AGREEMENT AND PLAN OF MERGER

dated as of July 2, 2007,

between

MCHCR-CP MERGER SUB INC.

and

MANOR CARE, INC.

AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July 2, 2007, between MCHCR-CP MERGER SUB INC., a Delaware corporation ("MergerCo"), and MANOR CARE, INC., a Delaware corporation (the "Company").

WHEREAS, the Board of Directors of each of the Company and MergerCo has approved and declared advisable this Agreement and the merger of MergerCo with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of common stock, par value $0.01 per share, of the Company ("Company Common Stock"), other than (a) shares of Company Common Stock directly owned by the Company, as treasury stock, or by MergerCo or MergerCos sole stockholder and (b) the Appraisal Shares, will be converted into the right to receive the Merger Consideration (as defined below) in cash; and

WHEREAS, MergerCo and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and subject to the conditions set forth herein, the parties hereto agree as follows:

ARTICLE I

The Merger

SECTION 1.01 Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), MergerCo shall be merged with and into the Company at the Effective Time. Following the Effective Time, the separate corporate existence of MergerCo shall cease, and the Company shall continue as the surviving corporation in the Merger (the "Surviving Corporation").

SECTION 1.02 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m., New York time, on the later of (i) the second business day after satisfaction or (to the extent permitted by Law) waiver of the conditions set forth in Article VI (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or (to the extent permitted by Law) waiver of those conditions) and (ii) a date specified by MergerCo on not less than three business days notice to the Company, which date shall not be later than the last day of the Marketing Period, at the offices of Cravath, Swaine & Moore LLP, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, unless another time, date or place is agreed to in writing by MergerCo and the Company. The date on which the Closing occurs is referred to in this Agreement as the "Closing Date".

SECTION 1.03 Effective Time. Subject to the provisions of this Agreement, as promptly as practicable on the Closing Date, the parties shall file a certificate of merger (the "Certificate of Merger") in such form as is required by, and executed and acknowledged in accordance with, the relevant provisions of the DGCL and shall make all other filings and recordings required under the DGCL. The Merger shall become effective at such date and time as the Certificate of Merger is filed with the Secretary of State of the State of Delaware or at such subsequent date and time as MergerCo and the Company shall agree and specify in the Certificate of Merger. The date and time at which the Merger becomes effective is referred to in this Agreement as the "Effective Time".

SECTION 1.04 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL.

SECTION 1.05 Certificate of Incorporation and Bylaws.

(a) The Certificate of Incorporation of the Company, as amended (the "Company Certificate of Incorporation"), shall be amended at the Effective Time to be in the form of Exhibit A, with such changes thereto as may be agreed to in writing by the Company and MergerCo, and, as so amended, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

(b) The Amended and Restated Bylaws of the Company (the "Company Bylaws") shall be amended at the Effective Time to be in the form of Exhibit B, with such changes thereto as may be agreed to in writing by the Company and MergerCo, and, as so amended, shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

SECTION 1.06 Directors. The directors of MergerCo immediately prior to the Effective Time shall be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

SECTION 1.07 Officers. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

ARTICLE II

Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange Fund;
Company Equity Awards

SECTION 2.01 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any shares of capital stock of MergerCo:

(a) Capital Stock of MergerCo. Each share of capital stock of MergerCo issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

(b) Cancelation of Treasury Stock and MergerCo-Owned Stock. Each share of Company Common Stock that is directly owned by the Company, as treasury stock, or by MergerCo or MergerCos sole stockholder immediately prior to the Effective Time shall automatically be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(c) Conversion of Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (including shares of Company Restricted Stock, but excluding shares to be canceled in accordance with Section 2.01(b) and, except as provided in Section 2.01(d), the Appraisal Shares) shall be converted into the right to receive $67.00 in cash, without interest (the "Merger Consideration"). At the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares of Company Common Stock (each, a "Certificate") shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration and any dividends declared in compliance with Section 4.01(a)(i) with a record date prior to the Effective Time that remain unpaid at the Effective Time and that are due to such holder.

(d) Appraisal Rights. Notwithstanding anything in this Agreement to the contrary, shares (the "Appraisal Shares") of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with, the provisions of Section 262 of the DGCL ("Section 262") shall not be converted into the right to receive the Merger Consideration as provided in Section 2.01(c), but instead such holder shall be entitled to payment of the fair value of such shares in accordance with the provisions of Section 262. At the Effective Time, the Appraisal Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of Appraisal Shares shall cease to have any rights with respect thereto, except the right to receive the fair value of such shares in accordance with the provisions of Section 262. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 or a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262, then the right of such holder to be paid the fair value of such holders Appraisal Shares under Section 262 shall cease and such Appraisal Shares shall be deemed to have been converted at the Effective Time into, and shall have become, the right to receive the Merger Consideration as provided in Section 2.01(c). The Company shall give prompt notice to MergerCo of any demands for appraisal of any shares of Company Common Stock, withdrawals of such demands and any other instruments served pursuant to the DGCL received by the Company, and MergerCo shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of MergerCo (which consent shall not be unreasonably withheld or delayed), voluntarily make any payment with respect to, or settle or offer to settle, any such demands, or agree to do or commit to do any of the foregoing.

SECTION 2.02 Exchange Fund.

(a) Paying Agent. Prior to the Closing Date, MergerCo shall appoint a bank or trust company reasonably acceptable to the Company to act as paying agent (the "Paying Agent") for the payment of the Merger Consideration and the Equity Award Amounts in accordance with this Article II and, in connection therewith, shall enter into an agreement with the Paying Agent in the form reasonably acceptable to the Company. At or immediately subsequent to the Effective Time, MergerCo (or the Surviving Corporation) shall deposit with the Paying Agent, cash in an amount sufficient to pay the aggregate Merger Consideration and the aggregate Equity Award Amount, in each case as required to be paid pursuant to this Agreement (such cash being hereinafter referred to as the "Exchange Fund").

(b) Certificate Exchange Procedures. As promptly as practicable after the Effective Time, but in any event within two business days thereafter, the Surviving Corporation shall cause the Paying Agent to mail to each holder of record of a Certificate (i) a 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 Paying Agent and which shall otherwise be in customary form) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Each holder of record of a Certificate shall, upon surrender to the Paying Agent of such Certificate, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, be entitled to receive in exchange therefor the amount of cash which the number of shares of Company Common Stock previously represented by such Certificate shall have been converted into the right to receive pursuant to Section 2.01(c), and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, payment of the Merger Consideration may be made to a person other than the person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any fiduciary or surety bonds or any transfer or other similar taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of such Certificate or establish to the reasonable satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.02(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration which the holder thereof has the right to receive in respect of such Certificate pursuant to this Article II and any dividends declared in compliance with Section 4.01(a)(i) with a record date prior to the Effective Time that remain unpaid at the Effective Time and that are due to such holder. No interest shall be paid or will accrue on any cash payable to holders of Certificates pursuant to the provisions of this Article II.

(c) No Further Ownership Rights in Company Common Stock. All cash paid upon the surrender of Certificates in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock formerly represented by such Certificates, subject, however, to the Surviving Corporations obligation to pay all dividends that may have been declared by the Company and that remain unpaid at the Effective Time. At the close of business on the day on which the Effective Time occurs, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any Certificate is presented to the Surviving Corporation for transfer, it shall be canceled against delivery of cash to the holder thereof as provided in this Article II.

(d) Termination of the Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates for 12 months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of the Certificates who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation for, and the Surviving Corporation shall remain liable for, payment of their claims for the Merger Consideration pursuant to the provisions of this Article II.

(e) No Liability. None of MergerCo, the Company, the Surviving Corporation or the Paying Agent shall be liable to any person in respect of any cash from the Exchange Fund delivered to a public official in compliance with any applicable state, Federal or other abandoned property, escheat or similar Law. If any Certificate shall not have been surrendered prior to the date on which the related Merger Consideration would escheat to or become the property of any Governmental Entity, any such Merger Consideration shall, to the extent permitted by applicable Law, immediately prior to such time become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto.

(f) Investment of Exchange Fund. The Paying Agent shall invest the cash in the Exchange Fund as directed by MergerCo, or, if after the Effective Time, the Surviving Corporation; provided, however, that such investments shall be in obligations of or guaranteed by the United States of America or any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moodys Investors Service, Inc. or Standard & Poors Corporation, respectively, in certificates of deposit, bank repurchase agreements or bankers acceptances of commercial banks with capital exceeding $1.0 billion (based on the most recent financial statements of such bank that are then publicly available) or in money market funds that are eligible under Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. Any interest and other income resulting from such investments shall be paid solely to MergerCo or, if after the Effective Time, the Surviving Corporation. Nothing contained herein and no investment losses resulting from investment of the Exchange Fund shall diminish the rights of any holder of Certificates to receive the Merger Consideration or any holder of a Company Stock Option, Company Performance Share Award or Non-Deferred Company RSU to receive the Option Amount, Performance Share Amount or Non-Deferred RSU Amount, as applicable, in each case as provided herein.

(g) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond or surety in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall deliver in exchange for such lost, stolen or destroyed Certificate the applicable Merger Consideration with respect thereto.

