MANOR CARE INC/NEW, 10-K, 1995-08-28

MANOR CARE INC/NEW
10-K, 1995-08-28
SKILLED NURSING CARE FACILITIES

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<PAGE> 1

FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1995
-------------------------------------------

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
----------------- -----------------

Commission File Number 1-8195
------

MANOR CARE, INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 52-1200376
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10750 Columbia Pike, Silver Spring, Maryland 20901
--------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (301) 681-9400
----------------------------

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Name of Each Exchange On
Title of Each Class Which Registered
----------------------------------------- ------------------------
<S> <C>
Common Stock, Par Value $.10 per share New York Stock Exchange
Registrant's Guaranty of 4-3/4% Con-
vertible Subordinated Debentures due
September 1, 1997 issued by Cenco
Incorporated New York Stock Exchange
Registrant's Guaranty of 5% Convertible
Subordinated Debentures due November 1,
1996 issued by Cenco Incorporated New York Stock Exchange
----------------------------------------- ------------------------
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

15-1/2% Subordinated Debentures due August 1, 2002
-------------------------------------------------------------------------------
(Title of Class)

<PAGE> 2

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates
was $1,399,221,470 as of July 31, 1995 based upon a closing price of $32.375
per share.

The number of shares of Manor Care's Common Stock outstanding at May
31, 1995 was 62,383,120.

DOCUMENTS INCORPORATED BY REFERENCE:

PART I 1995 Annual Report to Stockholders
PART II 1995 Annual Report to Stockholders
PART III Proxy Statement dated August 28, 1995

PART I

ITEM 1. Business.

General

Manor Care, Inc. ("Manor Care"), a Delaware corporation organized in
August 1981, is a holding company that conducts its business through the Manor
Care Hotel Division ("Hotel Division") and three principal subsidiaries, Manor
Healthcare Corp. ("Healthcare"), Vitalink Pharmacy Services, Inc. ("Vitalink")
and Choice Hotels International, Inc. ("Choice"). Healthcare and its
subsidiaries have been engaged since October 1968 in the business of
developing, owning and managing nursing centers, which provide skilled nursing
and convalescent care principally for residents over the age of 65. Healthcare
owns approximately 82.3% of Vitalink, a public company that operates
institutional pharmacies. Healthcare also owns and operates an acute care
general hospital, rehabilitation centers, assisted living centers and nursing
assistant training schools. Choice franchises the use of the "Quality,"
"Comfort," "Clarion," "Sleep," "Rodeway," "Econo Lodge" and "Friendship"
trademarks and other related trademarks and services. The Hotel Division is
engaged in the business of owning and operating hotels in the United States
under the Choice trademarks. Other subsidiaries of Manor Care are engaged in
owning, operating and franchising hotels in foreign countries.

<PAGE> 3

In fiscal year 1995, Manor Care derived approximately 32.6% of its
total revenues through Medicare and Medicaid programs; aside from the
foregoing, Manor Care has no few or single customers upon whom it is dependent.

Industry Segments

The Business Segment Information set forth on page 28 of the Company's
1995 Annual Report is hereby incorporated by reference.

Manor Healthcare Corp. - Healthcare Operations

Manor Care, through Healthcare and its subsidiaries, owns, operates or
manages 179 nursing centers (including 18 medical and physical rehabilitation
centers), which provide high acuity services, skilled nursing care,
intermediate nursing care, custodial care and assisted living, principally for
residents over the age of 65. Manor Care and its subsidiaries also own and
operate an acute care hospital, 18 pharmacies, 5 nursing assistant training
schools and 15 assisted living centers.

Nursing Center Operations

Healthcare's nursing centers provide, in general, five types of
services:

-- High acuity services - for persons who require complex medical
and physical rehabilitation services (patients who would otherwise be treated
in an acute care hospital setting).

-- Skilled nursing care - for persons who require 24-hour-a-day
professional services of a registered nurse or a licensed practical nurse.

-- Intermediate care - for persons needing less intensive nursing
care than that provided to those requiring skilled care.

-- Custodial care - for persons needing a minimum level of care.

-- Assisted living - for persons needing some supervision and
assistance with personal care.

Services provided to all patients include the required type of nursing
care, room and board, special diets, occupational, speech, physical and
recreational therapy and other services that may be specified by the patient's
physician, who directs the admission, treatment and discharge of that patient.

Each high acuity, skilled and intermediate nursing center is under the
direction of a state-licensed nursing center administrator supported by other
professional personnel, such as a medical director, social worker, dietitian
and recreation staff. Nursing departments in each such facility are under the
supervision of a director of nurses who is state licensed.

<PAGE> 4

The nursing staffs are composed of other registered nurses and licensed
practical nurses, as well as nursing assistants. Staff size and composition
vary depending on the size and location of each facility.

Manor Care has developed a Quality Assurance Program to ensure that
high standards of care are maintained in each center. The Quality Assurance
Department is composed of a director, registered nurses, dietitians, nutrition
specialists, an environmental services specialist and a recreational therapist.
These staff specialists set corporate standards for delivery of care, direct
the Quality Improvement Program, and provide consulting and educational
services to the centers.

Manor Care's nursing centers range in bed capacity from 52 to 240
beds, have an aggregate bed capacity of 23,830 beds, and achieved an occupancy
rate of 90% during the 1995 fiscal year. Manor Care's nursing centers are
located in 28 states: Arizona, California, Colorado, Delaware, Florida,
Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Missouri, Nevada,
New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Washington
and Wisconsin.

The nursing centers are modern structures generally of wall-bearing
masonry with fire resistive or protective floor and roof suspension systems.
Most have been designed to permit private and semi-private patient room
accommodations, and rooms at some facilities may be converted to accommodate up
to four beds. Most facilities have individually controlled heating and
air-conditioning units. Each nursing center contains a fully equipped kitchen,
an isolation room, day room areas, administrative offices and most contain a
physical therapy room. Many of Manor Care's centers have specialized wings for
assisted living, Alzheimer's patients, individuals with catastrophic injuries,
and persons desiring extra amenities and activities. Manor Care believes all
of the nursing centers and related equipment are in good condition and well
maintained.

Manor Care has reorganized its healthcare operations into three new
divisions. The Long-Term Care Division, in addition to operating general
purpose skilled nursing centers, operates MedBridge facilities offering post-
acute care for patients who no longer need hospital care. Ten MedBridge
facilities and eight MedBridge units within skilled nursing centers currently
operate in Colorado, Delaware, Illinois, Maryland, New Jersey, Ohio,
Pennsylvania and Virginia. During 1995, the Company opened one new 100-bed
nursing center in Ohio, and additions totaling 142 beds to 8 existing centers.
The Company also acquired three nursing centers located in Illinois and
Maryland for approximately $26,560,000. Manor Care currently has 2 new nursing
centers with 120 beds each under construction in Florida and Illinois.
Additions totaling 107 beds to 3 existing centers also are under construction.

The Assisted Living Division operates Springhouse Senior Residences
(assisted living facilities designed for the frail elderly) and Arden Courts
(assisted living facilities for persons with early to mid-stage

<PAGE> 5

Alzheimer's who do not yet need nursing care). There are 12 Springhouse
facilities, located in California, Florida, Maryland, Michigan, North Carolina
and Ohio, which include 2 facilities converted from hotels and opened during
the year and 6 newly acquired facilities. Six facilities were acquired during
the year for approximately $30,185,000. There are five Arden Courts in
Illinois, Maryland and Pennsylvania, three that opened in fiscal 1995 and one
each in June and July 1995.

The Alternate Site Services Division is exploring the entry into new
businesses such as home healthcare and hospice programs.

Patients seeking the services of the nursing centers come from a
variety of sources, and are principally referred by hospitals and physicians.
Most of Manor Care's nursing centers participate in state Medicaid and in the
federal Medicare program (see "Federal and State Assistance Programs").
However, Manor Care attempts to locate and operate its nursing centers in a
manner designed to attract patients who pay directly to the facilities for
services without benefit of any government assistance program ("private
patients").

As a general rule, the profit margin is higher with private patients
than with patients to whom services are rendered with government assistance
programs. The following table sets forth certain information concerning
revenues from government assistance programs for all of Manor Care's health
care operations during fiscal year 1995:

<TABLE>
<CAPTION>
Contractual Net
Gross Revenues Adjustment* Revenues
-------------- ----------- ------------
<S> <C> <C> <C>
Medicare $264,413,000 $85,816,000 $178,597,000
Medicaid 347,081,000 94,501,000 252,580,000
</TABLE>

*Represents the estimated difference between private patient billing rates and
amounts recoverable under government programs.

The following table sets forth certain information concerning
occupancy and revenues of Manor Care's nursing centers and hospital during
fiscal year 1995:

<TABLE>
<CAPTION>
Nursing Centers Hospital
-------------------- --------------------

% of % of % of % of
Occupancy Revenues Occupancy Revenues
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Private patients 53% 61% 29% 43%
Medicaid patients 36 23 18 21
Medicare patients 11 16 53 36
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>

<PAGE> 6

Hospital Operations

Manor Care owns and operates Mesquite Community Hospital in Mesquite,
Texas, a Dallas suburb. The 172 licensed bed facility, which opened in 1978,
is a general medical/surgical acute care hospital fully accredited by the Joint
Commission for the Accreditation of Health Care Organizations. Services
include obstetrics, emergency services, coronary/intensive care, day surgery,
skilled nursing, and geriatric psychiatry. Fully equipped, modern ancillary
and diagnostic services include MRI, CT, nuclear medicine, cardiac
catheterization and ultrasound with doppler. The medical staff, representing
virtually every medical and surgical specialty, admit and refer patients into
the hospital from their private office practices. Patient services are
reimbursed from traditional insurance programs, managed care (HMO and PPO),
Medicare and Medicaid. The hospital is in the midst of a 30,000 square foot,
two-story addition, which will be completed in Spring 1996 and house a new
emergency services department and a four operating suite day surgery center.

Pharmacy Operations

Healthcare owns 82.3% of Vitalink Pharmacy Services, Inc.
("Vitalink"), a publicly traded company that owns and operates 18 pharmacies
located in California, Colorado, Florida, Illinois, Indiana, Iowa, Maryland,
New Jersey, Ohio, Oregon, Pennsylvania, Texas and Wisconsin.

Vitalink operates institutional pharmacies, which provide, in general,
three types of services:

-- Customized filling of prescription and
non-prescription medications for individual patients pursuant to physician
orders delivered to nursing facilities.

-- Consultant pharmacist services to help ensure quality
patient care through monitoring and reporting on prescription drug therapy.

-- Infusion therapy services, consisting of a product
(nutrient, antibiotic, chemotherapy or other drugs or fluids) and its
administration by tube, catheter or intravenously. Vitalink prepares and
delivers the product, which is administered by nursing center staff.

Pursuant to various master agreements, a portion of Vitalink's
business is with Manor Care. As of May 31, 1995, Vitalink had contracts to
serve 16,000 Manor Care beds and 26,400 beds not affiliated with Manor Care,
resulting in revenues of $54,734,000 and $57,523,000, respectively, for fiscal
1995.

In April 1995, Vitalink purchased a pharmacy business in San Antonio,
Texas, for $2,451,000, and in July 1995, Vitalink purchased a pharmacy business
in Loveland, Colorado, for $2,400,000. In June 1994, Vitalink sold its last
retail pharmacy, located in Appleton, Wisconsin, for $144,000.

<PAGE> 7

Training School Operations

Medical Aid Training Schools, Inc., a subsidiary of Healthcare,
operates five nursing assistant training schools located in New York. The
schools provide training for entry level nursing assistants for nursing
facilities and home health care.

Regulation

Manor Care's healthcare facilities are subject to certain federal
statutes and regulations and to regulatory licensing requirements by state and
local authorities. All of Manor Care's facilities are currently so licensed.
In addition, the facilities are subject to various local building codes and
other ordinances. It is anticipated that government regulation of the
healthcare industry will become more comprehensive in the future. The extent
of the impact of such increased regulation on Manor Care's operations and
earnings cannot be predicted.

State and local agencies survey all nursing centers on a regular basis
to determine whether such centers are in compliance with governmental operating
and health standards and conditions for participation in government medical
assistance programs. Such surveys include reviews of patient utilization of
healthcare facilities and standards for patient care. Manor Care endeavors to
maintain and operate its facilities in compliance with all such standards and
conditions. Manor Care believes that at this time, none of its facilities is
in violation of any applicable regulation that would threaten the operation of
its business or materially affect the standard of care provided.

Federal and State Assistance Programs

Substantially all Manor Care's nursing centers and the Hospital are
currently certified to receive benefits provided under the Federal Health
Insurance for the Aged Act (commonly referred to as "Medicare"), and under
programs administered by the various states to provide medical assistance to
the medically indigent ("Medicaid"). Both initial and continuing qualification
of a nursing center or hospital to participate in such programs depends upon
many factors including accommodations, equipment, services, patient care,
safety, personnel, physical environment, and adequate policies, procedures and
controls.

Services under Medicare consist of nursing care, room and board,
social services, physical and occupational therapies, drugs, biologicals,
supplies, and surgical, ancillary diagnostic and other necessary services of
the type provided by extended care or acute care facilities. Under the
Medicare program, the federal government pays the reasonable direct and
indirect allowable costs (including depreciation and interest) of the services
furnished.

Under the various Medicaid programs, the federal government supplements
funds provided by the participating states for medical

<PAGE> 8

assistance to medically indigent persons. The programs are administered by the
applicable state welfare or social service agencies. Although Medicaid
programs vary from state to state, typically they provide for the payment of
certain expenses, up to established limits, at rates based generally on cost
reimbursement principles.

Funds received by Manor Care under Medicare and Medicaid are subject
to audit with respect to the proper application of various payment formulas.
Such audits can result in retroactive adjustments of revenue from these
programs, resulting in either amounts due to the government agency from Manor
Care or amounts due Manor Care from the government agency. Manor Care believes
that its payment formulas have been properly applied and that any future
adjustments will not have a material adverse impact on its financial position
or results of operations.

Both the Medicare and Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of which
may materially increase or decrease the rate of program payments to healthcare
facilities. Manor Care can give no assurance that payments under such programs
will in the future remain at a level comparable to the present level or be
sufficient to cover the operating and fixed costs allocable to such patients.

Competition

Manor Care's nursing centers compete on a local and regional basis
with other long-term healthcare providers, some of which have greater financial
resources or operate on a nonprofit basis. The degree of success with which
Manor Care's nursing facilities compete varies from location to location and is
dependent on a number of factors. Manor Care believes that the quality of care
provided, reputation and physical appearance of facilities, and, in the case of
private patients, charges for services, are significant competitive factors.
Accordingly, it seeks to meet competition in each locality by establishing a
reputation within the local medical communities for competent and competitive
nursing center services. There is limited, if any, competition in price with
respect to Medicaid and Medicare patients, since revenues for services to such
patients are strictly controlled and based on fixed rates and cost
reimbursement principles.

Manor Care's Hospital encounters competition in the Mesquite, Texas
area where it competes for community and physician acceptance with other
hospitals. Vitalink's pharmacies compete with other local distributors of
pharmaceuticals.

Hotel Division - Domestic Lodging Operations

The Hotel Division operated 48 hotels containing a total of 7,971
rooms as of May 31, 1995. During 1995, the Hotel Division purchased 16 hotels
containing 2,339 rooms in Arizona, Florida, Maryland, Massachusetts,

<PAGE> 9

Michigan, Ohio, Pennsylvania, South Carolina, Texas and Virginia for an
aggregate purchase price of approximately $59,800,000.

The hotels operate under the "Clarion," "Comfort," "Quality," "Sleep,"
"Econo Lodge" and "Rodeway" trade names and are located in Alabama, Arizona,
California, Florida, Georgia, Louisiana, Maryland, Massachusetts, Michigan,
Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Utah and
Virginia. All of the hotels are owned by Manor Care or its subsidiaries except
two hotels located in California, which are leased.

During 1995, lodging revenues and expenses included food and beverage
sales of $8,121,000 and costs of sales of $6,866,000.

QH Europe Partnership - Foreign Lodging Operations

Quality Hotels Europe, Inc. and Choice Hotels International, Inc.
("Choice"), subsidiaries of Manor Care, formed QH Europe Partnership in 1994 to
own, operate and franchise hotels in Europe. Partnership subsidiaries own
three hotels in Germany and one in England containing 610 rooms, which operate
under the "Comfort" or "Quality" trade names.

During 1994, Partnership subsidiaries acquired certain assets of a
French hotel chain, consisting primarily of franchise rights to approximately
100 hotels (now using the "Comfort" trade name) plus two owned and six leased
hotels. During 1995, operations grew to 139 franchisees and eight leased
hotels.

Choice Hotels International, Inc. - Franchise Operations

Manor Care owns 100% of the Preferred Stock and approximately 94.5% of
the Common Stock of Choice, which franchises the use of the "Quality,"
"Comfort," "Clarion," "Sleep," "Econo Lodge," "Friendship" and "Rodeway"
trademarks.

Services provided to franchisees include national and regional
meetings and periodic seminars to provide information on hotel operations and
recent developments in the industry, training programs for franchisees and
their employees, advertising and marketing, dissemination of directories of
franchised locations, participation in a national reservations system and
agreements with credit card companies.

Choice also offers its franchisees interior design and decorating
services and purchasing services for hotel furniture, fixtures and supplies.
During 1995, the revenues and expenses of Choice included hotel supplies sales
of $18,227,000 and costs of sales of $13,946,000.

The standard franchise agreement currently offered by Choice for
Clarion Hotels (luxury), Quality Inns and Quality Suites (mid-priced), Comfort
Inns and Comfort Suites (luxury-budget) and Sleep Inns (economy hotels with
standardized design) provides for an initial fee of $300 per guest room with a
$40,000 minimum ($35,000 for Quality). Choice sells Econo Lodge and Rodeway
Inn franchises (economy brands) for an initial fee

<PAGE> 10

of $250 per guest room ($25,000 minimum). In addition, franchisees are
required to pay a royalty fee of 3% to 5% of gross room revenues (depending on
brand) and assessments for reservations and marketing services at rates that
may be changed to reflect inflation and actual costs incurred. The agreement
normally is for a 20-year term.

Choice has discontinued selling new Friendship Inn franchises, and
many existing Friendship Inns have been repositioned to the Rodeway brand.

Choice supplies disclosure statements containing information for
prospective franchisees in accordance with regulations of the Federal Trade
Commission ("FTC"). In addition to the FTC regulations, certain states have
requirements for registration of franchisors and disclosure requirements
similar to the FTC regulations.

Choice and an affiliate of Journey's End Corporation, a Canadian
lodging management company, each own a 50% interest in a corporation that
franchises Choice brands in Canada. Choice also has franchised hotels in more
than 25 other foreign countries, including England, Ireland, Norway, France,
Italy, Germany, India, New Zealand, Australia, Japan, Thailand and Mexico.

As of May 31, 1995, the seven hotel chains comprised 2,835 open and
operating hotels with 245,669 rooms, as set forth below:

<TABLE>
<CAPTION>
United States Foreign
------------------ ------------------
No. of No. of No. of No. of
Hotels Rooms Hotels Rooms
------ ------- ------ -------
<S> <C> <C> <C> <C>
Franchised Only 2,263 192,821 510 43,717
Owned/Managed by Manor Care 48 7,971 14 1,160
----- ------- --- ------

TOTALS 2,311 200,792 524 44,877
===== ======= === ======
</TABLE>

Competition

The above hotels compete with other hotels in nearby locations, some
of which are affiliated with chains that are more widely known or offer
different types of services. Demand for accommodations at both franchised and
company-owned hotels is affected by such factors as the availability of
accommodations in the local area and national and regional economic conditions.
The operation of hotels may be seasonal, with a large percentage of revenues
generated in the summer months.

In the sale of franchises, Choice competes with many other hotel
franchisors, some of which have greater financial resources and offer different
fee structures and franchise services. However, Choice believes that its
continued growth, innovative hotel brands and successful reservations and
marketing services enhance its competitive position.

<PAGE> 11

Employees

As of May 31, 1995, Manor Care employed approximately 27,812 full and
part-time employees, 23,135 of whom were employed in healthcare operations,
4,225 of whom were employed in lodging and franchise operations, and the
remainder in Manor Care's headquarters.

From time to time, some of Manor Care's nursing centers and the
Hospital experience shortages of professional nursing help which may require
Manor Care to seek temporary employees through employment agencies at an
increased cost. Manor Care does not believe that use of these contract
employees has had a material adverse effect on its financial position to date.

A majority of the employees are covered by the federal minimum wage
laws, and a few employees are represented by labor unions. Attempts have been
made from time to time to unionize employees of certain other facilities.
Manor Care believes that it enjoys a good relationship with its employees.

Insurance

Manor Care maintains property insurance on its healthcare and lodging
facilities. Manor Care insures some of its liability exposures and self
insures, either directly or indirectly through insurance arrangements requiring
it to reimburse insurance carriers, some of its liability risks other than
catastrophic exposures. Physicians and dentists practicing at the Hospital are
responsible for their own professional liability insurance coverage. Manor
Care insures its workers' compensation risks in some states and self insures in
others.

ITEM 2. Properties.

As of May 31, 1995, Manor Care owned, leased or managed 179 nursing
and rehabilitation centers in 28 states and one acute care general hospital in
Texas, as indicated below:

<TABLE>
<CAPTION>
Number Number of
Property Of Units Operating Beds
-------- -------- --------------
<S> <C> <C>
Nursing and
Rehabilitation Centers:
Owned 162 21,640
Leased 15 1,984
Managed 2 206
Acute Care Hospital 1 128
--- ------

TOTALS 180 23,958
=== ======
</TABLE>

<PAGE> 12

As of May 31, 1995, Vitalink leased 18 pharmacies in 13 states and its
corporate offices in Naperville, Illinois. As of May 31, 1995, Manor Care
owned or leased 62 hotels consisting of 48 domestic hotels containing 7,971
guest rooms and 14 hotels containing 1,160 rooms located in foreign countries.
Manor Care also owned 15 assisted living centers.

Manor Care owns its three headquarters buildings in Silver Spring,
Maryland; a fourth building in Silver Spring that is used by employees and
leased to third parties; a building in Phoenix, Arizona, that serves as Western
Regional Office of Choice; and several undeveloped parcels. Manor Care also
leases office space as needed to accommodate regional employees.

Forty-eight (48) nursing centers and hotels have been pledged to
secure related mortgage and capital lease obligations.

ITEM 3. Legal Proceedings.

- On September 10, 1985, the U.S. Environmental Protection
Agency sued Healthcare and other defendants in U.S. District Court, District
of New Jersey, seeking clean-up costs at Lipari Landfill. A subsidiary that
Healthcare acquired in its 1981 acquisition of Cenco Incorporated was alleged
to have transported wastes to the landfill in the 1960's. The USEPA and the
defendants have entered into a Consent Decree requiring the defendants to
contribute approximately $52 million for certain clean-up costs. Healthcare's
share of the settlement is approximately $2.6 million, most of which is covered
by insurance. The USEPA is seeking additional funds from the defendants in
connection with a future phase of the clean-up.

- On October 30, 1989, the New Jersey Department of
Environmental Protection sued Manor Care and other defendants in U.S. District
Court, District of New Jersey, seeking clean-up costs at Kramer Landfill where
the Cenco subsidiary allegedly transported wastes. On September 10, 1990,
Transtech Industries, Inc. and other parties sued numerous defendants,
including the Cenco subsidiary, in U.S. District Court, District of New Jersey,
for contribution in connection with clean-up of Kin-Buc Landfill. The State of
New Jersey also has issued administrative directives ordering numerous parties,
including Manor Care as the alleged successor to the Cenco subsidiary, to
contribute to the clean-up of various other landfills.

Manor Care also is subject to other regulatory and legal actions,
investigations or claims for damages that arise from time to time in the
ordinary course of business. Manor Care is defending the claims against it and
believes that these proceedings will not have a material adverse effect on its
financial condition or results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended May 31, 1995.

<PAGE> 13

EXECUTIVE OFFICERS OF MANOR CARE, INC.

The name, age, title, present principal occupation, business address
and other material occupations, positions, offices and employment of each of
the executive officers of Manor Care, Inc. ("Manor Care") are set forth below.
The business address of each executive officer is 10750 Columbia Pike, Silver
Spring, Maryland 20901, unless otherwise indicated.

Stewart Bainum, Jr. (49) Chairman of the Board of Manor Care and
Manor Healthcare Corp. ("Healthcare") since March 1987; Chief Executive Officer
of Manor Care since March 1987 and President since June 1989; Vice Chairman of
the Board of Vitalink Pharmacy Services, Inc. ("Vitalink") since February 1995;
Vice Chairman of the Board of Manor Care and subsidiaries from June 1982 to
March 1987; Director of Manor Care since August 1981, of Vitalink since
September 1991, of Healthcare since 1976 and of Choice Hotels International,
Inc. and its predecessors ("Choice") since 1977; Chief Executive Officer of
Healthcare since June 1989 and President from May 1990 to May 1991; Chairman of
the Board and Chief Executive Officer of Vitalink from September 1991 to
February 1995 and President and Chief Executive Officer from March 1987 to
September 1991; Chairman of the Board of Choice from March 1987 to June 1990.

Stewart Bainum. (76) Vice Chairman of the Board of Manor Care and
subsidiaries since March 1987; Chairman of the Board of Manor Care from August
1981 to March 1987, Chief Executive Officer from July 1985 to March 1987,
President from May 1982 to July 1985; Chairman of the Board of Healthcare from
1968 to March 1987 and a Director since 1968; Director of Vitalink from
September 1991 to September 1994; Chairman of the Board of Choice from 1972 to
March 1987 and a Director since 1963; Chairman of the Board of Realty
Investment Company, Inc. since 1965.

Donald J. Landry. (46) President of Choice since January 1995;
President of Manor Care Hotel Division since March 1992; various executive
positions with Richfield Hotel Management, Inc. and its predecessors for more
than 15 years, including President of MHM Corporation.

Weldon Humphries. (58) Senior Vice President-Real Estate and
Development of Manor Care since August 1981, of Choice since February 1981 and
of Healthcare since December 1980.

James A. MacCutcheon. (43) Senior Vice President, Chief Financial
Officer and Treasurer of Manor Care, Healthcare and Choice since September
1993; Senior Vice President-Finance and Treasurer from October 1987 to
September 1993; Treasurer of Vitalink since September 1992 and a Director since
September 1994; Senior Vice President-Finance and Treasurer and a Director of
Vitalink from October 1987 to September 1991.

James H. Rempe. (65) Senior Vice President, General Counsel and
Secretary of Manor Care since August 1981, of Choice since February 1981 and of
Healthcare since December 1980; Secretary of Vitalink since January 1983 and a
Director since September 1994; Senior Vice President and a Director of Vitalink
from January 1983 to September 1991.

<PAGE> 14

Charles A. Shields. (51) Senior Vice President-Human Resources of
Manor Care since September 1992; Vice President-Human Resources from October
1989 to September 1992.

Leigh C. Comas. (29) Vice President-Finance of Manor Care since
August 1995; Assistant Treasurer since September 1993; Manager of Corporate
Finance from June 1992 to September 1993; previously a business student at
Stanford University Graduate School of Business.

Donald E. Feltman. (40) Vice President-Development of Manor Care
since April 1993; previously employed for five years as Director of Development
of Marriott Corporation's Senior Living Services Division.

Larry R. Godla. (38) Vice President-Construction of Manor Care since
March 1993; Director of Construction from January 1990 to March 1993.

Gary L. Henson. (41) Vice President-Information Resources since
September 1993; Director of Information Resources from April 1993 to September
1993; Director of Data Processing Operations from April 1991 to April 1993;
Director of Corporate Information Systems from December 1988 to April 1991;
various other data processing positions from June 1982 to December 1988.

Alan Marsh. (47) Vice President-Risk Management of Manor Care since
September 1986; Vice President-Administration from November 1984 to September
1986.

Gregory D. Miller. (41) Vice President-Strategic Planning of Manor
Care since May 1992; Vice President-Marketing and Strategic Planning of
Healthcare since March 1995; various planning and marketing positions at
Marriott Corporation for more than five years, including Vice
President-Planning and Business Development for Courtyard by Marriott.

John M. Sabin. (40) Vice President-Finance and Assistant Treasurer
of Manor Care since December 1993; Vice President- Mergers and Acquisitions of
Choice since May 1995; Vice President, Corporate Mergers and Acquisitions at
Marriott Corporation for more than five years.

Margarita Schoendorfer. (46) Vice President-Controller of Manor
Care, Healthcare and Choice since November 1990; Corporate Controller from
April 1986 to November 1990; Assistant Corporate Controller from August 1981 to
April 1986.

Donald C. Tomasso. (50) President, Long-Term Care Division, of
Healthcare since February 1995 and a Director of Healthcare since June 1991;
President and Chief Operating Officer of Healthcare from May 1991 to February
1995; Chairman and Chief Executive Officer of Vitalink since February 1995 and
Vice Chairman from September 1991 to February 1995; previously employed by
Marriott Corporation for more than five years, including as Executive Vice
President/General Manager of the Roy Rogers Division.

<PAGE> 15

Joseph Buckley. (47) President, Assisted Living Division, of
Healthcare since February 1995; Senior Vice President- Information Resources
and Development of Manor Care from June 1990 to February 1995; Vice
President-Information Resources from July 1989 to June 1990; Vice
President-Real Estate from September 1983 to July 1989.

Mark L. Gildea. (43) President, Alternate Site Services Division,
of Healthcare since December 1994; Vice President, Managed Care Marketing, from
December 1993 to December 1994; Executive Vice President of Option Care, Inc.
from October 1992 to December 1993; previously employed by Caremark, Inc. for
over 10 years, including as Area Vice President.

Donna L. DeNardo. (43) President and Chief Operating Officer of
Vitalink since September 1991; Vice President of Healthcare and Vice President
and General Manager of Vitalink from December 1989 to September 1991; various
management positions with Healthcare from 1977 to December 1989 including Senior
Regional Director of Nursing Facility Operations. Business address: 1250 East
Diehl Road, Naperville, Illinois 60563.

Robert C. Hazard, Jr. (60) Co-Chairman of Choice since January 1995
and a Director since December 1980; Chairman from June 1990 to January 1995 and
Chief Executive Officer from December 1980 to January 1995; President from
December 1980 to June 1990.

Gerald W. Petitt. (49) Co-Chairman of Choice since January 1995 and a
Director since December 1980; President from June 1990 to January 1995 and Chief
Operating Officer from December 1980 to January 1995; Executive Vice President
from December 1980 to June 1990.

PART II

ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters.

The shares of Manor Care's Common Stock are listed and traded on the
New York Stock Exchange. Information on the high and low sales prices of Manor
Care's Common Stock during the past two years is included on page 28 of the
1995 Annual Report and is incorporated herein by reference.

As of July 31, 1995, there were 3,131 record holders of Manor Care
Common Stock.

Information required on the frequency and amount of any dividends
declared during the past two years with respect to such Common Stock is
included on page 28 of the 1995 Annual Report and is incorporated herein by
reference.

<PAGE> 16

<TABLE>
<CAPTION>
Pages
-----
<S> <C>
ITEM 6. Selected Financial Data.

The required information is included in the
specified pages of the 1995 Annual Report and
is incorporated herein by reference. 1

ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

The required information is included in the
specified pages of the 1995 Annual Report
and is incorporated herein by reference. 18,23

ITEM 8. Financial Statements and Supplementary Data.

The required information is included in the
specified pages of the 1995 Annual Report
and is incorporated herein by reference. See
Item 14 for index to financial statements 19-22,
and schedules. 24-28

ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.

Not applicable.

PART III

ITEM 10. Directors and Executive Officers of the
Registrant.

The required information on directors is
included in the specified pages of the Proxy
Statement dated August 28, 1995 and is
incorporated herein by reference. 3,5

The required information on executive officers
is set forth in Part I of this Form 10-K under
an unnumbered item captioned "Executive Officers
of Manor Care, Inc."

ITEM 11. Executive Compensation.

