Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

by and among

BRICKELL BAY ACQUISITION CORP.,
BRICKELL BAY MERGER CORP.
and
ALLION HEALTHCARE, INC.
Dated as of October 18, 2009

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

          THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), is made and entered into as of October 18, 2009, by and among Brickell Bay Acquisition Corp., a Delaware corporation (“ Parent ”), Brickell Bay Merger Corp., a Delaware corporation (“ Merger Sub ”), and Allion Healthcare, Inc., a Delaware corporation (the “ Company ”).

RECITALS

          WHEREAS, the boards of directors of Parent, Merger Sub and the Company have unanimously approved the merger of Merger Sub with and into the Company (the “ Merger ”), upon the terms and subject to the conditions set forth in this Agreement, and have determined that the Merger and the other transactions contemplated by this Agreement are fair to, and in the best interests of, their respective stockholders;

          WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has unanimously resolved to recommend that the stockholders of the Company approve the Merger;

          WHEREAS, the transactions described in this Agreement are subject to the approval of the stockholders of the Company and the satisfaction of certain other conditions set forth in this Agreement;

          WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, Parent and certain beneficial owners (the “ Rollover Holders ”) of Common Stock are entering into Exchange Agreements (the “ Exchange Agreements ”), pursuant to which the Rollover Holders are agreeing, among other things, to contribute the portion of their Common Stock set forth therein (such shares, collectively, the “ Rollover Shares ”) to Parent immediately prior to the Effective Time of the Merger; and

          WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, certain stockholders of the Company are entering into a Voting Agreement substantially in the form attached as Exhibit A (the “ Voting Agreement ”).

          NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, Parent, Merger Sub and the Company agree as follows:

ARTICLE 1

THE MERGER

     1.01 The Merger . At the Effective Time (as defined in Section 1.03 ), subject to the terms and conditions of this Agreement and in accordance with the provisions of the Delaware General Corporation Law (the “ DGCL ”), (i) Merger Sub shall be merged with and into the Company, (ii) the separate corporate existence of Merger Sub shall cease, and (iii) the Company shall continue as the surviving corporation and a wholly owned subsidiary of Parent. The

Company, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the “ Surviving Corporation ”.

     1.02 Closing . Subject to the conditions contained in this Agreement, the closing of the Merger (the “ Closing ”) shall take place (i) at the offices of Alston & Bird LLP, 90 Park Avenue, New York, New York 10016, at 10:00 a.m., local time, on the date most promptly practicable following the satisfaction or waiver of the conditions set forth in Article 6 (which can be satisfied prior to Closing), but in no event later than the third (3 ^rd ) business day following such date or (ii) at such other place and time and/or on such other date as the Company and Merger Sub may mutually agree in writing. The date on which the Closing occurs is hereinafter referred to as the “ Closing Date ”.

     1.03 Effective Time . At the Closing, the parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a certificate of merger (the “ Certificate of Merger ”), executed in accordance with the relevant provisions of the DGCL. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as is agreed to by the parties hereto and specified in the Certificate of Merger (the time at which the Merger becomes effective is hereinafter referred to as the “ Effective Time ”).

     1.04 Effects of the Merger . The Merger shall have the effects set forth in this Agreement, the Certificate of Merger and the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and the Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and the Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

     1.05 Certificate of Incorporation and Bylaws of the Surviving Corporation .

          (a) At the Effective Time, the certificate of incorporation of the Company shall be amended to read in its entirety as the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time, and as so amended shall be the Certificate of Incorporation of the Surviving Corporation, until duly amended in accordance with applicable Law and the Surviving Corporation’s certificate of incorporation and bylaws; provided that the name of the Surviving Corporation shall be “Allion Healthcare, Inc.”

          (b) The bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation, until duly amended in accordance with applicable Law and the Surviving Corporation’s certificate of incorporation and bylaws.

     1.06 Directors and Officers . The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal in accordance with applicable Law and the Surviving Corporation’s certificate of incorporation and bylaws. The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their

respective successors are duly elected and qualified, or their earlier death, resignation or removal.