(h) Withholding Rights. The Surviving Corporation or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock or any holder of Company Stock Options, Company Restricted Stock, Company SARs, Company Performance Share Award, Deferred Company RSUs, Non-Deferred Company RSUs or Stock Equivalent Amount such amounts as the Surviving Corporation or the Paying Agent are required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax Law. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock or the holder of the Company Stock Options, Company Restricted Stock, Company SARs, Company Performance Share Award, Deferred Company RSUs or Non-Deferred Company RSUs, as the case may be, in respect of which such deduction and withholding was made by the Surviving Corporation or the Paying Agent.

SECTION 2.03 Company Equity Awards.

(a) As soon as reasonably practicable following the date of this Agreement, and in any event prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee administering any Company Stock Plan) shall adopt such resolutions and take such other actions as may be required to provide that, at the Effective Time, except as otherwise agreed by MergerCo and the holder thereof:

(i) each unexercised Company Stock Option and Company SAR, whether vested or unvested, that is outstanding immediately prior to the Effective Time shall be canceled, with the holder of each such Company Stock Option or Company SAR becoming entitled to receive an amount in cash equal to (A) the excess, if any, of (1) the Merger Consideration over (2) the exercise price per share of Company Common Stock subject to such Company Stock Option or Company SAR, multiplied by (B) the number of shares of Company Common Stock subject to such Company Stock Option or Company SAR (such amount, the "Option Amount");

(ii) each share of Company Restricted Stock that is outstanding as of the Effective Time shall become fully vested, with the holder of each such share of Company Restricted Stock becoming entitled to receive an amount in cash equal to the Merger Consideration;

(iii) each Company Performance Share Award that is outstanding immediately prior to the Effective Time shall be canceled, with the holder of each such Company Performance Share Award becoming entitled to receive an amount in cash equal to the Merger Consideration multiplied by the maximum number of shares of Company Common Stock subject to such Company Performance Share Award as of the Effective Time (such amount, the "Performance Share Amount"); and

(iv) each Non-Deferred Company RSU that is outstanding immediately prior to the Effective Time (including any Non-Deferred Company RSU resulting from dividend equivalents) shall be canceled, with the holder of each such Non-Deferred Company RSU becoming entitled to receive an amount in cash equal to the Merger Consideration (such amount, the "Non-Deferred RSU Amount").

For purposes of this Agreement, the term "Equity Award Amounts" shall mean the sum of the aggregate Option Amounts, aggregate Performance Share Amounts and aggregate Non-Deferred RSU Amounts. All amounts payable pursuant to this Section 2.03(a) shall be paid as promptly as practicable following the Effective Time, without interest.

(b) As of the Effective Time, each Company RSU (including any Company RSU resulting from dividend equivalents) that is outstanding immediately prior to the Effective Time and is governed by terms providing that the shares of Company Common Stock covered thereby shall not be delivered until the retirement of the holder of such Company RSU (each Company RSU governed by such terms, a "Deferred Company RSU", and each other Company RSU, a "Non-Deferred Company RSU") (including any such Deferred Company RSU resulting from dividend equivalents) shall be converted into the right to receive an amount in cash equal to the Merger Consideration (such amount, the "Deferred RSU Amount"). In the event that the Effective Time occurs prior to January 1, 2008, each holder of a Deferred Company RSU that is outstanding as of the Effective Time shall be entitled to receive such holders Deferred RSU Amount upon the earlier of (i) such holders separation from service (within the meaning of Section 409A(a)(2)(A)) or (ii) the first business day of calendar year 2008. In the event that the Effective Time occurs on or following January 1, 2008, each holder of a Deferred Company RSU that is outstanding as of the Effective Time shall be entitled to receive such holders Deferred RSU Amount within 10 business days following the Effective Time. Immediately following the Effective Time, the Surviving Corporation shall deposit the Deferred RSU Amounts into an interest bearing money market account and pay such Deferred RSU Amounts in accordance with this Section 2.03(b) together with interest credited thereon from the Effective Time until the date of payment. Prior to the Effective Time, the Board of Directors of the Company (or, if appropriate, any committee administering the Company Stock Plan under which the Deferred Company RSUs were granted) shall adopt such resolutions and take such other action reasonably necessary to give effect to this Section 2.03(b).

(c) As of the Effective Time, each Company Stock Equivalent issued under a Specified Deferred Compensation Plan that is outstanding immediately prior to the Effective Time shall cease to represent the right to the equivalent in value and rate of return to a share of Company Common Stock and shall instead be converted into the right to receive an amount in cash equal to the Merger Consideration (such amount, the "Stock Equivalent Amount"). Following the Effective Time, the Surviving Corporation shall credit such Stock Equivalent Amounts, which credits may then be notionally reinvested, in each case in accordance with the terms of the applicable Specified Deferred Compensation Plan.

ARTICLE III

Representations and Warranties

SECTION 3.01 Representations and Warranties of the Company. Except (A) as disclosed in, and reasonably apparent from, any report, schedule, form, statement or other document (including exhibits) filed with, or furnished to, the Securities and Exchange Commission (the "SEC") by the Company and publicly available prior to the date of this Agreement (collectively, the "Filed SEC Documents") and, for the avoidance of doubt, without giving effect to any change of fact or circumstance to the extent not disclosed in, and reasonably apparent from, any Filed SEC Document filed or furnished prior to the date hereof (excluding any disclosure that is predictive, cautionary or forward looking in nature) or (B) as set forth in the Company Disclosure Letter (it being understood that any information set forth in one section or subsection of the Company Disclosure Letter shall be deemed to apply to and qualify the Section or subsection of this Agreement to which it corresponds in number and each other Section or subsection of this Agreement to the extent that it is reasonably apparent that such information is relevant to such other Section or subsection), the Company represents and warrants to MergerCo as follows:

(a) Organization, Standing and Corporate Power. Each of the Company and its Subsidiaries is duly organized and validly existing under the Laws of its jurisdiction of organization and has all requisite corporate, company or partnership power and authority to carry on its business as presently conducted. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing (where such concept is recognized under applicable Law) in each jurisdiction where the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, other than where the failure to be so qualified, licensed or in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has made available to MergerCo prior to the execution of this Agreement a true and complete copy of the Company Certificate of Incorporation and the Company Bylaws, in each case as in effect on the date of this Agreement.

(b) Subsidiaries. Section 3.01(b) of the Company Disclosure Letter lists, as of the date hereof, each Subsidiary of the Company and the jurisdiction of organization thereof. All the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of the Company have been validly issued and are fully paid and nonassessable and are owned, directly or indirectly, by the Company free and clear of all pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature whatsoever (collectively, "Liens"), other than Permitted Liens. Except for its interests in its Subsidiaries, the Company does not own, directly or indirectly, any capital stock of, or other equity interests in, any corporation, partnership, joint venture, association or other entity.