The required information is included in the
specified pages of the Proxy Statement dated
August 28, 1995 and is incorporated herein by
reference. 8-13
</TABLE>

16
<PAGE> 17

<TABLE>
<S> <C> <C>
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management.

The required information is included in the
specified pages of the Proxy Statement dated
August 28, 1995 and is incorporated herein by
reference. 3-4

ITEM 13. Certain Relationships and Related Transactions.

The required information is included in the
specified pages of the Proxy Statement dated
August 28, 1995 and is incorporated herein by
reference. 19
</TABLE>

PART IV
<TABLE>
<S> <C> <C>
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.

(a) 1. Financial Statements

Included on the following pages of the 1995 Annual
Report:

Consolidated Statements of Income . . . . . . . . . . 19

Consolidated Balance Sheets . . . . . . . . . . . . . 20

Consolidated Statements of Stockholders' Equity . . . 21

Consolidated Statements of Cash Flows . . . . . . . . 22

Management's Report and Report of
Independent Public Accountants . . . . . . . . . . 24

Notes to Consolidated Financial Statements. . . . . . 25-28

2. Financial Statement Schedules

The following Report and Schedule are filed herewith
on the pages indicated:

Report of Independent Public Accountants 21

Schedule II - Valuation and Qualifying Accounts 22

</TABLE>

<PAGE> 18

3. Exhibits

<TABLE>
<S> <C> <C>
3.1 - Articles of Incorporation, as amended. Exhibit 3.1 to Form 10-Q for the quarter ended August 31,
1994 is incorporated herein by reference.

3.2 - By-Laws, as amended. Exhibit 3.2 to Form 10-K for the year ended May 31, 1988 is incorporated
herein by reference.

4.1 - Indenture dated as of November 15, 1992 covering 9-1/2% Senior Subordinated Notes due 2002 between
Manor Care, Inc. and Chemical Bank. Exhibit 4.1 to Registration Statement No. 33-52734 is
incorporated herein by reference.

10.1 - Supplemental Executive Retirement Plan. Exhibit 10.2 to Form 10-K for the year ended May 31, 1986
is incorporated herein by reference.

10.2 - Form of Executive Cash Incentive Plan.

10.3 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc.
and Robert C. Hazard, Jr. Exhibit 10.4 to Form 10-K for the year ended May 31, 1986 is
incorporated herein by reference.

l0.4 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc.
and Gerald W. Petitt. Exhibit 10.5 to Form 10-K for the year ended May 31, 1986 is incorporated
herein by reference.

10.5 - Second Amendment to Employment Agreement dated as of May 30, 1990 between Quality Inns
International, Inc. and Robert C. Hazard, Jr. Exhibit 10.11 to Form 10-K for the year ended May
31, 1990 is incorporated herein by reference.

10.6 - Second Amendment to Employment Agreement dated as of May 30, 1990 between Quality Inns
International, Inc. and Gerald W. Petitt. Exhibit 10.12 to Form 10-K for the year ended May 31,
1990 is incorporated herein by reference.

10.7 - Shareholders Agreement dated as of November 12, 1980, as amended, among Manor Care, Inc., Robert
C. Hazard, Jr. and Gerald W. Petitt. Exhibit 10.13 to Form 10-K for the year ended May 31, 1990
is incorporated herein by reference.
</TABLE>

<PAGE> 19

<TABLE>
<S> <C> <C>
10.8 - Employment Agreement dated February 17, 1992 between Manor Care, Inc. and Donald J. Landry.
Exhibit 10.15 to Form 10-K for the year ended May 31, 1992 is incorporated herein by reference.

10.9 - Directors Retirement Plan. Exhibit 10.16 to Form 10-K for the year ended May 31, 1992 is
incorporated herein by reference.

10.10 - Key Executive Stock Option Plan of 1993. Annex A to the Proxy Statement dated August 20, 1993 is
incorporated herein by reference.

10.11 - Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan. Exhibit A to
the Proxy Statement dated August 10, 1994 is incorporated herein by reference.

10.12 - Third Amendment to Employment Agreement dated as of December 20, 1994 between Choice Hotels
International, Inc. and Robert C. Hazard, Jr.

10.13 - Third Amendment to Employment Agreement dated as of December 20, 1994 between Choice Hotels
International, Inc. and Gerald W. Petitt.

10.14 - Third Amendment to Shareholders Agreement dated as of December 20, 1994 among Manor Care, Inc.,
Robert C. Hazard, Jr. and Gerald W. Petitt.

10.15 - Employment Agreement dated April 27, 1995 between Manor Healthcare Corp. and Mark Gildea.

10.16 - Employment Agreement dated June 5, 1995 between Vitalink Pharmacy Services, Inc. and Donna L.
DeNardo.

10.17 - Master Aircraft Lease Agreement dated September 1, 1994 between Manor Care, Inc. and Wilderness
Investment Company, Inc.

13 - 1995 Annual Report to Stockholders (information incorporated by reference).

21 - Subsidiaries of the Registrant.

23 - Consent of Independent Public Accountants.

27 - Financial Data Schedule.

99 - Proxy Statement dated August 28, 1995.
</TABLE>

(b) No report on Form 8-K was filed during the last quarter of the fiscal
year ended May 31, 1995.

<PAGE> 20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Dated: August 28, 1995 MANOR CARE, INC.

By:/s/ James A. MacCutcheon
-----------------------------
James A. MacCutcheon
Senior Vice President-
Finance and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stewart Bainum, Jr. Chairman, Director, August 28, 1995
------------------------------ President and Chief
Stewart Bainum, Jr. Executive Officer

/s/ Stewart Bainum Vice Chairman August 28, 1995
------------------------------ and Director
Stewart Bainum

/s/ Jack R. Anderson Director August 28, 1995
------------------------------
Jack R. Anderson

/s/ Regina E. Herzlinger Director August 28, 1995
------------------------------
Regina E. Herzlinger

/s/ William H. Longfield Director August 28, 1995
------------------------------
William H. Longfield

/s/ Frederic V. Malek Director August 28, 1995
------------------------------
Frederic V. Malek

/s/ Jerry E. Robertson Director August 28, 1995
------------------------------
Jerry E. Robertson

/s/ Margarita Schoendorfer Vice President- August 28, 1995
------------------------------ Corporate Controller
Margarita Schoendorfer
</TABLE>

<PAGE> 21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SHAREHOLDERS OF MANOR CARE, INC.:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Manor Care, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated June 20, 1995. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index in Item 14(a)2 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

Washington, D.C.,
June 20, 1995

<PAGE> 22

Schedule II

MANOR CARE, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

(in thousands of dollars)

<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Profit End
Description of Period and Loss Other Write-Offs of Period
----------- ---------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1995
Allowance for doubtful accounts $24,431 $13,493 $ - $(14,925) $22,999
======= ======= ====== ======== =======

Allowance for doubtful long-
term notes receivable $ 0 $ - $ - $ - $ -
======= ======= ====== ======== =======

Year ended May 31, 1994
Allowance for doubtful accounts $16,501 $13,923 $3,434(A) $ (9,427) $24,431
======= ======= ====== ======== =======

Allowance for doubtful long-
term notes receivable $ 315 $ - $ - $ (315) $ 0
======= ======= ====== ======== =======

Year ended May 31, 1993
Allowance for doubtful accounts $18,349 $ 9,394 $ - $(11,242) $16,501
======= ======= ====== ======== =======

Allowance for doubtful long-
term notes receivable $ 315 $ - $ - $ - $ 315
======= ======= ====== ======== =======
</TABLE>

(A) Represents reserves of acquired companies.

<PAGE> 23

EXHIBIT INDEX

<TABLE>
<S> <C> <C>
3.1 - Articles of Incorporation, as amended. Exhibit 3.1 to Form 10-Q for the quarter ended August 31, 1994 is
incorporated herein by reference.

3.2 - By-Laws, as amended. Exhibit 3.2 to Form 10-K for the year ended May 31, 1988 is incorporated herein by reference.

4.1 - Indenture dated as of November 15, 1992 covering 9-1/2% Senior Subordinated Notes due 2002 between Manor Care, Inc.
and Chemical Bank. Exhibit 4.1 to Registration Statement No. 33-52734 is incorporated herein by reference.

10.1 - Supplemental Executive Retirement Plan. Exhibit 10.2 to Form 10-K for the year ended May 31, 1986 is incorporated
herein by reference.

10.2 - Form of Executive Cash Incentive Plan.

10.3 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc. and Robert C.
Hazard, Jr. Exhibit 10.4 to Form 10-K for the year ended May 31, 1986 is incorporated herein by reference.

10.4 - Employment Agreement dated November 12, 1980, as amended, between Quality Inns International, Inc. and Gerald W.
Petitt. Exhibit 10.5 to Form 10-K for the year ended May 31, 1986 is incorporated herein by reference.

10.5 - Second Amendment to Employment Agreement dated as of May 30, 1990 between Quality Inns International, Inc. and
Robert C. Hazard, Jr. Exhibit 10.11 to Form 10-K for the year ended May 31, 1990 is incorporated herein by
reference.

10.6 - Second Amendment to Employment Agreement dated as of
May 30, 1990 between Quality Inns International, Inc. and Gerald W. Petitt. Exhibit 10.12 to Form 10-K for the
year ended May 31, 1990 is incorporated herein by reference.

10.7 - Shareholders Agreement dated as of November 12, 1980, as amended, among Manor Care, Inc., Robert C. Hazard, Jr. and
Gerald W. Petitt. Exhibit 10.13 to Form 10-K for the year ended May 31, 1990 is incorporated herein by reference.
</TABLE>

<PAGE> 24

EXHIBIT INDEX Continued

<TABLE>
<S> <C> <C>
10.8 - Employment Agreement dated February 17, 1992 between Manor Care, Inc. and Donald J. Landry. Exhibit 10.15 to Form
10-K for the year ended May 31, 1992 is incorporated herein by reference.

10.9 - Directors Retirement Plan. Exhibit 10.16 to Form 10-K for the year ended May 31, 1992 is incorporated herein by
reference.

10.10 - Key Executive Stock Option Plan of 1993. Annex A to the Proxy Statement dated August 20, 1993 is incorporated
herein by reference.

10.11 - Non-Employee Director Stock Option and Deferred Compensation Stock Purchase Plan. Exhibit A to the Proxy Statement
dated August 10, 1994 is incorporated herein by reference.

10.12 - Third Amendment to Employment Agreement dated as of December 20, 1994 between Choice Hotels International, Inc. and
Robert C. Hazard, Jr.

10.13 - Third Amendment to Employment Agreement dated as of December 20, 1994 between Choice Hotels International, Inc. and
Gerald W. Petitt.

10.14 - Third Amendment to Shareholders Agreement dated as of December 20, 1994 among Manor Care, Inc., Robert C. Hazard,
Jr. and Gerald W. Petitt.

10.15 - Employment Agreement dated April 27, 1995 between Manor Healthcare Corp. and Mark Gildea.

10.16 - Employment Agreement dated June 5, 1995 between Vitalink Pharmacy Services, Inc. and Donna L. DeNardo.

10.17 - Master Aircraft Lease Agreement dated September 1, 1994 between Manor Care, Inc. and Wilderness Investment Company,
Inc.

13 - 1995 Annual Report to Stockholders (information incorporated by reference).

21 - Subsidiaries of the Registrant.

23 - Consent of Independent Public Accountants.

27 - Financial Data Schedule.

99 - Proxy Statement dated August 28, 1995.
</TABLE>

<PAGE> 1
EXHIBIT 10.2

FY 1996
MANOR CARE, INC.
EXECUTIVE CASH INCENTIVE PLAN

I. NAME OF PLAN

The name of the Plan is "The Manor Care, Inc. Executive Cash
Incentive Plan," hereinafter referred to as the "Plan."

II. EFFECTIVE DATE OF PLAN

The effective date of this Plan shall be June 1, 1995.

III. RESPONSIBILITIES

A. Board of Directors

Review and approve incentive compensation programs as
recommended by the Compensation/Key Executive Stock
Option Plan Committee.

B. Compensation/Key Executive Stock Option Plan
Committee

1. Ensure that the Company's Cash Incentive Plan
is consistent with public policy and is in
the Company's best interest.

2. Review and approve participants in the Plan.

3. Review and approve maximum incentive
opportunity of participants.

C. Chairman

Review and recommend participants in the Plan.

IV. ADMINISTRATION

The Plan shall be administered by the Compensation/Key
Executive Stock Option Plan Committee. Any decision of the
Committee regarding the application and/or interpretation of
the provisions of the Plan shall be final. The Committee, for
purposes of administering the Plan, shall be composed of not
less than three members of the Board of Directors, none of
whom shall be a participant in the Plan.
<PAGE> 2
V. ELIGIBILITY FOR PARTICIPATION

1. The following position has been recommended by the
Chairman and approved by the Committee as a
participant in the Plan with individual maximum
incentive opportunity as listed below:

Chairman.......................................60%
Senior Vice President Finance..................50%
Senior Vice President General Counsel..........50%
Senior Vice President Human Resources..........50%
Vice President Risk Management.................35%
Vice President Controller......................35%
Vice President Information Resources...........35%
Vice President Finance & Asst. Treasurer.......35%

2. Personnel must be employees of the Company at the
beginning of the Plan year except that the Chairman
has the authority to make exceptions to include an
executive joining the Company, or assuming a
participating position, after the beginning of the
Plan year.

The salary of a participant joining the Plan after
the beginning of the Plan year will be computed by
multiplying his weekly salary by the number of weeks
he actually participated in the Plan year.
<PAGE> 3

VI. FUNDING

FY 1996
MANOR CARE, INC.
CHAIRMAN / CEO
60% BONUS MAXIMUM
% Salary Earned as Bonus

<TABLE>
<CAPTION>
Company Overall
FY '96 % Salary Weighted Average % Salary
ROBE Earned as Customer Satisfaction Earned as
% Budget Targets Bonus Improvement Bonus
-------- ------- --------- --------------------- ---------
<S> <C> <C> <C> <C>
110% 19.0% 60.0% 5% + 10.0%
109% 18.9% 57.5% 3.51% - 5% 8.8%
108% 18.7% 55.0% 2.51% - 3.5% 7.5%
107% 18.5% 50.2% 1.51% - 2.5% 6.3%
106% 18.3% 45.3% 0% - 1.5% 5.0%
105% 18.2% 40.4% Less than 0% 0.0%
104% 18.0% 35.5%
103% 17.8% 30.6%
102% 17.7% 25.8%
101% 17.5% 20.9%
100% 17.3% 16.0%
99% 17.1% 13.0%
98% 17.0% 10.0%
97% 16.8% 7.0%
96% 16.6% 4.0%
95% 16.4% 2.0%
</TABLE>

Cliff:
(ROBE) Return on Beginning Equity must equal or exceed 16.4% in 1996 for
participant to receive a bonus payment.

NOTES:

Return on Beginning Equity = Net Income Before Capital Gains or Losses and
Extraordinary Items divided by Beginning Equity

<PAGE> 4
VI. FUNDING

FY 1996
MANOR CARE, INC.
SENIOR VICE PRESIDENT FINANCE
SENIOR VICE PRESIDENT GENERAL COUNSEL
SENIOR VICE PRESIDENT HUMAN RESOURCES
50% BONUS MAXIMUM
% Salary Earned as Bonus

<TABLE>
<CAPTION>
Company Overall
FY '96 % Salary Weighted Average % Salary
ROBE Earned as Customer Satisfaction Earned as
% Budget Targets Bonus Improvement Bonus
-------- ------- --------- --------------------- ---------
<S> <C> <C> <C> <C>
110% 19.0% 50.0% 5% + 10.0%
109% 18.9% 47.5% 3.51% - 5% 8.8%
108% 18.7% 45.0% 2.51% - 3.5% 7.5%
107% 18.5% 41.4% 1.51% - 2.5% 6.3%
106% 18.3% 37.8% 0% - 1.5% 5.0%
105% 18.2% 34.2% Less than 0% 0.0%
104% 18.0% 30.5%
103% 17.8% 26.9%
102% 17.7% 23.3%
101% 17.5% 19.6%
100% 17.3% 16.0%
99% 17.1% 13.0%
98% 17.0% 10.0%
97% 16.8% 7.0%
96% 16.6% 4.0%
95% 16.4% 2.0%
</TABLE>

Cliff:
(ROBE) Return on Beginning Equity must equal or exceed 16.4% in 1996 for
participant to receive a bonus payment.

NOTES:

Return on Beginning Equity = Net Income Before Capital Gains or Losses and
Extraordinary Items divided by Beginning Equity

<PAGE> 5

VI. FUNDING

FY 1996
MANOR CARE, INC.
VICE PRESIDENT RISK MANAGEMENT
VICE PRESIDENT CONTROLLER
VICE PRESIDENT INFORMATION RESOURCES
VICE PRESIDENT FINANCE & ASST. TREASURER
35% BONUS MAXIMUM
% Salary Earned as Bonus

<TABLE>
<CAPTION>
Company Overall
FY '96 % Salary Weighted Average % Salary
ROBE Earned as Customer Satisfaction Earned as
% Budget Targets Bonus Improvement Bonus
-------- ------- --------- --------------------- ---------
<S> <C> <C> <C> <C>
110% 19.0% 35.0% 5% + 10.0%
109% 18.9% 32.5% 3.51% - 5% 8.8%
108% 18.7% 30.0% 2.51% - 3.5% 7.5%
107% 18.5% 28.3% 1.51% - 2.5% 6.3%
106% 18.3% 26.5% 0% - 1.5% 5.0%
105% 18.2% 24.8% Less than 0% 0.0%
104% 18.0% 23.0%
103% 17.8% 21.3%
102% 17.7% 19.5%
101% 17.5% 17.8%
100% 17.3% 16.0%
99% 17.1% 13.0%
98% 17.0% 10.0%
97% 16.8% 7.0%
96% 16.6% 4.0%
95% 16.4% 2.0%
</TABLE>

Cliff:
(ROBE) Return on Beginning Equity must equal or exceed 16.4% in 1996 for
participant to recive a bonus payment.

NOTES:

Return on Beginning Equity = Net Income Before Capital Gains or Losses and
Extraordinary Items divided by Beginning Equity

<PAGE> 6
VII. TIME OF PAYMENT

Payment to participants shall be in cash following the first
Board of Directors Meeting after the independent auditors have
certified on the annual audit of the Company's accounts for
such year.

VIII. PAYMENT UPON TERMINATION OR TRANSFER OF EMPLOYMENT

A. In order to receive any portion of an Incentive
award, the participant must be employed at the time
any portion of the award is paid as outlined in VII,
except in cases of death, disability or retirement.

B. In the event of the death, disability or retirement
of a participant after the end of the fiscal year but
before awards are paid, the award will be paid to the
participant's beneficiary or as designated on the
insurance card as otherwise designated by will in the
case of death, or in full to the participant in the
case of retirement.

C. Participants who become disabled, die or retire
during the fiscal year shall be entitled to a prorata
share of his or her incentive award upon a review and
approval by the Compensation/Key Executive Stock
Option Plan Committee.

D. In the event of the transfer of a participating
employee during the fiscal year to another, non-
participating position within the Company, the award
for the year will be prorated to date of transfer.

IX. OPTIONAL DEFERRAL OF INCENTIVE COMPENSATION

A Participant may elect by written notice to defer payment on
all or a portion of the incentive award for any year, subject
to the following conditions:

A. Such election shall be irrevocable and no election to
defer any installment may be made later than May 31st
of the fiscal year for which the incentive award is
computed.

B. The Company shall credit to a liability account (the
"Deferred Compensation Account") established for this
purpose amounts of money so deferred.

C. There shall be credited to the Deferred Compensation
Account an additional amount (i.e., in addition to
the principal amounts credited to such account
pursuant to paragraph A hereof) equal to
<PAGE> 7
the weighted average interest which would have been
earned on such average monthly principal amounts at
the end of each month as if such amounts had earned
the same rate of interest the Company earns on its
other cash investments. Such interest will be
compounded annually from the date such amounts were
credited to the Deferred Compensation Account until
paid out in its entirety. In no event will such
interest rate be less than the average one-year
Treasury Bill Rate.

D. The Company will provide an annual statement of the
Deferred Compensation Account to each participating
employee showing amounts of salary deferred and
additional amounts credited to his account in
accordance with paragraph C.

E. Upon the termination of employment of a participant,
the Company shall pay such participant his Deferred
Compensation Account in one lump sum payment as soon
after his termination of employment as is
administratively feasible unless such participant had
previously made an election, at least sixty (60) days
prior to the effective date of such termination of
employment, to receive his Deferred Compensation
Account in the form of installment payments. At
least sixty (60) days prior to his termination of
employment, a participant may make an irrevocable
election to receive his Deferred Compensation Account
in the form of installment payments over a period of
time designated by the participant but in no event to
exceed twenty (20) years. In the event that the
installment method of payment is selected, the
participant will further designate whether
installment payments are to be made on a monthly,
quarterly, semi-annual or annual basis. During the
period of installment distributions, the Deferred
Compensation Account will be credited with an
earnings factor computed pursuant to the principles
described in Paragraph C, above. In the event that a
participant dies after having made an installment
election but prior to the receipt of all installment
payments, thereunder, the remaining payments will be
made to the participant's beneficiary through the
remaining duration of the elected installment period,
unless the participant has provided in such
installment election for a different form of payment
to the participant's beneficiary in the event of the
death of the participant, in which event such
different form of payment shall be made to the
participant's beneficiary. The computation of the
amount of a lump sum payment or the amount of an
installment
<PAGE> 8
payment shall be made by reference to the balance of
the Deferred Compensation Account as of the date of
the distribution. Payments shall be contingent upon
the participant not engaging in employment or
business operations in a competing entity within 25
miles of his previous work location.

F. Where the employee's death occurs prior to making his
election, payments of compensation deferred shall be
made in such manner determined by the beneficiary.

G. If both the employee and his designated beneficiary
should die, the total amount standing to his credit
in the Deferred Compensation Account shall be
determined as of the date of the death of the
designated beneficiary (including any additional
amounts credited to such Account pursuant to
paragraph C) and shall be paid as promptly as
possible in one lump sum to the estate of such
designated beneficiary.

H. Payments will be made to the employee or beneficiary
after deducting taxes required by federal and/or
state governments.

I. An employee, with the consent of the Company, shall
be permitted to withdraw at any time, in the case of
a real emergency beyond the employee's control, that
portion of the amount of his deferred compensation
withheld by the employer limited to the amount
necessary to meet such emergency situation and which,
if not withdrawn, would otherwise cause undue
hardship to the employee.

J. Nothing contained in this Plan and no action taken
pursuant to the provisions of this Plan shall create
or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and the
employee, his designated beneficiary or any other
person. Any compensation deferred under the
provisions of this Plan shall continue for all
purposes to be a part of the general funds of the
Company. To the extent that any person acquires a
right to receive payments from the Company under this
Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company.

K. The right of the Company or any other person to the
payment of deferred compensation or other benefits
under this Plan shall not be assigned, transferred,
pledged, or encumbered except by will or by the laws
of descent and distribution.
<PAGE> 9

L. Nothing contained herein shall be construed as
conferring upon the employee the right to continue in
the employ of the Company as an executive or in any
other capacity.

M. This paragraph IX shall be binding upon and inure to
the benefit of the Company and its subsidiaries, its
successors and assigns and the employee and his
heirs, executors, administrators and legal
representatives.

N. In the event of a change of control of the Company,
deferred compensation, including accrued interest,
shall be immediately paid to the employee. A "change
of control" shall mean (i) a merger or consolidation
in which the Company is not the surviving corporation
or (ii) the acquisition of twenty-five percent or
more of the voting securities of the Company by a
person, group, or entity or (iii) the sale of all or
substantially all of the assets of the Company or
(iv) individuals who were members of the Board
immediately prior to a meeting of the stockholders of
the Company involving a contest for the election of
Directors do not constitute a majority of the Board
immediately following such election, unless that
election of such new Directors was recommended to the
stockholders by management of the Company.

X. PLAN TERMINATION/MODIFICATION

This Plan shall continue in effect until such time as it may
be cancelled or otherwise terminated by the Board. The Board
reserves the right to amend, alter or modify this Plan.
<PAGE> 10
I have received a copy of the Manor Care, Inc. Executive Cash Incentive Plan
for FY 96.

--------------------------------
NAME (PRINTED)

--------------------------------
SIGNATURE

--------------------------------
DATE

Please sign and return only this page to:

Simon Choy
Corporate Compensation

<PAGE> 1
EXHIBIT 10.12

THIRD AMENDMENT
TO EMPLOYMENT AGREEMENT

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of December 20,
1994, by and between CHOICE HOTELS INTERNATIONAL, INC., (formerly Quality Inns
International, Inc., "Choice"), a Delaware corporation having an address at
10750 Columbia Pike, Silver Spring, Maryland and ROBERT C. HAZARD, JR.
("Hazard"), an individual having an address at 9732 Beman Woods Way, Potomac,
Maryland.

RECITALS:

A. Choice and Hazard are parties to a certain employment
agreement (the "Original Employment Agreement") dated as of November 12, 1980.

B. The Original Employment Agreement was (i) amended by a certain
amendment to employment agreement dated as of February 5, 1985 and (ii) amended
by a certain second amendment to employment agreement dated as of May 30, 1990
(the Original Employment Agreement, as so amended, the "Employment Agreement").

C. Choice and Hazard desire to amend the Employment Agreement as
set forth herein.

AGREEMENT:

The parties hereto agree as follows:

1. The words "Chairman and Chief Executive Officer" are replaced
with the words "Co-Chairman of the Board of Directors" throughout the
Employment Agreement.

2. The first three paragraphs of Section 3 of the Employment
Agreement are hereby deleted in their entirety and the following is substituted
in their place:

"3. Duties. Mr. Hazard, in his position as Co-Chairman
of the Board of Directors, shall have the following duties, all of
which shall be commensurate with his senior status with Employer: (i)
chair meetings of the Board of Directors of Employer and of any newly
spun off entity described in Section 19; (ii) research and make
recommendations with respect to new business opportunities, (iii)
consult in preparation of presentation to franchisees and potential
franchisees, (iv) consult and provide a historical perspective on the
operation of the business with respect to reservation systems,
advertising, marketing, international expansion and franchise services
and relations, (v) representation of Employer in industry
associations, governmental relations and hotel

<PAGE> 2

industry or franchise industry affairs, (vi) advice on reorganization
issues and assistance in spin off planning, and (vii) such other duties
as Mr. Hazard and Employer shall agree upon. Notwithstanding any other
provision in this Agreement, Mr. Hazard shall have the right to serve
on boards of directors of entities whose business is not competitive
with that of Employer, and to pursue other non-competitive business
interests and shall have the right to select the primary location in
which he will perform his duties from among those cities in which
Employer has offices."

3. The last sentence of Section 3 of the Employment Agreement is
hereby deleted in its entirety.

4. Section 10 is hereby deleted in its entirety and the following
is substituted in its place:

"Section 10. Termination. If Employer terminates this Agreement
without Cause (as defined below), Employer shall give Employee at least
ninety (90) days written notice thereof and shall be obligated to
continue to pay Employee his basic compensation, including any cost of
living adjustments provided for in Section 4 of this Agreement and the
incentive compensation provided for in Section 5 of this Agreement
earned through May 31, 1996. This will not constitute a waiver of any
of Employer's rights to claim mitigation of damages. Also, Employer
shall pay all expenses incurred by Employee in moving his immediate
family currently residing with him to any location in the United
States.

"Cause" for purposes of this Agreement means (i) acts of embezzlement
or fraud, or (ii) deliberate and repeated failures to perform duties
or obligations under this Agreement, having an adverse effect on the
business of Employer, or (iii) deliberate violation of Section 18 of
this Agreement during the period of employment under this Agreement
which has the purpose and effect of inducing any management or key
employee of any of the Companies to leave Employer's employment for
employment with a business which Employee has a material financial or
management interest, or (iv) deliberate violation of Section 11 of
this Agreement during the period of employment under this Agreement
which causes significant harm to Employer, and which, in the case of
acts proscribed by clauses (ii), (iii) and (iv) above, shall not have
been remedied by Employee within a reasonable time after notice
thereof shall have been given by Employer.

In the event of termination of this Agreement for Cause, Employer
shall not be obligated to pay any compensation for any period after the
date of termination, but Employer shall be obligated to pay all basic
and incentive compensation earned up to and including the date of
termination.

2
<PAGE> 3
The foregoing provisions of this Section shall not be
construed as Employer's exclusive remedy in the event of conduct by
Employee constituting Cause, and, in the event of any termination
hereunder, Employer shall be entitled to invoke any and all other
remedies which may be available under applicable law.

Upon the termination of this Agreement by Employer without
Cause, Employer will take such steps as are necessary to provide
Employee with any pension benefits to which Employee would have been
entitled if he had remained in the employ of Employer through May 31,
1996 and, with respect to any stock options (for stock of Manor Care,
Inc. or the newly spun off entity referred to in Section 19 of this
Agreement) which have not become exercisable prior to such termination
but which would have become exercisable on or before May 31, 1996 if
Employee had remained in the employ of Employer through that date.
Employer will pay to Employee the value of such options as promptly as
practicable after the date of termination. Such value, as to each
option, will be the excess, if any, of the market value of the stock
for which the option was granted over the exercise price. Such market
value will be the closing price of the stock on the date of
termination as reported in the consolidated reporting system, or if
closing prices of such stock are not so reported, the average of bid
and asked prices on the date of termination. If the date of
termination is not a business day on which the New York Stock Exchange
is open for trading, market value will be determined as of the most
nearly preceding business day.

Within five years after the termination or expiration of this
Agreement for any reason other than Cause, Employer shall grant
Employee two hotel franchises for any one of Employer's hotel brands,
the brand to be selected by Employee, it being understood, however,
that the site for such hotel shall be subject to approval by
Employer's management committee, which approval shall not be
unreasonably withheld. The franchise agreement shall contain the then
current terms for said brand, except that there shall be no initial
fee to be paid by the Employee and there shall be no royalty fee due
and payable for the first five years of said agreement."

5. A new Section 18 is hereby added to the Employment Agreement
as follows:

"18. Non-Solicitation of Employees. Employee agrees that, for
twelve months after ceasing to be employed hereunder, Employee shall
not, without the prior written consent of Employer, directly or
indirectly, solicit the employment, consulting or other services of
any employees of Employer or of any of the subsidiaries thereof
(collectively, the "Companies") or otherwise induce any of such
employees to

3
<PAGE> 4
leave Employer's employment or to breach any employment agreement with
any of the Companies; provided, however, that, Employee shall be
permitted to engage in such solicitation during such twelve month
period with respect to no more than three (3) employees of the
Companies that are so employed on the date hereof. In addition,
during the term of this Agreement, Employee shall not, without the
prior written consent of Employer, have any conversations with
existing employees of the Companies or otherwise take any actions in
furtherance of any plan or arrangement to induce any employees of any
of the Companies to leave Employer's employment."

6. A new Section 19 is hereby added to the Employment Agreement
as follows:

"19. Spin Off Transaction. In the event that a Spin Off
Transaction (as defined in that certain shareholders agreement by and
among Manor Care, Inc., Robert C. Hazard, Jr. and Employee dated as of
November 12, 1980, and amended and modified as of February 5, 1985, as
of May 30, 1990, as of December 21, 1990 and as of the date hereof)
shall be consummated, Employee shall be employed by the newly spun of
entity as Co-Chairman of its Board of Directors and Employee shall
have the duties described in Section 3 of this Agreement."

7. Except as specifically amended hereby, each of the terms,
covenants and conditions of the Employment Agreement shall remain in full force
and effect.

8. This amendment may be delivered and executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same agreement.

9. Employer represents that this amendment has been duly
authorized by all requisite corporate action on the part of Employer.

IN WITNESS WHEREOF, the parties hereto have caused this amendment to
be duly executed and delivered on the day and year first above written.

CHOICE HOTELS INTERNATIONAL, INC.

By: /s/ James H. Rempe
-------------------------------
Name: James H. Rempe
Title: Sr. V.P.

/s/ Robert C. Hazard, Jr.
-----------------------------------
ROBERT C. HAZARD, JR.

