SecProbe.io

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Nicholas,

     As we discussed, attached please find four pages from the Select Medical Preliminary Proxy
Statement, each of which has been marked to show our proposed changes from the Preliminary Proxy
Statement filed on December 21, 2004. These changes have been made in response to Comment #6 from
Mr. Riedler’s letter dated January 11, 2005, and are being made in accordance with our telephone
call yesterday. Please let me know by reply email or at the phone number written below if you have
any questions or concerns regarding our proposed changes. We will look forward to hearing from
you. For your information, our intention is to refile the Preliminary Proxy Statement tomorrow,
January 14th.

     Also as we discussed, the Company will file a copy of this email and the attached pages as
correspondence on EDGAR. We appreciate your time and assistance.

     Best regards.

Stephen M. Leitzell

Dechert LLP

4000 Bell Atlantic Tower

1717 Arch Street

Philadelphia, PA 19103-2793

direct: +1.215.994.2621

desktop fax: +1.215.655.2621

stephen.leitzell@dechert.com

www.dechert.com

The special committee did not consider any firm
acquisition proposals from other possible buyers with respect to
a merger or consolidation, sale of assets or other change of
control of Select because the special committee was not aware
that any such proposals were made during the past 3 years.
Similarly, the special committee did not assign any significance
to recent purchases of Select common stock by members of the
buying group described under “— Position of the
Buying Group as to the Fairness of the Merger” beginning on
page      , as those purchases
were completed as a result of the exercise of employee and
director stock options. The special committee did not consider
the historical market prices of Select’s common stock prior
to May 12, 2004, the day after CMS announced a proposed
regulatory change affecting reimbursement rates applicable to
Select’s long-term acute care hospitals that resulted in
the adoption of the CMS Regulations on August 2, 2004, as a
material factor because those prices do not reflect the effect
of the CMS Regulations on Select and its business. In addition,
the special committee did not consider a possible liquidation
transaction as a viable alternative. Select is essentially a
service company, and its tangible assets are incidental to its
service operations. As a result, the value of Select is tied to
its existence as an integrated going concern. Moreover, a
portion of Select’s success is attributable to its market
share and market presence. As a result, the special committee
concluded that any liquidation of Select’s assets, or any
break-up, spin-off and piecemeal sale of Select’s business
or assets, would not maximize stockholder value. Therefore, the
special committee did not consider a possible liquidation value.
Further, the special committee did not consider net book value,
which is an accounting concept, as a factor because the merger
consideration of $18.00 per share is significantly higher
than $4.72, the net book value per share of Select common stock
at September 30, 2004.

The special committee also determined that the
merger is procedurally fair because, among other things:

    •

    the board of directors established a special
    committee of independent directors to consider and negotiate the
    merger agreement, and the special committee retained its own
    independent counsel and its own independent financial advisor
    who have extensive experience in transactions similar to the
    merger;

    •

    the special committee consists solely of
    directors who are not officers or employees of Select, and who
    are independent of and have no economic interest or expectancy
    of an economic interest in Welsh Carson, Holdings or the
    surviving corporation (If the merger is completed, then the
    special committee members will, however, like all other Select
    stockholders and option holders receive cash payments for their
    shares and stock options in an aggregate amount equal to
    $1,615,728. See “— Interests of Select Directors
    and Executive Officers in the Merger” beginning on
    page      . Whether the merger is
    completed or not, each special committee member will be paid
    $65,000 for his service on the special committee, and will be
    reimbursed for out-of-pocket expenses incurred in connection
    with his service on the special committee. As members of the
    board of directors, the special committee members will also
    benefit from the indemnification, insurance and related
    provisions contained in the merger agreement with respect to
    their acts or omissions as directors);

    •

    the special committee was given exclusive
    authority, pursuant to resolutions adopted by the board of
    directors, to, among other things, evaluate, negotiate and
    recommend the terms of any proposed transaction and to reject on
    behalf of Select any offer that the special committee could not
    favorably recommend to the board of directors;

    •

    the cash merger consideration of $18.00 per
    share and other terms and conditions of the merger agreement
    resulted from arm’s-length negotiations between the special
    committee and Welsh Carson;