(c) Capital Structure. The authorized capital stock of the Company consists of 300,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per share (the "Company Preferred Stock"). At the close of business on June 26, 2007, (i) 111,032,952 shares of Company Common Stock were issued and 73,279,431 shares of Company Common Stock were outstanding (which 111,032,952 number includes (A) 37,753,521 shares of Company Common Stock held by the Company in its treasury and (B) 15,000 shares of Company Common Stock subject to vesting or other forfeiture conditions or repurchase by the Company (such shares, together with any similar shares issued after June 26, 2007, the "Company Restricted Stock")), (ii) 8,308,271 shares of Company Common Stock were reserved and available for issuance pursuant to the Companys Amendment and Restatement of the Equity Incentive Plan, Amended Stock Option Plan for Key Employees, Non-Employee Director Stock Compensation Plan, Amended Restricted Stock Plan, Manor Care, Inc. Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan, Stock Option Plan for Outside Directors and HCR Manor Care Amended Stock Appreciation Rights Plan (the foregoing plans, as may be amended from time to time, collectively, the "Company Stock Plans"), of which (A) 3,195,273 shares of Company Common Stock were subject to outstanding options to acquire shares of Company Common Stock from the Company (such options, together with any similar options granted after June 26, 2007, the "Company Stock Options"), (B) 536,555 shares of Company Common Stock were subject to restricted share awards granted by the Company that were subject to performance-based vesting or delivery requirements (such restricted share awards, together with any similar restricted share awards granted after June 26, 2007, the "Company Performance Share Awards") and (C) 453,105 shares of Company Common Stock were subject to a restricted stock unit award with respect to one share of Company Common Stock granted by the Company (such restricted stock unit awards, together with any similar restricted stock unit awards granted after June 26, 2007, the "Company RSUs"), of which 66,900 shares of Company Common Stock were subject to Deferred Company RSUs and 386,205 shares of Company Common Stock were subject to Non-Deferred Company RSUs, (iii) 567,970 stock appreciation right awards with respect to a share of Company Common Stock granted by the Company were outstanding (such stock appreciation right awards, together with any similar stock appreciation rights granted after June 26, 2007, the "Company SARs"), (iv) 225,682 stock equivalents with respect to a share of Company Common Stock were outstanding under the Companys Senior Management Savings Plan for Corporate Officers, the Companys Nonqualified Retirement Savings and Investment Plan, the Companys Senior Management Savings Plan, the Manor Care, Inc. Non-employee Director Stock Option and Deferred Compensation and Stock Purchase Plan and the Health Care and Retirement Corporation Deferred Compensation Plan for Outside Directors (such plans, collectively, the "Specified Deferred Compensation Plans", and such stock equivalents, together with any similar stock equivalents issued after June 26, 2007, the "Company Stock Equivalents"), (v) (w) 210,540 shares of Company Common Stock were issuable upon conversion of the Companys convertible notes issued under an indenture dated April 15, 2003 (the "2003 Company Convertible Notes"), (x) 1,516,966 shares of Company Common Stock were issuable upon conversion of the Companys convertible notes issued under an indenture dated December 2004 (the "2004 Company Convertible Notes"), (y) 3,349,811 shares of Company Common Stock were issuable upon conversion of the Companys convertible notes issued under an indenture dated August 1, 2005 (the "2005 Company Convertible Notes") and (z) 1,392,932 shares of Company Common Stock were issuable upon conversion of the Companys convertible notes issued under an indenture dated May 17, 2006 (the "2006 Company Convertible Notes" and, together with the 2003 Company Convertible Notes, the 2004 Company Convertible Notes and the 2005 Company Convertible Notes, the "Company Convertible Notes"), (vi) 994,493 shares of Company Common Stock were issuable under the Companys Warrant Agreement dated July 26, 2005 (the "Company Warrants") and (vii) no shares of Company Preferred Stock were issued or outstanding or held by the Company in its treasury. Except as set forth above, at the close of business on June 26, 2007, no shares of capital stock or other voting securities of the Company, or any option, warrant or other right to acquire shares of capital stock or other voting securities of the Company, or securities convertible into or exchangeable for shares of capital stock or other voting securities of the Company, were issued, reserved for issuance or outstanding. Except for (w) the issuance of shares of Company Common Stock in connection with the exercise of Company Stock Options outstanding on June 26, 2007, (x) the issuance of shares of Company Common Stock in settlement of Company RSUs outstanding on June 26, 2007, (y) the issuance of Company Stock Equivalents pursuant to the Specified Deferred Compensation Plans and (z) the issuance of shares of Company Common Stock in connection with the conversion of Company Convertible Notes and the exercise of Company Warrants, since June 26, 2007 to the date of this Agreement, (I) there have been no issuances by the Company of shares of capital stock, Company Stock Equivalents or other voting securities of the Company, and (II) there have been no issuances by the Company of options, warrants, other rights to acquire shares of capital stock, Company Stock Equivalents or other voting securities of the Company, or securities convertible into or exchangeable for shares of capital stock or other voting securities of the Company, or other rights that give the holder thereof any economic interest of a nature accruing to the holders of Company Common Stock. All outstanding shares of Company Common Stock (other than Company Restricted Stock) are, and all such shares that may be issued prior to the Effective Time will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Other than the Company Convertible Notes, there are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Stock may vote ("Voting Company Debt"). Except for any obligations pursuant to this Agreement, any Company Stock Plan, the HCR Manor Care Stock Purchase and Retirement Savings 401(k) Plan (the "Company 401(k) Plan"), the Specified Deferred Compensation Plans, the Company Convertible Notes and the Company Warrants, and except for the Company Stock Options and other rights set forth in Section 3.01(c) of the Company Disclosure Letter as of June 26, 2007, there are no options, warrants, rights, convertible or exchangeable securities, stock-based performance units, Contracts or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound (1) obligating the Company or any such Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exchangeable for any capital stock of or other equity interest in, the Company or of any of its Subsidiaries or any Voting Company Debt, (2) obligating the Company or any such Subsidiary to issue, grant or enter into any such option, warrant, right, security, unit, Contract or undertaking or (3) that give any person the right to receive any economic interest of a nature accruing to the holders of Company Common Stock. As of the date of this Agreement, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any such Subsidiary, other than pursuant to the Company Stock Plans and the Company 401(k) Plan. The Company has made available to MergerCo a true and complete list of the number of shares of Company Common Stock issuable upon exercise of, or represented by, the Company Stock Options, Company Common Stock Equivalents, shares of Company Restricted Stock, Company Performance Share Awards, Company RSUs, Company SARs, Company Warrants and Company Convertible Notes outstanding on June 26, 2007. The Company has made available to MergerCo a true and complete list, as of June 26, 2007, of the name of the record holder of each Company Stock Option, Company Performance Share Award, share of Company Restricted Stock, Company RSU and Company SAR, and applicable expiration date and vesting date, whether any Company Stock Options are incentive stock options, and the exercise price of each such Company Stock Option or Company SAR (including whether the exercise price was less than the fair market value of the underlying shares of Company Common Stock on the date of grant) and the number of shares of Company Common Stock issuable under or subject to each Company Stock Option, Company Performance Share Award, share of Company Restricted Stock, Company RSU or Company SAR and the aggregate number of Company Stock Equivalents. From June 26, 2007 to the date of this Agreement, there have been no changes to the information provided to MergerCo in the immediately preceding two sentences, except as a result of the exercise of Company Stock Options or Company SARs or the vesting of Company RSUs or Company Performance Share Awards outstanding on June 26, 2007, or as a result of any change in an investment election pursuant to a Specified Deferred Compensation Plan. No Company Stock Option (i) has a per share exercise price lower than the fair market value of a share of Company Common Stock on the date of grant of such Company Stock Option, (ii) has had its grant date backdated or (iii) has had its grant date delayed in order to take advantage of the release or other public announcement of material non-public information regarding the Company or its Subsidiaries. Section 3.01(c) of the Company Disclosure Letter sets forth a true and complete list, as of the date hereof, of all Indebtedness for borrowed money of the Company and its Subsidiaries (other than (x) any s uch Indebtedness owed to the Company or any of its Subsidiaries, (y) trade letters of credit and (z) any other such Indebtedness with a principal amount not in excess of $10.0 million in the aggregate) outstanding on the date of this Agreement.

(d) Authority; Noncontravention. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement, subject, in the case of the Merger, to receipt of the Stockholder Approval. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to receipt of the Stockholder Approval. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by each of the other parties hereto, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors rights and to general equity principles. The Board of Directors of the Company, at a meeting duly called and held at which all directors of the Company were present, duly adopted resolutions (i) approving and declaring advisable this Agreement, the Merger and the other transactions contemplated by this Agreement, (ii) declaring that it is in the best interests of the stockholders of the Company that the Company enter into this Agreement and consummate the Merger and the other transactions contemplated by this Agreement on the terms and subject to the conditions set forth herein, (iii) directing that the adoption of this Agreement be submitted to a vote at a meeting of the stockholders of the Company and (iv) recommending that the stockholders of the Company adopt this Agreement, which resolutions, as of the date of this Agreement, have not been rescinded, modified or withdrawn in any way. The execution and delivery by the Company of this Agreement do not, and the consummation of the Merger and the other transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries under (other than any such Lien created in connection with the Financing or otherwise from any action taken by MergerCo), any provision of (A) the Company Certificate of Incorporation, the Company Bylaws or the comparable organizational documents of any of its Subsidiaries or (B) subject to the filings and other matters referred to in the immediately following sentence, (1) any contract, lease, indenture, note, bond or other agreement that is in force and effect (a "Contract") to which the Company or any of its Subsidiaries is a party or by which any of their respective properties or assets are bound, other than any lease of real property, under which the Company or any of its Subsidiaries is a tenant or a subtenant, that is not a Real Property Lease, or (2) any statute, law, ordinance, rule or regulation of any Governmental Entity ("Law") or any judgment, order or decree of any Governmental Entity ("Judgment"), in each case applicable to the Company or any of its Subsidiaries or their respective properties or assets, other than, in the case of clause (B) above, any such conflicts, violations, defaults, rights, losses or Liens that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any Federal, state, local or foreign government, any court of competent jurisdiction or any administrative, regulatory (including any stock exchange) or other governmental agency, commission or authority (each, a "Governmental Entity") is required to be obtained or made by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the Merger or the other transactions contemplated by this Agreement, except for (I) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filings and receipt, termination or expiration, as applicable, of such other approvals or waiting periods as may be required under any other applicable competition, merger control, antitrust or similar Law, (II) the filing with the SEC of (x) a proxy statement relating to the adoption by the stockholders of the Company of this Agreement (as amended or supplemented from time to time, the "Proxy Statement") and (y) such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (III) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and of appropriate documents with the relevant authorities of other jurisdictions in which the Company or any of its Subsidiaries is qualified to do business, (IV) any filings required under the rules and regulations of the New York Stock Exchange and (V) such other consents, approvals, orders, authorizations, registrations, declarations, filings and notices the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected (x) to have a Material Adverse Effect or (y) to prevent the Company from consummating the Merger.

(e) SEC Documents. The Company has timely filed all reports, schedules, forms, statements and other documents with the SEC required to be filed by the Company since January 1, 2004 (the "SEC Documents"). As of their respective dates of filing, the SEC Documents complied in all material respects (including as to form) with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable thereto, and none of the SEC Documents contained any untrue statement of a material fact or omitted 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 made, not misleading. The consolidated financial statements (including the notes and schedules thereto) of the Company included in the SEC Documents when filed complied in all material respects with the published rules and regulations of the SEC with respect thereto, have been prepared in all material respects in accordance with generally accepted accounting principles ("GAAP") (except, in the case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC or other rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end adjustments). Except for matters reflected or reserved against in the audited consolidated balance sheet of the Company as of December 31, 2006 (or the notes thereto) included in the Filed SEC Documents, neither the Company nor any of its Subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent, fixed or otherwise) of any nature that would be required under GAAP, as in effect on the date of this Agreement, to be reflected on a consolidated balance sheet of the Company (including the notes thereto), except liabilities and obligations that (i) were incurred since December 31, 2006 in the ordinary course of business consistent with past practice, (ii) are incurred in connection with the transactions contemplated by this Agreement or (iii) have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(f) Information Supplied. The Proxy Statement will comply as to form with the requirements of the Exchange Act and will not, at the date it is first mailed to the stockholders of the Company, at the time of any amendment thereof or supplement thereto and at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by MergerCo for inclusion or incorporation by reference in the Proxy Statement.

