MANOR CARE INC/NEW, S-3, 1997-10-10

MANOR CARE INC/NEW
S-3, 1997-10-10
SKILLED NURSING CARE FACILITIES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10 , 1997

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------
MANOR CARE, INC.
(WHICH WILL CHANGE ITS NAME TO MANOR CARE REALTY, INC. AFTER
THE DISTRIBUTION REFERRED TO HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 11555 DARNESTOWN ROAD 52-1200376
(STATE OR OTHER GAITHERSBURG, MARYLAND 20878 (I.R.S. EMPLOYER
JURISDICTION OF (301) 979-4000 IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
SEE TABLE OF ADDITIONAL CO-REGISTRANTS INCLUDED HEREWITH
---------------
JAMES H. REMPE
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
MANOR CARE, INC.
11555 DARNESTOWN ROAD
GAITHERSBURG, MARYLAND 20878
(301) 979-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:

J. MICHAEL SCHELL MICHAEL BECKER
MARK C. SMITH CAHILL GORDON & REINDEL
SKADDEN, ARPS, SLATE, 80 PINE STREET
MEAGHER & FLOM LLP NEW YORK, NEW YORK 10005
919 THIRD AVENUE (212) 701-3000
NEW YORK, NEW YORK 10022
(212) 735-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]

If a delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
BEING REGISTERED(1) REGISTERED(1) PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due
2007 ................. $350,000,000 100% $350,000,000 $106,061
Guarantees of the %
Senior Notes due 2007. $ (3)
=============================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is required.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>

TABLE OF ADDITIONAL CO-REGISTRANTS

<TABLE>
<CAPTION>
(EXACT NAME OF CO-REGISTRANT (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER) OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
- ---------------------------- --------------------------------- -------------------
<S> <C> <C>
Archive Retrieval
Systems, Inc. .......... Maryland 52-1734402
Archive Acquisition,
Inc. ................... Maryland 52-1840315
Industrial Wastes, Inc. . Pennsylvania 25-1264509
Manor Care Aviation,
Inc. ................... Delaware 52-1462072
ManorCare Health
Services, Inc. ......... Delaware 52-0886946
American Hospital
Building Corporation.... Delaware 52-0985621
Americana Healthcare
Center of Palos
Township, Inc. ......... Illinois 52-1352950
Americana Healthcare
Corporation of Georgia.. Georgia 37-1087694
Americana Healthcare
Corporation of Naples... Florida 37-1087695
Baily Nursing Home,
Inc. ................... Pennsylvania 23-1674218
Colewood Realty Corp. ... Maryland 52-1777225
Community Hospital of
Mesquite, Inc. ......... Texas 52-1095067
DeKalb Healthcare
Corporation............. Delaware 37-1019112
Devon Manor Corporation.. Pennsylvania 23-2093337
Distco, Inc. ............ Maryland 52-0853907
Executive Advertising,
Inc. ................... Maryland 52-0912751
Four Seasons Nursing
Centers, Inc. .......... Delaware 73-0783484
Healthcare Construction
Corp. .................. North Carolina 52-1519915
Jacksonville Healthcare
Corporation............. Delaware 37-1069936
Leader Nursing and
Rehabilitation Center of
Bethel Park, Inc. ...... Delaware 52-1642046
Leader Nursing and
Rehabilitation Center of
Gloucester, Inc. ....... Maryland 52-1352949
Leader Nursing and
Rehabilitation Center of
Scott Township, Inc. ... Delaware 52-1462056
Leader Nursing and
Rehabilitation Center of
Virginia, Inc. ......... Virginia 52-1363206
Manor Care of Akron,
Inc. ................... Ohio 52-0970447
Manor Care of Arizona,
Inc. ................... Delaware 52-1751861
Manor Care of Arlington,
Inc. ................... Virginia 52-1067426
Manor Care of Boca Raton,
Inc. ................... Florida 52-1297340
Manor Care of Boynton
Beach, Inc. ............ Florida 52-1288882
Manor Care of Canton,
Inc. ................... Ohio 52-1019576
Manor Care of
Centreville, Inc. ...... Delaware 52-1933544
Manor Care of Charleston,
Inc. ................... South Carolina 52-1187059
Manor Care of Cincinnati,
Inc. ................... Ohio 52-0943592
Manor Care of Columbia,
Inc. ................... South Carolina 52-0940578
Manor Care of Delaware
County, Inc. ........... Delaware 52-1916053
Manor Care of Dunedin,
Inc. ................... Florida 52-1252397
Manor Care of Florida,
Inc. ................... Florida 52-1479084
ManorCare Health Services
of Northampton County,
Inc..................... Pennsylvania 52-2004471
ManorCare Health Services
of Virginia, Inc. ...... Delaware 52-2002773
Manor Care of Hinsdale,
Inc. ................... Illinois 52-0970446
Manor Care of Kansas,
Inc. ................... Delaware 52-1462071
Manor Care of Kingston
Court, Inc. ............ Pennsylvania 52-1314648
Manor Care of Largo,
Inc. ................... Maryland 52-1065213
Manor Care of Lexington,
Inc. ................... South Carolina 52-1048770
Manor Care Management
Corporation............. Delaware 52-2004467
Manor Care of Meadow
Park, Inc. ............. Washington 52-1339988
Manor Care of Mesquite,
Inc. ................... Texas 52-2004472
Manor Care of Miamisburg,
Inc. ................... Delaware 52-1708219
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 10, 1997

PROSPECTUS
$350,000,000
MANOR CARE REAL ESTATE CORP.
% SENIOR NOTES DUE 2007
FULLY AND UNCONDITIONALLY GUARANTEED BY
MANOR CARE REALTY, INC.
AND THE OTHER GUARANTORS NAMED HEREIN

----------

The % Senior Notes due 2007 (the "Notes") are being offered (the
"Offering") by Manor Care Real Estate Corp. ("Manor Care Real Estate") in
connection with the distribution (the "Distribution") by Manor Care, Inc.
("Manor Care") to its stockholders of 100% of the outstanding common stock, par
value $.01 per share, of New ManorCare Health Services, Inc., a newly formed
wholly owned subsidiary of Manor Care.

As a result of the Distribution, Manor Care will separate into two separate
publicly traded companies: Manor Care Realty, Inc. ("Manor Care Realty") and
ManorCare Health Services, Inc. ("ManorCare Health Services"). Manor Care
Realty will (i) be a health care real estate company focused on the ownership,
construction, development and acquisition of health care properties and (ii)
own Mesquite Community Hospital in Mesquite, Texas. ManorCare Health Services
will (i) own all of the business and assets of, and, subject to certain
exceptions, be responsible for the liabilities associated with, Manor Care's
assisted living business, (ii) operate and manage the skilled nursing
facilities owned by Manor Care Realty and (iii) own all of Manor Care's stock
of Vitalink Pharmacy Services, Inc. and In Home Health, Inc. ManorCare Health
Services will not provide any credit support with respect to the Notes. At or
prior to the Distribution, Manor Care will make or cause to be made a capital
contribution to ManorCare Health Services of (i) approximately $250 million in
cash and (ii) $250 million of senior notes of Manor Care Real Estate (the
"Realty Note"). In connection with the Distribution, ManorCare Health Services
plans to offer to exchange $1,000 principal amount of its 7 1/2% Senior Notes
due 2006 (the "New MCHS Senior Notes") for each $1,000 principal amount of 7
1/2% Senior Notes due 2006 of Manor Care (the "Old Senior Notes") properly
tendered (the "Exchange Offer") and Manor Care Real Estate will enter into new
credit facilities aggregating $450 million (the "Credit Facilities"). The
Credit Facilities are being entered into and the Notes offered hereby are being
issued as part of the financing necessary to effect the Distribution. The
Realty Note and the Credit Facilities will be guaranteed to the same extent as
the Notes. See "Use of Proceeds."

The Notes will be fully and unconditionally guaranteed on a senior unsecured
and joint and several basis by Manor Care Realty (the "Parent Guarantor"), of
which Manor Care Real Estate will be a wholly owned subsidiary, and
substantially all of the Parent Guarantor's present and future subsidiaries,
other than Unrestricted Subsidiaries (as defined) (the "Subsidiary Guarantors"
and, together with the Parent Guarantor, the "Guarantors"). The Guarantees (as
defined) of the Subsidiary Guarantors are subject to release in certain
circumstances. The Notes will be general unsecured obligations of Manor Care
Real Estate ranking senior to all subordinated indebtedness of Manor Care Real
Estate and pari passu in right of payment with all other indebtedness of Manor
Care Real Estate, including borrowings under the Credit Facilities and the
Realty Note. The Guarantees will be general unsecured obligations of the
Guarantors ranking senior to all subordinated indebtedness of the Guarantors
and pari passu with all other indebtedness of the Guarantors, including
guarantees of the Credit Facilities and the Realty Note. However, obligations
under the Credit Facilities will be secured by substantially all the assets of
Manor Care Realty and its subsidiaries. After giving pro forma effect to the
Offering, the use of proceeds thereof, the Distribution and related
transactions (and assuming the holders of 100% of the outstanding Old Senior
Notes accept the Exchange Offer), as of May 31, 1997, Manor Care Realty's
aggregate outstanding indebtedness would have been $807 million, including
approximately $177 million of secured borrowings, and unused commitments under
the Credit Facilities would have been $300 million.

Interest on the Notes will be payable semi-annually on and of
each year, commencing , 1998. The Notes are redeemable at the option of
Manor Care Real Estate, in whole or in part, at any time on or after ,
2002 at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
and from time to time on or prior to , 2000, Manor Care Real Estate may
redeem up to 35% of the aggregate principal amount of the Notes with the net
cash proceeds of one or more Public Equity Offerings by the Parent Guarantor or
Manor Care Real Estate, at a redemption price equal to % of the principal
amount to be redeemed, together with accrued and unpaid interest, if any, to
the date of redemption, provided that at least % aggregate principal amount
of the Notes originally issued remains outstanding after each such redemption.
Upon a Change of Control (as defined herein) each holder of the Notes may
require Manor Care Real Estate to repurchase such Notes at 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase.

FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON
PAGE 11 HEREIN.

----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) MANOR CARE(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................................ % % %
- --------------------------------------------------------------------------------
Total................................... $ $ $
================================================================================
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) Manor Care Real Estate and the Parent Guarantor have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses of the offering payable by Manor Care Real
Estate, estimated at $ .

The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify any such offer and to reject orders in whole or in part. It is expected
that delivery of the Notes will be made in New York, New York on or about
, 1997 at the offices of Chase Securities Inc., 270 Park Avenue, New
York, New York.
----------
CHASE SECURITIES INC. SBC WARBURG DILLON READ INC.

The date of this Prospectus is October , 1997.
<PAGE>

AVAILABLE INFORMATION

Manor Care is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Manor Care with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. Additionally, the Commission maintains a Web site
containing reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The address for such Web site is http://www.sec.gov. Certain of Manor Care's
securities are listed on the New York Stock Exchange (the "NYSE"). Such
reports, proxy statements and other information concerning Manor Care also may
be inspected at the offices of the NYSE located at 20 Broad Street, New York,
New York 10005.

Manor Care has filed with the Commission a Registration Statement on Form S-
3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act") with respect to the Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement,
which may be examined without charge at the public reference facilities
maintained by the Commission at the Public Reference Room of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies thereof may be obtained from the Commission upon payment of the
prescribed fees.

INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents filed by Manor Care with the Commission pursuant to
the Exchange Act (File No. 1-8195) are incorporated in this Prospectus by
reference and are made a part hereof:

(1) Annual Report on Form 10-K for the fiscal year ended May 31, 1997.

(2) Current Report on Form 8-K dated September 15, 1997.