<PAGE> 1
EXHIBIT 10.13

THIRD AMENDMENT
TO EMPLOYMENT AGREEMENT

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of December 20,
1994, by and between CHOICE HOTELS INTERNATIONAL, INC., (formerly Quality Inns
International, Inc., "Choice"), a Delaware corporation having an address at
10750 Columbia Pike, Silver Spring, Maryland and GERALD W. PETITT ("Petitt"),
an individual having an address at 7105 Natelli Woods Lane, Bethesda, Maryland.

RECITALS:

A. Choice and Petitt are parties to a certain employment
agreement (the "Original Employment Agreement") dated as of November 12, 1980.

C. Choice and Petitt desire to amend the Employment Agreement as
set forth herein.

AGREEMENT:

The parties hereto agree as follows:

1. The words "President and Chief Operating Officer" are replaced
with the words "Co-Chairman of the Board of Directors" throughout the
Employment Agreement.

2. The first three paragraphs of Section 3 of the Employment
Agreement are hereby deleted in their entirety and the following is substituted
in their place:

"3. Duties. Mr. Petitt, in his position as Co-Chairman
of the Board of Directors, shall have the following duties, all of
which shall be commensurate with his senior status with Employer: (i)
chair meetings of the Board of Directors of Employer and of any newly
spun off entity described in Section 19; (ii) research and make
recommendations with respect to new business opportunities, (iii)
consult in preparation of presentation to franchisees and potential
franchisees, (iv) consult and provide a historical perspective on the
operation of the business with respect to reservation systems,
advertising, marketing, international expansion and franchise services
and relations, (v) representation of Employer in industry
associations, governmental relations and hotel industry or franchise
industry affairs, (vi) advice on
<PAGE> 2
reorganization issues and assistance in spin off planning, and (vii)
such other duties as Mr. Petitt and Employer shall agree upon.
Notwithstanding any other provision in this Agreement, Mr. Petitt
shall have the right to serve on boards of directors of entities whose
business is not competitive with that of Employer, and to pursue other
non-competitive business interests and shall have the right to select
the primary location in which he will perform his duties from among
those cities in which Employer has offices."

3. The last sentence of Section 3 of the Employment Agreement is
hereby deleted in its entirety.

4. Section 10 is hereby deleted in its entirety and the following
is substituted in its place:

In the event of termination of this Agreement for Cause,
Employer shall not be obligated to pay any compensation for any period
after the date of termination, but Employer shall be obligated to pay
all basic and incentive compensation earned up to and including the
date of termination.

5. A new Section 18 is hereby added to the Employment Agreement as
follows:

"18. Non-Solicitation of Employees. Employee agrees that, for
twelve months after ceasing to be employed hereunder, Employee
shall not, without the prior written consent of Employer,
directly or indirectly, solicit the employment, consulting or
other services of any employees of Employer or of any of the
subsidiaries thereof (collectively, the 'Companies') or
otherwise induce any of such employees to

6. A new Section 19 is hereby added to the Employment Agreement
as follows:

7. Except as specifically amended hereby, each of the terms,
covenants and conditions of the Employment Agreement shall remain in full force
and effect.

9. Employer represents that this amendment has been duly
authorized by all requisite corporate action on the part of Employer.

IN WITNESS WHEREOF, the parties hereto have caused this amendment to
be duly executed and delivered on the day and year first above written.

CHOICE HOTELS INTERNATIONAL, INC.

By: /s/ James H. Rempe
-------------------------------
Name: James H. Rempe
Title: Sr. V.P.

/s/ Gerald W. Petitt
-----------------------------------
GERALD W. PETITT

<PAGE> 1

EXHIBIT 10.14

THIRD AMENDMENT
TO SHAREHOLDERS AGREEMENT

THIRD AMENDMENT TO SHAREHOLDERS AGREEMENT, dated as of
December 20, 1994, by and among MANOR CARE, INC.("Manor"), a Delaware
corporation having an address at 10750 Columbia Pike, Silver Spring, Maryland,
ROBERT C. HAZARD, JR. ("Hazard"), an individual having an address at 9732 Beman
Woods Way, Potomac, Maryland and GERALD W. PETITT ("Petitt"), an individual
having an address at 7105 Natelli Woods Lane, Bethesda, Maryland.

RECITALS

A. Manor (successor in interest to Quality Inns, Inc.
(formerly Quality Inns International, Inc.)), Hazard and Petitt are parties to
a certain shareholders agreement (the "Original Shareholders Agreement"), dated
as of November 12, 1980.

B. The Original Shareholders Agreement was (i) amended
by a certain amendment to shareholders agreement dated as of February 5, 1985,
(ii) amended by a certain second amendment to shareholders agreement dated as
of May 30, 1990 and (iii) modified by a certain modification agreement dated as
of December 21, 1990 (the Original Shareholders Agreement, as so amended and
modified, the "Shareholders Agreement").

C. Manor, Hazard and Petitt desire to amend the
Shareholders Agreement as set forth herein.

AGREEMENT

The parties hereto agree as follows:

1. Subparagraph (f) of Section 4 of the Shareholders
Agreement is hereby deleted in its entirety and the following new subparagraph
(f) is inserted in lieu thereof.

"Notwithstanding the foregoing provisions of this Section 4,
if the Employment Agreement of either of Hazard and Petitt is
terminated because of death, permanent disability or involuntary
termination of employment with New Quality("Early Termination") or
upon expiration of such Employment Agreement unless extended by mutual
agreement of the parties, Manor will, upon the date of such
termination or expiration purchase all 50 of the shares of Common
Stock of New Quality then owned by the terminating Employee at a price
equal to 5.5556%, or, if the stock purchase referred to immediately
below shall have occurred, all 25 of such shares at a price equal to
2.7778%, of the result of subtracting $30,000,000 from the Maximum
Value calculated as of May 31, 1996, provided however, that
<PAGE> 2
(a) if termination occurs by virtue of expiration of the term of the
applicable Employment Agreement on May 31, 1996, or (b) if Early
Termination occurs by reason of Cause (as defined in Section 10 of the
applicable Employment Agreement), in each such case described in
clause (a) or (b) above, the price shall be calculated by applying the
applicable percentage set forth above to the greater of (A) the
Applicable Minimum Value and (B) the Appraised Value of New Quality as
of the date of such termination less $30,000,000. Subject to any
prior stock purchase pursuant to the immediately preceding sentence,
Hazard and Petitt shall surrender to Manor and Manor will purchase
from each of Hazard and Petitt, as of May 31, 1995, 25 shares of
Common Stock of New Quality at a price payable to each of Hazard and
Petitt in respect of such purchase equal to 2.7778% of the greater of
(A) the Applicable Minimum Value and (B) the Appraised Value of New
Quality as of May 31, 1995 less $30,000,000."

2. Subparagraph (g) of Section 4 of the Shareholders
Agreement is hereby deleted in its entirety and the following new subparagraph
(g) is inserted in lieu thereof:

"(g) As used herein, 'Appraised Value' means the lesser of
(i) the Actual Value (as defined below) and (ii) the Maximum Value (as
defined below).

3. Subparagraph (h) of Section 4 of the Shareholders
Agreement is hereby deleted in its entirety and the following new subparagraph
(h) is inserted in lieu thereof:

"(h) For purposes of this Section 4, the following terms
shall have the following meanings:

'Actual Value' means, (i) in respect of any determination of
Appraised Value as of May 31, 1995, the product of (A) eleven and (B)
the amount of EBDIAT of New Quality for the twelve-month period ended
May 31, 1995, which product shall be reduced by all Liabilities of New
Quality as of May 31, 1995, (ii) in respect of any determination of
Appraised Value as of May 31, 1996, the product of (A) eleven and (B)
the amount of EBDIAT of New Quality for the twelve-month period ended
May 31, 1996, which product shall be reduced by all Liabilities of New
Quality as of May 31, 1996, and (iii) in respect of the determination
of Appraised Value as of any other date, the product of (A) eleven and
(B) the amount of EBDIAT of New Quality for the twelve-month period
ended on the last day of the month immediately preceding such date of
determination, which product shall be reduced by all Liabilities of New
Quality as of such last day.

'Applicable Minimum Value' means, in respect of any
determination thereof occurring (i) as of May 31, 1995, the

2
<PAGE> 3
1995 Minimum Value, (ii) as of May 31, 1996, the 1996 Minimum Value
and (iii) as of any other date, the November 30, 1994 Value increased
at a rate of 5% per annum (compounded once at May 31, 1995) from
December 1, 1994 to such date of determination.

'EBDIAT' means earnings of New Quality (as a separate entity)
before depreciation, interest, amortization and taxes, calculated in
the same manner as was the EBDIAT amount contemplated in clause (ii)
of the definition of "November 30, 1994 Value" set forth below (except
that, in calculations of EBDIAT for future periods, New Quality and
Manor will not be bound, with respect to proper litigation reserves
affecting New Quality or with respect to the results of European
operations, to apply the particular methods used in calculating
litigation reserves and results of European operations in the
calculation of "November 30, 1994 Value") and including 20% of the
EBDIAT of European operations; provided, however, that in the event
there shall be outstanding any Unapproved Acquisition Indebtedness on
any date as of which it shall be necessary to determine Appraised
Value hereunder, the amount of EBDIAT to be utilized for purposes of
such determination shall be adjusted to reflect the increase or
decrease therein which would have obtained had such Unapproved
Acquisition Indebtedness not been incurred and the related acquisition
not been consummated.

'Liabilities' means, as at the date of determination thereof,
(i) indebtedness of New Quality incurred in connection with, or to
finance, acquisition of assets which is not Unapproved Acquisition
Indebtedness, (ii) accrued but unpaid dividends on New Quality
Preferred Stock in the agreed amount of $8,085,000, (iii) liabilities
classified by New Quality as "deferred" taxes in the agreed amount of
$12,240,000 and (iv) long-term debt in the agreed amount of
$2,188,000.

'Maximum Value' means, (i) in respect of any determination of
Appraised Value as of May 31, 1995, (a) the product of eleven and 105%
of the amount of EBDIAT of New Quality for the twelve-month period
ended November 30, 1994, which product shall be reduced by (b) all
Liabilities of New Quality as of November 30, 1994, (ii) in respect of
any such determination as of May 31, 1996, (A) the product of eleven
and 110% of the EBDIAT amount determined in subclause (a) of clause
(i) above, which product shall be reduced by (B) all Liabilities of
New Quality as of November 30, 1994 and (iii) in respect of the
determination of Appraised Value as of any other date, the product of
(X) eleven and (Y) the amount of EBDIAT of New Quality for the twelve
month period ended November 30, 1994 ($47,196,747), increased at a
rate of 0.833% per month for the period from December 1, 1994 to the
last day

3
<PAGE> 4
of the month immediately preceding the month in which such date of
determination occurs, which product shall be reduced by all
Liabilities of New Quality as of November 30, 1994.

'1995 Minimum Value' means $478,317,497, calculated as 102.5%
of the November 30, 1994 Value.

'1996 Minimum Value' means $502,233,372, calculated as 105% of
the 1995 Minimum Value.

'November 30, 1994 Value' means $466,651,217, calculated as
the product of (i) eleven and (ii) the amount of EBDIAT ($47,196,747)
of New Quality for the twelve-month period ended November 30, 1994,
which product is reduced by the sum of (A) $30,000,000 and (B) all
Liabilities of New Quality as of November 30, 1994 ($22,513,000).

'Unapproved Acquisition Indebtedness' means any indebtedness
of New Quality incurred in connection with, or to finance, the
acquisition of assets which have been approved for acquisition by a
majority of the members of the Board of Directors of New Quality
(whether or not Hazard and/or Petitt in their capacities as members of
the Board of Directors of New Quality have voted in favor of such
acquisition) and which indebtedness has been identified by Hazard and
Petitt, in writing to New Quality, as unapproved acquisition
indebtedness."

4. There shall be added a new subparagraph (j) to
Section 4 of the Shareholders Agreement, as follows:

"(j) With respect to any stock purchase transaction
provided for in this Agreement, the shares of Common Stock to be
purchased shall be surrendered on the date as of which the transaction
is required to occur against immediate cash payment of the full
purchase price or the full amount of such portion thereof as can be
calculated on such date, and any remaining amount of the purchase
price shall be paid within 45 days after such date."

5. Hazard and Petitt each acknowledge and agree that
neither of them shall have any claim relating to any reductions in the results
of EBDIAT for any period of New Quality resulting from any business judgment of
New Quality, and calculated in accordance with the Shareholders Agreement,
unless such judgment constitutes bad faith or a breach of any fiduciary
obligations by New Quality or Manor or Newco (as defined below) to New Quality,
or to Hazard and Petitt, as minority shareholders of New Quality.

6. In the event that Manor and/or New Quality shall
determine to consummate a Spin Off Transaction (as defined below), Hazard and
Petitt hereby consent to such transaction and waive any

4
<PAGE> 5
and all rights they may have in respect thereof pursuant to Sections 4(a), (b),
(c) and (d) of the Shareholders Agreement. Hazard and Petitt further agree to
vote in favor of and otherwise take such other actions to amend the Certificate
of Incorporation of New Quality as may reasonably be requested by Manor to
permit or facilitate such Spin Off Transaction; provided, however, that no such
action or amendment shall adversely affect (other than to a de minimis degree)
the rights of Hazard or Petitt under the Shareholders Agreement, all of the
provisions of which (as amended hereby) shall remain in full force and effect
after the Spin Off Transaction. Upon the effectiveness of the Spin Off
Transaction, Manor will cause the successor corporation in the Spin Off
Transaction (herein called "Newco") to agree (in the form of agreement attached
as Schedule A hereto) to join in the Shareholders Agreement as owner of the New
Quality Common Stock now owned by Manor, and to assume the responsibility and
obligations of Manor thereunder, without relieving Manor of any such
responsibilities or obligation. The foregoing provisions of this Section shall
constitute a waiver by Hazard and Petitt of any restriction or limitation on
the issuance of additional equity securities of New Quality to Manor or Newco
in connection with or following the Spin Off Transaction contained in Section 3
of the Agreement and Release, dated July 31, 1991, by Manor and Hazard and
Section 3 of the Agreement and Release dated July 31, 1991, by Manor and
Petitt. As used herein "Spin Off Transaction" means any transaction whereby
the shares of New Quality held by Manor are transferred by Manor to Newco, the
shares of Newco being held by Manor and/or then existing shareholders of Manor,
or newly issued shares of New Quality are issued or transferred to Manor or
Newco. Section 4 of the Second Amendment to Shareholders Agreement dated May
30, 1990 is hereby deleted.

7. Manor hereby agrees to pay the legal fees and
expenses incurred by Hazard and Petitt in connection with the execution and
delivery of this amendment and the related amendments, each dated as of the
date hereof, to those certain employment agreements between New Quality, as
employer, and Hazard and Petitt, as employees; provided, however, that such
payment shall in no event exceed $30,000 in the aggregate.

8. The parties hereto agree that each reference in the
Shareholders Agreement and this Amendment to New Quality shall be deemed to be
a reference to Choice Hotels International, Inc. (formerly known as Quality
Inns International, Inc.).

9. Except as specifically amended hereby, each of the
terms, covenants and conditions of the Shareholders Agreement shall remain in
full force and effect.

10. This amendment may be delivered and executed in any
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all

5
<PAGE> 6

of which counterparts, taken together, shall constitute but one and the same
agreement.

11. Manor represents that this amendment has been duly
authorized by all requisite corporate action on the part of Manor.

IN WITNESS WHEREOF, the parties hereto have caused this
amendment to be duly executed and delivered on the day and year first above
written.

MANOR CARE, INC.

By: /s/ James H. Rempe
-------------------------------
Name: James H. Rempe
Title: Sr. V.P.

/s/ Robert C. Hazard, Jr.
----------------------------------
ROBERT C. HAZARD, JR.

/s/ Gerald W. Petitt
----------------------------------
GERALD W. PETITT

Schedule A

With respect to the Shareholders Agreement dated November 12,
1980, as modified and amended to date, among Manor Care, Inc., Choice Hotels
International, Inc., Robert C. Hazard, Jr. and Gerald W. Petitt (the
"Agreement"), Newco, as the successor in interest to the Common Stock of Choice
Hotels International, Inc. previously owned by Manor Care, Inc., hereby joins
in the Agreement as the owner of such Common Stock and assumes all
responsibilities and obligations of Manor Care, Inc. thereunder, for the
benefit of Robert C. Hazard, Jr. and Gerald W. Petitt.

Date Newco
---------------------

By:
---------------------------------

<PAGE> 1
EXHIBIT 10.15

EMPLOYMENT AGREEMENT

This Agreement ("Agreement") dated this 27the day of April, 1995
between Manor Healthcare Corp. ("Employer" or "Manor"), a Delaware corporation,
with principal offices at 10750 Columbia Pike, Silver Spring, Maryland 20901,
and Mark Gildea ("Employee"), sets forth the terms and conditions governing the
employment relationship between Employee and Manor.

1. Employment. During the term of this Agreement, as hereinafter
defined, Employer hereby employs Employee as President, Alternate Site Services
Division. Employee hereby accepts such employment upon the terms and
conditions hereinafter set forth and agrees to faithfully and to the best of
his ability perform such duties as may be from time to time assigned by
Employer, its Board of Directors or its designees, such duties to be rendered
at the principal office of Employer or at such other place or places as
Employer shall require. Employee also agrees to perform his duties and title
designation in accordance with policies established by Employer's Board of
Directors, which may be changed from time to time.

2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on December 5, 1993 and shall
terminate five (5) years thereafter. Upon expiration of said period, the
parties may extend the term of Agreement if they mutually agree to do so.

3. Compensation. For all services rendered by Employee under this
Agreement during the term thereof, Employer shall pay Employee the following
compensation:

(a) Salary. A base salary of One Hundred Seventy Thousand
Dollars ($170,000) per annum payable in accordance with Employer's
standard payroll practices from time to time in effect. Effective
December 1, 1994, a base salary of One Hundred Eighty-One Thousand
Fifty Dollars ($181,050) per annum payable in accordance with
Employer's standard payroll practices from time to time in effect.
Such salary shall be reviewed annually and may be increased at the
discretion of Employer.

(b) Incentive Bonus. Employee shall have the opportunity to
earn up to a maximum of Forty-Five Percent (45%) of the base salary
set forth in subparagraph 3(a) above in Employer's bonus plans as
adopted from time to time by Employer's Board of Directors.

(c) Automobile. Employer shall provide Employee with the use
of a suitable automobile during the term of this Agreement, and shall
provide gas, oil, maintenance, insurance and other operating expenses
for such automobile, in accordance with Employer's standard practices.
In lieu of the
<PAGE> 2
above, Employer may, in its discretion, provide Employee with a
suitable car allowance.

(d) Stock Options. Employee shall be entitled to participate
in the Manor Care, Inc. Key Executive Stock Option Plan, or similar
plan, in accordance with the policy of the Manor Care, Inc. Board of
Directors as in effect from time to time.

(e) Other Benefits. Employee shall, when eligible, be
entitled to participate in all other fringe benefits accorded
headquarters employees by Employer as are in effect from time to time.

4. Extent of Services. Employee shall devote his full time,
attention, and energies to the business of Employer, and shall not during the
term of this Agreement be engaged in any other business activity whether or not
such business activity is pursued for gain, profit, or other pecuniary
advantage; but this shall not be construed as preventing Employee from
investing his assets in the securities of public companies if such holdings do
not exceed one percent (1%) of the outstanding shares of any such company.
Employee warrants and represents that he has no contracts or obligations to
others which would materially inhibit the performance of his services under
this Agreement.

5. Disclosure and Use of Information. Employee recognizes and
acknowledges that Employer's and affiliates' present and prospective clients,
franchises, contracts, development and marketing plans, acquisitions, operating
data, policies, and personnel, as they may exist from time to time, are
valuable, special and unique assets of Employer's business. Throughout the
term of this Agreement and for a period of two (2) years after its termination
or expiration for whatever cause or reason, Employee shall not directly or
indirectly, or cause others to: (1) make use of or disclose to others any
information relating to the business of Employer that has not otherwise been
made public, including but not limited to Employer's and affiliates' present or
prospective clients, franchises, contracts, development and marketing plans,
acquisitions, operating data, and policies; or (2) without Employer's prior
written consent, offer employment to or employ on behalf of Employee or any
other person, any person who at any time is or has been within the preceding
one (1) year an employee of Employer or any parent, subsidiary or affiliate of
Employer, or induce such person, directly or indirectly, to leave his or her
employment. In the event of an actual or threatened breach by Employee of the
provisions of this paragraph, Employer shall be entitled to injunctive relief
restraining Employee from committing such breach or threatened breach. Nothing
herein stated shall be construed as preventing Employer from pursuing any other
remedies available to the company for such breach or threatened breach,
including the recovery of damages from Employee.

2
<PAGE> 3

6. Notices. Any notice, request or demand required or permitted
to be given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or sent by certified or registered mail to his
residence in the case of Employee, or to its principal office in the case of
the Employer.

7. Elective Positions. Nothing in this Agreement contained is
intended to nor shall be construed to abrogate, limit or affect the powers,
rights and privileges of the Board of Directors or stockholders to remove
Employee from the position set forth in paragraph 1, with or without just
cause, during the term of this Agreement or to elect someone other than
Employee to that position, as provided by law and the By-Laws of Employer;
provided, however, that if Employee is so removed without cause, it is
expressly understood and agreed, in the event any one or combination of the
foregoing occurs, Employee's rights under this Agreement shall in no way be
prejudiced and Employee shall, nevertheless, be entitled to receive
compensation referred to in paragraph 3 above, except any right to receive new
stock option grants, so long as he is ready, willing and able to perform the
duties and responsibilities set forth above. Notwithstanding the foregoing,
the election or appointment of Employee to a different executive position shall
not be considered removal hereunder. Employee upon removal shall be entitled
to pursue other employment, and Employer shall be entitled to receive as offset
and thereby reduce its payment, the amount received by Employee from any other
active employment. As a condition to Employee receiving his compensation from
Employer, Employee agrees to furnish Employer annually with full information
regarding such other employment and to permit inspection of his records at any
such employment and copies of his Federal income tax returns. Employer shall
receive credit for unemployment insurance benefits, social security insurance
or like amounts actually received by Employee.

8. Waiver of Breach. The waiver of either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.

9. Assignment. The rights and obligations of Employer under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. The obligations of Employee hereunder may
not be assigned or delegated.

10. Termination of Agreement. This Agreement shall terminate upon
the following events and conditions:

(a) Upon expiration of its term.

(b) For just cause, including but not limited to, refusal to
carry out duties and instructions relative to the position,
dishonesty, violation of this Agreement, and any willful acts or
omissions inimical to or contrary to policies

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<PAGE> 4
of Employer not arbitrarily applied in the case of Employee. Just
cause also shall include solicitation by Employee of offers of
employment from others prior to the last year of this Agreement, and
solicitation by Employee of the services of, or positive response by
Employee to solicitation by, professional search or executive
recruitment organizations prior to the last year of this Agreement.
Employee shall be entitled to fourteen (14) days advance written
notice of any such termination, except where the basis for the
termination constitutes conduct on the part of Employee involving
dishonesty or bad faith, and in such latter cases, the termination
shall be effective upon the sending of notice.

(c) In the event that Employee is unable to perform the
services called for hereunder by reason of incapacity or disablement
for more than six (6) months (whether or not consecutive) in any
period of twenty-four (24) consecutive months, Employer shall have the
right to terminate this Agreement by written notice to Employee. In
the event of such termination, all non-vested obligations of Employer
to Employee pursuant to this Agreement shall terminate.

(d) In the event of Employee's death during the term of this
Agreement, the Agreement shall terminate as of the date thereof.

11. Entire Agreement. This instrument contains the entire agreement
of the parties and supersedes and replaces the Employment Agreement dated June
17, 1994. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Maryland.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.

Employer:

MANOR HEALTHCARE CORP.

By: /s/ Stewart Bainum, Jr.
-------------------------------
Stewart Bainum, Jr.
Chairman and
Chief Executive Officer

Witness: Employee:

/s/ /s/ Mark Gildea
--------------------------- -----------------------------------
Mark Gildea

<PAGE> 1
EXHIBIT 10.16

EMPLOYMENT AGREEMENT

This Agreement ("Agreement") dated this 5th day of June, 1995 between
Vitalink Pharmacy Services, Inc. ("Employer" or "Vitalink"), a Delaware
corporation, with principal offices at 1250 E. Diehl Road, Suite 208,
Naperville, Illinois 60563, and Donna L. DeNardo ("Employee"), sets forth the
terms and conditions governing the employment relationship between Employee and
Vitalink.

1. Employment. During the term of this Agreement, as hereinafter
defined, Employer hereby employs Employee as President and Chief Operating
Officer. Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth and agrees to faithfully and to the best of her ability
perform such duties as may be from time to time assigned by Employer, its Board
of Directors or its designees, such duties to be rendered at the principal
office of Employer or at such other place or places as Employer shall require.
Employee also agrees to perform her duties in accordance with policies
established by Employer's Board of Directors, which may be changed from time to
time.

2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on December 1, 1994 and shall
terminate five (5) years thereafter. Upon expiration of said period, the
parties may extend the term if they mutually agree to do so.

3. Compensation. For all services rendered by Employee under
this Agreement during the term thereof, Employer shall pay Employee the
following compensation:

(a) Salary. A base salary of One Hundred Eighty-One Thousand
Dollars ($181,000) per annum payable in accordance with Employer's
standard payroll practices from time to time in effect. Such salary
shall be reviewed annually and may be increased at the discretion of
Employer.

(b) Incentive Bonus. Employee shall have the opportunity to
earn a percentage of the base salary set forth in subparagraph 3(a)
above in Employer's bonus plans as adopted from time to time by
Employer's Board of Directors.

(c) Automobile. Employer shall provide Employee with the use
of a suitable automobile during the term of this Agreement, and shall
provide gas, oil, maintenance, insurance and other operating expenses
for such automobile, or may provide a car allowance in lieu of the
foregoing, in accordance with Employer's standard practices.

(d) Stock Options. Employee shall be eligible to receive
options under the Vitalink Pharmacy Services, Inc. Key Executive Stock
Option and Stock Appreciation Rights Plan, or similar plan, to
purchase common shares of Vitalink or receive
<PAGE> 2
stock appreciation rights in accordance with the policy of the
Vitalink Board of Directors as in effect from time to time.

(e) Other Benefits. Employee shall, when eligible, be
entitled to participate in all other fringe benefits accorded
headquarters employees by Employer as are in effect from time to time.

4. Extent of Services. Employee shall devote her full time,
attention, and energies to the business of Employer, and shall not during the
term of this Agreement be engaged in any other business activity whether or not
such business activity is pursued for gain, profit, or other pecuniary
advantage; but this shall not be construed as preventing Employee from
investing her assets in the securities of public companies, or the securities
of private companies or limited partnerships outside the healthcare and lodging
industries, if such holdings are passive investments of One Percent (1%) or
less of outstanding securities and Employee does not hold positions of
director, officer, employee or general partner. Notwithstanding the foregoing,
Employee may serve as a director of the nuclear energy company that has
contacted her about such position. Employee warrants and represents that she
has no contracts or obligations to others which would materially inhibit the
performance of her services under this Agreement.

5. Disclosure and Use of Information. Employee recognizes and
acknowledges that Employer's and its affiliates' present and prospective
clients, contracts, development plans, operating data, policies and personnel,
as they may exist from time to time, are valuable, special and unique assets of
Employer's business. Throughout the term of this Agreement and for a period of
two (2) years after its termination or expiration for whatever cause or reason,
Employee shall not directly or indirectly, or cause others to: (1) make use of
or disclose to others any information relating to the business of Employer that
has not otherwise been made public, including but not limited to Employer's and
its affiliates' present or prospective clients, contracts, development plans,
operating data and policies; or (2) without Employer's prior written consent,
offer employment to or employ on behalf of Employee or any other person, any
person who at any time is or has been within the preceding one (1) year an
employee of Employer or any affiliate of Employer, or induce such person,
directly or indirectly, to leave his or her employment. In the event of an
actual or threatened breach by Employee of the provisions of this paragraph,
Employer shall be entitled to injunctive relief restraining Employee from
committing such breach or threatened breach. Nothing herein stated shall be
construed as preventing Employer from pursuing any other remedies available to
Employer for such breach or threatened breach, including the recovery of
damages from Employee.

6. Notices. Any notice, request or demand required or permitted
to be given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or sent by certified

2
<PAGE> 3
or registered mail to her residence in the case of Employee, or to its
principal office in the case of the Employer.

7. Elective Positions. Nothing contained in this Agreement is
intended to nor shall be construed to abrogate, limit or affect the powers,
rights and privileges of the Board of Directors or stockholders to remove
Employee as President and Chief Operating Officer, with or without just cause,
during the term of this Agreement or to elect someone other than Employee as
President and Chief Operating Officer as provided by law and the By-Laws of
Employer; provided, however, that if Employee is so removed without cause, it
is expressly understood and agreed, in the event any one or combination of the
foregoing occurs, Employee's rights under this Agreement shall in no way be
prejudiced, and Employee shall be entitled to receive compensation referred to
in paragraph 3 above, except ungranted stock options, provided that she is
ready, willing and able to perform the duties and responsibilities set forth
above. Notwithstanding the foregoing, the election or appointment of Employee
to a different executive position shall not be considered removal hereunder.
Employee upon removal shall be entitled to pursue other employment, and
Employer shall be entitled to receive as offset and thereby reduce its payment,
the amount received by Employee from any other active employment. As a
condition to Employee receiving her compensation from Employer, Employee agrees
to furnish Employer annually with full information regarding such other
employment and to permit inspection of her employment records and copies of her
income tax returns. Employer shall receive credit for unemployment insurance
benefits, social security insurance or like amounts actually received by
Employee.

8. Waiver of Breach. The waiver of either party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.

10. Termination of Agreement. This Agreement shall terminate upon
the following events and conditions:

(a) Upon expiration of its term.

(b) For just cause, including but not limited to refusal to
carry out duties and instructions relative to the position,
dishonesty, violation of this Agreement, and any willful acts or
omissions inimical to or contrary to policies of Employer not
arbitrarily applied in the case of Employee. Just cause shall also
include solicitation by Employee of offers of employment from others
prior to the last year of this Agreement, and solicitation by Employee
of the services of, or

3
<PAGE> 4
positive response by Employee to solicitation by, professional search
or executive recruitment organizations prior to the last year of this
Agreement. Employee shall be entitled to fourteen (14) days advance
written notice of termination, except where the basis for termination
constitutes conduct on the part of Employee involving dishonesty or
bad faith, in which case the termination shall be effective upon the
sending of notice.

(c) In the event that Employee is unable to perform the
services called for hereunder by reason of incapacity or disablement
for more than six (6) months (whether or not consecutive) in any
period of twenty-four (24) consecutive months, Employer shall have the
right to terminate this Agreement by written notice to Employee.
Notwithstanding such termination, Employee shall be entitled to any
disability benefits accorded headquarters employees pursuant to
paragraph 3(e) above. In the event of such termination, all
non-vested obligations of Employer to Employee pursuant to this
Agreement shall terminate.

(d) In the event of Employee's death during the term of this
Agreement, the Agreement shall terminate as of the date thereof.

11. Entire Agreement. This instrument contains the entire agreement
of the parties. It may be changed only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought. This Agreement shall be governed by the
laws of the State of Maryland, and any litigation shall be conducted in the
State of Maryland.

IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.

Employer:

Attest: VITALINK PHARMACY SERVICES, INC.

/s/ By: /s/ Donald C. Tomasso
--------------------------- ------------------------------
Assistant Secretary Donald C. Tomasso
Chairman and
Chief Executive Officer

Witness: Employee:

/s/ /s/ Donna L. DeNardo
--------------------------- ----------------------------------
Donna L. DeNardo

<PAGE> 1

EXHIBIT 10.17

MASTER AIRCRAFT LEASE AGREEMENT

This Aircraft Lease Agreement dated as of September 1, 1994 (the "Lease
Agreement") is between Wilderness Investment Company, Inc. ("Lessor"), a
corporation organized and existing under the laws of the State of Maryland and
Manor Care, Inc. ("Lessee"), a corporation organized and existing under the
laws of the State of Delaware.