(g) Absence of Certain Changes or Events. Since December 31, 2006, up to and including the date hereof, there has not been and would not reasonably be expected to be, individually or in the aggregate, a Material Adverse Effect, and from such date through the date of this Agreement, the Company and its Subsidiaries have conducted their businesses only in the ordinary course of business consistent with past practice, and during such period there have not been:

(i) any declaration, setting aside or payment of any dividend on, or making of any other distribution (whether in cash, stock or property) with respect to, any capital stock of the Company or any of its Subsidiaries, except for regular quarterly cash dividends on Company Common Stock not in excess of $0.17 per share in any quarter and dividends or other distributions by any direct or indirect wholly-owned Subsidiary to the Company or to any other direct or indirect wholly-owned Subsidiary of the Company;

(ii) any split, combination or reclassification of any capital stock of the Company or any issuance or the authorization of any issuance of any other securities in lieu of or in substitution for shares of capital stock of the Company;

(iii) any purchase, redemption or other acquisition by the Company or any of its Subsidiaries of any shares of capital stock of the Company or any of its Subsidiaries or any rights, warrants or options to acquire any such shares, other than (A) the acquisition by the Company of shares of Company Common Stock in connection with the surrender of shares of Company Common Stock by holders of options to acquire such stock in order to pay the exercise price thereof, (B) the withholding of shares of Company Common Stock to satisfy tax obligations with respect to awards granted pursuant to the Company Stock Plans, (C) the acquisition by the Company of Company Stock Options and shares of Company Restricted Stock in connection with the forfeiture of such awards, (D) the acquisition by the trustee of the Company 401(k) Plan of shares of Company Common Stock in order to satisfy participant investment elections under the Company 401(k) Plan and (E) the extinguishment of rights pursuant to Company Stock Equivalents in connection with the change in a participants investment election under a Specified Deferred Compensation Plan;

(iv) except (A) in the ordinary course of business consistent with past practice, (B) as required pursuant to the terms of any Company Benefit Plan or Company Benefit Agreement or other written agreement, in each case, in effect as of December 31, 2006 or (C) filed as exhibits to the Filed SEC Documents, (1) any granting to any director or executive officer of the Company of any increase in compensation or benefits, (2) any granting to any director or executive officer of the Company of any increase in severance or termination pay or (3) any entry by the Company or any of its Subsidiaries into any employment, consulting, severance or termination agreey director, executive officer or employee of the Company or any of its Subsidiaries pursuant to which the total annual compensation or the aggregate severance benefits per employee exceeds $250,000;

(v) any change in accounting methods, principles or practices by the Company or any of its Subsidiaries materially affecting the consolidated assets, liabilities or results of operations of the Company, except as required (A) by GAAP (or any interpretation thereof), including as may be required by the Financial Accounting Standards Board or any similar organization, or (B) by Law, including Regulation S-X under the Securities Act; or

(vi) any material tax election or change in a material tax election by the Company or any of its Subsidiaries, any settlement or compromise of a material tax liability, any filing of an amended tax return with respect to material taxes (except as required by Law), any change in any annual tax accounting period, any closing agreement relating to a material amount of taxes, any waiver or extension of the statute of limitations in respect of taxes (other than pursuant to extensions of time to file tax returns obtained in the ordinary course of business) other than, in each case, in the ordinary course of business and consistent with past practice.

(h) Litigation. There is no suit, action, arbitration, litigation, investigation or proceeding pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or would reasonably be expected to prevent the Company from consummating the Merger. There is no material Judgment outstanding against the Company or any of its Subsidiaries. This Section 3.01(h) does not relate to environmental matters, which are the subject of Section 3.01(j)(ii).

(i) Contracts. Except for this Agreement and Contracts filed as exhibits to the Filed SEC Documents, Section 3.01(i) of the Company Disclosure Letter sets forth a true and complete list, as of the date of this Agreement, and the Company has made available to MergerCo true and complete copies, of:

(i) each Contract that would be required to be filed by the Company as a "material contract" pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act;

(ii) each Contract to which the Company or any of its Subsidiaries is a party that (A) materially and expressly restricts the ability of the Company or any of its Subsidiaries to compete in any business or with any person in any geographical area and (B) is material to the Company and its Subsidiaries, taken as a whole, except for any such Contract that may be canceled, without any material penalty or other liability to the Company or any of its Subsidiaries, upon notice of 90 days or less;

(iii) each loan and credit agreement, note, letter of credit, debenture, bond, indenture and other similar Contract pursuant to which any Indebtedness of the Company or any of its Subsidiaries, in each case in excess of $10.0 million, is outstanding or may be incurred, other than any such Contract between or among any of the Company and any of its Subsidiaries;

(iv) each Contract to which the Company or any of its Subsidiaries is a party that by its terms calls for aggregate payments by the Company or any of its Subsidiaries of more than $20.0 million on an annual basis, except for (A) any such Contract that may be canceled, without any material penalty or other liability to the Company or any of its Subsidiaries, upon notice of 90 days or less and (B) any such Contract the payments under which are made to the Company or any of its Subsidiaries;

(v) each Contract for, in each case, aggregate consideration of more than $20.0 million to which the Company or any of its Subsidiaries is a party for the acquisition or disposition by the Company or any of its Subsidiaries of Owned Real Property;

(vi) each material joint venture, partnership, limited liability or other similar agreement or arrangement, in each case other than any such Contract between or among any of the Company and any of its Subsidiaries;

(vii) any Contract involving any swap, forward, future, option, cap, floor or collar financial contract, or any other interest-rate or foreign currency hedge or protection contract, other than any such Contract under which the contractual obligations of the Company do not exceed $20 million in the aggregate;

(viii) any Contract providing the Company or any Subsidiary with a call right or other right to purchase Company Common Stock or Company Stock Equivalent, or any warrant issued by the Company or any of its Subsidiaries, including the confirmations and other agreements executed in respect of the hedging arrangements entered into by the Company in connection with the issuance of the Company Convertible Notes (including any amendment or termination hereof);

(ix) any Contract involving any directors, executive officers or 5% stockholders of the Company that cannot be cancelled by the Company within 30 days notice without liability, penalty or premium (other than any Company Benefit Agreement and any Contract pursuant to a Company Benefit Plan);

(x) any Contract involving any labor union or other employee organization; and

(xi) any Contract relating to development, ownership, licensing or use of any Intellectual Property Right that is material to the operation of the business of the Company and its Subsidiaries, in each case other than such Contracts with license, maintenance, support and other fees of less than $10 million per year in the aggregate per Contract and other than "shrink wrap", "click wrap", and other "off-the-shelf" software commercially available on reasonable terms to the public generally.

Each such Contract described in clauses (i) through (xi) above is referred to herein as a "Specified Contract". Each of the Specified Contracts is valid and binding on the Company or the Subsidiary of the Company party thereto and, to the Knowledge of the Company, each other party thereto, and is in full force and effect, except for such failures to be valid and binding or to be in full force and effect that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. There is no default under any Specified Contract by the Company or any of its Subsidiaries or, to the Knowledge of the Company, by any other party thereto, and no event has occurred that with the lapse of time or the giving of notice or both would constitute a default thereunder by the Company or any of its Subsidiaries or, to the Knowledge of the Company, by any other party thereto, in each case except as have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. This Section 3.01(i) does not relate to real property leases, which are the subject of Section 3.01(n)(ii).

(j) Compliance with Laws; Environmental Matters.

(i) Each of the Company and its Subsidiaries is and at all times in the last three years has been in compliance with all Laws applicable to its business or operations (including the Sarbanes-Oxley Act of 2002 and, for purposes of this paragraph, billing requirements of any federal health care benefit program, including the Medicare program and any relevant state Medicaid program and, to the Knowledge of the Company as of the date hereof, other applicable healthcare Laws), except for instances of possible noncompliance that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each of the Company and its Subsidiaries has obtained and is in compliance with all approvals, authorizations, certificates, franchises, licenses, permits, certificates of need and consents of Governmental Entities (collectively, "Permits") necessary for it to conduct its business as presently conducted, and all such Permits are in full force and effect, except in each case for such Permits the absence of which, or the failure of which to be in full force and effect, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. This Section 3.01(j)(i) does not relate to environmental matters, which are the subject of Section 3.01(j)(ii), employee benefit matters, which are the subject of Section 3.01(l), and taxes, which are the subject of Section 3.01(m).