ARTICLE 2

EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND MERGER SUB

     2.01 Effect on Shares of Company Capital Stock .

          (a) Common Stock of the Company . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, the Company or Merger Sub, each share of common stock of the Company, par value $0.001 per share (the “ Common Stock ”) issued and outstanding immediately prior to the Effective Time (other than (i) Dissenting Shares (as defined in Section 2.04 ), and (ii) those shares of Common Stock to be canceled pursuant to Section 2.01(c) ) shall be converted into the right to receive Six Dollars and Sixty Cents ($6.60) in cash (the “ Merger Consideration ”), payable to the holder of such shares of Common Stock, without interest or dividends, less applicable withholding Taxes, in the manner provided in Section  2.05 . All such shares of Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled, and each holder of a certificate or certificates representing shares of Common Stock shall cease to have any rights with respect to such shares of Common Stock, except the right to receive the Merger Consideration.

          (b) Rollover Shares . Immediately prior to the Effective Time, the Rollover Holders shall contribute the Rollover Shares to Parent pursuant to the Exchange Agreements. Subsequent to the receipt of the Rollover Shares from the Rollover Holders, such Rollover Shares shall automatically be canceled, by virtue of the Merger, in accordance with Section 2.01(c) below.

          (c) Cancellation of Certain Shares of Common Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Common Stock, the Company or Merger Sub, each share of Common Stock owned by the Company or any of its wholly owned Subsidiaries as treasury stock or otherwise or owned by Merger Sub or Parent (including, without limitation, the Rollover Shares) or any of their direct or indirect subsidiaries immediately prior to the Effective Time shall automatically be canceled, and no cash or other consideration shall be delivered or deliverable in exchange for such shares of Common Stock.

     2.02 Effect on Shares of Merger Sub Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of Merger Sub Common Stock, the Company or Merger Sub, each share of common stock, par value $0.01 per share, of Merger Sub (“ Merger Sub Common Stock ”) issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation (“ Surviving Corporation Common Stock ”). Each certificate that, immediately prior to the Effective Time, represented

issued and outstanding shares of Merger Sub Common Stock shall be deemed to represent the same number of shares of Surviving Corporation Common Stock.

     2.03 Effect on Restricted Stock, Options and Warrants .

          (a) Restricted Stock . Between the date of this Agreement and the Effective Time, the Company shall take all necessary action to provide that each outstanding Restricted Stock Award, the restrictions of which have not lapsed immediately prior to the Effective Time, shall become fully vested immediately prior to the Effective Time and the holder of the resultant shares of Common Stock thereof shall be entitled to receive the Merger Consideration pursuant to Section 2.01(a) for such shares.

          (b) Options . Between the date of this Agreement and the Effective Time, the Company shall take all necessary action to provide that each Option shall become fully vested and exercisable immediately prior to the Effective Time. Holders of the Options shall be given the opportunity to exercise their Options, effective immediately prior to the Effective Time and conditioned upon the consummation of the Merger, and thereby to receive the Merger Consideration for each share of Common Stock subject to such exercised Options pursuant to Section 2.01 . As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or the holder of any Option, each Option outstanding immediately prior to the Effective Time that is not exercised pursuant to the preceding sentence and that has a per-share exercise price less than the Merger Consideration (each, a “ Cash-Pay Option ”), shall be converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Common Stock subject to such Cash-Pay Option multiplied by (ii) the excess of the Merger Consideration over the per-share exercise price of such Cash-Pay Option, with the aggregate amount of such payment rounded to the nearest cent (the “ Option Consideration ”), payable to the holder of such Cash-Pay Option, without dividends or interest, less applicable withholding Taxes, in the manner provided in this Section 2.03(b) . All such Cash-Pay Options, when so converted, shall cease to be outstanding and shall automatically be canceled, and each holder of a Certificate representing a Cash-Pay Option shall cease to have any rights with respect to such Cash-Pay Options, except the right to receive the Option Consideration. Parent shall, or shall cause the Company to, pay to holders of Cash-Pay Options the Option Consideration as soon as reasonably practicable following the Effective Time. Each Option outstanding immediately prior to the Effective Time that has a per-share exercise price equal to or greater than the Merger Consideration shall be canceled, and each holder of a Certificate representing such canceled Option shall cease to have any rights with respect to such Option and shall not be entitled to receive any payment with respect thereto. For purposes of this Agreement, the term “ Option ” means each outstanding unexercised option to purchase shares of Common Stock, whether or not then vested or fully exercisable, granted to any current or former employee, director, consultant or advisor of the Company or any Subsidiary or any other person, whether under any stock option plan or otherwise (including, without limitation, under the Company’s 1998 Stock Option Plan and Amended and Restated 2002 Stock Incentive Plan (collectively, the “ Stock Plans ”)).