WITNESSETH

WHEREAS, Lessor is the owner of one Cessna Citation VI bearing manufacturer's
serial number 650-0237 and Federal Aviation Administration registration number
N650MC together with the accessories and equipment specified in the appendix
attached hereto and made a part hereof (the "Aircraft");

WHEREAS, Lessor wishes to lease the Aircraft to Lessee from time to time and
Lessee wishes to lease the Aircraft from Lessor from time to time and Lessor
and Lessee wish to establish the terms and conditions upon which the Aircraft
shall be leased.

NOW, THEREFORE, in consideration of their mutual promises and other good and
valuable consideration, the parties hereto contract and agree as follows:

Section 1. Lease of Aircraft. Lessor agrees to make the Aircraft available to
Lessee for lease upon request of Lessee. Notwithstanding the above, it is
specifically understood and agreed that Lessor's obligation to lease the
Aircraft to Lessee is subject to the availability of the Aircraft, and that
Lessor may enter into Master Aircraft Lease Agreements with other lessees and
this may limit the availability of the Aircraft as may the need to maintain and
repair the Aircraft. Lessor shall have no obligation to make the Aircraft
available to Lessee (or provide a substitute Aircraft or any other compensation
to Lessee) for any period during which it is unavailable for lease to Lessee.
Delivery of the Aircraft, for Lessee's use under this Lease Agreement, will
occur at Frederick Municipal Airport or such other location that Lessor and
Lessee agree upon in advance. Lessor will deliver the Aircraft with 4,000 lbs
of fuel.

Section 2. Term. The term of this Lease Agreement shall be for one year,
commencing on the date hereof.

Section 3. Rent. Lessee agrees to pay to Lessor, within 30 days of receiving
an invoice as Rent for its use of the Aircraft during the prior month, an
amount calculated as follows:

<PAGE> 2

$1,150.00 for each flight hour. The hourly rate will be prorated for any
interval the Aircraft is operated by Lessee which is less than one entire
hour.

Section 4. Surrender of Possession. Lessee agrees to surrender the Aircraft
to Lessor in the same good repair, order and condition as received and with
4,000 lbs of fuel at Frederick Municipal Airport, or such other location that
Lessor and Lessee agree upon in advance, each time the Lessee operates this
Aircraft under this Lease Agreement. Lessee also agrees to reimburse Lessor,
within 30 days of the receipt of an invoice from Lessor, for incidental costs
associated with Lessee's use of the Aircraft. Such costs shall include, but
shall not be limited to, refreshment supplies and Flightfone charges.

Section 5. Payments. All payments of Rent are due within 30 days after
receipt of invoice. If the Lessee fails to pay any such sums within ten (10)
days after the due date, such unpaid amount shall bear interest from the due
date to the date of payment at an annual rate equal to the lesser of eighteen
percent (18%) or the highest rate permitted by law. Provision for such late
charge shall be in addition to all other rights and remedies available to
Lessor within this Lease Agreement or at law or in equity and shall not be
construed as liquidated damages or limiting Lessor's remedies in any manner.

Section 6. Certain Covenants of Lessee. Lessee covenants to
Lessor that:

i. The Aircraft will be under Lessee's exclusive operational
control when leased to Lessee;

ii. The Aircraft will be operated only by a pilot and co-pilot
employed by Lessee on a permanent or temporary basis, each properly
certified and rated by the Federal Aviation Administration to operate
the Aircraft and approved by Lessor's insurance company;

iii. Lessee will maintain, at its sole expense, all books and
records pertaining to its use of the Aircraft in accordance with
applicable regulations of the Federal Aviation Administration, any
other governmental body having jurisdiction and any reasonable
requirement of Lessor. Other than records required to be kept in the
Aircraft, such records shall in all cases remain the property of the
Lessee, but will be made available to Lessor for inspection and
copying;

iv. Lessee will operate the Aircraft in accordance with this Lease
Agreement, all applicable laws and regulations and all insurance
policies covering the Aircraft and its use and operation;

2
<PAGE> 3

v. Lessee will not use or cause or permit the use of the Aircraft
to carry persons or property for hire or in any race, test, contest or
acrobatics;

vi. Lessee will not alter, modify or make additions or
improvements to the aircraft without prior written permission of
Lessor; and

vii. Lessee will not assign this Lease Agreement without the prior
written consent of Lessor. Subject to the foregoing, this Lease
Agreement shall inure to the benefit of, and be binding on, the heirs,
legal representatives, successors and assigns of Lessee.

Section 7. Maintenance. Lessor will maintain the Aircraft in accordance with
the requirements of applicable law and regulation. In the event that while
under lease and away from the Frederick Municipal Airport, the Aircraft
requires Emergency Repairs (as hereinafter defined), Lessee shall contact
Lessor for instructions. If after good faith effort, no contact can be made,
Lessee shall obtain from a repair station certified by the Federal Aviation
Administration to service and repair aircraft such as the Aircraft, a written
estimate of the cost of the Emergency Repairs. If the cost of such Emergency
Repairs is less than $5,000.00, Lessee may authorize and pay for such Emergency
Repairs and be reimbursed by Lessor within thirty (30) days of receipt by
Lessor of a request thereof, including evidence reasonably satisfactory to
Lessor that the repair has been completed and Lessee has paid for such repair.
The term "Emergency Repair" means repairs to the Aircraft, which, due to
statute, regulations, mechanical failure or damage, should be made to the
Aircraft to ensure that the Aircraft is in an airworthy condition before
further flight.

Section 8. Insurance. Lessor will acquire and maintain in force insurance of
a type, in such amounts and covering such risks as is customary for aircraft
such as the Aircraft. Notwithstanding the above, such insurance shall in all
events include hull risk insurance, passenger liability insurance, public
liability insurance and property damage insurance. Lessor and Lessee shall be
listed as co-insureds on all policies. Lessee shall be provided with copies of
all policies and any and all amendments and riders thereto in a timely fashion
so as to enable Lessee to operate the Aircraft in accordance therewith.

Section 9. Indemnification. Lessee agrees to indemnify, defend and hold
harmless Lessor, its directors, officers, agents and employees from and against
any and all liabilities, obligations, losses, damages, penalties, claims,
actions and suits, including all costs, attorneys' fees, and expenses
incidental thereto, which may be suffered by Lessor by reason of personal
injury, death or property damage arising out of Lessee's, its employees or
agents,

3
<PAGE> 4
lease or operation of the Aircraft; any breach by Lessee of its covenants
contained herein; or the inaccuracy or incompleteness of any representation or
warranty of Lessee contained herein. Notwithstanding the foregoing, Lessor
agrees to indemnify, defend and hold harmless Lessee, its directors, officers,
agents and employees from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions and suits, including all costs,
reasonable attorneys' fees, and expenses incidental thereto, which may be
suffered by Lessee by reason of personal injury, death or property damage
arising out of the gross negligence or willful misconduct of Lessor, its
employees or agents, related to Lessor's ownership or maintenance of the
Aircraft; any breach by Lessor of its covenants contained herein; or the
inaccuracy or incompleteness of any representation or warranty of lessor
contained herein.

Section 10. Representation and Warranties. Lessor and Lessee represent and
warrant, each to the other, that it is a corporation duly organized and validly
existing under the laws of its state of incorporation and that it has the
corporate power and authority, and all licenses, rights, permits, certificates,
franchises and other privileges, necessary to perform its obligations under
this Lease Agreement. Lessor and Lessee represent and warrant, each to the
other, that the execution, delivery and performance by it of this Lease
Agreement has been duly authorized by all necessary corporate action, do not
require any approval of stockholders, and neither the execution and delivery
hereof nor the consummation of transactions contemplated hereby nor compliance
with and performance of all the terms and provisions of this Lease Agreement
will contravene or conflict with, result in the breach of, or constitute a
default under, its corporate charter or by-laws or conflict with, result in the
creation of a lien under, or require the consent of any trustee or creditor
pursuant to any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit agreement or other
agreement or instrument to which it is a party or by which it or its assets are
bound. Lessor and Lessee represent and warrant, each to the other, that it has
complied with every necessary consent, approval, order or authorization of, or
registration with, and has given any prior notice to, any government body
having jurisdiction with respect to the execution and delivery of this Lease
Agreement and the performance of the transactions and obligations contemplated
hereby.

Section 11. Disclaimer. Lessor leases and Lessee takes the Aircraft "as-is,
where is". Lessee acknowledges and agrees that Lessor is not a manufacturer or
dealer of Aircraft, and that Lessor has not made nor shall Lessor be deemed to
have made, whether by virtue of having leased the Aircraft under this Lease
Agreement, or having acquired the Aircraft, or having done or failed to do any
act, or having acquired or failed to acquire any status in relation to the
Lease Agreement, and Lessor will be deemed to have expressly

4
<PAGE> 5
disclaimed, any representation or warranty, express or implied, as to the
title, airworthiness, condition, value, design, operation, merchantability or
fitness for use for any particular purpose of the Aircraft, as to the quality
of the material or workmanship with respect to the Aircraft, as to the absence
of latent or other defects, whether discoverable or not, or any other
representation or warranty whatsoever, express or implied (including any
implied warranty arising from a course of performance or dealing or usage of
trade), with respect to the Aircraft or any part thereof.

Section 12. Events of Default. Each of the following shall constitute an
Event of Default:

i. Lessee shall have not made a payment of Rent on the date the
same shall have become due; or

ii. Lessee or Lessor shall have failed to observe or perform (or
caused to be observed or performed) any covenant or agreement to be
observed or performed by it under this Lease Agreement;

iii. Any representation or warranty made by Lessee or Lessor herein
shall prove to have been incorrect in any material respect at the time
made;

iv. The commencement of an involuntary case or other proceeding in
all respects of Lessee under the Federal Bankruptcy Laws, as now or
hereafter constituted, or hereafter amended; or

v. The commencement by Lessee of a voluntary case or proceeding
under the Federal Bankruptcy laws, as now or hereafter constituted, or
hereafter amended.

Section 13. Remedies. Upon the occurrence of any Event of Default and at any
time thereafter so long as the same shall be continuing, the non-defaulting
party may at its option terminate the Lease and if the Aircraft is in
possession of Lessee, Lessee shall immediately return the Aircraft to Lessor,
and exercise any other right or remedy which may be available to it under
applicable law, or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof. It is specifically
acknowledged and agreed that the failure to exercise any remedy or right shall
not constitute a waiver thereof.

Section 14. Force Majeure. Neither party shall be liable for its failure to
perform under this Agreement or for any loss, injury, damage, or delay of any
nature whatsoever resulting therefrom caused by any act of God, fire, flood,
accident, strike or other cause beyond the party's reasonable control.

5
<PAGE> 6

Section 15. Miscellaneous. Any provision of this Lease Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such a provision in any other jurisdiction. No term or provision
of this Lease Agreement may be changed, waived, discharged or terminated
orally. Terms or provisions of this Lease Agreement shall only be changed,
waived, discharged or terminated by an instrument in writing signed by the
party against which the enforcement of the change, waiver, discharge or
termination is sought. This Lease Agreement may be executed by the parties
hereto and separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument. This Lease Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Maryland,
including all matters of construction, validity and performance. This Lease
Agreement is being delivered in the State of Maryland. Each party hereto
agrees to pay its own costs and expenses in connection with the negotiation,
execution and delivery of this Lease Agreement. The terms of this Lease
Agreement supersede in their entirety any prior written or oral statements made
by Lessor or Lessee. If any action is filed to enforce the terms of the Lease
Agreement, the prevailing party shall be entitled to recover from the other
party reasonable attorneys' fees and court costs.

IN WITNESS WHEREOF, the parties hereto have caused the signature of their
authorized representatives to be affixed below on the day and year first above
written. The persons signing below warrant their authority to sign.

Truth in leasing statement under Section 91.23 of the Federal Aviation
Regulations.

(a) Lessor, Wilderness Investment Company, Inc. 8737 Colesville Road,
Suite 800, Silver Spring, MD, hereby certifies that the Aircraft has
been inspected and maintained within the 12 month period preceding the
date of this Agreement in accordance with the provisions of FAR Part
91 and all applicable requirements for the maintenance and inspection
thereunder have been met.

(b) Lessee, Manor Care, Inc., 10770 Columbia Pike, Silver Spring, MD,
agrees, certifies and knowingly acknowledges that when the Aircraft is
operated under this Agreement, Lessee shall be known as, considered,
and shall in fact be the operator of the Aircraft and is considered
responsible for operational control of the Aircraft and further
certifies that Lessee will operate the Aircraft in compliance with all
applicable Federal Aviation Regulations.

6
<PAGE> 7

(c) The parties understand that an explanation of factors and
pertinent Federal Aviation Regulations bearing on operations control
can be obtained from the Glen Burnie/BWI FAA Flight Standards District
Office, or from any other FAA Flight Standards District Office, GADCO
or ACDO.

(d) Lessee further certifies that it will send a true copy of the
executed Agreement to: Aircraft Registration Branch Technical Section,
P.O. Box 25724, Oklahoma City, Oklahoma 73125, within 24 hours of its
execution, as provided by FAR 91.23(c)(1).

(e) Lessee further certifies that a copy of this Lease will be
carried on board the Aircraft during flight, and shall be made
available for review upon request by the Federal Aviation
Administration.

LESSOR

By: /s/ Patricia L. Bowditch
-------------------------------

Title: V.P., Wilderness
Investment Co., Inc.

ATTEST:

/s/
--------------------------
Secretary

LESSEE

By: /s/ M. Schoendorfer
-------------------------------

Title: V.P. Controller,
Manor Care, Inc.

ATTEST:

/s/
-------------------------
Secretary

<PAGE> 1
EXHIBIT 13

<TABLE>
<CAPTION>
Years ended May 31 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------
(in thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues $1,321,993 $1,163,072 $1,009,675 $ 916,224 $815,469
Income before non-
recurring and
extraordinary items* 94,486 77,184 62,383 47,850 32,083
Income before
extraordinary items* 94,486 78,362 62,383 66,618 32,083
Net income 94,486 78,362 59,364 62,452 32,083

-----------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding**
62,480 60,524 57,316 57,308 57,212
-----------------------------------------------------------------------------------------------------------

Per share data:**
Income before
non-recurring and
extraordinary
items* 1.51 1.27 1.09 0.83 0.56
Income before
extraordinary
items* 1.51 1.29 1.09 1.16 0.56
Net income 1.51 1.29 1.04 1.09 0.56
Dividends 0.09 0.09 0.09 0.09 0.09
Market price range:
High 32.25 29.25 26.63 19.00 15.17
Low 24.25 17.50 15.63 11.75 6.83

-----------------------------------------------------------------------------------------------------------
Cash provided by
operating activities 168,663 175,397 125,030 159,591 99,847
Investments in
property and
equipment 118,797 90,871 90,364 63,497 64,325
-----------------------------------------------------------------------------------------------------------
Total assets 1,416,307 1,186,525 1,106,506 1,015,289 944,391
Long-term debt 367,301 276,935 380,438 373,989 456,409
Shareholders' equity 624,873 533,815 361,994 304,982 244,951
-----------------------------------------------------------------------------------------------------------
</TABLE>

* Non-recurring items and their impact on net income consist of a net gain on
sale of property (positive $4,778) and impact of change in tax rate
(negative $3,600) in 1994, net gain on sale of stock by a subsidiary
(positive $18,768) in 1992. Extraordinary items and their impact on net
income consist of debt redemptions in 1993 (negative $3,019) and 1992
(negative $4,166).

** Retroactively adjusted for three-for-two stock split in March 1992.

1
<PAGE> 2

Manor Care, Inc. and Subsidiaries

MANAGEMENT'S REVIEW OF OPERATING RESULTS

HEALTHCARE OPERATIONS

Healthcare revenues increased $96.2 million or 10% to $1.0 billion in fiscal
year 1995, while operating expenses increased $73.8 million or 11% to $770.0
million resulting in a $22.4 million increase in healthcare operating profits.
This compares to an increase of 11% in both revenue and expense for fiscal year
1994. The increase in fiscal 1995 revenue was predominately due to increased
rates, $57.4 million, and additional capacity, $33.6 million. The
increase of $92.3 million in revenue for fiscal year 1994 reflected a 28%
increase in beds served for the 82% owned institutional pharmacy and
approximately $56.3 million related to value added services in the nursing and
assisted living facilities.

The Company actively controls costs and has generally been successful at
maintaining overall costs at rates consistent with the applicable rates of
inflation. Increases in labor costs reflect additional services provided for
special needs and higher levels of acuity. Labor costs account for
approximately 62% of the increase in operating expenses for fiscal year 1995
and 65% for fiscal year 1994.

LODGING OPERATIONS

Lodging revenues increased $62.8 million or 26% to $302.5 million in fiscal
year 1995 while operating expenses increased $37.9 million or 22%, resulting in
a $24.9 million increase in lodging operating profits. This compares to
increases in revenues and expenses of 34% and 36%, respectively, in fiscal year
1994.

The growth in revenues and expenses was largely due to the increase in the
number of Company-operated hotels as well as improved franchise results.
Driven primarily by purchases of hotels in select markets, the number of
Company-operated hotels grew from 23 (as of May 1993) to 44 (May 1994) to 62
(May 1995). Revenues from these additional hotels contributed $35.0 million
and $20.5 million to the annual increase in lodging revenues in fiscal
years 1995 and 1994, respectively. These hotels also added $23.8 million and
$14.3 million in annual lodging expenses in fiscal years 1995 and 1994,
respectively.

The Company's franchise business accounted for 62% and 69% of lodging
revenues in fiscal years 1995 and 1994, respectively. As a result of improved
industry fundamentals, operating profits for the Company's franchised business
increased to $54.6 million in fiscal year 1995 from $43.8 million in fiscal
year 1994

OTHER INFORMATION

Depreciation and amortization expense increased 15% in fiscal year 1995 to
$76.2 million. In fiscal year 1994, depreciation and amortization expense
increased 9%. Increases were due to acquisition and construction of additional
facilities.

General corporate expense represented 6% of revenue in fiscal years 1995 and
1994. General corporate expenses included all indirect operating expenses as
well as risk management, information systems, treasury, accounting, legal and
other administrative support for the Company and its various subsidiaries.

Interest expense decreased 13% in fiscal year 1995 and 16% in fiscal year
1994. The decrease in both years was primarily due to the redemption of $99.0
million in 6 3/8% debentures in October 1993.

<PAGE> 3
Manor Care, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years Ended May 31 (in thousands of dollars, except per share data) 1995 1994 1993
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Healthcare $1,019,458 $ 923,308 $ 830,968
Lodging 302,535 239,764 178,707
---------- ---------- ----------

Total revenues 1,321,993 1,163,072 1,009,675
---------- ---------- ----------

EXPENSES
Healthcare 769,998 696,199 627,733
Lodging 213,263 175,400 128,988
Depreciation and amortization 76,215 66,540 60,999
General corporate 78,569 67,445 57,891
---------- ---------- ----------

Total expenses 1,138,045 1,005,584 875,611
---------- ---------- ----------

INCOME FROM OPERATIONS 183,948 157,488 134,064
---------- ---------- ----------

OTHER INCOME AND (EXPENSES)
Interest income and other 7,282 5,905 6,197
Minority interest expense (4,329) (3,228) (2,308)
Gain on sale of property - 7,978 -
Interest expense (27,115) (31,281) (37,070)
---------- ---------- ----------

Total other expenses, net (24,162) (20,626) (33,181)
---------- ---------- ----------

INCOME BEFORE INCOME TAXES 159,786 136,862 100,883
INCOME TAXES 65,300 58,500 38,500
---------- ---------- ----------

INCOME BEFORE EXTRAORDINARY ITEM 94,486 78,362 62,383
EXTRAORDINARY ITEM (DEBT REDEMPTION, NET OF
INCOME TAXES OF $1,851) - - (3,019)
---------- ---------- ----------

NET INCOME $ 94,486 $ 78,362 $ 59,364
========== ========== ==========

AVERAGE SHARES OUTSTANDING 62,480 60,524 57,316
========== ========== ==========
INCOME PER SHARE OF COMMON STOCK
Income before extraordinary item $ 1.51 $ 1.29 $ 1.09
Extraordinary item (debt redemption) - - (.05)
---------- ---------- ----------

Net income per share of common stock $ 1.51 $ 1.29 $ 1.04
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

<PAGE> 4

Manor Care, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
May 31 (in thousands of dollars) 1995 1994
----------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 75,060 $ 60,487
Receivables (net of allowances of $22,999 and $24,431) 96,149 84,766
Inventories 17,138 12,954
Current deferred income tax benefit 27,371 12,317
Other 14,657 12,828
---------- ----------

Total current assets 230,375 183,352
---------- ----------

PROPERTY AND EQUIPMENT, AT COST, NET OF DEPRECIATION 993,791 824,350
---------- ----------

LODGING FRANCHISE RIGHTS, NET OF AMORTIZATION 61,565 64,454
---------- ----------

OTHER ASSETS 130,576 114,369
---------- ----------

$1,416,307 $1,186,525
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------

CURRENT LIABILITIES
Current portion of long-term debt $ 5,468 $ 5,869
Accounts payable 94,281 50,231
Accrued expenses 101,732 97,597
Income taxes payable - 12,681
---------- ----------

Total current liabilities 201,481 166,378
---------- ----------

MORTGAGES AND OTHER LONG-TERM DEBT 209,630 119,333
---------- ----------

SUBORDINATED LONG-TERM DEBT 157,671 157,602
---------- ----------

DEFERRED INCOME TAXES ($150,345 AND $137,916) AND OTHER 222,652 209,397
---------- ----------

SHAREHOLDERS' EQUITY
Common stock $.10 par, 160,000,000 and 80,000,000 shares
authorized; 65,513,734 and 65,436,734 shares issued 6,553 6,545
Contributed capital 168,699 167,316
Retained earnings 491,520 402,520
Cumulative translation adjustment 709 (31)
Treasury stock, 2,989,264 and 2,986,492 shares, at cost (42,608) (42,535)
---------- ----------

Total shareholders' equity 624,873 533,815
---------- ----------

$1,416,307 $1,186,525
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

20
<PAGE> 5
Manor Care, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Cumulative
(in thousands of dollars) Common Stock Contributed Retained Translation
Shares Amount Capital Earnings Adjustment
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1992 60,363,588 $6,036 $ 66,852 $275,264 $ (640)

Net income - - - 59,364 -
Exercise of stock options 107,244 11 1,457 - -
Cash dividends - - - (5,096) -
Other - - 162 - 992
---------- ------ -------- -------- -------

Balance, May 31, 1993 60,470,832 6,047 68,471 329,532 352

Net income - - - 78,362 -
Exercise of stock options 222,380 23 2,186 - -
Cash dividends - - - (5,374) -
Debenture Conversion 4,743,522 475 96,432 - -
Other - - 227 - (383)
--------- ------ -------- -------- -------

Balance, May 31, 1994 65,436,734 $6,545 $167,316 $402,520 $ (31)

Net income - - - 94,486 -
Exercise of stock options 77,000 8 833 - -
Cash dividends - - - (5,489) -
Other - - 550 3 740
---------- ------ -------- -------- -------

Balance, May 31, 1995 65,513,734 $6,553 $168,699 $491,520 $ 709
========== ====== ======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

21
<PAGE> 6
Manor Care, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended May 31 (in thousands of dollars) 1995 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 94,486 $ 78,362 $ 59,364
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 76,215 66,540 60,999
Amortization of debt discount 670 1,014 940
Provision for bad debts 13,493 13,923 9,394
Increase in deferred taxes 12,429 6,333 7,500
Gain on sale of facilities - (7,978) -
Changes in assets and liabilities (excluding
sold facilities and acquisitions):
Change in receivables (24,657) (15,206) (16,110)
Change in inventories and other current assets (5,367) (927) (57)
Change in accounts payable and accrued expenses 21,530 15,831 (4,442)
Change in income taxes payable (27,735) 7,427 719
Change in other liabilities 7,599 10,078 6,723
--------- --------- ---------

NET CASH PROVIDED BY OPERATING ACTIVITIES 168,663 175,397 125,030
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (118,797) (90,871) (90,364)
Acquisition of operating hotels (59,766) (44,200) (25,115)
Acquisition of healthcare facilities (56,745) - -
Acquisition of a hotel chain - (10,400) -
Acquisition of operating pharmacies (2,451) (7,217) (29,188)
Sale of (investment in) healthcare business 13,334 (10,000) -
Proceeds from the sale of property - 22,830 -
Other items, net (8,322) (3,338) 6,296
--------- --------- ---------

NET CASH UTILIZED BY INVESTING ACTIVITIES (232,747) (143,196) (138,371)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 209,354 5,079 167,727
Principal payments of debt (126,049) (54,472) (153,015)
Proceeds from exercise of stock options 841 2,209 1,468
Dividends paid (5,489) (5,374) (5,096)
--------- --------- ---------
NET CASH PROVIDED (UTILIZED) BY
FINANCING ACTIVITIES 78,657 (52,558) 11,084
--------- --------- ---------

NET CHANGE IN CASH AND CASH EQUIVALENTS 14,573 (20,357) (2,257)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 60,487 80,844 83,101
--------- --------- ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 75,060 $ 60,487 $ 80,844
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

22
<PAGE> 7
Manor Care, Inc. and Subsidiaries

MANAGEMENT'S REVIEW OF FINANCIAL POSITION AND CASH FLOWS

LIQUIDITY AND CAPITAL RESOURCES

The Company maintains adequate capital resources, including strong operating
cash flows and committed lines of credit, to support ongoing operations and
fulfill capital requirements for both the upcoming year and the foreseeable
future.

In November 1994, the Company entered into a $250.0 million competitive
advance and multi-currency revolving credit facility provided by a group of
eighteen banks. This facility replaced the $100.0 million revolving credit
facility agreement, as amended, dated June 1993, and the $65.0 million
multi-currency revolving credit facility agreement, as amended, dated December
1992. The new facility will expire in November 1999. At May 31, 1995, bank
lines totaled $270.0 million of which $141.7 million remained unused.

The Company maintains adequate debt capacity as evidenced by Standard & Poor's
assignment to the Company of an investment grade BBB to the Company's senior
debt. The Company's ratio of senior debt to equity plus subordinated debt is .3
to 1. Furthermore, a significant portion of the Company's property and
equipment remains unencumbered.

The Company's working capital ratio at May 31, 1995 and 1994 was 1.1. The
Company attempts to minimize its investment in net current assets, and believes
that the maintenance of minimal working capital is an appropriate objective
given the stability of the Company's operating cash flows and the depth of its
financial resources.

PROPERTY

During fiscal year 1995, additions to property and equipment amounted to
$118.8 million. Additions included routine capital expenditures and specialty
product conversions. An additional $59.8 million was spent to acquire 16
operating hotels and $56.7 million was spent to acquire 9 additional nursing
centers and assisted living facilities.

LONG-TERM DEBT

Long-term debt was $367.3 million at May 31, 1995 compared to $276.9 million
at May 31, 1994. The increase in long-term debt is mainly attributable to the
Company's acquisition of hotels, nursing centers and assisted living
facilities.

The Company's long-term debt to equity ratio was .6 to 1 at May 31, 1995 and
.5 to 1 at May 31, 1994. In evaluating leverage and debt capacity, the Company
considers cash flow and interest coverage. The Company's consolidated interest
coverage ratio and consolidated debt ratio, as defined by the Company's bank
agreement, were 8.62 to 1 and .37 to 1, respectively, for fiscal year 1995. The
Company's bank agreement requires a consolidated interest coverage ratio minimum
of 3 to 1 and prohibits a consolidated debt ratio in excess of .67 to 1.

The current portion of debt as of May 31, 1995 amounted to $5.5 million.

SHAREHOLDERS' EQUITY

Shareholders' equity increased from $533.8 million at May 31, 1994 to $624.9
million at May 31, 1995. This increase was primarily due to net income of
$94.5 million, reduced by dividend payments amounting to $5.5 million.

23
<PAGE> 8
MANAGEMENT'S REPORT

The Company has developed and maintains internal control systems designed to
provide reasonable assurance that assets are safeguarded and that transactions
are executed and recorded in accordance with management authorization. Control
systems are supported by written policies and are regularly evaluated by the
Company's internal auditors.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which require that
business judgments be applied. While management is responsible for the
preparation of financial statements, the Company's outside auditors have
examined the financial statements as described in their report.

The Audit Committee of the Company's Board of Directors is comprised of two
external directors. This Committee meets periodically with management, the
internal auditors and the external auditors. The Committee reviews the
Company's annual financial statements in advance of their release and monitors
and reviews the audit programs conducted by both the Company's internal audit
department and the external auditors. Audit Committee meetings are scheduled
so as to facilitate any private communications with the Committee desired by
either the internal or external auditors.

Stewart Bainum, Jr.
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

James A. MacCutcheon
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND TREASURER

24
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Manor Care, Inc.:

We have audited the accompanying consolidated balance sheets of MANOR CARE,
INC. (a Delaware Corporation) and subsidiaries as of May 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended May 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above (appearing on
pages 19, 20, 21, 22 and 25-28) present fairly, in all material respects, the
financial position of MANOR CARE, INC. and subsidiaries as of May 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended May 31, 1995, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP
WASHINGTON, D.C.
JUNE 20, 1995

24
<PAGE> 10
Manor Care, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Manor Care,
Inc. and its subsidiaries (the "Company"). All significant intercompany
transactions have been eliminated.

CASH

The Company considers all highly liquid securities purchased with a maturity
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

The components of property and equipment at May 31, were:

<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994
-------------------------------------------------------------------------
<S> <C> <C>
Land $ 113,768 $ 92,838
Building and improvements 953,471 813,131
Capitalized leases 18,991 18,991
Furniture, fixtures and
equipment 224,730 187,804
Facilities in progress 32,033 19,632
---------- ----------
1,342,993 1,132,396

Less: Accumulated depreciation (349,202) (308,046)
---------- ----------

$ 993,791 $ 824,350
========== ==========
</TABLE>

Depreciation has been computed for financial reporting purposes using the
straight-line method. A summary of the ranges of estimated useful lives upon
which depreciation rates have been based follows:

<TABLE>
<S> <C>
Building and improvements 10-40 years
Furniture, fixtures and equipment 3-20 years
</TABLE>

Accumulated depreciation includes $8.9 million at May 31, 1995 and $8.2
million at May 31, 1994 relating to capitalized leases. Capitalized leases are
amortized on a straight-line basis over the lesser of the lease term or the
remaining useful lives of the leased properties.

CAPITALIZATION POLICIES

Major renovations and replacements are capitalized to appropriate property
and equipment accounts. Upon sale or retirement of property, the cost and
related accumulated depreciation are eliminated from the accounts and the
related gain or loss is taken into income. Maintenance, repairs and minor
replacements are charged to expense.

Construction overhead and costs incurred to ready a project for its intended
use are capitalized for major development projects and are amortized over the
lives of the related assets. Pre-opening marketing, personnel recruitment and
training costs related to facilities under construction are deferred until
construction is completed and then amortized over two years.

The Company capitalizes interest on borrowings applicable to facilities in
progress. Interest has been capitalized as follows: 1995, $2.0 million; 1994,
$.7 million; 1993, $2.6 million.

25
<PAGE> 11
LODGING FRANCHISE RIGHTS

Franchise rights are recorded at their estimated fair values at the date
acquired and amortized on a straight-line basis over an estimated useful life
of twenty-six years. The recoverability of net value of franchise rights is
evaluated annually based on undiscounted cash flows.

SELF-INSURANCE PROGRAMS

The Company self-insures for certain levels of general and professional
liability, automobile liability and workers' compensation coverage. The
estimated costs of these programs are accrued at present values based on
actuarial projections for known and anticipated claims.

NET INCOME PER COMMON SHARE

Net income per common share has been computed based on the weighted average
number of shares of common stock outstanding. The effect of outstanding and
unexercised stock options on the computation is insignificant.