(ii) Except for those matters that have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (A) each of the Company and its Subsidiaries is in compliance with all applicable Environmental Laws, and neither the Company nor any of its Subsidiaries has received any written communication alleging that the Company is in violation of, or has any liability under, any Environmental Law, (B) each of the Company and its Subsidiaries validly possesses and is in compliance with all Permits required under Environmental Laws to conduct its business as presently conducted, (C) there are no Environmental Claims pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries and (D) none of the Company or any of its Subsidiaries has Released, or is liable for any Release or clean-up of, any Hazardous Materials on, under or from any of the Owned Real Property, the Leased Real Property or any other property, including any offsite waste disposal location, in a manner that would reasonably be expected to result in an Environmental Claim against the Company or any of its Subsidiaries or is otherwise subject to any material liability under any Environmental Law. The Company has provided MergerCo with true and correct copies as of the date hereof of all material environmental assessments and reports in its possession or control, including all Phase 1 and Phase 2 reports concerning the Owned Real Property and the Leased Real Property as well as any other property for which the Company or any of its Subsidiaries retains actual or potential liability arising under Environmental Law, which assessments and reports describe matters that have had and would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has provided, as of the date hereof, MergerCo with all material information relating to Environmental Claims asserted against the Company or any of its Subsidiaries.

The term "Environmental Claims" means any administrative or judicial actions, suits, orders, claims, proceedings or written notices of noncompliance by or from any person alleging liability arising out of the Release of, or exposure to, any Hazardous Material or the failure to comply with any Environmental Law. The term "Environmental Law" means any Law relating to pollution, human health, the environment or natural resources. The term "Hazardous Materials" means (1) petroleum and petroleum by-products, asbestos in any form, radioactive materials or medical or infectious wastes, and (2) any other material, substance or waste that is prohibited, limited or regulated because of its hazardous or toxic properties or characteristics. The term "Release" means any release, spill, emission, leaking, pumping, emitting, discharging, injecting, escaping, leaching, dumping, disposing or migrating into or through the environment.

(k) Labor and Employment Matters. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement, and, in the last three years up to an including the date hereof there have not been, to the Knowledge of the Company, any union organizing activities concerning any employees of the Company or any of its Subsidiaries that have had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. In the last three years up to an including the date hereof, there have been no labor strikes, grievances, slowdowns, work stoppages, labor disputes or lockouts pending or, to the Knowledge of the Company, threatened in writing, against the Company or any of its Subsidiaries that have had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(l) Employee Benefit Matters.

(i) Section 3.01(l)(i) of the Company Disclosure Letter contains a true and complete list, as of the date of this Agreement, of each material Company Benefit Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (a "Company Pension Plan"), each material Company Benefit Plan that is an "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) and all other material Company Benefit Plans and all material Company Benefit Agreements with any current or former officer or director of the Company or any of its Subsidiaries. Each Company Benefit Plan and Company Benefit Agreement has been administered in compliance with its terms and with applicable Law (including ERISA and the Code), other than instances of noncompliance that have not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company has made available to MergerCo true and complete copies, as of the date hereof, of (A) each material Company Benefit Plan and each material Company Benefit Agreement with any current or former officer or director of the Company or its Subsidiaries, other than any Company Benefit Plan or Company Benefit Agreement that the Company or any of its Subsidiaries is prohibited from making available to MergerCo as the result of applicable Law relating to the safeguarding of data privacy and as listed on Section 3.01(l)(i) of the Company Disclosure Letter, (B) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each such Company Benefit Plan (if any such report was required by applicable Law), (C) the most recent summary plan description for each such Company Benefit Plan for which a summary plan description is required by applicable Law and any summary of material modifications concerning any such Company Benefit Plan and (D) the most recently prepared actuarial report and financial statement, if any, prepared in connection with each such Company Benefit Plan.

(ii) All Company Pension Plans that are intended to be qualified for Federal income tax purposes have been the subject of determination letters from the Internal Revenue Service to the effect that such Company Pension Plans are so qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked nor, to the Knowledge of the Company, has revocation been threatened.

(iii) None of the Company Benefit Plans is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. None of the Company, any of its Subsidiaries or any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate") participates in, or is required to contribute to, or, within the past six years, sponsored or maintained, any Multiemployer Plan or any plan subject to Section 302 or Title IV of ERISA.

(iv) Except for those matters that have not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, none of the Company, any of its Subsidiaries, any officer of the Company or any such Subsidiary or any Company Benefit Plan that is subject to ERISA, including any Company Pension Plan, or, to the Knowledge of the Company, any trust created thereunder or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) or any other breach of fiduciary responsibility that could subject the Company, any of its Subsidiaries or any officer of the Company or any such Subsidiary to the tax or penalty on prohibited transactions imposed by such Section 4975 of the Code or to any liability under Section 502(i) or 502(1) of ERISA.

(v) No Company Benefit Plan provides welfare benefits (whether or not insured) with respect to employees or former employees (or any of their beneficiaries) of the Company or any of its Subsidiaries after retirement or other termination of service (other than coverage or benefits required to be provided under Part 6 of Subtitle B of Title I of ERISA or any other similar applicable Law).

(vi) Except for payments or benefits that may be made pursuant to the Company Benefit Plans and Company Benefit Agreements listed in Section 3.01(l)(vi) of the Company Disclosure Letter, in each case, as in effect on the date of this Agreement, no payment or other benefit that has been or may be made to any current or former employee or independent contractor of the Company under any employment, severance or termination agreement, other compensation arrangement or employee benefit plan or arrangement with the Company or any ERISA Affiliate would be characterized as an "excess parachute payment," as such term is defined in Section 280G of the Code or would give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code as a result of the consummation of the Merger or any other transaction contemplated by this Agreement (alone or in connection with any other event).

(vii) No Company Benefit Plan or Company Benefit Agreement exists that would reasonably be expected to (A) result in any material payment to any present or former officer, employee or director of the Company or any ERISA Affiliate of any money or other property, (B) result in the forgiveness of Indebtedness or (C) accelerate or provide any other rights or benefits (including, without limitation, the acceleration of the accrual or vesting of any material benefits under any Company Benefit Plan or Company Benefit Agreement or the acceleration or creation of any material rights under any severance, parachute or change in control agreement or the right to receive any material transaction bonus or other similar payment) to any current or former officer, employee or director of the Company or any ERISA Affiliate, in each case, as a result of the consummation of the Merger or any other transaction contemplated by this Agreement (whether alone or in connection with any other event).

(viii) The term "Company Benefit Agreement" means each employment, consulting, indemnification, severance or termination agreement or arrangement between the Company or any of its Subsidiaries, on the one hand, and any current or former employee, officer or director of the Company or any of its Subsidiaries, on the other hand, other than any agreement or arrangement mandated by applicable Law and other than any Company Benefit Plan. The term "Company Benefit Plan" means each bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock appreciation right, stock option, phantom stock or other equity-based compensation, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other employee benefits plan, policy, program, arrangement or understanding (but excluding any Company Benefit Agreement), in each case (A) sponsored, maintained or contributed to, or required to be sponsored, maintained or contributed to, by the Company or any of its Subsidiaries for the benefit of any current or former employee, officer, consultant or director of the Company or any of its Subsidiaries, or (B) sponsored, maintained or contributed to by any ERISA Affiliate within the past six years and with respect to which the Company or any of its Subsidiaries would reasonably be expected to incur any liability, other than (x) any "multiemployer plan" (within the meaning of Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (a "Multiemployer Plan") or (y) any plan, policy, program, arrangement or understanding mandated by applicable Law.

(m) Taxes.

(i) Except those matters that have not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect: (A) each of the Company and its Subsidiaries has filed or has caused to be filed all tax returns required to be filed by it (or requests for extensions, which requests have been granted and have not expired), and all such returns are complete and accurate in all material respects, (B) each of the Company and its Subsidiaries has either paid or caused to be paid all taxes due and owing by the Company and its Subsidiaries to any Governmental Entity, (C) the most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve (excluding any reserves for deferred taxes), established in accordance with GAAP, for all taxes not yet due and payable by the Company and its Subsidiaries, for all taxable periods and portions thereof ending on or before the date of such financial statements and (D) all amounts of tax required to be withheld by the Company and its Subsidiaries have been or will be timely withheld and paid over to the appropriate tax authority.

(ii) No deficiencies, audit examinations, refund litigation, proposed adjustments or matters in controversy for any material taxes (other than taxes that are not yet due and payable or for amounts being contested in good faith and for which adequate reserves have been established in accordance with GAAP) have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries which have not been settled and paid. All assessments for material taxes due and owing by the Company or any of its Subsidiaries with respect to completed and settled examinations or concluded litigation have been paid. There is no currently effective agreement or other document with respect to the Company or any of its Subsidiaries extending the period of assessment or collection of any material taxes. There are no Liens for any material amount of taxes on the assets of the Company or any Subsidiary, other than Liens for current taxes and assessments not yet past due or which are being contested in good faith and for which the Company or the appropriate Subsidiary has set aside adequate reserves in accordance with GAAP.

(iii) Neither the Company nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

(iv) There are no pending or, to the Knowledge of the Company as of the date hereof, threatened audits, examinations, investigations or other proceedings in respect of a material amount of taxes of the Company or any Subsidiary with respect to which the Company or a Subsidiary has been notified in writing, and neither the Company nor any Subsidiary has waived any statute of limitations in respect of a material amount of taxes or agreed to any extension of time with respect to an assessment or deficiency for a material amount of taxes (other than pursuant to extensions of time to file tax returns obtained in the ordinary course).