          (c) Warrants . As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or the holder of any warrants to purchase shares of Common Stock (“ Warrants ”), each Warrant outstanding immediately prior to the Effective

Time, whether or not then vested or exercisable in accordance with its terms, shall be converted into the right to receive an amount in cash equal to the product of (i) the total number of shares of Common Stock subject to such Warrant multiplied by (ii) the excess, if any, of the Merger Consideration over the exercise price of such Warrant, with the aggregate amount of such payment rounded to the nearest cent (the “ Warrant Consideration ”), payable to the holder of such Warrant, without dividends or interest, less applicable withholding Taxes, in the manner provided in this Section 2.03(c) . All such Warrants, when so converted, shall no longer be outstanding and shall automatically be canceled, and each holder of a certificate or certificates representing Warrants shall cease to have any rights with respect to such Warrants, except the right to receive the Warrant Consideration. Parent shall, or shall cause the Company to, pay to holders of Warrants the Warrant Consideration as soon as reasonably practicable following the Effective Time.

          (d) Effectuation . The Board of Directors of the Company (or the appropriate committee thereof) shall take or cause to be taken all actions necessary to effectuate this Section 2.03 to the extent that such treatment is not expressly provided for by the terms of the applicable Stock Plans and related award agreements. The Company shall take such actions as are necessary or appropriate so that, as of the Effective Time, the Stock Plans shall be terminated.

     2.04 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, any shares of Common Stock issued and outstanding immediately prior to the Effective Time and held by a stockholder (a “ Dissenting Stockholder ”) who has not voted in favor of the Merger or consented thereto in writing and who has properly demanded appraisal for such shares of Common Stock (“ Dissenting Shares ”) in accordance with the DGCL, shall not be converted into the right to receive the Merger Consideration at the Effective Time in accordance with Section 2.01(a) hereof, but shall represent and become the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the Laws of the State of Delaware, unless and until such holder fails to perfect or withdraws or otherwise loses such holder’s right to appraisal and payment under the DGCL. If, after the Effective Time, such holder fails to perfect or withdraws or otherwise loses such holder’s right to appraisal, the Dissenting Shares held by such holder shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration, without any interest or dividends thereon, in accordance with Section 2.01(a) . The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Common Stock, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by the Company. The Company shall have the right to participate in all negotiations and proceedings with respect to such demands, and the Company shall not, without the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

     2.05 Exchange of Common Stock .

          (a) Agent . Prior to the Effective Time, Merger Sub shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange and paying agent, registrar and transfer agent (the “ Agent ”) for the purpose of exchanging (other than the Rollover Shares) (i) certificates representing, immediately prior to the Effective Time, Common Stock for the aggregate Merger Consideration, or (ii) shares of uncertificated Common Stock

outstanding immediately prior to the Effective Time (“ Uncertificated Shares ”) for the aggregate Merger Consideration.

          (b) Deposit of Consideration . At or prior to the Effective Time, Merger Sub shall supply or cause to be supplied for the account of the Agent, in trust for the benefit of the holders of the Common Stock and for exchange pursuant to this Section 2.05 , the aggregate consideration payable to holders of the Common Stock pursuant to Section 2.01 .

          (c) Notice of Merger . Promptly, but in no event later than five (5) business days, after the Effective Time, the Surviving Corporation shall cause the Agent to mail to each holder of record of certificates or other instruments that immediately prior to the Effective Time represented shares of Common Stock (the “ Certificates ”) or Uncertificated Shares (i) a notice of the effectiveness of the Merger, (ii) a form letter of transmittal, in a form reasonably acceptable to Parent and the Company, which shall specify that delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates or transfer of Uncertificated Shares to the Agent, and (iii) instructions for use in surrendering the Certificates or transferring Uncertificated Shares and receiving the Merger Consideration in respect thereof.

