HORIZON HEALTHCARE CORP
8-K, 1995-04-10
SKILLED NURSING CARE FACILITIES
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<PAGE>

                 SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549


                           ----------------


                               FORM 8-K

                            CURRENT REPORT

                  Pursuant to Section 13 or 15(d) of
                  the Securities Exchange Act of 1934


    Date of Report (Date of earliest event reported):  March 31, 1995

- -------------------------------------------------------------------------------


                     Horizon Healthcare Corporation

          (Exact name of registrant as specified in its charter)


- -------------------------------------------------------------------------------

       DELAWARE                     1-9369                 91-1346899
  (State or other           (Commission File Number)      (I.R.S. Employer
  jurisdiction of                                        Identification No.)
   incorporation)

- --------------------------------------------------------------------------------

6001 INDIAN SCHOOL ROAD, N.E., SUITE 530, ALBUQUERQUE, NM           87110
       (Address of principal executive offices)                  (Zip Code)

- -------------------------------------------------------------------------------


      Registrant's telephone number, including area code:  (505) 881-4961

<PAGE>
ITEM 5.  OTHER EVENTS.

   On March 31, 1995, Horizon Healthcare Corporation
("Horizon") entered into (i) the Agreement and Plan of Merger,
dated as of March 31, 1995, (the "Merger Agreement") by and
among Horizon, CMS Merger Corporation, a wholly owned subsidiary
of Horizon ("Merger Sub"), and Continental Medical Systems, Inc.
("CMS"); (ii) the Stock Option Agreement, dated as of March 31,
1995, by and among Horizon and CMS (the "Stock Option Agreement");
and (iii) the Voting Agreement, dated as of March 31, 1995, between
Horizon and certain stockholders of CMS named therein (the
"Voting Agreement").  The Merger Agreement, the Stock Option
Agreement, the Voting Agreement and the joint press release of
Horizon and CMS, dated March 31, 1995 (the "Joint Press
Release"), are filed as Exhibits 2.1, 2.2, 2.3 and 99 hereto,
respectively, and are specifically incorporated herein by
reference.

ITEM 7.  FINANCIAL STATEMENTS AND EXHIBITS.

<TABLE>
<CAPTION>
<S>    <C>
2.1    Agreement and Plan of Merger, dated as of March 31,
       1995, by and among Horizon, Merger Sub and CMS.

2.2    Stock Option Agreement, dated as of March 31, 1995, by
       and among Horizon and CMS.

2.3    Voting Agreement, dated as of March 31, 1995, between
       Horizon and the stockholders of CMS named therein.

99     Joint Press Release.
</TABLE>


                                    1
<PAGE>

                               SIGNATURE

   Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf to the undersigned, thereunto duly
authorized.

Date: April 10, 1995

                                HORIZON HEALTHCARE CORPORATION



                                By: /s/ ERNEST A. SCHOFIELD
                                    ---------------------------
                                Name:   Ernest A. Schofield
                                Title:  Senior Vice President and
                                          Chief Financial Officer




                                      2
<PAGE>


                             EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT                                                SEQUENTIAL
NUMBER              DESCRIPTION OF EXHIBITS            PAGE NUMBER
- ------              -----------------------            -----------

<S>         <C>                                        <C>
2.1         Agreement and Plan of Merger, dated as
            of March 31, 1995, by and among Horizon
            Healthcare Corporation, CMS Merger
            Corporation and Continental Medical
            Systems, Inc.

2.2         Stock Option Agreement, dated as of
            March 31, 1995, by and among Horizon
            Healthcare Corporation and Continental
            Medical Systems, Inc.

2.3         Voting Agreement, dated as of March 31,
            1995, between Horizon Healthcare
            Corporation and the stockholders of
            Continental Medical Systems, Inc. named
            therein.

99          Joint Press Release of Horizon
            Healthcare Corporation and Continental
            Medical Systems, Inc., dated March 31,
            1995.

</TABLE>


<PAGE>
                          AGREEMENT AND PLAN OF MERGER
                                  BY AND AMONG
                        HORIZON HEALTHCARE CORPORATION,
                             CMS MERGER CORPORATION
                                      AND
                       CONTINENTAL MEDICAL SYSTEMS, INC.

<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                            ---------
<S>                                                                                                         <C>

                                                      ARTICLE I
                                                     THE MERGER

SECTION 1.01. THE MERGER..................................................................................        1
SECTION 1.02. EFFECTIVE TIME..............................................................................        1
SECTION 1.03. EFFECT OF THE MERGER........................................................................        1
SECTION 1.04. CERTIFICATE OF INCORPORATION; BYLAWS........................................................        2
SECTION 1.05. DIRECTORS AND OFFICERS......................................................................        2

                                                     ARTICLE II
                                 CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 2.01. MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF SECURITIES.............................        2
SECTION 2.02. PAYMENT FOR COMPANY COMMON STOCK; SURRENDER OF CERTIFICATES.................................        3
SECTION 2.03. STOCK TRANSFER BOOKS........................................................................        5
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................................        5
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS.....................................................        5
SECTION 3.03. CAPITALIZATION..............................................................................        5
SECTION 3.04. AUTHORITY...................................................................................        7
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS..................................................        7
SECTION 3.06. PERMITS; COMPLIANCE.........................................................................        8
SECTION 3.07. REPORTS; FINANCIAL STATEMENTS...............................................................        9
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................................       10
SECTION 3.09. ABSENCE OF LITIGATION.......................................................................       10
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.......................................................       11
SECTION 3.11. TAXES.......................................................................................       12
SECTION 3.12. TAX MATTERS; POOLING........................................................................       12
SECTION 3.13. AFFILIATES..................................................................................       13
SECTION 3.14. CERTAIN BUSINESS PRACTICES..................................................................       13
SECTION 3.15. OPINION OF FINANCIAL ADVISOR................................................................       13
SECTION 3.16. VOTE REQUIRED...............................................................................       13
SECTION 3.17. BROKERS.....................................................................................       13
SECTION 3.18. ACQUIRING PERSON............................................................................       14
SECTION 3.19. INFORMATION SUPPLIED........................................................................       14
SECTION 3.20. INSURANCE...................................................................................       14
SECTION 3.21. PROPERTIES..................................................................................       14

                                                     ARTICLE IV
                                     REPRESENTATIONS AND WARRANTIES OF ACQUIROR

SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................................................       15
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS.....................................................       15
SECTION 4.03. CAPITALIZATION..............................................................................       15
SECTION 4.04. AUTHORITY...................................................................................       16
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS..................................................       17
SECTION 4.06. PERMITS; COMPLIANCE.........................................................................       17
SECTION 4.07. REPORTS; FINANCIAL STATEMENTS...............................................................       18
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................................       19
SECTION 4.09. ABSENCE OF LITIGATION.......................................................................       19
SECTION 4.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.......................................................       20
SECTION 4.11. TAXES.......................................................................................       21
SECTION 4.12. TAX MATTERS; POOLING........................................................................       22
SECTION 4.13. AFFILIATES..................................................................................       22
SECTION 4.14. CERTAIN BUSINESS PRACTICES..................................................................       22
</TABLE>

                                        i
<PAGE>
<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                            ---------
<S>                                                                                                         <C>
SECTION 4.15. OPINION OF FINANCIAL ADVISOR................................................................       22
SECTION 4.16. VOTE REQUIRED...............................................................................       22
SECTION 4.17. BROKERS.....................................................................................       22
SECTION 4.18. INFORMATION SUPPLIED........................................................................       22
SECTION 4.19. INSURANCE...................................................................................       23
SECTION 4.20. PROPERTIES..................................................................................       23

                                                      ARTICLE V
                                                      COVENANTS

SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY........................................................       23
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY...........................................................       23
SECTION 5.03. NEGATIVE COVENANTS OF ACQUIROR..............................................................       26
SECTION 5.04. ACCESS AND INFORMATION......................................................................       28
SECTION 5.05. AFFIRMATIVE COVENANTS OF ACQUIROR...........................................................       28

                                                     ARTICLE VI
                                                ADDITIONAL AGREEMENTS

SECTION 6.01. MEETINGS OF STOCKHOLDERS....................................................................       29
SECTION 6.02. REGISTRATION STATEMENT; PROXY STATEMENTS....................................................       29
SECTION 6.03. APPROPRIATE ACTION; CONSENTS; FILINGS.......................................................       31
SECTION 6.04. AFFILIATES; POOLING; TAX TREATMENT..........................................................       32
SECTION 6.05. PUBLIC ANNOUNCEMENTS........................................................................       32
SECTION 6.06. NYSE LISTING................................................................................       32
SECTION 6.07. RIGHTS AGREEMENT; STATE TAKEOVER STATUTES...................................................       32
SECTION 6.08. COMFORT LETTERS.............................................................................       32
SECTION 6.09. ASSUMPTION OF OBLIGATIONS TO ISSUE STOCK....................................................       33
SECTION 6.10. MERGER SUB..................................................................................       34
SECTION 6.11. BOARD OF DIRECTORS..........................................................................       34
SECTION 6.12. INDEMNIFICATION AND INSURANCE...............................................................       34

                                                     ARTICLE VII
                                                 CLOSING CONDITIONS

SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT................................       35
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE ACQUIROR COMPANIES..............................       36
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.........................................       36

                                                    ARTICLE VIII
                                          TERMINATION, AMENDMENT AND WAIVER

SECTION 8.01. TERMINATION.................................................................................       37
SECTION 8.02. EFFECT OF TERMINATION.......................................................................       38
SECTION 8.03. AMENDMENT...................................................................................       38
SECTION 8.04. WAIVER......................................................................................       38
SECTION 8.05. FEES, EXPENSES AND OTHER PAYMENTS...........................................................       39

                                                     ARTICLE IX
                                                 GENERAL PROVISIONS

SECTION 9.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................................       40
SECTION 9.02. NOTICES.....................................................................................       40
SECTION 9.03. CERTAIN DEFINITIONS.........................................................................       41
SECTION 9.04. HEADINGS....................................................................................       42
SECTION 9.05. SEVERABILITY................................................................................       42
SECTION 9.06. ENTIRE AGREEMENT............................................................................       42
SECTION 9.07. ASSIGNMENT..................................................................................       42
</TABLE>

                                        ii
<PAGE>
<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                            ---------
<S>                                                                                                         <C>
SECTION 9.08. PARTIES IN INTEREST.........................................................................       42
SECTION 9.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.......................................       42
SECTION 9.10. GOVERNING LAW...............................................................................       42
SECTION 9.11. COUNTERPARTS................................................................................       43
SECTION 9.12. SPECIFIC PERFORMANCE........................................................................       43

                                                      EXHIBITS

Exhibit A Form of Company Affiliate Letter
Exhibit B Form of Acquiror Affiliate Letter
</TABLE>

                                       iii
<PAGE>
                          AGREEMENT AND PLAN OF MERGER

    THIS  AGREEMENT  AND  PLAN OF  MERGER,  dated  as of  March  31,  1995 (this
"Agreement"), is  by  and  among  HORIZON  HEALTHCARE  CORPORATION,  a  Delaware
corporation  ("Acquiror"), CMS  MERGER CORPORATION,  a Delaware  corporation and
wholly owned  subsidiary of  Acquiror ("Merger  Sub"), and  CONTINENTAL  MEDICAL
SYSTEMS,  INC., a Delaware corporation (the  "Company"). Acquiror and Merger Sub
are sometimes collectively referred to herein as the "Acquiror Companies."

    WHEREAS, Merger Sub, upon  the terms and subject  to the conditions of  this
Agreement  and in accordance  with the General  Corporation Law of  the State of
Delaware ("Delaware Law"), will merge with and into the Company (the "Merger");

    WHEREAS, Acquiror and  the Company,  in connection with  this Agreement  and
prior  to or contemporaneous with the  execution of this Agreement, have entered
into a Stock Option Agreement (the "Stock Option Agreement");

    WHEREAS, the  Board of  Directors of  the Company  has determined  that  the
Merger  is consistent with and in furtherance of the long-term business strategy
of the Company and is fair to, and in the best interests of, the Company and its
stockholders and has approved  and adopted this  Agreement and the  transactions
contemplated  hereby, and recommended approval and adoption of this Agreement by
the stockholders of the Company;

    WHEREAS, the  Board of  Directors  of Acquiror  (the  Acquiror Board  )  has
determined  that  the  Merger  is  consistent with  and  in  furtherance  of the
long-term business  strategy  of  Acquiror and  is  fair  to, and  in  the  best
interests  of, Acquiror and  its stockholders and has  approved and adopted this
Agreement and the transactions contemplated hereby, and recommended approval and
adoption of this Agreement by the stockholders of Acquiror;

    WHEREAS, for federal  income tax purposes,  it is intended  that the  Merger
will  qualify as a reorganization under the  provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and

    WHEREAS, the Merger is  intended to be treated  as a "pooling of  interests"
for financial accounting purposes;

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

                                   ARTICLE I
                                   THE MERGER

    SECTION 1.01.  THE MERGER.  Upon the terms and subject to the conditions set
forth  in this Agreement, and in accordance  with Delaware Law, at the Effective
Time (as defined in Section 1.02 of this Agreement), Merger Sub shall be  merged
with  and into the  Company. As a  result of the  Merger, the separate corporate
existence of  Merger Sub  shall cease  and  the Company  shall continue  as  the
surviving  corporation of the Merger (the  "Surviving Corporation"). The name of
the Surviving Corporation shall be "Continental Medical Systems, Inc."

    SECTION 1.02.    EFFECTIVE TIME.    As  promptly as  practicable  after  the
satisfaction  or, if permissible, waiver of  the conditions set forth in Article
VII of  this  Agreement,  the  parties  hereto shall  cause  the  Merger  to  be
consummated by filing a Certificate of Merger with the Secretary of State of the
State  of Delaware, in such form as required by, and executed in accordance with
the relevant provisions of, Delaware Law (the date and time of the completion of
such filing being the "Effective Time").

    SECTION 1.03.  EFFECT OF THE MERGER.   At the Effective Time, the effect  of
the  Merger shall be as  provided in the applicable  provisions of Delaware Law.
Without limiting the generality  of the foregoing, and  subject thereto, at  the
Effective  Time, except as otherwise provided  herein, all the property, rights,
privileges, powers and franchises  of Merger Sub and  the Company shall vest  in
the  Surviving Corporation, and all debts,  liabilities and duties of Merger Sub
and the Company shall become the debts, liabilities and duties of the  Surviving
Corporation.

                                      1
<PAGE>
    SECTION 1.04.  CERTIFICATE OF INCORPORATION; BYLAWS.  At the Effective Time,
the  Certificate of Incorporation  and the Bylaws  of the Company,  as in effect
immediately  prior  to  the  Effective   Time,  shall  be  the  Certificate   of
Incorporation and the Bylaws of the Surviving Corporation.

    SECTION  1.05.    DIRECTORS  AND  OFFICERS.   The  directors  of  Merger Sub
immediately prior to the Effective Time shall be the directors of the  Surviving
Corporation,  each  to  hold  office  in  accordance  with  the  Certificate  of
Incorporation and Bylaws of the Surviving  Corporation, and the officers of  the
Company  immediately prior to  the Effective Time  shall be the  officers of the
Surviving Corporation, in each case  until their respective successors are  duly
elected or appointed and qualified.

                                   ARTICLE II
               CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

    SECTION   2.01.    MERGER  CONSIDERATION;  CONVERSION  AND  CANCELLATION  OF
SECURITIES.  At  the Effective Time,  by virtue  of the Merger  and without  any
action  on the part of the Acquiror Companies, the Company or the holders of any
of the Company's securities:

        (a) Subject to the  other provisions of this  Article II, each share  of
    common  stock, par  value $.01  per share,  of the  Company ("Company Common
    Stock") issued  and  outstanding immediately  prior  to the  Effective  Time
    (excluding  any Company  Common Stock described  in Section  2.01(c) of this
    Agreement) shall be converted into a  number of shares of common stock,  par
    value  $.001 per share ("Acquiror Common Stock") of Acquiror equal to $13.00
    divided by the "Acquiror Transaction Value" as hereinafter defined,  rounded
    to  four  decimal  places  (the "Common  Stock  Exchange  Ratio"); provided,
    however, that notwithstanding the foregoing, the Common Stock Exchange Ratio
    shall not  be  less than  .4415  nor more  than  .5397. The  term  "Acquiror
    Transaction  Value" shall  mean the  average closing  price on  the New York
    Stock Exchange Composite Tape of Acquiror  Common Stock for the 20 New  York
    Stock  Exchange trading days  ending with the third  New York Stock Exchange
    trading day immediately preceding the date  of mailing of the Company  Proxy
    Statement  (as defined below). Notwithstanding the foregoing, if between the
    date of this  Agreement and  the Effective  Time the  outstanding shares  of
    Acquiror Common Stock or Company Common Stock shall have been changed into a
    different  number of  shares or  a different class,  by reason  of any stock
    dividend,   subdivision,    reclassification,    recapitalization,    split,
    combination  or exchange of shares, the Common Stock Exchange Ratio shall be
    correspondingly  adjusted  to  reflect  such  stock  dividend,  subdivision,
    reclassification,   recapitalization,  split,  combination  or  exchange  of
    shares.

        (b) As a result of their conversion pursuant to subsection 2.01(a),  all
    shares  of  Company Common  Stock shall  cease to  be outstanding  and shall
    automatically be canceled and retired, and each certificate  ("Certificate")
    previously  evidencing Company Common Stock outstanding immediately prior to
    the Effective Time  (other than  Company Common Stock  described in  Section
    2.01(c)  of this Agreement) ("Converted Shares") shall thereafter represent,
    subject to  Section 2.02(e)  of this  Agreement, that  number of  shares  of
    Acquiror Common Stock determined pursuant to the Common Stock Exchange Ratio
    and, if applicable, the right to receive cash pursuant to Section 2.02(e) of
    this  Agreement (the  "Merger Consideration").  The holders  of Certificates
    previously evidencing Converted Shares shall  cease to have any rights  with
    respect  to such Converted Shares except  as otherwise provided herein or by
    law. Such  Certificates  previously  evidencing Converted  Shares  shall  be
    exchanged  for certificates evidencing whole shares of Acquiror Common Stock
    upon the surrender of such Certificates in accordance with the provisions of
    Section 2.02  of this  Agreement. No  fractional shares  of Acquiror  Common
    Stock  shall be issued  and, in lieu  thereof, a cash  payment shall be made
    pursuant to Section 2.02(e) of this Agreement. From and after the  Effective
    Time, former stockholders of record of the Company shall be entitled to vote
    at  any meeting  of holders  of Acquiror  Common Stock  the number  of whole
    shares of  Acquiror  Common Stock  into  which their  Converted  Shares  are
    converted,   regardless  of  whether  such   holders  have  exchanged  their
    certificates representing the Converted Shares for certificates representing
    Acquiror Common Stock in accordance  with the provisions of this  Agreement.
    Until  surrendered for exchange in accordance with the provisions of Section
    2.02 of this Agreement, each Certificate theretofore representing  Converted
    Shares (other than shares of

                                      2
<PAGE>
    Company  Common Stock  to be  canceled pursuant  to Section  2.01(c) of this
    Agreement) shall  from  and  after  the Effective  Time  represent  for  all
    purposes  only shares of  Acquiror Common Stock and/or  the right to receive
    cash, as set forth in this Agreement.

        (c) Notwithstanding any  provision of  this Agreement  to the  contrary,
    each  share of Company Common Stock held  in the treasury of the Company and
    each share  of Company  Common Stock  owned  by Acquiror  or any  direct  or
    indirect  wholly owned subsidiary of Acquiror  or of the Company immediately
    prior to the Effective Time shall  be canceled and extinguished without  any
    conversion thereof and no payment shall be made with respect thereto.

        (d) Each share of common stock, par value $.001 per share, of Merger Sub
    issued  and outstanding  immediately prior  to the  Effective Time  shall be
    converted into one share of common stock, par value $.001 per share, of  the
    Surviving Corporation.

    SECTION   2.02.     PAYMENT   FOR   COMPANY  COMMON   STOCK;   SURRENDER  OF
CERTIFICATES.

        (a) EXCHANGE FUND.   Promptly after the  Effective Time, Acquiror  shall
    deposit,  or cause to  be deposited, with  a bank or  trust company mutually
    agreeable to the parties to this  Agreement (the "Exchange Agent"), for  the
    benefit  of  the  former  holders  of  Converted  Shares,  for  exchange  in
    accordance  with  this   Article  II,  through   the  Exchange  Agent,   (i)
    certificates evidencing a number of shares of Acquiror Common Stock equal to
    the  product of the Common Stock Exchange  Ratio multiplied by the number of
    Converted Shares and (ii)  cash in an amount  equal to the aggregate  amount
    required to be paid in lieu of fractional interests of Acquiror Common Stock
    pursuant  to Section 2.02(e). Subject to the provisions of subsection (f) of
    this Section 2.02, Acquiror shall, if  and when a payment date has  occurred
    with respect to a dividend or distribution that has been declared subsequent
    to the Effective Time, deposit with the Exchange Agent an amount in cash (or
    property  of like  kind to  that which  is the  subject to  such dividend or
    distribution) equal to the  dividend or distribution  per share of  Acquiror
    Common  Stock times the number of  shares of Acquiror Common Stock evidenced
    by Certificates that have not  theretofore been surrendered for exchange  in
    accordance  with this Section 2.02. The certificates and cash (and property,
    if any) deposited with the Exchange Agent in accordance with this subsection
    2.02(a) are hereinafter  referred to  as the "Exchange  Fund". The  Exchange
    Agent  shall, pursuant to irrevocable  instructions, deliver Acquiror Common
    Stock (and any dividends  or distribution related  thereto) and/or cash,  as
    described  above, in exchange  for surrendered Certificates  pursuant to the
    terms of this Agreement out of the Exchange Fund. Except as contemplated  by
    Section  2.02(e) of this Agreement, the Exchange  Fund shall not be used for
    any other purpose.

        (b) LETTER OF TRANSMITTAL.  As  soon as practicable after the  Effective
    Time,  Acquiror will  send to  each record  holder of  Company Stock  at the
    Effective Time a letter of  transmittal and other appropriate materials  for
    use in surrendering Certificates to the Exchange Agent.

        (c) PAYMENT PROCEDURES.  Promptly after the Effective Time, the Exchange
    Agent  shall  distribute to  each former  holder  of Converted  Shares, upon
    surrender  to  the  Exchange   Agent  of  one   or  more  Certificates   for
    cancellation, together with a duly executed and properly completed letter of
    transmittal,  the  Merger Consideration  for  each Converted  Share formerly
    represented thereby, in accordance  with the provisions  of Section 2.01  of
    this  Agreement. If payment is to be made  to a person other than the person
    in whose  name the  Certificate surrendered  is registered,  it shall  be  a
    condition  of payment that the Certificate  so surrendered shall be properly
    endorsed, with  signatures  guaranteed,  or otherwise  in  proper  form  for
    transfer  and that the person requesting such payment shall pay any transfer
    or other taxes required by reason of the payment to a person other than  the
    registered  holder  of the  Certificate  surrendered, or  such  person shall
    establish to the satisfaction of Acquiror that such tax has been paid or  is
    not  applicable. Notwithstanding  the foregoing, neither  the Exchange Agent
    nor any  party hereto  shall be  liable to  any former  holder of  Converted
    Shares for any cash, Acquiror Common Stock or dividends thereon delivered to
    a  public official pursuant to applicable  escheat law. No interest shall be
    paid on  any Merger  Consideration payable  to former  holders of  Converted
    Shares.

        (d)  DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF ACQUIROR COMMON
    STOCK.   No dividends  or other  distributions declared  or made  after  the
    Effective  Time with  respect to  Acquiror Common  Stock with  a record date
    after   the   Effective   Time   shall   be   paid   to   the   holder    of

                                      3
<PAGE>
    any  unsurrendered Certificate with respect to the shares of Acquiror Common
    Stock evidenced thereby  and no Merger  Consideration shall be  paid to  any
    such  holder,  until the  holder of  such  Certificate shall  surrender such
    Certificate. If any holder of Converted Shares shall be unable to  surrender
    such  holder's  Certificates because  such  Certificates have  been  lost or
    destroyed, such  holder  may  deliver  in  lieu  thereof  an  affidavit  and
    indemnity bond in form and substance and with surety reasonably satisfactory
    to  Acquiror. Subject  to applicable laws,  following surrender  of any such
    Certificate,  there  shall  be  paid  to  the  holder  of  the  certificates
    evidencing  whole  shares  of  Acquiror  Common  Stock  issued  in  exchange
    therefor, without interest,  (i) promptly,  the amount of  any cash  payable
    with  respect to a fractional  share of Acquiror Common  Stock to which such
    holder is entitled  pursuant to Section  2.02(e) of this  Agreement and  the
    amount  of dividends  or other  distributions with  a record  date after the
    Effective Time  theretofore  paid  with  respect to  such  whole  shares  of
    Acquiror  Common Stock, and (ii) at the appropriate payment date, the amount
    of dividends or other distributions, with a record date after the  Effective
    Time  but prior to  surrender and a payment  date occurring after surrender,
    payable with respect to such whole shares of Acquiror Common Stock.

        (e) NO FRACTIONAL SHARES.

           (i) Notwithstanding anything herein to the contrary, no  certificates
       or  scrip evidencing fractional shares of  Acquiror Common Stock shall be
       issued  upon  the  surrender  for  exchange  of  Certificates,  and  such
       fractional  share interests will not entitle the owner thereof to vote or
       to any  rights  as  a  stockholder  of Acquiror.  In  lieu  of  any  such
       fractional  shares,  each holder  of Company  Stock  upon surrender  of a
       Certificate for exchange  pursuant to this  Article II shall  be paid  an
       amount   in  cash  (without  interest),  rounded  to  the  nearest  cent,
       determined by multiplying (a) the per share closing price on the New York
       Stock Exchange  ("NYSE") of  Acquiror Common  Stock on  the date  of  the
       Effective  Time (or, if shares  of Acquiror Common Stock  do not trade on
       the NYSE on such date, the first date of trading of Acquiror Common Stock
       on the NYSE after the Effective  Time) by (b) the fractional interest  of
       Acquiror  Common Stock to  which such holder  would otherwise be entitled
       (after taking into account  all Converted Shares held  of record by  such
       holder  at  the Effective  Time), subject  to  the provisions  of Section
       2.02(c) of this Agreement.

           (ii) As soon as practicable after the determination of the amount  of
       cash,  if any,  to be  paid to  former holders  of Converted  Shares with
       respect to any fractional share  interests of Acquiror Common Stock,  the
       Exchange  Agent shall promptly pay such amounts to such former holders of
       Converted Shares subject  to and  in accordance  with the  terms of  this
       Section 2.02. Acquiror will make available to the Exchange Agent the cash
       necessary for this purpose.

        (f) TERMINATION OF EXCHANGE FUND.  Any portion of the Exchange Fund that
    remains  unclaimed by the former holders  of Converted Shares for six months
    after the Effective Time  shall be delivered to  Acquiror, upon demand,  and
    any  former holders  of Converted Shares  who have  not theretofore complied
    with this Article II shall thereafter  look only to Acquiror for the  Merger
    Consideration  and dividends  or distributions  to which  they are entitled,
    without any interest thereon.

        (g) WITHHOLDING.  Acquiror (or any affiliate thereof) shall be  entitled
    to  deduct and withhold from the consideration otherwise payable pursuant to
    this Agreement to  any former  holder of  Converted Shares  such amounts  as
    Acquiror  (or any affiliate thereof) is required to deduct and withhold with
    respect to the making of such payment under the Code, or any other provision
    of federal, state, local or foreign tax law. To the extent that amounts  are
    so  withheld by  Acquiror, such  withheld amounts  shall be  treated for all
    purposes of this Agreement as having been  paid to the former holder of  the
    Converted Shares in respect of which such deduction and withholding was made
    by Acquiror.

        (h)  EFFECT OF  ESCHEAT LAWS.   None Acquiror  nor the  Company shall be
    liable to any holder of shares of Company Stock for any Merger Consideration
    (or dividends or distributions with respect thereto) or cash delivered to  a
    public  official pursuant  to any  applicable abandoned  property escheat or
    similar law.

                                      4
<PAGE>
    SECTION  2.03.   STOCK TRANSFER  BOOKS.   At the  Effective Time,  the stock
transfer books of  the Company shall  be closed  and there shall  be no  further
registration  of transfers of shares of  Company Stock thereafter on the records
of the Company.