(v) Neither the Company nor any Subsidiary (A) 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) since January 1, 1999 or (B) is liable for a material amount of taxes of any person (other than the Company or any Subsidiary), as a transferee, successor, by contract or otherwise, where the Company or any Subsidiary became liable for such material amount of taxes after January 1, 1999.

(vi) The term "taxes" means all income, profits, capital gains, goods and services, branch, payroll, unemployment, customs duties, premium, compensation, windfall profits, franchise, gross receipts, capital, net worth, sales, use, withholding, turnover, value added, ad valorem, registration, general business, employment, social security, disability, occupation, real property, personal property (tangible and intangible), stamp, transfer (including real property transfer or gains), conveyance, severance, production, excise, withholdings, duties, levies, imposts, license, registration and other taxes (including any and all fines, penalties and additions attributable to or otherwise imposed on or with respect to any such taxes and interest thereon) imposed by or on behalf of any Governmental Entity. The term "tax return" means any return, statement, report, form, filing, customs entry, customs reconciliation and any other entry or reconciliation, including in each case any amendments, schedules or attachments thereto, required to be filed with any Governmental Entity or with respect to taxes of the Company or its Subsidiaries.

(n) Title to Properties.

(i) Section 3.01(n)(i) of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of all real property owned by the Company and its Subsidiaries (individually, an "Owned Real Property"), including the address of each Owned Real Property.

(ii) Section 3.01(n)(ii) of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of all material leases of real property (the "Real Property Leases") under which the Company or any of its Subsidiaries is a tenant or a subtenant (individually, a "Leased Real Property"), including the address of each Leased Real Property. True and correct copies of the material Real Property Leases, as of the date hereof, have been made available to MergerCo.

(iii) Except as would not be, individually or in the aggregate, material to the Company and its business, taken as a whole, the Company or a Subsidiary of the Company has good and valid fee title to each Owned Real Property, in each case free and clear of all Liens and defects in title, except for (A) mechanics, carriers, workmens, warehousemens, repairmens or other like Liens arising or incurred in the ordinary course of business, (B) Liens for taxes, assessments and other governmental charges and levies that are not due and payable or that may thereafter be paid without interest or penalty, (C) Liens affecting the interest of the grantor of any easements benefiting Owned Real Property, (D) Liens (other than liens securing indebtedness for borrowed money), defects or irregularities in title, easements, rights-of-way, covenants, restrictions, and other, similar matters that would not, individually or in the aggregate, reasonably be expected to materially impair the continued use and operation of the assets to which they relate in the business of the Company and its Subsidiaries as presently conducted, (E) zoning, building and other similar codes and regulations and (F) any conditions that would be disclosed by a current, accurate survey or physical inspection (collectively, "Permitted Liens"). To the Knowledge of the Company, the Owned Real Property is not subject to any Liens that would reasonably be expected to have a material and adverse effect on MergerCos ability to obtain the CMBS financing described in the Financing Commitments.

(iv) Except as would not be, individually or in the aggregate, material to the Company and its business, taken as a whole, the Company or a Subsidiary of the Company has a good and valid title to a leasehold estate in each Leased Real Property, all Real Property Leases are in full force and effect, and neither the Company nor any of its Subsidiaries that is party to such leases has received or given any written notice of any material default thereunder which default continues on the date of this Agreement.

(v) The Company has made available to MergerCo true and complete copies of the Real Property Leases in respect of its corporate headquarters, assisted living facilities and skilled nursing facilities.

(o) Intellectual Property. Section 3.01(o) of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of all registered trademarks, trademark applications, registered service marks and service mark applications (collectively, "Registered Intellectual Property Rights") that, in each case, are material to the conduct of the business of the Company and its Subsidiaries, taken as a whole, as presently conducted and, except as has not had or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Company or a Subsidiary of the Company owns, or is licensed or otherwise has the right to use, each such Registered Intellectual Property Right and all other trademarks, copyrights, proprietary rights, know-how, rights in technology, software or other intellectual property rights used in the business of the Company and its subsidiaries as currently conducted (such rights, together with the Registered Intellectual Property Rights, the "Intellectual Property Rights"). No claims are pending or, to the Knowledge of the Company, threatened that the Company or any of its Subsidiaries is infringing the rights of any person with regard to any Intellectual Property Right, which claims, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. To the Knowledge of the Company, as of the date of this Agreement, no person is infringing the rights of the Company or any of its Subsidiaries with respect to any Intellectual Property Right, in a manner that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(p) Insurance. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) the Company and its Subsidiaries maintain insurance in such amounts and against such risks as is sufficient to comply with applicable Law, (ii) all material insurance policies of the Company and its Subsidiaries are in full force and effect, except for any expiration thereof in accordance with the terms thereof, (iii) neither the Company nor any of its Subsidiaries is in breach of, or default under, any such material insurance policy and (iv) no written notice of cancellation or termination has been received with respect to any such material insurance policy, other than in connection with ordinary renewals.

(q) Voting Requirements. Assuming the accuracy of the representations and warranties of MergerCo set forth in Section 3.02(f), the affirmative vote of holders of a majority of the outstanding shares of Company Common Stock entitled to vote thereon at the Stockholders Meeting or any adjournment or postponement thereof to adopt this Agreement (the "Stockholder Approval") is the only vote of the holders of any class or series of capital stock of the Company necessary for the Company to adopt this Agreement and approve the transactions contemplated hereby.

(r) State Takeover Statutes. Assuming the accuracy of the representations and warranties of MergerCo set forth in Section 3.02(f), the approval of the Board of Directors of the Company of this Agreement, the Merger and the other transactions contemplated by this Agreement represents all the action necessary to render inapplicable to this Agreement, the Merger and the other transactions contemplated by this Agreement, the provisions of Section 203 of the DGCL to the extent, if any, such Section would otherwise be applicable to this Agreement, the Merger and the other transactions contemplated by this Agreement, and no other "moratorium", "fair price", "business combination", "control share acquisition" or similar provision of any state takeover statute applies or at the Effective Time will apply to this Agreement, the Merger or the other transactions contemplated by this Agreement.

(s) Brokers and Other Advisors. No broker, investment banker, financial advisor or other person, other than J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., the fees and expenses of which will be paid by the Company, is entitled to any brokers, finders or financial advisors fee or commission in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has made available to MergerCo complete and correct copies of the letter agreements between the Company and (i) J.P. Morgan Securities Inc. and (ii) Citigroup Global Markets Inc. pursuant to which such parties could be entitled to any payment from the Company or any of its Subsidiaries in connection with the Merger or the transactions contemplated hereby.

(t) Opinions of Financial Advisors. The Board of Directors of the Company has received the separate opinions of each of J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., to the effect that, as of the date of such opinion, the Merger Consideration is fair, from a financial point of view, to the holders of shares of Company Common Stock (other than as set forth in such opinion), a signed copy of each of which opinion will promptly be delivered to MergerCo for informational purposes only after receipt thereof by the Company.

(u) Related Party Transactions. No present or former director, executive officer, stockholder, partner, member, employee or Affiliate of the Company or any of its Subsidiaries, nor any of such persons Affiliates or immediate family members, is a party to any material Contract with or binding upon the Company or any of its Subsidiaries or any of their respective properties or assets or has any interest in any material property owned by the Company or any of its Subsidiaries or has engaged in any transaction with any of the foregoing, in each case, that is of a type that would be required to be disclosed in the SEC Documents pursuant Item 404 of Regulation S-K that has not been so disclosed (any of the foregoing, a "Related Party Transaction").

(v) No Rights Plan. There is no stockholder rights plan, "poison pill" anti-takeover plan or other similar device in effect to which the Company is a party or is otherwise bound.

(w) No Other Representations or Warranties. Except for the representations and warranties contained in this Section 3.01, MergerCo acknowledges that neither the Company nor any person on behalf of the Company makes any other express or implied representation or warranty with respect to the Company or any of its Subsidiaries or with respect to any other information provided to MergerCo in connection with the transactions contemplated by this Agreement. Neither the Company nor any other person will have or be subject to any liability or indemnification obligation to MergerCo or any other person resulting from the distribution to MergerCo, or MergerCos use of, any such information, including any information, documents, projections, forecasts or other material made available to MergerCo in certain "data rooms" or management presentations in expectation of the transactions contemplated by this Agreement, unless and then only to the extent that any such information is expressly included in or expressly set forth in a representation or warranty contained in this Section 3.01.

SECTION 3.02 Representations and Warranties of MergerCo. Except as set forth in the MergerCo Disclosure Letter (it being understood that any information set forth in one section or subsection of the MergerCo Disclosure Letter shall be deemed to apply to and qualify the Section or subsection of this Agreement to which it corresponds in number and each other Section or subsection of this Agreement to the extent that it is reasonably apparent that such information is relevant to such other Section or subsection), MergerCo represents and warrants to the Company as follows:

(a) Organization, Standing and Corporate Power. MergerCo is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization and has all requisite corporate power and authority to carry on its business as presently conducted.