    •

    the merger must be approved not only by the
    holders of a majority of shares of Select common stock but also
    by holders of a majority of the shares of Select common stock
    excluding Holdings, Acquisition Corp., Welsh Carson, their
    respective affiliates, their co-investors and the continuing
    investors;

    •

    Select issued a press release regarding the
    merger in which it publicly announced its ability to actively
    solicit other possible buyers through November 5, 2004 and
    to respond to unsolicited acquisition proposals from other
    possible buyers after November 5, 2004 if the special
    committee determines that the unsolicited acquisition proposals
    could lead to a superior proposal;

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in reaching its determination. In addition, each
member of the special committee may have assigned different
weights to various factors. The determination of the special
committee was made after consideration of all factors taken as a
whole.

Reasons for the Board of Directors’
Determination. The board of directors
of Select consists of 10 directors, 2 of whom serve on the
special committee. In reporting to the Select board of directors
regarding its determination and recommendation, the special
committee, with its legal and financial advisors participating,
advised the other members of the board of directors of the
course of negotiations with Welsh Carson and its legal counsel,
its review of the merger agreement and the related financing
commitments and the factors that the special committee
considered in reaching its determination that the terms of the
merger agreement and the merger are advisable and fair to, and
in the best interests of, the unaffiliated stockholders. On
October 17, 2004, Banc of America Securities LLC presented
to the board of directors of Select its financial analysis of
the proposed transaction and delivered its written opinion,
dated October 17, 2004 (which was subsequently updated on
November 18, 2004), to the special committee and the board
of directors which stated that, as of that date, and based upon
and subject to the assumptions made, matters considered,
qualifications and limitations set forth in the written opinion,
the consideration of $18.00 per share in cash to be
received by the unaffiliated stockholders was fair from a
financial point of view to the unaffiliated stockholders. After
receiving the special committee’s recommendation with
respect to the approval of the merger agreement and the merger
and listening to the presentation of Banc of America Securities
LLC, the members of the board of directors who are affiliated
with the buying group and the members of the board of directors
who are paid advisors to Welsh Carson excused themselves from
the meeting, and the remaining directors met with the special
committee to discuss the terms of the merger and the
advisability and fairness of proceeding with the merger.
Following this meeting, these directors unanimously agreed that
it was in the best interests of the unaffiliated stockholders to
proceed with the merger. Thereafter, the board of directors,
with all members present, adopted the recommendation of the
special committee, found that the merger agreement and the
merger are advisable and procedurally and substantively fair to,
and in the best interests of, the unaffiliated stockholders and
unanimously approved the merger agreement and the merger. As
part of its determination with respect to the merger set forth
below, the board of directors adopted the fairness analysis and
conclusion of the special committee and relied upon the analyses
and opinion of Banc of America Securities LLC, and the factors,
both positive and negative, considered by the special committee
in respect of such fairness analysis and conclusion, based upon
the board of directors’ view as to the reasonableness of
such fairness analysis and conclusion. In light of the wide
variety of factors considered in its evaluation of the merger,
the board of directors did not find it practicable to quantify
or otherwise assign relative weights to, and did not make
specific assessments of, the specific factors considered in
reaching its determination. Instead, the board of directors
based its position on the totality of the information presented
and considered.

The Select board of directors believes that the
merger agreement and the merger are advisable and procedurally
and substantively fair to, and in the best interests of, the
unaffiliated stockholders. The board of directors adopted the
special committee’s analysis and conclusions, which
included both positive and negative factors. See
“— Recommendation of the Special Committee of the
Board of Directors and Reasons for the Merger —
Reasons for the Special Committee’s Determination.” In
reaching this conclusion, the board of directors considered the
following material items:

    •

    the merger consideration of $18.00 per share
    was payable in cash and represented a substantial premium over
    the market price of common stock of Select before the public
    announcement of the execution of the merger agreement, namely,
    an approximately 26.6% premium over the stock market closing
    price of $14.22 per share on October 15, 2004 and an
    approximately 35.5% premium over the average stock market
    closing price of $13.28 per share for the 30 trading days
    preceding the public announcement of the execution of the merger
    agreement;