INCOME TAXES

Included in the 1994 tax provision was a charge of $3.6 million due to the
impact on prior periods of a change in the rates. In fiscal year 1993, the
Company adopted Statement of Financial Accounting Standards No. 109. This
adoption did not have a material effect on the Company's financial statements.
Income tax provisions were as follows:

Deferred tax expense:
Federal 2,041 4,131 7,696
State 398 (821) (182)
------- ------- -------

$65,300 $58,500 $38,500
======= ======= =======
</TABLE>

Deferred tax assets (liabilities) are comprised of the following at May 31:

<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994 1993
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization $ (92,314) $(86,138) $ (75,127)
Purchased tax benefits (46,212) (47,506) (47,689)
Gain on stock issuance (11,895) (11,895) (11,616)
Other (21,545) (5,084) (6,386)
--------- -------- ---------

Gross deferred tax liabilities (171,966) (150,623) (140,818)

Tax deposit 12,000 - -
Other 34,607 25,024 21,552
--------- -------- ---------

Gross deferred tax assets 46,607 25,024 21,552
--------- --------- ---------

Net deferred tax $(125,359) $(125,599) $(119,266)
========= ========= =========

</TABLE>

The Company expects the deferred tax assets to be realized through future
taxable income.

25
<PAGE> 12
A reconciliation of income tax expense at the statutory rate to income tax
expense included in the consolidated statements of income follows:

<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 34%
------- ------- -------
Federal taxes at statutory rate $55,925 $47,902 $34,300
State income taxes, net of Federal
tax benefit 7,653 6,501 4,899
Effect of tax rate changes - 3,600 -
Tax credits (910) (910) (726)
Other 2,632 1,407 27
------- ------- -------

Income tax expense $65,300 $58,500 $38,500
======= ======= =======

Income taxes paid $69,725 $48,005 $27,746
======= ======= =======
</TABLE>

ACCRUED EXPENSES

Accrued expenses at May 31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
(in thousands of dollars) 1995 1994
---------------------------------------------------------------
<S> <C> <C>
Payroll $ 57,995 $52,906
Taxes, other than income 13,386 11,503
Insurance 8,209 8,681
Interest 1,456 1,207
Other 20,686 23,300
-------- -------
$101,732 $97,597
======== =======
</TABLE>

LONG-TERM DEBT

Maturities of long-term debt at May 31, 1995 were as follows:

<TABLE>
<CAPTION>
Fiscal Year (in thousands of dollars)
-----------------------------------------------------
<S> <C>
1996 $ 5,468
1997 8,552
1998 13,732
1999 6,163
2000 148,416
2001 to 2024 190,438
--------

$372,769
========
</TABLE>

Long-term debt, consisting of mortgages, capital leases and subordinated
debt, was net of discount of $1.7 million and $2.4 million at May 31, 1995 and
1994, respectively. Amortization of discount was $.7 million in 1995, $1.0
million in 1994 and $.9 million in 1993, including the write-off associated
with debt redemptions.

During fiscal year 1995 interest rates on subordinated debt ranged from 4.75%
to 9.5%; interest rates on mortgages and other long- term debt ranged from 4.0%
to 15.3%. The weighted average interest rate in fiscal year 1995 was 9.3%

In October 1993, the Company redeemed the $99.0 million of 6 3/8% Convertible
Subordinated Debentures due 2011. Approximately $3.0 million were redeemed for
cash, at a premium, while the remaining debentures were converted into common
stock at $20.31 per share which resulted in 4,743,522 shares being issued.

On November 30, 1994, the Company entered into a $250.0 million competitive
advance and multi-currency revolving credit facility provided by a group of
eighteen banks. This credit facility replaces the $100.0 million revolving
credit facility and the $65.0 million multi-currency revolving credit facility.
The new facility provides that up to $75.0 million is available for borrowings
in foreign currencies. Borrowings under the facility are, at the option of the
Company, at one of several rates including LIBOR plus 26.25 basis points. In
addition, the Company has the option to request participating banks to bid on
loan participation at lower rates than those contractually provided by the
facility. The facility presently requires the Company to pay fees of 3/16 of
1% on the entire loan commitment. The facility will terminate on November 30,
1999. At May 31, 1995,

26
<PAGE> 13
the foreign and domestic borrowings amounted to $33.3 million and $95.0
million, respectively.

Compensating balances of $.8 million are required by certain debt agreements.
In addition, various debt agreements impose certain restrictions regarding
financial ratios and payment of dividends. At May 31, 1995, approximately
$132.0 million of retained earnings were not available for cash dividends and
owned property with a net book value of $133.0 million was pledged or
mortgaged.

LEASES

The Company operates certain property and equipment under leases, some with
purchase options, that expire at various dates through 2051. Future minimum
lease payments are as follows:

<TABLE>
<CAPTION>
Operating Capitalized
(in thousands of dollars) Leases Leases
----------------------------------------------------------------
<S> <C> <C>
1996 $ 4,483 $1,491
1997 4,498 1,469
1998 3,770 1,266
1999 3,365 1,198
2000 3,072 1,083
Thereafter 15,294 3,279
------- ------
Total minimum
lease payments $34,482 9,786

Less: Amount
representing
interest 3,055
------

Present value of
lease payments 6,731
Less: Current
portion 817
------

Lease obligations
included in
long-term debt $5,914
======
</TABLE>

Rental expense under noncancellable operating leases was $5.6 million in
1995, $5.2 million in 1994 and $4.7 million in 1993.

CAPITAL STOCK

There are 5,000,000 shares of authorized but unissued preferred stock with a
par value of $1.00 per share. The rights of the preferred shares will be
determined by the Board of Directors when the shares are issued. There are
160,000,000 authorized shares of $.10 par value common stock.

During fiscal year 1995, the Company acquired 2,772 shares of its common
stock for a total cost of $73 thousand.

In September 1994, the shareholders approved the Company's Non-Employee
Director Stock Option and Deferred Compensation Stock Purchase Plan - Plan A,
and authorized a total of 150,000 shares of common stock to be granted to
non-employee directors. Pursuant to the plan each eligible non-employee
director was granted 5,000 shares on September 9, 1994 and each non-employee
director subsequently elected to the Board of Directors will receive an option
to purchase 5,000 shares of common stock on the date of his or her initial
election. In addition, each eligible non-employee director will be
automatically granted an option to purchase an additional 1,000 shares on the
anniversary date of election. Options on 30,000 shares at $27.94 were granted
on September 9, 1994 and will become exercisable between September 1996 and
September 1998. All 30,000 shares remained outstanding at May 31, 1995. The
plan will expire in September 2004.

26
<PAGE> 14

In September 1993, the shareholders approved the Company's Key Executive Stock
Option Plan of 1993 and authorized 2,000,000 shares of common stock to be
granted to key executive officers and key employees until August 31, 2003, at
which date the plan will expire. During the current period, 80,000 options were
granted and will become exercisable from 1996 to 2001 and expire in December
2003. At May 31, 1995, options for the purchase of an aggregate of 516,500
shares were outstanding at prices equal to the market value of the stock at date
of grant.

Under the Company's 1969 stock option plan, as amended and extended,
shareholders authorized 5,223,437 shares of common stock to be granted to key
executive employees until September 30, 1993. At May 31, 1995, options for the
purchase of an aggregate of 2,991,750 shares were outstanding at prices equal to
the market value of the stock at date of grant. During the current period, no
options were granted to executive officers and key employees. Options totaling
1,260,986 are presently exercisable and 1,730,764 will become exercisable from
1996 to 2002 and will expire at various dates to September 2003. Option
activity under the above plans adjusted for prior stock splits, dividends and
previously granted non-qualified options, was as follows:

<TABLE>
<CAPTION>
Number of Shares Average Option Price
---------------- --------------------
Options 1995 1994 1993 1995 1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Granted 110,000 476,500 444,000 $27.50 $22.42 $20.97
Exercised 77,000 222,380 107,244 $10.92 $ 9.93 $10.14
Cancelled - 149,700 206,700 $ - $ 7.38 $12.66
Outstanding
at May 31 3,538,250 3,505,250 3,400,830 $14.36 $14.26 $12.27
Available
for grant
at May 31 1,603,500 1,563,500 52,696
</TABLE>

ACQUISITIONS AND DIVESTITURES

During fiscal year 1995, the Company purchased 16 operating hotels containing
over 2,300 rooms for approximately $59.8 million. In addition, 9 nursing
centers and assisted living facilities were purchased for $56.7
million. The Company's 82% owned pharmacy subsidiary, Vitalink Pharmacy
Services, Inc. purchased a pharmacy in Texas servicing 1,300 institutional beds
for $2.5 million. On May 31, 1995 the Company repurchased one-half of the 11%
interest held by its management in a lodging subsidiary; the purchase cost of
$27.4 million was paid in June and July 1995. In March 1995, the Company sold
its investment in a physicians practice management business for $13.3 million.

During fiscal year 1994, the Company purchased thirteen operating hotels
containing over 1,900 rooms for approximately $44.2 million. An additional
$10.4 million was spent to acquire a hotel chain (Restho tel Primevere)
operating primarily in France. In December 1993, the Company invested $10.0
million in a minority interest in a physicians practice management business. The
Company also sold three nursing homes for $15.6 million and a hotel for $7.2
million. The after tax gain recognized from these sales was $4.8 million.

During fiscal year 1994, Vitalink Pharmacy Services, Inc. purchased two
pharmacies based in Oregon and Colorado which service over 7,400 institutional
beds for a total of $7.2 million.

During fiscal year 1993, the Company purchased seven operating hotels
containing a total of 1,306 rooms for approximately $25.0 million and sold two
nursing facilities for $5.2 million. The realized gain from the sale was
immaterial.

During fiscal year 1993, Vitalink Pharmacy Services, Inc. purchased a
pharmacy located in Maryland, servicing 2,600 institutional beds and a pharmacy
business in New Jersey, servicing over 9,100 institutional beds, for
approximately $29.2 million.

Unless otherwise noted, acquisitions are accounted for as a purchase.
Approximately 70% of the total costs for nursing home and hotel acquisitions
are allocated to buildings, approximately 20% to land and the remainder to
furniture, fixtures and equipment. The remainder of the acquisition costs are
allocated to goodwill.

<PAGE> 15

COMMITMENTS AND CONTINGENCIES

The Company is a defendant in a number of lawsuits arising in the ordinary
course of business. In the opinion of management and counsel to the Company,
the ultimate outcome of such litigation will not have a material adverse effect
on the Company's financial position or results of operations.

Revenues recorded under Federal and state medical assistance programs are
subject to adjustment upon audit by appropriate government agencies. For
fiscal years 1995, 1994 and 1993 these revenues amounted to $431.0 million;
$377.3 million; and $337.0 million, respectively. In the opinion of
management, any difference between revenues recorded and final determination
will not be significant.

As of May 31, 1995, the Company had contractual commitments of $39.8 million
relating to its internal construction program.

PENSION, PROFIT SHARING AND INCENTIVE PLANS

The Company has various pension and profit sharing plans, including a
supplemental executive retirement plan, and contributes to certain union
welfare plans. The provision for these plans amounted to $12.2 million in
1995; $10.3 million in 1994; and $8.4 million in 1993. All vested benefits
under retirement plans are funded or accrued.

The Company sponsors a defined contribution profit sharing plan covering
substantially all of its employees. Contributions of up to 6% of each covered
employee's salary are determined based on years of service. The cost of the
plan totaled $5.3 million in 1995; $4.5 million in 1994; and $4.6 million in
1993.

Also included in the Company's retirement plans is a defined benefit pension
plan covering substantially all of its employees. The benefits are based on
service credit for each year of participation after January 1, 1992. In
addition, there is a prior benefit equal to the accrued benefit at December 31,
1991 for a predecessor plan.

Service cost benefits earned during fiscal years 1995, 1994 and 1993
approximated the Plan's annual costs of $3.0 million, $3.1 million and $2.5
million, respectively. As of February 28, 1995, 1994 and 1993, Plan assets of
approximately $12.2 million, $8.3 million and $6.6 million compared to vested
benefit obligations of $9.6 million, $9.0 million and $7.0 million,
respectively.

Projected benefit obligations were not significantly different from
accumulated benefit obligations of $12.1 million, $11.1 million and $8.6
million as of the same dates. Liabilities recorded on the Company's balance
sheets as of May 31, 1995, 1994 and 1993 were $.6 million, $2.9 million and
$1.8 million, respectively. Projected benefit obligations were determined
using an assumed discount rate of 8.5% for 1995 and 8% for 1994 and 1993, an
assumed rate of return on plan assets of 8.25% and an assumed compensation
increase of 4.5%.

The Company also has various incentive compensation plans for certain
personnel. Incentive compensation accrued was $5.8 million in 1995; $6.3
million in 1994; and $4.5 million in 1993.

<PAGE> 16
FAIR VALUE OF FINANCIAL INSTRUMENTS

The balance sheet carrying amounts of cash, cash equivalents and receivables
approximate fair value due to the short-term nature of these items. Mortgages
and other long-term debt consist of bank loans, mortgages and capital leases.
Interest rates on bank loans adjust frequently based on current market rates;
accordingly, the carrying amount of bank loans is equivalent to fair value.
Fair values for mortgages and capital leases were determined by discounting
future cash flows using the Company's current market rate for secured debt.
Fair value of subordinated debt was determined by pricing the debt at quoted
market prices.

<TABLE>
<CAPTION>
Carrying Estimated
Balances at May 31, 1995 Amount Value
------------------------ -------- ---------
(in thousands of dollars)
<S> <C> <C>
Assets
Cash & cash equivalents $ 75,060 $ 75,060
Receivables, net $ 96,149 $ 96,149

Liabilities (included current portion)
Mortgages and other long-term debt $215,098 $216,393
Subordinated long-term debt $157,671 $169,601
</TABLE>

BUSINESS SEGMENT INFORMATION

Revenues by principal business segment are included in the Consolidated
Statements of Income. Income from operations, depreciation and amortization,
identifiable assets and capital expenditures by principal business segment
follows:

<TABLE>
<CAPTION>
Fiscal Year Ended May 31, 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands of dollars)
Income from
Operations
Healthcare $ 137,572 $ 126,818 $ 112,320
Lodging 52,406 33,247 23,946
Corporate and other (6,030) (2,577) (2,202)
---------- ---------- ----------

$ 183,948 $ 157,488 $ 134,064
========== ========== ==========

Depreciation and
Amortization
Healthcare $ 48,880 $ 44,138 $ 41,227
Lodging 21,501 17,187 14,253
Corporate and other 5,834 5,215 5,519
---------- ---------- ----------

$ 76,215 $ 66,540 $ 60,999
========== ========== ==========

Identifiable Assets
Healthcare $ 905,755 $ 798,113 $ 755,259
Lodging 356,612 289,841 237,425
Corporate and other 153,940 98,571 113,822
---------- ---------- ----------

$1,416,307 $1,186,525 $1,106,506
========== ========== ==========

Capital
Expenditures
Healthcare $ 140,451 $ 66,032 $ 41,346
Lodging 89,198 67,171 68,599
Corporate and other 5,726 6,967 6,627
---------- ---------- ----------

$ 235,375 $ 140,170 $ 116,572
========== ========== ==========
</TABLE>

28
<PAGE> 17
SUMMARY OF QUARTERLY RESULTS
(Unaudited)

<TABLE>
<CAPTION>
Income
Quarters from Net Per
Ended Revenues Operations Income Share
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands of dollars, except per share data)

FISCAL 1994
-----------

August $ 284,628 $ 39,032 $19,762 $ .34
November 284,625 41,583 20,241 .34
February 284,071 33,323 15,651 .25
May 309,748 43,550 22,708 .36
---------- -------- ------- -----

$1,163,072 $157,488 $78,362 $1.29
========== ======== ======= =====

FISCAL 1995
-----------

August $ 321,401 $ 47,464 $24,363 $ .39
November 324,245 47,825 25,007 .40
February 322,100 38,426 18,741 .30
May 354,247 50,233 26,375 .42
---------- -------- ------- -----

$1,321,993 $183,948 $94,486 $1.51
========== ======== ======= =====
</TABLE>

QUARTERLY MARKET PRICE RANGE
OF COMMON STOCK AND DIVIDENDS PAID
(Unaudited)

<TABLE>
<CAPTION>
Cash Dividends
Market Price Per Share Paid Per Share
---------------------- --------------
Quarters Ended High Low Amount Date
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1993
-----------

August $21.25 $15.63 $.022 8/27/92
November $24.50 $17.75 $.022 11/27/92
February $26.63 $19.00 $.022 2/26/93
May $22.38 $18.63 $.022 5/27/93

Fiscal 1994
-----------

August $24.00 $17.50 $.022 8/27/93
November $23.25 $19.38 $.022 11/26/93
February $28.00 $20.88 $.022 2/25/94
May $29.25 $23.25 $.022 5/27/94

Fiscal 1995
-----------

August $27.88 $24.25 $.022 8/26/94
November $29.63 $25.25 $.022 11/25/94
February $31.25 $27.00 $.022 2/27/95
May $32.25 $27.50 $.022 5/26/95
</TABLE>

<PAGE> 1
EXHIBIT 21

MANOR CARE, INC.
SUBSIDIARIES OF THE COMPANY

The following list sets forth the principal subsidiaries of the Company and
the place of their incorporation. Except as otherwise noted, all of these
subsidiaries are directly or indirectly wholly-owned by the Company.

1. Manor Healthcare Corp., a Delaware corporation - includes 54 active
omitted subsidiaries operating in the United States.

2. Four Seasons Nursing Centers, Inc., a Delaware corporation.

3. Vitalink Pharmacy Services, Inc., a Delaware corporation, of which the
Company owns 82.3% of the Common Stock - includes 2 active omitted
subsidiaries operating in the United States.

4. Community Hospital of Mesquite, Inc., a Texas corporation.

5. Medical Aid Training Schools, Inc., a Delaware corporation.

6. Choice Hotels International, Inc., a Delaware corporation, of which
the Company owns 100% of the Preferred Stock and approximately 94.5%
of the Common Stock - includes 6 active omitted subsidiaries operating
in foreign countries and 2 active omitted subsidiaries operating in
the United States.

7. Quality Hotels Europe, Inc., a Delaware corporation.

8. QH Europe Partnership, a Maryland partnership - includes 8 active
omitted subsidiaries operating in foreign countries.

9. Boulevard Motel Corp., a Maryland corporation - includes 11 active
omitted subsidiaries operating in the United States.

10. Comfort California, Inc., a California corporation.

11. Sunburst Hotel Corp., a Texas corporation.

12. Cactus Hotel Corp., an Arizona corporation.

13. Gulf Hotel Corp., a Louisiana corporation.

14. MNR Finance Corp., a Delaware corporation.

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated June 20, 1995, included and incorporated by
reference in Manor Care, Inc.'s Form 10-K for the year ended May 31, 1995, into
the Company's previously filed Registration Statement File Nos. 2-80129,
2-73420, 33-9766, 33-20241, 33-27834, 33-36213, 2-78242, 33-52734, 33- 64680,
33-67850, 33-58903 and 33-58907.

ARTHUR ANDERSEN LLP

Washington, D.C.,
August 28, 1995

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 75,060
<SECURITIES> 0
<RECEIVABLES> 128,146
<ALLOWANCES> 22,999
<INVENTORY> 17,138
<CURRENT-ASSETS> 230,375
<PP&E> 1,342,993
<DEPRECIATION> 349,202
<TOTAL-ASSETS> 1,416,307
<CURRENT-LIABILITIES> 201,481
<BONDS> 367,301
<COMMON> 6,553
0
0
<OTHER-SE> 618,320
<TOTAL-LIABILITY-AND-EQUITY> 1,416,307
<SALES> 0
<TOTAL-REVENUES> 1,321,993
<CGS> 0
<TOTAL-COSTS> 1,045,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,493
<INTEREST-EXPENSE> 27,115
<INCOME-PRETAX> 159,786
<INCOME-TAX> 65,300
<INCOME-CONTINUING> 94,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,486
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51

</TABLE>

<PAGE> 1
Notice of Annual Meeting
and Proxy Statement

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

MANOR CARE, INC.

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

Annual Meeting of Stockholders
September 28, 1995

<PAGE> 2

MANOR CARE, INC.
10750 COLUMBIA PIKE
SILVER SPRING, MARYLAND 20901

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 1995

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Manor
Care, Inc. (the "Company"), will be held at the Terrace Room, 10770 Columbia
Pike, Silver Spring, Maryland, on September 28, 1995, at 9:00 a.m., to consider
and vote upon the following matters:

1. To elect a Board of Directors consisting of seven persons to serve
until the next Annual Meeting of Stockholders of the Company and until
their successors are duly elected and qualified.

2. To approve a proposal to adopt the Manor Care, Inc. 1995 Long-Term
Incentive Plan.

3. To approve a proposal to adopt the Manor Care, Inc. 1995 Employee Stock
Purchase Plan.

4. To transact such other business as may properly come before such
meeting or any adjournment thereof.

The close of business on July 31, 1995, has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting or any adjournment thereof.

Your management sincerely desires the presence in person of every
stockholder able to attend the meeting; however, in order to be assured of the
representation of the greatest number of stockholders either in person or by
proxy, it is requested that you date and sign the accompanying proxy and return
it as promptly as possible in the enclosed self-addressed envelope. No postage
is required if mailed in the United States.

If you attend the meeting in person, you may revoke your proxy at such
meeting and cast your vote in person. If you receive more than one proxy because
your shares are held in various names or accounts, each proxy should be
completed and returned.

By Order of the Board of Directors:

James H. Rempe
Secretary

Silver Spring, Maryland
August 28, 1995

<PAGE> 3

MANOR CARE, INC.
10750 COLUMBIA PIKE
SILVER SPRING, MARYLAND 20901
301-681-9400

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 28, 1995

INTRODUCTION

The enclosed proxy is solicited by and on behalf of the Board of
Directors of Manor Care, Inc. (the "Company"), a Delaware corporation, to be
used at the 1995 Annual Meeting of Stockholders to be held on Thursday,
September 28, 1995, at 9:00 a.m., in the Terrace Room, 10770 Columbia Pike,
Silver Spring, Maryland, and at any and all adjournments thereof. All shares
represented by proxies will be voted at the meeting in accordance with the
specifications marked thereon, or if no specifications are made, proxies will be
voted FOR all matters set forth in the attached Notice of Meeting and in the
discretion of the proxy holder as to any other business which comes before the
meeting. Any stockholder giving a proxy may revoke the same at any time prior to
the voting of such proxy by giving written notice of revocation to the
Secretary, by submitting a later dated proxy or by attending the meeting and
voting in person. The Proxy Statement is first being mailed to stockholders on
or about August 28, 1995.

The Company's Annual Report (including certified financial statements)
for the fiscal year ended May 31, 1995, is accompanying this Proxy Statement.
The Annual Report is not a part of the proxy soliciting material.

Except where the context requires otherwise, the term "Company"
includes Manor Care, Inc. and its subsidiaries.

VOTING AT THE ANNUAL MEETING

The Board of Directors has fixed July 31, 1995 (the "Record Date") as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting. On that date, there were outstanding 62,425,203
shares of Common Stock, par value $.10 per share (the "Common Stock"). Each such
share of Common Stock is entitled to one vote. The presence in person or by
proxy of the holders of a majority of the Company's outstanding shares of Common
Stock will constitute a quorum.

1
<PAGE> 4

The affirmative vote of a majority of the Company's outstanding shares
of Common Stock present and voting at the Annual Meeting, in person or by proxy,
will be necessary for approval of the proposal to adopt the Manor Care, Inc.
1995 Long-Term Incentive Plan, for approval of the proposal to adopt the
Manor Care, Inc. 1995 Employee Stock Purchase Plan, the election of directors
and for the taking of all other action at the Annual Meeting.

A stockholder who is present in person or by proxy at the Annual
Meeting and who abstains from voting on any or all proposals will be included in
the number of stockholders present at the meeting for the purpose of determining
the presence of a quorum. However, an abstention with respect to any matter will
not be counted either in favor of or against such matter.

Brokers who hold shares for the account of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the exchange or other organization of which they are members.
Members of the New York Stock Exchange are permitted to vote their clients'
proxies in their own discretion as to the election of directors but not as to
the Company's proposals relating to the approval of the proposals to adopt the
Manor Care, Inc. 1995 Long-Term Incentive Plan and the Manor Care, Inc. 1995
Employee Stock Purchase Plan. Shares held by a broker who does not receive
instructions on these matters will not be voted. Proxies which are voted by
brokers on some but not all of the proposals are referred to as "broker
non-votes." Broker non-votes will be included in determining the presence of a
quorum. However, a broker non-vote is not treated as being in favor of or
against the particular proposal under consideration.

If any nominee for election to the Board of Directors named in this
Proxy Statement shall become unavailable for election for any reason, the proxy
will be voted for a substitute nominee selected by the Board of Directors, or
the Board of Directors may elect not to fill the vacancy and reduce the number
of directors.

SOLICITATION OF PROXIES

The cost of the proxy solicitations will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by the directors,
officers and employees of the Company without additional compensation, by
personal interview, telephone, telegram or otherwise. Arrangements may also be
made with brokerage firms and other custodians, nominees and fiduciaries for the
forwarding of soliciting material to the beneficial owners of Common Stock held
of record by such persons, and the Company will reimburse such respective
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's reporting officers and directors, and persons who own
more than ten percent of the Company's Common Stock, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the

2
<PAGE> 5

Securities and Exchange Commission (the "Commission"), the New York Stock
Exchange and the Company. Based solely on the Company's review of the forms
filed with the Commission and written representations from reporting persons
that they were not required to file Form 5 for certain specified years, the
Company believes that, except to the extent previously reported in the Company's
1994 Proxy Statement, all of its reporting officers, directors and greater than
ten percent beneficial owners complied with all filing requirements applicable
to them during the fiscal year ended May 31, 1995, except that Regina
Herzlinger, a director, failed to timely file reports on Form 4 showing
purchases totalling 1,000 shares made between July 25, 1994 and September 28,
1994.

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth as of the Record Date the amount of the
Company's Common Stock beneficially owned by (1) each director and nominee, (2)
the chief executive officer and the four other most highly compensated executive
officers and (3) all officers and directors as a group. Stewart Bainum is the
only person, to the knowledge of the Company, who owned beneficially more than
5% of the Company's Common Stock as of the Record Date. Stewart Bainum's address
is 10750 Columbia Pike, Silver Spring, MD 20901.

<TABLE>
<CAPTION>
Percent
Name of Beneficial Owner Total of Class(1)
------------------------ ------------- -----------
<S> <C> <C>
Stewart Bainum 17,638,014(2) 28.3%
Stewart Bainum, Jr 1,932,481(3) 3.1%
Jack R. Anderson 30,000 *
Regina E. Herzlinger 1,250 *
William H. Longfield 2,500 *
Frederic V. Malek 1,000 *
Jerry E. Robertson, Ph. D 13,500 *
Donald C. Tomasso, 52,644(4) *
Robert C. Hazard, Jr 60,126(5) *
Gerald W. Petitt 68,250(6) *
Donald J. Landry 22,644(7) *
All Directors and Officers
as a Group (26 persons) 20,213,408(8) 31.9%
</TABLE>

----------------------------------
* Less than 1% of class.

(1) Percentages are based on 62,425,203 shares outstanding on the
Record Date plus shares which would be issued assuming that the
person exercises all options which are exercisable within 60
days thereafter.

(2) Includes 3,567,869 shares held directly or indirectly by Realty
Investment Company, Inc. and its subsidiaries ("Realty"), a real
estate investment and management company owned by Mr. Bainum,
his wife and their family,

3
<PAGE> 6

4,044,928 shares held by The Stewart Bainum Trust Dated May 23,
1995, the sole trustee of which is Mr. Bainum, his pro-rata
interests in 5,417,761 shares owned by Bainum Associates Limited
Partnership, 1,679,628 shares owned by Mid Pines Associates
Limited Partnership, 4,415,250 shares owned by MC Investments
Limited Partnership, limited partnerships in which Mr. Bainum is
a limited partner. Also includes 798,711 shares held by The Jane
L. Bainum Trust Dated May 23, 1995, the sole trustee of which is
his wife, and her pro-rata interest in 1,679,628 shares owned by
Mid Pines Associates Limited Partnership, a limited partnership
in which his wife is a limited partner. Does not include shares
owned beneficially by Stewart Bainum, Jr., whose interests are
stated in the above table, nor does it include 195,513 shares
held by his other three adult children.

(3) Includes his pro-rata interests in 5,417,761 shares owned by
Bainum Associates Limited Partnership and in 4,415,250 shares
owned by MC Investments Limited Partnership, in both of which
Mr. Bainum, Jr. is managing general partner but does not have
authority to vote such shares. Also includes his pro-rata
interest in 1,679,628 shares owned by Mid Pines Associates
Limited Partnership, in which Mr. Bainum, Jr. is managing
general partner and has shared voting authority, and his
pro-rata interest in 3,567,869 shares owned by Realty, a
corporation in which Mr. Bainum, Jr. owns approximately 21.3% of
common stock. Also includes 565,500 shares which Mr. Bainum, Jr.
has the right to acquire pursuant to stock options which are
presently exercisable or which become exercisable within 60 days
after the Record Date, and 1,265 shares and 96 shares,
respectively, which Mr. Bainum, Jr. has the right to receive
upon termination of his employment with the Company pursuant to
the terms of the Manor Care, Inc. Retirement Savings and
Investment Plan described on page 11 (the "401(k) Plan") and the
Manor Care, Inc. Nonqualified Retirement Savings and Investment
Plan described on page 12 (the "Nonqualified Savings Plan").

(4) Includes 40 shares held in trust for minor children for which
Mr. Tomasso is trustee. Beneficial ownership of such shares is
disclaimed. Also includes 36,000 shares which Mr. Tomasso has
the right to acquire pursuant to stock options which are
presently exercisable or which become exercisable within 60 days
after the Record Date, and 57 shares and 47 shares,
respectively, which Mr. Tomasso has the right to receive upon
termination of his employment with the Company pursuant to the
terms of the 401(k) Plan and the Nonqualified Savings Plan.

(5) Includes 58,500 shares which Mr. Hazard has the right to acquire
pursuant to stock options which are presently exercisable or
which become exercisable within 60 days after the Record Date,
and 46 shares and 218 shares, respectively, which Mr. Hazard has
the right to receive upon termination of his employment with the
Company pursuant to the terms of the 401(k) Plan and the
Nonqualified Savings Plan.

(6) Includes 8,661 shares held in trust for minor children for which
Mr. Petitt is trustee. Beneficial ownership of such shares is
disclaimed. Also includes 38,300 shares which Mr. Petitt has the
right to acquire pursuant to stock options which are presently
exercisable or which become exercisable within 60 days after the
Record Date.

(7) Includes 22,500 shares which Mr. Landry has the right to acquire
pursuant to stock options which are presently exercisable or
which become exercisable within 60 days after the Record Date,
and 62 shares and 82 shares, respectively, which Mr. Landry has
the right to receive upon termination of his employment with the
Company pursuant to the terms of the 401(k) Plan and the
Nonqualified Savings Plan.

(8) Includes a total of 1,007,401 shares which the officers and
directors included in the group have the right to acquire
pursuant to stock options which are presently exercisable or
which become exercisable within 60 days after the Record Date,
and a total of 4,532 shares and 843 shares, respectively, which
such directors and officers have the right to receive upon
termination of their employment with the Company pursuant to the
terms of the 401(k) Plan and the Nonqualified Savings Plan.

4
<PAGE> 7

NOMINATION AND ELECTION OF DIRECTORS

The entire Board of Directors, which consists of seven (7) members,
will be elected to serve until the next Annual Meeting of Stockholders of the
Company and until their successors are duly elected and qualified.

Stewart Bainum, Jr. is Stewart Bainum's son. Aside from the foregoing,
no nominee has any family relationship with any other director or executive
officer of the Company.

The following table sets forth information with respect to each nominee
for election as a Director of the Company. All of the nominees have previously
been elected by the stockholders of the Company.

