common Shares in accordance with the DGCL (the “Dissenting Shares ”) shall not be converted into the right to receive the Merger Consideration at or after the Effective Time, unless and until the holder of such Dissenting Shares shall have failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment under the DGCL. If a holder of Dissenting Shares shall have so failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment, then, as of the Effective Time or the occurrence of such event, whichever last occurs, such holder’s Dissenting Shares shall be converted into and represent solely the right to receive the Merger Consideration, without any interest thereon, as provided in Section 2.01 hereof.

(b) The Company shall give the Parent (i) prompt written notice of any demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to Section 262 (or any successor or replacement) of the DGCL which are received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company will not voluntarily make a payment with respect to any demands for appraisal and will not, except with the prior written consent of the Parent, settle or offer to settle any such demands.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each of Acquisition Corp. and Parent as of the date hereof and the Effective Time that:

Section 3.01.

Organization and Qualification .

The Company and each of its Subsidiaries (as described in Section 3.05 ) is a corporation duly organized, validly existing and in good standing (to the extent applicable) under the laws of its state or jurisdiction of organization and has the requisite power and authority to carry on its business as now being conducted, except where the failure to be in good standing (to the extent applicable) would not, individually or in the aggregate, have a Company Material Adverse Effect (as defined below). Except as set forth in Section 3.01 of the disclosure schedule delivered by the Company to Acquisition Corp. and Parent prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), the Company and each of its Subsidiaries is duly qualified or licensed as a foreign corporation to do business, and is in good standing (to the extent applicable), in each jurisdiction where the nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing (to the extent applicable) would not, individually or in the aggregate, have a Company Material Adverse Effect. As used in this Agreement, the term “ Company Material Adverse Effect ” means any effect, event, or change that (i) is, or is reasonably likely to be, materially adverse to the condition (financial or otherwise), business, assets, liabilities or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) prevents the Company and its Subsidiaries from performing in all material respects their obligations under this Agreement or to consummate the transactions contemplated hereby (the “ Transactions ”) prior to the Termination Date in accordance with the terms hereof.

Section 3.02.

Charter Documents and Bylaws .

The certificate of incorporation incorporated by reference as Exhibits 3.1 and 3.2 of the SEC Report for the period ending July 31, 2006 is a complete and correct copy of the Certificate of Incorporation, and the amended bylaws incorporated by reference as Exhibit 3.3 of the SEC Report for the period ending July 31, 2006 is a complete and correct copy of the bylaws of the Company, each in full force and effect as of the date hereof. The Company is not in violation of any of the provisions of its certificate of incorporation or bylaws. The Company has heretofore made available to Acquisition Corp. a complete and correct copy of the certificate of incorporation and the bylaws of each Subsidiary of the Company in full force and effect as of the date hereof. Except as set forth in Section 3.02 of the Company Disclosure Schedule, no Subsidiary of the Company is in violation of any of the provisions of its certificate of incorporation or bylaws.

Section 3.03.

Capitalization .

(a) The authorized capital stock of the Company consists of 20,000,000 Common Shares. Except for Common Shares issued after the date of this Agreement upon exercise of Options outstanding as of the date of this Agreement, (i) 5,662,322 shares of Common Shares are issued and outstanding and (ii) 1,462,046 Common Shares are held by the Company in its treasury. The Company has 361,116 Common Shares reserved for issuance pursuant to the Stock Plans, of which 278,533 Common Shares are subject to outstanding Options, and the weighted average exercise price for such Options is $9.52 (except for any changes caused by the exercise of Options after the date of this Agreement which were outstanding on the date hereof). Except as set forth in this Section 3.03 , there are not now, and at the Effective Time there will not be, any options, warrants, calls, subscriptions, or other rights, or other agreements or commitments of any character relating to the issued or unissued capital stock of the Company to which the Company is a party or by which it or its assets are bound, or obligating the Company to issue, transfer or sell any shares of capital stock of, or other equity interests in, the Company or any Subsidiary of the Company. Section 3.03(a) of the Company Disclosure Schedule sets forth the name of each holder of an Option, together with the grant date, exercise price, number of Common Shares issuable upon exercise of each such Option, vesting schedule of each such Option, the number of vested and unvested Options of each Option holder and the specific Stock Plan pursuant to which such Option was issued. All issued and outstanding Common Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All of the outstanding shares of capital stock of each Subsidiary of the Company have been duly authorized and validly issued and are fully paid and non-assessable, are owned by either the Company or another of its wholly-owned Subsidiaries, free and clear of all Liens (as defined in Section 3.06(a) ) other than Permitted Liens (as defined in Section 3.24(d) ). There are no outstanding options, warrants, calls, subscriptions, convertible securities or other rights, or other agreements or commitments, obligating any Subsidiary of the Company to issue, transfer or sell any shares of its capital stock or other equity interests. There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity interests in, the Company or any Subsidiary of the Company.

(b) To the knowledge of the Company, except for the Voting Agreement, there are no shareholders agreements, voting trusts or other agreements or understandings relating to voting or disposition of any shares of capital stock of the Company or granting to any person or group of persons the right to elect, or to designate or nominate for election, a director to the Company Board. The Company is not party to any agreement granting registration rights to any Person.