          (d) Exchange Procedures . Upon surrender to the Agent of a Certificate or transfer of Uncertificated Shares, together with such letter of transmittal duly executed and completed in accordance with the instructions thereto and such other documents as may be required pursuant to such instructions, the holder of such Certificate or Uncertificated Shares (other than Dissenting Shares and Common Stock to be canceled pursuant to Section 2.01(c) ) shall be entitled to receive, in exchange therefor, within ten (10) business days after such surrender or transfer, cash in an amount equal to the product of (i) the number of shares of Common Stock formerly represented by such Certificate or Uncertificated Shares and (ii) the Merger Consideration, which shall be paid by Agent by check or wire transfer in accordance with the instructions provided by such holder. No interest or dividends will be paid or accrued on the consideration payable upon the surrender of any Certificate or transfer of any Uncertificated Shares. If the consideration provided for herein is to be made to a person other than the person in whose name the surrendered Certificate or transferred Uncertificated Shares is registered, the surrendered Certificate or transferred Uncertificated Shares shall be properly endorsed, accompanied by appropriate stock powers or otherwise in proper form for transfer, and the person requesting such payment shall pay any transfer or other taxes required by reason of such payment to a person other than the registered holder of the Certificate or the Uncertificated Shares, or that such person shall establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable.

          (e) Lost Certificates . In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit (in form and substance acceptable to the Surviving Corporation) of that fact by the person (who shall be the record owner of such Certificate) claiming such Certificate to be lost, stolen or destroyed, the Agent will issue, in exchange for such affidavit, the Merger Consideration deliverable in respect of such Certificate pursuant to this Agreement.

          (f) Termination of Fund . At any time following the one (1) year anniversary of the Effective Time, the Surviving Corporation shall be entitled to require the Agent to deliver to

it any funds that had been made available to the Agent and not disbursed to holders of Common Stock (including, without limitation, all interest and other income received by the Agent in respect of all funds made available to it), and, thereafter, such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar Laws) only as general creditors thereof with respect to any consideration payable upon due surrender of the Certificates or transfer of the Uncertificated Shares held by them. Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the Agent shall be liable to any holder of Common Stock, Options or Warrants, for any consideration delivered in respect of such Common Stock, Options or Warrants to a public official pursuant to any abandoned property, escheat or other similar Law.

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

          (h) Transfer Books . At the close of business on the day on which the Effective Time occurs, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of shares of Common Stock on the records of the Company.

          (i) Adjustments . Notwithstanding anything in this Agreement to the contrary, the Merger Consideration, Option Consideration and Warrant Consideration shall each be adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend, reclassification, redenomination, recapitalization, split-up, combination, exchange of shares or other similar transaction with respect to the Common Stock occurring or having a record date or effective date between the date of this Agreement and the Effective Time.

     2.06 Phantom Stock Units .

          (a) At the Closing, Merger Sub shall pay or cause to be paid to each holder of a cash-settled phantom stock unit granted by the Company and outstanding immediately prior to the Closing (each, a “ Phantom Stock Unit ”), whether or not then vested in accordance with its terms, an amount in cash equal to the product of (i) the number of Phantom Stock Units held by such holder and (ii) the Merger Consideration (the “ Phantom Stock Unit Consideration ”), by wire transfer of immediately available funds to the account specified in writing by such holder at least three (3) business days prior to Closing. No interest will be paid or accrued on the Phantom Stock Unit Consideration.

          (b) Merger Sub shall be entitled to deduct and withhold, or cause to be deducted and withheld, from the consideration otherwise payable to any holder of Phantom Stock Units pursuant to this Agreement such amounts as may be required to be deducted or withheld with

respect to the making of such payment under the Code, or any applicable provision of state, local or foreign tax Law. To the extent that amounts are so deducted or withheld and paid over, or caused to be paid over, to the appropriate taxing authority by Merger Sub, such amounts shall be treated for all purposes of this Agreement as having been paid to such holder of Phantom Stock Units.

          (c) At the Closing, Merger Sub shall also pay or cause to be paid to each holder of a Phantom Stock Unit, an amount in cash equal to the Gross Up Payment, by wire transfer of immediately available funds to the account specified in writing by such holder at least three (3) business days prior to Closing. No interest will be paid or accrued on the Gross Up Payment payable on such Phantom Stock Units.