<TABLE>
<CAPTION>
SERVED AS
NAME AND AGE DIRECTOR SINCE POSITIONS WITH THE COMPANY; BUSINESS EXPERIENCE; OTHER DIRECTORSHIPS
------------ -------------- --------------------------------------------------------------------
<S> <C> <C>
Stewart Bainum, Jr. (49) 1976 Chairman of the Board since March 1987; also President since June 1989; Vice
Chairman from June 1982 to March 1987. Director: Vitalink Pharmacy Services,
Inc.

Stewart Bainum (76) 1968 Vice Chairman of the Board since March 1987; Chairman of the Board from 1968
to March 1987; President from December 1980 through October 1981, and May
1982 through July 1985; Chairman of the Board of Realty Investment Company,
Inc. (private real estate investment company) since 1965.

Jack R. Anderson (70) 1980 President of Calver Corporation since May 1982. Director: FHP International
Corporation, Horizon Mental Health Management, Inc., Navistar International
Corporation and United Dental Care, Inc.

Regina E. Herzlinger (51) 1992 Nancy R. McPherson Professor of Business Administration, Harvard Business
School, since 1971. Director: C. R. Bard, Inc., Deere & Company, Salick
Health Care, Inc., and Schering-Plough Corporation.

William H. Longfield (55) 1989 President and Chief Executive Officer of C. R. Bard, Inc. (medical equipment)
since October 1993; President and Chief Operating Officer of C. R. Bard, Inc.
from September 1991 to October 1993; Executive Vice President and Chief
Operating Officer of C. R. Bard, Inc. from February 1989 to September 1991.
Director: C. R. Bard, Inc., Horizon Mental Health Management, Inc., United Dental
Care, Inc. and The West Company.

Frederic V. Malek (58) 1990 Chairman, Thayer Capital Partners since January 1993; Co-chairman of CB
Commercial Real Estate Group, Inc. since April 1989; Campaign Manager,
Bush-Quayle '92 Campaign from December 1991 to December 1992; Vice Chairman
of NWA, Inc. (airlines) from June 1990 to December 1991. Director: American
Management Systems, Inc., Automatic Data Processing Corp., FPL Group, Inc.,
ICF Kaiser International, Inc., Intrav, Inc., National Education Corporation,
Northwest Airlines and various Paine Webber mutual funds.

Jerry E. Robertson, Ph.D. (62) 1989 Retired; Executive Vice President of 3M Life Sciences Sector and Corporate
Services from November 1984 to March 1994. Director: Allianz Life Insurance
Company of North America, Cardinal Health, Inc., Coherent, Inc., Haemonetics
Corporation, Life Technologies, Inc., Project Hope, Medwave, Inc. and Steris
Corporation.
</TABLE>

STRUCTURE AND FUNCTIONING OF THE BOARD OF DIRECTORS

The Board of Directors held five meetings during the fiscal year ended
May 31, 1995. During such fiscal year, each incumbent attended 75% or more of
the aggregate of (1) the total number of

5
<PAGE> 8

meetings of the Board of Directors and (2) the total number of meetings of all
Committees on which such director served. The standing committees of the Board
include the Audit Committee, the Finance Committee, the Compensation/Key
Executive Stock Option Plan Committee and the Nominating Committee, the current
members of which are as follows:

Compensation/Key Executive
Stock Option Plan Committee Finance Committee
--------------------------- -----------------

Jerry E. Robertson, Chairman Stewart Bainum, Chairman
Stewart Bainum Stewart Bainum, Jr.
William H. Longfield Jack R. Anderson
Frederic V. Malek Jerry E. Robertson

Audit Committee Nominating Committee
--------------- --------------------

Jack R. Anderson, Chairman Jack R. Anderson, Chairman
Regina E. Herzlinger Frederic V. Malek

The Compensation/Key Executive Stock Option Plan Committee, which held
two meetings during the 1995 fiscal year, administers the Company's stock option
plans and grants stock options thereunder, reviews compensation of officers and
key management employees, recommends development programs for employees such as
training, bonus and incentive plans, pensions and retirement, and reviews other
employee fringe benefit programs.

The Finance Committee, which held three meetings during the 1995 fiscal
year, reviews the financial affairs of the Company and recommends financial
objectives, goals and programs to the Board of Directors and to management.

The Audit Committee, which held two meetings during the 1995 fiscal
year, reviews the scope and results of the annual audit, reviews and approves
the services and related fees of the Company's independent public accountants,
reviews the Company's internal accounting controls and reviews the Company's
Internal Audit Department and its activities.

The Nominating Committee, which held one meeting during the 1995 fiscal
year, recommends to the Board of Directors the members to serve on the Board of
Directors during the ensuing year. The Committee does not consider nominees
recommended by stockholders.

Directors who are full-time employees of the Company receive no
separate remuneration for their services as directors. The remuneration of all
non-employee directors is currently $12,650 per annum and $2,185 per diem for
Board meetings attended and $1,610 per diem for Committee meetings attended,
except where the Committee meeting is on the same day as a Board meeting. In
addition, directors are also reimbursed for travel expenses and other
out-of-pocket costs incurred in attending meetings.

6
<PAGE> 9

Pursuant to the Directors Retirement Plan adopted in September 1990, a
non-employee director who retires after serving as director for at least ten
years is entitled to an annual benefit for the remainder of his or her lifetime
or five years, whichever is less, which equals 75% of the annual retainer
payable to directors on the date of retirement plus 5% for each year served as a
non-employee director in excess of ten years, but not to exceed 100% of the
annual retainer payable to the director on the date of retirement. Unpaid
benefits will be forfeited if such director becomes an owner, director, officer,
employee or consultant either of a nursing home facility located within 25 miles
of a Company nursing home facility or of a lodging facility located within 10
miles of a Company-owned or franchised lodging facility, provided that such
other facility is, in the opinion of the Board, in competition with the business
of the Company.

In June 1992, Stewart Bainum, a director, retired from full-time
employment with the Company. Mr. Bainum is subject to a non-competition covenant
similar to that described in the preceding paragraph. During the 1995 fiscal
year, Mr. Bainum received consulting fees totalling $14,719 in addition to
Directors' fees as indicated above.

Pursuant to the Manor Care, Inc. Non-Employee Director Stock Option
and Deferred Compensation Stock Purchase Plan approved by the stockholders at
the 1994 Annual Meeting, eligible non-employee directors may elect, prior to
May 31 of each year, to defer a minimum of 25% of Board and committee fees
earned during the ensuing fiscal year. The fees which are so deferred will be
used to purchase Common Stock on the open market within 15 days after December
1, February 28 and May 31 of such fiscal year. Pending such purchases, the
funds are credited to an Interest Deferred Account, which is interest bearing.
Stock which is so purchased is deposited in a Stock Deferred Account pending
distribution in accordance with the Plan. Three of the incumbent Directors
(Professor Herzlinger and Messrs. Anderson and Robertson) have elected to
participate in the Plan for the 1996 fiscal year. The amount of compensation
that will accrue to such participating directors is not currently determinable.

In addition, pursuant to the Manor Care, Inc. Non-Employee Director
Stock Option and Deferred Compensation Plan, eligible non-employee directors
were each granted options to purchase 5,000 shares of Common Stock on September
9, 1994 and will be granted options to purchase 1,000 shares on the date of
election in subsequent calendar years. Pursuant to the Plan, on September 9,
1994 Messrs. Anderson, Bainum, Longfield, Malek, and Robertson and Professor
Herzlinger were granted options to purchase 5,000 shares at $27.94. The amount
of compensation that will accrue to such directors is not currently
determinable.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain information concerning the
annual and long term compensation for services in all capacities to the Company
for the fiscal years ended May 31, 1995, 1994 and 1993, of the chief executive
officer and the four other most highly compensated executive officers in the
Company's employ at May 31, 1995.

7
<PAGE> 10

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------ ------------------------------
Stock Option All Other
Name and Principal Position Year Salary Bonus Other Shares(#) Compensation(1)
--------------------------- ---- -------- -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr 1995 $572,308 $343,385 (3) -- $ 9,000
Chairman, President and 1994 457,867(2) 274,720 (3) 40,000 14,150
Chief Executive Officer 1993 499,200 269,568 (3) 30,000 13,732

Donald C. Tomasso (4) 1995 345,737 164,365 (3) -- 2,250
President, Long Term Care Division 1994 316,187 173,903 (3) 35,000 3,538
Manor Healthcare Corp. 1993 292,600 160,930 (3) 45,000 1,973

Robert C. Hazard, Jr (5) 1995 373,709 186,855 (3) -- 9,000
Co-Chairman 1994 346,124 173,062 (3) -- 14,150
Choice Hotels International, Inc. 1993 320,578 160,289 (3) -- 13,732

Gerald W. Petitt (5) 1995 323,553 161,776 (3) -- 9,000
Co-Chairman 1994 283,193 141,596 (3) -- 14,150
Choice Hotels International, Inc. 1993 262,291 131,146 (3) -- 13,732

Donald J. Landry (6) 1995 311,635 171,399 (3) 40,000 2,250
President 1994 275,712 144,059 (3) 25,000 3,537
Choice Hotels International, Inc. 1993 254,856 25,000 (3) 15,000 --
</TABLE>
------------------------

(1) Represents amounts contributed by the Company for fiscal 1995, 1994 and
1993 for the five individuals named in the above Summary Compensation
Table (the "Named Officers") under the 401(k) Plan and the Nonqualified
Savings Plan, which provide retirement and other benefits to eligible
employees, including the Named Officers. Amounts contributed in cash or
stock by the Company during fiscal 1995 under the 401(k) Plan for the
Named Officers were as follows: Mr. Bainum, $9,000; Mr. Tomasso,
$1,648; Mr. Hazard, $4,079; Mr. Petitt, $3,324; and Mr. Landry, $1,420.
Amounts contributed in cash or stock by the Company during fiscal 1995
under the Nonqualified Savings Plan for the Named Officers were as
follows: Mr. Bainum, $0; Mr. Tomasso, $602; Mr. Hazard, $4,921; Mr.
Petitt, $5,676; and Mr. Landry, $830.

(2) Mr. Bainum took an unpaid leave of absence during April and May 1994
while he devoted a substantial portion of his time exploring the
possibility of seeking an elective governmental position, resulting in
a decrease in salary paid in fiscal 1994 compared to fiscal 1993.

(3) The value of perquisites and other compensation does not exceed the
lesser of $50,000 or 10% of the amount of annual salary and bonus paid
as to any of the Named Officers.

(4) Prior to February 1995, Mr. Tomasso served as President of Manor Care
Healthcare Corp. In February 1995 he became President of its Long
Term Care Division.

(5) Prior to January 1, 1995, Mr. Hazard served as Chairman and Chief
Executive Officer of Choice Hotels International, Inc. and Mr. Petitt
served as President and Chief Operating Officer of Choice Hotels
International, Inc.

(6) Prior to January 1, 1995, Mr. Landry served as President of the Manor
Care Hotel Division. On January 1, 1995, he also became President of
Choice Hotels International, Inc.

The following tables set forth certain information at May 31, 1995 and
for the fiscal year then ended concerning stock options granted to the Named
Officers. All Common Stock figures and exercise prices have been adjusted to
reflect stock dividends and stock splits effective in prior fiscal years.

8
<PAGE> 11

STOCK OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>

Individual Grants
-------------------------------------------- Potential Realizable Value of
Percentage of Assumed Annual Rate of Stock
Total Options Price Appreciation for Option Term(1)
Number of Granted to all Exercise --------------------------------------------
Options Employees in Base Price Expiration
Name Granted(2) Fiscal 1995 Per Share Date 5%(3) 10%(4)
---- ---------- ----------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr -- -- -- -- -- --
Donald C. Tomasso -- -- -- -- -- --
Robert C. Hazard, Jr -- -- -- -- -- --
Gerald W. Petitt -- -- -- -- -- --
Donald J. Landry 40,000 50% $28.63 11/16/2004 $720,000 $1,824,800
</TABLE>

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

(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the Securities and Exchange Commission
and therefore are not intended to forecast future possible
appreciation, if any, of the Company's stock price. Since options are
granted at market price, a zero percent gain in the stock price will
result in no realizable value to the optionees.

(2) The options granted to Mr. Landry vest at the rate of 10% per year
commencing on the second through the fifth anniversary of the date of
the stock option grant and 20% per year on the sixth through the eighth
anniversaries.

(3) A 5% per year appreciation in stock price from $28.63 per share yields
$46.63.

(4) A 10% per year appreciation in stock price from $28.63 per share yields
$74.25.

AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Unexercised
Options at May 31, 1995
Shares Acquired Value -------------------------- Value of Unexercised in-the-money
on Exercise Realized Exercisable Unexercisable Options at May 31, 1995 (1)
--------------- -------- ----------- ------------- ---------------------------------
# $ # # Exercisable Unexercisable
--------------- -------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr. - - 565,500 239,500 $9,758,070 $3,792,480
Donald C. Tomasso - - 36,000 149,000 511,875 1,674,225
Robert C. Hazard, Jr. - - 58,500 54,000 1,127,865 1,091,160
Gerald W. Petitt 10,000 $146,966 38,300 54,000 765,781 1,091,160
Donald J. Landry - - 22,500 162,500 284,445 1,391,255
</TABLE>
-----------------------

(1) The closing price of the Company's Common Stock as reported by the New
York Stock Exchange on May 31, 1995, was $29.25. The value is calculated
on the basis of the difference between the option exercise price and such
closing price multiplied by the number of shares of Common Stock
underlying the option.

EMPLOYMENT AGREEMENTS

Under the terms of an employment agreement between Mr. Hazard and
Choice Hotels International, Inc., a subsidiary of the Company ("CHI"), his
annual salary is presently $404,065 with

9
<PAGE> 12

annual cost-of-living increases. The agreement, which extends through May 31,
1996, provides for an annual bonus based on performance of the Company of up to
12.5% of his base compensation and based on performance of CHI (including a
customer satisfaction component) of up to 37.5% of his base compensation. Mr.
Hazard served as Chairman and Chief Executive Officer of CHI until January 1,
1995 when he became Co-Chairman of CHI.

Under the terms of an employment agreement between Mr. Petitt and CHI,
his annual salary is presently $330,599 with annual cost-of-living increases.
The agreement, which extends through May 31, 1996, provides for an annual bonus
based on performance of the Company of up to 12.5% of his base compensation and
based on performance (including a customer satisfaction component) of CHI of up
to 37.5% of his base compensation. Mr. Petitt served as President and Chief
Operating Officer of CHI until January 1, 1995 when he became Co-Chairman of
CHI.

Under the terms of an employment agreement with Mr. Landry and the
Company, his annual salary is presently $350,000 with annual cost-of-living
increases. The agreement extends through February 28, 1997. From February 17,
1992 to January 1, 1995, Mr. Landry served as President of the Manor Care Hotel
Division. On January 1, 1995, Mr. Landry also became President of CHI. The
agreement provides for an annual bonus of up to 55% of his base compensation
based in part on performance of the Company and based in part on performance
(including a customer satisfaction component) of the Lodging Division, which
consists of both the Manor Care Hotel Division and CHI.

Under the terms of an employment agreement between Mark Gildea
and Manor Healthcare Corp., a wholly-owned subsidiary of the Company ("MHC"),
his annual salary is presently $195,000. The agreement currently extends
through December 3, 1998. Mr. Gildea is entitled to an annual bonus of up to
50% of his base compensation based in part on performance of the Company and
based in part on performance (including a customer satisfaction component) of
the Alternate Site Services Division of MHC, of which Mr. Gildea serves as
President. On June 22, 1995, the Board determined that Mr. Gildea is an
"executive officer" within the meaning of applicable regulations.

Under the terms of an employment agreement between Donna
DeNardo and Vitalink Pharmacy Services, Inc. ("Vitalink"), a majority-owned
subsidiary of MHC, her annual salary is presently $181,000. The agreement
currently extends through December 1, 1999. Ms. DeNardo is entitled to an
annual bonus of up to 75% of her base compensation based on performance
(including a customer satisfaction component) of Vitalink, of which Ms.
DeNardo serves as President and Chief Operating Officer. On June 22, 1995,
the Board determined that Ms. DeNardo is an "executive officer" within the
meaning of applicable regulations.

RETIREMENT PLANS

In February 1985, the Board of Directors adopted the Supplemental
Executive Retirement Plan (the "SERP"). Participants are selected by the Board
and are at the level of Senior Vice President

10
<PAGE> 13

or above. A total of eight officers of the Company, including all of the Named
Officers except for Mr. Tomasso and Mr. Landry, have been selected to
participate in the SERP.

Participants in the SERP will receive a monthly benefit for life based
upon final average salary and years of service. Final average salary is the
average of the monthly base salary, excluding bonuses or commissions, earned in
a 60 month period out of the 120 months of employment, which produces the
highest average, prior to the first occurring of the early retirement date or
the normal retirement date. The normal retirement age is 65, and participants
must have a minimum of 15 years of service. Participants may retire at age 60
and may elect to receive reduced benefits commencing prior to age 65, subject to
Board approval. All of the Named Officers who are participants, except for Mr.
Hazard, are age 55 or younger, so that none of their compensation reported
above would be included in the final average salary calculation.

Assuming that the following officers continue to be employed by the
Company until they reach age 65, their credited years of service would be as
follows:

<TABLE>
<CAPTION>
Current Years Years of Service
Name of Individual of Service at Age 65
---------------------- ------------------ ----------------
<S> <C> <C>
Stewart Bainum, Jr. 22.5 38
Robert C. Hazard, Jr. 14.5 19
Gerald W. Petitt 14.5 30
</TABLE>

The table below sets forth estimated annual benefits payable upon
retirement to persons in specified compensation and years of service
classifications. These benefits are straight life annuity amounts, although
participants have the option of selecting a joint and 50% survivor annuity or
ten-year certain payments. The benefits are not subject to offset for Social
Security and other amounts.

<TABLE>
<CAPTION>
Years of Service/Benefit as
Percentage of Final Average Salary
------------------------------------------
25 or
Remuneration 15/15% 20/22.5% more/30%
------------ ------ -------- --------
<S> <C> <C> <C>
$300,000 $45,000 $ 67,500 $ 90,000
350,000 52,500 78,750 105,000
400,000 60,000 90,000 120,000
450,000 67,500 101,250 135,000
500,000 75,000 112,500 150,000
600,000 90,000 135,000 180,000
</TABLE>

Effective January 1, 1992, the Company established the Manor Care, Inc.
Retirement Savings and Investment Plan (the "401(k) Plan"), a defined
contribution retirement, savings and investment plan for its employees and the
employees of its participating affiliated companies. The 401(k) Plan is
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and includes a cash or deferred arrangement under Section 401(k)
of the Code. All employees age

11
<PAGE> 14

21 or over and who have worked for the Company for a twelve month period during
which such employee completed at least 1,000 hours are eligible to participate.
Subject to certain non-discrimination requirements, each employee may contribute
an amount to the 401(k) Plan on a pre-tax basis up to 15% of the employee's
salary, but not more than the current federal limit of $9,240. The Company will
match contributions made by its employees subject to certain limitations
described in greater detail below. The amount of the match will be equal to a
percentage of the amount of salary reduction contribution made on behalf of a
participant during the plan year based upon a formula that involves the profits
of the Company for the year and the number of years of service of the
participant. In no event will the Company make a matching contribution which
exceeds 6% of a participant's salary. Amounts contributed by the Company
pursuant to the 401(k) Plan for the Named Officers are included in the Summary
Compensation Table under the column headed "All Other Compensation".

Effective January 1, 1992, the Company adopted the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan (the "Nonqualified Savings
Plan"). Certain select highly compensated members of management of the Company
are eligible to participate in the Plan. The Nonqualified Savings Plan mirrors
the provisions of the 401(k) Plan, to the extent feasible, and is intended to
provide the participants with a pre-tax savings vehicle to the extent that
pre-tax savings are limited under the 401(k) Plan as a result of various
governmental regulations, such as non-discrimination testing. All of the Named
Officers have elected to participate in the Nonqualified Savings Plan. Amounts
contributed by the Company under the Nonqualified Savings Plan for fiscal year
1995 for the Named Officers are included in the Summary Compensation Table under
the column headed "All Other Compensation".

The Company match under the 401(k) Plan and the Nonqualified Savings
Plan is limited to a maximum aggregate of 6% of the annual salary of a
participant. Effective December 1993, participants were given the right to elect
to receive the Company matching contribution either in Company stock or cash or
a combination. Likewise, participant contributions under the two plans may not
exceed the aggregate of 15% of the annual salary of a participant.

Effective January 1, 1992, the Company adopted a non-contributory Cash
Accumulation Retirement Plan (the "CARP") maintained by the Company for its
employees and those employees of its participating affiliated companies. The
CARP is qualified under Section 401(a) of the Code. All employees age 21 or over
and who have worked for the Company for a twelve month period during which such
employee completed at least 1,000 hours are automatically members of the CARP.
Each year the account of each employee is adjusted to reflect interest at a rate
calculated in accordance with the CARP. Amounts accrued under the CARP become
fully vested after five years of service. Pursuant to an amendment to the CARP
effective January 1, 1995, when the age and years of service of an employee
totals 45 or more, the Company will increase the rate of benefit to the account
of such employee, with an additional increase when the age and years of service
exceeds 55 or more. The annual benefit accrual made by the Company will be based
on salary as follows:

12
<PAGE> 15

<TABLE>
<CAPTION>
Base Percentage Base Percentage Base Percentage
If Age Plus Service If Age Plus Service If Age Plus Service
Annual Salary Is Less Than 45 Is 45 to 55 Is 55 or More
------------- ------------------- ------------------- -------------------
<C> <C> <C> <C>
First $12,000 ........................ 3% 3.5% 4%
Next $6,000 .......................... 2% 2.5% 3%
Additional Compensation up to $100,000 1% 1.5% 2%
</TABLE>

COMPENSATION/KEY EXECUTIVE STOCK OPTION PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The compensation philosophy of Manor Care, Inc. (the "Company") is to
be competitive with the leading service companies and selected direct
competitors in the marketplace, to attract, retain and motivate a highly
qualified workforce, and to provide career opportunities. The Company uses
various compensation surveys, primarily conducted and evaluated by independent
consultants, to provide data to support the development of competitive
compensation plans which reinforce this philosophy. Summary data on service
companies of similar size participating in each survey are utilized as the basis
for the evaluations. This is the same philosophy applied by the Compensation/Key
Executive Stock Option Plan Committee of the Board of Directors (the
"Committee") in determining compensation for the CEO and executive officers. In
evaluating the CEO's performance, the Committee, in addition to financial
performance, considers factors important to the Company such as ethical business
conduct, progress against the Company's strategic plan objectives, management
succession planning, customer service satisfaction and the general overall
perception of the Company by financial leaders and customers.

The Committee is responsible for setting and administering the policies
which govern executive compensation and the stock based programs of the Company.
The members of the Committee are Messrs. Robertson (Chairman), Bainum, Longfield
and Malek. Mr. Bainum served as Chairman and CEO prior to March 1987.

Compensation of the Company's officers is reviewed annually by the
Committee. Changes proposed for these employees are evaluated and approved by
the Committee on an individual basis.

There are three components in the Company's executive compensation
program:

1. Base salary
2. Cash bonus
3. Long-term incentive compensation

The Committee has determined that compensation for the CEO and other
executive officers should be weighted in favor of more "pay at risk" or
"variable pay."

13
<PAGE> 16

BASE SALARY

Base salary is the only component that is not variable. Scope and
complexity of the position as well as external market factors are used to
determine base salary levels. Salary changes are based on guidelines established
for all employees using individual performance to determine the change. Mr.
Bainum, Jr.'s base salary paid in fiscal 1995 is shown under the heading
"Salary" in the Summary Compensation Table.

CASH BONUS

A cash bonus based on return on beginning equity or business unit
profit and on customer satisfaction surveys of the business unit is used to
focus management's attention on profits and the effective use of Company assets.

LONG-TERM INCENTIVE COMPENSATION

Long-term compensation, which in the past has comprised of
non-qualified stock options, has been established to:

a. Focus attention on the Company's and stockholders'
long term goals;

b. Increase ownership and retention in the Company's
stock.

The Committee has granted non-qualified stock options with a vesting
schedule of up to eight years in order to recruit and retain management and
focus optionees on the long term goals of the Company to be more closely aligned
with the interests of stockholders. If the proposed Manor Care, Inc. 1995
Long-Term Incentive Plan is approved by the stockholders at the Annual Meeting,
the Committee will have the discretion to grant Restricted Shares, Incentive
Stock Options, Nonqualified Stock Options, Stock Appreciation Rights or
Performance Shares as it may determine to be desirable in order to recruit and
retain management and to focus the optionees on the long term goals of the
Company to be more closely aligned with the interests of stockholders.

The Committee believes the Company has an overall compensation plan
which fulfills current Company philosophy and, in addition, promotes increased
stockholder value through performance-based compensation.

EXECUTIVE STOCK OWNERSHIP PROGRAM

Effective June 1, 1995, the Company established an Executive Stock
Ownership program for the Chairman and the officers who report directly to the
Chairman. The program requires the relevant officers to own qualifying Common
Stock as a condition of employment in order to ensure a direct relationship
between such executives and the stockholders. The relevant officers will be
required to reach and maintain ownership of a specified amount of Common Stock
within five years from the effective date of the program, or upon the fifth
anniversary of employment, whichever is later. The amount of shares of Common
Stock required to be owned by each officer is determined by the beginning base
salary times a multiple which varies from 1.5 to 4, depending upon the level of
responsibility of the particular officer.

14
<PAGE> 17

IMPACT OF INTERNAL REVENUE CODE SECTION 162(M)

The Omnibus Budget Reconciliation Act of 1993 disallows, effective
January 1, 1994, a federal income tax deduction for compensation, other than
certain performance-based compensation, in excess of $1 million annually paid by
the Company to any currently serving officer named in the Summary Compensation
Table. Stock option awards under the Key Executive Stock Option Plan of 1969,
which expired in 1993, and under the Key Executive Stock Option Plan of 1993,
which is scheduled to expire in 2003, qualify as performance-based compensation
and are exempt from consideration for purposes of calculating the one million
dollar limit. If the stockholders approve the Manor Care, Inc. 1995 Long-Term
Incentive Compensation Plan at the Annual Meeting, appropriate steps will be
taken to qualify awards made thereafter as performance-based compensation and
thus be exempt from consideration for purposes of calculating the one million
dollar limit and the Key Executive Stock Option Plan of 1993 will be
terminated, except as to possible reissuance of forfeited shares. No individual
named in the Summary Compensation Table is likely to receive compensation, not
including performance-based compensation, in fiscal 1996 which would be in
excess of $1 million by more than a de minimis amount. The Committee intends
to monitor the Company's compensation programs with respect to such laws.

COMPENSATION/KEY EXECUTIVE STOCK OPTION PLAN COMMITTEE

JERRY E. ROBERTSON, PH.D., CHAIRMAN
STEWART BAINUM
WILLIAM H. LONGFIELD
FREDERIC V. MALEK

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<PAGE> 18

PERFORMANCE GRAPH-STOCKHOLDER RETURN

The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return on the S&P Composite-500 Stock Index and a peer group
selected by the Company for the five fiscal years ended May 31, 1995, assuming
reinvestment of dividends.

COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MANOR CARE, INC., S&P500 AND PEER GROUP

Assumes $100 invested on June 1, 1990 in the Common
Stock of Manor Care, Inc., the S&P500 Index and Peer
Group Companies (weighted by market capitalization).
Total return assumes reinvestment of dividends.

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Manor Care, Inc. 100 159 180 240 294 333
S&P 500 100 112 123 137 143 172
Peer Group (Weighted Average) 100 161 146 198 304 331
</TABLE>

16
<PAGE> 19

The peer group consists of thirteen other companies primarily involved
in the Company's lines of business. Nine of the companies are involved in
ownership and operation of nursing homes: Beverly Enterprises, Inc., Geriatric
and Medical Centers, Inc., Grancare Inc., Healthsouth Corp., Hillhaven Corp.,
Horizon Healthcare Corp., Integrated Health Services, Inc., Mariner Health
Group, Inc., and National Healthcorp, L.P. Three companies are involved in hotel
franchising, management or ownership: Hospitality Franchise Systems, Inc., La
Quinta Motor Inns, Inc., and Red Lion Inn L.P. One company is involved in the
institutional pharmacy business: Omnicare, Inc. One company which was in the
peer group last year, United Inns, Inc., has been removed because of its
acquisition during the year, and one company which was in the peer group last
year, Synetic, Inc., has been removed because of its disposition of its
institutional pharmacy business during the year.

PROPOSED APPROVAL OF MANOR CARE, INC.
1995 LONG-TERM INCENTIVE PLAN

GENERAL

In 1993 the stockholders approved the 1993 Key Executive Stock Option
Plan (the "Stock Option Plan") which provides for the issuance of up to
2,000,000 shares of Common Stock pursuant to non-qualified stock options. At
the June 21, 1995 meeting of the Key Executive Stock Option Plan Committee, the
Committee awarded a total of 60,000 shares to Stewart Bainum, Jr., 37,500
shares to Donald Tomasso, 111,750 shares to 13 other executive officers and
174,128 shares to 29 other key employees pursuant to the Stock Option Plan.
All of such awards will vest at the rate of twenty percent per year for the
first five years, expire ten years after the date of the award and are
exercisable at $30.31 per share. As of June 23, 1995, there remained for
issuance a total of 1,110,122 shares pursuant to the Stock Option Plan. On June
22, 1995, the Board terminated the Stock Option Plan, except as to possible
reissuance of forfeited shares and adopted the Manor Care, Inc. 1995 Long-Term
Incentive Plan (the "Incentive Plan") for key employees (including officers)
of the Company and its subsidiaries, subject to approval of the Incentive Plan
by the affirmative vote of the holders of a majority of the number of shares of
Common Stock present in person or by proxy at the Annual Meeting. The Incentive
Plan authorizes the awarding of a maximum of 1,110,122 shares (subject to
adjustment for stock splits and similar capital changes) of Common Stock to
eligible employees as described in greater detail below. Thus, if the Incentive
Plan is approved by the stockholders at the Annual Meeting, there will be no
increase in shares available for issuance pursuant to the Incentive Plan over
shares remaining for issuance pursuant to the Stock Option Plan.

The continuing growth and development and financial success of the
Company and its subsidiaries are dependent upon ensuring the best possible
management. The Board believes the Incentive Plan will be an important aid to
the Company in attracting and retaining individuals of outstanding abilities and
in rewarding them for the continued profitable performance of the Company and
its subsidiaries.

The types of awards that may be granted under the Incentive Plan are
restricted shares, incentive stock options, nonqualified stock options, stock
appreciation rights and performance shares. The Incentive Plan provides that
over the next ten years restricted shares, incentive stock options, nonqualified
stock options, stock appreciation rights, and/or performance shares involving up
to 1,110,122 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock may be granted. Common Stock issued under the Incentive
Plan may be authorized and unissued stock, treasury stock or stock purchased on
the open market (including private transactions). Except

17
<PAGE> 20

in certain circumstances pertaining to the forfeiture of restricted shares, to
the extent that an award lapses or the rights of a participant to whom it was
granted terminate, any shares of Common Stock subject to the award will again be
available for awards under the Incentive Plan. The following description of the
Incentive Plan is qualified in its entirety by reference to the Manor Care, Inc.
1995 Long-Term Incentive Plan, a copy of which is attached as Exhibit A
to this Proxy Statement. The amount of compensation that will accrue to the
participants pursuant to the Incentive Plan, if approved by the stockholders at
the Annual Meeting, is not currently determinable.

The Incentive Plan was drafted to obtain the benefits of the exemption
from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
provided by Rule 16b-3. Section 16(b) of the Exchange Act provides, among other
things, that an officer who purchases and sells the stock of the corporation
which employs him within a six month period is liable to the corporation for the
difference between the purchase price and sale price. Rule 16b-3 promulgated
under the Exchange Act provides that the acquisition of stock by an officer of
the corporation pursuant to an incentive plan which meets certain requirements
(one of which is stockholder approval of the plan) does not constitute a
"transaction" subject to Section 16(b) of the Exchange Act.