Section 3.04.

Authority Relative to this Agreement .

The Company has the requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, subject to the approval of this Agreement and the Merger by the holders of a majority of the outstanding Common Shares entitled to vote thereon with respect to the Merger, and to consummate the Transactions. The execution and delivery of this Agreement and the consummation of the Merger and the other Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize the Company’s execution and delivery of this Agreement or to consummate the Transactions (other than, with respect to this Agreement and the Merger, the approval of this Agreement and the Merger by the holders of a majority of the outstanding Common Shares entitled to vote thereon and, with respect to the Merger, the filing or recordation of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company, and (assuming this Agreement constitutes a valid and binding obligation of Acquisition Corp. and Parent) constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and to general principles of equity. Upon consummation of the Transactions, Parent will own all of the outstanding capital stock of the Company, including all of the outstanding Common Shares, and all Options shall have been cancelled and be of no further force or effect.

Section 3.05.

Company Subsidiaries .

Section 3.05 of the Company Disclosure Schedule contains a correct and complete list of each Subsidiary of the Company and the jurisdiction in which each such Subsidiary is incorporated. Section 3.05 of the Company Disclosure Schedule sets forth for each Subsidiary of the Company: (i) its authorized capital stock; (ii) the number of issued and outstanding shares of capital stock; and (iii) the Company’s direct or indirect equity interest therein. Except for (A) investments in marketable securities set forth in Section 3.05 of the Company Disclosure Schedule and (B) equity interests in the Company’s Subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any Person. No Subsidiary of the Company owns, directly or indirectly, any capital stock or other ownership interest in any Person, except for the capital stock and/or other ownership interest in another wholly-owned Subsidiary of the Company. Each Subsidiary is directly or indirectly wholly owned by the Company.

Section 3.06.

No Violation; Required Filings and Consents .

(a) The execution and delivery by the Company of this Agreement does not, and the performance of this Agreement by the Company and the consummation of the Transactions will not, (i) conflict with, violate or result in a breach of any provision of the Company’s certificate of incorporation or bylaws or conflict with or violate any provision of the articles of incorporation or bylaws or equivalent organization documents of any Subsidiary of the Company, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 3.06(b) have been obtained and all filings and obligations described in Section 3.06(b) have been made or complied with, conflict with or violate any foreign or domestic (federal, state or local) law, statute, ordinance, rule, regulation, permit, license, injunction, writ, judgment, decree or order (each, a “ Law ” and, collectively, “ Laws ”) applicable to the Company or any of its Subsidiaries or by which any asset of the Company or any of its Subsidiaries is bound or affected, (iii) except as set forth in Section 3.06(a) of the Company Disclosure Schedule, materially conflict with, result in any material breach of or constitute a material default (or an event that with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, require any notice, or require any payment under, or give rise to a loss of any benefit to which the Company or any Subsidiary of the Company is entitled under any provision of any Material Contract or (iv) result in the creation or imposition of a material lien, claim, security interest or other charge, title imperfection or encumbrance (each, a “ Lien ” and, collectively, “ Liens ”) on any asset of the Company or any Subsidiary of the Company.

(b) Except as set forth in Section 3.06(b) of the Company Disclosure Schedule, the execution and delivery by the Company of this Agreement does not, and the performance of this Agreement and the consummation by the Company of the Transactions will not, require any consent, approval, authorization or permit of, or filing with or notification to, any domestic (federal, state or local) or foreign government or governmental, regulatory or administrative authority, agency, commission, board, bureau, court or instrumentality or arbitrator of any kind (“ Governmental Authority ”), except for applicable requirements, if any, of the Exchange Act, the Securities Act of 1933, as amended (the “ Securities Act ”), the Nasdaq National Market, Inc. (“ Nasdaq ”), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) and the rules and regulations thereunder, and filing and recordation of appropriate documents for the Merger as required by the DGCL.

Section 3.07.

SEC Reports and Financial Statements .

(a) The Company has filed all forms, reports, statements and schedules and made all other filings (the “ SEC Reports ”) with the SEC required to be filed by it pursuant to the federal securities laws and the SEC rules and regulations thereunder since August 1, 2000. The SEC Reports, as well as all forms, reports, statements, schedules and other documents to be filed by the Company with the SEC after date hereof and prior to the Effective Time (the “ Future SEC Reports ”) (i) were or, in the case of Future SEC Reports, will be prepared in all material respects in accordance with the requirements of the Securities Act, the Exchange Act and the published rules and regulations of the SEC thereunder, each as applicable to such SEC Reports and such later filed Future SEC Reports and (ii) did not and will not as of the time they were or, in the case of Future SEC Reports, will be 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 therein, in light of the circumstances under which they were and will be made, not misleading. No Subsidiary of the Company is subject to the periodic reporting requirements of the Exchange Act. As of the date hereof, there are no material unresolved comments issued by the staff of the SEC with respect to any of the SEC Reports.