                                  ARTICLE III
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    The Company hereby represents and warrants to the Acquiror Companies that:

    SECTION 3.01.  ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.  The Company is
a corporation,  and each  of  the Company's  subsidiaries  is a  corporation  or
partnership,  duly organized,  validly existing and  in good  standing under the
laws of the jurisdiction of its incorporation or organization, has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good standing
to do  business  in  each jurisdiction  in  which  the nature  of  the  business
conducted  by  it or  the  ownership or  leasing  of its  properties  makes such
qualification necessary, other than  where the failure to  be so duly  qualified
and in good standing could not reasonably be expected to have a Company Material
Adverse  Effect.  The term  "Company Material  Adverse Effect"  as used  in this
Agreement shall  mean any  change or  effect that,  individually or  when  taken
together  with all other such changes or effects, would be materially adverse to
the financial condition,  results of  operations, business or  prospects of  the
Company  and its subsidiaries, taken  as a whole, at the  time of such change or
effect. Section 3.01 of the Disclosure Schedule delivered by the Company to  the
Acquiror  Companies  concurrently  with  the execution  of  this  Agreement (the
"Company Disclosure Schedule") sets forth, as  of the date of this Agreement,  a
true  and  complete  list of  all  the  Company's directly  or  indirectly owned
subsidiaries,  together   with  (A)   the  jurisdiction   of  incorporation   or
organization  of  each  subsidiary  and  the  percentage  of  each  subsidiary's
outstanding capital stock  or other  equity interests  owned by  the Company  or
another  subsidiary of the  Company and (B)  an indication of  whether each such
subsidiary is a "Significant Subsidiary" as  defined in Section 9.03(f) of  this
Agreement.  Except  as  set forth  in  Section  3.01 of  the  Company Disclosure
Schedule, neither  the  Company nor  any  of  its subsidiaries  owns  an  equity
interest  in  any partnership  or joint  venture  arrangement or  other business
entity that  is material  to  the financial  condition, results  of  operations,
business or prospects of the Company and its subsidiaries, taken as a whole.

    SECTION  3.02.   CERTIFICATE OF INCORPORATION  AND BYLAWS.   The Company has
heretofore furnished or made available  to Acquiror complete and correct  copies
of   the  Certificate  of  Incorporation  and   the  Bylaws  or  the  equivalent
organizational documents,  in each  case  as amended  or  restated to  the  date
hereof, of the Company and each of its subsidiaries. Neither the Company nor any
of  its corporate subsidiaries is  in violation of any  of the provisions of its
Certificate of Incorporation or Bylaws (or equivalent organizational documents).
Except as disclosed in  the Company Disclosure Schedule,  none of the Company  s
noncorporate   subsidiaries   is  in   violation  of   any  provisions   of  its
organizational documents  (the  "Constituent  Documents") other  than  any  such
violations  that could  not reasonably  be expected  to have  a Company Material
Adverse Effect.

    SECTION 3.03.  CAPITALIZATION.

        (a) The authorized capital stock  of the Company consists of  80,000,000
    shares of Company Common Stock and 10,000,000 shares of preferred stock, par
    value  $.01 per  share ("Company Preferred  Stock"), of  which 50,000 shares
    have been designated as  Series A Junior  Participating Preferred Stock  and
    the balance of which are undesignated. At the close of business on March 28,
    1995, 38,623,786 shares of Company Common Stock were issued and outstanding,
    no  shares of Company Common Stock were  held by the Company in its treasury
    or by the  Company's subsidiaries  and 10,227,050 shares  of Company  Common
    Stock  were  reserved for  issuance as  follows:  (i) 8,923,406  shares were
    reserved for future issuance pursuant to  stock options granted or that  may
    be granted pursuant to the 1986 Stock Option Plan, the 1992 CEO Stock Option
    Plan,  the 1993 Non-Qualified Stock Option  Plan, the 1994 Stock Option Plan
    and the 1989 Non-Employee

                                      5
<PAGE>
    Directors Stock Option Plan (collectively, the "Option Plans"), (ii) 300,000
    shares were reserved for  issuance upon the  exercise of nonqualified  stock
    options  granted pursuant to  the Chief Executive Officer  of the Company in
    May 1989 (such stock option, together with outstanding stock options granted
    pursuant to  the  Option Plans,  being  referred  to herein  as  the  "Stock
    Options"),  (iii) 233,644 shares were  reserved for issuance upon conversion
    of the Company's  $2,000,000 7 3/4%  Subordinated Convertible Debenture  due
    May 1, 2012 (the "Company Debenture"), (iv) 420,000 shares were reserved for
    issuance   pursuant  to  the   Company's  Restricted  Stock   Plan,  (v)  an
    indeterminate number of  shares (not reasonably  expected to exceed  300,000
    shares)  were reserved for issuance, subject  to the satisfaction of certain
    conditions, under the earnout agreements described in Section 3.03(a) of the
    Company Disclosure Schedule (the "Company Acquisition Agreements") and  (vi)
    350,000  shares were  reserved for  issuance upon  the exercise  of warrants
    expiring October  22,  1996  (the  "Warrants"). No  shares  of  the  Company
    Preferred  Stock  are issued  or outstanding.  Except  as described  in this
    Section 3.03 or in Section 3.03(a) of the Company Disclosure Schedule, as of
    the date of this Agreement,  no shares of capital  stock of the Company  are
    reserved  for issuance for any other purpose. Since March 28,1995, no shares
    of capital  stock  have  been  issued by  the  Company  except  pursuant  to
    agreements  for  which  shares  were adequately  reserved  at  such  date as
    described in this subsection (a). Since March 28, 1995, the Company has  not
    granted  any options for, or other rights to purchase, any shares of capital
    stock of the  Company. Each of  the issued  shares of capital  stock of,  or
    other  equity interests in, each of the Company and its subsidiaries is duly
    authorized, validly issued  and, in  the case  of shares  of capital  stock,
    fully  paid and nonassessable, and has not  been issued in violation of (nor
    are any  of the  authorized shares  of  capital stock  of, or  other  equity
    interests  in, the Company  or any of its  wholly owned subsidiaries subject
    to) any preemptive or similar rights created by statute, the Certificate  of
    Incorporation  or Bylaws (or the equivalent organizational documents) of the
    Company or any of its subsidiaries, or any agreement to which the Company or
    any of its subsidiaries is a party or is bound, and, except as set forth  in
    Section  3.21  of the  Company Disclosure  Schedule  and in  the Constituent
    Documents, all such  issued shares or  other equity interests  owned by  the
    Company  or a  subsidiary of  the Company  are owned  free and  clear of all
    security interests, liens, claims,  pledges, agreements, limitations on  the
    Company's or such subsidiaries' voting rights, charges or other encumbrances
    of any nature whatsoever.

        (b)  Except as set forth in Section 3.03(a) above, no bonds, debentures,
    notes or other  indebtedness of  the Company having  the right  to vote  (or
    convertible  into or exercisable for securities having the right to vote) on
    any matters on  which stockholders  may vote  ("Voting Debt")  is issued  or
    outstanding. All shares of Company Common Stock which may be issued pursuant
    to  the Option Plans will,  when issued in accordance  with the terms of the
    related Option Plan  and Stock  Option, be  validly issued,  fully paid  and
    nonassessable and not subject to preemptive rights.

        (c)  Except (i) as set forth in Section 3.03(a) above, (ii) as set forth
    in Section 3.03(c) of the Company Disclosure Schedule, (iii) pursuant to the
    terms of that certain  Rights Agreement dated  as of March  11, 1991 by  and
    between  the Company and  Mellon Bank, N.A.(as  substitute Rights Agent) (as
    amended, the  "Company Rights  Agreement")  and (iv)  as  set forth  in  the
    Constituent  Documents,  there  are  no options,  warrants  or  other rights
    (including registration rights), agreements, arrangements or commitments  of
    any  character to which  the Company or  any of its  subsidiaries is a party
    relating to the issued or unissued  capital stock or other equity  interests
    of  the Company or any of its  subsidiaries or obligating the Company or any
    of its subsidiaries  to grant, issue  or sell any  shares of capital  stock,
    Voting  Debt  or  other  equity  interests of  the  Company  or  any  of its
    subsidiaries. Except  as  set  forth  in  Section  3.03(c)  of  the  Company
    Disclosure   Schedule  or  in  the   Constituent  Documents,  there  are  no
    obligations,  contingent  or  otherwise,  of  the  Company  or  any  of  its
    subsidiaries  to (i) repurchase,  redeem or otherwise  acquire any shares of
    Company Common Stock or  other capital stock of  the Company or the  capital
    stock  or other equity interests  of any subsidiary of  the Company; or (ii)
    (other than advances  to subsidiaries  in the ordinary  course of  business)
    provide material funds to, or make

                                      6
<PAGE>
    any  material investment in (in the form  of a loan, capital contribution or
    otherwise),  or  provide  any  guarantee   with  respect  to  the   material
    obligations  of, any subsidiary  of the Company or  any other person. Except
    (i) as set forth in Section 3.03(c) of the Company Disclosure Schedule, (ii)
    for subsidiaries of  the Company set  forth in Section  3.01 of the  Company
    Disclosure  Schedule  or (iii)  as  permitted pursuant  to  Section 5.02(e),
    neither the Company nor any of  its subsidiaries (x) directly or  indirectly
    owns,  (y) has agreed to purchase or  otherwise acquire for a purchase price
    in excess  of $1  million or  (z)  holds any  interest convertible  into  or
    exchangeable  or exercisable for, 5%  or more of the  capital stock or other
    equity interest  of any  corporation, partnership,  joint venture  or  other
    business  association or  entity with an  aggregate fair market  value of in
    excess of $20 million.  Except (q) as  set forth in  Section 3.03(c) of  the
    Company  Disclosure  Schedule,  (r)  for  any  agreements,  arrangements  or
    commitments between  the  Company  and  its  subsidiaries  or  between  such
    subsidiaries  or (s) payments  made pursuant to  real property leases, there
    are no agreements, arrangements or commitments of any character  (contingent
    or  otherwise) pursuant to which any person is or may be entitled to receive
    any payment based on the revenues  or earnings, or calculated in  accordance
    therewith, of the Company or any of its subsidiaries. Except as set forth in
    the  Constituent Documents,  there are  no voting  trusts, proxies  or other
    agreements or understandings to which the Company or any of its subsidiaries
    is a party or by which the Company or any of its subsidiaries is bound  with
    respect  to  the voting  of  any shares  of  capital stock  or  other equity
    interests of the Company or any of its subsidiaries.

        (d) The Company has delivered to Acquiror complete and correct copies of
    the Option  Plans and  all forms  of Stock  Options issued  pursuant to  the
    Option Plans or otherwise, including all amendments thereto. The Company has
    previously  delivered to Acquiror a complete  and correct list setting forth
    as of March 28, 1995, (i) the number of Stock Options outstanding, (ii)  the
    exercise  price of  each outstanding  Stock Option  and (iii)  the number of
    Stock Options exercisable.

    SECTION 3.04.  AUTHORITY.  The Company has all requisite corporate power and
authority to execute and deliver this  Agreement and the Stock Option  Agreement
(the  "Transaction Documents"), to perform its obligations under the Transaction
Documents and to  consummate the  transactions contemplated  by the  Transaction
Documents  (subject to, with respect to the Merger, the approval and adoption of
this Agreement by the stockholders of the  Company as set forth in Section  3.16
of  this Agreement). The execution and  delivery of the Transaction Documents by
the Company and the consummation by the Company of the transactions contemplated
by the  Transaction  Documents  have  been  duly  authorized  by  all  necessary
corporate  action and no other corporate proceedings  on the part of the Company
are necessary  to  authorize the  Transaction  Documents or  to  consummate  the
transactions contemplated by the Transaction Documents (subject to, with respect
to  the Merger, the approval and adoption  of this Agreement by the stockholders
of the Company as set forth in Section 3.16 of this Agreement). The  Transaction
Documents have been duly executed and delivered by the Company and, assuming the
due  authorization, execution and delivery thereof by the Acquiror Companies (to
the extent a party thereto), constitute the legal, valid and binding  obligation
of the Company.

    SECTION 3.05.  NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

        (a)  Assuming that all consents,  licenses, permits, waivers, approvals,
    authorizations,  orders,  filings  and  notifications  contemplated  by  the
    exceptions  to Section 3.05(b) are obtained or made, and except as disclosed
    in Section 3.05(a)  of the  Company Disclosure Schedule,  the execution  and
    delivery  of  the Transaction  Documents by  the Company  does not,  and the
    consummation of the transactions contemplated by the Transaction  Documents,
    will  not (i) conflict  with or violate the  Certificate of Incorporation or
    Bylaws, or the equivalent organizational documents, in each case as  amended
    or  restated, of the Company or any  of its subsidiaries, (ii) conflict with
    or violate any  federal, state,  foreign or local  law, statute,  ordinance,
    rule,   regulation,  order,   judgment  or   decree  (collectively,  "Laws")
    applicable to the Company or any of  its subsidiaries or by or to which  any
    of  their respective properties is  bound or subject or  (iii) result in any
    breach of or constitute a default (or an event that with notice or lapse  of
    time or both would become a default)

                                      7
<PAGE>
    under,  or give to others any rights of termination, amendment, acceleration
    or cancellation of, or require payment under, or result in the creation of a
    lien or encumbrance on any of the properties or assets of the Company or any
    of its  subsidiaries  pursuant  to, any  note,  bond,  mortgage,  indenture,
    contract,  agreement, lease, license, permit,  franchise or other instrument
    or obligation to which the Company or any of its subsidiaries is a party  or
    by  or to  which the  Company or  any of  its subsidiaries  or any  of their
    respective properties is bound  or subject, except  for any such  conflicts,
    violations,  breaches, defaults,  events, rights  of termination, amendment,
    acceleration or cancellation, payment  obligations or liens or  encumbrances
    that  could not  reasonably be expected  to have a  Company Material Adverse
    Effect. The  Board  of  Directors  of the  Company  has  taken  all  actions
    necessary   under  Delaware   Law,  including   approving  the  transactions
    contemplated by the Transaction Documents,  to ensure that the  prohibitions
    on  business combinations set forth  in Section 203 of  Delaware Law do not,
    and will  not, apply  to the  transactions contemplated  by the  Transaction
    Documents  or that certain Voting Agreement (the Voting Agreement ) dated as
    of March  31, 1995  by and  between  Acquiror and  the stockholders  of  the
    Company named therein.

        (b)  The  execution and  delivery of  the  Transaction Documents  by the
    Company do not,  and the  performance of  the Transaction  Documents by  the
    Company  will  not,  require the  Company  to obtain  any  consent, license,
    permit, waiver, approval, authorization or order  of, or to make any  filing
    with  or notification to, any governmental or regulatory authority, federal,
    state, local or foreign (collectively, "Governmental Entities"), except  (i)
    for  applicable  requirements, if  any, of  the Securities  Act of  1933, as
    amended (the "Securities Act"), and the Securities Exchange Act of 1934,  as
    amended  (the "Exchange Act"), state securities  or blue sky laws ("Blue Sky
    Laws"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
    (the "HSR  Act"),  and the  filing  and recordation  of  appropriate  merger
    documents as required by Delaware Law, (ii) where the failure to obtain such
    consents,  licenses, permits, waivers,  approvals, authorizations or orders,
    or to make such filings or notifications could not reasonably be expected to
    prevent the Company  from performing its  obligations under the  Transaction
    Documents  and could not  reasonably be expected to  have a Company Material
    Adverse Effect and  (iii) as  disclosed in  Section 3.05(b)  of the  Company
    Disclosure Schedule.

    SECTION 3.06.  PERMITS; COMPLIANCE.

        (a)  Except as  disclosed in Section  3.06(a) of  the Company Disclosure
    Schedule, each of the Company and  its subsidiaries is in possession of  (i)
    all   franchises,  grants,  authorizations,  licenses,  permits,  easements,
    variances,   exemptions,   consents,   certificates,   identification    and
    registration  numbers,  approvals and  orders  necessary to  own,  lease and
    operate its properties  and to  carry on  its business  as it  is now  being
    conducted and (ii) agreements from all federal, state and local governmental
    agencies  and accrediting  and certifying  organizations having jurisdiction
    over such facility or facilities that  are required to operate the  facility
    or  facilities in the manner in which  it or they are currently operated and
    receive reimbursement  for  care  provided to  patients  covered  under  the
    federal   Medicare  program   or  any  applicable   state  Medicaid  program
    (collectively, the "Company Permits"), except  where the failure to  possess
    such  Company Permits  could not  reasonably be  expected to  have a Company
    Material Adverse Effect. Without limiting  the generality of the  foregoing,
    all of the Company's hospitals are certified for participation or enrollment
    in the Medicare program, have a current and valid provider contract with the
    Medicare  program and are  in substantial compliance  with the conditions of
    participation  of  such  programs.  Neither  the  Company  nor  any  of  its
    subsidiaries  has  received  notice  from  the  regulatory  authorities that
    enforce the  statutory or  regulatory provisions  in respect  of either  the
    Medicare or the Medicaid program of any pending or threatened investigations
    or  surveys, and no  such investigations or  surveys are pending  or, to the
    knowledge of the Company,  threatened or imminent  that could reasonably  be
    expected  to have a Company Material  Adverse Effect. Section 3.06(a) of the
    Company Disclosure Schedule sets  forth, as of the  date of this  Agreement,
    all  actions,  proceedings, investigations  or  surveys pending  or,  to the
    knowledge of  the Company,  threatened against  the Company  or any  of  its
    subsidiaries  that could reasonably be expected to result in (i) the loss or

                                      8
<PAGE>
    revocation of a Company Permit necessary  to operate one or more  facilities
    or  for a facility  to receive reimbursement under  the Medicare or Medicaid
    programs, (ii) the suspension  or cancellation of  any other Company  Permit
    except  any such Company Permit where  such suspension or cancellation could
    not reasonably be expected to have a Company Material Adverse Effect. Except
    as set forth in Section 3.06(a) of the Company Disclosure Schedule,  neither
    the  Company nor any of its subsidiaries  is in conflict with, or in default
    or violation  of  (a) any  Law  applicable to  the  Company or  any  of  its
    subsidiaries  or by or to which any  of their respective properties is bound
    or subject or (b) any of the Company Permits, except for any such conflicts,
    defaults or  violations that  could not  reasonably be  expected to  have  a
    Company  Material Adverse Effect. Except as  set forth in Section 3.06(a) of
    the Company Disclosure Schedule,  since June 30,  1993, neither the  Company
    nor  any of its  subsidiaries has received from  any Governmental Entity any
    written  notification  with  respect  to  possible  conflicts,  defaults  or
    violations  of  Laws,  except  for  written  notices  relating  to  possible
    conflicts, defaults or violations that  could not reasonably be expected  to
    have a Company Material Adverse Effect.

        (b)  The  Company and  its  subsidiaries, as  appropriate,  are approved
    participating providers in and under  all third party payment programs  from
    which  they receive revenues.  No action or investigation  is pending, or to
    the  best  of  its  knowledge,  threatened  to  suspend,  limit,  terminate,
    condition, or revoke the status of the Company or any of its subsidiaries as
    a  provider in  any such  program, and  neither the  Company nor  any of its
    subsidiaries has  been provided  notice  by any  third  party payor  of  its
    intention  to suspend, limit, terminate, revoke,  condition or fail to renew
    in whole or in  part or decrease the  amounts payable under any  arrangement
    with   the  Company  or  such  subsidiary   as  a  provider,  which  action,
    investigation or proceeding would have a Company Material Adverse Effect.

        (c) The Company and  its subsidiaries have filed  on a timely basis  all
    claims,  cost  reports or  annual  filings required  to  be filed  to secure
    payments for services rendered by them under any third-party payment program
    from which  they receive  or expect  to receive  revenues except  where  the
    failure  to file such claim, report or other filing would not have a Company
    Material Adverse Effect.  Except as  indicated in  its financial  statements
    included in the Company SEC Reports (as hereinafter defined), the Company or
    its  subsidiaries,  as applicable,  have  paid, or  caused  to be  paid, all
    refunds, discounts, adjustments, or  amounts owing that  have become due  to
    such  third party  payors pursuant to  such claims, reports  or filings, and
    neither the Company nor any of its subsidiaries has any knowledge or  notice
    of  any material changes required to be  made to any cost reports, claims or
    filings made by them for any period or of any deficiency in any such  claim,
    report, or filing, except for changes and deficiencies that in the aggregate
    would not have a Company Material Adverse Effect.

    SECTION 3.07.  REPORTS; FINANCIAL STATEMENTS.

        (a) Since June 30, 1991, the Company and its subsidiaries have filed (i)
    all forms, reports, statements and other documents required to be filed with
    (A)  the Securities and  Exchange Commission (the  "SEC"), including without
    limitation (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
    Form 10-Q, (3)  all proxy  statements relating to  meetings of  stockholders
    (whether annual or special), (4) all Current Reports on Form 8-K and (5) all
    other   reports,  schedules,  registration  statements  or  other  documents
    (collectively referred to as the "Company  SEC Reports"), and (B) any  other
    applicable  state  securities  authorities  and  (ii)  all  forms,  reports,
    statements  and  other  documents  required  to  be  filed  with  any  other
    Governmental  Entities, including,  without limitation,  state insurance and
    health regulatory authorities,  except where  the failure to  file any  such
    forms,  reports,  statements  or  other documents  could  not  reasonably be
    expected to have a Company Material Adverse Effect (all such forms, reports,
    statements and  other documents  in clauses  (i) and  (ii) of  this  Section
    3.07(a)  being referred to herein,  collectively, as the "Company Reports").
    The Company Reports  were prepared  in all material  respects in  accordance
    with  the requirements  of applicable  Law (including,  with respect  to the
    Company SEC Reports, the Securities Act or the Exchange Act, as the case may
    be, and the rules and regulations

                                      9
<PAGE>
    of the  SEC thereunder  applicable  to such  Company  SEC Reports)  and  the
    Company  SEC Reports did not at the  time they were filed contain any untrue
    statement of a material fact or omit to state a material fact required to be
    stated therein or necessary in order to make the statements therein, in  the
    light of the circumstances under which they were made, not misleading.

        (b)  Each of the  consolidated financial statements  (including, in each
    case, any related notes  thereto) contained in the  Company SEC Reports  (i)
    have been prepared in accordance with the published rules and regulations of
    the SEC and generally accepted accounting principles applied on a consistent
    basis  throughout the periods  involved (except (A)  to the extent disclosed
    therein or required by changes in generally accepted accounting  principles,
    (B),  with respect to  Company SEC Reports  filed prior to  the date of this
    Agreement, as may be indicated in the  notes thereto and (c) in the case  of
    the   unaudited  financial  statements,  as   permitted  by  the  rules  and
    regulations of the SEC) and  (ii) fairly present the consolidated  financial
    position  of the  Company and  its subsidiaries  as of  the respective dates
    thereof and the consolidated  results of operations and  cash flows for  the
    periods  indicated (subject, in the case of unaudited consolidated financial
    statements for interim periods, to  adjustments, consisting only of  normal,
    recurring  accruals, necessary to present  fairly such results of operations
    and cash flows), except that any pro forma financial statements contained in
    such consolidated financial statements are not necessarily indicative of the
    consolidated financial position of  the Company and  its subsidiaries as  of
    the  respective dates thereof and the consolidated results of operations and
    cash flows for the periods indicated.

    SECTION 3.08.  ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
the Company  SEC  Reports filed  prior  to the  date  of this  Agreement  or  as
contemplated  in this Agreement or  as set forth in  Section 3.08 of the Company
Disclosure Schedule, since June 30, 1994  the Company and its subsidiaries  have
conducted  their  respective businesses  only in  the ordinary  course and  in a
manner consistent with  past practice and  there has not  been: (i) any  damage,
destruction  or loss  with respect to  any assets of  the Company or  any of its
subsidiaries that,  if not  covered  by insurance,  would constitute  a  Company
Material  Adverse Effect; (ii) any change by  the Company or its subsidiaries in
their significant  accounting policies;  (iii)  except (x)  for dividends  by  a
subsidiary  of the Company to the  Company or another wholly-owned subsidiary of
the Company, (y) as required by the Constituent Documents or (z) pursuant to the
Constituent Documents in accordance with past practice, any declaration, setting
aside or  payment of  any dividends  or distributions  in respect  of shares  of
Company  Common Stock or the  shares of stock of,  or other equity interests in,
any subsidiary of the Company or  any redemption, purchase or other  acquisition
of any of the Company's securities or any of the securities of any subsidiary of
the  Company;  (iv)  any  material  increase  in  the  benefits  under,  or  the
establishment  or  amendment  of,  any  bonus,  insurance,  severance,  deferred
compensation,   pension,   retirement,   profit   sharing,   performance  awards
(including, without limitation,  the granting  of stock  appreciation rights  or
restricted  stock awards), stock purchase or other employee benefit plan, or any
increase in  the  compensation  payable or  to  become  payable to  any  of  the
directors  or officers  of the Company  or the  employees of the  Company or its
subsidiaries as a group, except for (A) increase in salaries or wages payable or
to become payable in  the ordinary course of  business and consistent with  past
practice or (B) the granting of stock options in the ordinary course of business
to  employees  of the  Company  or its  subsidiaries  who are  not  directors or
executive officers of  the Company; or  (v) any other  Company Material  Adverse
Effect.

    SECTION  3.09.  ABSENCE OF  LITIGATION.  Except as  disclosed in the Company
SEC Reports filed prior to the date of this Agreement or as set forth in Section
3.09 of  the Company  Disclosure  Schedule, there  is  no claim,  action,  suit,
litigation,  proceeding,  arbitration  or,  to  the  knowledge  of  the Company,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive  relief),  pending  or,  to the  knowledge  of  the  Company,
threatened  against the Company or any of  its subsidiaries or any properties or
rights of the Company  or any of its  subsidiaries (except for claims,  actions,
suits,  litigation, proceedings, arbitrations, or  investigations that could not
reasonably be expected to have a  Company Material Adverse Effect), and  neither
the  Company nor any of its subsidiaries  is subject to any continuing order of,
consent decree, settlement agreement or other

                                      10
<PAGE>
similar written agreement with, or, to the knowledge of the Company,  continuing
investigation  by,  any  Governmental  Entity,  or  any  judgment,  order, writ,
injunction, decree or award of  any Government Entity or arbitrator,  including,
without  limitation, cease-and-desist or  other orders, except  for matters that
could not reasonably be expected to have a Company Material Adverse Effect.

    SECTION 3.10.  EMPLOYEE BENEFIT PLANS; LABOR MATTERS.

        (a) With respect to each employee benefit plan, program, arrangement and
    contract (including,  without limitation,  any "employee  benefit plan",  as
    defined  in Section 3(3)  of the Employee Retirement  Income Security Act of
    1974, as amended ("ERISA")), maintained or contributed to by the Company  or
    any  of its subsidiaries, or with respect to which the Company or any of its
    subsidiaries could incur liability  under Section 4069,  4212(c) or 4204  of
    ERISA  (the "Benefit Plans"), the Company has delivered or made available to
    Acquiror a true and correct copy of (i) the most recent annual report  (Form
    5500)  filed with the Internal Revenue  Service (the "IRS") for each Benefit
    Plan for which a Form 5500 is required to be filed, (ii) such Benefit  Plan,
    (iii)  each trust agreement, if any, relating to such Benefit Plan, (iv) the
    most recent  summary plan  description for  each Benefit  Plan for  which  a
    summary  plan description is required, (v)  the most recent actuarial report
    or valuation relating to  a Benefit Plan  subject to Title  IV of ERISA  and
    (vi)  the most recent determination  letter, if any, issued  by the IRS with
    respect to any Benefit Plan qualified under Section 401 of the Code.

        (b) With respect to the Benefit Plans, no event has occurred and, to the
    knowledge of the Company, there exists no condition or set of circumstances,
    in connection with  which the Company  or any of  its subsidiaries could  be
    subject  to any liability under the terms  of such Benefit Plans, ERISA, the
    Code or any other applicable Law that could reasonably be expected to have a
    Company Material Adverse Effect.

        (c) The Company has delivered  to Acquiror all collective bargaining  or
    other  labor union contracts to  which the Company or  its subsidiaries is a
    party applicable to persons employed by the Company or its subsidiaries  and
    no collective bargaining agreement is being negotiated by the Company or any
    of  its  subsidiaries. There  is  no pending  or,  to the  knowledge  of the
    Company, threatened  labor  dispute, strike  or  work stoppage  against  the
    Company  or any of  its subsidiaries that may  interfere with the respective
    business activities of  the Company  or any  of its  subsidiaries and  could
    reasonably  be expected  to have a  Company Material Adverse  Effect. To the
    knowledge of the Company,  none of the Company,  any of its subsidiaries  or
    any  of  their respective  representatives  or employees  has  committed any
    unfair labor practices in  connection with the  operation of the  respective
    businesses  of  the Company  or its  subsidiaries  that could  reasonably be
    expected to have a Company Material Adverse Effect, and there is no  pending
    or,  to the knowledge of the Company, threatened charge or complaint against
    the Company or any of its subsidiaries by the National Labor Relations Board
    or any comparable  state agency  that, if  not covered  by insurance,  would
    constitute a Company Material Adverse Effect.