    •

    the $18.00 per share merger consideration
    and other terms and conditions of the merger agreement resulted
    from arm’s-length negotiations between the special
    committee and Welsh Carson;

    •

    Select’s repurchases of shares of its common
    stock during the last 2 years were at prices substantially
    below $18.00 per share;

35

    •

    the special committee consists solely of
    directors who are not officers or employees of Select, are
    independent of and have no economic interest or expectancy of an
    economic interest in Welsh Carson, Holdings or the surviving
    corporation;

    •

    the special committee retained its own
    independent financial and legal advisors who have extensive
    experience in transactions similar to the merger, conducted
    extensive negotiations with Welsh Carson and had the authority
    to reject the transactions proposed by Welsh Carson (these
    negotiations led to an increase in the cash consideration to be
    received by the holders of Select common stock from between
    $16.50 and $17.25 to $18.00 per share);

    •

    Welsh Carson did not participate in or have any
    influence on the deliberative process of, or the conclusions
    reached by, the special committee or the negotiating positions
    of the special committee;

    •

    the special committee obtained a written opinion,
    dated October 17, 2004, from its independent financial
    advisor (both for its own benefit and for the benefit of the
    board of directors) indicating that as of that date, and based
    upon and subject to the assumptions made, matters considered,
    qualifications and limitations set forth in the written opinion,
    the cash merger consideration of $18.00 per share to be
    received by the unaffiliated stockholders was fair from a
    financial point of view to the unaffiliated stockholders and
    upon its request, the special committee subsequently obtained a
    written opinion, dated November 18, 2004, from its
    independent financial advisor (both for its own benefit and for
    the benefit of the board of directors) indicating that, as of
    that date and based upon and subject to the assumptions made,
    matters considered (including the proposed SemperCare
    acquisition), qualifications and limitations set forth in the
    written opinion, the cash merger consideration of $18.00 per
    share to be received by the unaffiliated stockholders was fair
    from a financial point of view to the unaffiliated stockholders,
    which opinion the board of directors considered in its totality,
    and the specific financial analyses presented by Banc of America
    Securities LLC to the board of directors in connection with the
    delivery of its fairness opinion, which analyses related to
    summary valuation ranges relating to Select based on historical
    trading prices, trading multiples of comparable public
    companies, premiums paid in other transactions, estimates of
    future discounted cash flows based on estimates provided by
    Select management, and possible values attainable in a leveraged
    buyout transaction based on management’s estimates, as
    described more fully below under “— Opinion of
    the Financial Advisor to the Special Committee”;

    •

    the fact that the merger agreement permitted
    Select not only to solicit acquisition proposals from other
    possible buyers through November 5, 2004 but also permits
    Select to, even after November 5, 2004, provide information
    and participate in negotiations with respect to other possible
    buyers that have submitted acquisition proposals in the
    circumstances described in the merger agreement and, in either
    such case, to terminate the merger agreement to accept a
    superior acquisition proposal;

    •

    Select issued a press release regarding the
    merger in which it publicly announced its ability to actively
    solicit other possible buyers through November 5, 2004, and
    to respond to unsolicited acquisition proposals from other
    possible buyers after November 5, 2004 if the special
    committee determines that the unsolicited acquisition proposals
    could lead to a superior proposal;

    •

    the intention to solicit, with the assistance of
    Banc of America Securities LLC, acquisition proposals from other
    possible buyers for a period of time as permitted by the merger
    agreement;

    •

    the special committee believed, based on
    information provided by its financial advisor and legal advice,
    that the termination fee of $40.0 million (or less than 2%
    of the equity value and the enterprise value of the transaction)
    was lower than or comparable to termination fees in most public
    company merger transactions, even considering the requirement
    that Select reimburse certain expenses incurred by Welsh Carson
    and its affiliates in connection with the transaction up to a
    maximum amount of $750,000, and that these obligations should
    not unduly discourage other possible buyers from offering an
    acquisition proposal that