(b) Authority; Noncontravention. MergerCo has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement, including the Merger and the Financing. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement, including the Merger and the Financing, have been duly authorized by all necessary corporate action on the part of MergerCo, and no other corporate proceedings (including any shareholder action) on the part of MergerCo are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, including the Merger and the Financing. This Agreement has been duly executed and delivered by MergerCo and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of MergerCo, enforceable against MergerCo in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors rights and to general equity principles. The execution and delivery of this Agreement do not, and the consummation of the Merger and the other transactions contemplated by this Agreement, including the Financing, and compliance with the provisions of this Agreement will not, conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to the loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of MergerCo under, any provision of (i) the certificate of incorporation or bylaws of MergerCo or (ii) subject to the filings and other matters referred to in the immediately following sentence, (A) any Contract to which MergerCo is a party or by which any of its properties or assets are bound or (B) any Law or Judgment, in each case applicable to MergerCo or its properties or assets, other than, in the case of clause (ii), any such conflicts, violations, breaches, defaults, rights, losses or Liens that would not, individually or in the aggregate, reasonably be expected to have a MergerCo Material Adverse Effect. No consent, approval, order or authorization of, registration, declaration or filing with, or notice to, any Governmental Entity is required to be obtained or made by or with respect to MergerCo in connection with the execution and delivery of this Agreement by MergerCo or the consummation by MergerCo of the Merger or the other transactions contemplated by this Agreement, including the Financing, except for (I) the filing of a premerger notification and report form by MergerCo under the HSR Act and the filings and receipt, termination or expiration, as applicable, of such other approvals or waiting periods as may be required under any other applicable competition, merger control, antitrust or similar Law, (II) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and (III) such other consents, approvals, orders, authorizations, registrations, declarations, filings and notices the failure of which to be obtained or made would not, individually or in the aggregate, reasonably be expected to have a MergerCo Material Adverse Effect.

(c) Information Supplied. None of the information supplied or to be supplied by MergerCo for inclusion or incorporation by reference in the Proxy Statement will, at the date it is first mailed to the stockholders of the Company and at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.

(d) Available Funds. The financing of the transactions contemplated hereby will consist of a combination of equity financing (the "Equity Financing") and debt financing (the "Debt Financing" and, together with the Equity Financing, the "Financing"). MergerCo has delivered to the Company true and complete copies of fully executed commitment letters pursuant to which the parties thereto have committed to provide MergerCo with the Financing (such agreements, as modified pursuant to Section 5.09(a), the "Equity Financing Commitments" and the "Debt Financing Commitments", respectively, and together the "Financing Commitments"). Each of the Equity Financing Commitments, in the form so delivered, is in full force and effect and is a legal, valid and binding obligation of MergerCo and, to the Knowledge of MergerCo, the other parties thereto. As of the date of this Agreement, each of the Debt Financing Commitments, in the form so delivered, is in full force and effect and is a legal, valid and binding obligation of MergerCo and, to the Knowledge of MergerCo, the other parties thereto. The Financing Commitments have not been amended, supplemented or otherwise modified in any respect, except, in each case, with the prior written consent of the Company as permitted by Section 5.09(a), the financing commitments under the Equity Financing Commitments have not been withdrawn or terminated, and, as of the date hereof, the financing commitments under the Debt Financing Commitments have not been withdrawn or terminated. No event has occurred that, with or without notice, lapse of time or both, would constitute a default or breach on the part of MergerCo under any term or condition of the Financing Commitments, and, subject to the accuracy of the representations and warranties of the Company set forth herein, MergerCo has no reason to believe that it will not be able to satisfy on a timely basis any term or condition of closing to be satisfied by it or its Affiliates set forth in the Equity Financing Commitments or, as of the date hereof, in the Debt Financing Commitments, or that any portion of the Financing to be made thereunder will otherwise not be available to MergerCo on a timely basis to consummate the Merger and the other transactions contemplated hereby. As of the date hereof, MergerCo is not aware of any fact or occurrence that makes any of the assumptions, or the representations or warranties of MergerCo, in any of the Financing Commitments inaccurate in any material respect. MergerCo has fully paid any and all commitment fees or other fees required by the Financing Commitments to be paid by it on or prior to the date of this Agreement and shall in the future pay any such fees as they become due. The Financing, if and when funded in accordance with the Financing Commitments, will provide MergerCo with funds sufficient to satisfy all of MergerCos obligations under this Agreement, including the payment of the Merger Consideration, the Equity Award Amounts and any other amounts under Article II, the repayment or refinancing of debt contemplated in connection with the Merger or the Financing Commitments and all associated costs and expenses. The obligations to make the Financing available to MergerCo pursuant to the terms of the Financing Commitments are not subject to any conditions other than the conditions set forth in the Financing Commitments. MergerCo has also delivered to the Company the limited guarantee (the "Guarantee") of Carlyle Partners V, L.P. (the "Guarantor"), guaranteeing, on the terms set forth therein, the payment of any damages resulting from a breach of any representation, warranty, covenant or agreement of MergerCo set forth herein. The Guarantee is in full force and effect and is a legal, valid and binding obligation of the Guarantor, subject, as to enforceability, to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors rights and to general equity principles.

(e) Operations and Assets of MergerCo. MergerCo has been formed solely for the purpose of engaging in the transactions contemplated hereby and, prior to the Effective Time, will not have incurred liabilities or obligations of any nature, other than pursuant to or in connection with this Agreement and the Merger, the Financing and the other transactions contemplated by this Agreement.

(f) Ownership of Company Common Stock. Neither MergerCo nor the Guarantor, as of the date hereof, beneficially owns (within the meaning of Section 13 of the Exchange Act and the rules and regulations promulgated thereunder), and neither MergerCo nor the Guarantor will prior to the Closing Date beneficially own, any shares of Company Common Stock, and neither MergerCo nor the Guarantor is a party, and neither will prior to the Closing Date become a party, to any Contract, arrangement or understanding (other than this Agreement) for the purpose of acquiring, holding, voting or disposing of any shares of Company Common Stock.

(g) Brokers and Other Advisors. No broker, investment banker, financial advisor or other person, other than Morgan Stanley & Co. Incorporated, the fees and expenses of which will be paid by MergerCo, is entitled to any brokers, finders or financial advisors fee or commission in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of MergerCo.

(h) No Other Representations or Warranties. Except for the representations and warranties contained in this Section 3.02, the Company acknowledges that neither MergerCo nor any other person on behalf of MergerCo makes any other express or implied representation or warranty with respect to MergerCo or with respect to any other information provided to the Company in connection with the transactions contemplated hereby.

ARTICLE IV

Covenants Relating to Conduct of Business

SECTION 4.01 Conduct of Business.

(a) Except as set forth in Section 4.01(a) of the Company Disclosure Letter, expressly contemplated or required by this Agreement, required by Law or consented to in writing by MergerCo (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, carry on its business in the ordinary course consistent with past practice and, to the extent consistent therewith, use reasonable best efforts to preserve substantially intact its current business organizations, to keep available the services of its current officers and employees and to preserve its relationships with significant customers, providers, suppliers, and other persons having significant business dealings with it. Without limiting the generality of the foregoing, except as set forth in Section 4.01(a) of the Company Disclosure Letter, expressly contemplated or required by this Agreement, required by Law or consented to in writing by MergerCo (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries to:

(i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property) in respect of, any of its capital stock, other than (A) dividends or distributions by a direct or indirect wholly-owned Subsidiary of the Company to its parent and (B) regular quarterly cash dividends on the Company Common Stock, not to exceed, in the case of any such quarterly dividend, $0.17 per share;

(ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in lieu of or in substitution for shares of its capital stock;

(iii) purchase, redeem or otherwise acquire any shares of its capital stock or any rights, warrants or options to acquire any such shares, other than (A) the acquisition by the Company of shares of Company Common Stock in connection with the surrender of shares of Company Common Stock by holders of Company Stock Options in order to pay the exercise price of the Company Stock Options, (B) the withholding of shares of Company Common Stock to satisfy tax obligations with respect to awards granted pursuant to the Company Stock Plans, (C) the acquisition for no consideration or no more than the awards original purchase price by the Company of Company Stock Options, Company SARs, Company RSUs and shares of Company Restricted Stock in connection with the forfeiture of such awards, (D) the acquisition by the trustee of the Company 401(k) Plan of shares of Company Common Stock in order to satisfy participant investment elections under the Company 401(k) Plan and (E) the extinguishment of rights pursuant to Company Stock Equivalents in connection with the change in a participants investment election under a Specified Deferred Compensation Plan;

(iv) issue, deliver or sell any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, Company Stock Equivalents or any "phantom" stock, "phantom" stock rights, stock appreciation rights or stock based performance units, other than (A) upon the exercise of Company Stock Options and settlement of Company RSUs outstanding on the date of this Agreement, in each case in accordance with their present terms, (B) as required pursuant to any Company Benefit Plan or Company Benefit Agreement or other written agreement as in effect on the date of this Agreement, (C) the issuance of shares of Company Common Stock upon conversion of the Company Convertible Notes or exercise of the Company Warrants and (D) the issuance of Company Stock Equivalents pursuant to the Specified Deferred Compensation Plans;

(v) amend the Company Certificate of Incorporation or the Company Bylaws or the comparable organizational documents of any Subsidiary of the Company;