        (d)  The Company has delivered or  made available to Acquiror (i) copies
    of all employment agreements with officers  of the Company; (ii) a  schedule
    listing  all officers  of the  Company who  have executed  a non-competition
    agreement with  the  Company;  (iii) copies  of  all  severance  agreements,
    programs  and policies of the Company with or relating to its employees; and
    (iv) copies of all plans, programs, agreements and other arrangements of the
    Company with or relating  to its employees. Except  as set forth in  Section
    3.10(d)  of the Company Disclosure Schedule,  neither the Company nor any of
    its subsidiaries will owe a severance  payment or similar obligation to  any
    of  their respective  employees, officers  or directors  as a  result of the
    Merger or the transactions contemplated by this Agreement, and none of  such
    persons  will  be entitled  to an  increase in  severance payments  or other
    benefits as a result of the Merger or the transactions contemplated by  this
    Agreement in the event of the subsequent termination of their employment.

                                      11
<PAGE>
        (e)  Except as  provided in  Section 3.10(e)  of the  Company Disclosure
    Schedule, no Benefit Plan provides retiree medical or retiree life insurance
    benefits that  could  reasonably be  expected  to have  a  Company  Material
    Adverse  Effect and (y) neither  the Company nor any  of its subsidiaries is
    contractually or otherwise obligated (whether or not in writing) to  provide
    life  insurance  and  medical  benefits upon  retirement  or  termination of
    employment of employees that could reasonably be expected to have a  Company
    Material Adverse Effect.

        (f)  Except as  provided in  Section 3.10(f)  of the  Company Disclosure
    Schedule, neither the Company nor any of its subsidiaries contributes to  or
    has  an obligation to contribute  to, and has not  within six years prior to
    the date of this Agreement contributed to or had an obligation to contribute
    to, a multiemployer plan within the meaning of Section 3(37) of ERISA.

        (g) The Company  has not  taken any of  the following  or other  similar
    actions  since  January 1,  1994: the  acceleration  of vesting,  waiving of
    performance criteria  or  the adjustment  of  awards or  any  other  actions
    permitted upon a change in control of the Company or a filing under Sections
    13(d) or 14(d) of the Exchange Act with respect to the Company) with respect
    to  any of  the Benefit  Plans or  any of  the plans,  programs, agreements,
    policies  or  other  arrangements  described  in  Section  3.10(d)  of  this
    Agreement.

    SECTION  3.11.  TAXES.   Except as set forth in  Section 3.11 of the Company
Disclosure Statement,

        (a) And except for matters that could not be expected to have a  Company
    Material  Adverse Effect, (i) all returns  and reports ("Tax Returns") of or
    with respect to  any Tax  which is  required to be  filed on  or before  the
    Closing Date by or with respect to Company or any its subsidiaries have been
    or  will be  duly and timely  filed, (ii)  all items of  income, gain, loss,
    deduction and credit or other items required to be included in each such Tax
    Return have been or will be so included and all information provided in each
    such Tax Return is  true, correct and complete,  (iii) all Taxes which  have
    become  or will become due  with respect to the  period covered by each such
    Tax Return have been or  will be timely paid  in full, (iv) all  withholding
    Tax  requirements  imposed on  or  with respect  to  Company or  any  of its
    subsidiaries have been or will be satisfied in full in all respects, and (v)
    no penalty, interest or other charge is  or will become due with respect  to
    the late filing of any such Tax Return or late payment of any such Tax.

        (b) There is no claim against Company or any of its subsidiaries for any
    material  amount  of  Taxes,  and  no  material  assessment,  deficiency  or
    adjustment has been asserted or proposed  with respect to any Tax Return  of
    or  with respect  to Company  or any  of its  subsidiaries other  than those
    disclosed (and to which are attached  true and complete copies of all  audit
    or similar reports) in Section 3.11 of the Company Disclosure Schedule.

        (c)  The total  amounts set up  as liabilities for  current and deferred
    Taxes in  the financial  statements  referred to  in  Section 3.07  of  this
    Agreement  are sufficient to cover the payment  of all Taxes, whether or not
    assessed or disputed, which are,  or are hereafter found  to be, or to  have
    been,  due by or with  respect to Company and any  of its subsidiaries up to
    and through the periods covered thereby.

        (d) Except  for  statutory liens  for  current  Taxes not  yet  due,  no
    material  liens for  Taxes exist upon  the assets  of any of  Company or its
    subsidiaries.

        (e) None of the transactions contemplated by this Agreement will  result
    in  any Tax liability  or the recognition of  any item of  income or gain to
    Company or any of its subsidiaries.

        (f) Neither Company  nor any of  its subsidiaries has  made an  election
    under section 341(f) of the Code.

    SECTION 3.12.  TAX MATTERS; POOLING.

        (a)  Neither  Company  nor, to  the  knowledge  of Company,  any  of its
    affiliates has taken  or agreed to  take any action  that would prevent  the
    Merger from (a) constituting a reorganization

                                      12
<PAGE>
    qualifying  under the provisions of Section 368(a)  of the Code or (b) being
    treated for financial  accounting purposes  as a "pooling  of interests"  in
    accordance  with  generally accepted  accounting  principles and  the rules,
    regulations and interpretations of the SEC (a "Pooling Transaction").

        (b) There is  no plan  or intention by  any stockholder  of the  Company
    (other  than institutional  investors not  affiliated with  the Company) who
    owns five percent or more of Company Common Stock, and to the best knowledge
    of Company there is  no plan or intention  on the part of  any of any  other
    stockholder  of Company Common Stock, to sell, exchange or otherwise dispose
    of a number of shares of Acquiror Common Stock to be received in the  Merger
    that  would reduce  the Company  stockholders' ownership  of Acquiror Common
    Stock to a number  of shares having  a value, as of  the Effective Time,  of
    less  than  50 percent  of  the value  of all  of  the Company  Common Stock
    (including shares of  Company Common  Stock exchanged  for cash  in lieu  of
    fractional shares of Acquiror Common Stock) outstanding immediately prior to
    the Effective Time.

        (c)  Following the Merger, Company will hold  at least 90 percent of the
    fair market value  of its net  assets and at  least 70 percent  of the  fair
    market  value of its gross assets held  immediately prior to the Merger. For
    purposes of  this representation,  amounts  used by  Company to  pay  Merger
    expenses  and all redemptions and  distributions (except for regular, normal
    dividends) made by Company will be included as assets of Company immediately
    prior to the Merger.

        (d) There is no intercorporate indebtedness existing between the Company
    and Acquiror or between the Company and Merger Sub that was issued, acquired
    or will be settled at a discount.

        (e) The  Company is  not an  investment company  as defined  in  Section
    368(a)(2)(F)(iii) and (iv) of the Code.

        (f)  The Company is not under the jurisdiction  of a court in a title 11
    or similar case within the meaning of section 368(a)(3)(A) of the Code.

        (g) The total amount of cash  to be received by stockholders of  Company
    Common  Stock in lieu of fractional shares of Acquiror Common Stock will not
    exceed one percent  of the total  fair market value  of the Acquiror  Common
    Stock (as of the Effective Time) to be issued in the Merger.

    SECTION  3.13.  AFFILIATES.  Section 3.13 of the Company Disclosure Schedule
identifies all persons who, to the knowledge of the Company, may be deemed to be
affiliates of  the Company  under Rule  145 of  the Securities  Act,  including,
without limitation, all directors and executive officers of the Company.

    SECTION  3.14.  CERTAIN BUSINESS PRACTICES.  None of the Company, any of its
subsidiaries or any directors, officers, agents  or employees of the Company  or
any of its subsidiaries (in their capacities as such) has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to  political activity,  (ii) made any  unlawful payment to  foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated  any provision  of the  Foreign Corrupt  Practices Act  of
1977,  as amended, (iii) consummated any  transaction, made any payment, entered
into any agreement  or arrangement  or taken any  other action  in violation  of
Section  1128B(b) of the Social Security Act, as amended, or (iv) made any other
unlawful payment.

    SECTION 3.15.  OPINION OF FINANCIAL  ADVISOR.  The Company has received  the
opinion  of Merrill  Lynch &  Co. to  the effect  that, as  of the  date of this
Agreement, the Common Stock  Exchange Ratio is fair,  from a financial point  of
view, to the holders of Company Common Stock.

    SECTION 3.16.  VOTE REQUIRED.  The only votes of the holders of any class or
series  of  Company  capital  stock  necessary to  approve  the  Merger  are the
affirmative votes of the holders of a majority of the outstanding shares of  the
Company Common Stock.

    SECTION  3.17.  BROKERS.  Except as set forth in Section 3.17 of the Company
Disclosure Schedule, no broker, finder or investment banker (other than  Merrill
Lynch & Co. is entitled to any

                                      13
<PAGE>
brokerage,   finder's  or  other  fee  or  commission  in  connection  with  the
transactions contemplated by this Agreement  based upon arrangements made by  or
on  behalf of the Company. Prior to the  date of this Agreement, the Company has
made available to Acquiror a complete and correct copy of all agreements between
the Company and Merrill Lynch & Co. pursuant to which such firm will be entitled
to any payment relating to the transactions contemplated by this Agreement.

    SECTION 3.18.   ACQUIRING  PERSON.   None of  the Acquiror  Companies is  an
"Acquiring  Person" (as defined  in the Company  Rights Plan) or  will become an
"Acquiring Person" as a result of  any of the transactions contemplated by  this
Agreement.  The  execution  of  the  Transaction  Documents  does  not,  and the
consummation of  the  Merger and  the  other transactions  contemplated  by  the
Transaction  Documents will not, result in the grant of any rights to any person
under the Company Rights Agreement or  enable or require any outstanding  rights
to be exercised, distributed or triggered.

    SECTION 3.19.  INFORMATION SUPPLIED.  None of the information supplied or to
be  supplied by the Company  for inclusion or incorporation  by reference in (i)
the registration statement on Form S-4 to  be filed by Acquiror with the SEC  in
connection  with the issuance of  shares of Acquiror Common  Stock in the Merger
(the "S-4") will, at the time the S-4 is  filed with the SEC and at the time  it
becomes  effective under the  Securities Act, contain any  untrue statement of a
material fact or omit to state any  material fact required to be stated  therein
or necessary to make the statements therein not misleading, and (ii) the Company
Proxy  Statement  (as  hereinafter defined)  will,  at  the date  of  mailing to
stockholders 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,  in light  of the  circumstances in  which they  were made,  not
misleading.  All documents that  the Company is responsible  for filing with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to  form in all  material respects with  the provisions of  applicable
law, including applicable provisions of the Securities Act, the Exchange Act and
the   rules   and  regulations   thereunder.   Without  limiting   any   of  the
representations and warranties contained  herein, no representation or  warranty
to  the Acquiror Companies  by the Company  and no information  contained in the
Company Disclosure Schedule  or any document  incorporated therein by  reference
contains any untrue statement of material fact or omits to state a material fact
necessary  in order to  make the statements  contained therein, in  light of the
circumstances in which such statements are or will be made, not misleading.

    SECTION 3.20.   INSURANCE.  Except  as set forth  in the Company  Disclosure
Schedule,  the Company and  each of its subsidiaries  are presently insured, and
during each of the past five calendar years have been insured against such risks
as companies  engaged in  a  similar business  would,  in accordance  with  good
business  practice, customarily be  insured. Except as set  forth in the Company
Disclosure Schedule, the policies of fire, theft, liability and other  insurance
maintained  with respect  to the  assets or  businesses of  the Company  and its
subsidiaries provide adequate coverage against loss.

    SECTION 3.21.   PROPERTIES.   Except as  set forth  in Section  3.21 of  the
Company  Disclosure  Schedule  or  specifically  described  in  the  Company SEC
Reports, the Company and its subsidiaries  have good and marketable title,  free
and  clear of all liens, the existence  of which could reasonably be expected to
have a Company  Material Adverse Effect,  to all their  material properties  and
assets whether tangible or intangible, real, personal or mixed, reflected in the
Company's  consolidated  financial statements  contained  in the  Company's most
recent SEC  Report  on  Form  10-K  as  being  owned  by  the  Company  and  its
subsidiaries  as of the  date thereof, other  than (i) any  properties or assets
that have been sold or otherwise disposed of in the ordinary course of  business
since  the date of such financial statements,  (ii) liens disclosed in the notes
to such financial statements and (iii)  liens arising in the ordinary course  of
business  after the  date of such  financial statements. All  buildings, and all
fixtures, equipment  and other  property and  assets that  are material  to  its
business on a consolidated basis, held under leases or sub-leases by the Company
or  any  of its  subsidiaries are  held under  valid instruments  enforceable in
accordance  with  their  respective  terms,   subject  to  applicable  laws   of
bankruptcy,  insolvency or similar laws  relating to creditors' rights generally
and to general

                                      14
<PAGE>
principles of  equity  (whether applied  in  a  proceeding in  law  or  equity).
Substantially  all of the  Company's and its  subsidiaries' equipment in regular
use has been reasonably maintained  and is in serviceable condition,  reasonable
wear and tear excepted.

                                   ARTICLE IV
                   REPRESENTATIONS AND WARRANTIES OF ACQUIROR

    The  Acquiror Companies hereby, jointly and severally, represent and warrant
to the Company that:

    SECTION 4.01.  ORGANIZATION  AND QUALIFICATION; SUBSIDIARIES.   Each of  the
Acquiror  Companies is a corporation, and  each of Acquiror's other subsidiaries
is a corporation or  partnership, duly organized, validly  existing and in  good
standing  under  the  laws of  its  jurisdiction  of incorporation  and  has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly  qualified
and  in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification  necessary,  other than  where  the  failure to  be  so  duly
qualified  and in  good standing  could not  reasonably be  expected to  have an
Acquiror Material Adverse Effect. The term "Acquiror Material Adverse Effect" as
used in this  Agreement shall mean  any change or  effect that, individually  or
when  taken together with all such other changes or effects, would be materially
adverse to the financial condition, results of operations, business or prospects
of Acquiror and its subsidiaries, taken as  a whole, at the time of such  change
or  effect. Section  4.01of the  Disclosure Schedule  delivered by  the Acquiror
Companies to the Company concurrently with the execution of this Agreement  (the
"Acquiror  Disclosure Schedule") sets forth, as of the date of this Agreement, a
true and  complete list  of  all the  Acquiror's  directly or  indirectly  owned
subsidiaries,   together  with   (A)  the   jurisdiction  of   incorporation  or
organization  of  each  subsidiary  and  the  percentage  of  each  subsidiary's
outstanding capital stock or other equity interests owned by Acquiror or another
subsidiary  of Acquiror and (B) an indication of whether each such subsidiary is
a "Significant  Subsidiary" as  defined in  Section 9.03(f)  of this  Agreement.
Except as set forth in Section 4.01 of the Acquiror Disclosure Schedule, neither
Acquiror  nor any of its subsidiaries owns an equity interest in any partnership
or joint venture arrangement  or other business entity  that is material to  the
financial  condition, results of  operations, business or  prospects of Acquiror
and its subsidiaries, taken as a whole.

    SECTION 4.02.    CERTIFICATE OF  INCORPORATION  AND BYLAWS.    Acquiror  has
heretofore  furnished  or made  available to  the  Company complete  and correct
copies of the  Certificate of  Incorporation and  the Bylaws  or the  equivalent
organizational  documents,  in each  case  as amended  or  restated to  the date
hereof, of Acquiror and  each of its subsidiaries.  Neither Acquiror nor any  of
its  corporate subsidiaries  is in  violation of  any of  the provisions  of its
Certificate of Incorporation or Bylaws (or equivalent organizational Documents).
None of Acquiror s noncorporate subsidiaries  is in violation of any  provisions
of its organizational documents (the Acquiror Constituent Documents ) other than
any  such violations that could  not reasonably be expected  to have an Acquiror
Material Adverse Effect.

    SECTION 4.03.  CAPITALIZATION.

        (a) The authorized capital stock of Acquiror consists of (i) 150,000,000
    shares of  Acquiror  Common Stock,  of  which, as  of  March 28,  1995:  (A)
    29,455,220  were issued and  outstanding, all of  which are duly authorized,
    validly issued,  fully  paid  and  nonassessable  and  were  not  issued  in
    violation of any preemptive or similar rights created by statute, Acquiror's
    Certificate of Incorporation or Bylaws or any agreement to which Acquiror is
    a  party or is bound; (B) 504,976 were held in the treasury of Acquiror; and
    (C) 2,998,714 were reserved for future  issuance and (ii) 500,000 shares  of
    preferred  stock, par value $.001 per share ("Acquiror Preferred Stock"), of
    which, as of March 28, 1995, 150,000 shares had been designated as Series  A
    Junior  Participating Preferred Stock. No shares of Acquiror Preferred Stock
    are issued and  outstanding. Except  (1) as  disclosed in  the Acquiror  SEC
    Reports  (as hereinafter defined) or otherwise  as set forth in this Section
    4.03

                                      15
<PAGE>
    or in Section 4.03(a) of the  Acquiror Disclosure Schedule and (2)  pursuant
    to the terms of that certain Rights Agreement dated as of September 15, 1994
    by  and  between  Acquiror and  Chemical  Trust Company  of  California (the
    "Acquiror Rights Agreement"), there are no options, warrants or other rights
    (including registration rights), agreements, arrangements or commitments  of
    any  character  to which  Acquiror or  any  of its  subsidiaries is  a party
    relating to  the  issued or  unissued  capital  stock of,  or  other  equity
    interests  in, Acquiror or any of its subsidiaries or obligating Acquiror or
    any of its subsidiaries to  grant, issue or sell  any shares of the  capital
    stock of, or other equity interests in, Acquiror or any of its subsidiaries.
    Except  pursuant to  the terms  of the Acquiror  Rights Agreement  or as set
    forth in Section 4.03(a) of the  Acquiror Disclosure Schedule, there are  no
    obligations, contingent or otherwise, of Acquiror or any of its subsidiaries
    to  repurchase, redeem  or otherwise acquire  any shares  of Acquiror Common
    Stock or the capital stock of, or other equity interests in, any  subsidiary
    of  Acquiror. Each of the issued shares of capital stock of, or other equity
    interests in, each of  Acquiror s subsidiaries  is duly authorized,  validly
    issued  and,  in  the  case  of shares  of  capital  stock,  fully  paid and
    nonassessable, and has not been issued in  violation of (nor are any of  the
    authorized  shares of capital  stock of, or other  equity interests in, such
    entities subject to) any  preemptive or similar  rights created by  statute,
    the Certificate of Incorporation of Bylaws (or the equivalent organizational
    documents)  of any of Acquiror s subsidiaries, or any agreement to which the
    Company or any of its subsidiaries is a party or is bound.

        (b) The authorized capital stock of Merger Sub consists of 1,000  shares
    of  common stock, par value $.001 per  share ("Merger Sub Common Stock"). An
    aggregate  of  100  shares  of  Merger  Sub  Common  Stock  are  issued  and
    outstanding  and held by Acquiror, all of which are duly authorized, validly
    issued, fully paid and  nonassessable and not  subject to preemptive  rights
    created  by statute, Merger Sub's Certificate  of Incorporation or Bylaws or
    any agreement to which Merger Sub is a party or is bound.

        (c) The shares  of Acquiror Common  Stock to be  issued pursuant to  the
    Merger will be duly authorized, validly issued, fully paid and nonassessable
    and  not  subject  to  preemptive  rights  created  by  statute,  Acquiror s
    Certificate of Incorporation or Bylaws or any agreement to which Acquiror is
    a party or  is bound.  The offering,  sale and  delivery of  such shares  of
    Acquiror  Common Stock will, prior to  the date of the Company Stockholders'
    Meeting, have been registered  under the Securities Act  and will have  been
    qualified  or registered or exempt therefrom under applicable Blue Sky Laws.
    In addition, the Acquiror  Common Stock will, prior  to the Effective  Time,
    have been registered under the Exchange Act and listed on the New York Stock
    Exchange, subject to official notice of issuance.

    SECTION  4.04.  AUTHORITY.  Each of the Acquiror Companies has all requisite
corporate power and authority to  execute and deliver the Transaction  Documents
(to  the  extent  a  party  thereto),  to  perform  its  obligations  under  the
Transaction Documents and  to consummate  the transactions  contemplated by  the
Transaction Documents (subject to the approval and adoption of this Agreement by
the  holders of a majority of the outstanding shares of Acquiror Common Stock in
accordance with Delaware Law and  Acquiror's Certificate of Incorporation).  The
execution  and delivery  of the  Transaction Documents  by each  of the Acquiror
Companies and the consummation by each of the Acquiror Companies (to the  extent
a  party  thereto)  of  the  transactions  contemplated  hereby  have  been duly
authorized by all necessary corporate action and no other corporate  proceedings
on  the part  of any of  the Acquiror  Companies are necessary  to authorize the
Transaction Documents  or to  consummate the  transactions contemplated  by  the
Transaction Documents (subject to the approval and adoption of this Agreement by
the  holders of a majority of the outstanding shares of Acquiror Common Stock in
accordance with Delaware Law and  Acquiror's Certificate of Incorporation).  The
Transaction  Documents  have been  duly executed  and delivered  by each  of the
Acquiror Companies  (to  the extent  a  party  thereto) and,  assuming  the  due
authorization,  execution and  delivery thereof  by the  Company, constitute the
legal, valid and binding  obligation of each of  the Acquiror Companies (to  the
extent a party thereto).

                                      16
<PAGE>
    SECTION 4.05.  NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

        (a)  Assuming that all consents,  licenses, permits, waivers, approvals,
    authorizations,  orders,  filings  and  notifications  contemplated  by  the
    exceptions  to Section 4.05(b) are obtained  or made and except as otherwise
    disclosed in  Section  4.05(a)  of the  Acquiror  Disclosure  Schedule,  the
    execution  and delivery of the Transaction Documents by each of the Acquiror
    Companies does not,  and the consummation  of the transactions  contemplated
    hereby   will  not  (i)   conflict  with  or   violate  the  Certificate  of
    Incorporation or Bylaws, or the equivalent organizational documents, in each
    case as amended or restated, of Acquiror or any of Acquiror's  subsidiaries,
    (ii)  conflict with  or violate any  Laws in effect  as of the  date of this
    Agreement applicable to Acquiror or any of Acquiror's subsidiaries or by  or
    to  which any of their properties is bound or subject or (iii) result in any
    breach of or constitute a default (or  an event that with or without  notice
    or  lapse of time or  both would become a default)  under, or give to others
    any rights of  termination, amendment, acceleration  or cancellation of,  or
    require payment under, or result in the creation of a lien or encumbrance on
    any   of  the  properties  or  assets  of  Acquiror  or  any  of  Acquiror's
    subsidiaries pursuant  to, any  note, bond,  mortgage, indenture,  contract,
    agreement,   lease,  license,  permit,  franchise  or  other  instrument  or
    obligation to which Acquiror or any of Acquiror's subsidiaries is a party or
    by or to which Acquiror  or any of Acquiror's  subsidiaries or any of  their
    respective  properties is bound  or subject, except  for any such conflicts,
    violations, breaches, defaults,  events, rights  of termination,  amendment,
    acceleration  or cancellation, payment obligations  or liens or encumbrances
    that could not reasonably be expected  to have an Acquiror Material  Adverse
    Effect.

        (b)  Except as disclosed  in Section 4.05(b)  of the Acquiror Disclosure
    Schedule, the execution and delivery of the Transaction Documents by each of
    the Acquiror  Companies does  not, and  the performance  of the  Transaction
    Documents  by each of  the Acquiror Companies  will not, require  any of the
    Acquiror Companies to obtain any consent, license, permit, waiver  approval,
    authorization  or order of, or  to make any filing  with or notification to,
    any Governmental Entities, except (i)  for applicable requirements, if  any,
    of  the Securities Act, the Exchange Act, Blue  Sky Laws and the HSR Act and
    the filing and recordation  of appropriate merger  documents as required  by
    Delaware  Law and (ii) where the  failure to obtain such consents, licenses,
    permits, waivers,  approvals,  authorizations or  orders,  or to  make  such
    filings  or notifications could not reasonably be expected to prevent any of
    the Acquiror Companies from performing its obligations under the Transaction
    Documents and could not reasonably be expected to have an Acquiror  Material
    Adverse Effect.

    SECTION 4.06.  PERMITS; COMPLIANCE.

        (a)  Each of Acquiror and  its subsidiaries is in  possession of all (i)
    franchises, grants, authorizations, licenses, permits, easements, variances,
    exemptions, consents, certificates, identification and registration numbers,
    approvals and orders necessary to own, lease and operate its properties  and
    to  carry on its business  as it is now  being conducted and (ii) agreements
    from all federal, state and local governmental agencies and accrediting  and
    certifying   organizations  having   jurisdiction  over   such  facility  or
    facilities that are required  to operate the facility  or facilities in  the
    manner  in which it or they are currently operated and receive reimbursement
    for care provided to patients covered under the federal Medicare program  or
    any   applicable  state   Medicaid  program   (collectively,  the  "Acquiror
    Permits"), except where the failure  to possess such Acquiror Permits  could
    not  reasonably be  expected to  have an  Acquiror Material  Adverse Effect.
    Without  limiting  the  generality  of  the  foregoing,  all  of  Acquiror's
    hospitals  are  certified for  participation or  enrollment in  the Medicare
    program, have  a  current and  valid  provider contract  with  the  Medicare
    program   and  are  in   substantial  compliance  with   the  conditions  of
    participation of such programs. Neither Acquiror nor any of its subsidiaries
    has received  notice  from  the  regulatory  authorities  that  enforce  the
    statutory  or regulatory provisions in respect of either the Medicare or the
    Medicaid program of any pending or threatened investigations or surveys, and
    no such investigations or

                                      17
<PAGE>
    surveys are pending or, to the knowledge of Acquiror, threatened or imminent
    that could  reasonably be  expected  to have  an Acquiror  Material  Adverse
    Effect.  Section 4.06 of Acquiror Disclosure  Schedule sets forth, as of the
    date of this Agreement, all actions, proceedings, investigations or  surveys
    pending or, to the knowledge of Acquiror, threatened against Acquiror or any
    of  its subsidiaries that could reasonably be  expected to result in (i) the
    loss or revocation of  an Acquiror Permit necessary  to operate one or  more
    facilities  or for a facility to receive reimbursement under the Medicare or
    Medicaid programs, (ii) the suspension or cancellation of any other Acquiror
    Permit except any such Acquiror Permit where such suspension or cancellation
    could not  reasonably  be expected  to  have an  Acquiror  Material  Adverse
    Effect. Neither Acquiror nor any of its subsidiaries is in conflict with, or
    in  default or violation of (1) any Law applicable to Acquiror or any of its
    subsidiaries or by or to which  any of their respective properties is  bound
    or  subject or (2) any  of Acquiror Permits, except  for any such conflicts,
    defaults or violations  that could  not reasonably  be expected  to have  an
    Acquiror  Material Adverse Effect. Since June 30, 1993, neither Acquiror nor
    any of  its  subsidiaries has  received  from any  Governmental  Entity  any
    written  notification  with  respect  to  possible  conflicts,  defaults  or
    violations  of  Laws,  except  for  written  notices  relating  to  possible
    conflicts,  defaults or violations that could  not reasonably be expected to
    have an Acquiror Material Adverse Effect.

        (b)  Acquiror  and  its  subsidiaries,  as  appropriate,  are   approved
    participating  providers in and under all  third party payment programs from
    which they receive revenues.  No action or investigation  is pending, or  to
    the  best  of  its  knowledge,  threatened  to  suspend,  limit,  terminate,
    condition, or revoke the status of Acquiror or any of its subsidiaries as  a
    provider  in  any  such  program,  and  neither  Acquiror  nor  any  of  its
    subsidiaries has  been provided  notice  by any  third  party payor  of  its
    intention  to suspend, limit, terminate, revoke,  condition or fail to renew
    in whole or in  part or decrease the  amounts payable under any  arrangement
    with  Acquiror or such subsidiary as a provider, which action, investigation
    or proceeding would have an Acquiror Material Adverse Effect.

        (c) Acquiror  and its  subsidiaries have  filed on  a timely  basis  all
    claims,  cost  reports or  annual  filings required  to  be filed  to secure
    payments for services rendered by them under any third-party payment program
    from which  they receive  or expect  to receive  revenues except  where  the
    failure  to  file such  claim,  report or  other  filing would  not  have an
    Acquiror Material  Adverse  Effect. Except  as  indicated in  its  financial
    statements  included in the  Acquiror SEC Reports  (as hereinafter defined),
    Acquiror or its  subsidiaries, as  applicable, have  paid, or  caused to  be
    paid, all refunds, discounts, adjustments, or amounts owing that have become
    due  to such third party payors pursuant to such claims, reports or filings,
    and neither Acquiror nor any of its subsidiaries has any knowledge or notice
    of any material changes required to be  made to any cost reports, claims  or
    filings  made by them for any period or of any deficiency in any such claim,
    report, or filing, except for changes and deficiencies that in the aggregate
    would not have an Acquiror Material Adverse Effect.