All documents filed by Manor Care with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities made
hereby shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

Manor Care will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon oral or written
request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents).
Written or telephone requests should be directed to Manor Care, Inc. at its
principal executive offices at 11555 Darnestown Road, Gaithersburg, Maryland
20878, Attention: Secretary; telephone (301) 979-4000.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto set forth elsewhere in
this Prospectus. As used herein, "Manor Care" refers to Manor Care, Inc. and
its subsidiaries prior to the Distribution, "Manor Care Realty" refers to Manor
Care, Inc. and its subsidiaries, including Manor Care Real Estate, after the
Distribution and "ManorCare Health Services" refers to New ManorCare Health
Services, Inc. and its subsidiaries after the Distribution. See "Risk Factors"
for a discussion of certain factors that should be considered in connection
with an investment in the Notes. As used herein "Distribution" means,
collectively, the Contribution of Assets, the Assumption of Liabilities, the
Capital Contribution, and the distribution of the capital stock of ManorCare
Health Services to Manor Care's shareholders and "Pro Forma Basis" means after
giving pro forma effect to the Offering, the use of proceeds thereof, the
Distribution and related borrowings, including the Credit Facilities and the
Realty Note, and assuming that all holders of the outstanding Old Senior Notes
accept the Exchange Offer.

BACKGROUND

The Notes are being offered in connection with the distribution by Manor Care
to its stockholders of 100% of the outstanding stock of ManorCare Health
Services, a newly formed wholly owned subsidiary of Manor Care. As a result of
the Distribution, Manor Care will have separated into two independent publicly
traded companies: Manor Care Realty and ManorCare Health Services. Manor Care
Realty will (i) be a health care real estate company focused on the ownership,
construction, development and acquisition of health care properties including
skilled nursing and assisted living facilities and (ii) own Mesquite Community
Hospital in Mesquite, Texas. ManorCare Health Services will (i) own and operate
all of the business and assets of, and, subject to certain exceptions, be
responsible for the liabilities associated with, Manor Care's assisted living
business, (ii) operate and manage Manor Care's skilled nursing facilities and
(iii) own all of Manor Care's stock in Vitalink Pharmacy Services, Inc. and In
Home Health, Inc. See "Description of the Transactions--The Distribution."

MANOR CARE REALTY

Manor Care Realty will own 168 skilled nursing facilities in 28 states (the
"Skilled Nursing Facilities") and will be a leading health care real estate
company focused on the ownership, construction, development and acquisition of
health care properties, including skilled nursing and assisted living
facilities. Manor Care Realty will also own and operate Mesquite Community
Hospital, a 172 licensed bed medical/surgical acute care hospital located in
Mesquite, Texas ("Mesquite Hospital"). At or prior to the Distribution, Manor
Care Realty will enter into a series of agreements with ManorCare Health
Services pursuant to which ManorCare Health Services will lease and operate all
of Manor Care Realty's 168 Skilled Nursing Facilities and Manor Care Realty
will develop assisted living facilities for sale to ManorCare Health Services.
See "Relationship Between Manor Care Realty and ManorCare Health Services After
the Distribution." Manor Care and its predecessor companies have been engaged
in the development, construction and acquisition of health care properties
since 1959.

Over the next five years, Manor Care Realty plans to focus principally on the
development of over 200 assisted living facilities for sale to ManorCare Health
Services, including approximately 170 Arden Courts, serving persons with early
to middle-stage Alzheimer's disease or related memory impairment, and 38
Springhouse senior residences, serving the general assisted living population.
Following the Distribution, Manor Care Realty's principal sources of revenue
will arise from payments pursuant to the lease of the Skilled Nursing
Facilities to ManorCare Health Services, the proceeds of the sale to ManorCare
Health Services of assisted living facilities developed by Manor Care Realty
and revenues derived from Mesquite Hospital. Manor Care Realty's principal
expenditures will include the costs incurred in developing the assisted living
facilities for ManorCare Health Services, the costs of operating the assisted
living facilities prior to their sale to ManorCare Health

3
<PAGE>

Services and financing costs, including interest expense. On a Pro Forma Basis
for the fiscal year ended May 31, 1997, Manor Care Realty would have had
approximately $217 million in revenue and $158 million in EBITDA.

Manor Care Realty's geographically diversified portfolio of properties will
include:

. 168 Skilled Nursing Facilities in 28 states containing approximately
23,691 beds.

. 25 assisted living facilities in 12 states.

. 64 sites under contract and in development, including 48 Arden Court
sites and 16 Springhouse sites.

. Two skilled nursing facilities under construction with 268 beds and three
skilled nursing sites under contract and in development.

. Mesquite Community Hospital, a 172 licensed-bed hospital located in
Mesquite, Texas, a Dallas suburb.

Since fiscal year 1993, Manor Care has completed 72 development projects,
including ten skilled nursing facilities, 15 assisted living facilities and 47
significant additions to its existing skilled nursing facilities.

Manor Care Realty will have an experienced management team, with specific
expertise in market feasibility, regulatory issues, site selection, design, and
project management as well as in the acquisition of health care facilities. The
five senior members of Manor Care Realty's development team have worked with
Manor Care for an average of 16.5 years. These individuals have in-depth
knowledge of the health care market with particular expertise in the state
regulatory environment for both skilled nursing and assisted living facilities.
See "Management of Manor Care Realty After The Distribution." Manor Care Realty
believes that its experienced management and high quality, geographically
diversified portfolio of long term care properties will ensure that it
continues to be one of the nation's leading health care real estate developers
and owners.

After the Distribution, ManorCare Health Services will be a leading provider
of a full-range of senior support health care services, including skilled
nursing, assisted living, institutional pharmacy and home health care and
additional support services for the frail elderly living at home. ManorCare
Health Services will strive to become the nation's foremost provider of high-
quality senior support health care services within the private pay segment.
Private pay patients accounted for approximately 60% of Manor Care's skilled
nursing and assisted living revenues in fiscal 1997 compared to a 1996 industry
average of approximately 30% for for-profit nursing care providers. Application
will be made to list the common stock of ManorCare Health Services on the
New York Stock Exchange.

The long-term care industry in which Manor Care Realty participates is
experiencing significant growth due, in large part, to favorable demographic
trends. According to the U.S. Bureau of the Census, the number of seniors 85
years and older is estimated to increase by approximately 32% from 3.7 million
seniors in 1996 to 4.9 million seniors by 2005. According to industry sources,
approximately 57% of the population over age 85 currently require assistance
with activities of daily living ("ADLs"), such as dressing, bathing, eating and
medication management, and more than 50% suffer from Alzheimer's disease or
other cognitive disorders. Manor Care Realty believes that the growth of an
increasingly frail population will drive demand for long-term care products and
services tailored to meet the unique needs of this elderly population,
including skilled nursing facilities, assisted living facilities, and
Alzheimer's care facilities. In addition, Manor Care Realty believes that the
increasing affluence of the elderly and their children will enable them to
afford high quality care. According to the U.S. Bureau of the Census, the
median net worth of householders age 75 and older has increased from $61,491 in
1988 to $76,541 in 1991.

4
<PAGE>

Business Strategy. Manor Care Realty plans to maintain its status as a
leading developer and owner of senior support health care service facilities
and to enhance its growth and profitability through the following key
initiatives:

. Generate Consistent Cash Flows From High Quality Portfolio of
Properties. Upon consummation of the Distribution, Manor Care Realty
believes that it will have one of the highest quality portfolios of
skilled nursing facilities in the industry. The majority of the Skilled
Nursing Facilities were purpose-built (that is, designed and built as
skilled nursing facilities as opposed to having been converted from some
other use). Manor Care Realty believes these facilities are among the
industry leaders in terms of percentage of beds dedicated to specialty
products and quality payor mix. A significant portion of the beds in
Manor Care Realty's Skilled Nursing Facilities are dedicated to specialty
products, including Arcadia (Alzheimer's special care unit), Heritage and
Williamsburg (high-end lifestyle products), and Medbridge (high acuity
unit). For fiscal years 1997 and 1996, Manor Care's occupancy rates for
skilled nursing facilities that had been operated by Manor Care for at
least two years were 89.8% and 90.3%, respectively.

. Maintain Geographically Diverse Portfolio of Properties. Manor Care
Realty's portfolio of properties will include 168 facilities in 28
states. Manor Care Realty believes the geographic diversity of the
Skilled Nursing Facilities makes the portfolio less susceptible to
adverse changes in state regulation and regional economic downturns.

. Benefit From Strategic Relationship with ManorCare Health Services. Manor
Care Realty believes it will benefit from a strategic relationship with
ManorCare Health Services, one of the nation's leading providers of high-
quality senior support health care services within the private pay
segment. Under the terms of the Lease Agreements (as defined herein),
ManorCare Health Services will operate Manor Care Realty's 168 Skilled
Nursing Facilities. Manor Care Realty believes that the operation of the
Skilled Nursing Facilities by ManorCare Health Services will allow Manor
Care Realty to benefit from the strong brand name recognition, well
established treatment protocols and reputation for high quality,
personalized care standards of ManorCare Health Services. The Lease
Agreements provide Manor Care Realty with annual lease payments equal to
the greater of 10% of the value of each facility (as agreed to by Manor
Care Realty and ManorCare Health Services) or 77% of the Net Operating
Profit (as defined herein) of each facility. Manor Care Realty believes
this structure will provide a base level of rent (subject to reduction in
certain circumstances) along with the opportunity to participate in the
operating performance of the Skilled Nursing Facilities. In addition, by
serving as a developer of assisted living facilities for ManorCare Health
Services, Manor Care Realty believes it will be well positioned to profit
from the anticipated growth in the demand for assisted living care.
Pursuant to the Development Agreement, Manor Care Realty will develop
assisted living facilities for sale to ManorCare Health Services. If at
any time during the two-year period following the time a particular
facility opens occupancy reaches 80% for a period of 30 days, ManorCare
Health Services will be obligated to purchase the facility. The purchase
price for each facility will be at a 15-35% premium to total approved
development costs of Manor Care Realty, based on the number of months
elapsed since the opening of the facility. Prior to purchase by ManorCare
Health Services, ManorCare Health Services will operate Manor Care
Realty's assisted living facilities for a fixed monthly fee pursuant to
the Assisted Living Facility Management Agreement. See "Relationship
Between Manor Care Realty and ManorCare Health Services After the
Distribution."

. Capitalize On Growth in Demand for Assisted Living Services. Manor Care
Realty believes the anticipated increased market demand for assisted
living facilities presents Manor Care Realty with opportunities for
growth. Manor Care Realty believes it can successfully capitalize on its
ability to efficiently develop purpose-built assisted living projects
through the planned development of approximately 200 assisted living
facilities for sale to ManorCare Health Services over the next five
years, including approximately 170 Arden Courts and 38 Springhouse senior
residences. In addition to

5
<PAGE>

developing assisted living facilities for ManorCare Health Services and
leasing the Skilled Nursing Facilities to ManorCare Health Services,
Manor Care Realty and ManorCare Health Services plan to work closely
together to develop new assisted living products aimed at segments of
the assisted living business not currently served by the Springhouse and
Arden Courts concepts.

. Establish Relations with Other Leading Health Care Providers. While
Manor Care Realty expects that over the next five years the vast
majority of its revenues will be derived from ManorCare Health Services,
subject to contractual restrictions and capital constraints, Manor Care
Realty may diversify its operator base, establish relationships with
other leading health care providers to develop and lease health care
properties and pursue selective acquisition opportunities.

Manor Care was incorporated in August 1981 in the State of Delaware. Manor
Care's principal executive offices are located at 11555 Darnestown Road,
Gaithersburg, Maryland 20878-3200 and its telephone number is: (301) 979-4000.