          (d) When the Phantom Stock Unit Consideration and the Gross Up Payment have been paid, each holder of a certificate or certificates representing Phantom Stock Units shall cease to have any rights with respect to such Phantom Stock Units, except for the provisions of such certificates as shall, by their terms, survive payment of the Phantom Stock Units, including provisions with respect to any additional payment subject to the excise tax imposed by Section 4999 of the Code.

          (e) Notwithstanding anything in this Agreement to the contrary, the Phantom Stock Unit Consideration shall be adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend, reclassification, redenomination, recapitalization, split-up, combination, exchange of shares or other similar transaction with respect to the Common Stock occurring or having a record date or effective date between the date of this Agreement and the Closing.

     2.07 Notes . At the Closing, Merger Sub shall pay or cause to be paid to each holder of a promissory note outstanding immediately prior to the Closing that is listed on Section 2.07 of the Company Disclosure Schedule (each, a “ Note ”), whether or not then due and payable in accordance with its terms, an amount in cash equal to the principal plus accrued interest on such Note (the “ Note Consideration ”), by wire transfer of immediately available funds to the account specified in writing by such Note holder at least three (3) business days prior to Closing. All such Notes, when so paid, shall no longer be outstanding and shall automatically be canceled, and each holder of a Note shall cease to have any rights with respect to such Note.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except as disclosed in the Form 10-K filed with the SEC for the fiscal year ended December 31, 2008 (the “ Latest 10-K ”) and SEC Reports (as defined in Section 3.07(a) ) filed with the SEC after the filing of the Latest 10-K but prior to the date hereof (in each case, excluding any risk factors or cautionary, predictive or forward looking statements contained therein) or as set forth in the Company Disclosure Schedule (it being understood that any matter disclosed in such Latest 10-K, such SEC Reports filed after the filing of the Latest 10-K or in any section of the Company Disclosure Schedule shall be deemed disclosed in each representation and warranty where the relevance of such disclosure is reasonably apparent on its

face, without regard to whether a representation or warranty specifically references either the Company Disclosure Schedules, the Latest 10-K or the SEC Reports filed after the filing of the Latest 10-K), the Company represents and warrants to Parent and Merger Sub as follows:

     3.01 Organization and Qualification; Subsidiaries.

          (a) The Company and each subsidiary of the Company (each, a “ Subsidiary ” and collectively, the “ Subsidiaries ”) is a corporation or limited liability company duly formed, validly existing and in good standing (to the extent applicable) under the Laws of the jurisdiction of its formation. The Company and each Subsidiary has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, except as would not reasonably be expected to have a Material Adverse Effect. The Company and each Subsidiary is duly qualified as a foreign corporation or limited liability company to do business, and is in good standing (to the extent applicable), in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified and in good standing would not reasonably be expected to have a Material Adverse Effect.

          (b) Section 3.01(b) of the Company Disclosure Schedule sets forth a true and complete list of each Subsidiary, together with the jurisdiction of formation of each Subsidiary and the percentage of the outstanding equity interests of each Subsidiary owned by the Company and each other Person.

          (c) Except for the Subsidiaries, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, limited liability company, partnership, joint venture or other business association or entity.

     3.02 Certificate of Incorporation and Bylaws . The Company has furnished to Parent and Merger Sub a complete and correct copy of the certificate of incorporation and the bylaws (or equivalent organizational documents) of the Company and each Subsidiary in full force and effect as of the date of this Agreement. Neither the Company nor any Subsidiary is in material violation of any provision of its certificate of incorporation or bylaws (or equivalent organizational documents).

     3.03 Capitalization .

          (a) The authorized capital stock of the Company consists of (i) 80,000,000 shares of Common Stock and (ii) 20,000,000 shares of preferred stock, par value $0.001 per share (the “ Preferred Stock ”). As of October 14, 2009, (i) 28,699,094 shares of Common Stock were issued and outstanding, all of which have been duly authorized and are validly issued, fully paid and nonassessable, (ii) no shares of Preferred Stock are issued and outstanding, (iii) no shares of Common Stock or Preferred Stock were held in the treasury of the Company, and (iv) 822,568 shares of Common Stock were reserved for issuance pursuant to the Stock Plans. All shares of Common Stock issuable upon exercise of Options have been duly reserved for issuance by the Company, and upon any issuance of such shares in accordance with the terms of the Stock Plans, will be duly authorized, validly issued and fully paid and nonassessable.