    SECTION 4.07.  REPORTS; FINANCIAL STATEMENTS.

        (a) Since June 30,  1991, Acquiror and its  subsidiaries have filed  (i)
    all forms, reports, statements and other documents required to be filed with
    (A)  the Securities and  Exchange Commission (the  "SEC"), including without
    limitation (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
    Form 10-Q, (3)  all proxy  statements relating to  meetings of  stockholders
    (whether annual or special), (4) all Current Reports on Form 8-K and (5) all
    other   reports,  schedules,  registration  statements  or  other  documents
    (collectively referred to as the "Acquiror SEC Reports"), and (B) any  other
    applicable  state  securities  authorities  and  (ii)  all  forms,  reports,
    statements  and  other  documents  required  to  be  filed  with  any  other
    Governmental  Entities, including,  without limitation,  state insurance and
    health regulatory authorities,  except where  the failure to  file any  such
    forms,  reports,  statements  or  other documents  could  not  reasonably be
    expected to  have  an Acquiror  Material  Adverse Effect  (all  such  forms,
    reports,  statements and  other documents  in clauses  (i) and  (ii) of this
    Section 4.07(a) being referred to herein, collectively,

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<PAGE>
    as the "Acquiror Reports"). Acquiror  Reports were prepared in all  material
    respects  in accordance with the  requirements of applicable Law (including,
    with respect to  Acquiror SEC Reports,  the Securities Act  or the  Exchange
    Act, as the case may be, and the rules and regulations of the SEC thereunder
    applicable to such Acquiror SEC Reports) and Acquiror SEC Reports did not at
    the  time they were filed contain any untrue statement of a material fact or
    omit to state a material fact required to be stated therein or necessary  in
    order  to make  the statements  therein, in  the light  of the circumstances
    under which they were made, not misleading.

        (b) Each of  the consolidated financial  statements (including, in  each
    case,  any related notes thereto) contained  in the Acquiror SEC Reports (i)
    have been prepared in accordance with the published rules and regulations of
    the SEC and generally accepted accounting principles applied on a consistent
    basis throughout the periods  involved (except (A)  to the extent  disclosed
    therein  or required by changes in generally accepted accounting principles,
    (B), with respect to Acquiror  SEC Reports filed prior  to the date of  this
    Agreement,  as may be indicated in the notes  thereto and (C) in the case of
    the  unaudited  financial  statements,  as   permitted  by  the  rules   and
    regulations  of the SEC) and (ii)  fairly present the consolidated financial
    position of Acquiror and its subsidiaries as of the respective dates thereof
    and the consolidated results  of operations and cash  flows for the  periods
    indicated   (subject,  in  the  case  of  unaudited  consolidated  financial
    statements for interim periods, to  adjustments, consisting only of  normal,
    recurring  accruals, necessary to present  fairly such results of operations
    and cash flows), except that any pro forma financial statements contained in
    such consolidated financial statements are not necessarily indicative of the
    consolidated financial position of Acquiror  and its subsidiaries as of  the
    respective dates thereof and the consolidated results of operations and cash
    flows for the periods indicated.

    SECTION 4.08.  ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
Acquiror  SEC  Reports  filed  prior  to  the  date  of  this  Agreement  or  as
contemplated in this Agreement or as set  forth in Section 4.08 of the  Acquiror
Disclosure  Schedule, since  May 31,  1994, Acquiror  and its  subsidiaries have
conducted their  respective businesses  only in  the ordinary  course and  in  a
manner  consistent with past  practice and there  has not been:  (i) any damage,
destruction or  loss with  respect  to any  assets of  Acquiror  or any  of  its
subsidiaries  that, if  not covered by  insurance, would  constitute an Acquiror
Material Adverse Effect;  (ii) any  change by  Acquiror or  its subsidiaries  in
their  significant  accounting policies;  (iii) except  (x)  for dividends  by a
subsidiary of  Acquiror  to  Acquiror  or  another  wholly-owned  subsidiary  of
Acquiror, (y) as required by the Acquiror Constituent Documents, (z) pursuant to
the  Acquiror  Constituent  Documents  in accordance  with  pasts  practice, any
declaration, setting  aside or  payment  of any  dividends or  distributions  in
respect  of shares of Acquiror Common Stock or  the shares of stock of, or other
equity interests in, any subsidiary of  Acquiror or any redemption, purchase  or
other  acquisition of any of  Acquiror's securities or any  of the securities of
any subsidiary of Acquiror; (iv) any material increase in the benefits under, or
the establishment or  amendment of,  any bonus,  insurance, severance,  deferred
compensation,  pension,  retirement,  profit sharing,  stock  option (including,
without limitation, the  granting of stock  options, stock appreciation  rights,
performance  awards,  or  restricted  stock  awards),  stock  purchase  or other
employee benefit plan, or any increase in the compensation payable or to  become
payable to any of the directors or officers of Acquiror or its subsidiaries as a
group, except for (A) increase in salaries or wages payable or to become payable
in  the ordinary course of business and consistent with past practice or (B) the
granting of stock  options in the  ordinary course of  business to employees  of
Acquiror  or its  subsidiaries who  are not  directors or  executive officers of
Acquiror; or (v) any other Acquiror Material Adverse Effect.

    SECTION 4.09.  ABSENCE OF LITIGATION.   Except as disclosed in Acquiror  SEC
Reports  filed prior to  the date of this  Agreement or as  set forth in Section
4.09 of  the Acquiror  Disclosure Schedule,  there is  no claim,  action,  suit,
litigation,   proceeding,  arbitration   or,  to  the   knowledge  of  Acquiror,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of Acquiror, threatened
against Acquiror  or any  of its  subsidiaries or  any properties  or rights  of
Acquiror  or  any  of  its  subsidiaries  (except  for  claims,  actions, suits,
litigation,

                                      19
<PAGE>
proceedings, arbitrations,  or  investigations  that  could  not  reasonably  be
expected  to have an Acquiror Material Adverse Effect), and neither Acquiror nor
any of its subsidiaries is subject  to any continuing order of, consent  decree,
settlement  agreement  or  other  similar written  agreement  with,  or,  to the
knowledge of Acquiror, continuing investigation by, any Governmental Entity,  or
any  judgment,  order, writ,  injunction, decree  or  award of  any Governmental
Entity or arbitrator, including,  without limitation, cease-and-desist or  other
orders,  except for  matters that  could not reasonably  be expected  to have an
Acquiror Material Adverse Effect.

    SECTION 4.10.  EMPLOYEE BENEFIT PLANS; LABOR MATTERS.

        (a) With respect to each employee benefit plan, program, arrangement and
    contract (including,  without limitation,  any "employee  benefit plan",  as
    defined  in Section 3(3)  of the Employee Retirement  Income Security Act of
    1974, as amended ("ERISA")), maintained or contributed to by Acquiror or any
    of its  subsidiaries,  or with  respect  to which  Acquiror  or any  of  its
    subsidiaries  could incur liability  under Section 4069,  4212(c) or 4204 of
    ERISA (the "Benefit Plans"), Acquiror has delivered or made available to the
    Company a true and correct copy of  (i) the most recent annual report  (Form
    5500)  filed with the Internal Revenue  Service (the "IRS") for each Benefit
    Plan for which a Form 5500 is required to be filed, (ii) such Benefit  Plan,
    (iii)  each trust agreement, if any, relating to such Benefit Plan, (iv) the
    most recent  summary plan  description for  each Benefit  Plan for  which  a
    summary  plan description is required, (v)  the most recent actuarial report
    or valuation relating to  a Benefit Plan  subject to Title  IV of ERISA  and
    (vi)  the most recent determination  letter, if any, issued  by the IRS with
    respect to any Benefit Plan qualified under Section 401 of the Code.

        (b) With respect to the Benefit Plans, no event has occurred and, to the
    knowledge of Acquiror, there exists no condition or set of circumstances, in
    connection with which Acquiror or any  of its subsidiaries could be  subject
    to  any liability under the terms of  such Benefit Plans, ERISA, the Code or
    any other  applicable Law  that  could reasonably  be  expected to  have  an
    Acquiror Material Adverse Effect.

        (c)  Acquiror  has  delivered  or  made  available  to  the  Company all
    collective bargaining or other  labor union contracts  to which Acquiror  or
    its  subsidiaries is a  party applicable to persons  employed by Acquiror or
    its subsidiaries and, except as set forth in Section 4.10(c) of the Acquiror
    Disclosure Schedule, no collective bargaining agreement is being  negotiated
    by  Acquiror or  any of  its subsidiaries.  There is  no pending  or, to the
    knowledge of Acquiror,  threatened labor  dispute, strike  or work  stoppage
    against  Acquiror or  any of  its subsidiaries  that may  interfere with the
    respective business activities of  Acquiror or any  of its subsidiaries  and
    could reasonably be expected to have an Acquiror Material Adverse Effect. To
    the  knowledge of Acquiror, none of Acquiror, any of its subsidiaries or any
    of their respective  representatives or employees  has committed any  unfair
    labor   practices  in  connection  with  the  operation  of  the  respective
    businesses of Acquiror or its subsidiaries that could reasonably be expected
    to have an Acquiror Material Adverse Effect, and there is no pending or,  to
    the  knowledge of Acquiror, threatened  charge or complaint against Acquiror
    or any of  its subsidiaries  by the National  Labor Relations  Board or  any
    comparable  state agency that, if not covered by insurance, would constitute
    an Acquiror Material Adverse Effect.

        (d) Acquiror has delivered or made  available to the Company (i)  copies
    of  all employment  agreements with  officers of  Acquiror; (ii)  a schedule
    listing all  officers  of  Acquiror  who  have  executed  a  non-competition
    agreement  with Acquiror; (iii) copies of all severance agreements, programs
    and policies of Acquiror with or relating to its employees; and (iv)  copies
    of  all plans, programs, agreements and  other arrangements of Acquiror with
    or relating to its employees. Except as set forth in Section 4.10(d) of  the
    Acquiror  Disclosure Schedule, neither Acquiror  nor any of its subsidiaries
    will owe  a  severance  payment  or  similar  obligation  to  any  of  their
    respective employees, officers or directors as a result of the Merger or the
    transactions contemplated by this

                                      20
<PAGE>
    Agreement,  and none  of such  persons will  be entitled  to an  increase in
    severance payments  or other  benefits as  a  result of  the Merger  or  the
    transactions  contemplated by this Agreement in  the event of the subsequent
    termination of their employment.

        (e) Except as  provided in  Section 4.10(e) of  the Acquiror  Disclosure
    Schedule, no Benefit Plan provides retiree medical or retiree life insurance
    benefits  that could  reasonably be  expected to  have an  Acquiror Material
    Adverse Effect  and (y)  neither Acquiror  nor any  of its  subsidiaries  is
    contractually  or otherwise obligated (whether or not in writing) to provide
    life insurance  and  medical  benefits upon  retirement  or  termination  of
    employment  of  employees  that  could reasonably  be  expected  to  have an
    Acquiror Material Adverse Effect.

        (f) Except as  provided in  Section 4.10(f) of  the Acquiror  Disclosure
    Schedule, neither Acquiror nor any of its subsidiaries contributes to or has
    an  obligation to contribute to,  and has not within  six years prior to the
    date of this Agreement contributed to or had an obligation to contribute to,
    a multiemployer plan within the meaning of Section 3(37) of ERISA.

        (g) Acquiror has not taken any of the following or other similar actions
    since January 1, 1994: the  acceleration of vesting, waiving of  performance
    criteria  or the adjustment of awards or  any other actions permitted upon a
    change in control of Acquiror or a  filing under Sections 13(d) or 14(d)  of
    the  Exchange  Act with  respect to  Acquiror)  with respect  to any  of the
    Benefit Plans or any of the  plans, programs, agreements, policies or  other
    arrangements described in Section 4.10(d) of this Agreement.

    SECTION 4.11.  TAXES.

        (a)  Except for matters that  could not be expected  to have an Acquiror
    Material Adverse Effect and  except as set forth  in Section 4.11(a) to  the
    Acquiror Disclosure Schedule, (i) all returns and reports ("Tax Returns") of
    or  with respect to any Tax  which is required to be  filed on or before the
    Closing Date by  or with respect  to Acquiror or  any its subsidiaries  have
    been or will be duly and timely filed, (ii) all items of income, gain, loss,
    deduction and credit or other items required to be included in each such Tax
    Return have been or will be so included and all information provided in each
    such  Tax Return is true,  correct and complete, (iii)  all Taxes which have
    become or will become due  with respect to the  period covered by each  such
    Tax  Return have been or  will be timely paid  in full, (iv) all withholding
    Tax requirements  imposed on  or with  respect  to Acquiror  or any  of  its
    subsidiaries have been or will be satisfied in full in all respects, and (v)
    no  penalty, interest or other charge is  or will become due with respect to
    the late filing of any such Tax Return or late payment of any such Tax.

        (b) There is no  claim against Acquiror or  any of its subsidiaries  for
    any  material amount  of Taxes,  and no  material assessment,  deficiency or
    adjustment has been asserted or proposed  with respect to any Tax Return  of
    or  with respect  to Acquiror  or any of  its subsidiaries  other than those
    disclosed (and to which are attached  true and complete copies of all  audit
    or similar reports) on Schedule 4.11(b) to the Acquiror Disclosure Schedule.

        (c)  The total  amounts set up  as liabilities for  current and deferred
    Taxes in  the financial  statements  referred to  in  Section 4.07  of  this
    Agreement  are sufficient to cover the payment  of all Taxes, whether or not
    assessed or disputed, which are,  or are hereafter found  to be, or to  have
    been,  due by or with respect to Acquiror  and any of its subsidiaries up to
    and through the periods covered thereby.

        (d) Except  for  statutory liens  for  current  Taxes not  yet  due,  no
    material  liens for Taxes  exist upon the  assets of any  of Acquiror or its
    subsidiaries.

        (e) Except as set  forth on Section 4.11(e)  to the Acquiror  Disclosure
    Schedule,  none  of the  transactions  contemplated by  this  Agreement will
    result in any Tax liability or the recognition of any item of income or gain
    to Acquiror or any of its subsidiaries.

                                      21
<PAGE>
        (f) Neither Acquiror nor  any of its subsidiaries  has made an  election
    under section 341(f) of the Code.

    SECTION 4.12.  TAX MATTERS; POOLING.  Neither Acquiror nor, to the knowledge
of  Acquiror, any of its affiliates has taken  or agreed to take any action that
would prevent the Merger from (a) constituting a reorganization qualifying under
the provisions of Section 368(a) of the Code or (b) being treated for  financial
accounting  purposes as a Pooling Transaction. Acquiror does not own, nor has it
owned during the past five years, any  shares of Company Common Stock. There  is
no  intercorporate indebtedness  existing between  the Company  and Acquiror, or
between the Company and Merger Sub, that was issued, acquired or will be settled
at a discount.

    SECTION 4.13.  AFFILIATES.  Section 4.13 of the Acquiror Disclosure Schedule
identifies all persons who, to  the knowledge of Acquiror,  may be deemed to  be
affiliates  of Acquiror under Rule 145 of the Securities Act, including, without
limitation, all directors and executive officers of Acquiror.

    SECTION 4.14.   CERTAIN BUSINESS PRACTICES.   None of  Acquiror, any of  its
subsidiaries  or any directors, officers, agents or employees of Acquiror or any
of its subsidiaries (in  their capacities as  such) has (i)  used any funds  for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to  political activity,  (ii) made any  unlawful payment to  foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated  any provision  of the  Foreign Corrupt  Practices Act  of
1977,  as amended, (iii) consummated any  transaction, made any payment, entered
into any agreement  or arrangement  or taken any  other action  in violation  of
Section  1128B(b) of the Social Security Act, as amended, or (iv) made any other
unlawful payment.

    SECTION 4.15.   OPINION OF  FINANCIAL ADVISOR.   Acquiror  has received  the
opinion  of Salomon  Brothers Inc  to the effect  that, as  of the  date of this
Agreement, the Merger  Consideration to  be paid by  Acquiror in  the Merger  is
fair, from a financial point of view, to the stockholders of Acquiror.

    SECTION 4.16.  VOTE REQUIRED.  The only votes of the holders of any class or
series  of  Acquiror  capital stock  necessary  to  approve the  Merger  are the
affirmative votes of the holders of a majority of the shares of Acquiror  Common
Stock present or represented by proxy at a meeting at which a quorum is present.

    SECTION 4.17.  BROKERS.  Except as set forth in Section 4.17 of the Acquiror
Disclosure  Schedule, no broker, finder or investment banker (other than Salomon
Brothers Inc) is entitled to any brokerage, finder's or other fee or  commission
in  connection with the  transactions contemplated by  this Agreement based upon
arrangements made  by or  on  behalf of  Acquiror. Prior  to  the date  of  this
Agreement,  Acquiror has  made available to  the Company a  complete and correct
copy of all  agreements between Acquiror  and Salomon Brothers  Inc pursuant  to
which  such firm will  be entitled to  any payment relating  to the transactions
contemplated by this Agreement.

    SECTION 4.18.  INFORMATION SUPPLIED.  None of the information supplied or to
be supplied by Acquiror for inclusion  or incorporation by reference in (i)  the
registration  statement on Form S-4  to be filed by the  Company with the SEC in
connection with the issuance of shares of the Company Common Stock in the Merger
(the "S-4") will, at the time the S-4 is  filed with the SEC and at the time  it
becomes  effective under the  Securities Act, contain any  untrue statement of a
material fact or omit to state any  material fact required to be stated  therein
or  necessary  to  make the  statements  therein  not misleading,  and  (ii) the
Acquiror Proxy Statement (as hereinafter defined)  will, at the date of  mailing
to stockholders 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,  in light  of the  circumstances in  which they  were made,  not
misleading.  All  documents that  Acquiror is  responsible  for filing  with any
Governmental Entity in connection with the transactions contemplated hereby will
comply as to  form in all  material respects with  the provisions of  applicable
law, including applicable provisions of the Securities Act, the Exchange Act and
the   rules   and  regulations   thereunder.   Without  limiting   any   of  the
representations and warranties contained  herein, no representation or  warranty
to the

                                      22
<PAGE>
Company  by Acquiror  and no  information contained  in the  Acquiror Disclosure
Schedule or any document incorporated  therein by reference contains any  untrue
statement  of material fact or omits to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances in which
such statements are or will be made, not misleading.

    SECTION 4.19.  INSURANCE.   Except as set  forth in the Acquiror  Disclosure
Schedule,  Acquiror  and each  of its  subsidiaries  are presently  insured, and
during each of the past five calendar years have been insured against such risks
as companies  engaged in  a  similar business  would,  in accordance  with  good
business  practice, customarily be insured. Except  as set forth in the Acquiror
Disclosure Schedule, the policies of fire, theft, liability and other  insurance
maintained  with  respect  to  the  assets or  businesses  of  Acquiror  and its
subsidiaries provide adequate coverage against loss.

    SECTION 4.20.   PROPERTIES.   Except as  set forth  in Section  4.20 of  the
Acquiror  Disclosure Schedule or specifically described in Acquiror SEC Reports,
Acquiror and its subsidiaries have good and marketable title, free and clear  of
all  liens,  the existence  of which  could  reasonably be  expected to  have an
Acquiror Material Adverse Effect,  to all their  material properties and  assets
whether tangible or intangible, real, personal or mixed, reflected in Acquiror's
consolidated financial statements contained in Acquiror's most recent SEC Report
on  Form 10-K  as being owned  by Acquiror and  its subsidiaries as  of the date
thereof, other  than  (i)  any properties  or  assets  that have  been  sold  or
otherwise  disposed of in the ordinary course of business since the date of such
financial statements,  (ii)  liens disclosed  in  the notes  to  such  financial
statements  and (iii) liens arising in the ordinary course of business after the
date of such financial  statements. All buildings,  and all fixtures,  equipment
and  other  property  and  assets  that  are  material  to  its  business  on  a
consolidated basis, held under  leases or sub-leases by  Acquiror or any of  its
subsidiaries  are held  under valid  instruments enforceable  in accordance with
their respective terms, subject to applicable laws of bankruptcy, insolvency  or
similar  laws relating to creditors' rights  generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially  all
of Acquiror's and its subsidiaries' equipment in regular use has been reasonably
maintained and is in serviceable condition, reasonable wear and tear excepted.

                                   ARTICLE V
                                   COVENANTS

    SECTION  5.01.   AFFIRMATIVE COVENANTS OF  THE COMPANY.   The Company hereby
covenants and  agrees  that,  prior  to the  Effective  Time,  unless  otherwise
expressly contemplated by this Agreement or consented to in writing by Acquiror,
the Company will and will cause its subsidiaries to:

        (a)  operate its  business in the  usual and  ordinary course consistent
    with past practices;

        (b) use  all reasonable  efforts to  preserve substantially  intact  its
    business  organization,  maintain  its  rights  and  franchises,  retain the
    services of  its respective  officers  and key  employees and  maintain  its
    relationships with its respective customers and suppliers;

        (c)  maintain and keep its  properties and assets in  as good repair and
    condition as  at present,  ordinary  wear and  tear excepted,  and  maintain
    supplies  and  inventories  in  quantities  consistent  with  its  customary
    business practice; and

        (d) use  all  reasonable  efforts  to keep  in  full  force  and  effect
    insurance  and  bonds comparable  in amount  and scope  of coverage  to that
    currently maintained.

    SECTION 5.02.   NEGATIVE  COVENANTS OF  THE COMPANY.   Except  as  expressly
contemplated by this Agreement or otherwise consented to in writing by Acquiror,
from  the date of this Agreement until  the Effective Time, the Company will not
do, and will not permit any of its subsidiaries to do, any of the following:

                                      23
<PAGE>
        (a) (i) increase the compensation payable to or to become payable to any
    director or  executive  officer,  other  than  in  the  ordinary  course  of
    business;  (ii) pay bonuses  to employees of  the Company after  the date of
    this Agreement  in  excess  of  $2.5 million  in  the  aggregate  (excluding
    payments  made pursuant  to agreements  disclosed on  the Company Disclosure
    Schedule), (iii) grant any severance or termination pay (other than pursuant
    to the normal severance practices of  the Company or its subsidiaries as  in
    effect  on the date of  this Agreement) to, or  enter into any employment or
    severance agreement with, any director, officer or employee; (iv) establish,
    adopt or enter into any employee  benefit plan or arrangement or (v)  except
    as  may be required by applicable law  and actions that are not inconsistent
    with the provisions of  Section 6.09 of this  Agreement, amend, or take  any
    other  actions (including, without limitation,  the acceleration of vesting,
    waiving of performance  criteria or the  adjustment of awards  or any  other
    actions  permitted upon a "change in  control" (as defined in the respective
    plans) of  the Company  or a  filing under  Section 13(d)  or 14(d)  of  the
    Exchange Act with respect to the Company) with respect to any of the Benefit
    Plans  or  any  of  the  plans,  programs,  agreements,  policies  or  other
    arrangements described in Section 3.10(d) of this Agreement;

        (b) declare or pay  any dividend on, or  make any other distribution  in
    respect  of, outstanding shares of capital  stock or other equity interests,
    except for (i) dividends by a wholly owned subsidiary of the Company to  the
    Company   or  another   wholly  owned   subsidiary  of   the  Company,  (ii)
    distributions by subsidiaries of  the Company required by  the terms of  the
    Constituent Documents and (iii) distributions by subsidiaries of the Company
    pursuant  to the terms  of the Constituent Documents  and in accordance with
    past practice;

        (c) (i) except as described in Section 3.03(c) of the Company Disclosure
    Schedule, redeem, purchase or otherwise acquire any shares of its or any  of
    its subsidiaries' capital stock or any securities or obligations convertible
    into  or exchangeable  for any  shares of  its or  its subsidiaries' capital
    stock (other  than  any such  acquisition  directly from  any  wholly  owned
    subsidiary  of the Company in exchange for capital contributions or loans to
    such subsidiary), or any options, warrants or conversion or other rights  to
    acquire  any shares of  its or its  subsidiaries' capital stock  or any such
    securities or obligations (except as  permitted pursuant to Section 6.09  of
    this Agreement, in connection with the exercise of outstanding Stock Options
    in  accordance with  their terms and  redemptions or  repurchases of capital
    stock or  other  equity interests  of  subsidiaries  of the  Company  in  an
    aggregate  amount not to exceed $10 million); (ii) effect any reorganization
    or recapitalization of the Company  or any of its Significant  Subsidiaries,
    (iii)   split,  combine  or  reclassify  any   of  its  or  its  Significant
    Subsidiaries' capital stock or issue or authorize or propose the issuance of
    any other  securities in  respect of,  in lieu  of or  in substitution  for,
    shares  of its or  its Significant Subsidiaries' capital  stock or (iv) take
    any action described in clause (ii) or (iii) above with respect to any other
    subsidiary of the Company  other than actions that,  individually or in  the
    aggregate,  could not reasonable be expected  to (x) have a material adverse
    effect on  the  financial  condition, results  of  operations,  business  or
    prospects  affected  subsidiary  or  subsidiaries,  (y)  a  Company Material
    Adverse Effect or (z) adversely affect in any material respect the Company s
    ability to control any of its subsidiaries;

        (d) (i) except as set forth in Section 3.03(a) herein or as described in
    Section 3.03(c)  of the  Company Disclosure  Schedule, issue  (whether  upon
    original issue or out of treasury), sell, grant, award, deliver or limit the
    voting  rights of any class  of its or its  subsidiaries' capital stock, any
    securities convertible  into or  exercisable or  exchangeable for  any  such
    shares,  or  any rights,  warrants or  options to  acquire, any  such shares
    (except as permitted pursuant to Section  6.09 of this Agreement or for  the
    issuance  of  shares  upon  the exercise  of  outstanding  Stock  Options in
    accordance with their terms);  (ii) amend or otherwise  modify the terms  of
    any  such rights, warrants or  options the effect of  which shall be to make
    such terms materially more favorable to  the holders thereof; or (iii)  take
    any action to accelerate the vesting of any of the Stock Options;

        (e)  acquire or agree  to acquire, by merging  or consolidating with, by
    purchasing an equity interest in  or a portion of the  assets of, or by  any
    other manner, any business or any corporation,

                                      24
<PAGE>
    partnership, association or other business organization or division thereof,
    or  otherwise acquire  or agree  to acquire any  assets of  any other person
    (other than the purchase of assets from suppliers or vendors in the ordinary
    course of  business and  consistent with  past practice)  with an  aggregate
    purchase price in excess of $25,000,000;

        (f)  sell,  lease,  exchange, mortgage,  pledge,  transfer  or otherwise
    dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
    otherwise dispose of, any of its  material assets or any material assets  of
    any  of its subsidiaries, except for  (i) dispositions of inventories and of
    assets in the ordinary course of business and consistent with past  practice
    and  (ii) dispositions  of assets having  an aggregate fair  market value of
    less than $10 million;

        (g) initiate,  solicit  or encourage  (including  by way  of  furnishing
    information  or assistance),  or take  any other  action to  facilitate, any
    inquiries or the making of any proposal relating to, or that may  reasonably
    be expected to lead to, any Competing Transaction, or enter into discussions
    or  negotiate with any person or entity  in furtherance of such inquiries or
    to obtain a Competing  Transaction, or agree to,  or endorse, any  Competing
    Transaction,  or  authorize  or  permit  any  of  the  officers,  directors,
    employees or  agents  of the  Company  or any  of  its subsidiaries  or  any
    investment   banker,  financial  advisor,   attorney,  accountant  or  other
    representative retained by the Company or any of the Company's  subsidiaries
    to  take any such action  and the Company shall  promptly notify Acquiror of
    all relevant  terms of  any  such inquiries  or  proposals received  by  the
    Company  or  any  of its  subsidiaries  or  by any  such  officer, director,
    employee, agent, investment banker, financial advisor, attorney,  accountant
    or  other representative relating to any of such matters and if such inquiry
    or proposal is in writing, the Company shall promptly deliver or cause to be
    delivered to Acquiror a copy of such inquiry or proposal; PROVIDED, HOWEVER,
    that nothing contained in  this subsection (g) shall  prohibit the Board  of
    Directors  of the  Company from (i)  furnishing information  to, or entering
    into discussions or negotiations with,  any persons or entity in  connection
    with  an unsolicited bona fide proposal in  writing by such person or entity
    relating to a Competing Transaction if, and only to the extent that (A) such
    unsolicited bona fide  proposal is a  bona fide written  proposal made by  a
    third  party relating to a Competing Transaction  on terms that the Board of
    Directors of the Company  determines it cannot then  reject in favor of  the
    Merger,  based on applicable fiduciary duties  and the advice of counsel and
    (except with respect to furnishing information) for which financing, to  the
    extent  required,  is then  committed,  (B) the  Board  of Directors  of the
    Company, after duly considering the written advice of outside legal  counsel
    to  the Company, determines in  good faith that such  action is required for
    the Board of Directors of the Company to comply with its fiduciary duties to
    stockholders imposed  by  Delaware Law  and  (C) prior  to  furnishing  such
    information  to,  or entering  into discussions  or negotiations  with, such
    person or entity  the Company  provides written  notice to  Acquiror to  the
    effect that it is furnishing information to, or entering into discussions or
    negotiations  with, such person or entity; or (ii) complying with Rule 14e-2
    promulgated under the Exchange Act  with regard to a Competing  Transaction.
    For  purposes  of this  Agreement,  "Competing Transaction"  shall  mean any
    merger, consolidation,  share  exchange,  business  combination  or  similar
    transaction  involving the Company or any of its Significant Subsidiaries or
    the acquisition  in  any  manner,  directly or  indirectly,  of  a  material
    interest  in any voting  securities of, or  a material equity  interest in a
    substantial portion of the assets of, the Company or any of its  Significant
    Subsidiaries, other than the transactions contemplated by this Agreement;

        (h)  release any  third party  from its  obligations under  any existing
    standstill agreement or arrangement relating  to a Competing Transaction  or
    otherwise  under any confidentiality or  other similar agreement relating to
    information material to the Company or any of its subsidiaries;

        (i) propose to adopt any amendments to its Certificate of  Incorporation
    or  its Bylaws that would have an  adverse effect on the consummation of the
    transactions contemplated by this Agreement;

                                      25
<PAGE>
         (j) (A) change any of its  significant accounting policies or (B)  make
    or  rescind  any express  or deemed  election relating  to taxes,  settle or
    compromise any  claim, action,  suit, litigation,  proceeding,  arbitration,
    investigation,  audit  or controversy  relating to  Taxes (except  where the
    amount  of  such  settlements  or  controversies,  individually  or  in  the
    aggregate,  does not  exceed $5  million), or change  any of  its methods of
    reporting income or deductions  for federal income  tax purposes from  those
    employed  in  the preparation  of  the federal  income  tax returns  for the
    taxable year ending  June 30, 1994,  except, in  the case of  clause (A)  or
    clause  (B),  as may  be required  by Law  or generally  accepted accounting
    principles;

        (k)  incur  any  obligation  for   borrowed  money  or  purchase   money
    indebtedness, whether or not evidenced by a note, bond, debenture or similar
    instrument   or   under  any   financing  lease,   whether  pursuant   to  a
    sale-and-leaseback transaction or otherwise,  except in the ordinary  course
    of  business  consistent  with past  practice,  purchase  money indebtedness
    incurred in  connection  with  acquisitions permitted  pursuant  to  Section
    5.02(e)  or pursuant to the terms in effect on the date of this Agreement of
    any  revolving  credit  agreements  disclosed  on  the  Company   Disclosure
    Schedule;

        (l)  enter into any material arrangement, agreement or contract with any
    third party (other than customers in  the ordinary course of business)  that
    provides   for  an  exclusive  arrangement  with  that  third  party  or  is
    substantially  more  restrictive  on  the  Company  or  substantially   less
    advantageous  to  the  Company than  arrangements,  agreements  or contracts
    existing on the date hereof; or

       (m) agree in writing or otherwise to do any of the foregoing.