DESCRIPTION OF THE TRANSACTIONS

The Distribution. Pursuant to the Distribution Agreement to be entered into
between Manor Care and ManorCare Health Services (the "Distribution
Agreement"), on or prior to the date the Distribution is effected (the
"Effective Date"), Manor Care will convey or cause to be conveyed to ManorCare
Health Services all of the right, title and interest of Manor Care and its
subsidiaries in: (i) all of the business and assets of Manor Care's assisted
living business (the "Assisted Living Business"); (ii) the shares of Common
Stock of Vitalink Pharmacy Services, Inc. ("Vitalink") owned by Manor Care;
and (iii) the shares of Common and Preferred Stock of In Home Health, Inc.
("In Home Health") owned by Manor Care (collectively, the "Contribution of
Assets").

Manor Care will assign to ManorCare Health Services and ManorCare Health
Services will assume certain liabilities, including, subject to certain
exceptions, all liabilities arising from (i) the operation of the Assisted
Living Business or the ownership or use of assets or other activities in
connection therewith arising after the Distribution Date, (ii) the operation
of Manor Care Realty's 168 Skilled Nursing Facilities after the Effective Date
and (iii) the ownership of stock in Vitalink or In Home Health whether arising
before, on or after the Distribution (collectively, the "Assumption of
Liabilities").

At or prior to the Distribution, Manor Care will make or cause to be made a
capital contribution (the "Capital Contribution") to ManorCare Health Services
consisting of (i) approximately $250 million in cash and (ii) a $250 million
note of Manor Care Real Estate (the "Realty Note"). See "Description of the
Transactions--The Realty Note."

Following the Contribution of Assets, the Assumption of Liabilities and the
Capital Contribution, Manor Care will distribute to the holders of record of
Manor Care's common stock, par value $.01 per share ("Manor Care Common
Stock"), one share of the common stock, par value $.01 per share, of ManorCare
Health Services for every share of Manor Care Common Stock. Following the
Distribution, Manor Care will change its name to Manor Care Realty, Inc.

The Credit Facilities. Concurrently with the sale of the Notes hereby, Manor
Care Real Estate anticipates entering into new credit facilities to be
provided by a group of banks (the "Credit Facilities"). Manor Care is
currently negotiating a commitment letter relating to the Credit Facilities.
Manor Care Real Estate anticipates that the Credit Facilities will consist of
a $300 million revolving credit facility and a $150 million term loan
facility. Manor Care Real Estate expects that the Credit Facilities will be
secured by substantially all of the assets of Manor Care Realty and its
subsidiaries and will be available for general corporate purposes and working
capital purposes, including funding development and operating costs and
acquisitions. The Offering is conditioned on the effectiveness of the Credit
Facilities. See "Description of Certain Indebtedness--The Credit Facilities."

6
<PAGE>

The Exchange Offer. ManorCare Health Services plans to offer to exchange
$1,000 principal amount of its 7 1/2% Senior Notes due 2006 (the "New MCHS
Senior Notes") for each $1,000 principal amount of 7 1/2% Senior Notes due 2006
of Manor Care (the "Old Senior Notes") properly tendered (the "Exchange
Offer"). In addition, consents to certain amendments of the covenants governing
the Old Senior Notes will be sought in connection with the Exchange Offer.
Consummation of the Exchange Offer is conditioned upon, among other things,
acceptance of the Exchange Offer by holders of at least a majority in principal
amount of the Old Senior Notes (the "Minimum Tender Condition") and
consummation of the Distribution. As a result of the Exchange Offer, ManorCare
Health Services, not Manor Care Realty, will be the obligor on the New MCHS
Senior Notes; and Manor Care Realty, not ManorCare Health Services, will remain
the obligor on the Old Senior Notes. Pro forma information contained herein
assumes that all Old Senior Notes are properly tendered in the Exchange Offer
and that, after giving effect to the Exchange Offer, no Old Senior Notes will
be outstanding. See "Description of the Transactions--The Exchange Offer and
Solicitation."

Lease Agreements. In connection with the Distribution, Manor Care Realty and
ManorCare Health Services will enter into Lease Agreements pursuant to which
Manor Care Realty will lease to ManorCare Health Services all the Skilled
Nursing Facilities owned by Manor Care Realty and Manor Care Realty will grant
to Manor Care Health Services the right to operate and manage the Skilled
Nursing Facilities. Under the Lease Agreement for each facility, ManorCare
Health Services will pay annual rent to Manor Care Realty equal to the greater
of (i) 77% of Net Operating Profit and (ii) 10% of the asset value of the
subject facility (as agreed upon by Manor Care Realty and Manor Care Health
Services); provided that the rent for a specific year may be reduced below
these two amounts in certain circumstances.

Development Agreement. In connection with the Distribution, Manor Care Realty
and ManorCare Health Services will enter into a Development Agreement pursuant
to which Manor Care Realty will develop assisted living facilities for sale to
ManorCare Health Services. ManorCare Health Services will have a two year
option (measured from the time a particular facility opens) to purchase such
facilities; provided that ManorCare Health Services will be obligated to
purchase each such facility if occupancy reaches 80% for a period of 30 days
during the two year stabilization period. The purchase price for each facility
will be at a premium to Manor Care Realty's total approved development costs,
such premium ranging from 15% to 35.5% based on the number of months elapsed
since the opening of the relevant facility. If ManorCare Health Services does
not acquire a facility within such two year period, Manor Care Realty may sell
the facility to a third party. During the two year stabilization period (or
such lesser time if stabilized occupancy is achieved and ManorCare Health
Services purchases the facility) ManorCare Health Services will manage the
assisted living facilities for Manor Care Realty for a fixed monthly fee.

See "Risk Factors" and "Relationship Between Manor Care Realty and ManorCare
Health Services after the Distribution--Development Agreement" for a more
detailed description of the relationship between ManorCare Health Services and
Manor Care Realty after the Distribution and of the terms of the Lease
Agreements and the Development Agreement.

7
<PAGE>

The following table illustrates the estimated sources and uses of funds,
assuming the Distribution was consummated on May 31, 1997 and that all holders
of the outstanding Old Senior Notes accept the Exchange Offer:

<TABLE>
<CAPTION>
AMOUNT
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
SOURCES:
Revolving Credit Facility(1)........................... $ --
Term Loan.............................................. 150.0
Gross proceeds of the Offering......................... 350.0
Realty Note............................................ 250.0
------
Total Sources........................................ $750.0
======
USES:
Contribution of Cash to ManorCare Health Services...... $250.0
Redemption of the Senior Subordinated Notes............ 145.1
Repayment of amounts outstanding under Existing
Revolving Credit Facility............................. 85.0
Repayment of amounts outstanding under Promissory Note. 14.0
Repayment of certain mortgage bond indebtedness ....... 0.2
Contribution of the Realty Note to ManorCare Health
Services ............................................. 250.0
Fees and Expenses(2)................................... 5.7
------
Total Uses........................................... $750.0
======
</TABLE>
- --------
(1) For a description of the availability of borrowings under the Revolving
Credit Facility, see "Description of Certain Indebtedness--The Credit
Facilities."
(2) Excludes fees and expenses to be reimbursed by ManorCare Health Services.

Manor Care Realty believes that, following the consummation of the Offering,
it will have sufficient capital resources and liquidity, including cash flow
from operations and availability under the Credit Facilities, to meet its
borrowing obligations, fund all required capital expenditures and pursue its
business strategy.

8
<PAGE>

SUMMARY HISTORICAL FINANCIAL DATA OF MANOR CARE

AND PRO FORMA FINANCIAL DATA OF MANOR CARE REALTY

The following table sets forth a summary of selected historical financial
data of Manor Care and pro forma financial data of Manor Care Realty. The
historical financial data are not necessarily indicative of the results of
operations or financial position that would have been obtained if Manor Care
Realty had been a separate, independent company during the periods shown nor
necessarily indicative of Manor Care Realty's future performance as an
independent company. The historical statements of income data for the fiscal
years ended May 31, 1995, 1996 and 1997 and the historical balance sheet data
for the fiscal years ended May 31, 1996 and 1997 are derived from the audited
consolidated financial statements of Manor Care. The historical financial data
set forth below should be read in conjunction with Manor Care's Consolidated
Financial Statements and the notes thereto found elsewhere in this Prospectus.

The summary pro forma financial data make adjustments to the historical
balance sheet and the historical statement of income, as if the Distribution
and related transactions (including the Exchange Offer) had occurred on May 31,
1997 for purposes of the pro forma balance sheet, and on June 1, 1996 for
purposes of the pro forma statement of income. The pro forma financial
statements of Manor Care Realty may not reflect the future results of
operations or financial position of Manor Care Realty or what the results of
operations would have been if Manor Care Realty had been a separate,
independent company during such period. The pro forma adjustments reflect the
impact of the Distribution and related borrowings, including the Credit
Facilities and the Realty Note, Lease Agreements, Assisted Living Facility
Management Agreements, net additional costs associated with general corporate
functions, the consummation of the Exchange Offer, the Offering and the use of
proceeds thereof, and the related income tax effects of these adjustments.
See "Pro Forma Financial Data" and the accompanying footnotes for a discussion
of the principal adjustments made in the preparation of the pro forma financial
information.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------
PRO FORMA
1995 1996 1997 1997
--------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statements of Income Data:
Revenues......................... $ 893,471 $ 985,150 $1,056,095 $ 217,132
Expenses:
Operating....................... 670,987 735,671 789,074 59,013
Depreciation and amortization... 48,284 56,503 60,243 60,608
General corporate and other..... 60,240 63,127 60,177 --
Provisions for asset impairment
and restructuring.............. -- 25,100 -- --
--------- --------- ---------- ---------
Total expenses.................. 779,511 880,401 909,494 119,621
--------- --------- ---------- ---------
Income from continuing operations
before other income and
(expenses) and
income taxes.................... 113,960 104,749 146,601 97,511
--------- --------- ---------- ---------
Interest income from advances to
discontinued lodging segment... 15,492 19,673 21,221 21,221
Interest expense................ (18,872) (18,951) (24,514) (66,299)
Other income (expenses), net.... 6,372 3,452 6,400 6,400
--------- --------- ---------- ---------
Income from continuing operations
before income taxes............. 116,952 108,923 149,708 58,833
Income taxes..................... 46,101 44,563 60,783 24,842
--------- --------- ---------- ---------
Income from continuing
operations...................... 70,851 64,360 88,925 33,991
Income from discontinued assisted
living, pharmacy and home health
operations...................... 6,824 1,111 36,188 --
Income from discontinued lodging
operations...................... 16,811 20,436 11,829 11,829
--------- --------- ---------- ---------
Net income....................... $ 94,486 $ 85,907 $ 136,942 $ 45,820
========= ========= ========== =========
Other Financial and Operating Da-
ta:
EBITDA(1)........................ 162,244 186,352 206,844 158,119
EBITDA margin.................... 18.16% 18.92% 19.59% 72.82%
Average number of operating beds. 22,252 23,227 23,865 23,506
Ratio of EBITDA to interest
expense......................... 8.60x 9.83x 8.44x 2.38x
Ratio of earnings to fixed
charges(2)...................... 6.43x 5.62x 6.03x 1.78x
Balance Sheet Data:
Working capital.................. 51,053 (33,357) 33,718 (12,845)
Total assets..................... 1,247,241 1,593,193 1,547,578 1,228,530
Long-term debt................... 315,271 490,575 491,190 806,530
Total equity..................... 624,873 707,769 690,431 5,406
</TABLE>
- --------
(1) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and certain other special charges, including the addition of
$25.1 million in fiscal year 1996 relating to the impairment of assets.
EBITDA is not intended to represent cash flows for the period, is not
presented as an alternative to operating income as an indicator of
operating performance, may not be comparable to other similarly titled
measures of other companies and should not be considered in isolation or as
a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. See Manor Care's consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus.
(2) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before provision for
income taxes including dividends from less than 50% owned companies and
Manor Care's share of pre-tax income of 50%-owned companies carried at
equity, before fixed charges net of capitalized interest. Fixed charges
comprise interest on long-term and short-term debt, including capitalized
interest, the portion of rentals representative of an interest factor and
Manor Care's share of fixed charges of 50%-owned companies carried at
equity.