(b) Each of the consolidated financial statements (including, in each case, any notes thereto) of the Company included in the SEC Reports or any Future SEC Report has been, and in the case of any Future SEC Report will be, prepared in all material respects in accordance with the published rules and regulations of the SEC (including Regulation S-X) and in accordance with United States generally accepted accounting principles applied on a consistent basis throughout the periods indicated (“ GAAP ”) (except as otherwise stated in such financial statements, including the related notes, or, in the case of unaudited interim financial statements, as may be permitted by the SEC under Forms 10-Q, 8-K or any successor forms under the Exchange Act), except as otherwise specifically set forth in Section 3.07(b) of the Company Disclosure Schedule, and each fairly presents, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise set forth in the notes thereto (subject, in the case of unaudited statements, to the absence of complete footnote disclosure and to normal and recurring quarterly and year-end adjustments, none of which, individually or in the aggregate, has been or could reasonably be expected to be material). Except as set forth in Section 3.07(b) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries have any outstanding Indebtedness (as hereinafter defined). For purposes of this Agreement, “ Indebtedness ” shall mean, with respect to any Person at a particular time and, in each case, except between or among the Company and any of its Subsidiaries, (i) any obligation for borrowed money or issued in substitution for, or exchange of indebtedness for, borrowed money, (ii) any obligation evidenced by any note, bond, debenture or other debt security, (iii) any obligation for the deferred purchase price of property or services with respect to which such Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current Liabilities (as defined in Section 3.07(d) ) incurred in the ordinary course of business consistent with past practice), (iv) any commitment by which such Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (v) any obligation guaranteed in any manner by such Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (vi) any obligations under capitalized or synthetic leases with respect to which such Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or with respect to which obligations such Person assures a creditor against loss, (vii) any obligation secured by a Lien on such Person’s assets, (viii) any Liability under any deferred compensation plans, severance plans, bonus plans, employment agreements, or any other plan, agreement or arrangement with any such Person, which Liability is payable or becomes due as a result of the transactions contemplated herein, and (ix) any fees, penalties, premiums or accrued and unpaid interest with respect to the foregoing (in the case of prepayments or otherwise). There are no obligations under any letters of credit in excess of the amounts set forth in Section 3.07(b) of the Company Disclosure Schedule.

(c) Set forth in Section 3.07(c) of the Company Disclosure Schedule are copies of the unaudited consolidating balance sheets as of January 31, 2007 of each Subsidiary of the Company with respect to which financial statements are regularly prepared and the unaudited statements of income of each Subsidiary of the Company with respect to which financial statements are regularly prepared for the two-month period ended March 31, 2007 (collectively, the “ Consolidating Financial Statements ”). Each of the Consolidating Financial Statements fairly presents, in all material respects, the consolidating financial position and results of operations of the applicable Subsidiary as at the respective dates thereof or for the respective periods then ended (subject to the absence of footnote disclosure and to normal and recurring quarterly and year-end adjustments consistent with prior practices).

(d) The management of the Company (i) maintains disclosure controls and procedures (as defined under the Exchange Act) that are designed to ensure that material information relating to the Company, including its consolidated Subsidiaries, is made known to the management of the Company by others within those entities, and (ii) has disclosed, based on its most recent evaluation, to the Company’s auditors and the audit committee of the Company Board (A) all significant deficiencies in the design or operation of internal control over financial reporting (as defined under the Exchange Act) which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s auditors any material weaknesses in internal control over financial reporting (as defined under the Exchange Act) and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting (as defined under the Exchange Act). Section 3.07(d) of the Company Disclosure Schedule contains a summary of such disclosures made by management to the Company’s auditors and audit committee, and any material communications made by management or the Company’s auditors to the audit committee required or contemplated by the listing standards of NASDAQ, the audit committee’s charter or the professional standards of the Public Company Accounting Oversight Board. No material complaints from any source regarding accounting, internal accounting controls or auditing matters, and no concerns from the employees of the Company or its Subsidiaries regarding questionable accounting or auditing matters, have been received by the Company or its Subsidiaries. The Company has made available to Parent a summary of all complaints or concerns made since August 1, 2002 through any whistleblower hot-line or equivalent system maintained by the Company for receipt of employee concerns regarding possible violations of Law. No attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported evidence of a violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof, or to any of the Company’s directors or officers.

(e) Except as disclosed in Section 3.07(e) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is subject to any liabilities or obligations of any kind or nature (whether accrued, absolute, contingent, determinable or otherwise) (whether as principal, agent, partner, co-venturer, guarantor or otherwise) (each a “ Liability ”, and collectively, “ Liabilities ”) in excess of $50,000 individually or $100,000 in the aggregate, except (i) Liabilities set forth on the face of the January 31, 2007 balance sheet included in the Company’s quarterly report on Form 10-Q for the fiscal quarter ended January 31, 2007 or the footnotes thereto, (ii) Liabilities that have arisen after January 31, 2007

in the ordinary course of business and consistent with past practice, or (iii) Liabilities under Contracts identified in Section 3.17(a) of the Company Disclosure Schedule or under Contracts not required to be identified on such Company Disclosure Schedule pursuant to Section 3.17 below which were entered into in the ordinary course of business consistent with past practice (but not Liabilities for any breach of any such Contract occurring on or prior to the Closing Date). Except as set forth in Section 3.07(e) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is a guarantor or otherwise liable for any Liability (including Indebtedness) of any Person other than the following bonds to the extent disclosed in Section 3.07(e) of the Company Disclosure Schedule: (y) indemnity bonds entered into the ordinary course of business (e.g., workers compensation), or (z) utility bonds and other than Permitted Liens. No such bonds require any collateral.