(vi) merge or consolidate with, or purchase an equity interest in or a substantial portion of the assets of, or any facility of, any person or any division or business thereof, if the aggregate amount of the consideration paid or transferred by the Company and its Subsidiaries in connection with all such transactions would exceed, individually or in the aggregate, $30.0 million, other than any such action solely between or among the Company and its wholly-owned Subsidiaries;

(vii) sell, lease or otherwise dispose of any of its properties or assets (including capital stock of any Subsidiary of the Company) that are material, individually or in the aggregate, to the Company and its Subsidiaries, taken as a whole, other than (A) sales or other dispositions of inventory and other assets in the ordinary course of business, and (B) subleases of Leased Real Properties, and voluntary terminations or surrenders of Real Property Leases, in each case, in the ordinary course of business;

(viii) pledge, encumber or otherwise subject to a Lien (other than a Permitted Lien) any of its properties or assets (including capital stock of any Subsidiary of the Company), other than in the ordinary course of business;

(ix) (A) incur any indebtedness for borrowed money (including capital leases), issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any such indebtedness or any debt securities of another person or enter into any "keep well" or other agreement to maintain any financial statement condition of another person (collectively, "Indebtedness") or amend or modify the terms of any current Indebtedness, other than (1) Indebtedness incurred, assumed or otherwise entered into in the ordinary course of business consistent with past practices under the Companys existing revolving credit facilities (including any letters of credit) in an amount not to exceed $50,000,000 (not including for purposes of calculating such amount any undrawn letter of credit) (provided that the amount of such additional Indebtedness may exceed $50,000,000 but not $75,000,000, only if the weighted average monthly balance of such Indebtedness does not exceed $50,000,000 for any month between the date hereof and the Closing Date and that the proceeds of such additional Indebtedness may not be used to fund payment of the Companys quarterly dividend), and (2) Indebtedness incurred to fund payments due under the Company Convertible Notes only upon conversion thereof; provided, that such Indebtedness does not provide for any prepayment penalty or premium or other breakage costs in connection with the repayment thereof or contain terms that that have, or would reasonably be expected to have, an adverse effect on the ability of MergerCo to obtain any portion of the Financing (including the CMBS financing contemplated by the Debt Commitments); or (B) make any loans or capital contributions to, or investments in, any other person, other than to any of the wholly-owned Subsidiaries of the Company;

(x) make, incur or commit to incur any capital expenditures in excess of the capital expenditures set forth in the Companys 2007 budget and strategic plan previously provided to MergerCo in writing, other than (A) in connection with the repair or replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered by insurance) or (B) otherwise in an aggregate amount for all such capital expenditures made pursuant to this clause (B) not to exceed $15.0 million;

(xi) settle any material claim or material litigation, in each case made or pending against the Company or any of its Subsidiaries, other than the settlement of claims or litigation disclosed, reflected or reserved against in the most recent financial statements (or the notes thereto) of the Company included in the Filed SEC Documents for an amount not materially in excess of the amount so disclosed, reflected or reserved;

(xii) cancel any material Indebtedness or waive any claims or rights of substantial value, in each case other than in the ordinary course of business; cancel any material Indebtedness or waive any claims or rights of substantial value, in each case other than in the ordinary course of business;

(xiii) except (A) in the ordinary course of business consistent with past practice, (B) as required pursuant to the terms of any Company Benefit Plan or Company Benefit Agreement or other written agreement as in effect on the date of this Agreement or (C) as otherwise expressly permitted by this Agreement, (1) grant to any officer, director or employee of the Company or any of its Subsidiaries any increase in compensation or benefits, (2) grant to any officer, director or employee of the Company or any of its Subsidiaries any increase in severance or termination pay, (3) enter into any employment, consulting, severance or termination agreement with any officer, director or employee of the Company or any of its Subsidiaries pursuant to which the total annual compensation or the aggregate severance benefits per employee exceed $250,000, (4) establish, adopt, enter into or amend in any material respect any collective bargaining agreement, Company Benefit Agreement or Company Benefit Plan or (5) accelerate any rights or benefits, or make any material determinations, under any Company Benefit Plan or Company Benefit Agreement; provided, however, that the foregoing clauses (1), (2), and (3) shall not restrict the Company or any of its Subsidiaries from entering into or making available to newly hired employees, other than executive officers, or to employees, other than executive officers, in the context of promotions based on job performance or workplace requirements, in each case in the ordinary course of business consistent with past practice, plans, agreements, benefits and compensation arrangements (including incentive grants) that have a value that is consistent with the past practice of making compensation and benefits available to newly hired or promoted employees in similar positions;

(xiv) make any change in accounting methods, principles or practices materially affecting the consolidated assets, liabilities or results of operations of the Company, other than as required (A) by GAAP (or any interpretation thereof), including as may be required by the Financial Accounting Standards Board or any similar organization, or (B) by Law, including Regulation S-X under the Securities Act;

(xv) make or change any material tax election, file any amended tax return with respect to any material tax or change any annual tax accounting period, settle or compromise any material tax liability, enter into any closing agreement relating to a material amount of taxes or waive or extend the statute of limitations in respect of a material amount of taxes, in each case, other than in the ordinary course of business and consistent with past practice;

(xvi) enter into any lease for any real or personal property, other than in the ordinary course of business and consistent with past practice;

(xvii) fail to maintain in full force and effect in all material respects adequate insurance in accordance with past practice;

(xviii) adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company;

(xix) amend, modify, terminate or enter into any Specified Contract (other than any Specified Contract described in clause (xi) of the definition thereof) other than in the ordinary course of business and consistent with past practice or amend, modify or terminate that certain letter agreement between the Company and JPMorgan Chase Bank, National Association, London Branch, dated as of the date hereof relating to the Company Warrants and certain purchased call options;

(xx) enter into any Related Party Transaction; or

(xxi) authorize any of, or commit or agree to take any of, the foregoing actions.

(b) Advice of Changes. The Company and MergerCo shall promptly give written notice to the other party upon becoming aware of any material event, development or occurrence that would reasonably be expected to give rise to a failure of condition precedent set forth in Section 6.02 (in the case of the Company) or Section 6.03 (in the case of MergerCo).

SECTION 4.02 No Solicitation.

(a) The Company shall not, nor shall it authorize or permit any of its Subsidiaries or any of their respective directors, officers or employees to, and shall not authorize any investment banker, financial advisor, attorney, accountant or other advisor, agent or representative (collectively, "Representatives") retained by it or any of its Subsidiaries to, directly or indirectly, (i) solicit, initiate, cause or knowingly encourage, or take any other action to knowingly facilitate, the making of any proposal that constitutes or is reasonably likely to lead to a Takeover Proposal or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding or furnish to any person any confidential information with respect to, or otherwise actively assist in any way with, any Takeover Proposal. The Company shall, and shall cause its Subsidiaries and direct its Representatives to, immediately cease and cause to be terminated all existing discussions and negotiations with any person conducted heretofore with respect to any Takeover Proposal. Notwithstanding the foregoing or anything else in this Agreement to the contrary, at any time prior to obtaining the Stockholder Approval, in response to an unsolicited bona fide written Takeover Proposal, if the Board of Directors of the Company determines in good faith (x) after consultation with its financial advisor and outside counsel, that such Takeover Proposal constitutes or is reasonably likely to lead to a Superior Proposal and (y) after consultation with its outside counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable Law, the Company may (and may authorize and permit its Subsidiaries, directors, officers, employees and Representatives to), subject to compliance with Section 4.02(c), (A) furnish information with respect to the Company and its Subsidiaries to the person making such Takeover Proposal (and its Representatives) pursuant to a customary confidentiality agreement containing confidentiality provisions not less favorable in the aggregate to the Company than those set forth in the Confidentiality Agreement and which shall contain a standstill provision no less favorable in the aggregate to the Company, and ending contemporaneously with, the standstill provision set forth in the Confidentiality Agreement; provided that all such information has previously been provided to MergerCo or is provided to MergerCo prior to or substantially concurrently with the time it is provided to such person, and (B) participate in discussions and negotiations with the person making such Takeover Proposal (and its Representatives) regarding such Takeover Proposal.

The term "Takeover Proposal" means any inquiry, proposal or offer from any person or group relating to (a) any direct or indirect acquisition or purchase (by merger or otherwise), in a single transaction or a series of transactions, of (1) 20% or more (based on the fair market value thereof, as determined by the Board of Directors of the Company) of assets (including capital stock of the Subsidiaries of the Company) of the Company and its Subsidiaries, taken as a whole, or (2) 20% or more of any class of equity securities of the Company, (b) any tender offer or exchange offer that, if consummated, would result in any person or group owning, directly or indirectly, 20% or more of any class of equity securities of the Company or (c) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, binding share exchange or similar transaction involving the Company pursuant to which any person or group (or the shareholders of any person) would own, directly or indirectly, 20% or more of any class of equity securities of the Company or of the surviving entity in a merger or the resulting direct or indirect parent of the Company or such surviving entity, other than, in each case, the transactions contemplated by this Agreement.

The term "Superior Proposal" means any written bona fide Takeover Proposal that if consummated would result in a person or group (or the shareholders of any person) owning, directly or indirectly, (A) 50% or more of any class of equity securities of the Company or of the surviving entity in a merger or the resulting direct or indirect parent of the Company or such surviving entity or (B) 50% or more (based on the fair market value thereof, as determined by the Board of Directors of the Company) of the assets of the Company and its Subsidiarie