9
<PAGE>

THE OFFERING

Issuer............ Manor Care Real Estate Corp.

Securities
Offered.......... $350,000,000 aggregate principal amount of % Senior Notes
due 2007.

Maturity.......... , 2007.

Interest Payment
Dates............ and , commencing , 1998.

Sinking Fund...... None.

Optional
Redemption....... Except as described below, Manor Care Real Estate may not
redeem the Notes prior to , 2002. On or after such date,
Manor Care Real Estate may redeem the Notes, in whole or in
part, at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time to time
on or prior to , 2000, Manor Care Real Estate may
redeem up to 35% of the aggregate principal amount of the
Notes with the net cash proceeds of one or more Public
Equity Offerings by Manor Care Real Estate or Manor Care
Realty, at a redemption price equal to % of the principal
amount to be redeemed together with accrued and unpaid
interest, if any, to the date of redemption, provided that
at least % aggregate principal amount of the Notes
originally issued remains outstanding after each such
redemption. See "Description of the Notes--Optional
Redemption."

Guarantees........ Manor Care Real Estate's obligations under the Notes will
be fully and unconditionally guaranteed on a senior
unsecured and joint and several basis (the "Guarantees") by
Manor Care Realty, Inc. (the "Parent Guarantor") and
substantially all of the Parent Guarantor's present and
future subsidiaries, other than Unrestricted Subsidiaries
(as defined) (the "Subsidiary Guarantors" and, together
with the Parent Guarantor, the "Guarantors"). The
guarantees of the Subsidiary Guarantors are subject to
release in certain circumstances. See "Description of the
Notes--Guarantees."

Restrictive
Covenants........ The indenture under which the Notes will be issued (the
"Indenture") will limit, among other things, (i) the
incurrence of additional indebtedness by Manor Care Realty
and its Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of Manor
Care Realty and its Restricted Subsidiaries, (iii)
investments, (iv) sales of assets and Restricted Subsidiary
stock, (v) transactions with affiliates, (vi) liens and
(vii) consolidations, mergers and transfers of all or
substantially all of the assets of Manor Care Realty or
Manor Care Real Estate. The Indenture will also prohibit
certain restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
Notes--Certain Covenants."

Use of Proceeds... The gross proceeds of $350 million from the issuance of the
Notes offered hereby (before deduction of discounts and
commissions), together with borrowings under the Credit
Facilities will be used to effect the Distribution,
including financing the cash portion of the Capital
Contribution to ManorCare Health Services, refinancing
certain debt of Manor Care and paying related fees and
expenses. See "Use of Proceeds."

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers in evaluating an investment in the Notes.

10
<PAGE>

RISK FACTORS

Prospective investors should consider carefully, in addition to the other
information contained in or incorporated by reference in this Prospectus, the
following factors before purchasing the Notes offered hereby.

FORWARD-LOOKING INFORMATION; HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

This Prospectus contains various forward-looking statements and information
that are based on management's belief as well as assumptions made by and
information currently available to management. When used in this document, the
words "anticipate," "estimate," "project," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. All of
these forward-looking statements are based on estimates and assumptions made
by management of Manor Care Realty which, although believed by management of
Manor Care Realty to be reasonable, are inherently uncertain. Therefore, undue
reliance should not be placed upon such estimates and statements. No assurance
can be given that any of such estimates will be realized and it is likely that
actual results will differ materially from those contemplated by such forward-
looking statements. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated, projected or expected.
Among the key factors that may have a direct bearing on Manor Care Realty's
operating results is Manor Care Realty's ability to implement its plan to
construct, develop, acquire or sell skilled nursing and assisted living
facilities. In addition, actual future results and trends may differ
materially depending on a variety of factors discussed in this "Risk Factors"
section and elsewhere in this Prospectus. Factors that may affect such plans
or results include, without limitation, (i) Manor Care Realty's success in
implementing its business strategy, including its success in arranging
financing where required, (ii) the nature and extent of future competition,
(iii) the extent of future health care reform and regulation, including cost
containment measures, (iv) ManorCare Health Services' ability to manage and
operate the Skilled Nursing Facilities, (v) the loss or retirement of key
members of management, (vi) increases in Manor Care Realty's cost of
borrowing, (vii) any costs associated with Manor Care Realty's transition to
an independent public company; (viii) changes in the mix of payment sources
for patient services provided by ManorCare Health Services, including any
decrease in the amount and percentage of revenues derived from private payors,
(ix) the ability of ManorCare Health Services to continue to deliver high
quality care and to attract private pay residents (x) changes in general
economic conditions and/or in the markets in which Manor Care Realty may, from
time to time, compete. Many of such factors are beyond the control of Manor
Care Realty and its management. Because Manor Care Realty will be dependent to
a large extent on ManorCare Health Services, Manor Care Realty will also be
affected adversely to the extent that any of the above factors affect
ManorCare Health Services.

The historical financial statements and data of Manor Care included, or
incorporated by reference herein, do not give effect to the Distribution and
related transactions. Manor Care, prior to the Distribution, had different
management, revenue base and cost structures, as well as significantly
different capitalization. In addition, Manor Care Realty did not operate as a
separate independent company during such periods. Consequently, the historical
financial statements and data included herein do not indicate the results of
operations or financial condition of Manor Care Realty that would have been
reported for the periods indicated. In addition, the pro forma financial
statements and data, which give effect to the Distribution and related
transactions, are included herein for informational purposes and, while
management believes that they may be helpful in understanding the operations
of Manor Care Realty, on such a pro forma basis, undue reliance should not be
placed thereon. Such pro forma financial statements and data do not reflect
the future results of Manor Care Realty.

OPERATING HISTORY AND FUTURE PROSPECTS

Manor Care Realty does not have an operating history as an independent
public company, and therefore, there are no historical financial results of
Manor Care Realty for investors to evaluate. However, Manor Care Realty will
own and conduct the operations of Manor Care's real estate development
business and Mesquite Hospital. These businesses were previously conducted by
Manor Care as divisions of a large public company

11
<PAGE>

with greater financial strength. In addition, the division of Manor Care may
result in some temporary dislocation and inefficiencies to the business
operations, as well as to the organizational and personnel structure. There
can be no assurance that Manor Care Realty's operations will be profitable in
1998 or in future years.

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS

As a result of the Distribution, Manor Care Realty will be highly leveraged,
with indebtedness that is very substantial in relation to its stockholders'
equity. On a Pro Forma Basis, as of May 31, 1997, Manor Care Realty's
aggregate outstanding indebtedness would have been $807 million and Manor Care
Realty's stockholders' equity would have been $5.4 million. Manor Care Realty
expects that the Credit Facilities will permit Manor Care Realty to incur
additional indebtedness, subject to certain limitations. Manor Care Realty
will need to incur additional indebtedness over the next five years to fund
the planned development of skilled nursing and assisted living facilities over
the next five years. See "Description of Certain Indebtedness."

Manor Care Realty's ability to repay the indebtedness to be incurred in
connection with the Distribution at its scheduled maturity is expected to be
dependent in whole or in part on its obtaining additional debt and/or equity
financing or, alternatively, the disposition of assets. The Credit Facilities
are expected to be secured by substantially all of the assets of Manor Care
Realty. No assurances can be given as to Manor Care Realty's ability to
refinance other indebtedness or seek additional financing, which ability may
be impaired as a result of such security. In the event Manor Care Realty is
unable to obtain the necessary funds to repay its indebtedness, Manor Care
Realty would be in default under the terms of its indebtedness. Such a default
could result in, among other things, a foreclosure or other actions by
creditors against collateral securing such indebtedness, and in cross defaults
to other indebtedness resulting in the acceleration of the maturity of all
principal and interest of indebtedness subject to such cross defaults.

The degree to which Manor Care Realty is leveraged could have important
consequences, including the following: (i) Manor Care Realty's ability to
obtain additional financing in the future to fund construction of facilities,
for working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; (ii) a substantial portion of Manor Care Realty's
cash flow from operations must be dedicated to the payment of principal and
interest on its indebtedness, thereby reducing the funds available to Manor
Care Realty for its operations; (iii) certain of Manor Care Realty's
borrowings will be at variable rates of interest, which will cause Manor Care
Realty to be vulnerable to increases in interest rates and (iv) Manor Care
Realty's substantial leverage may make it more vulnerable to cost increases
and adverse economic conditions and limit its ability to withstand competitive
pressures or take advantage of business opportunities.

Manor Care Realty's ability to make scheduled principal payments or to
refinance its obligations with respect to its indebtedness depends primarily
on the financial and operating performance of ManorCare Health Services,
which, in turn, is subject to prevailing economic conditions and to financial,
business, industry and other factors are beyond its control. See "--Forward-
Looking Information; Historical and Pro Forma Financial Information" for a
description of factors that may affect Manor Care Realty's and ManorCare
Health Service's financial and operating performance. There can be no
assurance that Manor Care Realty's operating results will be sufficient for
payment of Manor Care Realty's indebtedness.

Manor Care Realty's business is capital intensive and Manor Care Realty will
continue to have significant capital requirements in the future. As a highly
leveraged corporation, any new financings and refinancings by Manor Care
Realty of its existing debt may be at higher interest rates and on less
advantageous terms than would have been the case had the Distribution not
taken place. Manor Care Realty's ability to meet certain financial tests in
the Credit Facilities will be dependent upon its ability to reduce its
leverage over the next three to five years. Such reductions may require Manor
Care Realty to raise additional equity, which will be dependent upon
conditions then prevailing in the United States equity capital markets. See
"Description of Certain Indebtedness--The Credit Facilities."

12
<PAGE>

HOLDING COMPANY STRUCTURE

Manor Care Realty is a holding company with no material business operations,
sources of income or assets of its own other than the shares of its
subsidiaries, and Manor Care Real Estate conducts a significant portion of its
operations through subsidiaries. Because substantially all of Manor Care
Realty's and a significant portion of Manor Care Real Estate's operations are
conducted through subsidiaries, each of Manor Care Realty's and Manor Care
Real Estate's cash flow and, consequently, their respective abilities to meet
their respective debt service obligations, including as to payment of
principal, premium, if any, and interest on the Notes, is dependent upon the
cash flow of their respective subsidiaries and the payment of funds by those
subsidiaries in the form of loans, dividends, fees or otherwise. The
subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether in the form of loans,
dividends or otherwise except pursuant to the Guarantees. See "--Fraudulent
Transfer Considerations, Legal Dividend Requirements." Any right of Manor Care
Realty or Manor Care Real Estate, as the case may be, to receive assets of any
of its subsidiaries upon its liquidation or reorganization (and the consequent
right of the holders of the Notes to participate in the distribution of
proceeds from those assets) will be effectively subordinated to the claims of
such subsidiary's creditors (including tax authorities, trade creditors, the
lenders under the Credit Facilities, and subject to the considerations
described under "--Fraudulent Transfer Considerations; Legal Dividend
Requirements," the holders of the Notes, as well as other lenders to those
subsidiaries), except to the extent that Manor Care Realty or Manor Care Real
Estate, as the case may be, is itself a creditor of such subsidiary, in which
case such entity's claims would still be subordinated to any security interest
in the assets of such subsidiary and indebtedness of such subsidiary senior to
that held by such entity. In addition, although the Indenture limits the
ability of Manor Care Realty's Restricted Subsidiaries to incur additional
indebtedness and to enter into agreements that restrict the ability of each
Restricted Subsidiary to pay dividends or make or repay loans or other
payments to Manor Care Realty, Manor Care Realty's Restricted Subsidiaries may
be able to incur substantial additional indebtedness. See "Description of the
Notes--Covenants."