    SECTION 5.03.    NEGATIVE  COVENANTS  OF  ACQUIROR.    Except  as  expressly
contemplated  by  this Agreement  or otherwise  consented to  in writing  by the
Company, from the date of this Agreement until the Effective Time, Acquiror will
not do, and will not permit any of its subsidiaries to do, any of the following:

        (a) amend any of the material terms or provisions of the Acquiror Common
    Stock;

        (b) knowingly take any action that would result in a failure to maintain
    the trading of the Acquiror Common Stock on the NYSE (other than as a result
    of consummation of the transactions contemplated hereby);

        (c) (i) increase the compensation payable to or to become payable to any
    director or  executive  officer,  other  than  in  the  ordinary  course  of
    business;  (ii) grant any severance or  termination pay (other than pursuant
    to the normal severance policy of Acquiror or its subsidiaries as in  effect
    on the date of this Agreement) to, or enter into any employment or severance
    agreement with, any director, officer or employee; (iii) establish, adopt or
    enter into any employee benefit plan or arrangement or (iv) except as may be
    required  by applicable  law, amend, or  take any  other actions (including,
    without limitation,  the acceleration  of  vesting, waiving  of  performance
    criteria  or the adjustment of awards or  any other actions permitted upon a
    "change in control" (as  defined in the respective  plans) of Acquiror or  a
    filing  under Section  13(d) or  14(d) of the  Exchange Act  with respect to
    Acquiror) with respect  to any of  the Benefit  Plans or any  of the  plans,
    programs,  agreements, policies  or other arrangements  described in Section
    4.10(d) of this Agreement;

        (d) except with respect to  the 6.5% convertible subordinated notes  due
    June  2011  and the  8.75% convertible  senior  subordinated notes  due 2015
    assumed by Acquiror in connection with the merger of Greenery Rehabilitation
    Group, Inc.into Acquiror  (collectively, the "Greenery  Notes"), declare  or
    pay  any  dividend  on,  or  make  any  other  distribution  in  respect of,
    outstanding shares of capital  stock or other  equity interests, except  for
    (i)  dividends  by a  wholly  owned subsidiary  of  Acquiror to  Acquiror or
    another  wholly  owned  subsidiary   of  Acquiror,  (ii)  distributions   by
    subsidiaries  of Acquiror required by the  terms of the Acquiror Constituent
    Documents and (iii)  distributions by subsidiaries  of Acquiror pursuant  to
    the  terms of the Acquiror Constituent Documents and in accordance with past
    practice.;

                                      26
<PAGE>
        (e)  (i)  except  as  described  in  Section  4.03(c)  of  the  Acquiror
    Disclosure Schedule and with respect to the Greenery Notes, redeem, purchase
    or  otherwise acquire any shares of its  or any of its subsidiaries' capital
    stock or any securities or obligations convertible into or exchangeable  for
    any  shares of its or  its subsidiaries' capital stock  (other than any such
    acquisition directly from  any wholly  owned subsidiary of  the Acquiror  in
    exchange  for capital  contributions or  loans to  such subsidiary),  or any
    options, warrants or conversion or other rights to acquire any shares of its
    or its subsidiaries'  capital stock  or any such  securities or  obligations
    (except  as  permitted pursuant  to  Section 6.09  of  this Agreement  or in
    connection with the exercise of outstanding Stock Options in accordance with
    their terms);  (ii) effect  any reorganization  or recapitalization  of  the
    Acquiror  or any  of its Significant  Subsidiaries, (iii)  split, combine or
    reclassify any  of its  or its  Significant Subsidiaries'  capital stock  or
    issue  or  authorize or  propose  the issuance  of  any other  securities in
    respect of,  in  lieu of  or  in substitution  for,  shares of  its  or  its
    Significant Subsidiaries' capital stock or (iv) take any action described in
    clause  (ii) or  (iii) above  with respect  to any  other subsidiary  of the
    Acquiror other than actions  that, individually or  in the aggregate,  could
    not  reasonable be  expected to  (x) have a  material adverse  effect on the
    financial condition, results of  operations, business or prospects  affected
    subsidiary  or subsidiaries, (y)  a Acquiror Material  Adverse Effect or (z)
    adversely affect in any material respect  the Acquiror s ability to  control
    any of its subsidiaries;

        (f) (i) except as set forth in Section 4.03(a) herein or as described in
    Section  4.03(c) of  the Acquiror  Disclosure Schedule,  issue (whether upon
    original issue or out of treasury), sell, grant, award, deliver or limit the
    voting rights of, or  agree or propose  to do any of  the foregoing, of  any
    class  of its or its subsidiaries' capital stock, any securities convertible
    into or exercisable  or exchangeable  for any  such shares,  or any  rights,
    warrants  or options to acquire, any such shares (except or for the issuance
    of shares upon the exercise of outstanding stock options in accordance  with
    their  terms); (ii) amend or otherwise modify  the terms of any such rights,
    warrants or options the  effect of which  shall be to  make such terms  more
    favorable to the holders thereof; or (iii) take any action to accelerate the
    vesting of any of the stock options;

        (g)  acquire or agree  to acquire, by merging  or consolidating with, by
    purchasing an equity interest in  or a portion of the  assets of, or by  any
    other  manner, any business or  any corporation, partnership, association or
    other business organization  or division  thereof, or  otherwise acquire  or
    agree  to acquire any assets of any other person (other than the purchase of
    assets from suppliers  or vendors  in the  ordinary course  of business  and
    consistent with past practice) with an aggregate purchase price in excess of
    $25,000,000;

        (h)  sell,  lease,  exchange, mortgage,  pledge,  transfer  or otherwise
    dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
    otherwise dispose of, any of its  material assets or any material assets  of
    any  of its subsidiaries, except for  (i) dispositions of inventories and of
    assets in the ordinary course of business and consistent with past  practice
    and  (ii) dispositions  of assets having  an aggregate fair  market value of
    less than $10 million;

        (i) propose to adopt any amendments to its Certificate of  Incorporation
    or  its Bylaws that would have an  adverse effect on the consummation of the
    transactions contemplated by this Agreement;

         (j) (A) change any of its  significant accounting policies or (B)  make
    or  rescind  any express  or deemed  election relating  to taxes,  settle or
    compromise any  claim, action,  suit, litigation,  proceeding,  arbitration,
    investigation,  audit  or controversy  relating to  Taxes (except  where the
    amount  of  such  settlements  or  controversies,  individually  or  in  the
    aggregate,  does not  exceed $5  million), or change  any of  its methods of
    reporting income or deductions  for federal income  tax purposes from  those
    employed  in  the preparation  of  the federal  income  tax returns  for the
    taxable year ending  May 31,  1994, except,  in the  case of  clause (A)  or
    clause  (B),  as may  be required  by Law  or generally  accepted accounting
    principles;

                                      27
<PAGE>
        (k)  incur  any  obligation  for   borrowed  money  or  purchase   money
    indebtedness, whether or not evidenced by a note, bond, debenture or similar
    instrument   or   under  any   financing  lease,   whether  pursuant   to  a
    sale-and-leaseback transaction or otherwise,  except in the ordinary  course
    of  business  consistent  with past  practice,  purchase  money indebtedness
    incurred in  connection  with  acquisitions permitted  pursuant  to  Section
    5.03(g)  or pursuant to the terms in effect on the date of this Agreement of
    any revolving credit agreements.

        (l) enter into any material arrangement, agreement or contract with  any
    third  party (other than customers in  the ordinary course of business) that
    provides  for  an  exclusive  arrangement  with  that  third  party  or   is
    substantially  more  restrictive  on  the  Acquiror  or  substantially  less
    advantageous to  the Acquiror  than  arrangements, agreements  or  contracts
    existing on the date hereof; or

       (m) agree in writing or otherwise to do any of the foregoing.

    SECTION 5.04.  ACCESS AND INFORMATION.

        (a) The Company shall, and shall cause its subsidiaries to (i) afford to
    Acquiror  and its officers,  directors, employees, accountants, consultants,
    legal counsel, agents and other representatives (collectively, the "Acquiror
    Representatives") reasonable  access at  reasonable times,  upon  reasonable
    prior  notice, to the officers,  employees, accountants, agents, properties,
    offices and other facilities of the Company and its subsidiaries and to  the
    books  and records  thereof and  (ii) furnish  promptly to  Acquiror and the
    Acquiror  Representatives   such   information  concerning   the   business,
    properties,  contracts,  records  and  personnel  of  the  Company  and  its
    subsidiaries (including, without limitation, financial, operating and  other
    data  and information) as may be reasonably requested, from time to time, by
    Acquiror.

        (b) Acquiror shall, and shall cause  its subsidiaries to, (i) afford  to
    the   Company   and   its  officers,   directors,   employees,  accountants,
    consultants, legal counsel, agents and other representatives  (collectively,
    the  "Company Representatives") reasonable access  at reasonable times, upon
    reasonable prior notice,  to the officers,  employees, accountants,  agents,
    properties,  offices and other  facilities of Acquiror  and its subsidiaries
    and to  the books  and records  thereof  and (ii)  furnish promptly  to  the
    Company  and  the Company  Representatives  such information  concerning the
    business, properties, contracts, records and  personnel of Acquiror and  its
    subsidiaries  (including, without limitation, financial, operating and other
    data and information) as may be reasonably requested, from time to time,  by
    the Company.

        (c)  Notwithstanding  the  foregoing provisions  of  this  Section 5.04,
    neither party shall be  required to grant access  or furnish information  to
    the  other party to  the extent that  such access or  the furnishing of such
    information is prohibited  by law.  No investigation by  the parties  hereto
    made heretofore or hereafter shall affect the representations and warranties
    of  the parties that  are contained herein and  each such representation and
    warranty shall survive such investigation.

    SECTION 5.05.  AFFIRMATIVE COVENANTS OF ACQUIROR.  Acquiror hereby covenants
and agrees  that,  prior  to  the Effective  Time,  unless  otherwise  expressly
contemplated  by  this Agreement  or  consented to  in  writing by  the Company,
Acquiror will and will cause its subsidiaries to:

        (a) operate its  business in  the usual and  ordinary course  consistent
    with past practices;

        (b)  use  all reasonable  efforts to  preserve substantially  intact its
    business organization,  maintain  its  rights  and  franchises,  retain  the
    services  of  its respective  officers and  key  employees and  maintain its
    relationships with its respective customers and suppliers;

        (c) maintain and keep  its properties and assets  in as good repair  and
    condition  as  at present,  ordinary wear  and  tear excepted,  and maintain
    supplies  and  inventories  in  quantities  consistent  with  its  customary
    business practice; and

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<PAGE>
        (d)  use  all  reasonable  efforts  to keep  in  full  force  and effect
    insurance and  bonds comparable  in amount  and scope  of coverage  to  that
    currently maintained.

                                   ARTICLE VI
                             ADDITIONAL AGREEMENTS

    SECTION 6.01.  MEETINGS OF STOCKHOLDERS.

        (a)  The Company shall, promptly after  the date of this Agreement, take
    all actions necessary in accordance with Delaware Law and its Certificate of
    Incorporation and  Bylaws to  convene  a special  meeting of  the  Company's
    stockholders  to act on this Agreement (the "Company Stockholders Meeting"),
    and the Company shall consult with Acquiror in connection therewith.  Unless
    its  Board of Directors in the good  faith exercise of its fiduciary duties,
    after consultation with legal counsel and its financial advisors, determines
    not to recommend, or  to withdraw its recommendation,  that such matters  be
    approved by the Company's stockholders, the Company shall use all reasonable
    efforts  to solicit from stockholders of the Company proxies in favor of the
    approval and adoption of this Agreement and to secure the vote or consent of
    stockholders required by Delaware Law  and its Certificate of  Incorporation
    and Bylaws to approve and adopt this Agreement.

        (b)  Acquiror shall, promptly after the date of this Agreement, take all
    actions necessary in  accordance with  Delaware Law and  its Certificate  of
    Incorporation  and  Bylaws  to  convene  a  special  meeting  of  Acquiror's
    stockholders to act on this Agreement (the "Acquiror Stockholders Meeting"),
    and Acquiror  shall  consult  with  the  Company  in  connection  therewith.
    Acquiror  shall use all  reasonable efforts to  solicit from stockholders of
    Acquiror proxies in favor of the approval and adoption of this Agreement and
    to secure the vote or consent  of stockholders required by Delaware Law  and
    its  Certificate  of  Incorporation and  Bylaws  to approve  and  adopt this
    Agreement.

    SECTION 6.02.  REGISTRATION STATEMENT; PROXY STATEMENTS.

        (a) As promptly as  practicable after the  execution of this  Agreement,
    the  Acquiror Companies shall  prepare and file with  the SEC a registration
    statement on  Form  S-4  (such registration  statement,  together  with  any
    amendments   thereof  or   supplements  thereto,   being  the  "Registration
    Statement"), containing a proxy statement/prospectus for stockholders of the
    Company   (the   "Company   Proxy   Statement/Prospectus")   and   a   proxy
    statement/prospectus  for  stockholders  of  Acquiror  (the  "Acquiror Proxy
    Statement/Prospectus"),  in  connection  with  the  registration  under  the
    Securities  Act of the offer, sale and  delivery of Acquiror Common Stock to
    be issued in  the Merger  and the  other transactions  contemplated by  this
    Agreement. As promptly as practicable after the execution of this Agreement,
    the  Company shall prepare and file with the SEC a proxy statement that will
    be the same as the Company Proxy Statement/Prospectus, and a form of  proxy,
    in  connection with the  vote of the Company's  stockholders with respect to
    this Agreement (such Company  Proxy Statement/Prospectus, together with  any
    amendments thereof or supplements thereto, in each case in the form or forms
    mailed  to the Company's stockholders, being the "Company Proxy Statement").
    As promptly  as  practicable after  the  execution of  this  Agreement,  the
    Acquiror  shall prepare and file with the SEC a proxy statement that will be
    the same as the Acquiror Proxy Statement/Prospectus, and a form of proxy, in
    connection with the vote of the Acquiror's stockholders with respect to this
    Agreement (such  Acquiror  Proxy  Statement/Prospectus,  together  with  any
    amendments thereof or supplements thereto, in each case in the form or forms
    mailed   to  the   Acquiror's  stockholders,   being  the   "Acquiror  Proxy
    Statement"). Each of  the Acquiror Companies  and the Company  will use  all
    reasonable  efforts to  have or cause  the Registration  Statement to become
    effective as promptly as practicable, and shall take any action required  to
    be taken under any applicable federal or state securities laws in connection
    with  the issuance of shares of Acquiror Common Stock in the Merger. Each of
    the Acquiror  Companies  and  the  Company  shall  furnish  all  information
    concerning  it  and  the holders  of  its  capital stock  as  the  other may
    reasonably  request  in  connection  with  such  actions.  As  promptly   as

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<PAGE>
    practicable  after the  Registration Statement shall  have become effective,
    the Company  shall mail  the  Company Proxy  Statement to  its  stockholders
    entitled  to notice of  and to vote  at the Company  Stockholder Meeting and
    Acquiror shall  mail  the  Acquiror  Proxy  Statement  to  its  stockholders
    entitled  to notice of and to vote  at the Acquiror Stockholder Meeting. The
    Company Proxy Statement shall, to the extent consistent with their fiduciary
    duties, include the recommendation  of the Company's  Board of Directors  in
    favor  of  the  Merger.  The  Acquiror  Proxy  Statement  shall  include the
    recommendation of the Acquiror's Board of Directors in favor of the Merger.

        (b) The  information  supplied  by  the Company  for  inclusion  in  the
    Registration  Statement shall not, at the time the Registration Statement is
    declared effective, 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  not  misleading.  The  information
    supplied  by the Company for inclusion in (i) the Company Proxy Statement to
    be sent to the  stockholders of the Company  in connection with the  Company
    Stockholders  Meeting shall not, at the date the Company Proxy Statement (or
    any supplement thereto) is first mailed to stockholders, at the time of  the
    Company  Stockholders Meeting or at the Effective Time and (ii) the Acquiror
    Proxy Statement to  be sent to  the stockholders of  Acquiror in  connection
    with  the Acquiror Stockholders Meeting shall  not, at the date the Acquiror
    Proxy Statement (or any supplement thereto) is first mailed to stockholders,
    at the time of the Acquiror  Stockholders Meeting or at the Effective  Time,
    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 the light  of the circumstances under which they
    are made, not misleading. If at  any time prior to the Company  Stockholders
    Meeting  any event  or circumstance  relating to the  Company or  any of its
    affiliates, or  its or  their respective  officers or  directors, should  be
    discovered  by the Company that  should be set forth  in an amendment to the
    Registration Statement or  a supplement  to the Company  Proxy Statement  or
    Acquiror  Proxy Statement, the  Company shall promptly  inform Acquiror. All
    documents that  the  Company is  responsible  for  filing with  the  SEC  in
    connection with the transactions contemplated herein shall comply as to form
    in  all material respects with the applicable requirements of the Securities
    Act and the rules  and regulations thereunder and  the Exchange Act and  the
    rules and regulations thereunder.

        (c)  The information supplied by the Acquiror Companies for inclusion in
    the Registration Statement shall not, at the time the Registration Statement
    is declared effective, 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 not  misleading. The  information
    supplied  by the Acquiror  Companies for inclusion in  (i) the Company Proxy
    Statement to be sent to the  stockholders of the Company in connection  with
    the  Company Stockholders Meeting  shall not, at the  date the Company Proxy
    Statement (or any supplement  thereto) is first  mailed to stockholders,  at
    the  time of the Company  Stockholders Meeting or at  the Effective Time and
    (ii) the Acquiror Proxy Statement to be sent to the stockholders of Acquiror
    in connection with the Acquiror Stockholders Meeting shall not, at the  date
    the  Acquiror Proxy Statement (or any supplement thereto) is first mailed to
    stockholders, at the  time of the  Acquiror Stockholders Meeting  or at  the
    Effective  Time, 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 the  light of  the circumstances under
    which they are made, not  misleading. If at any  time prior to the  Acquiror
    Stockholders  Meeting any event or circumstance  relating to Acquiror or any
    of its respective affiliates, or to their respective officers or  directors,
    should be discovered by Acquiror that should be set forth in an amendment to
    the Registration Statement or a supplement to the Company Proxy Statement or
    Acquiror  Proxy Statement, Acquiror  shall promptly inform  the Company. All
    documents that the Acquiror  Companies are responsible  for filing with  the
    SEC  in connection with the transactions contemplated hereby shall comply as
    to form in  all material respects  with the applicable  requirements of  the
    Securities Act and the rules and regulations thereunder and the Exchange Act
    and the rules and regulations thereunder.

                                      30
<PAGE>
    SECTION 6.03.  APPROPRIATE ACTION; CONSENTS; FILINGS.

        (a)  The Company and  Acquiror shall each  use, and shall  cause each of
    their respective subsidiaries  to use,  all reasonable  efforts promptly  to
    (i)take,  or cause to be taken, all  appropriate action, and do, or cause to
    be done, all things necessary, proper  or advisable under applicable Law  or
    otherwise  to consummate and make effective the transactions contemplated by
    the Transaction Documents,  (ii) obtain from  any Governmental Entities  any
    consents,  licenses, permits,  waivers, approvals,  authorizations or orders
    required to  be  obtained  by  Acquiror  or the  Company  or  any  of  their
    subsidiaries in connection with the authorization, execution and delivery of
    the   Transaction  Documents  and  the   consummation  of  the  transactions
    contemplated hereby, including, without  limitation, the Merger, (iii)  make
    all  necessary filings, and thereafter  make any other required submissions,
    with respect to the Transaction Documents and the Merger required under  (A)
    the  Securities Act (in the  case of Acquiror) and  the Exchange Act and the
    rules and regulations thereunder, and any other applicable federal or  state
    securities  laws, (B) the HSR Act and (C) any other applicable Law; provided
    that Acquiror and the Company shall cooperate with each other in  connection
    with  the making of all such filings, including providing copies of all such
    documents to the nonfiling  party and its advisors  prior to filing and,  if
    requested,  shall  accept  all reasonable  additions,  deletions  or changes
    suggested in connection  therewith. The Company  and Acquiror shall  furnish
    all  information required  for any  application or  other filing  to be made
    pursuant to the rules and regulations  of any applicable Law (including  all
    information  required to  be included  in the  Company Proxy  Statement, the
    Acquiror Proxy Statement or the  Registration Statement) in connection  with
    the transactions contemplated by the Transaction Documents.

        (b)  The Acquiror  Companies and the  Company agree to,  and shall cause
    each of their respective subsidiaries  to, cooperate and use all  reasonable
    efforts  vigorously to contest and resist any action, including legislative,
    administrative or judicial action, and to have vacated, lifted, reversed  or
    overturned   any  decree,  judgment,  injunction  or  other  order  (whether
    temporary, preliminary or permanent) (an "Order") that is in effect and that
    restricts, prevents or prohibits the consummation of the Merger or any other
    transactions contemplated by the  Transaction Documents, including,  without
    limitation,  by vigorously pursuing all  available avenues of administrative
    and judicial  appeal  and all  available  legislative action.  Each  of  the
    Acquiror  Companies and the Company also agree  to take any and all actions,
    including, without limitation, the disposition  of assets or the  withdrawal
    from  doing  business in  particular  jurisdictions, required  by regulatory
    authorities as a  condition to  the granting  of any  approvals required  in
    order  to permit  the consummation of  the Merger  or as may  be required to
    avoid, lift, vacate or reverse any legislative or judicial action that would
    otherwise cause  any condition  to Closing  not to  be satisfied;  PROVIDED,
    HOWEVER,  that in no event shall either  party take, or be required to take,
    any action that  could reasonably  be expected  to have  a Company  Material
    Adverse Effect or an Acquiror Material Adverse Effect.

        (c)  (i) Each of the Company and  Acquiror shall promptly give (or shall
    cause their respective subsidiaries to  give) any notices to third  parties,
    and  use, and  cause their  respective subsidiaries  to use,  all reasonable
    efforts to  obtain  any  third  party  consents  (A)  necessary,  proper  or
    advisable to consummate the transactions contemplated by this Agreement, (B)
    otherwise required under any contracts, licenses, leases or other agreements
    in  connection with the consummation of the transactions contemplated by the
    Transaction Documents or (C) required to prevent a Company Material  Adverse
    Effect  from occurring prior to  or after the Effective  Time or an Acquiror
    Material Adverse Effect from occurring after the Effective Time.

        (ii) If any party shall fail to obtain any third party consent described
    in subsection (c)(i) above, such party shall use all reasonable efforts, and
    shall take any such  actions reasonably requested by  the other parties,  to
    limit  the adverse  effect upon the  Company and  Acquiror, their respective
    subsidiaries, and  their respective  businesses  resulting, or  which  could
    reasonably  be expected to result after the Effective Time, from the failure
    to obtain such consent.

                                      31
<PAGE>
    SECTION 6.04.  AFFILIATES; POOLING; TAX TREATMENT.

        (a) The Company shall use all  reasonable efforts to obtain and  deliver
    to  Acquiror  an executed  letter agreement,  substantially  in the  form of
    EXHIBIT A hereto,  from (i) each  person identified as  an affiliate of  the
    Company  in Section  3.13 of  the Company  Disclosure Schedule  by April 14,
    1995, (ii) any person who may be  deemed to have become an affiliate of  the
    Company  after the date of  this Agreement and on  or prior to the Effective
    Time as soon as practicable after such person attains such status and  (iii)
    any  person whose  agreement thereto may  be deemed  reasonably necessary by
    Acquiror to sustain the Merger's status as a Pooling Transaction on or prior
    to the Effective Time.

        (b) Acquiror  shall use  all reasonable  efforts to  obtain an  executed
    letter  agreement, substantially in  the form of EXHIBIT  B hereto, from (i)
    each person  identified as  an  affiliate of  Acquiror  in Section  4.13  of
    Acquiror  Disclosure Schedule by April 14, 1995,  (ii) any person who may be
    deemed to  have become  an affiliate  of  Acquiror after  the date  of  this
    Agreement and on or prior to the Effective Time as soon as practicable after
    such person attains such status and (iii) any person whose agreement thereto
    may  be  deemed reasonably  necessary by  Acquiror  to sustain  the Merger's
    status as a Pooling Transaction on or prior to the Effective Time.

        (c) The  Acquiror  Companies  shall  not be  required  to  maintain  the
    effectiveness  of the  Registration Statement for  the purpose  of resale by
    stockholders of Acquiror who  may be affiliates of  the Company or  Acquiror
    pursuant to Rule 145 under the Securities Act.

        (d)  Each party  hereto shall  use all  reasonable efforts  to cause the
    Merger to qualify, and shall not take, and shall use all reasonable  efforts
    to  prevent any affiliate of such party from taking, any actions which could
    prevent the Merger from qualifying, as a reorganization under the provisions
    of Section 368(a) of the Code.

    SECTION 6.05.  PUBLIC ANNOUNCEMENTS.  The initial press release relating  to
this  Agreement shall  be a  joint press release  and thereafter,  to the extent
practicable, Acquiror  and the  Company  shall consult  with each  other  before
issuing any press release or otherwise making any public statements with respect
to  the Transaction Documents or  the Merger and shall  not issue any such press
release or make any such public statement prior to such consultation.

    SECTION 6.06.  NYSE LISTING.   Acquiror shall use all reasonable efforts  to
cause  the shares  of Acquiror  Common Stock to  be issued  in the  Merger to be
approved for listing (subject to official notice of issuance) on the NYSE  prior
to the Effective Time.