ADMINISTRATION

The Incentive Plan provides that it will be administered by a Key
Executive Stock Option Plan Committee of the Board, which establishes the
conditions of each grant made under the Incentive Plan and determines which key
employees will receive awards as well as the type and amount of each award.
Members of the Key Executive Stock Option Plan Committee are not eligible to
receive awards under the Incentive Plan.

ELIGIBILITY

Key employees of the Company and its subsidiaries (including employees
who are members of the Board, but excluding directors who are not employees)
who, in the opinion of the Key Executive Stock Option Plan Committee, are
mainly responsible for the continued growth and development and financial
success of the business of the Company or one of its subsidiaries are eligible
to be granted awards under the Incentive Plan. Subject to the provisions of the
Incentive Plan, the Committee shall from time to time select from such eligible
persons those to whom awards shall be granted and determine the number of
shares to be granted. Because eligibility is determined by these subjective
criteria, it is not possible at this time to determine (except as to awards
described in the following paragraph) either the number of employees eligible
to participate in the Incentive Plan or the amount of awards which will be
made.

At its June 21, 1995 meeting, the Key Executive Stock Option Plan
Committee granted to Donald Tomasso 12,500 shares pursuant to Incentive Stock
Options, to 13 other executive officers a total of 37,250 shares pursuant to
Incentive Stock Options and to 29 other key employees a total of 58,040 shares
pursuant to Incentive Stock Options, all under the Incentive Plan. All of such
awards will vest at the rate of twenty percent per year for the first five
years, expire ten years, expire ten years after the date of the award and are
exercisable at $30.31 per share. Exercisability of such awards is subject to
stockholder approval of the Incentive Plan at the Annual Meeting.

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<PAGE> 21
RESTRICTED SHARES

Restricted share awards are shares of Common Stock bearing restrictive
legends prohibiting their sale, transfer, pledge or hypothecation until the
expiration of a restriction period of not more than ten years set at the time of
grant. In addition or in lieu of a restriction period, the Committee may
establish a performance goal which must be achieved as a condition to retention
of the award. Restrictions may be removed as to some or all of the shares upon
the occurrence of events determined by the Committee in its sole discretion to
justify such removal, such as retirement, or disability. The recipient of an
award is entitled to receive dividends and vote the restricted shares, unless
forfeited. Under the Plan, no Covered Employee (as defined in Section 162(m)(3)
of The Internal Revenue Code) may be granted more than 100,000 shares of
Restricted Stock during any calendar year.

STOCK OPTIONS

Options granted under the Incentive Plan may be either incentive stock
options, as defined in the Internal Revenue Code, as amended, or options which
do not so qualify ("nonqualified options"). At the time an option is granted,
the Committee determines the number of shares of Common Stock subject to each
stock option, the manner and time of exercise, and the vesting schedule. No
options granted under the Incentive Plan may be exercised more than 10 years
after date of grant; however, Incentive Stock Options granted to a Ten Percent
Shareholder (as defined) may not be exercised more than 5 years after the date
of grant. The option price per share for stock options will be set in the grant,
but will be equal to or greater than the fair market value of a share of Common
Stock on the date of grant, except with respect to an Incentive Stock Option
granted to a Ten Percent Shareholder (as defined) shall be at least 110% of the
fair market value on the date of grant. The option exercise price may be paid
with cash and/or shares of Common Stock. Options will be evidenced by stock
option agreements in a form approved by the Committee and are transferable, to
the extent vested at the death of an optionee, only except by will or descent.
Under the Plan, no Covered Employee (as defined in Section 162(m)(3) of The
Internal Revenue Code) may be granted more than 100,000 shares of Stock Options
during any calendar year. With respect to Incentive Stock Options granted to
any employee, the aggregate fair market value determined on the date of grant
with respect to which any Incentive Stock Option is first exercisable shall not
exceed $100,000.

The granting of an option does not entitle the participant to any
dividends, voting or other rights of a stockholder, unless and until the
participant receives stock upon exercise of the option. Options which are not
exercisable immediately upon being granted may be made immediately exercisable
upon the occurrence of events determined by the Committee in its sole discretion
to justify such immediate exercisability, such as retirement or disability.

19
<PAGE> 22

STOCK APPRECIATION RIGHTS

A stock appreciation right (SAR) is the right to payment for the
appreciation in value of one share of Common Stock over a specified price. An
SAR may be granted either in tandem with a stock option award or independently.
If the SAR is granted in tandem with a stock option award, the payment is
measured by the excess of the fair market value of the Common Stock at the time
of exercise over the option price (which can not be less than the fair market
value of the stock at the time of grant). If the SAR is granted independent of
a stock option, the Committee will specify whether the award is a "regular" SAR
or whether the award is a "book value" SAR. If the award is a "regular" SAR,
the payment is measured by the excess of the fair market value of the stock at
the time of exercise over the fair market value at the time of grant. If the
award is a "book value" SAR, the payment is measured by the excess of the book
value of the Common Stock at the time of exercise over the book value of the
Common Stock at the time of grant.

Stock appreciation payments, at the election of the participant, may
be made in cash or Common Stock or a combination of both. The Committee must
approve and election to receive cash and such election can only be made during
certain window periods.

An SAR issued pursuant to an option cannot be exercised less than six
months after the grant except, in the discretion of the Commitee, in case of
disability of the participant; an SAR issued independently is subject to the
terms and conditions established on grant. SARs are deemed to be exercised on
the last day of the Exercise Period, if not previously exercised, which may not
extend more than ten years beyond the date of grant. SARs are transferable, to
the extent vested at the death of an optionee, only by will or descent.

The granting of an SAR does not entitle the participant to any
dividend, voting or other rights of a stockholder, unless and until the
participant receives stock upon the exercise of an SAR. SARs which are not
exercisable immediately upon being granted may be made immediately exercisable
upon the occurrence of events determined by the Committee in its sole discretion
to justify such exercisability, such as retirement or disability. Under the
Plan, no Covered Employee (as defined in Section 162(m)(3) of The Internal
Revenue Code) may be granted more than 100,000 SARs
during any calendar year.

PERFORMANCE SHARES

A performance share award involves the grant of a right to receive a
specified number of shares of the Common Stock upon satisfaction of certain
performance-related objectives specified in the granting instrument. The
performance-related objectives may relate to the individual, the Company, a
department or a division of the Company and/or a group or class of participants.
The measuring period used to establish the performance criteria will be
specified by the Committee at the time of grant and may be subsequently waived
or reduced, or the performance criteria may be adjusted, upon the occurrence of
events determined by the Committee in its sole discretion to justify such
waiver, reduction or adjustment. Under the Plan, no Covered Employee (as
defined in Section 162(m)(3) of The Internal Revenue Code) may be granted more
than 100,000 shares of Performance Shares during any calendar year.

INCOME TAX CONSEQUENCES

The Federal income tax consequences of an award under the Incentive
Plan depend on the type of award, as discussed below. The grant of a restricted
share award or a performance share award does not immediately produce taxable
income to a recipient or a tax deduction to the Company.

20
<PAGE> 23

However, at the time the restrictions expire or the performance objectives have
been achieved, as the case may be, a recipient will recognize taxable ordinary
income in an amount equal to the fair market value of the stock on the date the
restrictions expire or the performance criteria are achieved and the Company
will be entitled to a corresponding income tax deduction. In the case of a
restricted share award, during the restriction period, a recipient will be taxed
on the dividends received from the restricted shares as additional compensation,
and the Company will be entitled to a corresponding compensation deduction.

Generally, a recipient of an incentive stock option will not recognize
taxable income at the time of grant or exercise and the Company will not be
entitled to an income tax deduction. Provided the minimum holding periods are
satisfied, any gain on a disposition of stock acquired through an incentive
stock option will be taxable to a recipient as long-term capital gain. If the
minimum holding periods are not satisfied, a recipient will recognize ordinary
income in the amount of the excess of the fair market value of the stock on the
date the option is exercised over the option price, and the Company will be
entitled to a corresponding income tax deduction.

The grant of a nonqualified stock option does not result in taxable
income to a recipient or a tax deduction for the Company. Upon exercise, a
recipient will recognize taxable ordinary income in an amount equal to the
excess of the fair market value of the stock on the date of exercise over the
option price, and the Company will be entitled to a corresponding income tax
deduction.

A recipient of a stock appreciation right will not recognize taxable
income at the time the right is granted, and the Company will not be entitled to
a tax deduction. However, ordinary taxable income will be recognized by a
recipient and a corresponding deduction will be taken by the Company, at the
time of exercise, in an amount equal to the cash and the fair market value of
the stock received.

AMENDMENT AND TERMINATION

The Board may amend, modify or terminate the Incentive Plan at any
time, except that (1) further stockholder approval is required if such action
(i) materially increases the maximum number of shares of Common Stock which may
be issued under the Incentive Plan, (ii) materially increases the benefits
accruing to participants under the Incentive Plan, (iii) extends the period for
granting awards under the Incentive Plan, or (iv) materially modifies the
eligibility requirements for participation

21
<PAGE> 24

in the Incentive Plan; and (2) the consent of a participant is required if such
action is not required by law or regulations and diminishes, reduces or cancels
an award previously granted to such participant.

VOTE REQUIRED

Approval of the Incentive Plan requires approval by the holders of a
majority of the shares of Common Stock present in person or by proxy at the
Annual Meeting.

The Board of Directors recommends a vote FOR the proposal to adopt the
Manor Care, Inc. 1995 Long-Term Incentive Plan. Proxies received by the Board of
Directors will be so voted unless stockholders specify a contrary choice.

PROPOSED APPROVAL OF MANOR CARE, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN

GENERAL

On June 22, 1995, the Board of Directors unanimously approved the Manor
Care, Inc. 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan") subject
to approval of the Stock Purchase Plan by the affirmative vote of a majority of
the shares of Common Stock present in person or by proxy at the Annual Meeting.

The purposes of the Stock Purchase Plan are to build a proprietary
interest among employees of the Company and to assist the Company in its goal of
recruiting and retaining highly qualified employees at all levels of the
organization.

The following description of the Stock Purchase Plan is qualified in
its entirety by reference to the Manor Care, Inc. 1995 Employee Stock Purchase
Plan, a copy of which is attached as Exhibit B to this Proxy Statement. The
amount of compensation that will accrue to the employees pursuant to the Stock
Purchase Plan, if approved by the stockholders, is not currently determinable.

The Stock Purchase Plan authorizes the purchase of a maximum of
1,000,000 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to eligible employees.

The Stock Purchase Plan was drafted to obtain the benefits of the
exemption from Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") provided by Rule 16b-3. Section 16(b) of the Exchange Act
requires (1) directors, officers and holders of more than ten percent of an
issuer's securities file statements with the Securities and Exchange Commission,
reporting the purchase or sale of such securities and (2) provides for the
recovery by the issuer of any profits realized by such persons resulting from
the purchase and sale or sale and purchase of such securities

22
<PAGE> 25

within a period of six months. Section 16 potentially applies to directors and
officers of the Company and stockholders who own 10% or more of the outstanding
Common Stock (the "Section 16 Persons"). Generally, each quarterly purchase of
Common Stock pursuant to the Plan on behalf of a participant who is also a
Section 16 Person would be deemed to be a new purchase for purposes of Section
16. Thus, a participant who is also a Section 16 Person would be required to
file a statement on Form 4 each quarter a purchase was made on his behalf.
Furthermore, to sell any shares without exposure to Section 16 liability could
require a participant who is also a Section 16 Person to terminate his
participation in the Plan and wait six months thereafter before selling any
shares of Common Stock. Under Rule 16b-3, however, if the Plan is approved by
the stockholders, such a participant would not be required to file a Form 4 each
quarter a purchase under the Stock Purchase Plan was made on his behalf, nor
would such purchases be subject to the six month trading limitations.

ELIGIBILITY

Each employee of the Company and its subsidiaries having at least one
year of continuous service on the first day of each January, April, July and
October (an "Offering Date"), beginning January 1, 1996, is eligible to
participate in the Stock Purchase Plan. All employees will be eligible to
participate after completing one year of employment. Any employee who
immediately after the grant of a right owns 5% or more of the Common Stock,
however, would not be eligible to participate. The Company presently employs
approximately 28,000 persons, of whom 21,000 meet the eligibility requirements
set forth above. The Company anticipates that approximately 3,500 to 4,500
employees will elect to participate in the Stock Purchase Plan if approved by
the stockholders at the Annual Meeting.

ADMINISTRATION

The Stock Purchase Plan will be administered by the Board of Directors.

Rights will be granted quarterly on each Offering Date, and are
exercisable effective on the succeeding last trading day of March, June,
September and December, respectively. Eligible employees may purchase shares of
Common Stock through accumulation of payroll deductions (of not less than 2% nor
more than 10% of compensation, as defined in the Stock Purchase Plan). No
participant shall have the right to purchase shares of Common Stock under the
Plan at a rate of more than $25,000 in value in any calendar year, such value
to be based on the fair market value of the Common Stock as of the Offering
Date on which the participant becomes eligible to purchase Common Stock in such
year under the terms of the Plan. At the end of each three month Offering
Period, the Company will contribute cash equal to ten percent (10%) of the
purchase price of the Common Stock, and the Company's designated transfer agent
will use the aggregate employee payroll deductions and the Company contribution
to purchase Common Stock in the open market. The agent will allocate the
purchased Common Stock among the employee accounts in proportion to their
payroll deductions. The Company will pay the administrative expenses for the
purchase of the Common Stock, including broker's commissions, transfer fees and
similar costs. On August 17, 1995, the closing price of the Common Stock on the
New York Stock Exchange was $32.625.

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<PAGE> 26
AMENDMENT AND TERMINATION

The Board of Directors may at any time amend or terminate the Stock
Purchase Plan except that no such amendment may be made without the approval of
stockholders, if such amendment would (i) materially increase the benefits
accruing to participants under such plan, (ii) increase the number of shares
which may be available for purchase under such plan, or (iii) materially
modify the requirements as to eligibility for participation under such plan.

INCOME TAX CONSEQUENCES

Generally, a recipient of stock acquired through the Stock Purchase
Plan will not recognize taxable income until such recipient disposes of the
stock and the Company will not be entitled to an income tax deduction. Provided
the minimum holding periods are satisfied, upon disposition of stock acquired
through the Stock Purchase Plan, the lesser of (1) the excess of the fair market
value of the stock on the date of purchase over the exercise price paid; or (2)
the excess of the fair market value of the stock at the time of disposition over
the exercise price paid, will be taxable to a recipient as ordinary income
(compensation), and the Company will not be entitled to a corresponding income
tax deduction. Any additional gain will be taxable to such recipient as
long-term capital gain. If the minimum holding periods are not satisfied, a
recipient will recognize ordinary income (compensation) in the amount of the
excess of the fair market value of the stock on the date of purchase over the
exercise price paid, and the Company will be entitled to a corresponding income
tax deduction. Any additional gain will be taxable to such recipient as
long-term capital gain.

VOTE REQUIRED

Approval of the Stock Purchase Plan requires approval by the holders of
a majority of the shares of Common Stock present in person or by proxy at the
Annual Meeting.

The management of the Company recommends a vote FOR the proposal to
adopt the Manor Care, Inc. 1995 Employee Stock Purchase Plan. Proxies received
by the Board of Directors will be so voted unless stockholders specify a
contrary choice.

CERTAIN TRANSACTIONS

On September 1, 1994, Manor Care, Inc. entered into a Master Aircraft
Lease Agreement with Wilderness Investment Company, Inc. ("Wilderness"), a
corporation which is solely owned by Stewart Bainum. The lease, which permits
the Company to lease from time to time a Cessna Citation VI owned by Wilderness
at the rate of $1,150 per flight hour. During the 1995 fiscal year, the Company
incurred a total of $40,399 for aircraft usage pursuant to the Lease.

As of May 31, 1995, the Company purchased from Messrs. Hazard and
Petitt 25 shares each, representing one-half of their shares, of CHI Common
Stock. In accordance with a formula contained in an agreement dated December
20, 1994, the Company paid Messrs. Hazard and Petitt the sum of $13,683,704
each for

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<PAGE> 27

such shares. After the transaction, Messrs. Hazard and Petitt each owned 25
shares of CHI Common Stock and the Company owned 850 shares of CHI Common Stock.

In the opinion of management, the foregoing transactions were on terms
at least as advantageous to the Company as could have been obtained from
non-affiliated persons.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen & Co. has been the Company's independent public
accountants since June 1976. In the Spring of 1996, the Board of Directors will
select the Company's independent public accountants to audit the accounts of the
Company for the current fiscal year. Representatives of Arthur Andersen & Co.
are expected to be present at the Meeting, and will have an opportunity, if they
so desire, to make a statement and will be available to respond to appropriate
questions.

STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING

The Company's 1996 Annual Meeting is presently scheduled to be held on
September 12, 1996. Stockholder proposals must be submitted to the Secretary no
later than April 12, 1996, in order to be eligible for inclusion in the
Company's proxy materials for such meeting.

OTHER BUSINESS

As of the date of the Proxy Statement, management does not know of any
business other than that mentioned above which will be presented for
consideration. However, if any other matter should properly come before the
Meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxies in accordance with their judgment on such matter.

After the business session and a report to the stockholders on the
progress of the Company, a discussion period will take place during which
stockholders will have an opportunity to discuss matters of interest concerning
the Company.

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

A COPY OF THE COMPANY'S 1995 FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE MADE AVAILABLE TO STOCKHOLDERS,
WITHOUT CHARGE, UPON WRITTEN

25
<PAGE> 28

REQUEST TO THE ASSISTANT TREASURER OF MANOR CARE, INC., 10750 COLUMBIA PIKE,
SILVER SPRING, MARYLAND 20901. THE REPRODUCTION COST WILL BE CHARGED IF EXHIBITS
ARE REQUESTED.

26
<PAGE> 29

EXHIBIT A

MANOR CARE, INC.
1995 LONG-TERM INCENTIVE PLAN

SECTION ONE. DESIGNATION AND PURPOSE OF PLAN

The purpose of the Manor Care, Inc. 1995 Long-Term Incentive Plan (the
"Plan") is to increase the ownership of Company Stock by those officers,
professional staff and other key employees who are mainly responsible for the
continued growth and development and financial success of the Company and its
subsidiaries. Such stock ownership gives such employees a proprietary interest
in the Company which induces them to continue in its employ. The Plan also
enables the Company to attract and retain such employees and reward them for
the continued profitable performance of Manor Care, Inc.

SECTION TWO. DEFINITIONS

The following definitions are applicable herein:

A. "Award" - Individually or collectively, Options, Stock Appreciation
Rights, Performance Shares or Restricted Stock granted hereunder.

B. "Award Period" - the period of time during which a Stock
Appreciation Right which has not been granted pursuant to an Option may be
exercised. The Award Period shall be set forth in the document issuing the Stock
Appreciation Right to the selected Eligible Employee.

C. "Board" - the Board of Directors of the Company.

D. "Book Value" - the book value of a share of Stock determined in
accordance with the Company's regular accounting practices as of the last
business day of the month immediately preceding the month in which a Stock
Appreciation Right is exercised as provided in Section Nine D.

E. "Code" - the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations promulgated thereunder.

F. "Committee" - the Key Executive Stock Option Plan Committee
appointed to administer the Plan pursuant to Section Four.

G. "Company" - Manor Care, Inc., including any present or future
"subsidiary corporation" as such term is defined in Section 424(f) of the 1986
Internal Revenue Code, as amended.

H. "Covered Employee" - an individual described in Section 162(m)(3) of
the Code.

I. "Date of Grant" - the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.

J. "Eligible Employee" - any person employed by the Company or a
Subsidiary on a regularly scheduled basis who satisfies all of the requirements
of Section Six.

K. "Exercise Period" - the period or periods during which a Stock
Appreciation Right is exercisable as described in Section Nine B.

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<PAGE> 30

L. "Fair Market Value" - the fair market value of the Stock as
determined in accordance with Section Eight D.

M. "Incentive Stock Option" - an incentive stock option within the
meaning of Section 422 of the Code.

N. "Option" or "Stock Option" - either a nonqualified stock option or
an Incentive Stock Option granted under Section Eight. It also means any Option
which remains after a Participant has exercised his Option with respect to part
of the shares covered by a Stock Option Agreement as described in Section Eight
B.

O. "Option Period" or "Option Periods" - the period or periods during
which an Option is exercisable as described in Section Eight E.

P. "Option Price" - the price, expressed on a per share basis, for
which the Company Stock can be acquired by the holder of an Option pursuant to
the exercise of such Option.

Q. "Participant" - an Eligible Employee of the Company or a Subsidiary
who has been granted an Option, a Stock Appreciation Right, a Performance Share
Award or a Restricted Stock Award under this Plan.

R. "Performance Share" - an Award granted under Section Ten.

S. "Restricted Stock" - an Award granted under Section Seven.

T. "Stock" and "Company Stock" - the common stock of the Company.

U. "Stock Appreciation Right" - an Award granted under Section Nine.

V. "Subsidiary" - any corporation of which fifty percent (50%) or more
of its outstanding voting stock or voting power is beneficially owned, directly
or indirectly, by the Company.

W. "Ten Percent Shareholder" - a Participant who, at the Date of Grant,
owns directly or indirectly (within the meaning of Section 424(d) of the
Internal Revenue Code) stock possessing more then ten percent (10%) of the total
combined voting power of all classes of stock of the Company or a subsidiary
thereof.

X. Wherever appropriate, words used in this Plan in the singular may
mean the plural, the plural may mean the singular and the masculine may mean the
feminine.

SECTION THREE. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL

A. Effective Date and Stockholder Approval. Subject to the approval of
the Plan by a majority of the outstanding shares of Stock voted at the 1995
Annual Meeting of Stockholders, the Plan shall be effective as of June 21, 1995.

B. Period for Grant of Awards. Awards may be made as provided herein
for a period of ten (10) years after June 21, 1995.

SECTION FOUR. ADMINISTRATION

A. Appointment of Committee. The Board of Directors shall appoint one
or more Key Executive Stock Option Plan Committees which shall consist of not
less than two (2) members of such Board of Directors and which members shall

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be disinterested persons as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (or such greater number of members which may be required
by said Rule 16b-3). In addition, such Board of Directors shall designate a
member of the Committee to act as Chairman of the Committee, and such Board of
Directors may remove any member of the Committee at any time and appoint any
director to fill any vacancy on the Committee.

B. Committee Meetings. The Committee shall hold its meetings at such
times and places as specified by the Committee Chairman. A majority of the
Committee shall constitute a quorum. All actions of the Committee shall be taken
by all of the members of the meeting duly called by its Chairman; provided,
however, any action taken by a written document signed by a majority of the
members of the Committee shall be as effective as action taken by the Committee
at a meeting duly called and held.

C. Committee Powers. Subject to the provisions of this Plan, the
Committee shall have full authority in its discretion to (i) designate the
Participants to whom Awards shall be granted, (ii) determine the number of
shares to be made available under each such Award, (iii) determine the period or
periods in which the Participant may exercise such Award (iv) determine the date
when such Award expires, (v) determine the price for Stock under such Award, and
(vi) determine the grounds of forfeiture of an Award. The Committee shall have
all powers necessary to administer the Plan in accordance with its terms,
including the power to interpret this Plan and resolve all questions arising
thereunder. The Committee may prescribe such rules and regulations for
administering this Plan as the Committee deems appropriate.

SECTION FIVE. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES SUBJECT TO
AWARD

The Committee may, from time to time, grant Awards to one or more
Eligible Employees, provided that (i) subject to any adjustment pursuant to
Section Eleven, the aggregate number of shares of Stock subject to Stock
Options, Stock Appreciation Rights, Performance Share Awards or Restricted Stock
Awards under this Plan may not exceed 1,110,122 shares; (ii) to the extent that
a Stock Option, Stock Appreciation Right, Performance Share Award or Restricted
Stock Award lapses or the rights of the Participant to whom it was granted
terminate, expire or are cancelled for any other reason, in whole or in part,
shares of Stock (or remaining shares) subject to such Award shall again be
available for the grant of an Award under the Plan (provided that the forfeiting
Participant received no benefits of ownership from the Stock, such as
dividends); and (iii) Shares delivered by the Company under the Plan may be
authorized and unissued Stock, Stock held in the treasury of the Company or
Stock purchased on the open market (including private purchases) in accordance
with applicable securities laws. In determining the size of Awards, the
Committee shall take into account the responsibility level, performance,
potential, and cash compensation level of a Participant, and the Fair Market
Value of the Stock at the time of Awards, as well as such other considerations
it deems appropriate.

SECTION SIX. ELIGIBILITY

Key employees of the Company and its Subsidiaries (including employees
who are members of the Board, but excluding directors who are not employees)
who, in the opinion of the Committee, are mainly responsible for the continued
growth and development and financial success of the business of the Company or
one or more of its Subsidiaries shall be eligible to be granted Awards under the
Plan. Subject to the provisions of the Plan, the Committee may from time to time
select from such eligible persons those to whom Awards shall be granted and
determine the nature and amount of each Award. No employee of the Company or its
Subsidiaries shall have any right to be granted an Award under this Plan. A
member of the Committee shall not be eligible for any Award hereunder.

SECTION SEVEN. RESTRICTED STOCK AWARDS

A. Grants of Shares of Restricted Stock. An Award made pursuant to this
Section Seven shall be granted in the form of shares of Stock, restricted as
provided in this Section Seven. Shares of the Restricted Stock shall be issued
to the Participant without the payment of consideration by the Participant. The
shares of Restricted Stock shall be issued in the name of the Participant and
shall bear a restrictive legend prohibiting sale, transfer, pledge or
hypothecation of the shares of Restricted Stock until the expiration of the
restriction period.

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The Committee may also impose such other restrictions and conditions on
the shares of Restricted Stock as it deems appropriate.

B. Restriction Period. At the time a Restricted Stock Award is made,
the Committee may establish a restriction period applicable to such Award which
shall not be more than ten (10) years. Each Restricted Stock Award may have a
different restriction period, at the discretion of the Committee. In addition to
or in lieu of a restriction period, the Committee may establish a performance
goal which must be achieved as a condition to the retention of the Restricted
Stock. The performance goal may be based on the attainment of specified types of
performance measurement criteria, which may differ as to various Participants or
classes or categories of Participants. Such criteria may include, without
limitation, the attainment of certain performance levels by the individual
Participant, the Company, a department or division of the Company and/or a group
or class of participants. Any such performance goals, together with the ranges
of Restricted Stock Awards for which the Participants may be eligible shall be
set from time to time by the Committee and shall be timely communicated to the
Eligible Employees in advance of the commencement of the performance of services
to which such performance goals relate. The total number of shares of Restricted
Stock which may be granted to any single Covered Employee under this Plan during
any calendar year shall be limited to 100,000.

C. Forfeiture or Payout of Award. In the event a Participant ceases
employment during a restriction period, or in the event performance goals
attributable to a Restricted Stock Award are not achieved, subject to the terms
of each particular Restricted Stock Award, and subject to discretionary action
by the Committee as set forth below in Section Thirteen, a Restricted Stock
Award is subject to forfeiture of the shares of stock which had not previously
been removed from restriction under the terms of the Award.

Any shares of Restricted Stock which are forfeited will be transferred
to the Company.

Upon completion of the restriction period and satisfaction of any
performance-goal criteria, all restrictions upon the Award will expire and new
certificates representing the Award will be issued without the restrictive
legend described in Section Seven A. As a condition precedent to receipt of the
new certificates, the Participant (or the designated beneficiary or personal
representative of the Participant) will agree to make payment to the Company in
the amount of any taxes, payable by the Participant, which are required to be
withheld with respect to such shares of Stock.

SECTION EIGHT. STOCK OPTIONS

A. Grant of Option. One or more Options may be granted to any Eligible
Employee. Upon the grant of an Option to an Employee, the Committee shall
specify whether the Option is intended to constitute a non-qualified stock
option or an Incentive Stock Option. The total number of shares of Stock subject
to Options which may be granted to any single Covered Employee under this Plan
during any calendar year shall be limited to 100,000.

B. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by a written "Stock Option Agreement" between the Company and the
Participant containing such terms and conditions as the Committee determines,
including, without limitation, provisions to qualify Incentive Stock Options as
such under Section 422 of the Code. Such agreements shall incorporate the
provisions of this Plan by reference. The date of granting an Option is the date
specified in the written Stock Option Agreement which is signed by the
Participant and the Company.

C. Determination of Option Price. The Option price for Stock shall be
not less than 100% of the fair market value of the Stock on the date of grant.
Notwithstanding the foregoing, in the case of an Option which is designed to
qualify as an Incentive Stock Option (as defined in Section 422 of the Code)
which is granted to a Ten Percent Shareholder, the Option Price shall not be
less than 110% of such fair market value.

D. Determination of Fair Market Value. The fair market value of the
Stock on the date of granting an Option shall be the mean of the high and low
prices at which the Stock was sold on the market on such date. In the event no
such

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<PAGE> 33

sales of Stock occurred on such date, the fair market value of the Stock shall
be determined by the Committee in accordance with applicable Regulations of the
Internal Revenue Service.

E. Term of Option. The term of an Option may vary within the
Committee's discretion; provided, however, that the term of an Option shall not
exceed ten (10) years from the date of granting the Option to the Participant,
and, to this end, all Options granted pursuant to this Plan must provide that
each such Option cannot be exercised after the expiration of ten (10) years from
the date each such Option is granted. Notwithstanding the foregoing, in the case
of any Option which is designed to qualify as an Incentive Stock Option (as
defined in Section 422 of the Code) which is granted to a Ten Percent
Shareholder, the term of such Option may not exceed five (5) years from the date
of grant of such Option.

F. Limitation on Exercise of Option. The Committee may limit an Option
by restricting its exercise in whole or in part for specified periods.

G. Method of Exercising an Option. Subject to the terms of a particular
Option, a Participant may exercise it in whole or in part by written notice to
the Secretary of the Company stating in such written notice the number of shares
of Stock such Participant elects to purchase under his Option.

H. No Obligation to Exercise Option. A Participant is under no
obligation to exercise an Option or any part thereof.

I. Payment for Option Stock. Stock purchased pursuant to an Option
shall be paid in full at the time of purchase. Payment may be made (a) in cash,
(b) with the approval of the Committee, by delivery to the Company of shares of
Stock having an aggregate fair market value equal to the exercise price, or (c)
a combination of (a) and (b). Payment may also be made, in the discretion of the
Committee, by delivery (including by facsimile transmission) to the Company or
its designated agent of an executed irrevocable Option exercise form together
with irrevocable instructions to a broker-dealer to sell (or margin) a
sufficient portion of the shares and deliver the sale (or margin loan) proceeds
directly to the Company to pay for the exercise price. Upon receipt of payment
and subject to paragraph J of this Section Eight, the Company shall, without
transfer or issue tax to the Participant or other person entitled to exercise
the Option, deliver to the Participant (or other person entitled to exercise the
Option) a certificate or certificates for such shares.

J. Delivery of Stock to Participant. The Company shall undertake and
follow all necessary procedures to make prompt delivery of the number of shares
of Stock which the Participant elects to purchase upon exercise of an Option
granted under this Plan. Such delivery, however, may be postponed, at the sole
discretion of the Company, to enable the Company to comply with any applicable
procedures, regulations or listing requirements of any government agency, stock
exchange or regulatory authority.

K. Failure to Accept Delivery of Stock. If a Participant refuses to pay
for Stock which he has elected to purchase under his Option, in accordance with
the terms of payment, which had previously been agreed upon, his Option shall
thereupon, at the sole discretion of the Committee, terminate, and such funds
previously paid for unissued Stock shall be refunded. Stock which has been
previously issued to the Participant and been fully paid for shall remain the
property of the Participant and shall be unaffected by such termination.

L. Non-Transferability of Options. During the lifetime of a
Participant, an Option granted to him may be exercised only by him. It may not
be sold, assigned, pledged or otherwise transferred except by will or by the
laws of descent and distribution. No Option or any right thereunder shall be
subject to execution, attachment or similar process. Upon any attempt by a
Participant to so sell, assign, pledge or otherwise transfer any Option, or any
right thereunder, contrary to the provisions hereof, the Option and all rights
thereunder shall immediately become null and void.