RESTRICTIONS IMPOSED BY TERMS OF MANOR CARE REALTY'S INDEBTEDNESS

The Indenture will restrict, among other things, the ability of Manor Care
Realty and its subsidiaries, other than the Unrestricted Subsidiaries, to
incur additional indebtedness, incur liens, pay dividends or make certain
other restricted payments. In addition, Manor Care Realty anticipates that the
Credit Facilities will impose upon Manor Care Realty certain financial and
operating covenants, including, among others, requirements that Manor Care
Realty maintain certain financial ratios and satisfy certain financial tests,
limitations on capital expenditures, and restrictions on the ability of Manor
Care Realty to incur debt, pay dividends, or take certain other corporate
actions, all of which may restrict Manor Care Realty's ability to expand or to
pursue its business strategies. There can be no assurance that Manor Care
Realty will be able to comply with the covenants and in addition, changes in
economic or business conditions, results of operations or other factors could
in the future cause a violation of one or more covenants in Manor Care
Realty's debt instruments. Failure by Manor Care Realty to comply with such
covenants may result in an event of default which, if not cured or waived,
could have a material adverse effect on Manor Care Realty. See "--Substantial
Leverage; Ability to Service Indebtedness," "Description of the Notes" and
"Description of Certain Indebtedness."

FRAUDULENT TRANSFER CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS

It is a condition to the consummation of the Distribution that each of Manor
Care Realty and ManorCare Health Services shall have received a satisfactory
opinion regarding the solvency of Manor Care Realty and ManorCare Health
Services and the permissibility of the Contribution of Assets, the Capital
Contribution, the Assumption of Liabilities and the Distribution under Section
170 of the Delaware General Corporation Law (the "DGCL"). There is no
certainty, however, that a court would reach the same conclusions set forth in
such opinion in determining whether Manor Care Real Estate, Manor Care Realty
or ManorCare Health Services was insolvent at the time of, or after giving
effect to, the Contribution of Assets, the Capital Contribution, the
Assumption of Liabilities and the Distribution. Manor Care's Board of
Directors does not intend to consummate the Distribution unless it is
satisfied regarding the solvency of Manor Care and ManorCare Health Services
as of

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the declaration by Manor Care of the distribution of the capital stock of
ManorCare Health Services to Manor Care's shareholders and as of the
consummation of the Distribution and the permissibility of the Distribution
under Section 170 of DGCL.

If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that at the time
Manor Care effected the Distribution, Manor Care, Manor Care Real Estate or
any of the Guarantors (a) (i) was insolvent, (ii) was rendered insolvent by
reason of the Distribution, (iii) was engaged in a business or transaction for
which its remaining assets, as the case may be, constituted unreasonably small
capital, or (iv) intended to incur, or believed it would incur, debts beyond
its ability to pay as such debts matured and received less than fair
consideration or reasonably equivalent value or (b) made the Distribution or
guaranteed the Notes with actual intent to hinder, delay or defraud existing
or future creditors of Manor Care, such court may be asked to void the
Distribution (in whole or in part), the Notes and/or the Guarantees of the
Notes as fraudulent conveyances. If a court finds that the Distribution
constituted a fraudulent conveyance of assets of Manor Care, and that
noteholders knew or reasonably should have known that the proceeds of the
Notes would be used to fund a fraudulent conveyance, such court may void or
subordinate the obligations of the Notes and/or the Guarantees. The measure of
insolvency for purposes of the foregoing will vary depending upon the
jurisdiction whose law is being applied. Generally, however, Manor Care would
be considered insolvent if the fair value of its assets were less than the
amount of its liabilities or if it incurred debt beyond its ability to repay
such debt as it matures. In determining the debts of Manor Care for such
purpose, a court may disregard, in whole or in part, the effect of the
Assumption of Liabilities by ManorCare Health Services if it finds that
ManorCare Health Services was at the time of the Assumption of Liabilities
unable to pay assumed debts.

ManorCare Health Services will assume and agree to pay certain liabilities
of Manor Care pursuant to the Assumption of Liabilities. If, applying the
foregoing standards, ManorCare Health Services is found to have effected a
fraudulent conveyance in assuming debts of Manor Care pursuant to the
Assumption of Liabilities, a court in a suit by an unpaid creditor or
representative of creditors may void the Assumption of Liabilities (in whole
or in part) with the result that Manor Care Realty may be required to pay all
or part of such liabilities.

Manor Care's Board of Directors and management believe that, in accordance
with the solvency opinion rendered in connection with the Distribution, both
prior to and immediately following the consummation of the Distribution, (a)
Manor Care, Manor Care Realty and ManorCare Health Services each (i) will be
solvent (in accordance with the foregoing definitions), (ii) will be able to
repay its debts as they mature, (iii) will have sufficient capital to carry on
its businesses and (b) the Distribution will be made entirely out of Manor
Care's surplus, as required under Section 170 of the Delaware General
Corporation Law. Manor Care's Board of Directors and management further
believe that neither Manor Care nor ManorCare Health Service is entering into
the Distribution with any actual intent to hinder, delay or defraud existing
or future creditors of Manor Care Realty or ManorCare Health Services and
therefore the Notes should not be voided as a fraudulent conveyance. The Board
is not expected to receive an opinion, however, with respect to the solvency
of each Guarantor.

The ability of Manor Care Real Estate, Manor Care Realty and the Subsidiary
Guarantors to honor their obligations under the Notes may depend, in part, on
the continued payment of rentals under one or more leases entered into between
such subsidiaries as lessors and ManorCare Health Services or a subsidiary
thereof as lessee. However, in the event that ManorCare Health Services
becomes the subject of bankruptcy proceedings, a trustee in bankruptcy for
ManorCare Health Services, or ManorCare Health Services as "debtor in
possession," may elect to reject such leases, with the result that rental
payments under such leases may terminate.

DEPENDENCE UPON SINGLE OPERATOR

ManorCare Health Services will account for the vast majority of Manor Care
Realty's revenues over at least the first five years after the Distribution.
In addition, pursuant to the terms of the Non-Competition Agreement, Manor
Care Realty may not, subject to certain exceptions, enter into management
agreements with third parties with respect to acquired or developed skilled
nursing facilities properties unless ManorCare Health Services has

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declined to manage such facilities. The Non-Competition Agreement imposes
other restrictions on Manor Care Realty. See "Relationship between Manor Care
Realty and ManorCare Health Services after the Distribution-- Non-Competition
Agreement." Accordingly, Manor Care Realty's financial and operating
performance will depend primarily on the financial and operating performance
of ManorCare Health Services. Poor performance of the Skilled Nursing
Facilities operated by ManorCare Health Services or the assisted living
facilities developed for ManorCare Health Services would have a material
adverse effect on Manor Care Realty or render Manor Care Realty unable to meet
its debt service requirements. Although Manor Care Realty will consider,
subject to capital constraints and the terms of the Non-Competition Agreement,
diversifying its business, there can be no assurance that it will be able to
do so or if able, to be successful in this effort. In the event that Manor
Care Realty pursues its strategy to diversify its business, Manor Care Realty
may require substantial additional capital resources. See "Business of Manor
Care Realty after the Distribution."

DEPENDENCE BY MANOR CARE REALTY ON RELATED PARTY AGREEMENTS; FAILURE TO
ACHIEVE OCCUPANCY RATES

In connection with the Distribution, Manor Care Realty will enter into
agreements with ManorCare Health Services, including the Development
Agreement, the Lease Agreements and the Assisted Living Management Agreement.
Pursuant to the Development Agreement, Manor Care Realty will develop assisted
living facilities for ManorCare Health Services. ManorCare Health Services
will have a two-year option (measured from the time a particular facility
opens) to purchase such facility. In addition, if at any time during this two-
year period occupancy reaches 80% for a period of 30 days, ManorCare Health
Services will be obligated to purchase the facility. Such purchases shall be
at fixed prices based upon a stated premium to approved construction costs as
determined under the Development Agreement. Pursuant to the Assisted Living
Facility Management Agreement, ManorCare Health Services will manage assisted
living facilities for Manor Care Realty for a fixed monthly fee during the
two-year stabilization period under the Development Agreement. See
"Relationship between Manor Care Realty and ManorCare Health Services after
the Distribution-Development Agreement." If ManorCare Health Services does not
acquire a facility within such two-year period, Manor Care Realty will have
the right to sell the facility to a third party. ManorCare Health Services
will retain the rights to the Arden Courts and Springhouse brand names in the
event of a third-party sale. Accordingly, the risks related to construction
and the initial occupancy and operation of the assisted living facilities
developed by Manor Care Realty will be borne by Manor Care Realty. There can
be no assurance that the requisite occupancy levels will be achieved at a
particular facility or, if not, that ManorCare Health Services will exercise
its option to purchase any such facility. In such event there can be no
assurance that Manor Care Realty would be able to sell the facility to a third
party on attractive terms. Pursuant to the Lease Agreements, Manor Care Realty
will lease to ManorCare Health Services all of its Skilled Nursing Facilities,
and Manor Care Realty will grant to ManorCare Health Services, pursuant to the
Lease Agreements or by separate agreement, the right to manage all of Manor
Care Realty's current and future skilled nursing facilities. Under the Lease
Agreements, Manor Care Realty will, in effect, bear the economic and other
costs associated with the operation of the Skilled Nursing Facilities and
share in a portion of the operating profit of each such facility. Lease
payments payable to Manor Care Realty under the Lease Agreements are, in
effect, subordinated to operating expenses and certain management fees payable
to ManorCare Health Services under the Lease Agreements. Manor Care Realty's
revenues will be dependent on the fees generated by the Lease Agreements and
the Assisted Living Management Agreement as well as on any proceeds received
from the sale of assisted living facilities to ManorCare Health Services under
the Development Agreement; however, Manor Care Realty will, in effect, bear
the risks that the Skilled Nursing Facilities cannot be operated profitably
and that the assisted living facilities will not be developed within their
budget or will not reach 80% occupancy within two years of their opening.
Pursuant to the Distribution Agreement, Manor Care Realty (and not ManorCare
Health Services) will remain liable for certain pre-Distribution liabilities
(other than certain tax liabilities). See "Relationship Between Manor Care
Realty and ManorCare Health Services after the Distribution."

NEED FOR ADDITIONAL FINANCING

During the first five years after the Distribution, Manor Care Realty plans
to develop approximately 200 new facilities for ManorCare Health Services. The
estimated cost to complete these facilities and operate them

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prior to anticipated sale to ManorCare Health Services is approximately $1.2
billion. Manor Care Realty's ability to achieve its development goals will
depend upon a variety of factors, many of which are beyond Manor Care Realty's
control. Manor Care Realty plans to finance this development with borrowings
under the Credit Facilities, proceeds from sales of assisted living facilities
to ManorCare Health Services pursuant to the terms of the Development
Agreement, cash flow from operations and proceeds from additional debt and/or
equity financings. In this regard, within one year of the consummation of the
Distribution, Manor Care Realty plans to raise approximately $100 to $150
million in equity and may use the proceeds of such offering to reduce
indebtedness and/or to fund the development of assisted living facilities. Such
equity financing will be dependent upon conditions then prevailing in the
United States equity capital markets. There can be no assurance that any such
additional financings will be available at all, or if available, on terms
acceptable to Manor Care Realty. In addition, Manor Care Realty expects that
its ability to borrow under the Credit Facilities will be subject to Manor Care
Realty's compliance with certain covenants and other conditions and that the
obligation of ManorCare Health Services to purchase assisted living facilities
pursuant to the Development Agreement will be subject to achieving certain
occupancy levels in the facilities. See "Description of Certain Indebtedness--
The Credit Facilities" and "Relationship Between Manor Care Realty and
ManorCare Health Services After the Distribution--Development Agreement
Relating to Assisted Living Facilities". There can be no assurance that Manor
Care Realty will satisfy the conditions to borrowing under the Credit
Facilities or that the requisite occupancy levels will be achieved at the
assisted living facilities developed by Manor Care Realty for sale to ManorCare
Health Services. If Manor Care Realty is unable to obtain additional financing
or if it is unable to satisfy the conditions to borrowing under the Credit
Facilities or if ManorCare Health Services does not purchase substantially all
of the assisted living facilities developed by Manor Care Realty, Manor Care
Realty may be required to delay or eliminate some or all of its development
projects all of which could have a material adverse effect on Manor Care
Realty.