    SECTION 6.07.  RIGHTS AGREEMENT; STATE TAKEOVER STATUTES.  The Company shall
take  all  action (including,  if necessary,  redeeming  all of  the outstanding
rights  issued  pursuant  to  the  Company  Rights  Agreement  or  amending   or
terminating  the  Company  Rights  Agreement)  so  that  the  execution  of  the
Transaction  Documents  and  the  consummation  of  the  Merger  and  the  other
transactions  contemplated by the Transaction Documents  and do not and will not
result in  the grant  of  any rights  to any  person  under the  Company  Rights
Agreement  or  enable  or  require  any  outstanding  rights  to  be  exercised,
distributed or triggered. The  Company will take all  steps necessary to  exempt
the  transactions  contemplated  by  the Transaction  Documents  and  the Voting
Agreement from, and if necessary challenge the validity of, any applicable state
takeover law, including, without  limitation, Section 203  of Delaware Law.  The
Company shall take all actions necessary under Delaware Law, including approving
the  transactions  contemplated  by  the Transaction  Documents  and  the Voting
Agreement, to ensure that the prohibitions on business combinations set forth in
Section 203 of  Delaware Law  do not,  or will  not, apply  to the  transactions
contemplated by the Transaction Documents and the Voting Agreement.

    SECTION 6.08.  COMFORT LETTERS.

        (a)  The Company shall use all reasonable efforts to cause Ernst & Young
    to  deliver  a  letter   dated  as  of  the   date  of  the  Company   Proxy
    Statement/Prospectus,  and  addressed  to  the  Company  and  its  Board  of
    Directors and Acquiror  and its Board  of Directors, in  form and  substance

                                      32
<PAGE>
    reasonably satisfactory to Acquiror and customary in scope and substance for
    agreed  upon procedures letters delivered  by independent public accountants
    in connection with registration statements  and proxy statements similar  to
    the Registration Statement and the Company Proxy Statement.

        (b)  Acquiror shall use all reasonable  efforts to cause Arthur Andersen
    LLP to  deliver  a  letter dated  as  of  the date  of  the  Acquiror  Proxy
    Statement,  and addressed  to Acquiror  and its  Board of  Directors and the
    Company and  its  Board  of  Directors, in  form  and  substance  reasonably
    satisfactory  to the Company and customary in scope and substance for agreed
    upon procedures  letters  delivered  by independent  public  accountants  in
    connection  with registration statements and proxy statements similar to the
    Registration Statement and the Acquiror Proxy Statement.

    SECTION 6.09.  ASSUMPTION OF OBLIGATIONS TO ISSUE STOCK.

        (a) At the Effective Time, automatically  and without any action on  the
    part  of the holder thereof, each  outstanding Company Stock Option shall be
    assumed by Acquiror and become an  option to purchase that number of  shares
    of  Acquiror Common  Stock obtained by  multiplying the number  of shares of
    Company Common Stock issuable upon the exercise of such option by the Common
    Stock Exchange Ratio at an exercise price  per share equal to the per  share
    exercise price of such option divided by the Common Stock Exchange Ratio and
    otherwise  upon the same terms and conditions as such outstanding options to
    purchase Company Common Stock;  provided, however, that in  the case of  any
    option to which Section 421of the Internal Revenue Code applies by reason of
    the  qualifications  under Section  422 or  423 of  such Code,  the exercise
    price, the number  of shares  purchasable pursuant  to such  option and  the
    terms and conditions of exercise of such option shall be determined in order
    to comply with Section 424(a) of the Code.

        (b)   At  the  Effective  Time,  subject  to  the  any  requirements  or
    restrictions necessary  in order  for  the Merger  to constitute  a  Pooling
    Transaction,  automatically  and  without  any action  by  any  person, each
    outstanding Company Stock Option then held by an employee of the Company  or
    any  of its subsidiaries and  granted prior to January  1, 1995 shall become
    immediately exercisable.

        (c) The Acquiror shall take  all corporate actions necessary to  reserve
    for  issuance a  sufficient number  of shares  of Acquiror  Common Stock for
    delivery upon  exercise of  the Company  Stock Options  assumed by  Acquiror
    pursuant to Section 6.09(a) above.

        (d)  As promptly as practicable after the Effective Time, Acquiror shall
    file a  Registration Statement  on Form  S-8, as  the case  may be  (or  any
    successor or other appropriate forms) with respect to the shares of Acquiror
    Common  Stock subject to  the Company Stock  Options and shall  use its best
    efforts to  maintain the  effectiveness of  such registration  statement  or
    registration  statements (and maintain the  current status of the prospectus
    or prospectuses  contained  therein) for  so  long as  such  options  remain
    outstanding.

        (e)  Except as provided herein or as otherwise agreed to by the parties,
    each of the Company Stock Option  Plans providing for the issuance or  grant
    of  options in respect  to the stock of  Company shall be  assumed as of the
    Effective Time  by the  Acquiror  with such  amendments  thereto as  may  be
    required to reflect the Merger.

        (f) In connection with the submission of the Acquiror Proxy Statement to
    its  stockholders, the Acquiror shall seek  such stockholder approval as may
    be necessary so that grants of options and issuances of securities  pursuant
    to the exercise of such options under the Company Stock Option Plans assumed
    by  it hereunder, as amended, and all other Company Stock Option Plans as in
    effect on the date hereof shall qualify for the exemption for such issuances
    provided by Rule 16b-3 under the Exchange Act.

        (g) At or  prior the Effective  Time the Acquiror  shall (i) assume  and
    agree   to   perform  the   Company   s  obligations   under   its  existing
    change-in-control agreements identified on  the Company Disclosure  Schedule
    and  (ii)  shall  agree  the  to  issue  shares  of  Acquiror  Common  Stock

                                      33
<PAGE>
    pursuant to the Company Acquisition Agreements described in Section  3.03(a)
    of  the Company Disclosure  Schedule, upon exercise of  the Warrant and upon
    conversion of  the Company  Debenture, in  each case  in lieu  of shares  of
    Company Common Stock, the number of shares to be so issued to be obtained by
    multiplying  the number of shares of Company Common Stock otherwise issuable
    thereunder by  the Common  Stock Exchange  Ratio and  the purchase  of  such
    shares  of Acquiror Common Stock, if  applicable, to be obtained by dividing
    the per share purchase price of a share of Acquiror Common Stock  thereunder
    by the Common Stock Exchange Ratio.

    SECTION  6.10.  MERGER SUB.   Prior to the  Effective Time, Merger Sub shall
not conduct any  business or  make any  investments other  than as  specifically
contemplated  by this Agreement  and will not  have any assets  (other than a DE
MINIMIS amount of cash  paid to Merger  Sub for the issuance  of their stock  to
Acquiror) or liabilities.

    SECTION  6.11.  BOARD OF DIRECTORS.  Acquiror shall take action to cause the
number of directors on the Acquiror Board  at the Effective Time to be  thirteen
and  to  ensure  that five  of  such  directorships be  filled  with individuals
designated by the Company prior to the Effective Time (the "Company Designees").
The Company  shall designate  (i) one  Company Designee  who, immediately  after
being  elected to the  Acquiror Board, shall  be elected to  the Audit Committee
thereof, (ii) a second Company Designee who, immediately after being elected  to
the  Acquiror  Board, shall  be elected  to  the Compensation  Committee thereof
(provided that  such  designee shall  not  be an  employee  of Acquiror  or  any
subsidiary  following the  Effective Time), and  (iii) a  third Company Designee
who, immediately after being elected to the Acquiror Board, shall be elected  to
the  Executive Committee thereof.  The Company Designees  shall be nominated for
election as directors of Acquiror at the first annual meeting of stockholders of
the Acquiror  subsequent  to the  Effective  Time  and shall  be  nominated  for
election in the class of directors whose term expires at the 1996 annual meeting
of  stockholders.  Acquiror  shall make  any  amendments to  its  Certificate of
Incorporation or by-laws necessary to effect the foregoing.

    SECTION 6.12.  INDEMNIFICATION AND INSURANCE.

        (a) The Company hereby indemnifies  and holds harmless Acquiror and  its
    directors and officers who sign the Registration Statement, from and against
    any  loss, claim, damage, cost,  liability, obligation or expense (including
    reasonable  attorney's  fees  and  costs  of  investigation)  to  which  any
    indemnified  party may become subject under the Securities Act, the Exchange
    Act or  otherwise, insofar  as such  loss, claim,  damage, cost,  liability,
    obligation  or expense or actions in respect  thereof arises out or is based
    upon any untrue  statement or alleged  untrue statement of  a material  fact
    relating  to  such  indemnifying  party and  contained  in  the Registration
    Statement or arises out of or is based upon the omission or alleged omission
    to state therein a material fact required to be stated therein or  necessary
    to  make the statements therein with  respect to such indemnifying party not
    misleading.

           (b) (i) The Company and Acquiror agree that, until six years from the
       Effective Time,  the  Certificates of  Incorporation  and Bylaws  of  the
       Company and Acquiror as in effect immediately after the amendments to the
       Certificate  of Incorporation of the Company contemplated by Section 1.04
       have become effective shall not be amended to reduce or limit the  rights
       of indemnity afforded to the present and former directors and officers of
       the  Company and Acquiror thereunder or as to the ability of Acquiror and
       the Company to indemnify such persons,  or to hinder, delay or make  more
       difficult  the exercise  of such  rights of  indemnity or  the ability to
       indemnify. The  Company  and Acquiror  agree  that the  Company,  as  the
       surviving corporation of the Merger will at all times exercise the powers
       granted  to it  by its  Certificate of  Incorporation, its  Bylaws and by
       applicable law to  indemnify to  the fullest extent  possible present  or
       former  directors, officers, employees and  agents of the Company against
       claims made against them arising from their service in such capacities.

           (ii) Should any claim or claims be made against any present or former
       director, officer, employee or agent of the Company or Acquiror,  arising
       from his services as such, within six

                                      34
<PAGE>
       years  of  the Effective  Time, the  provisions  of this  Section 6.12(b)
       respecting the Certificates of Incorporation  and Bylaws of Acquiror  and
       the  Company shall continue in effect  until the final disposition of all
       such claims. Notwithstanding  anything to  the contrary  in this  Section
       6.12, neither Acquiror nor the Company shall be liable for any settlement
       effected  without its  written consent,  which shall  not be unreasonably
       withheld.

          (iii) The provisions of  this Section 6.12(b) are  intended to be  for
       the  benefit  of, and  shall be  enforceable by,  each party  entitled to
       indemnification hereunder, his heirs and his representatives.

        (c) Acquiror shall cause to be maintained in effect the current policies
    of directors' and  officers' liability insurance  maintained by the  Company
    (or  substitute policies providing at least the same coverage and limits and
    containing terms and conditions that  are not materially less  advantageous)
    with  respect to claims  arising from facts or  events which occurred before
    the Effective Time; provided, however that in no event shall Acquiror or the
    Company be required to expend more than 200% of the current annual  premiums
    paid by the Company for such insurance.

                                  ARTICLE VII
                               CLOSING CONDITIONS

    SECTION   7.01.    CONDITIONS  TO  OBLIGATIONS  OF  EACH  PARTY  UNDER  THIS
AGREEMENT.  The respective  obligations of each party  to effect the Merger  and
the  other transactions contemplated hereby shall be subject to the satisfaction
at or prior to  the Effective Time  of the following conditions  (any or all  of
which  may be waived by the  parties hereto in writing, in  whole or in part, to
the extent permitted by applicable Law):

        (a)  EFFECTIVENESS  OF  THE  REGISTRATION  STATEMENT.  The  Registration
    Statement shall have been declared effective by the SEC under the Securities
    Act.  No  stop  order  suspending  the  effectiveness  of  the  Registration
    Statement shall have  been issued  by the SEC  and no  proceedings for  that
    purpose shall have been initiated by the SEC.

        (b)  STOCKHOLDER APPROVAL. This  Agreement shall have  been approved and
    adopted by  the requisite  vote of  the stockholders  of the  Company.  This
    Agreement  shall have been approved and adopted by the requisite vote of the
    stockholders of Acquiror.

        (c) NO  ORDER. No  Governmental  Entity or  federal  or state  court  of
    competent  jurisdiction shall have enacted, issued, promulgated, enforced or
    entered any statute,  rule, regulation, executive  order, decree,  judgment,
    injunction  or  other order  (whether  temporary, preliminary  or permanent)
    which is in effect and which has the effect of making the Merger illegal  or
    otherwise prohibiting consummation of the Merger.

        (d)  HSR  ACT. The  applicable  waiting period  under  the HSR  Act with
    respect to  the  transactions  contemplated by  this  Agreement  shall  have
    expired or been terminated.

        (e)  ACQUIROR TAX  OPINION. Acquiror shall  have received  from Vinson &
    Elkins L.L.P. a written  opinion dated as of  the date (the "Mailing  Date")
    the  Company  Proxy Statement  or the  Acquiror  Proxy Statement  is mailed,
    whichever is first mailed, to the stockholders of the Company or Acquiror to
    the effect that the Merger, when effected in accordance with this Agreement,
    will qualify  as a  reorganization  under Section  368(a)  of the  Code  and
    Acquiror,  Merger  Sub  and  the Company  will  constitute  parties  to such
    reorganization, and a copy of such opinion shall have been delivered to  the
    Company.

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<PAGE>
        (f)  COMPANY TAX OPINION.  The Company shall  have received from Drinker
    Biddle & Reath a written opinion dated as of the Mailing Date to the  effect
    that  the receipt  of the  Merger Consideration  by the  stockholders of the
    Company will be nontaxable to such stockholders, and a copy of such  opinion
    shall have been delivered to Acquiror.

        (g)  POOLING OPINION. Acquiror shall  have received from Arthur Andersen
    LLP a  written opinion  dated the  Effective  Date to  the effect  that  the
    transactions  contemplated  by this  Agreement,  including the  Merger, when
    effected in accordance with the terms thereof, shall be accounted for in the
    consolidated financial  statements of  Acquiror and  its subsidiaries  as  a
    Pooling Transaction, and a copy of such opinion shall have been delivered to
    the Company.

        (h)  ABSENCE OF  REGULATORY CONDITIONS.  There shall  not be  any action
    taken, or any  Law enacted, entered,  enforced or deemed  applicable to  the
    Merger  by any Governmental Entity  that, in connection with  the grant of a
    regulatory approval necessary to the continuing operation of the business or
    future prospects of the Company, which action, statute, rule, regulation  or
    order  imposes any condition  or restriction upon  the Acquiror Companies or
    the business or operations  of the Company that  would constitute a  Company
    Material Adverse Effect or an Acquiror Material Adverse Effect.

    SECTION  7.02.    ADDITIONAL  CONDITIONS  TO  OBLIGATIONS  OF  THE  ACQUIROR
COMPANIES.  The obligations of the  Acquiror Companies to effect the Merger  and
the  other  transactions  contemplated  by the  Transaction  Documents  are also
subject to  the following  conditions (any  or all  of which  may be  waived  by
Acquiror in writing, in whole or in part):

        (a)  REPRESENTATIONS  AND WARRANTIES.  Each  of the  representations and
    warranties of the Company  contained in the  Transaction Documents shall  be
    true and correct in all material respects as of the Effective Time as though
    made  on and  as of  the Effective Time.  The Acquiror  Companies shall have
    received a certificate of the President  and the Chief Financial Officer  of
    the Company, dated the date of the Effective Time, to such effect.

        (b)  AGREEMENTS  AND  COVENANTS.  The Company  shall  have  performed or
    complied in all material respects with all agreements and covenants required
    by the Transaction Documents to  be performed or complied  with by it on  or
    prior  to the Effective  Time. The Acquiror Companies  shall have received a
    certificate of the President and the Chief Financial Officer of the Company,
    dated the date of the Effective Time, to that effect.

        (c) BLUE SKY. The Acquiror Companies shall have received all "blue  sky"
    permits  and other  authorizations necessary to  consummate the transactions
    contemplated by the Transaction Documents.

        (d) RIGHTS AGREEMENT. None of the events described in sections 11(a)(ii)
    or 13 of the  Company Rights Agreement shall  have occurred, and the  rights
    thereunder  shall not  have become nonredeemable  and such  rights shall not
    become exercisable for capital  stock of Acquiror  upon consummation of  the
    Merger.

        (e) FAIRNESS OPINION. Acquiror shall have received from Salomon Brothers
    Inc  written confirmation  dated the  Mailing Date  of its  opinion rendered
    pursuant to Section 4.15 herein.

    SECTION 7.03.   ADDITIONAL CONDITIONS TO  OBLIGATIONS OF THE  COMPANY.   The
obligations  of  the Company  to effect  the Merger  and the  other transactions
contemplated hereby are also subject to the following conditions (any or all  of
which may be waived by the Company in writing, in whole or in part):

        (a)  REPRESENTATIONS  AND WARRANTIES.  Each  of the  representations and
    warranties of the Acquiror Companies contained in the Transaction  Documents
    shall  be true and correct in all material respects as of the Effective Time
    as though made  on and  as of  the Effective  Time. The  Company shall  have
    received  a certificate of the President  and the Chief Financial Officer of
    each of the  Acquiror Companies, dated  the date of  the Effective Time,  to
    such effect.

                                      36
<PAGE>
        (b)   AGREEMENTS  AND  COVENANTS.  The  Acquiror  Companies  shall  have
    performed or  complied in  all  material respects  with all  agreements  and
    covenants  required by the Transaction Documents to be performed or complied
    with by them  on or  prior to  the Effective  Time. The  Company shall  have
    received  a certificate of the President  and the Chief Financial Officer of
    each of the  Acquiror Companies, dated  the date of  the Effective Time,  to
    that effect.

        (c) FAIRNESS OPINION. The Company shall have received from Merrill Lynch
    &  Co. written confirmation  dated the Mailing Date  of its opinion rendered
    pursuant to Section 3.15 hereof.

                                  ARTICLE VIII
                       TERMINATION, AMENDMENT AND WAIVER

    SECTION 8.01.  TERMINATION.   This Agreement may  be terminated at any  time
prior  to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of the Company:

        (a) by mutual consent of Acquiror and the Company;

        (b) by Acquiror, upon a breach of any material representation, warranty,
    covenant or  agreement  on  the  part  of  the  Company  set  forth  in  the
    Transaction  Documents, or if any representation  or warranty of the Company
    shall have become untrue, in either case such that the conditions set  forth
    in  Section  7.02(a)  or Section  7.02(b)  of  this Agreement  would  not be
    satisfied  (a  "Terminating  Company   Breach");  PROVIDED  THAT,  if   such
    Terminating Company Breach is curable by the Company through the exercise of
    reasonable efforts and for so long as the Company continues to exercise such
    reasonable efforts (or, if shorter, for 30 days), Acquiror may not terminate
    this Agreement under this Section 8.01(b);

        (c)  by  the  Company,  upon  breach  of  any  material  representation,
    warranty, covenant or agreement  on the part of  the Acquiror Companies  set
    forth  in the Transaction Documents, or if any representation or warranty of
    the Acquiror Companies shall  have become untrue, in  either case such  that
    the  conditions  set forth  in Section  7.03(a) or  Section 7.03(b)  of this
    Agreement would not be satisfied (a "Terminating Acquiror Breach"); PROVIDED
    THAT, if  such  Terminating  Acquiror  Breach is  curable  by  the  Acquiror
    Companies  through the exercise of their  reasonable efforts and for so long
    as the Acquiror Companies continue to exercise such reasonable efforts  (or,
    if shorter, for 30 days), the Company may not terminate this Agreement under
    this Section 8.01(c);

        (d) by either Acquiror or the Company, if there shall be any Order which
    is final and nonappealable preventing the consummation of the Merger, except
    if  the party seeking to terminate this  Agreement has not complied with its
    obligations under Section 6.03(b) of this Agreement;

        (e) by either Acquiror or the Company, if the Merger shall not have been
    consummated before December 31, 1995; PROVIDED, HOWEVER, that this Agreement
    may be extended by  written notice of  either Acquiror or  the Company to  a
    date  not  later than  March 31,  1996, if  the Merger  shall not  have been
    consummated as a  result of  the Company  or the  Acquiror Companies  having
    failed  by December 31, 1995 to receive all required regulatory approvals or
    consents with respect to  the Merger or  as a result of  the entering of  an
    Order;

        (f)  by either Acquiror or the Company,  if this Agreement shall fail to
    receive the requisite vote for approval and adoption by the stockholders  of
    the Company at the Company Stockholders Meeting;

        (g)  by either Acquiror or the Company,  if this Agreement shall fail to
    receive the requisite vote for approval and adoption by the stockholders  of
    Acquiror at the Acquiror Stockholders Meeting;

                                      37
<PAGE>
        (h) by Acquiror, if (i) the Board of Directors of the Company withdraws,
    modifies  or changes its recommendation of this Agreement or the Merger in a
    manner adverse to the Acquiror Companies or shall have resolved to do any of
    the  foregoing  or  the  Board  of  Directors  of  the  Company  shall  have
    recommended  to the stockholders of the Company any Competing Transaction or
    resolved to do  so; (ii) a  tender offer or  exchange offer for  outstanding
    shares  of capital stock of the Company then representing 20% or more of the
    combined power to vote generally for the election of directors is commenced,
    and  the  Board  of  Directors  of  the  Company  does  not  recommend  that
    stockholders  not tender their shares into such tender or exchange offer or;
    (iii) any person shall  have acquired beneficial ownership  or the right  to
    acquire  beneficial ownership  of, or any  "group" (as such  term is defined
    under Section  13(d) of  the  Exchange Act  and  the rules  and  regulations
    promulgated  hereunder), shall have been  formed which beneficially owns, or
    has the  right to  acquire beneficial  ownership of,  outstanding shares  of
    capital  stock of the Company then representing  20% or more of the combined
    power to vote generally for the election of directors;

        (i) by the Company  or the Acquiror, if  the Company accepts a  Superior
    Proposal  and makes  payment as required  pursuant to  Section 8.05(c)(i) of
    this Agreement and  of the  Expenses for  which the  Company is  responsible
    under  Section 8.05(a)  of this Agreement.  For purposes  of this Agreement,
    "Superior Proposal" means a bona fide written proposal made by a third party
    relating to a Competing Transaction on terms that the Board of Directors  of
    the  Company determines it  cannot reject in  favor of the  Merger, based on
    applicable fiduciary  duties  and  the  advice  of  counsel  and  for  which
    financing, to the extent required, is then committed; or

         (j)  by  the Company,  if  (i) a  tender  offer or  exchange  offer for
    outstanding shares of  capital stock  of Acquiror then  representing 20%  or
    more  of the combined power to vote  generally for the election of directors
    is commenced, and the Board of Directors of Acquiror does not recommend that
    stockholders not tender their shares into  such tender or exchange offer  or
    (ii)  any person  shall have acquired  beneficial ownership or  the right to
    acquire beneficial ownership of, or any group (as such term is defined under
    Section 13(d) of the Exchange Act and the rules and regulations  promulgated
    hereunder), shall have been formed which beneficially owns, or has the right
    to  acquire beneficial ownership of, outstanding  shares of capital stock of
    Acquiror then  representing  20% or  more  of  the combined  power  to  vote
    generally for the election of directors.

    The  right of any party hereto to  terminate this Agreement pursuant to this
Section 8.01 shall remain operative and  in full force and effect regardless  of
any  investigation  made  by  or  on behalf  of  any  party  hereto,  any person
controlling any  such party  or  any of  their respective  officers,  directors,
employees,   accountants,   consultants,   legal   counsel,   agents   or  other
representatives whether prior to or after the execution of this Agreement.

    SECTION 8.02.  EFFECT OF TERMINATION.  Except as provided in Section 8.05 or
Section 9.01  of  this  Agreement, in  the  event  of the  termination  of  this
Agreement  pursuant to Section 8.01, this Agreement shall forthwith become void,
there shall be no liability on the part of the Acquiror Companies or the Company
or any of their respective officers or directors to the other and all rights and
obligations of any party  hereto shall cease, except  that nothing herein  shall
relieve  any  party from  its obligations  with  respect to  any breach  of this
Agreement.

    SECTION 8.03.   AMENDMENT.   This Agreement may  be amended  by the  parties
hereto  by action taken by or on  behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made  that
would  reduce the  amount or  change the type  of consideration  into which each
share of Company Common Stock shall be converted pursuant to this Agreement upon
consummation of  the Merger.  This Agreement  may not  be amended  except by  an
instrument in writing signed by the parties hereto.

    SECTION  8.04.  WAIVER.  At any time  prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations  or
other  acts  of  the other  party  hereto,  (b) waive  any  inaccuracies  in the
representations and warranties of the other party contained

                                      38
<PAGE>
herein or in any document delivered pursuant hereto and (c) waive compliance  by
the  other party with any of the  agreements or conditions contained herein. Any
such extension or waiver shall  be valid only if set  forth in an instrument  in
writing signed by the party or parties to be bound thereby. For purposes of this
Section 8.04, the Acquiror Companies as a group shall be deemed to be one party.

    SECTION 8.05.  FEES, EXPENSES AND OTHER PAYMENTS.

        (a)  Except  as  provided  in  Sections  8.05(c)  and  8.05(d)  of  this
    Agreement, all Expenses (as defined in  paragraph (b) of this Section  8.05)
    incurred  by the parties  hereto shall be  borne solely and  entirely by the
    party  which  has  incurred  such  Expenses;  PROVIDED,  HOWEVER,  that  the
    allocable share of the Acquiror Companies as a group and the Company for all
    Expenses related to printing, filing and mailing the Registration Statement,
    the Company Proxy Statement and the Acquiror Proxy Statement and all SEC and
    other  regulatory filing fees  incurred in connection  with the Registration
    Statement, the  Company Proxy  Statement and  the Acquiror  Proxy  Statement
    shall  be  one-half each;  AND PROVIDED  FURTHER that  Acquiror may,  at its
    option, pay any Expenses of the Company.

        (b) "Expenses" as used  in this Agreement  shall include all  reasonable
    out-of-pocket  expenses (including, without  limitation, all reasonable fees
    and expenses  of  counsel,  accountants,  investment  bankers,  experts  and
    consultants  to a party hereto and its affiliates) incurred by a party or on
    its behalf in connection with or related to the authorization,  preparation,
    negotiation,  execution and performance of  this Agreement, the preparation,
    printing, filing  and mailing  of the  Registration Statement,  the  Company
    Proxy  Statement  and  the  Acquiror Proxy  Statement,  the  solicitation of
    stockholder approvals and all other  matters related to the consummation  of
    the transactions contemplated hereby.

        (c)  The  Company  agrees  that, if  (i)  this  Agreement  is terminated
    pursuant to Section 8.01(f) and, prior to the Company Stockholders  Meeting,
    the Company shall have furnished information to, or entered into discussions
    or  negotiations  with, any  person or  entity with  respect to  a Competing
    Transaction involving the Company or any  of its subsidiaries and the  Board
    of  Directors of the Company shall not have reaffirmed its recommendation to
    the  stockholders  of   the  Company  with   respect  to  the   transactions
    contemplated  by  this Agreement  by the  time  of the  Company Stockholders
    Meeting;  (ii)  Acquiror  terminates  this  Agreement  pursuant  to  Section
    8.01(h);  (iii) (A)  the Company or  the Acquiror  terminates this Agreement
    pursuant to Section 8.01(i) or (iv) the Company or Acquiror terminates  this
    Agreement  pursuant  to  Section  8.01(b)  or  8.01(e)  at  a  time  that  a
    Terminating Company  Breach  exists  (except solely  for  purposes  of  this
    paragraph  (c) a  breach of  a representation  shall not  be deemed  to be a
    Terminating Company Breach if the representation was true and correct as  of
    the  date hereof), and (B)  within nine months after  such termination (1) a
    Competing Transaction is consummated or  (2) any person shall have  acquired
    beneficial ownership or the right to acquire beneficial ownership of, or any
    "group" (as such term is defined under Section 13(d) of the Exchange Act and
    the  rules and regulations  promulgated thereunder), shall  have been formed
    which beneficially owns, or  has the right  to acquire beneficial  ownership
    of, outstanding shares of capital stock of the Company then representing 20%
    or  more  of  the combined  power  to  vote generally  for  the  election of
    directors, then  in any  such case  the Company  shall pay  to Acquiror  the
    Termination Fee (as defined below),
    plus  the  Expenses  of  the  Acquiror  Companies  up  to  $5  million.  The
    Termination Fee shall be equal to $20 million, less the aggregate amount  of
    any  cash payments to Acquiror in excess  of $10 million pursuant to Section
    7(a) of the Stock Option Agreement.