          (b) Section 3.03(b) of the Company Disclosure Schedule sets forth the name of each holder of an outstanding Option or Warrant, together with the number of shares of Common Stock issuable thereunder, the grant date, exercise price, expiration date and the vesting schedule. Section 3.03(b) of the Company Disclosure Schedule sets forth each right issued by the Company, the value of which is based on capital stock or another similar interest in the Company (e.g., phantom units), together with the number of shares of Common Stock on which such value is based, the grant date, and vesting schedule. Except as set forth on Section 3.03(b) of the Company Disclosure Schedule, there are no options, warrants, convertible securities, calls, preemptive rights, rights of first refusal or other rights, or agreements or commitments of any nature obligating the Company to issue, transfer or sell any shares of capital stock of, or other equity interests in, the Company.

          (c) There are no outstanding contractual obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any capital stock of, or other equity interests in, the Company or any Subsidiary. Except as set forth on Section 3.03(c) of the Company Disclosure Schedule, to the Company’s Knowledge, there are no stockholders agreements, voting trusts or other agreements or understandings relating to voting of any shares of Common Stock or granting to any Person the right to elect, or to designate or nominate for election, a director to the Company Board.

          (d) Each outstanding share of capital stock of, or other equity interests in, each Subsidiary is duly authorized, validly issued, fully paid and nonassessable, and, except as set forth in Section 3.03(d) of the Company Disclosure Schedule, each such share or other equity interest that is owned directly or indirectly by the Company is owned by the Company or another Subsidiary free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, rights of first offer, charges and other encumbrances of any nature whatsoever (collectively, “ Liens ”). There are no stockholders agreements, voting trusts or other agreements or understandings relating to voting of any equity securities of any Subsidiary or granting to any Person (other than the Company or a wholly-owned Subsidiary) the right to elect, or to designate or nominate for election, a director to the board of directors (or equivalent body) of any Subsidiary.

     3.04 Authority Relative to the Transactions .

          (a) The Company has the corporate power and authority necessary to execute and deliver this Agreement, to perform its obligations hereunder and, subject to the adoption of this Agreement and the approval of the Merger by the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon, to consummate the transactions contemplated hereby (the “ Transactions ”). The execution and delivery by the Company of this Agreement and the consummation by the Company of the Transactions have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize the Company’s execution and delivery of this Agreement or to consummate the Transactions (other than the approval and adoption of this Agreement and the Merger by the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon and the filing of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes the legal, valid

and binding obligation of the Company, enforceable against the Company in accordance with its terms (except to the extent its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally and by general equitable principles).

          (b) On or prior to the date of this Agreement, the Company Board has, at a meeting duly called and held in which all directors were present, unanimously determined that this Agreement and the Transactions are fair to and in the best interest of the Company and its stockholders, and adopted resolutions by a unanimous vote (i) approving this Agreement, (ii) declaring this Agreement and the Merger advisable, (iii) directing that this Agreement be submitted to the Company’s stockholders for their adoption, and (iv) recommending to the stockholders that they approve and adopt this Agreement and the Merger (the “ Board Recommendation ”), which resolutions, subject to Sections 5.02(c) and 5.09(b) , have not been subsequently withdrawn or modified in a manner adverse to Parent.

          (c) The Special Committee has (i) unanimously determined that this Agreement and the Transactions are fair to and in the best interest of the Company and its stockholders, and (ii) unanimously recommended that the Company Board approve this Agreement and the Transactions, which determination and recommendation, subject to Sections 5.02(c) and 5.09(b), have not been subsequently withdrawn or modified in a manner adverse to Parent.

     3.05 No Conflict; Required Filings and Consents .

          (a) The execution and delivery by the Company of this Agreement do not, and the performance by the Company of this Agreement and the consummation of the Transactions will not, (i) conflict with or violate the certificate of incorporation or bylaws (or equivalent organizational documents) of the Company, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 3.05(b) have been obtained or taken and all filings and obligations described in Section 3.05(b) have been made or fulfilled, conflict with or violate any Law applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected, (iii) except as set forth in Section 3.05(a) of the Company Disclosure Schedule, conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under, or give rise to any right of termination, acceleration or cancellation of, or result in the creation or imposition of a Lien on any property or asset of the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation, except, with respect to clauses (ii) and (iii) of this Section 3.05(a) , to the extent any such conflicts, violations, breaches, defaults or other occurrences would not, individually or in the aggregate, have a Material Adverse Effect.