DEVELOPMENT AND CONSTRUCTION RISKS

There can be no assurance that Manor Care Realty will not suffer delays in
its development program. The successful development of additional facilities
will involve a number of risks, including the possibility that Manor Care
Realty will not be able to locate suitable sites at acceptable prices or may be
unable to obtain, or may experience delays in obtaining, necessary certificates
of need, zoning, land use, building, occupancy, licensing and other required
governmental permits and authorizations. Manor Care Realty may also incur
construction costs that exceed original estimates or even so-called guaranteed
maximum cost construction contracts, and may not complete construction projects
on schedule. Manor Care Realty will rely on third-party general contractors to
construct its new facilities. There can be no assurance that Manor Care Realty
will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over
which Manor Care Realty will have little control and that could have a material
adverse effect on project cost and completion time, including shortages of, or
the inability to obtain, labor or materials, the inability of the general
contractor or subcontractors to perform under their contracts, strikes, or
adverse weather conditions. Moreover, Manor Care Realty will be a highly
leveraged company which may make it more difficult to secure short-term
construction financing for these facilities and which will make it more
immediately vulnerable to adverse changes in prevailing interest rates and in
general business conditions, as well as conditions in the real estate
development industry. The failure of Manor Care Realty to maintain substantial
compliance with its schedule for completing these new assisted living
facilities or to build them at a cost substantially as planned or to secure all
necessary financing for development and construction of the facilities on
acceptable terms could have a material adverse effect on Manor Care Realty.

SIGNIFICANT BAINUM FAMILY INTEREST

Upon completion of the Distribution, Messrs. Stewart Bainum and Stewart
Bainum, Jr. are expected to own beneficially approximately 15.20% and 22.86%,
respectively, of the common stock of Manor Care Realty, in each case including
shares with respect to which voting power is shared with other individuals or
entities. In addition, Mr. Bainum, Jr. will be a director and Chairman of the
Board of Manor Care Realty. As a result, the

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Bainum family may be in a position to influence significantly the affairs of
Manor Care Realty, including the election of directors.

REGULATION

Manor Care Realty is affected by government regulation of the health care
industry in that (i) the payments due to Manor Care Realty from ManorCare
Health Services in connection with the Lease Agreements are generally based on
ManorCare Health Services' gross revenue from its management of skilled
nursing facilities and (ii) the underlying value of Mesquite Hospital depends
on the revenue and profit that facility is able to generate. Compliance with
these regulations at the Skilled Nursing Facilities will be the responsibility
of Manor Care Health Services. The health care industry is highly regulated by
federal, state and local law, state and local licensing requirements, facility
inspections, reimbursement policies, regulations concerning capital and other
expenditures, certification requirements and other laws, regulations and
rules. The failure of ManorCare Health Services to comply with such laws,
requirements and regulations could affect ManorCare Health Services' ability
to operate the Skilled Nursing Facilities which it leases from Manor Care
Realty and thus its ability to pay rent to Manor Care Realty with respect to
such facilities. Such failure could, therefore, have a material adverse effect
on Manor Care Realty.

In addition, since the assisted living industry is relatively new, the
manner and extent to which it is regulated at the federal, state and local
levels are evolving. Changes in laws or new interpretations of existing laws
as applied to the assisted living business may have a significant impact on
ManorCare Health Services' methods and costs of doing business. ManorCare
Health Services' success will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses in rapidly changing regulatory environments. Any failure to satisfy
applicable regulations or to procure or maintain a required license could have
a material adverse effect on ManorCare Health Services which could in turn
negatively impact Manor Care Realty. Certain regulatory developments such as
revisions in the building code requirements for assisted living or skilled
nursing facilities, mandatory increases in the scope and quality of care to be
offered to residents and revisions in licensing and certification standards
could have a material adverse effect on Manor Care Realty. See "Business of
Manor Care Realty After the Distribution--Government Regulation."

HEALTH CARE REFORM

The health care industry is facing various challenges, including increased
government and private payor pressure on health care providers to control
costs, the migration of patients from acute care facilities into extended care
and home care settings and the vertical and horizontal consolidation of health
care providers. The pressure to control health care costs intensified during
1994 and 1995 as a result of the national health care reform debate and
continued into 1996 and 1997 as Congress attempted to slow the rate of growth
of federal health care expenditures as part of its effort to balance the
federal budget. Pursuant to the Balanced Budget Act of 1997, between November
1998 and June 1999, the Medicare payment system for ManorCare Health Services
will become prospective rather than retrospective. See "Business of Manor Care
Realty after the Distribution--Government Regulation." Manor Care Realty
cannot predict the impact that this change will have on ManorCare Health
Services and, indirectly, on Manor Care Realty.

Manor Care Realty believes that government and private efforts to contain or
reduce health care costs will continue. These trends are likely to lead to
reduced or slower growth in reimbursement for certain services provided by
Manor Care Realty at Mesquite Hospital and ManorCare Health Services, which in
turn will affect the revenue derived by Manor Care Realty from ManorCare
Health Services. However, Manor Care Realty cannot predict whether any of the
above proposals or any proposals will be adopted and, if adopted, no assurance
can be given that the implementation of such reforms will not have a material
adverse effect on Manor Care Realty.

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DEPENDENCE ON KEY PERSONNEL

Manor Care Realty believes that its success depends to a significant extent
on the management and other skills of its chief executive and chief
development officers, as well as its ability to retain other key employees and
to attract skilled personnel in the future to manage the growth of Manor Care
Realty. Although Manor Care Realty believes it has incentive and compensation
programs designed to retain key employees, there can be no assurance that
these key employees will remain with Manor Care Realty. There can be no
assurance that a suitable replacement for any of the employees could be found
in the event of termination of any of their employment.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing material,
that could be located on, or in or under such property. Such laws and
regulations often impose liability whether or not the owner or operator knew
of, or was responsible for, the presence of the hazardous or toxic substances.
The costs of any required remediation or removal of these substances could be
substantial and the liability of an owner or operator as to any property is
generally not limited under such laws and regulations and could exceed the
property's value and the aggregate assets of the owner or operator.

Certain federal and state laws govern the handling and disposal of medical,
infectious and hazardous waste. Failure to comply with such laws or the
regulations promulgated thereunder could subject an entity covered by these
laws to fines, criminal penalties and other enforcement actions. Manor Care
Realty has developed policies with respect to the handling and disposal of
medical, infectious and hazardous waste to ensure compliance with those laws
and regulations. Manor Care Realty believes that it is in material compliance
with applicable laws and regulations governing medical, infectious and
hazardous waste. After the Distribution, Manor Care Realty will retain
liability for certain environmental litigation. See "Business Of Manor Care
Realty After The Distribution--Government Regulation" and "--Legal
Proceedings."

POTENTIAL CONFLICTS WITH MANORCARE HEALTH SERVICES

Subsequent to the Distribution, the interests of ManorCare Health Services
and Manor Care Realty may potentially conflict due to the ongoing
relationships between the companies. Such sources of conflict include the fact
that after the Distribution, (i) ManorCare Health Services will lease, manage
and operate Manor Care Realty's skilled nursing facilities pursuant to the
Lease Agreements, (ii) Manor Care Realty will develop assisted living
facilities for ManorCare Health Services and ManorCare Health Services will
manage each of those facilities until certain sustained occupancy targets are
achieved, at which point ManorCare Health Services will be obligated to
purchase the facility pursuant to the Development Agreement at pre-determined
prices, (iii) pending the possible purchase of an assisted living facility by
ManorCare Health Services pursuant to the terms of the Development Agreement,
ManorCare Health Services will manage the facility for a fixed monthly fee to
be agreed upon with Manor Care Realty, (iv) Manor Care Realty will be indebted
to ManorCare Health Services as a result of the Realty Note, (v) ManorCare
Health Services and Manor Care Realty will enter into the Non-Competition
Agreement that will limit the competition between the companies, (vi)
ManorCare Health Services may manage assisted living facilities not developed
by Manor Care Realty and (vii) other corporate and administrative services
will be provided by ManorCare Health Services to Manor Care Realty.
Consequently, Manor Care Realty will be dependent upon ManorCare Health
Services for the vast majority of its revenues for the first five years and
for the operation of its skilled nursing facilities. See "Relationship between
Manor Care Realty and ManorCare Health Services after the Distribution."

With respect to these matters, the potential exists for disagreements as to
the quality of the services provided by the parties and as to contract
compliance. Nevertheless, Manor Care believes that there will be sufficient
mutuality of interest between the two companies to result in a mutually
productive relationship. ManorCare Health Services and Manor Care Realty will
have two common directors, Mr. Stewart Bainum, Jr. and Mr.

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Kennett L. Simmons. Messrs. Bainum, Jr. and Simmons, as well as certain other
officers and directors of ManorCare Health Services and Manor Care Realty
initially will also own shares (and/or options or other rights to acquire
shares) in both companies following the Distribution. Appropriate policies and
procedures will be adopted by the board of directors of each company to
address the involvement of the overlapping directors (and if appropriate,
relevant officers of such companies) in conflict situations, including
requiring them to abstain from voting as directors of either ManorCare Health
Services or Manor Care Realty in certain situations. Such procedures will
include requiring Messrs. Bainum, Jr. and Simmons (or such other executive
officers or directors having a significant ownership interest in both
companies) to abstain from voting as directors of either company, with respect
to matters that present a significant conflict of interest between the
companies. Whether or not a significant conflict of interest situation exists
will be determined on a case-by-case basis depending on such factors as the
dollar value of the matter, the degree of personal interest of Messrs. Bainum,
Jr. and Simmons (or such other executive officers and directors having a
significant ownership interest in both companies) in the matter, the
respective interests of the shareholders of ManorCare Health Services or Manor
Care Realty and the likelihood that resolution of the matter will have
significant strategic, operational or financial implications for the business
of the respective companies.

TRANSFER OF LEASES TO NEW OPERATORS

In the event ManorCare Health Services voluntarily or involuntarily defaults
under the terms of a Lease Agreement or Manor Care Realty exercises its rights
under a particular Lease Agreement to terminate such agreement or ManorCare
Health Services determines not to renew a particular Lease Agreement, Manor
Care Realty may be obliged to find another healthcare provider willing to
lease and operate the facility relating to the Lease Agreement and may have to
negotiate new lease terms, including rentals, which terms may be less
favorable to Manor Care Realty than those of the Manor Care Realty/ManorCare
Health Services Lease Agreement. Any such circumstances relating to several
Lease Agreements at the same time could have a material adverse effect on
Manor Care Realty. No assurance can be given that a substitute lessee could be
found without reasonable delay.