        (d) Acquiror agrees that, if  (i) the Company terminates this  Agreement
    pursuant  to Section 8.01(j)  or (ii)(A) the  Company or Acquiror terminates
    this Agreement  pursuant to  Section 8.01(c)  or 8.01(e)  at a  time that  a
    Terminating  Acquiror  Breach exists  (except  solely for  purposes  of this
    paragraph (d) a  breach of  a representation  shall not  be deemed  to be  a
    Terminating Acquiror Breach if the representation was true and correct as of
    the  date hereof), and (B) within nine  months after such termination (1) an
    Acquiror Competing Transaction is consummated or

                                      39
<PAGE>
    (2) any person  shall have  acquired beneficial  ownership or  the right  to
    acquire  beneficial ownership  of, or any  "group" (as such  term is defined
    under Section  13(d) of  the  Exchange Act  and  the rules  and  regulations
    promulgated  thereunder), shall have been formed which beneficially owns, or
    has the  right to  acquire beneficial  ownership of,  outstanding shares  of
    capital  stock of  Acquiror then  representing 20%  or more  of the combined
    power to vote generally for the  election of directors, then Acquiror  shall
    pay  to the Company  $10 million. For purposes  of this Agreement, "Acquiror
    Competing Transaction" shall mean any merger, consolidation, share exchange,
    business combination or similar transaction involving Acquiror or any of its
    Significant Subsidiaries  or  the acquisition  in  any manner,  directly  or
    indirectly,  of  a  material interest  in  any  voting securities  of,  or a
    material equity interest in a substantial portion of the assets of, Acquiror
    or any of its Significant Subsidiaries.

                                   ARTICLE IX
                               GENERAL PROVISIONS

    SECTION  9.01.      EFFECTIVENESS   OF   REPRESENTATIONS,   WARRANTIES   AND
AGREEMENTS.

        (a)  Except  as set  forth  in Section  9.01(b)  of this  Agreement, the
    representations, warranties, covenants and  agreements of each party  hereto
    shall  remain  operative and  in  full force  and  effect regardless  of any
    investigation made by  or on behalf  of any other  party hereto, any  person
    controlling   any  such   party  or   any  of   their  officers,  directors,
    representatives or agents whether  prior to or after  the execution of  this
    Agreement.

        (b)  The representations,  warranties, covenants and  agreements in this
    Agreement shall terminate at the Effective  Time or upon the termination  of
    this  Agreement pursuant  to Article  VIII, except  that the  agreements set
    forth in Articles  I and II  and Sections  6.07, 6.09, 6.11  and 6.12  shall
    survive  the Effective Time  and those set forth  in Sections 5.04(c), 8.02,
    8.05 and Article IX hereof shall survive termination.

    SECTION 9.02.  NOTICES.  All notices and other communications given or  made
pursuant  hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered  personally, mailed by  registered or certified  mail
(postage  prepaid, return  receipt requested)  to the  parties at  the following
addresses ( or at such other address for  a party as shall be specified by  like
changes  of address) or sent by electronic transmission to the telecopier number
specified below:

        (a)  If to any of the Acquiror Companies, to:
           Horizon Healthcare Corporation
           6001 Indian School Road, N.E., Suite 530
           Albuquerque, N.M. 87110
           Attention: Chairman of the Board
           Telecopier No.: (505) 881-5097

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<PAGE>
with a copy to:
    Vinson & Elkins L.L.P.
           2300 First City Tower
           1001 Fannin
           Houston, Texas 77002-6760
           Attention: William E. Joor III
           Telecopier No.: (713) 758-2346
           and
           Wachtell, Lipton, Rosen & Katz
           51 West 52nd Street
           New York, New York 10019-6150
           Attention: Barry A. Bryer
           Telecopier No: (212) 403-2000

        (b)  If to the Company, to:
           Continental Medical Systems, Inc.
           P. O. Box 715
           600 Wilson Lane
           Mechanicsburg, PA 17055
           Attention: General Counsel
           Telecopier No.: (717) 790-9974

with a copy to:
           Drinker Biddle & Reath
           Philadelphia National Bank Building
           1345 Chestnut Street
           Philadelphia, Pennsylvania 19107-3496
           Attention: F. Douglas Raymond III
           Telecopier No.: (215) 988-2757

    SECTION 9.03.  CERTAIN DEFINITIONS.  For the purposes of this Agreement, the
term:

        (a) "affiliate" means a person that directly or indirectly, through  one
    or  more  intermediaries, controls,  is controlled  by,  or is  under common
    control with, the first mentioned person;

        (b) "business day" means any day other than a day on which banks in  the
    State of New York are authorized or obligated to be closed;

        (c)  "control" (including  the terms  "controlled," "controlled  by" and
    "under common control with") means the possession, directly or indirectly or
    as trustee or executor, of the power to direct or cause the direction of the
    management or policies of a person,  whether through the ownership of  stock
    or as trustee or executor, by contract or credit arrangement or otherwise;

        (d)  "knowledge" or  "known" shall mean,  with respect to  any matter in
    question, if an executive  officer of the Company  or Acquiror, as the  case
    may be, has actual knowledge of such matter;

        (e) "person" means an individual, corporation, partnership, association,
    trust,  unincorporated organization,  other entity  or group  (as defined in
    Section 13(d) of the Exchange Act);

        (f) "Significant  Subsidiary" means  any subsidiary  of the  Company  or
    Acquiror, as the case may be, that would constitute a Significant Subsidiary
    of such party within the meaning of Rule 1-02 of Regulation S-X of the SEC;

                                      41
<PAGE>
        (g)  "subsidiary"  or  "subsidiaries"  of  the  Company,  Acquiror,  the
    Surviving  Corporation  or   any  other  person,   means  any   corporation,
    partnership,  joint  venture or  other legal  entity  of which  the Company,
    Acquiror, the Surviving Corporation or an such other person, as the case may
    be (either alone or  through or together with  any other subsidiary),  owns,
    directly  or indirectly, 50% or more of  the stock or other equity interests
    the holders of which are generally entitled to vote for the election of  the
    board  of directors  or other  governing body  of such  corporation or other
    legal entity; and

        (h) "Tax"  or "Taxes"  shall  mean any  and  all taxes,  charges,  fees,
    levies,  assessments, duties or other amounts payable to any federal, state,
    local or foreign taxing authority or agency, including, without  limitation,
    (i)   income,  franchise,  profits,  gross  receipts,  minimum,  alternative
    minimum, estimated, ad valorem,  value added, sales,  use, service, real  or
    personal property, capital stock, license, payroll, withholding, disability,
    employment,    social    security,   workers    compensation,   unemployment
    compensation, utility, severance, excise, stamp, windfall profits,  transfer
    and  gains taxes,  (ii) customs, duties,  imposts, charges,  levies or other
    similar assessments of any kind, and (iii) interest, penalties and additions
    to tax imposed with respect thereto.

    SECTION 9.04.  HEADINGS.  The  headings contained in this Agreement are  for
reference  purposes  only  and  shall  not affect  in  any  way  the  meaning or
interpretation of this Agreement.

    SECTION 9.05.    SEVERABILITY.   If  any term  or  other provision  of  this
Agreement  is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all  other conditions and provisions  of this Agreement  shall
nevertheless  remain in full force  and effect so long  as the economic or legal
substance of the transactions contemplated hereby is not affected in any  manner
materially  adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in  good faith  to modify  this Agreement  so as  to effect  the
original intent of the parties as closely as possible in an acceptable manner to
the  end  that  transactions contemplated  hereby  are fulfilled  to  the extent
possible.

    SECTION 9.06.  ENTIRE AGREEMENT.   The Transaction Documents (together  with
the  Exhibits,  the  Company  Disclosure Schedule  and  the  Acquiror Disclosure
Schedule), constitute the  entire agreement  of the parties,  and supersede  all
prior  agreements and  undertakings, both written  and oral,  among the parties,
with respect to the subject matter of the Transaction Documents, other than that
certain Confidentiality Agreement  dated February 9,  1995 between Acquiror  and
the  Company, as supplemented by letters dated March 4, 1995 and March 23, 1995,
which agreement shall remain in full force and effect.

    SECTION 9.07.    ASSIGNMENT.    This Agreement  shall  not  be  assigned  by
operation of law or otherwise.

    SECTION  9.08.  PARTIES IN  INTEREST.  This Agreement  shall be binding upon
and inure  solely to  the benefit  of each  party hereto,  and nothing  in  this
Agreement,  express or implied,  is intended to  or shall confer  upon any other
person any right, benefit or remedy of any nature whatsoever under or by  reason
of this Agreement.

    SECTION  9.09.  FAILURE  OR INDULGENCE NOT WAIVER;  REMEDIES CUMULATIVE.  No
failure or delay on the  part of any party hereto  in the exercise of any  right
hereunder  shall  impair  such right  or  be construed  to  be a  waiver  of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single  or partial exercise  of any such  right preclude other  or
further exercise thereof or of any other right. All rights and remedies existing
under  this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.

    SECTION 9.10.   GOVERNING LAW.   This Agreement  shall be  governed by,  and
construed  in accordance with, the laws of  the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.

                                      42
<PAGE>
    SECTION 9.11.   COUNTERPARTS.  This  Agreement may be  executed in  multiple
counterparts, and by the different parties hereto in separate counterparts, each
of  which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

    SECTION 9.12.   SPECIFIC PERFORMANCE.   The parties  hereby acknowledge  and
agree  that the failure of any party  to this Agreement to perform its agreement
and covenants  hereunder, including  its  failure to  take  all actions  as  are
necessary  on its part to the consummation of the Merger, will cause irreparable
injury to  the  other parties  to  this Agreement  for  which damages,  even  if
available,  will not  be an  adequate remedy.  Accordingly, each  of the parties
hereto hereby consents  to the  issuance of injunctive  relief by  any court  of
competent  jurisdiction to compel performance of  any party's obligations and to
the granting by any  such court of  the remedy of  specific performance of  such
party's obligations hereunder.

    IN  WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as  of the  date first written  above by  their respective  officers
thereunto duly authorized.

                                          HORIZON HEALTHCARE CORPORATION
                                          By: /s/ NEAL ELLIOTT
- --------------------------------------------------------------------------------
                                             Neal Elliott
                                             Chairman of the Board and President
                                          CMS MERGER CORPORATION
                                          By: /s/ NEAL ELLIOTT
- --------------------------------------------------------------------------------
                                             Neal Elliott
                                             President
                                          CONTINENTAL MEDICAL SYSTEMS, INC.
                                          By: /s/ ROCCO A. ORTENZIO
- --------------------------------------------------------------------------------
                                             Rocco A. Ortenzio
                                             Chairman of the Board and
                                               Chief Executive
                                          Officer

                                      43
<PAGE>
                                                                       EXHIBIT A

                       CONTINENTAL MEDICAL SYSTEMS, INC.
                             AFFILIATE'S AGREEMENT

Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, N.M. 87110
Gentlemen:

    I  have been advised that  as of the date  hereof, I may be  deemed to be an
"affiliate" of Continental  Medical Systems, Inc.,  a Delaware corporation  (the
"Company"),  as that term is  defined for purposes of  paragraphs (c) and (d) of
Rule 145  of the  Rules and  Regulations (the  "Rules and  Regulations") of  the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").

    I  understand that pursuant  to the terms  and subject to  the conditions of
that certain  Agreement and  Plan  of Merger  by  and among  Horizon  Healthcare
Corporation,  a  Delaware corporation  ("Acquiror"),  CMS Merger  Corporation, a
Delaware corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
the Company dated as of March 31, 1995 (the "Merger Agreement"), providing  for,
among  other things,  the merger of  Merger Sub  with and into  the Company (the
"Merger"), I will be entitled to receive shares of common stock, par value $.001
per share  ("Acquiror Common  Stock"), of  Acquiror in  exchange for  shares  of
common  stock, par value $.01 per share ("Company Common Stock"), of the Company
owned by  me at  the effective  time of  the Merger  (the "Effective  Time")  as
determined pursuant to the Merger Agreement.

    I  further  understand  that  the  Merger  will  be  treated  for  financial
accounting purposes as  a "pooling  of interests" in  accordance with  generally
accepted  accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.

    I hereby represent  and warrant that,  since 30 days  before closing to  and
including the date hereof, I have not sold, transferred or otherwise disposed of
any shares of Company Common Stock.

    In  consideration of the agreements contained herein, Acquiror's reliance on
this letter in connection with the consummation of the Merger and for other good
and valuable  consideration, the  receipt and  sufficiency of  which are  hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale, transfer or other disposition of Company Common Stock prior to the earlier
of  the Effective Time and the termination  of the Merger Agreement, (ii) I will
not make  any sale,  transfer  or other  disposition  of Acquiror  Common  Stock
received  by me pursuant to the Merger or  otherwise owned by me until such time
as financial results that include at least 30 days of combined operations of the
Company and Acquiror after the Merger shall have been published, unless I  shall
have   delivered  to  Acquiror  prior  to  any  such  sale,  transfer  or  other
disposition, a  written opinion  from Arthur  Andersen LLP,  independent  public
accountants  for Acquiror,  or a  written no-action  letter from  the accounting
staff of the SEC, in either  case in form and substance reasonably  satisfactory
to  Acquiror, to the effect  that such sale, transfer  or other disposition will
not cause the Merger not to be treated as a "pooling of interests" for financial
accounting purposes in accordance with generally accepted accounting principles,
the Rules and Regulations and  interpretations of the SEC  and (iii) I will  not
make  any sale, transfer or  other disposition of any  shares of Acquiror Common
Stock received by me pursuant to the  Merger in violation of the Securities  Act
or  the Rules  and Regulations.  I have  been advised  that the  issuance of the
shares of Acquiror Common Stock pursuant to the Merger will have been registered
with the SEC under the Securities Act on a Registration Statement on Form S-4. I
have also been advised, however, that since  I may be deemed to be an  affiliate
of  the  Company  at  the  time  the Merger  is  submitted  for  a  vote  of the
stockholders of the Company, the Acquiror  Common Stock received by me  pursuant
to  the Merger can be sold by me  only (i) pursuant to an effective registration
statement

                                      A-1
<PAGE>
under the  Securities  Act,  (ii)  in  conformity  with  the  volume  and  other
limitations  of Rule  145 promulgated  by the SEC  under the  Securities Act, or
(iii) in reliance upon  an exemption from registration  that is available  under
the Securities Act.

    I  also understand  that instructions will  be given  to Acquiror's transfer
agent with respect to the Acquiror Common Stock to be received by me pursuant to
the Merger and that there will  be placed on the certificates representing  such
shares of Acquiror Common Stock, or any substitutions therefor, a legend stating
in substance as follows:

    "These shares were issued in a transaction to which Rule 145 promulgated
    under  the  Securities Act  of 1933  applies. These  shares may  only be
    transferred in accordance with the terms of such Rule and an Affiliate's
    Agreement between  the  original  holder  of  such  shares  and  Horizon
    Healthcare  Corporation, a  copy of  which agreement  is on  file at the
    principal offices of Horizon Healthcare Corporation."

    It is understood and agreed that the legend set forth above shall be removed
upon surrender of  certificates bearing  such legend by  delivery of  substitute
certificates  without  such legend  if  I shall  have  delivered to  Acquiror an
opinion of counsel, in form  and substance reasonably satisfactory to  Acquiror,
to  the effect that (i) the sale or disposition of the shares represented by the
surrendered certificates may be effected  without registration of the  offering,
sale  and delivery of such shares under  the Securities Act, and (ii) the shares
to be  so  transferred  may be  publicly  offered,  sold and  delivered  by  the
transferee  thereof without compliance  with the registration  provisions of the
Securities Act.

    By its execution hereof, Acquiror agrees that it will, as long as I own  any
Acquiror  Common Stock  to be received  by me  pursuant to the  Merger, take all
reasonable efforts to make timely filings  with the SEC of all reports  required
to  be filed by it pursuant to the  Securities Exchange Act of 1934, as amended,
and will promptly  furnish upon  written request  of the  undersigned a  written
statement confirming that such reports have been so timely filed.

    If  you are in agreement  with the foregoing, please  so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.

                                          Very truly yours,
                                          By:
- --------------------------------------------------------------------------------
                                            Name:
                                            Title:
                                            Date:
                                            Address:
ACCEPTED this _______ day
of ___________________ , 1995
HORIZON HEALTHCARE CORPORATION
By
- --------------------------------------
  Name:
  Title:

                                      A-2
<PAGE>
                                                                       EXHIBIT B
                         HORIZON HEALTHCARE CORPORATION
                             AFFILIATE'S AGREEMENT

Horizon Healthcare Corporation
6001 Indian School Road, N.E., Suite 530
Albuquerque, N.M. 87110
Gentlemen:

    I have been advised  that as of the  date hereof, I may  be deemed to be  an
"affiliate"   of   Horizon  Healthcare   Corporation,  a   Delaware  corporation
("Acquiror"), as that term is defined for purposes of paragraphs (c) and (d)  of
Rule  145 of  the Rules  and Regulations  (the "Rules  and Regulations")  of the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").

    I understand that  pursuant to the  terms and subject  to the conditions  of
that  certain  Agreement and  Plan  of Merger  by  and among  Horizon Healthcare
Corporation, a  Delaware corporation  ("Acquiror"),  CMS Merger  Corporation,  a
Delaware corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), and
the  Company dated as of March 31, 1995 (the "Merger Agreement"), providing for,
among other things,  the merger of  Merger Sub  with and into  the Company  (the
"Merger"),  and the  conversion of  shares of common  stock, par  value $.01 per
share ("Company Common Stock"), of the Company into shares of common stock,  par
value  $.001 per share  ("Acquiror Common Stock"), of  Acquiror at the effective
time of the Merger (the "Effective  Time") as determined pursuant to the  Merger
Agreement.

    I  further  understand  that  the  Merger  will  be  treated  for  financial
accounting purposes as  a "pooling  of interests" in  accordance with  generally
accepted  accounting principles and that the staff of the SEC has issued certain
guidelines that should be followed to ensure the pooling of the entities.

    I hereby represent  and warrant that,  since 30 days  before closing to  and
including the date hereof, I have not sold, transferred or otherwise disposed of
any shares of Acquiror Common Stock.

    In  consideration of the agreements contained herein, Acquiror's reliance on
this letter in connection with the consummation of the Merger and for other good
and valuable  consideration, the  receipt and  sufficiency of  which are  hereby
acknowledged, I hereby represent, warrant and agree that (i) I will not make any
sale,  transfer  or other  disposition  of Acquiror  Common  Stock prior  to the
earlier of the Effective  Time and the termination  of the Merger Agreement  and
(ii)  I will not make any sale, transfer or other disposition of Acquiror Common
Stock owned by me until such time as financial results that include at least  30
days  of combined operations of the Company  and Acquiror after the Merger shall
have been published, unless I shall have delivered to Acquiror prior to any such
sale, transfer or other disposition, a written opinion from Arthur Andersen LLP,
independent public accountants for Acquiror, or a written no-action letter  from
the accounting staff of the SEC, in either case in form and substance reasonably
satisfactory  to  Acquiror, to  the  effect that  such  sale, transfer  or other
disposition will  not cause  the  Merger not  to be  treated  as a  "pooling  of
interests"  for  financial  accounting  purposes  in  accordance  with generally
accepted accounting principles, the Rules and Regulations and interpretations of
the SEC. I have been advised  that since I may be  deemed to be an affiliate  of
Acquiror  at the time the Merger is submitted  for a vote of the stockholders of
the Company, the Acquiror Common Stock owned by me at the Effective Time can  be
sold  by me only (i)  pursuant to an effective  registration statement under the
Securities Act, (ii) in conformity with the volume and other limitations of Rule
145 promulgated by the SEC under the  Securities Act, or (iii) in reliance  upon
an exemption from registration that is available under the Securities Act.

    By  its execution hereof, Acquiror agrees that it will, as long as I own any
Acquiror Common Stock  owned by me  at the Effective  Time, take all  reasonable
efforts to make timely filings with the SEC of

                                      B-1
<PAGE>
all  reports required to be filed by  it pursuant to the Securities Exchange Act
of 1934,  as amended,  and will  promptly furnish  upon written  request of  the
undersigned a written statement confirming that such reports have been so timely
filed.

    If  you are in agreement  with the foregoing, please  so indicate by signing
below and returning a copy of this letter to the undersigned, at which time this
letter shall become a binding agreement between us.

                                          Very truly yours,
                                          By:
- --------------------------------------------------------------------------------
                                            Name:
                                            Title:
                                            Date:
                                            Address:
ACCEPTED this _______ day
of ___________________ , 1995
HORIZON HEALTHCARE CORPORATION
By
- --------------------------------------
  Name:
  Title:

                                      B-2


<PAGE>

                           STOCK OPTION AGREEMENT


    STOCK OPTION AGREEMENT, dated as of March 31, 1995 by and among Horizon
Healthcare Corporation, a Delaware corporation ("Acquiror"), and Continental
Medical Systems, Inc., a Delaware corporation (the "Company").

    WHEREAS, concurrently with the execution and delivery of this Agreement,
Acquiror, the Company, CMS Merger Corporation ("Merger Sub") are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, upon the terms and
subject to the conditions thereof, for the merger of Merger Sub into the
Company (the "Merger"); and

    WHEREAS, as a condition to Acquiror's willingness to enter into the
Merger Agreement, Acquiror has requested that the Company agree, and the
Company has so agreed, to grant to Acquiror an option with respect to certain
shares of the Company's common stock, on the terms and subject to the
conditions set forth herein.

    NOW, THEREFORE, to induce Acquiror to enter into the Merger Agreement,
and in consideration of the mutual covenants and agreements set forth herein
and in the Merger Agreement, the parties hereto agree as follows:

    1.  GRANT OF OPTION.  The Company hereby grants Acquiror an irrevocable
option (the "Company Option") to purchase from the Company upon original issue
up to a number of shares of common stock, par value $.01 per share ("Company
Common Stock"), of the Company equal to 15% of the number of shares of Common
Stock outstanding on date of this Agreement, subject to adjustment as
provided in Section 11 (such shares being referred to herein as the "Company
Shares") in the manner set forth below at an exercise price of $13.00 per
Company Share (the "Exercise Price"), payable in cash in accordance with
Section 4 hereof.  Notwithstanding the foregoing, in no event shall the
number of shares for which the Company Option is exercisable exceed 15% of
the number of issued and outstanding Company Shares.  Capitalized terms used
herein but not defined herein shall have the meanings set forth in the Merger
Agreement.

    2.  EXERCISE OF OPTION.  The Company Option may be exercised by Acquiror,
in whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by Acquiror under circumstances that would, if
the Merger Agreement were terminated as a result thereof, entitle Acquiror to
Expenses (as defined in the Merger Agreement) under Section 8.05(c) of the
Merger Agreement, any event by which the Merger Agreement becomes so
terminable by Acquiror being referred to herein as a "Trigger Event."   The
Company shall notify Acquiror promptly in writing of the occurrence of any
Trigger Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of Acquiror to exercise the
Company Option. If Acquiror wishes to exercise the Company Option, Acquiror
shall deliver to the Company a written notice (an "Exercise Notice")
specifying the total number of Company Shares


<PAGE>

it wishes to purchase. Each closing of a purchase of Company Shares (a
"Closing") shall occur at a place, on a date and at a time designated by
Acquiror in an Exercise Notice delivered at least two business days prior to
the date of the Closing.  The Company Option shall terminate upon the earlier
of: (i) the Effective Time; (ii) the termination of the Merger Agreement
pursuant to Section 8.01 thereof (other than upon or during the continuance
of a Trigger Event); or (iii) 180 days following any termination of the
Merger Agreement upon or during the continuance of a Trigger Event (or if, at
the expiration of such 180 day period the Company Option cannot be exercised
by reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal, but in no event under this
clause (iii) later than December 31, 1996).  Notwithstanding the foregoing,
the Company Option may not be exercised if Acquiror is in material breach of
any of its material representations or warranties, or in material breach of
any of its covenants or agreements, contained in this Agreement or in the
Merger Agreement.  Upon the giving by Acquiror to the Company of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, Acquiror
shall be deemed to be the holder of record of the Company Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such Company
Shares shall not then be actually delivered to Acquiror.

    3.  CONDITIONS TO CLOSING.  The obligation of the Company to issue the
Company Shares to Acquiror hereunder is subject to the conditions, which
(other than the conditions described in clauses (i), (iii) and (iv) below)
may be waived by the Company in its sole discretion, that (i) all waiting
periods, if any, under the HSR Act, applicable to the issuance of the Company
Shares hereunder shall have expired or have been terminated; (ii) the Company
Shares shall have been approved for listing on the NYSE upon official notice
of issuance; (iii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any Governmental Entity, if any,
required in connection with the issuance of the Company Shares hereunder
shall have been obtained or made, as the case may be; and (iv) no preliminary
or permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect.

    4.  CLOSING.  At any Closing, (a) the Company will deliver to Acquiror or
its designee a single certificate in definitive form representing the number
of the Company Shares designated by Acquiror in its Exercise Notice, such
certificate to be registered in the name of Acquiror and to bear the legend
set forth in Section 12, and (b) Acquiror will deliver to the Company the
aggregate price for the Company Shares so designated and being purchased by
wire transfer of immediately available funds or certified check or bank
check. The Company shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of Acquiror or its designee.

    5.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company
represents and warrants to Acquiror that (a) the Company has taken all
necessary corporate action to authorize and reserve for issuance and to
permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved,  a number

                                      2

<PAGE>

of authorized and unissued Company Shares equal to 15% of the number of
Company Shares issued and outstanding on the date hereof, such amount being
subject to adjustment as provided in Section 11, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (b) upon delivery of the
Company Shares to Acquiror upon the exercise of the Company Option, Acquiror
will acquire the Company Shares free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever, and (c) none of
the Company, any of its affiliates or anyone acting on its or their behalf
has issued, sold or offered any security of the Company to any person under
circumstances, or taken any other action, that would cause the issuance and
sale of the Option Shares, as contemplated by this Agreement, to be subject
to the registration requirements of the Securities Act as in effect on the
date hereof and, assuming the representations of Acquiror contained in
Section 6(c) are true and correct, the issuance, sale and delivery of the
Option Shares hereunder upon exercise of the Company Option will be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof.

    6.  REPRESENTATIONS AND WARRANTIES OF ACQUIROR.  Acquiror represents and
warrants to the Company that any Company Shares acquired upon exercise of the
Company Option will be acquired for Acquiror's own account, and will not be,
and the Company Option is not being, acquired by Acquiror with a view to the
distribution thereof in violation of any applicable provision of the
Securities Act.

    7.  CERTAIN REPURCHASES.

        (a)  ACQUIROR PUT.  At the request of Acquiror by written notice at
any time during which the Company Option is exercisable pursuant to Section 2
(the "Repurchase Period"), the Company (or any successor entity thereof)
shall repurchase from Acquiror all or any portion of the Company Option, at
the price set forth in subparagraph (i) below, or, at the request of Acquiror
by written notice at any time prior to December 31, 1995 (provided that such
date shall be extended to March 31, 1996 under the circumstances where the
date after which either party may terminate the Merger Agreement pursuant to
Section 8.01(e) of the Merger Agreement has been extended to March 31, 1996),
the Company (or any successor thereto) shall repurchase from Acquiror all or
any portion of the Company Shares purchased by Acquiror pursuant to the
Company Option, at the price set forth in subparagraph (ii) below:

             (i)  (A)  the difference between

                       (x) the "Market/Offer Price" for shares of Company
                  Common Stock as of the date Acquiror gives notice of its
                  intent to exercise its rights under this Section 7 (defined
                  as the higher of (1) the highest price per share offered as
                  of such date pursuant to any tender or exchange offer or
                  other Competing Transaction (as defined in the Merger
                  Agreement) that was made prior to such date and not
                  terminated or withdrawn as of such date (the "Offer Price")
                  and (2)

                                      3

<PAGE>

                  the Fair Market Value of the Company Stock as of such date
                  (the "Market Price")); and

                       (y) the Exercise Price,

                  multiplied by

                  (B)  the number of Company Shares purchasable pursuant to the
                  Company Option (or portion thereof with respect to which
                  Acquiror is exercising its rights under this Section 7), but
                  only if the Market/Offer Price is greater than the Exercise
                  Price;

             (ii) the product of (x) the sum of (A) the Exercise Price paid
         by Acquiror for the Company Shares acquired pursuant to the Company
         Option and (B) the difference between the Market/Offer Price and the
         Exercise Price, but only if the Market/Offer Price is greater than
         the Exercise Price, and (y) the number of Company Shares so purchased.

    As used herein, the "Fair Market Value" of any share shall be the average
of the daily closing sales price for such share on the New York Stock
Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth
NYSE trading day preceding the date such  is to be determined.

    Notwithstanding any provision to the contrary in this Agreement, Acquiror
may not exercise its rights pursuant to Section 7(a) in a manner that would
result in the cash payment to Acquiror of an aggregate amount under this
Section 7(a) of more than $30 million, less the amount, if any, of the
Termination Fee paid to Acquiror pursuant to Section 8.05(c) of the Merger
Agreement; PROVIDED, HOWEVER, that nothing in this sentence shall limit
Acquiror's ability to exercise the Company Option in accordance with its
terms.