M. Stock Restriction. Stock that a Participant receives upon exercise
of an Option, if such exercise occurs before six (6) months have elapsed from
the Date of Grant of a Option, shall bear a restrictive legend prohibiting sale,
transfer, pledge, or hypothecation of such stock for a period of six (6) months
from the Date of Grant of the Option.

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N. Purchase for Investment

(a) Written Agreement by Participants. Unless a registration
statement under the Securities Act of 1933 is then in effect with respect to the
Stock a Participant receives upon exercise of his Option, a Participant shall
acquire the Stock he receives upon exercise of his Option for investment and not
for resale or distribution and he shall furnish the Company with a written
statement to that effect when he exercises his Option and a reference to such
investment warranty shall be inscribed on the Stock certificate(s).

(b) Registration Requirement. Each Option shall be subject to
the requirement that, if at any time the Board determines that the listing,
registration or qualification of the shares subject to the Option upon any
securities exchange or under any state or Federal law is necessary or desirable
as a condition of, or in connection with, the issuance of shares thereunder, the
Option may not be exercised in whole or in part unless such listing,
registration or qualification shall have been effected or obtained (and the same
shall have been free of any conditions not acceptable to the Board).

O. Special Limitations on Exercise of Incentive Stock Options. The
aggregate fair market value (determined at the time the Incentive Stock Option
is granted) of the Stock with respect to which any Incentive Stock Option is
first exercisable during any calendar year shall not exceed $100,000.

SECTION NINE. STOCK APPRECIATION RIGHTS

A. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted under the Plan in conjunction with an Option either at the time of grant
or by amendment or may be separately awarded. Stock Appreciation Rights shall be
subject to such terms and conditions not inconsistent with the Plan as the
Committee shall impose. However, the total number of Stock Appreciation Rights
which may be granted to a single Covered Employee under this Plan during any
calendar year shall be limited to 100,000.

B. Right to Exercise; Exercise Period. A Stock Appreciation Right
issued pursuant to an Option shall be exercisable to the extent the Option is
exercisable. Both such Stock Appreciation Right and the Option to which it
relates shall not be exercisable during the six (6) months following their
respective Dates of Grant except, in the discretion of the Committee, in the
event of the disability of the Participant. A Stock Appreciation Right issued
independent of an Option shall be exercisable pursuant to such terms and
conditions established in the grant.

C. Automatic Redemption of Unexercised Stock Appreciation Rights. If on
the last day of the Option Period, in the case of a Stock Appreciation Right
granted pursuant to an Option, or the specified Award Period, in the case of a
Stock Appreciation Right issued independent of an Option, the Participant has
not exercised such Stock Appreciation Right, then such Stock Appreciation Right
shall be automatically redeemed by the Company for an amount equal to the
payment that would otherwise have been made to the Participant if the
Participant had chosen to exercise the Stock Appreciation Right on the last day
of the Option Period or the specified Award Period, as the case may be.

D. Rights Upon Exercise. An exercisable Stock Appreciation Right
granted pursuant to an Option shall entitle the Participant to surrender
unexercised the Option or any portion thereof to which the Stock Appreciation
Right is attached, and to receive in exchange for the Stock Appreciation Right a
payment (in cash or Stock or a combination thereof as described below) equal to
the Fair Market Value of one share of Stock at the date of exercise minus the
Option Price times the number of shares called for by the Stock Appreciation
Right (or portion thereof) which is so exercised. With respect to the issuance
of Stock Appreciation Rights which are not granted pursuant to an Option, the
Committee shall specify upon the Date of the Grant of the Stock Appreciation
Right whether the Stock Appreciation Right is a "regular" Stock Appreciation
Right or a "book value" Stock Appreciation Right. Upon the exercise of a regular
Stock Appreciation Right, the Participant will receive a payment equal to the
Fair Market Value of one share of Stock at the date of exercise minus the Fair
Market Value of one share of Stock as of the Date of Grant of the Stock
Appreciation Right times the number of shares called for by the Stock
Appreciation Right (or portion thereof) which is so exercised. Upon the exercise
of a book value Stock Appreciation Right, the Participant will receive a payment
equal to the Book Value of one share of Stock at the date of

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exercise minus the Book Value of one share of Stock as of the Date of the Grant
of the Stock Appreciation Right times the number of shares called for by the
Stock Appreciation Right (or portion thereof) which is so exercised.

If the Participant elects to receive cash in full or partial settlement
of the Stock Appreciation Right (i) the Committee must consent to or disapprove
such election and (ii) the election and the exercise must be made during the
period beginning on the 3rd business day following the date of public release of
quarterly or year-end earnings and ending on the 12th business day following the
date of public release of quarterly or year-end earnings. The value of any Stock
to be received upon exercise of a Stock Appreciation Right shall be the Fair
Market Value of the Stock on such date of exercise. Stock Appreciation Right
is exercised. To the extent that a Stock Appreciation Right issued pursuant to
an Option is exercised, such Option shall be deemed to have been exercised,
and shall not be deemed to have lapsed.

E. Nontransferable. A Stock Appreciation Right shall not be
transferable by the Participant except by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant or by the guardian or legal representative of the
Participant.

SECTION TEN. PERFORMANCE SHARES

A. Grant of Performance Share Units. Awards made pursuant to this
Section Ten shall be granted in the form of Performance Shares, subject to such
terms and conditions not inconsistent with the Plan as the Committee shall
impose. Performance Shares shall be issued to the Participant without the
payment of consideration by the Participant. Awards shall be based on the
attainment of specified types and combination of performance measurement
criteria, which may differ as to various Participants or classes or categories
of Participants. Such criteria may include, with limitation, the attainment of
certain performance levels by the individual Participant, the Company, a
department or division of the Company and/or a group or class of Participants.
Such criteria, together with the ranges of Performance Shares from which
employees may be eligible shall be set from time to time by the Committee and
shall be timely communicated to the Eligible Employees in advance of the
performance of services to which the performance criteria relate. The total
number of Performance Shares which may be granted to any single Covered Employee
under this Plan during any calendar year shall be limited to 100,000.

B. Performance Period. The measuring period to establish the
performance criteria set forth in a Performance Share Award shall be determined
by the Committee. Notwithstanding the other provisions of this Section, a
Performance Share Award may initially provide, or the Committee may at any time
thereafter, but no more frequently than once in any six (6) month period, amend
it to provide, for waiver or reduction of the measuring period and, if
appropriate, for adjustment of the performance criteria set forth in the
Performance Share Award, upon the occurrence of events determined by the
Committee in its sole discretion to justify such waiver, reduction or
adjustment.

C. Form of Payment. Upon the completion of the applicable measuring
period, a determination shall be made by the Committee in accordance with the
Award as to the number of shares of Stock to be awarded to the Participant. The
appropriate number of shares of Stock shall thereupon be issued to the
Participant in accordance with the Award in satisfaction of such Performance
Share Award.

SECTION ELEVEN. CHANGES IN CAPITAL STRUCTURE

In the event of a change in the capital structure of the Company, the
number of shares specified in Section Five of this Plan, the number of shares
covered by each outstanding Award and the price per share shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from the splitting or consolidation of shares, or the
payment of a stock dividend, or effected in any other manner without receipt of
additional or further consideration by the Company.

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SECTION TWELVE. CORPORATE REORGANIZATION OR DISSOLUTION

A. Discontinuation of the Plan. The Plan shall be discontinued in the
event of the dissolution or liquidation of the Company or in the event of a
Reorganization (as hereinafter defined) in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization and no plan or agreement respecting the Reorganization is
established which specifically provides for the continuation of the Plan and the
change, conversion, or exchange of the stock relating to existing Awards under
this Plan for securities of another corporation. Upon the dissolution of the
Plan in connection with an event described in this Paragraph A, all Awards shall
become fully vested and all outstanding Options and Stock Appreciation Rights
shall become immediately exercisable by the holder thereof. Any Options or Stock
Appreciation Rights granted under the Plan may be terminated as of a date fixed
by the Committee, provided that no less than fifteen (15) days written notice of
the date so fixed shall be given to each Participant and each such Participant
shall have the right during such period to exercise all or any portion of such
Options or Stock Appreciation Rights. Any Stock Appreciation Rights not so
exercised shall be redeemed.

B. Continuation of the Plan Upon a Reorganization. In the event of a
Reorganization (as hereinafter defined) (i) in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, and (ii) with respect to which there is a reorganization
agreement which undertakes to continue the Plan and to provide for the change,
conversion or exchange of the Stock attributable to outstanding Awards for
securities of another corporation, then the Plan shall continue and the
Committee shall adjust the shares under such outstanding Awards (and shall
adjust the shares remaining under the Plan which are then to be available for
the grant of additional Awards under the Plan, if the reorganization agreement
makes specific provisions therefor), in a manner not inconsistent with the
provisions of the reorganization agreement and this Plan for the adjustment,
change, conversion or exchange of such Awards.

The term "Reorganization" as used in this Section Twelve shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.

C. Adjustments and Determinations. Adjustments and determinations
under this Section Twelve shall be made by the Committee, whose decisions as to
what adjustments or determinations shall be made, and the extent thereof, shall
be final, binding, and conclusive.

SECTION THIRTEEN. RETIREMENT AND DISABILITY

The Committee may, in its discretion, waive the forfeiture,
termination, or lapse of an Award in the event of retirement or disability of a
Participant (each as determined by the Committee, in its discretion). Exercise
of such discretion by the Committee in any individual case, however, shall not
be deemed to require, or to establish a precedent suggesting such exercise in
any other case.

SECTION FOURTEEN. MISCELLANEOUS PROVISIONS.

A. Nontransferability. No benefit provided under this Plan shall be
subject to alienation or assignment by a Participant (or by any person entitled
to such benefit pursuant to the terms of this Plan), nor shall it be subject to
attachment or other legal process of whatever nature. Any attempted alienation,
assignment or attachment shall be void and of no effect whatsoever. Payment
shall be made only to the Participant entitled to receive the same or said
Participant's authorized legal representative. Deposit of any sum in any
financial institution to the credit of any Participant (or a person entitled to
such sum pursuant to the terms of this Plan) shall constitute payment to that
Participant (or such person).

B. No Employment Right. Neither this Plan nor any action taken
hereunder shall be construed as giving any right to be retained as an officer or
employee of the Company or any of its Subsidiaries.

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<PAGE> 37

C. Tax Withholding. Either the Company or a Subsidiary, as appropriate,
shall have the right to deduct from all Awards paid in cash any federal, state
or local taxes as it deems to be required by law to be withheld with respect to
such cash payments. In the case of Awards paid in Stock, the employee or other
person receiving such Stock may be required to pay to the Company or a
Subsidiary, as appropriate, the amount of any such taxes which the Company or
Subsidiary is required to withhold with respect to such Stock. At the request of
a Participant, or as required by law, such sums as may be required for the
payment of any estimated or accrued income tax liability may be withheld and
paid over to the governmental entity entitled to receive the same.

D. Fractional Shares. Any fractional shares concerning Awards shall be
eliminated at the time of payment by rounding down for fractions of less than
one-half and rounding up for fractions of equal to or more than one-half. No
cash settlements shall be made with respect to fractional shares eliminated by
rounding.

E. Government and Other Regulations. The obligation of the Company to
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any government agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act"), any of the shares of Stock
issued, delivered or paid in settlement under the Plan. If Stock awarded under
the Plan may in certain circumstances by exempt from registration under the Act,
the Company may restrict its transfer in such manner as it deems advisable to
ensure such exempt status.

F. Severance. Subject to the provision of Paragraph B of this Section
Fourteen, in the event a Participant's employment with the Company terminates,
his rights under any Award which constitutes an Option or a Stock Appreciation
Right terminates one (1) month from the date of such termination of employment.
Such rights shall be exercisable only to the extent the Participant was entitled
to exercise such rights under the Award on the date of such termination of
employment.

G. Death. If a Participant dies prior to the full exercise of his
Option and/or Stock Appreciation Right, his Option to purchase Stock under such
Option and/or Stock Appreciation Right may be exercised to the extent, if any,
that Participant would be entitled to exercise it at the date of the death of
the Participant by the person to whom the Option and/or Stock Appreciation
Right shall pass by will or by the laws of descent and distribution within
twelve (12) months of thedeath of the Participant or the expiration of the term
of the Option and/or Stock Appreciation Right whichever date is sooner.

H. Limitation. In no event may an Option be exercised by anyone after
the expiration date provided for in Section Eight of the Plan.

I. Governing Law. All matters relating to the Plan or to Awards granted
hereunder shall be governed by the laws of the State of Maryland, without regard
to its principles of conflict of laws.

J. Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles and headings, shall control.

SECTION FIFTEEN. AMENDMENT OF PLAN.

A. Discretion of the Board. The Board may at any time and from time to
time alter, amend, suspend or terminate the Plan in whole or in part, except (i)
no action may be taken without stockholder approval which materially increases
the benefits accruing to Participants pursuant to the Plan, materially increases
the number of securities which may be issued pursuant to the Plan (except as
provided in Section Eleven), extends the period for granting Options under the
Plan or materially modifies the requirements as to eligibility for participation
in the Plan and (ii) no such action may be taken without the consent of the
Participant to whom any Award shall theretofore have been granted, which
adversely affects the rights of such Participant concerning such Award, except
as such termination or amendment of the Plan is required by statute, or rules
and regulations promulgated thereunder.

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B. Automatic Termination. This Plan shall terminate on June 21, 2005.
Awards may be granted under this Plan at any time and from time to time prior to
the termination of the Plan. Any Award outstanding at the time the Plan is
terminated shall remain in effect until said Award is exercised or expires.

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EXHIBIT B

MANOR CARE, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN

SECTION ONE. PURPOSES

The Manor Care, Inc. 1995 Employee Stock Purchase Plan (the "Plan")
is intended to provide a method whereby employees of Manor Care, Inc. and its
Subsidiaries (hereinafter referred to, unless the context otherwise requires, as
the "Company") will have an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of Common Stock. Such stock ownership
induces such employees to continue in the employ of the Company. The Plan also
enables the Company to attract and retain such employees. It is the intention of
the Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code. The provisions of the Plan shall, accordingly, be
construed as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.

SECTION TWO. DEFINITIONS

A. Agent. The term "Agent" shall have the meaning set forth in Section
Thirteen hereof.

B. Board of Directors. The term "Board of Directors" shall mean the
Board of Directors of the Company or any individual or committee to which the
Board of Directors has delegated authority to act with respect to a specific
activity.

C. Code. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended.

D. Common Stock. The term "Common Stock" shall mean the $.10 par value
Common Stock of the Company.

E. Company. The term "Company" shall mean Manor Care, Inc., a Delaware
corporation.

F. Compensation. The term "Compensation" shall mean basic cash
compensation, before any payroll deductions for taxes or any other purposes,
including regular commissions paid by the Company or a Subsidiary to a
Participant in respect of the service of such Participant to the Company or a
Subsidiary during an Offering Period increased by any amounts with respect to
which the Participant has elected to defer or reduce remuneration for federal
income tax purposes (i) under the Manor Care, Inc. Retirement Savings and
Investment Plan, (ii) under the Manor Care, Inc. Nonqualified Retirement Savings
and Investment Plan, or (iii) under any "cafeteria plan" (as described in
Section 125 of the Code) maintained by the Company or a Subsidiary. Compensation
shall not include any amounts paid to the Participant as (i) bonuses, (ii)
overtime pay, (iii) any amounts paid during that Offering Period on account of
the Participant under any other employee pension benefit plan (as defined in
Section 3(2) of ERISA), and (iv) except as otherwise provided in the preceding
sentence, any amounts which are not includible in the income of the Participant
for federal income tax purposes.

G. Continuous Service. The term "Continuous Service" as of any date
shall mean the period determined by the Company, on a uniform basis for
employees similarly situated, to represent the then unbroken period of service
of an employee as an employee of the Company or of a Subsidiary designed by the
Board of Directors to participate in the Plan; provided, however, that in the
case of such a Subsidiary, Continuous Service shall not include service prior to
the date of its affiliation with the Company, unless the Board of Directors
otherwise provides for recognition of such service. A break in Continuous
Service shall be deemed to have occurred whenever an employee voluntarily or
involuntarily ceases to be an employee. The transfer by an employee from one
corporation to another corporation participating in the Plan shall not affect
the Continuous Service of the employee.

H. Designated Subsidiary. The term "Designated Subsidiary" shall mean a
Subsidiary designated by the Board of Directors to participate in the Plan.

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I. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.

J. Market Price. The term "Market Price" shall mean the price at which
the Agent purchases Common Stock in accordance with Section Thirteen hereof.

K. Nominee. The term "Nominee" shall have the meaning as set forth in
Section Seven hereof.

L. Offering Date. The term "Offering Date" shall mean the first day of
each January, April, July and October, commencing January 1, 1996.

M. Offering Period. The term "Offering Period" shall mean a three-month
period commencing with an Offering Date and ending with the following Purchase
Date.

N. Option. The term "Option" shall mean the right of a Participant to
acquire Common Stock pursuant to the provisions of the Plan.

O. Participant. The term "Participant" shall mean an eligible employee
who has authorized payroll deductions for the purchase of Common Stock under the
Plan in accordance with Section Four hereof.

P. Purchase Date. The term "Purchase Date" shall mean the last trading
day of each March, June, September, and December, commencing March, 1996 or if a
pay period ends on the last day of a calendar quarter, the next trading day.

Q. Retirement. The term "Retirement" shall mean termination of
employment of a Participant on or after the sixty-fifth birthday of the
Participant.

R. Section 16 Person. The term "Section 16 Person" shall mean any
Participant subject to the limitations of Section 16 of the Securities Exchange
Act of 1934, as amended.

S. Subsidiary. The term "Subsidiary" shall mean a Subsidiary
corporation of the Company as defined by Section 424(f) of the Code.

T. Wherever appropriate, words used in this Plan in the singular may
mean the plural, the plural may mean the singular and the masculine may mean the
feminine.

SECTION THREE. ELIGIBILITY

All employees of the Company, or Designated Subsidiaries of the
Company, who shall have completed one year of Continuous Service as of any
Offering Date, shall be eligible to participate in the Plan, provided that (i)
no employee shall be eligible who, immediately after any Option is granted, owns
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or of any Subsidiary of the Company
(applying the rules of Section 424(d) of the Code in determining stock
ownership), (ii) no Director of the Company or of any Subsidiary, who is not an
officer or other employee of any thereof, shall participate in the Plan and
(iii) no employee shall be eligible whose customary employment is twenty hours
or less per week or whose customary employment is for not more than five months
in any calendar year.

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SECTION FOUR. METHOD OF PURCHASE

A. On each Offering Date, each Participant shall be granted the right
to purchase such number of shares of Common Stock as may be purchased, as
provided herein, by a sum equal to (i) the amount of the Compensation of the
Participant deducted in accordance with the following paragraph of this Section
Four during an Offering Period and (ii) the amount of the share of the
Participant of the contribution of the Company during such Offering Period.

An eligible employee shall become a Participant in the Plan by
authorizing payroll deductions for the purchase of Common Stock under the Plan
prior to an Offering Date with instructions for the purchase of Common Stock
under the Plan. At the time a Participant files his or her authorization, the
Participant shall elect to have deductions made from his or her pay on each
payday during the time he or she is a Participant at a rate not less than two
percent (2%) and not in excess of ten percent (10%) in whole percentages of his
or her Compensation. All payroll deductions made for a Participant shall be
credited to his or her account under the Plan. A Participant may not make any
separate cash payment into such account. No interest will be paid on funds in
the account of a Participant.

A Participant shall be deemed to have continued his or her most recent
election to participate in the Plan for the next Offering Period unless he or
she notifies the Company on or before the twentieth day of the month preceding
the beginning of the next Offering Period that he or she elects not to
participate in the Plan for the next Offering Period. Such notice may not be
revoked. A Section 16 Person who gives such notice shall not again be eligible
to participate in the Plan before the elapse of the next two full Offering
Periods. Similarly, a Participant may elect to increase or decrease the amount
of his or her payroll deduction on or before the twentieth day of the month
preceding the beginning of the next Offering Period, such increase or decrease
to be effective at the beginning of the next Offering Period.

On or before each Purchase Date, the Company shall contribute to the
Agent an amount equal to ten percent (10%) of the purchase price of the Common
Stock. The Agent shall cause all the proceeds received from contributions of the
Participant and the contribution of the Company to be applied to the open market
purchase of Common Stock. The account of each Participant shall be credited with
the number of shares of Common Stock equal to the sum of the contributions of
the Participant and the share of the Participant of the contribution of the
Company applied by the Agent to the purchase of Common Stock divided by the
average price per share of Common Stock purchased by the Agent. Unless the
Company otherwise directs, the Agent may, but shall not be obligated to,
allocate fractional shares of Common Stock for any Participant or purchase
shares of Common Stock in odd lots. Upon termination of an account, any
fractional shares in the Participant's account will be sold, and the proceeds
therefrom shall be delivered to such Participant. In the event fractional shares
are not allocated to the accounts of Participants under the Plan, any
accumulated payroll deductions which would have been used to purchase fractional
shares shall remain in the accounts of Participants. No interest will be paid on
such funds in accounts of Participants and shall be deemed to be a payroll
deduction of the next Offering Period.

B. No Participant shall have the right to purchase Common Stock under
the Plan at a rate of more than $25,000 in value thereof in any calendar year,
such value to be based on the fair market value per share of the Common Stock as
of the Offering Date on which a Participant becomes eligible to purchase Common
Stock in such year under the terms of the Plan.

C. A Participant may not increase or reduce the amount of his or her
payroll deduction during an Offering Period, provided, however, that a
Participant may reduce the amount of his or her payroll deduction to zero at any
time during the Offering Period in which case the employee may not participate
again in the Plan until the following Offering Period, except that if the
employee is a Section 16 Person then he or she shall not again be eligible to
participate in the Plan before the elapse of the next two full Offering Periods.
A Participant shall be deemed to have elected to purchase all of the shares
which his or her authorized payroll deductions and share of the contribution of
the Company would purchase on a Purchase Date.

D. If at any time the number of shares as to which Options have been
granted shall exceed the remaining number of shares authorized for purchase
under the Plan, the number of shares which may be purchased by each Participant
shall be reduced proportionately.

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E. At any time prior to a Purchase Date the Board of Directors may
terminate the Plan without any obligation whatsoever to the Participants, other
than to refund to each Participant, without interest, any sum accumulated for
him or her by payroll deductions.

SECTION FIVE. WITHDRAWALS

A Participant may withdraw funds in his or her account under the Plan
only by withdrawal from the Plan; in the event of the withdrawal of the
Participant, he or she shall not be eligible to participate in the Plan until
the next Offering Date, except that if the withdrawing Participant is a Section
16 Person then he or she shall not again be eligible to participate in the Plan
before the elapse of the next two full Offering Periods.

SECTION SIX. TERMINATION OF EMPLOYMENT

A. Upon termination of the employment of a Participant for any reason,
excluding death while in the employ of the Company or a Designated Subsidiary or
Retirement, the Common Stock and/or cash credited to his or her account and not
used to purchase shares will be returned to the Participant within sixty days
after the end of the then current Offering Period or as soon as administratively
practicable thereafter. As an alternative to a distribution of Common Stock, a
Participant may request that the Agent sell the Common Stock in the account of a
Participant and forward the net proceeds to such person or persons.

B. Upon termination of the employment of a Participant because of (i)
death, or (ii) Retirement, his or her beneficiary (as defined in Section Nine),
or the Participant, as the case may be, shall have the right to elect, by
written notice given to the Secretary of the Company prior to the expiration of
the period of thirty days commencing with the date of the death of the
Participant, or Retirement of the Participant, as the case may be, either

(i) to withdraw all of the payroll deductions credited to the account
of the Participant under the Plan or

(ii) to exercise the Option of the Participant on the Purchase Date
next following the date of the death of the Participant or Retirement
of the Participant, as the case may be, for the purchase of the number
of full shares of Common Stock which the accumulated payroll deductions
in the account of the Participant at the date of the death of the
Participant or Retirement of the Participant, as the case may be, and
the proportionate share of the contribution of the Company, will
purchase at the applicable Purchase Price, and any excess in such
account will be returned to said beneficiary or Participant, as the
case may be.

In the event that no such written notice of election shall be duly received by
the office of the Secretary of the Company, the beneficiary or Participant, as
the case may be, shall automatically be deemed to have elected to withdraw the
payroll deductions credited to the account of the Participant at the date of the
death or Retirement of the Participant, as the case may be, and the same will be
paid to the said beneficiary or Participant within sixty days after the end of
the current Offering Period or as soon as administratively practicable
thereafter.

In addition, upon termination of the employment of a Participant
because of (i) death, or (ii) Retirement, the Common Stock and/or cash (except
as otherwise provided in this Section Six B) shall be distributed to the
Participant or to the person or persons entitled thereto under Section Nine
within sixty days after the end of the current Offering Period or as soon as
administratively practicable thereafter. As an alternative to a distribution of
Common Stock, a Participant or such person or persons entitled to receive the
account of a Participant under Section Nine may request that the Agent sell the
Common Stock in the account of a Participant and forward the net proceeds to the
Participant or such person or persons.

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SECTION SEVEN. STOCK

Subject to adjustment upon changes in capitalization of the Company as
provided in Section Ten, the maximum number of shares of Common Stock which
shall be made available for purchase under the Plan is 1,000,000 shares.

Shares purchased pursuant to an Option will initially be registered in
the name of a Nominee designated by the Company, as custodian for the account of
the Participant entitled thereto. Stock certificates will not be issued to
Participants for shares held in the name of the Nominee, but all rights accruing
to an owner of record of such shares (including voting rights) will belong to
the Participant for whose account such shares are held. Notwithstanding the
foregoing, each Participant may elect to have some or all of the full shares of
Common Stock previously purchased and registered in the name of the Nominee on
his or her behalf registered in the name of such Participant. Written notice of
such an election must be given by the Participant to the Nominee, specifying the
number of full shares of Common Stock to be registered in the name of such
Participant. The specified number of shares of Common Stock will be transferred
to and registered in the name of the notifying Participant as soon as
administratively practicable.

The Board of Directors may, in its discretion, require as a condition
to the grant of the right to purchase hereunder that the shares of Common Stock
reserved for issuance upon the exercise of the Option shall have been duly
authorized for trading on a national securities exchange and that either

(i) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective; or

(ii) the Participant shall have represented in form and substance
satisfactory to the Company that it is the intention of the Participant
to purchase such shares for investment.

SECTION EIGHT. NONASSIGNABILITY

Neither payroll deductions credited to the account of a Participant nor
any rights with regard to the exercise of an Option or to receive Common Stock
under the Plan may be assigned, transferred, pledged or otherwise disposed of in
any way by the Participant other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Section Five.

SECTION NINE. DESIGNATION OF BENEFICIARY

A Participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash in the event of the death of the
Participant prior to the delivery of such shares or cash to Participant. Such
designation of beneficiary may be changed by the Participant at any time by
written notice to the Secretary of the Company. Within thirty days after the
death of the Participant, the beneficiary may, as provided in Section Six, elect
to exercise the Option of the Participant when it becomes exercisable on the
Purchase Date next following the date of the death of the Participant. Upon the
death of a Participant and upon receipt by the Company of proof of the identity
and survivorship of a beneficiary validly designated by the Participant under
the Plan, and notice of election of the beneficiary to exercise the Option, the
Company shall deliver such Common Stock and/or cash to such beneficiary. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such death of a
Participant, the Company shall deliver such Common Stock and/or cash to the
executor or administrator of the estate of the Participant within sixty days
after the end of the current Offering Period or as soon as administratively
practicable thereafter, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Common Stock and/or cash to the spouse or to any one or more
dependents of the Participant as the Company may designate. No beneficiary
shall, prior to the death of the Participant by whom he or she has been
designated, acquire any interest in the Common Stock or cash credited to the
Participant under the Plan.

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SECTION TEN. RECAPITALIZATION

In the event of any change in the number of outstanding shares of
Common Stock by reason of a recapitalization, merger, consolidation,
reorganization, separation, liquidation, stock split, stock dividend,
combination of shares, or any other change in the corporate structure or shares
of stock of the Company, the Board of Directors will make an appropriate
adjustment, in accordance with applicable provisions of the Code and rulings and
regulations thereunder, in the number and kind of shares which may be offered
under the Plan, both in the aggregate and as to each Participant, the number of
shares then subject to offerings theretofore made, and the price of shares
offered under the Plan.

SECTION ELEVEN. RIGHTS AS A STOCKHOLDER

An employee shall have no rights as a stockholder with respect to any
shares offered hereunder until completion of payment therefor. Participants will
not be issued stock certificates unless requested. All Common Stock purchased
under the Plan during an Offering Period will be held by the Nominee for at
least two years from the Offering Date of the Offering Period. Common Stock may
be sold during this two-year period, but may not be transferred to another agent
or nominee. Common Stock purchased under the Plan by a Section 16 Person may not
be sold before six months after its Purchase Date. Notwithstanding the
foregoing, a Participant must sell a minimum of fifty shares of Common Stock
each time he or she elects to sell Common Stock or such fewer whole shares of
Common Stock in the account of the Participant upon termination of employment.

SECTION TWELVE. STATUS OF PLAN FUNDS

All amounts held by the Company under the Plan shall be added to the
general funds of the Company and shall be used for such purposes as the Company
shall from time to time determine. The Company shall not be obligated to
segregate such payroll deductions.

SECTION THIRTEEN. ADMINISTRATION

The Plan shall be administered by the Board of Directors. The
interpretation and construction of any provision of the Plan and the adoption of
rules and regulations for administering the Plan shall be made by the Board of
Directors. Determinations made by the Board of Directors with respect to any
matter or provision contained in the Plan shall be final, conclusive and binding
upon the Company and upon all Participants, their heirs or legal
representatives. Any rule or regulation adopted by the Board of Directors shall
remain in full force and effect unless and until altered, amended, or repealed
by the Board of Directors. The Board of Directors may delegate to a committee
any authority of the Board of Directors under this Plan.

An Agent may be appointed by the Board of Directors to perform the
functions and have the responsibilities assigned to the Agent in this Section
Thirteen with respect to the purchase of Common Stock. The Board of Directors
shall have the right to change the Agent at any time.

Notwithstanding any other provision to the contrary contained herein,
the Agent shall have all authority to determine the times of such purchases, the
prices at which such purchases are made, the manner of such purchases and the
selection of brokers or dealers (which may include the Agent) to make such
purchases. If Common Stock is purchased at varying Market Prices, an average
price will be allocated to the account of each Participant.

All costs and expenses incurred in administering the Plan shall be paid
by the Company, excluding (i) costs associated with requests for the issuing of
stock certificates to Participants or to the person or persons entitled to
receive the same under Section Nine hereof (ii) the costs of the sale of
Common Stock, and (iii) costs associated with a Participant terminating or
withdrawing from the Plan.

SECTION FOURTEEN. AMENDMENT OR TERMINATION

Subject to Section Four, the Board of Directors may at any time
terminate or amend the Plan. No amendment may be made without prior approval of
the stockholders of the Company if such amendment would (a) materially increase
the

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benefits accruing to Participants under the Plan, (b) increase the number of
shares which may be available for purchase under the Plan, or (c) materially
modify the requirements as to eligibility for participation under the Plan.

SECTION FIFTEEN. NOTICES

All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been given when
received by the Secretary of the Company.

SECTION SIXTEEN. APPROVAL OF STOCKHOLDERS

The effectiveness of this Plan is subject to its approval by the
stockholders of the Company within twelve months after the date it is adopted by
the Board of Directors.

SECTION SEVENTEEN. REGISTRATION AND QUALIFICATION OF THE PLAN UNDER
APPLICABLE SECURITIES LAWS

No Option shall be granted under the Plan until such time as the
Company has qualified or registered the shares which are subject to the Option
under the applicable state and federal securities laws to the extent required by
such laws.