Section 3.08.

Compliance with Applicable Laws .

Except as set forth in Section 3.08 of the Company Disclosure Schedule, (i) neither the Company nor any of its Subsidiaries is in violation, in any material respect, of any Order (as defined in Section 6.01(b) ) of any Governmental Authority or any Law of any Governmental Authority applicable to the Company or any Subsidiary of the Company or any of their respective properties or assets (including, without limitation, the Sarbanes Oxley Act of 2002) and (ii) since August 1, 2002, the business operations of the Company and its Subsidiaries have been conducted, in all material respects, in compliance with all Laws of each Governmental Authority (including, without limitation, the applicable provisions of the Sarbanes Oxley Act of 2002).

Section 3.09.

Absence of Certain Changes or Events .

Except as set forth in Section 3.09 of the Company Disclosure Schedule or as contemplated by this Agreement, since August 1, 2006, the Company and its Subsidiaries have conducted their businesses only in the ordinary course of business and in a manner consistent with past practice and there has not been:

(a) any material change in any method of accounting or accounting practice by the Company or any of its Subsidiaries or any material write-up or write-down in the value of their respective inventory or accounts receivable or a reversal of any material accruals or deviations from past policies and practice with respect to product sales, markdowns, discounts or promotions;

(b) other than regular quarterly dividends and distributions from any Subsidiary of the Company to the Company or another wholly owned Subsidiary of the Company, any declaration, setting aside or payment of any dividend (whether in cash, stock or other property) or other distribution in respect of the Company’s securities or any redemption, purchase or other acquisition of any of the Company’s securities;

(c) any issuance or the authorization of any issuance of any securities in respect of, in lieu of or in substitution for shares of the Company’s or its Subsidiaries’ capital stock, except for (i) the granting of Options set forth in Section 3.03(a) of the Company Disclosure Schedule and (ii) the issuance of any Common Shares pursuant to the exercise of any Options;

(d) any amendment of any material term of any outstanding security of the Company or any of its Subsidiaries;

(e) any issuance by the Company or any of its Subsidiaries of any notes, bonds or other debt securities or any capital stock or other equity securities or any securities convertible, exchangeable or exercisable into any capital stock or other equity securities, except for (i) the granting of Options set forth in Section 3.03(a) of the Company Disclosure Schedule, (ii) the issuance of any Common Shares pursuant to the exercise of any Options and (iii) the issuance of a note under the Credit Agreement, dated as of April 28, 2006, by and among the Subsidiaries of the Company, as borrowers, the Company, as guarantor, and Bank of America, N.A., as amended (the “ Credit Agreement ”).

(f) any incurrence, assumption or guarantee by the Company or any of its Subsidiaries of any indebtedness for borrowed money other than the issuance of letters of credit in the ordinary course of business consistent with past practices of the Company and its Subsidiaries and the Credit Agreement;

(g) any creation or assumption by the Company or any of its Subsidiaries of any Lien on any material assets other than Permitted Liens;

(h) any making of any loans, advances or capital contributions to or investment in any entity or person, other than loans, advances or capital contributions to or investments in the Company or its wholly owned Subsidiaries;

(i) any entry into or termination of any Contract related to the acquisition or disposition of any business or any material assets other than inventory in the ordinary course of business;

(j) any termination of any Contract with any Significant Customer or any material amendment or modification of any Contract with any Significant Customer on terms less beneficial in all material respects to the Company or any of its Subsidiaries than, the terms of such Contract prior to the making of such amendment or modification;

(k) any effect, event or change that has had or is reasonably likely to have a Company Material Adverse Effect;

(l) any material increase in the benefits under, or the establishment, material amendment or termination of, any Benefit Plan (as defined in Section 3.13(b) ) covering current or former employees, officers or directors of the Company or any of its Subsidiaries, or any material increase in the compensation payable or to become payable to or any other material change in the employment terms for any directors or officers of the Company or any of its Subsidiaries except as provided either in an employment agreement in effect on the date hereof with such person or in accordance with increases or changes in accordance with the customary policy (consistent with past practices) of the Company or such Subsidiary;

(m) any entry by the Company or any of its Subsidiaries into any employment, severance, termination, change-of-control or indemnification agreement with any person outside the ordinary course of business, or any consulting agreement with any person for a noncontingent cash amount in excess of $50,000 per year or $250,000 for all such consulting agreements in the aggregate, or outside the ordinary course of business;

(n) any capital expenditures or commitments therefor that amount in the aggregate to more than $500,000;

(o) any material and uninsured damage, destruction or loss to the assets of the Company or its Subsidiaries;

(p) any failure to maintain in full force and effect substantially the same level and type of insurance coverage (it being understood that a change from a “claims made” policy to an “occurrence” policy is not a change in the type of coverage) as in effect on August 1, 2006 for destruction, damage to, or loss of any of the properties or assets of the Company or its Subsidiaries; and

(q) any authorization of, or agreement by the Company or any of its Subsidiaries to take, any of the actions described in this Section 3.09 , except as expressly contemplated by this Agreement.

Section 3.10.