PAYMENT BY THIRD-PARTY PAYORS AT THE SKILLED NURSING FACILITIES

As described above, Manor Care Realty's financial and operating performance
will depend primarily on the financial and operating performance of ManorCare
Health Services. A significant portion of Manor Care Realty's revenues derived
from the operation of the Skilled Nursing Facilities by ManorCare Health
Services will be dependent upon reimbursement from third-party payors,
including Medicare, state Medicaid programs and private insurers. Third party
payors also include private commercial insurers, managed care organizations,
health maintenance organizations and preferred provider organizations. Managed
care organizations and other third party payors have continued to consolidate
in order to enhance their ability to influence the delivery of healthcare
services. Consequently, the health care needs of a large percentage of the
United States population are increasingly served by a small number of managed
care organizations. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the
extent such organizations terminate ManorCare Health Services as a preferred
provider and/or engage ManorCare Health Services' competitors as preferred or
exclusive providers, it could have a material adverse effect on Manor Care
Realty. For the fiscal year ended May 31, 1997, the Skilled Nursing Facilities
to be operated by ManorCare Health Services pursuant to the Lease Agreements
derived the majority of their patient service revenue from non-government
sources. Both governmental and private third-party payors have employed cost
containment measures designed to limit payments made to health care providers
such as ManorCare Health Services. Those measures include the adoption of
initial and continuing recipient eligibility criteria which may limit payment
for services, the adoption of coverage and duration criteria which limit the
services which will be reimbursed and the establishment of payment ceilings
which set the maximum reimbursement that a provider may receive for services.
Furthermore, government payment programs are subject to statutory and
regulatory changes, retroactive rate adjustments, administrative rulings and
government funding restrictions, all of which may materially increase or
decrease the rate of program payments to ManorCare Health Services for its
services. There can be no assurance that payments under governmental and
private third-party payor programs will remain at levels

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comparable to present levels or will, in the future, be sufficient to cover
the costs allocable to patients eligible for reimbursement pursuant to such
programs. In addition, there can be no assurance that Manor Care Realty's
Skilled Nursing Facilities, or the provision of services and supplies by
ManorCare Health Services, now or in the future will meet or continue to meet
the requirements for participation in such programs.

ManorCare Health Services (and consequently Manor Care Realty) could be
adversely affected by the continuing efforts of governmental and private
third-party payors to contain the amount of reimbursement for health care
services. For example, pursuant to the Balanced Budget Act of 1997, between
November 1998 and June 1999, the Medicare payment system for ManorCare Health
Services will become prospective rather than retrospective. Manor Care Realty
cannot predict the impact that this change will have on ManorCare Health
Services and, consequently on Manor Care Realty. Also, in certain states there
has been established or there are proposals for the establishment of a case
mix prospective payment system pursuant to which the payment to a facility for
a patient is based upon the patient's condition and need for services. Manor
Care Realty cannot at this time predict whether or where any of these
proposals will be adopted or, if adopted and implemented, what effect, if any,
such proposals will have on ManorCare Health Services' and, consequently on
Manor Care Realty. In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures or the assumption by
health care providers of all or a portion of the financial risk through
prepaid capitation arrangements. Efforts to impose reduced allowances, greater
discounts and more stringent cost controls by government and other payors are
expected to continue. Any of such changes could have a material adverse effect
on Manor Care Realty. See "Business Of Manor Care Realty After the
Distribution--Government Regulation."

ADEQUACY OF CERTAIN INSURANCE

Manor Care Realty and ManorCare Health Services maintain liability insurance
providing coverage which they believe to be adequate. In addition, Manor Care
Realty and ManorCare Health Services maintain property, business interruption,
and workers' compensation insurance covering facilities in amounts deemed
adequate by Manor Care Realty and ManorCare Health Services. There can be no
assurance that any future claims will not exceed applicable insurance coverage
or that Manor Care Realty or ManorCare Health Services will be able to
continue its present insurance coverage on satisfactory terms, if at all.

COMPETITION; NON-COMPETITION AGREEMENT WITH MANORCARE HEALTH SERVICES

Manor Care Realty generally competes with real estate investment trusts,
real estate partnerships, healthcare providers and others, including, but not
limited to, banks, insurance companies and other financial sources, in the
development and leasing of health care facilities. ManorCare Health Services
competes on a local and regional basis with operators of facilities that
provide comparable services. Operators compete for patients based on quality
of care, reputation, physical appearance of facilities, services offered,
family preferences, physicians, staff and price. Furthermore, some of
ManorCare Health Services' competitors are significantly larger and have, or
may obtain, greater financial resources than ManorCare Health Services. See
"Business Of Manor Care Realty After the Distribution--Competition."

Following the Distribution, pursuant to the Non-Competition Agreement, Manor
Care Realty will be subject to certain contractual restrictions in the
management of skilled nursing facilities, the development of assisted living
facilities and participation in the institutional pharmacy and home health
care businesses. See "Relationship Between Manor Care Realty and ManorCare
Health Services After the Distribution--Non-Competition Agreement." The Non-
Competition Agreement restricts Manor Care Realty's ability to pursue lines of
business that have historically contributed a significant portion of Manor
Care's net income.

CERTAIN INDEMNIFICATION OBLIGATIONS

Pursuant to the Distribution Agreement and the Tax Sharing and
Administration Agreement, Manor Care Realty will agree to indemnify ManorCare
Health Services with respect to certain losses, damages, claims and
liabilities, including liabilities which may arise from the operation of the
Skilled Nursing Facilities prior to the

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<PAGE>

Effective Date and certain tax liabilities. Pursuant to the Distribution
Agreement, Manor Care Realty (and not ManorCare Health Services) will remain
liable for certain pre-Distribution liabilities (other than certain tax
liabilities). See "Relationship between Manor Care Realty and ManorCare Health
Services after the Distribution." In addition, in connection with the
distribution of its lodging operations in November 1996, Manor Care agreed,
subject to certain exceptions, to indemnify Choice Hotels International, Inc.
("Choice"), against any loss, liability or expense incurred or suffered by
Choice arising out of or related to the failure by Manor Care to perform or
otherwise discharge the liabilities retained by Manor Care under the
distribution agreement between Manor Care and Choice and certain tax
liabilities.

ABSENCE OF PUBLIC MARKET

There is currently no established trading market for the Notes and Manor
Care Real Estate does not intend to apply for listing of the Notes on any
securities exchange or on any automated dealer quotation system. Manor Care
Real Estate has been advised by the Underwriters that each presently intends
to make a market in the Notes but neither of the Underwriters is under any
obligation to do so and any such market-making may be discontinued at any time
without notice by either or both of the Underwriters, at the sole discretion
of such Underwriter. Accordingly, no assurance can be given as to the prices
or liquidity of, or trading markets for, the Notes. The liquidity of any
market for the Notes will depend upon the number of holders of the Notes, the
interest of securities dealers in making a market in the Notes, prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of,
and prospects for, Manor Care Real Estate. The absence of an active market for
the Notes could adversely affect the market price and liquidity of the Notes.

CERTAIN TAX CONSIDERATIONS

Manor Care has received a ruling from the IRS which provides, among other
things, that the Distribution will qualify as a tax-free transaction under
Section 355 of the Code and that neither the stockholders of Manor Care nor
Manor Care will recognize any income, gain or loss as a result of the
Distribution. Nevertheless, if Manor Care engages in the Distribution and the
Distribution is held to be taxable, both Manor Care Realty and stockholders of
Manor Care could recognize income or gains and thus become liable for the
payment of a material amount of income tax.

21
<PAGE>

USE OF PROCEEDS

The gross proceeds from the issuance of the Notes (before deduction of
discounts, commissions and expenses), together with borrowings under the
Credit Facilities, will be used to effect the Distribution, including
financing the cash portion of the Capital Contribution to ManorCare Health
Services, refinancing certain debt of Manor Care (including all amounts
outstanding under (i) Manor Care's 9 1/2% Senior Subordinated Notes due 2002
(the "Senior Subordinated Notes"), (ii) Manor Care's existing revolving credit
facility (the "Existing Revolving Credit Facility"), (iii) Manor Care's
existing promissory note (the "Promissory Note"), (iv) certain mortgage bond
indebtedness of Manor Care) and paying related fees and expenses.

<TABLE>
<CAPTION>
AMOUNT
(DOLLARS
IN MILLIONS)
------------
<S> <C>
Sources:
Revolving Credit Facility (1)............................... $ --
Term Loan................................................... 150.0
Gross proceeds of the Offering.............................. 350.0
Realty Note................................................. 250.0
------
Total Sources............................................. $750.0
======
Uses:
Contribution of Cash to ManorCare Health Services........... $250.0
Redemption of the Senior Subordinated Notes................. 145.1
Repayment of amounts outstanding under Existing Revolving
Credit Facility ........................................... 85.0
Repayment of amounts outstanding under Promissory Note...... 14.0
Repayment of certain mortgage bond indebtedness............. 0.2
Contribution of Realty Note to ManorCare Health Services.... 250.0
Fees and expenses(2)........................................ 5.7
------
Total Uses................................................ $750.0
======
</TABLE>
- --------
(1) For a description of the availability of borrowings under the Revolving
Credit Facility, see "Description of Certain Indebtedness--The Credit
Facilities."
(2) Excludes fees and expenses to be reimbursed by ManorCare Health Services.

The Senior Subordinated Notes were issued in November 1992, bear interest at
the rate of 9 1/2% per annum, and mature on November 15, 2002. No amortization
is required prior to the maturity of the Senior Subordinated Notes. The
redemption price of the Senior Subordinated Notes for the year commencing
November 15, 1997 is 103.56% of the principal amount thereof plus accrued and
unpaid interest. The Existing Revolving Credit Facility, which was amended and
restated in September 1996, provides for revolving credit borrowings by Manor
Care of up to $250 million and matures in September 2001. At May 31, 1997, the
outstanding balance under the Existing Revolving Credit Facility was $85.0
million. The Existing Revolving Credit Facility bears interest at a
fluctuating LIBOR-based rate. At May 31, 1997 the weighted average interest
rate of Manor Care's outstanding borrowings under the Existing Revolving
Credit Facility was 5.89%. The Promissory Note provides for revolving credit
borrowings by Manor Care of up to $25.0 million and matures on December 30,
1997. At May 31, 1997, the outstanding balance under the Promissory Note was
$14.0 million. The Promissory Note bears interest at a fluctuating Federal
funds-based rate. At May 31, 1997, the weighted average interest rate of Manor
Care's outstanding borrowings under the Promissory Note was 5.94%.

22
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of Manor Care Realty at
May 31, 1997 and as adjusted to give pro forma effect to the Distribution and
related borrowings, including the Credit Facilities and the Realty Note, the
consummation of the Exchange Offer and the consummation of the Offering and
the application of the net proceeds therefrom.