          (b) Except as set forth in Section 3.05(b) of the Company Disclosure Schedule, the execution and delivery by the Company of this Agreement do not, and the performance by the Company of this Agreement and the consummation by the Company of the Transactions will not, (i) result in any termination, revocation, material modification, rescission or other material adverse impact on any material written consent, approval, license, permit, exemption, or registration of any domestic (federal, state or local) or foreign government or governmental, regulatory or administrative authority, agency, instrumentality or commission, or any court, tribunal, or judicial or arbitral body (each, a “ Governmental Authority ”); or (ii) require any

material consent, approval, authorization or permit of, or material filing with or notification to, any Governmental Authority, except for (i) applicable requirements, if any, of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), the Securities Act of 1933, as amended (the “ Securities Act ”), and the rules and regulations thereunder, (ii) requirements under the rules of the Nasdaq Stock Market, and (iii) the filing and recordation of appropriate merger documents as required by the DGCL and the business organization Laws of the jurisdictions where the Company is qualified to do business as a foreign corporation.

     3.06 Compliance with Laws; Permits .

          (a) The Company and each Subsidiary is, and since October 15, 2006 has been, in compliance in all material respects with all Laws applicable to the Company or such Subsidiary or by which any property or asset of the Company or such Subsidiary is bound or affected. The Company and the Subsidiaries have timely filed all reports, data and other information required to be filed with the Governmental Authorities with respect to the Company and each Subsidiary, except where the failure to make such timely filing would not, individually or in the aggregate, have a Material Adverse Effect.

          (b) Except as set forth in Section 3.06(b) of the Company Disclosure Schedule, there is no material suit, claim, action, proceeding, arbitration, or, to the Company’s Knowledge, investigation (each, an “ Action ”) pending before any court, tribunal, or judicial or arbitral body, or to the Company’s Knowledge, any other Governmental Authority or, to the Company’s Knowledge, threatened by any Governmental Authority, with respect to the Company or any Subsidiary or any properties or assets of the Company or of any Subsidiary, or, to the Company’s Knowledge, any current or former supervisory employee of the Company or any Subsidiary with respect to any acts or omissions as an employee of the Company or any Subsidiary.

          (c) Except as set forth on Section 3.06(c) of the Company Disclosure Schedule, the Company and each Subsidiary has all material permits, licenses, certifications, approvals and franchises (each, a “ Permit ”) necessary for the Company or such Subsidiary to own, lease and operate its properties or to carry on its business as it is now being conducted. No suspension, cancellation or materially adverse modification of any material Permit is pending or, to the Company’s Knowledge, threatened. The Company and each Subsidiary is in material compliance with the terms of the Permits.

          (d) The Company and each Subsidiary is, and since October 15, 2006 has been, in material compliance with (i) all applicable statutes, rules and regulations of the Medicare and Medicaid programs; (ii) all applicable state Laws relating to health care fraud and abuse; (iii) all applicable federal or state Laws relating to billing or claims for reimbursement submitted to any third party payor; and (iv) all applicable federal and state Laws relating to privacy or confidentiality of health records or personal health information.

          (e) The Company has delivered or made available to Parent accurate and complete copies of the Company’s and any applicable Subsidiary’s material compliance program documents. Neither the Company nor any Subsidiary (i) has been assessed a civil money penalty under Section 1128A of the Social Security Act, 42 U.S.C. §1320a-7a, or any regulations

promulgated thereunder, (ii) has been convicted of any criminal offense relating to the delivery of any item or service under a Federal Health Care Program, as that term is defined in Section 1128B(f) of the Social Security Act, 42 U.S.C. §1320a-7b(f), relating to the unlawful manufacture, distribution, prescription, or dispensing of a prescription drug or a controlled substance, (iii) is a party to an outstanding Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services, or (iv) has reporting obligations pursuant to any settlement agreement entered into with any Governmental Authority.