Change of Control .

Section 3.10 of the Company Disclosure Schedule sets forth (i) all Contracts with the Company or any of its Subsidiaries, including but not limited to, severance plans, bonus plans, employment agreements, or any other plan, agreement or arrangement with any Person, pursuant to which a Liability is due or would become payable, in whole or in part, directly as a result of the consummation of any of the Transactions and (ii) the amount of any compensation, remuneration or other amounts which are or may be due or payable by the Company or any of its Subsidiaries as a result of the Transactions under such Contracts (including any such Liabilities which are or may be due or payable by the Company or any of its Subsidiaries assuming that each employee of the Company that is a party to a Contract is terminated without cause immediately following the consummation of the Merger).

Section 3.11.

Litigation .

Section 3.11 of the Company Disclosure Schedule sets forth each material suit, claim, action, grievance, arbitration, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, at law, in equity or before any Governmental Authority other than workers’ compensation claims or general liability claims which individually do not exceed $50,000 and in the aggregate do not exceed $100,000. Other than as set forth on Section 3.11 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree. None of the matters listed or required to be listed on Section 3.11 of the Company Disclosure Schedule has had or could reasonably be expected to have a Company Material Adverse Effect, and all workers’ compensation claims and general liability claims taken in the aggregate have not had and would not reasonably be expected to have a Company Material Adverse Effect.

Section3 .12.

Information in Proxy Statement .

(a) Each document required to be filed by the Company with the SEC in connection with the Transactions (the “ Company Disclosure Documents ”), including, without limitation, the proxy or information statement of the Company containing information required by Regulation 14A under the Exchange Act (together with all amendments and supplements thereto, the “ Proxy Statement ”), to be filed with the SEC in connection with the Merger, will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act. The representations and warranties contained in this Section 3.12(a) will not apply to statements or omissions included in the Company Disclosure Documents based upon information furnished to the Company in writing by Parent, Acquisition Corp. or any of their representatives specifically for use therein.

(b) No document required to be filed by the Company with the SEC in connection with the Transactions shall, at the respective times that such filings by the Company or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to shareholders of the Company, as the case may be, 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 made therein, in light of the circumstances under which they are made, not misleading.

Section 3.13.

Benefit Plans .

(a) Except as disclosed in Section 3.13(a) of the Company Disclosure Schedule, there exist no employment, consulting, severance, retention, termination, parachute or change-of-control agreements, arrangements or understandings between the Company or any of its Subsidiaries and any current or former employee, independent contractor, officer or director (or any dependent, beneficiary or relative of any of the foregoing) of the Company or any of its Subsidiaries (collectively, the “ Employees ”) other than the Company’s obligations to former employees under the health care continuation requirements of Part 6 of Subtitle B of Title I of ERISA, Section 4980B of the Code or any similar state law (“ COBRA ”).

(b) Section 3.13(b) of the Company Disclosure Schedule contains a complete and correct list of all existing (i) “employee pension benefit plans” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (collectively, the “ Pension Plans ”), (ii) “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) and (iii) other bonus, deferred compensation, pension, profit-sharing, retirement, insurance, stock purchase, stock option, holiday vacation pay, sick pay, cafeteria, death benefit, survivor income, termination allowance, salary continuation, severance pay, retention, change in control, employee relocation, tuition reimbursement, psychiatric or other counseling, employee assistance, dependent care assistance, legal assistance, Coverdell education savings account, Archer medical savings account, health savings account, or other fringe benefit or compensation plan, policy, practice, program or arrangement sponsored, maintained, or contributed to by the Company or any of its Subsidiaries, or with respect to which the Company has any liability (all of the foregoing collectively, the “ Benefit Plans”). The Company has made available to Acquisition Corp. correct and complete copies of (i) each Benefit Plan document (or a written description of such Benefit Plan if no such formal document exists), (ii) the three most recent annual reports on Form 5500 as filed with the Internal Revenue Service with respect to each Benefit Plan (and all attachments thereto), (iii) the most recent summary plan description for each Benefit Plan for which such summary plan description is required, (iv) the most recent determination letter, opinion letter, advisory letter or notification letter from the Internal Revenue Service, if applicable, which covers each Benefit Plan, and (v) each trust agreement, insurance contract, service agreement, group annuity contract or funding arrangement relating to any Benefit Plan, if applicable.

(c) Except as disclosed in Section 3.13(c) of the Company Disclosure Schedule, all Pension Plans intended to be qualified plans under Section 401(a) of the Code may either rely on an opinion letter, advisory letter or notification letter issued by the IRS for the form of plan or have been the subject of favorable determination letters from the Internal Revenue Service to the effect that such Pension Plans are qualified and exempt from Federal income taxes under Section 401(a) and 501(a), respectively, of the Code (taking into account the laws commonly referred to as “GUST”), no such determination or opinion, advisory or notification letter has been revoked and, to the knowledge of the Company, nothing has occurred since the date of such determination or issuance of such letter that could reasonably be expected to adversely affect the qualification of such Benefit Plan.