         (b)  PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES.  If
Acquiror exercises its rights under this Section 7, the Company shall, within
five business days thereafter, pay the required amount to Acquiror in
immediately available funds and Acquiror shall surrender to the Company the
Company Option or the certificates evidencing the Company Shares purchased by
Acquiror pursuant thereto, and Acquiror shall warrant that it owns the
Company Option or such shares and that the Company Option or such shares are
then free and clear of all liens, claims, damages, charges and encumbrances
of any kind or nature whatsoever.

         (c)  PROHIBITION OF REPURCHASE.  After delivery by Acquiror of a
notice of repurchase by the Company, the Company shall, to the extent that
the Company is prohibited under any applicable law or regulation from
repurchasing the Company Option and/or the Company Shares in full in
accordance with this Section 7, the Company shall immediately so notify
Acquiror and, thereafter,  shall deliver to Acquiror from time to time,
promptly and in any event within five business days following the lapse of
any such prohibition, the repurchase price for that portion of the Company
Option or the Company Shares, as the case may be, determined pursuant to

                                      4

<PAGE>

Section 7(a), with respect to which Acquiror has delivered such notice of
repurchase (the "Repurchase Price") that it is no longer prohibited from
delivering; PROVIDED, HOWEVER, that, if the Company at any time after
delivery by Acquiror of a notice of repurchase pursuant to Section 7(a) is
prohibited under applicable law or regulation from delivering to Acquiror the
Repurchase Price in full (and the Company hereby undertakes to use all
reasonable efforts to obtain all required regulatory and legal approvals and
to file any required notices as promptly as practicable in order to
accomplish such repurchase), then Acquiror may to that extent revoke its
notice of repurchase of the Company Option or the Company Shares, as the case
may be, whereupon the Company, in addition to paying such portion of the
Repurchase Price as it is permitted to pay, promptly upon Acquiror's
surrender pursuant to Section 7(b) shall promptly deliver to Acquiror, to the
extent theretofore surrendered by Acquiror pursuant to Section 7(b), (a) a
certificate for the Company Shares that Company is then so prohibited from
repurchasing or (b) a new Company Option evidencing the right of Acquiror to
purchase that number of shares of Company Common Stock obtained by
multiplying the number of shares of Company Common Stock for which the
surrendered Company Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Repurchase
Price less the portion thereof theretofore delivered to Acquiror and the
denominator of which is the Repurchase Price.

    8.  VOTING OF SHARES.  Following the date hereof and prior to the fifth
anniversary of the date hereof (the "Expiration Date"), Acquiror shall vote
any shares of capital stock of the Company acquired by Acquiror pursuant to
this Agreement ("Restricted Shares") or otherwise beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act") by Acquiror on each matter submitted to
a vote of stockholders of the Company for and against such matter in the same
proportion as the vote of all other stockholders of the Company are voted
(whether by proxy or otherwise) for and against such matter.

    9.  RESTRICTIONS ON TRANSFER.

        (a)  RESTRICTIONS ON TRANSFER.  Prior to the Expiration Date, Acquiror
shall not, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by Acquiror, other than (i) pursuant to Section 7 or (ii)
in accordance with Section 9(b) or Section 10.

        (b)  PERMITTED SALES.  Following the termination of the Merger
Agreement, Acquiror shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise determined
to be fair to and in the best interests of the stockholders of the the
Company, by a majority of the members of the Board of Directors of the
Company, which majority shall include a majority of directors who were
directors prior to the announcement of such tender or exchange offer.

    10.  REGISTRATION RIGHTS.  Following the termination of the Merger
Agreement, Acquiror may by written notice (the "Registration Notice") to the
the Company request the Company to register under the Securities Act all or
any part of the Restricted Shares beneficially owned by

                                      5

<PAGE>

Acquiror (the "Registrable Securities") pursuant to a bona fide firm
commitment underwritten public offering in which Acquiror and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use all reasonable efforts
to prevent any Person (including any Group) and its affiliates from
purchasing through such offering Restricted Shares representing more than 1%
of the outstanding shares of common stock of the Company on a fully diluted
basis (a "Permitted Offering").  The Registration Notice shall include a
certificate executed by Acquiror and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good faith
believes that, based on the then prevailing market conditions, it will be
able to sell the registrable Securities at a per share price equal to at
least 80% of the then Fair Market Value of such shares.  The Company (and/or
any Person designated by the Company) shall thereupon have the option
exercisable by written notice delivered to Acquiror within ten business days
after the receipt of the Registration Notice, irrevocably to agree to
purchase all or any part of the Registrable Securities for cash at a price
(the "Option Price") equal to the product of (i) the number of Registrable
Securities and (ii) the then Fair Market Value of such shares.  Any such
purchase of Registrable Securities by the Company (or its designee) hereunder
shall take place at a closing to be held at the principal executive offices
of the Company or at the offices of its counsel at any reasonable date and
time designated by the Company and/or such designee in such notice within 20
business days after delivery of such notice.  Any payment for the shares to
be purchased shall be made by delivery at the time of such closing of the
Option Price in immediately available funds.

    If the Company does not elect to exercise its option pursuant to this
Section 10 with respect to all Registrable Securities, it shall use all
reasonable efforts to effect, as promptly as practicable, the registration
under the Securities Act of the unpurchased Registrable Securities; PROVIDED,
HOWEVER, that (i) Acquiror shall be entitled to more than an aggregate of two
effective registration statements hereunder and (ii) the Company will not be
required to file any such registration statement during any period of time
(not to exceed 40 days after such request in the case of clause (A) below or
90 days in the case of clauses (B) and (C) below) when (A) the Company is in
possession of material non-public information which it reasonably believes
would be detrimental to be disclosed at such time, and in the opinion of
counsel to the Company, such information would have to be disclosed if a
registration statement were filed at that time; (B) the Company is required
under the Securities Act to include audited financial statements for any
period in which registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) the
Company determines, in its reasonable judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving the Company or any of its affiliates.  The Company shall use
reasonable efforts to cause any Registrable Securities registered pursuant to
this Section 10 to be qualified for sale under the securities or Blue Sky
laws of such jurisdictions as Acquiror may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Company shall not be required to qualify to do
business in, or consent to general service of process in, any jurisdiction by
reason of this provision.

                                      6

<PAGE>

    The registration rights set forth in this Section 10 are subject to the
condition that Acquiror shall provide the Company with such information with
respect to such holder's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to such holder
as, in the reasonable judgment of counsel for the Company, is necessary to
enable the Company to include in such registration statement all material
facts required to be disclosed with respect to a registration thereunder.

    A registration effected under this Section 10 shall be effected at the
Company's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Acquiror, and the Company shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings as such underwriters may reasonably
require.  In connection with any such registration, the parties agree (i) to
indemnify each other and the underwriters in the customary manner, (ii) to
enter into an underwriting agreement in form and substance customary for
transactions of such type with the Manager and the other underwriters
participating in such offering and (iii) to take all further actions which
shall be reasonably necessary to effect such registration and sale
(including, if the Manager deems it necessary, participating in road-show
presentations).

    The Company shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this
Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.

    11.  ADJUSTMENT UPON CHANGES IN CAPITALIZATION.  Without limiting any
restriction on the Company contained in this Agreement or in the Merger
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the
purchase price per share provided in Section 1, shall be adjusted
appropriately to restore to Acquiror its rights hereunder, including the
right to purchase from the Company (or its successors) shares of Company
Common Stock representing 15% of the outstanding Company Common Stock for the
aggregate Exercise Price calculated as of the date of this Agreement as
provided in Section 1.

    12.  RESTRICTIVE LEGENDS.  Each certificate representing shares of
Company Common Stock issued to Acquiror hereunder shall include a legend in
substantially the following form:

        THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
    BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
    AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
    EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.  SUCH
    SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
    TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED

                                      7

<PAGE>

    AS OF MARCH 31, 1995, A COPY OF WHICH MAY BE OBTAINED FROM
    THE ISSUER UPON REQUEST.

It is understood and agreed that:  (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Acquiror
shall have delivered to the Company a copy of a letter from the staff of the
Securities and Exchange Commission, or an opinion of counsel, in form and
substance satisfactory to the Company, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions to this Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been
sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied.  In addition, such
certificates shall bear any other legend as may be required by law.
Certificates representing shares sold in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.

    13.  BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.  This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.  Except as
expressly provided for in this Agreement, neither this Agreement nor the
rights or the obligations of either party hereto are assignable, except by
operation of law, or with the written consent of the other party.  Nothing
contained in this Agreement, express or implied, is intended to confer upon
any person other than the parties hereto and their respective permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement.  Any Restricted Shares sold by a party in compliance with the
provisions of Section 10 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.

    14.  SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree that
the failure of the Company to perform its agreement and covenants hereunder
will cause irreparable injury to Acquiror for which damages, even if
available, will not be an adequate remedy.  Accordingly, the Company hereby
consents to the issuance of injunctive relief by any court of competent
jurisdiction to compel performance of the Company's obligations and to the
granting by any such court of the remedy of specific performance of its
obligations hereunder.

    15.  ENTIRE AGREEMENT.  This Agreement and the Merger Agreement
(including the exhibits and schedules thereto) constitute the entire
agreement of the parties, and supersedes all prior agreements and
undertakings, both written and oral, among the parties, with respect to the
subject matter hereof.

    16.  FURTHER ASSURANCES.  Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.

                                      8

<PAGE>

    17.  VALIDITY.  The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
If any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.  If for any reason any such court
or regulatory determines that Acquiror is not permitted to acquire, or the
Company is not permitted to repurchase pursuant to Section 7, the full number
of shares of Company Common Stock provided in Section 1 hereof (as the same
may be adjusted), it is the express intention of the Company to allow
Acquiror to acquire or to require the Company to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof.  Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including without limitation money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.

    18.  NOTICES.  All notices and other communications hereunder shall be in
writing and shall be deemed given in the manner provided in the Merger
Agreement.

    19.  GOVERNING LAW.  This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law.

    20.  HEADINGS.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

    21.  COUNTERPARTS. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.

    22.  EXPENSES.  Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.

    23.  AMENDMENTS; WAIVER.  This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto or, in
the case of a waiver, by an instrument signed on behalf of the party waiving
compliance.

    24.  EXTENSION OF TIME PERIODS.  The time periods for exercise of certain
rights under Sections 2, 6 and 7 shall be extended (i) to the extent
necessary to obtain all regulatory approvals

                                      9

<PAGE>

for the exercise of such rights, and for the expiration of all statutory
waiting periods and (ii) to the extent necessary to avoid any liability under
Section 16(b) of the Exchange Act by reason of such exercise.

    25.  REPLACEMENT OF COMPANY OPTION.  Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, the Company will execute and
deliver a new Agreement of like tenor and date.

    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.

                                       HORIZON HEALTHCARE CORPORATION


                                       By /s/ NEAL ELLIOTT
                                         _____________________________________
                                         Neal Elliott
                                         Chairman of the Board and President



                                       CONTINENTAL MEDICAL SYSTEMS, INC.


                                       By /s/ ROCCO A. ORTENZIO
                                         _____________________________________
                                         Rocco A. Ortenzio
                                         Chairman of the Board and
                                           Chief Executive Officer



                                   10

<PAGE>


                               VOTING AGREEMENT


     VOTING AGREEMENT ("Agreement") dated as of March 31, 1995, between
Horizon Healthcare Corporation, a Delaware corporation ("Acquiror"), and the
undersigned stockholders (collectively, the "Stockholders") of Continental
Medical Systems, Inc., a Delaware corporation (the "Company").

                             W I T N E S S E T H:

     WHEREAS, the Stockholders beneficially own an aggregate of 3,440,239
shares (together with any additional shares as to which beneficial ownership
is acquired by any member of the Stockholder Group described below, the
"Company Shares") of Common Stock, par value $.01 per share ("Company Common
Stock"), of the Company.

     WHEREAS, Acquiror is prepared to enter into an Agreement and Plan of
Merger with the Company (the "Merger Agreement") providing for the merger of
a wholly owned subsidiary of Acquiror into the Company and the conversion in
such merger of each share of Company Common Stock into the number of shares
of the Common Stock, par value $.001 per share, of Acquiror set forth in the
Merger Agreement (the "Merger");

     WHEREAS, the Stockholders fully support the Merger and, in order to
encourage Acquiror to enter into the Merger Agreement with the Company, the
Stockholders are willing to enter into certain arrangements with respect to
the Company Shares;

     NOW THEREFORE, in consideration of the premises set forth above, the
mutual promises set forth below, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

1.  STOCKHOLDERS' SUPPORT OF THE MERGER.  From the date hereof until March
31, 1996, or, if earlier, termination of the Merger Agreement:

          (a)  No Stockholder or any corporation or other person controlled
     by any Stockholder or any affiliate or associate thereof, other than the
     Company and its subsidiaries (collectively, the "Stockholder Group"),
     will, directly or indirectly, sell, transfer, pledge or otherwise
     dispose of, or grant a proxy with respect to, any Company Shares to any
     person other than Acquiror or its designee, or grant an option with
     respect to any of the foregoing, or enter into any other agreement or
     arrangement with respect to any of the foregoing.

          (b)  No Stockholder or any other member of the Stockholder Group will
     initiate, solicit or encourage (including by way of furnishing information
     or assistance), or take any other action to facilitate, any inquiries or
     the making of any proposal relating to, or that may


<PAGE>

     reasonably be expected to lead to, any merger, consolidation, share
     exchange, business combination or similar transaction involving the
     Company or any of its subsidiaries or the acquisition in any manner,
     directly or indirectly, of a material equity interest in any voting
     securities of, or a substantial portion of the assets of, the Company
     or any of its Significant Subsidiaries, other than the transactions
     contemplated by this Agreement (a "Competing Transaction"), or enter
     into discussions or negotiate with any person or entity in furtherance
     of such inquiries or to obtain a Competing Transaction, or agree to, or
     endorse, any Competing Transaction, or authorize or permit any of the
     officers, directors or employees of any Stockholder or any member of
     the Stockholder Group or any investment banker, financial advisor,
     attorney, accountant or other representative retained by any Stockholder
     or any other member of the Stockholder Group to take any such action.
     Each Stockholder shall promptly notify Acquiror of all relevant terms of
     any such inquiries or proposals received by such Stockholder or any other
     member of the Stockholder Group or by any such officer, director,
     employee, investment banker, financial advisor, attorney, accountant or
     other representative relating to any of such matters and if such inquiry
     or proposal is in writing, such Stockholder shall deliver or cause to be
     delivered to Acquiror a copy of such inquiry or proposal.

          (c)  The Stockholders agree that the Stockholders will vote, and will
     cause each member of the Stockholder Group to vote, all Company Shares
     beneficially owned by such persons (i) in favor of the Merger and (ii)
     subject to the provisions of paragraph (d) below, against any combination
     proposal or other matter that may interfere or be inconsistent with the
     Merger (including without limitation a Competing Transaction).

          (d)  The Stockholders agree that, if requested  by Acquiror, it will
     not, and it will cause each member of the Stockholder Group not to, attend
     or vote any Company Shares beneficially owned by any such person at any
     annual or special meeting of stockholders, or execute any written consent
     of stockholders, during such period.

          (e)  The Stockholders shall take all affirmative steps reasonably
     requested by Acquiror to indicate their full support for the Merger, and
     hereby consent to Acquiror's announcement in any press release, public
     filing, advertisement or other document, that the Stockholders fully
     support the Merger.

          (f)  Acquiror and the Stockholders agree that they shall use all
     reasonable efforts to seek the successful completion of the Merger in an
     expeditious manner.

          (g)  To the extent inconsistent with the provisions of this
     Section 2, each member of the Stockholder Group hereby revokes any and
     all proxies with respect to such member's Company Shares or any other
     voting securities of the Company.

     Nothing in this Agreement shall be deemed to prohibit any Stockholder
from acting in accordance with such Stockholder s fiduciary duties solely to
the extent that such Stockholder is acting in the capacity of officer or
director of the Company.


                                      2

<PAGE>

2.   MISCELLANEOUS

     (a)  The Stockholders, on the one hand, and Acquiror, on the other,
acknowledge and agree that irreparable damage would occur if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof
having jurisdiction, in addition to any other stockholder to which they may
be entitled at law or equity.

     (b)  Descriptive headings are for convenience only and shall not control
or affect the meaning or construction of any provision of this Agreement.

     (c)  All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be validly given, made or served, if
in writing and delivered personally, by telecopier or sent by registered
mail, postage prepaid:

     If to Acquiror:

          Horizon Healthcare Corporation
          6001 Indian School Road, N.E., Suite 530
          Albuquerque, N.M.  87110
          Attention: Chairman of the Board
          Telecopier No.:  (505) 881-5097

     with a copy to:

          Vinson & Elkins L.L.P.
          2300 First City Tower
          1001 Fannin
          Houston, Texas  77002-6760
          Attention:  William E. Joor III
          Telecopier No.: (713) 758-2346

          and

          Wachtell, Lipton, Rosen & Katz
          51 West 52nd Street
          New York, New York 10019-6150
          Attention:  Barry A. Bryer
          Telecopier No: (212) 403-2000

     If to the Stockholders:


                                      3

<PAGE>

          c/o Rocco A. Ortenzio
          Continental Medical Systems, Inc.
          P. O. Box 715
          600 Wilson Lane
          Mechanicsburg, PA  17055
          Attention: General Counsel
          Telecopier No.: (717) 790-9974

     with a copy to:

          Drinker Biddle & Reath
          Philadelphia National Bank Building
          1345 Chestnut Street
          Philadelphia, Pennsylvania 19107-3496
          Attention: F. Douglas Raymond III
          Telecopier No.: (215) 988-2757

or to such other address or telecopier number as any party may, from time to
time, designate in a written notice given in a like manner.  Notice given by
telecopier shall be deemed delivered on the day the sender receives
telecopier confirmation that such notice was received at the telecopier
number of the addressee.  Notice given by mail as set out above shall be
deemed delivered three days after the date the same is postmarked.

     (d)  From and after the termination of this Agreement, the covenants of
the parties set forth herein shall be of no further force or effect and the
parties shall be under no further obligation with respect thereto.

     (e)  DEFINITIONS.  For purposes of this Agreement, the following terms
shall have the following meanings:

          (i)  AFFILIATE.  "Affiliate" shall have the meaning ascribed to it
     in Rule 12b-2 of the General Rules and Regulations under the Exchange Act,
     as in effect on the date hereof.

          (ii) BENEFICIAL OWNER.  A person shall be deemed a "beneficial owner"
     of or to have "beneficial ownership" Company Shares in accordance with the
     interpretation of the term "beneficial ownership" as defined in Rule
     13-d(3) under the Exchange Act, as in effect on the date hereof, provided
     that a person shall be deemed to be the beneficial owner of, and to have
     beneficial ownership of, Company Shares that such person or any Affiliate
     of such person has the right to acquire (whether such right is exercisable
     immediately or only after the passage of time) pursuant to any agreement,
     arrangement or understanding or upon the exercise of conversion rights,
     exchange rights, warrant or options, or otherwise.


                                      4

<PAGE>

          (iii) MERGER.  "Merger" shall mean the transaction referred to in the
     second whereas clause of this Agreement, or any amendment to or
     modification does not reduce the value of the financial consideration to
     be received by Stockholders pursuant to the transaction set forth in the
     Merger Agreement.

          (iv)  PERSON.  A "person" shall mean any individual, firm,
     corporation, partnership, trust, limited liability company or other
     entity.

          (v)   SIGNIFICANT SUBSIDIARY.  "Significant Subsidiary" shall have
     the meaning ascribed to it in Rule 1-02 of SEC Regulation S-X as in
     effect on the date hereof.

     (g)  DUE AUTHORIZATION; NO CONFLICTS.  The Stockholders hereby represent
and warrant to Acquiror as follows: the Stockholders have full power and
authority to enter into this Agreement.  Neither the execution or delivery of
this Agreement nor the consummation of the transactions contemplated herein
will (a) conflict with or result in a breach, default or violation of (i) any
of the terms, provisions or conditions of the Certificate of Incorporation or
Bylaws of any member of the Stockholder Group or (ii) any agreement, proxy,
document, instrument, judgment, decree, order, governmental permit,
certificate, license, law, statute, rule or regulation to which any member of
the Stockholder Group is a party or to which it is subject, (b) result in the
creation of any lien, charge or other encumbrance on any shares of Company
Common Stock or (c) require any member of the Stockholder Group to obtain the
consent of any private nongovernmental third party.  No consent, action,
approval or authorization of, or registration, declaration or filing with,
any governmental department, commission, agency or other instrumentality or
any other person or entity is required to authorize, or is otherwise required
in connection with, the execution and delivery of this Agreement or any
Stockholder's performance of the terms of this Agreement or the validity or
enforceability of this Agreement.

     (h)  SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs,
personal representatives, successors, assigns and Affiliates, but shall not
be assignable by any party hereto without the prior written consent of the
other parties hereto.

     (i)  WAIVER.  No party may waive any of the terms or conditions of this
Agreement except by a duly signed writing referring to the specific provision
to be waived.

     (j)  GOVERNING LAW.  This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.

     (k)  ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement,
and supersedes all other and prior agreements and understandings, both
written and oral, among the parties hereto and their Affiliates.


                                      5

<PAGE>

     (l)  COUNTERPARTS.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.







                                      6

<PAGE>

     IN WITNESS WHEREOF, the Stockholders and Acquiror have each caused this
Agreement to be duly executed by their respective officers, each of whom is
duly authorized, all as of the day and year first above written.

                                      HORIZON HEALTHCARE CORPORATION


                                      By: /s/ NEAL ELLIOTT
                                         -------------------------------------
                                           Neal Elliott
                                           Chairman of the Board and President

                                      STOCKHOLDERS:


                                      /s/ ROCCO A. ORTENZIO
                                      ----------------------------------------
                                      Rocco A. Ortenzio



                                      /s/ ROBERT A. ORTENZIO
                                      ----------------------------------------
                                      Robert A. Ortenzio



                                      LIBERTY INVESTORS, INC.



                                      By /s/ GEORGE P. WARREN, JR.
                                        --------------------------------------
                                          Name: George P. Warren, Jr.
                                          Title: Vice President


                                      HEALTHCARE INVESTORS, INC.



                                      By /s/ GEORGE P. WARREN, JR.
                                        --------------------------------------
                                          Name: George P. Warren, Jr.
                                          Title: Vice President


                                     7

<PAGE>

                              FOR IMMEDIATE RELEASE

                        HORIZON/CMS HEALTHCARE CORPORATION


CONTACT:

   HORIZON HEALTHCARE CORPORATION        CONTINENTAL MEDICAL SYSTEMS,
                                           INC.
   CONTACT:                              CONTACT:
   Michael H. Seeliger                   Dennis L. Lehman
   Vice President, Investor              Senior Vice President
     and Corporate Relations               Finance and Chief
   (505) 881-4961                          Financial Officer
                                         (717) 790-8300

                HORIZON HEALTHCARE CORPORATION TO ACQUIRE
                   CONTINENTAL MEDICAL SYSTEMS, INC.,
                       IN STOCK FOR STOCK MERGER

   ALBUQUERQUE, NM and MECHANICSBURG, PA, March 31, 1995 -- Horizon Healthcare
Corporation ("Horizon") (NYSE:HHC) and Continental Medical Systems, Inc.
("CMS") (NYSE:CNM) jointly announced today that they have agreed to a
strategic merger and that the merger was unanimously approved by each
company's Board of Directors. The combined company will be called Horizon/CMS
Healthcare Corporation.

   Under the terms of the merger agreement, CMS stockholders will receive for
each of their CMS common shares a number of shares of Horizon common stock
equal to $13.00, divided by the average daily closing price of Horizon common
stock for a twenty trading-day period preceding the mailing of the proxy
materials relating to the special meetings of stockholders for approval of
the transaction. The transaction is intended to be tax free to CMS
stockholders and to be accounted for as a pooling of interests. CMS has
approximately


<PAGE>

38,623,786 shares of common stock outstanding. At yesterday's closing price
for Horizon common stock, the aggregate value of the transaction to CMS
stockholders would be $502.1 million.

   As of March 31, 1995, CMS operated thirty seven "State of the Art"
rehabilitation hospitals which provide a full continuum of acute medical
rehabilitation services. The Company also provides out-patient services at
more than 140 locations. In addition, CMS provides contract therapy services
to approximately 1,000 facilities and operates a respiratory therapy company.
CMS's annualized revenues based on the quarter ended December 31, 1995, were
approximately $974.5 million.

   Horizon, headquartered in Albuquerque, New Mexico, is a leading provider
of specialty health care services, and long-term nursing care, including
licensed specialty hospitals and subacute units, institutional pharmacy
services, rehabilitation therapies, clinical laboratory services, medical and
sleep diagnostics, home respiratory care services and Alzheimer's care in 149
inpatient units. Horizon's annualized operating revenues based on the quarter
ended February 28, 1995 were approximately $675.3 million.

   Commenting on the merger, Horizon's Chairman and CEO Neal Elliott noted
"We are very excited about the merger with Continental Medical Systems, Inc.
The merger will create the largest specialty health care company in the
United States providing a full continuum of lower cost health care from acute
rehabilitation services through subacute care, long-term care,

                                 -2-

<PAGE>

out-patient and home care services. The combination of these two companies
represents a market place response to the rapidly changing health care
environment. This consolidation will enhance our efforts with managed care
organizations as we together seek cost-efficient, quality results."

   Mr. Elliott continued, "Significant savings and economies of scale, as
well as the synergies we have identified convince us that the merger will be
accretive to earnings and immediately have a positive impact on the combined
earnings. In addition, tremendous opportunities are created for the expansion
of Horizon's institutional pharmacy, laboratory and other specialty programs
in each of CMS's hospitals."

   "The unique combination will bring together the expertise necessary to
respond to the growing post-acute market which is being asked to care for
more higher acuity patients. As a result, we will be the nation's premier
post-acute provider."

   Commenting on the proposed merger, Rocco Ortenzio, Chairman and CEO of
Continental Medical Systems, Inc., made the following statement: "The
combination of these two quality health care companies represents a
tremendous opportunity. The merger will establish a much stronger system for
the consistent delivery of acute rehabilitation and economical therapy
services to the long-term care and subacute industry, and will establish a
foundation to immediately expand contract therapies from both related and
non-related facilities. When CMS is

                                   - 3 -

<PAGE>

combined with Horizon, I believe the full potential from our contract
rehabilitation division and the full potential of our first class facilities
and excellent professional staff will be realized. CMS is a leading developer
of clinically responsive programs nationwide and this expertise combined
with the long-term industry will be timely and responsive to this growing
market."

   The companies expect to complete the merger by June 30, 1995. Completion
of the transaction is subject, among other conditions, to a normal review of
appropriate regulatory authorities. Horizon and CMS said that they expect
their respective stockholders to vote on the proposed merger at special
stockholders meetings, the dates of which will be announced later. Proxy
materials fully describing the transaction will be mailed to stockholders as
soon as possible. CMS's Chairman, Rocco Ortenzio, and Robert Ortenzio,
President of CMS, have entered into an agreement with Horizon pursuant to
which the Ortenzios have agreed to vote the CMS shares owned or controlled by
them in favor of the merger. Their shares constitute approximately 9.0
percent of the outstanding shares of CMS.

   When the merger is consummated, Neal M. Elliott will continue as Chairman
of the Board, President & CEO, Rocco Ortenzio will be Vice Chairman and Klem
Belt and Robert Ortenzio will be Executive Vice Presidents of Horizon. The
combined entity's board of directors will be increased to 13

                                  - 4 -

<PAGE>

members and will consist of the eight current Horizon directors and five of
the current CMS directors.

   Salomon Brothers Inc., has rendered a fairness opinion to the Horizon
board of directors, and Merrill Lynch & Co. acted as financial advisor to
CMS and has rendered a fairness opinion to CMS's board of directors with
respect to the financial terms of the proposed combination.

   Horizon Healthcare Corporation, headquartered in Albuquerque, New Mexico
is a leading provider of quality specialty health care services and long-term
nursing care. The Company's specialty health care services include subacute
care, pharmacy services, rehabilitation therapies, laboratory services,
medical and sleep diagnostic services, home respiratory care services and
Alzheimer's care. Horizon currently operates 16 specialty hospitals and
specialty centers, fifteen specialty subacute units and 133 long-term care
centers totalling 17,760 beds in 18 states. In addition, the Company provides
institutional pharmacy services to more than 36,400 beds from 19 pharmacies
in 16 states. The Company also provides contract rehabilitation therapy
services through 442 contracts in 20 states serving approximately 41,200 beds.

   CMS is a diversified provider of medical rehabilitation and physician
services. CMS operates 37 freestanding rehabilitation hospitals, provides
outpatient rehabilitation services at more than 125 locations and manages
13 inpatient rehabilitation units for general acute care hospitals. These


                                    - 5 -

<PAGE>

services are provided in 20 states. CMS provides contract therapy in more
than 30 states with physical, occupational, and speech therapy services.
Physician staffing services provide hospitals and physician groups with
temporary physician and allied health professional staffing services in all
50 states.










                                       - 6 -




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