          (f) The Company and the Subsidiaries, as applicable, (i) (A) are appropriately certified for participation in, have current and valid provider contracts with, and are in material compliance with the applicable conditions of participation for such the Medicare and Medicaid programs, the CHAMPUS/TRICARE Program (if applicable), and such other similar Federal, state or local governmental health care programs (collectively, the “ Governmental Programs ”) as necessary to carry on their respective businesses as they are now being conducted and (ii) currently participate in private, non-governmental health care programs (including private insurance health care programs) (the “ Private Programs ”) under which the Company and the Subsidiaries directly or indirectly receives payments for health care items and services. To the Company’s Knowledge, all billing practices of the Company and the Subsidiaries have been in material compliance with applicable Law, regulation and written policies of Governmental Programs and Private Programs. To the Company’s Knowledge, (A) neither the Company nor any Subsidiary has received any material payment or reimbursement in excess of amounts allowed by Law, and (B) neither the Company nor any Subsidiary is liable for recoupment of material amounts previously paid by a Governmental Program or a Private Program in which the Company or any Subsidiary participates or has participated in the past three (3) years that are not reflected in the Financial Statements, except for routine claims processing and adjudication in the ordinary course of business or where such overpayment is a result of an administrative error by a Governmental Program or a Private Program. Except as set forth in Section 3.06(e) of the Company Disclosure Schedule, no surveys of any of the Company, the Subsidiaries or their respective predecessors in interest that related to the respective businesses of such entities and that were conducted in connection with any Governmental Program, Private Program or license (excluding individual employee licenses), accreditation, permit or certificate during the past three (3) years, required material corrective action to be taken by the Company, Subsidiary, or their respective predecessors.

          (g) To the Company’s Knowledge, neither the Company nor any Subsidiary, nor any of their directors, members, employees, officers, managers or independent contractors who currently furnish services or supplies that may be reimbursed in whole or in part under any Governmental Program: (i) has been convicted of or charged with any violation of any Law related to any Governmental Program; or (ii) is excluded, suspended or debarred from participation in any Federal Health Care Program. The Company reviews (A) the “list of Excluded Individuals/Entities” on the website of the United States Health and Human Services Office of Inspector General (http://oig.hhs.gov/fraud/exclusions.html), and (B) the “List of Parties Excluded From Federal Procurement and Nonprocurement Programs” on the website of the United States General Services Administration (http://www.arnet.gov/epls/) with regard to the exclusion status of its directors, members, employees, officers, managers or independent contractors.

          (h) Notwithstanding anything in this Agreement to the contrary, this Section 3.06 contains the sole and exclusive representations and warranties of the Company and the Subsidiaries with respect to (i) compliance with health care Laws and health care Permits, (ii) the Company’s and the Subsidiaries’ participation in, billing of and reimbursement from Governmental Programs, to the extent related to its compliance with Laws with respect to such activities, and (iii) the Company’s and the Subsidiaries’ participation in, billing of and reimbursement from Private Programs, to the extent related to its compliance with such Private Programs’ regulations and policies.

     3.07 SEC Filings; Financial Statements; Undisclosed Liabilities, Internal Controls .

          (a) Since June 22, 2005, the Company has timely filed with or furnished to, as applicable, the Securities and Exchange Commission (the “ SEC ”) all forms, reports, statements, schedules and other documents required to be filed or furnished by it pursuant to the U.S. securities Laws and the rules and regulations thereunder (collectively, the “ SEC Reports ”). Except as set forth in Section 3.07(a) of the Company Disclosure Schedule, the SEC Reports (i) were prepared in all material respects in accordance with either the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations promulgated thereunder and (ii) did not, at the time they were filed, or, if amended or supplemented, as of the date of such amendment or supplement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. There are no unresolved comments issued by the staff of the SEC with respect to any of the SEC Reports. To the Knowledge of the Company, as of the date hereof, none of the SEC Reports is the subject of ongoing SEC review, outstanding SEC comment or outstanding SEC investigation. No Subsidiary is required to file any form, report or other document with the SEC.

          (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the SEC Reports, as amended or supplemented, including any amendments or restatements thereto, was prepared in all material respects in accordance with published rules and regulations of the SEC (including Regulation S-X) and United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited interim statements, the omission of footnotes and otherwise as permitted by Form 10-Q of the SEC) and each fairly presents, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and the Subsidiaries as at the respective dates thereof and for the respective perio