(d) None of the Benefit Plans is, and neither the Company, any of its Subsidiaries nor any ERISA Affiliate has within the last six (6) years maintained, contributed to or had any liability or potential liability with respect to (i) a “single employer plan” (as such term is defined in Section 4001(a)(15) of ERISA) subject to Section 412 of the Code or Section 302 of ERISA or Title IV of ERISA, (ii) a “multiemployer plan”, as defined in Section 3(37) of ERISA, (iii) a “multiple employer plan”, as described in Section 413(c) of the Code, (iv) a “multiple employer welfare arrangement”, as defined in Section 3(40) of ERISA), or (v) a funded welfare benefit plan (as such term is defined in Section 419 of the Code). For purposes of this Agreement, an “ERISA Affiliate” is any entity (other than the Company or any Subsidiary) which has within the last six (6) years been considered a single employer with the Company or any Subsidiary of the Company under Section 4001(b) of ERISA or Section 414(b), (c), (m) or (o) of the Code. Each Benefit Plan and all of its related trusts, insurance contracts and funds have been maintained, funded and administered in all material respects in accordance with its terms, the terms of any applicable collective bargaining agreement and, except as disclosed in Section 3.13(d) of the Company Disclosure Schedule, each Benefit Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other applicable laws. Neither the Company nor any of its Subsidiaries has (i) any unpaid material fine, penalty or tax with respect to any Benefit Plan or any other “employee benefit plan” (as defined in Section 3(3) of ERISA), (ii) any unpaid material liability with respect to any terminated “employee benefit plan” (as so defined) or (iii) any other material tax or penalty under Sections 4971 through 4980G of the Code, and, to the knowledge of the Company, it is not likely that any such liability, fine, penalty or tax will arise. No individual has been required to include any amount in gross income under Section 409A of the Code (x) because any Benefit Plan has failed to meet, or has not been operated in compliance with, a requirement of Section 409A(a), or (y) by reason of the application of Section 409A(b) to any plan, trust or arrangement of the Company or any of its Subsidiaries. With respect to each Benefit Plan, all contributions (including all employer contributions and employee salary reduction contributions) that are due have been made within the time periods prescribed by ERISA and the Code, and all contributions for any period ending on or before the Closing Date that are not yet due have been made or properly accrued. All premiums or other payments for all periods ending on or prior to the Closing Date have been paid or properly accrued with respect to each Benefit Plan that is an employee welfare benefit plan (as defined in Section 3(1) of ERISA). Except as set forth in Section 3.13(d) of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has any material unfunded liabilities with respect to any Benefit Plan, or any other promise of deferred compensation, or post-retirement welfare benefit that is not accurately reflected on the Company’s balance sheet.

(e) None of the Company, any of its Subsidiaries nor any of their respective officers or directors and, to the knowledge of the Company, none of their respective employees or service providers has engaged in a “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code), or has committed any breach of fiduciary responsibility, with respect to any Benefit Plan subject to ERISA, that reasonably could be expected to subject the Company, any of its Subsidiaries or any of their respective employees, officers, directors or service providers to (i) any material tax or penalty on prohibited transactions imposed by Section 4975 of the Code, (ii) any liability under Section 502(i) or Section 502(l) of ERISA or (iii) any material liability (including liability to indemnify any person). Except as disclosed in Section 3.13(e) of the Company Disclosure Schedule, as of the date of this Agreement, with respect to any Benefit Plan: (i) no filing or application is pending with the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the United States Department of Labor or any other governmental body and (ii) there is no action, suit, investigation, inquiry or claim pending or, to the knowledge of the Company or any of its Subsidiaries, threatened, other than routine claims for benefits under any Benefit Plan.

(f) None of the Company, any of its Subsidiaries nor any ERISA Affiliate has any obligation to provide, and no Benefit Plan provides, any health benefits or other welfare benefits to retired or other former employees of the Company or any of its Subsidiaries, except as specifically required by COBRA. Except as disclosed in Section 3.13(f) of the Company Disclosure Schedule, each Benefit Plan that provides medical, disability or other similar health or welfare benefits is fully insured. Incurred but not reported claims under each such Benefit Plan that is not fully insured have been properly accrued in accordance with GAAP. The Company and each ERISA Affiliate have complied in all material respects with the requirements of COBRA. With respect to any Benefit Plan that is a “health plan” (as defined in 45 C.F.R. Section 160.103), all required actions to comply in all material respects with the final privacy regulations issued under the Health Insurance Portability and Accountability Act of 1996 (45 C.F.R. Parts 160 and 164) (“ HIPAA privacy regulations ”) were taken by April 14, 2003.

(g) Except as set forth in Section 3.13(g) of the Company Disclosure Schedule, (i) neither the Benefit Plans nor any other arrangement obligates the Company or any of its Subsidiaries to pay any separation, severance, termination or similar benefit, accelerate any vesting schedule, increase the amount of any benefit, provide additional credit for service, or alter the timing of any benefit payment, in whole or in part, as a result of any transaction contemplated by this Agreement and (ii) no payment made, to be made or contemplated under any Benefit Plan, or by the Company or any of its Subsidiaries, constituted, or would constitute an “excess parachute payment” within the meaning of Section 280G of the Code.

(h) Neither the Company nor any Subsidiary of the Company has incurred or could reasonably be expected to incur any liability, fine, penalty or tax (potential or otherwise) with respect to any “employee benefit plan” (as defined in Section 3(3) of ERISA) solely by reason of being treated as a single employer under Section 414 of the Code with any other entity.

(i) Except as set forth in Section 3.13(i) of the Company Disclosure Schedule: (i) except for the adoption of a plan amendment which is needed to bring the plan documents into conformity with statutory changes enacted in recent years, neither the Company, any of its Subsidiaries or any ERISA Affiliate is under any obligation (express or implied) to increase benefits under any Benefit Plan, or to establish any new “employee benefit plan” (as defined in Section 3(3) of ERISA) which will cover any employee, director, officer, independent contractor or retiree of the Company or any of its Subsidiary and (ii) the Company, a Subsidiary of the Company or an ERISA Affiliate has expressly reserved to itself the right to amend, modify or terminate each Benefit Plan at any time without liability or penalty to itself (other than routine expenses, and other than as to benefits accrued under a retirement plan which qualifies under Section 401(a) of the Code or under the National Home Health Care Corp. Deferred Compensation Plan, and as to any welfare benefits for which the contingency for payment has already occurred, prior to the date of such amendment, modification or termination). No Benefit Plan requires the Company or any Subsidiary to continue to employ any employee, or to continue the services of any director, officer or independent contractor.

(j) Except for the Stock Plans and the Company’s 401(k) plan, no stock purchase or similar plan in which employees and other Persons are entitled to acquire shares of capital stock of the Company from the Company or any of its affiliates currently exists or is in effect.

Section 3.14.

Taxes .

(a) Except as set forth in Section 3.14(a) of the Company Disclosure Schedule: (i) the Company and each of its Subsidiaries have timely filed all income Tax Returns and all other material Tax Returns required to be filed by them, and each such Tax Return has been prepared in substantial compliance with all applicable laws and regulations and all such Tax Returns are true and correct; (ii) the Company and each of its Subsidiaries have paid (or the Company has paid on behalf of its Subsidiaries) all material Taxes (as hereinafter defined) required to be paid in respect of the periods covered by such returns and have made adequate provision in the Company’s financial statements for payment of all material Taxes that have not been paid, whether or not shown as due and payable on any Tax Return, in respect of all taxable periods or portions thereof ending on or before the date hereof, subject to quarterly and year-end adjustments; and (iii) neither the Company nor any of its Subsidiaries has incurred any material liability for Taxes subsequent to the date of the most recent financial statements contained in the SEC Reports other than in the ordinary course of the Company’s or such Subsidiary’s business.

(b) Except as set forth in Section 3.14(b) of the Company Disclosure Schedule: (i) no Tax Return of the Company or any of its Subsidiaries is under audit or examination by any taxing authority, and no written notice of such an audit or examination or any other audit or examination with respect to Taxes has been received by the Company or any of its Subsidiaries; (ii) each deficiency resulting from any audit or examination relating to Taxes

by any taxing authority has been paid, except for deficiencies currently being contested in good faith and for which adequate reserves, as applicable, have been established in the Company’s financial statements in accordance with GAAP; (iii) there are no Liens for Taxes upon the assets of the Company or any of its Subsidiaries, except Liens relating to current Taxes not yet due and payable or otherwise being contested in good faith as to which appropriate reserves have been established in the Company’s financial statements in accordance with GAAP; (iv) all Taxes which the Company or any of its Subsidiaries are required by law to withhold or to collect for payment have been duly withheld and collected; (v) none of the Company or any of its Subsidiaries has consented to extend the time in which any Tax may be assessed or collected by any taxing authority; and (vi) no written claim has been made by any taxing authority in a jurisdiction where the Company and its Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation in that jurisdiction.

(c) Except as set forth in Section 3.14(c) of the Company Disclosure Schedule, there is no Contract or other arrangement, plan or agreement by or with the Company or any of its Subsidiaries covering any person that, individually or collectively, could give rise to the payment of any amount by the Company or any of its Subsidiaries that would not be deductible by the Company or such Subsidiary by reason of Sections 280G or 162(m) of the Code (or any corresponding provision of state, local or foreign law).

(d) Each of the Company and its Subsidiaries have made available to Acquisition Corp. and Parent true, correct and complete copies of income Tax Returns for the years ended July 31, 2004, July 31, 2005 and July 31, 2006, and all examination reports and statements of deficiencies assessed against or agreed to by any of the Company or any of its Subsidiaries that have been filed by or submitted to any of the Company or any of its Subsidiaries for such taxable years.

(e) Except as set forth in Section 3.14(e) of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company), (ii) is a party to or bound by any Tax allocation or Tax sharing agreement with any Person other than the Company and its Subsidiaries, (iii) has any liability for the Taxes of any Person (other than any of the Company or any of its Subsidiaries) under Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise or (iv) has any liability for the Taxes of any Person other than the Company, the Subsidiaries of the Company or in connection with the acquisition, directly or indirectly, of any Person acquired by the Company or any of its Subsidiaries.

(f) Except as set forth in Section 3.14(f) of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date under Code Section 481(c) (or any corresponding or similar provision of state, local or foreign income Tax Law); (ii) “closing agreement” as described in Code § 7121 (or any corresponding or similar provision of state, local or foreign income Tax Law); (iii) deferred intercompany gain or any excess loss account described in Treasury Regulations under Code § 1502 (or any corresponding or similar provision of state, local or foreign income Tax Law); (iv) installment sale made prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.

(g) None of the Company or any of its Subsidiaries has been a U.S. real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section (897)(c)(1)(A)(ii) of the Code.

(h) Except as set forth in Section 3.14(h) of the Company Disclosure Schedule, none of the Company or any of its Subsidiaries has distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Sections 355 or 361.

(i) As used in this Section 3.14 , the terms (i) “ Tax ” (and, with correlative meaning, “ Taxes ”) means: (A) any federal, state, local or foreign income, gross receipts, windfall profit, severance, property, production, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value added, transfer, stamp, environmental or other tax, or any other tax of any kind whatsoever, whether disputed or not, together with any interest or penalty or addition to tax imposed by any Governmental Authority and (B) any liability of the Company or any of its Subsidiaries for payments of a type described in clause (A) as a result of (I) any obligation of the Company or any of its Subsidiaries under any tax sharing agreement or tax indemnity agreement or (II) the Company or any of its Subsidiaries being a member of an affiliated group (other than one of which the Company is the parent); and (ii) “ Tax Return ” means any report, return or other information or document required to be supplied to or filed with a taxing authority in connection with Taxes.

Section 3.15.

Intellectual Property .

(a) Section 3.15(a) of the Company Disclosure Schedule contains a complete and accurate list of all (a) patented or registered Intellectual Property (as defined in Section 3.15(b) below) owned or used by the Company or any of its Subsidiaries, (b) pending patent applications and applications for registrations of other Intellectual Property filed by the Company and each of its Subsidiaries, (c) material unregistered Intellectual Property owned or used by the Company or any of its Subsidiaries, and (d) except for shrink-wrap, click-wrap or other standard form licenses for commercially available software purchased or licensed for less than $10,000 per license, all written licenses and other agreements by which the Company or any of its Subsidiaries grants to any third party the right to use any Intellectual Property owned by the Company or its Subsidiaries, all licenses and other agreements by which any third party grants to the Company or any of its Subsidiaries the right to use any Intellectual Property and all other agreements that restrict the Company’s or any of its Subsidiaries’ ability to use or disclose any Intellectual Property owned or used by the Company or any of its Subsidiaries, in each case identifying the subject Intellectual Property.

(b) Except as set forth in Section 3.15(b) of the Company Disclosure Schedule, the Company and/or each of its Subsidiaries owns and possesses, free and clear of any Liens, or has a valid and enforceable license or otherwise has the right to use, all Intellectual Property set forth in Section 3.15(a) of the Company Disclosure Schedule. As used in this Agreement, the term “Intellectual Property ” means: (i) registered and unregistered trademarks, service marks, trade names, Internet domain names, and trade dress (including the good will associated with each); (ii) patents, patent applications, patent disclosures, inventions and related know how; (iii) registered copyrights and mask works; (iv) computer software, data and databases including, but not limited to, object code, source code, related documentation and all copyrights therein; (v) trade secrets and confidential information; and (vi) all other material intellectual property rights.

(c) Except as set forth in Section 3.15(c) of the Company Disclosure Schedule, no loss or expiration of any Intellectual Property owned or used by the Company or any of its Subsidiaries is pending, or to the knowledge of the Company, threatened or reasonably foreseeable, which loss or expiration would have or reasonably be expected to have a Company Material Adverse Effect.

(d) Except as set forth in Section 3.15(d) of the Company Disclosure Schedule, (i) all of the Intellectual Property owned by the Company or any of its Subsidiaries is subsisting and enforceable, (ii) no claim by any third party has been made since August 1, 2000, is currently outstanding or, to the knowledge of the Company, is threatened against the Company or any of its Subsidiaries contesting the validity, enforceability, use or ownership of any of the Intellectual Property owned or used by the Company or any of its Subsidiaries and, to the knowledge of the Company and its Subsidiaries, there is no basis for such claim, (iii) neither the Company nor any of its Subsidiaries has infringed, misappropriated or otherwise conflicted with, and the operation of their business as currently conducted will not infringe, misappropriate or conflict with, any Intellectual Property of any third party and, to the knowledge of the Company and its Subsidiaries, there are no facts which indicate a reasonable likelihood of any of the foregoing and neither the Company nor any of its Subsidiaries has received any notices asserting such a claim (including, without limitation, any demands to license any Intellectual Property from any third party), and (iv) to the knowledge of the Company and its Subsidiaries, none of the Intellectual Property owned or used by the Company or any of its Subsidiaries has been or is currently being infringed, misappropriated or otherwise violated by any third party.

(e) Except as set forth in Section 3.15(e) of the Company Disclosure Schedule, all of the computer software, computer firmware, computer hardware (whether general or special purpose) and other similar or related computer sys

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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of May 9, 2007 by and among

Agreement and Plan of Merger

AG HOME HEALTH ACQUISITION CORP | AG Home Health LLC | NATIONAL HOME HEALTH CARE CORP

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

dated as of May 9, 2007

by and among

NATIONAL HOME HEALTH CARE CORP.,

AG HOME HEALTH ACQUISITION CORP.

and

AG HOME HEALTH LLC

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