<TABLE>
<CAPTION>
MAY 31, 1997
--------------------
ACTUAL PRO FORMA
---------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Long-Term Debt:
Old Senior Notes......................................... $ 150,000 $ --
Senior Subordinated Notes................................ 140,100 --
Existing Revolving Credit Facility....................... 85,000 --
Promissory Note.......................................... 14,000 --
The Notes................................................ -- 350,000
Term Loan................................................ -- 150,000
Mortgage and Capital Leases.............................. 72,090 26,530
Realty Note.............................................. -- 250,000
Other Long-Term Debt..................................... 30,000 30,000
---------- --------
Total Long-Term Debt................................... 491,190 806,530
Stockholders' Equity:
Total stockholders' equity............................. 690,431 5,406
---------- --------
Total Capitalization....................................... $1,181,621 $811,936
========== ========
</TABLE>

23
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF MANOR CARE

The statements of income data for the fiscal years ended May 31, 1997, 1996
and 1995 and the balance sheet data for the fiscal years ended May 31, 1997
and 1996 are derived from the audited consolidated financial statements of
Manor Care. The statements of income data for the fiscal years ended May 31,
1994 and May 31, 1993 and the balance sheet data at May 31, 1995, May 31, 1994
and May 31, 1993 are derived from the unaudited consolidated financial
statements of Manor Care that, in the opinion of Manor Care, reflect all
adjustments consisting of normal recurring adjustments necessary to present
fairly the information set forth below. The following selected historical
financial data of Manor Care should be read in conjunction with the historical
combined financial statements and notes thereto included elsewhere in this
Prospectus. The historical consolidated financial statements of Manor Care may
not necessarily reflect the results of operations or financial position that
would have been obtained had Manor Care operated as a separate company.
Earnings per share data are presented elsewhere in the Prospectus.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
-------- --------- --------- --------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statements of Income
Data:
Revenues................ $757,524 $816,934 $893,471 $985,150 $1,056,095
Expenses:
Operating.............. 570,070 602,623 670,987 735,671 789,074
Depreciation and
amortization.......... 43,656 44,680 48,284 56,503 60,243
General corporate and
other................. 45,477 52,807 60,240 63,127 60,177
Provisions for asset
impairment and
restructuring......... 25,100
-------- --------- --------- --------- ----------
Total expenses......... 659,203 700,110 779,511 880,401 909,494
-------- --------- --------- --------- ----------
Income from continuing
operations before other
income and (expenses)
and income taxes....... 98,321 116,824 113,960 104,749 146,601
-------- --------- --------- --------- ----------
Interest income from
advances to
discontinued lodging
segment............... -- -- 15,492 19,673 21,221
Interest expense....... (35,386) (25,743) (18,872) (18,951) (24,514)
Other income
(expenses), net....... 14,495 15,135 6,372 3,452 6,400
-------- --------- --------- --------- ----------
Income from continuing
operations before
income taxes .......... 77,430 106,216 116,952 108,923 149,708
Income taxes............ 28,232 44,210 46,101 44,563 60,783
-------- --------- --------- --------- ----------
Income from continuing
operations............. 49,198 62,006 70,851 64,360 88,925
Income from discontinued
assisted living,
pharmacy and home
health operations...... 5,531 6,697 6,824 1,111 36,188
Income from discontinued
lodging operations..... 7,654 9,659 16,811 20,436 11,829
Loss from extraordinary
item................... (3,019) -- -- -- --
-------- --------- --------- --------- ----------
Net income.............. $ 59,364 $ 78,362 $ 94,486 $ 85,907 $ 136,942
======== ========= ========= ========= ==========
Other Financial and
Operating Data:
EBITDA(1)............... 141,977 161,504 162,244 186,352 206,844
EBITDA margin........... 18.74% 19.77% 18.16% 18.92% 19.59%
Average number of
operating beds......... 21,971 21,916 22,252 23,227 23,865
Ratio of EBITDA to
interest expense....... 4.01x 6.27x 8.60x 9.83x 8.44x
Ratio of earnings to
fixed charges(2)....... 3.04x 4.87x 6.43x 5.62x 6.03x
Balance Sheet Data:
Working capital......... (6,379) 3,073 51,053 (33,357) 33,718
Total assets............ 992,351 1,048,265 1,247,241 1,593,193 1,547,578
Long-term debt.......... 330,189 223,892 315,271 490,575 491,190
Total equity............ 361,642 533,815 624,873 707,769 690,431
</TABLE>
- --------
(1) EBITDA represents earnings before interest expense, income taxes,
depreciation, amortization and certain other special charges, including
the addition of $25.1 million in fiscal year 1996 relating to the
impairment of certain assets. EBITDA is not intended to represent cash
flows for the period, is not presented as an alternative to operating
income as an indicator of operating performance, may not be comparable to
other similarly titled measures of other companies and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. See
Manor Care's consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus.
(2) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before provision for
income taxes including dividends from less than 50% owned companies and
Manor Care's share of pre-tax income of 50%-owned companies carried at
equity, before fixed charges net of capitalized interest. Fixed charges
comprise interest on long-term and short-term debt, including capitalized
interest, the portion of rentals representative of an interest factor and
Manor Care's share of fixed charges of 50%-owned companies carried at
equity.

24
<PAGE>

PRO FORMA FINANCIAL DATA OF MANOR CARE REALTY

The unaudited pro forma consolidated condensed statement of income of Manor
Care Realty for the fiscal year ended May 31, 1997 gives effect to the
Distribution and related transactions (including the Exchange Offer, the Lease
Agreements, the Development Agreement, the Offering and the use of proceeds
thereof and the Assisted Living Facility Management Agreement) as if such
transactions occurred on June 1, 1996. The pro forma statement of income has
been prepared by adjusting the historical consolidated statement of income to
reflect such transactions as if they had been effected on June 1, 1996. The
unaudited pro forma consolidated condensed balance sheet of Manor Care Realty
at May 31, 1997 gives effect to such transactions as if such transactions had
occurred at that date. Such balance sheet has been prepared by adjusting the
historical consolidated balance sheet to reflect such transactions as if they
had been effected on May 31, 1997. The unaudited pro forma financial
statements should be read in conjunction with the financial data presented
elsewhere herein. The pro forma financial data are presented for informational
purposes only and may not reflect the future results of operations or
financial position of Manor Care Realty. See "Risk Factors" for other
information relating to the Pro Forma Financial Data.

25
<PAGE>

MANOR CARE REALTY
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------------
PRO
LEASE MANAGEMENT FORMA
1997 DISTRIBUTION AGREEMENTS AGREEMENT 1997
---------- ------------ ----------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES................. $1,056,095 $ 1,603 (a) $(1,017,570)(c) $217,132
177,004 (d)
---------- --------- ----------- ------ --------
EXPENSES
Operating expenses...... 849,251 2,081 (a) (733,362)(c) $ 402 (e) 59,013
77 (a) (59,774)(b)
338 (b)
Depreciation and
amortization........... 60,243 365 (a) 60,608
---------- --------- ----------- ------ --------
Total expenses.......... 909,494 2,861 (793,136) 402 119,621
---------- --------- ----------- ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE OTHER
INCOME AND EXPENSES AND
INCOME TAXES............ 146,601 (1,258) (47,430) (402) 97,511
---------- --------- ----------- ------ --------
OTHER INCOME AND
(EXPENSES)
Interest income from
advances to
discontinued lodging
segment................ 21,221 21,221
Interest income and
other.................. 6,400 6,400
Interest expense........ (24,514) (30,594)(f) (66,299)
(11,191)(g)
---------- --------- ----------- ------ --------
Total other income and 3,107 (41,785) -- -- (38,678)
(expenses), net........ ---------- --------- ----------- ------ --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES................... 149,708 (43,043) (47,430) (402) 58,833
INCOME TAXES............. 60,783 (17,023)(h) (18,759)(h) (159)(h) 24,842
---------- --------- ----------- ------ --------
INCOME FROM CONTINUING
OPERATIONS.............. 88,925 (26,020) (28,671) (243) 33,991
DISCONTINUED ASSISTED
LIVING, PHARMACY AND
HOME HEALTH OPERATIONS
Income from discontinued
assisted living,
pharmacy and home
health operations (net
of income taxes of
$23,917)................. 36,188 (36,188)(i) -- -- --
DISCONTINUED LODGING
OPERATIONS..............
Income from discontinued
lodging operations (net
of income taxes of
$8,734).................. 11,829 11,829
---------- --------- ----------- ------ --------
NET INCOME............... $ 136,942 $ (62,208) $ (28,671) $ (243) $ 45,820
---------- --------- ----------- ------ --------
WEIGHTED AVERAGE SHARES
OF COMMON STOCK......... 63,257 63,257
---------- --------
INCOME PER SHARE OF
COMMON STOCK
Income from continuing
operations.............. $ 1.40 $ 0.53
Income from discontinued
assisted living,
pharmacy and home
health operations...... 0.57 --
Income from discontinued
lodging operations..... 0.19 0.19
---------- --------
Net income per share of
common stock........... $ 2.16 $ 0.72
========== ========
</TABLE>

26
<PAGE>

MANOR CARE REALTY
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF MAY 31, 1997

<TABLE>
<CAPTION>
PRO FORMA
MAY 31, 1997 ADJUSTMENTS PRO FORMA
------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 18,396 $ 500,000 (e) $ 29,304
(250,000)(a)
(140,100)(e)
(99,000)(e)
8 (b)
Other current assets................... 175,273 (10,754)(d) 161,968
74 (b)
(2,625)(g)
---------- ---------- ----------
Total current assets................... 193,669 (2,397) 191,272
Property and equipment, net............ 805,793 27,016 (b) 818,238
(14,571)(a)
Advances to discontinued lodging seg-
ment.................................. 115,723 115,723
Other assets........................... 79,767 14,500 (f) 73,297
1,196 (b)
(22,166)(a)
Net investment in discontinued assisted
living, pharmacy and home health seg-
ments................................. 277,066 (277,066)(a) --
Due from discontinued assisted living, 75,560 (45,560)(g) 30,000
pharmacy and home health segments..... ---------- ---------- ----------
Total assets........................... $1,547,578 $ (319,048) $1,228,530
========== ========== ==========
Total current liabilities.............. $ 159,951 $ 1,215 (b) $ 204,117
45,576 (d)
(2,625)(g)
Long-term debt......................... 491,190 (150,000)(c) 556,530
260,900 (e)
(45,560)(g)
Other long-term liabilities............ 206,006 6,471 (b) 212,477
Realty Note............................ -- 250,000 (a) 250,000
---------- ---------- ----------
Total liabilities...................... 857,147 365,977 1,223,124
Total shareholders' equity............. 690,431 (685,025)(a) 5,406
---------- ---------- ----------
Total liabilities and shareholders' eq- $1,547,578 $ (319,048) $1,228,530
uity.................................. ========== ========== ==========
</TABLE>

27
<PAGE>

NOTES TO PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME

a) Reflects the revenues, income and expenses associated with facilities which
opened during fiscal year 1997 (the "Developed Properties"). These
facilities would not have been purchased by ManorCare Health Services under
the terms of the Development Agreement until such facilities achieved 80%
occupancy.

b) Reflects net additional costs associated with staffing of human resources,
finance, legal, information technology, cash management, accounting
personnel and directors costs and the transfer of expenses to ManorCare
Health Services.

c) Reflects revenues and operating expenses of skilled nursing facilities
owned by the Company and leased by ManorCare Health Services under the
terms of the Lease Agreements.

d) Reflects lease payments from ManorCare Health Services for skilled nursing
facilities under the terms of the Lease Agreements.

e) Reflects management fees associated with management of the Developed
Properties under the terms of the Assisted Living Facility Management
Agreement.

f) Reflects interest expense associated with the incurrence of indebtedness
under the Credit Facilities at an assumed interest rate of 8.25% and the
incurrence of the Notes at an assumed interest rate of 8.75%, and assumes
that the holders of 100% of the Old Senior Notes accept the Exchange Offer.
Consummation of the Exchange Offer is conditioned on the Minimum Tender
Condition. To the extent that Old Senior Notes remain outstanding upon
consummation of the Exchange Offer, the principal amount of the Realty Note
or the amount of the cash contribution to ManorCare Health Services may be
reduced. Also reflects the redemption of the Senior Subordinated Notes.

g) Reflects adjustments to intercompany interest allocated to ManorCare Health
Services. These adjustments relate to interest on the Developed Properties
and Investment and Advances to ManorCare Health Services.

h) Reflects tax effect of adjustments made pursuant to notes (a) through (g).

i) Reflects the elimination of income from discontinued assisted living,
pharmacy and home health operations as if the transaction had been effected
on June 1, 1996.

NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET

a) Reflects cash of $250.0 million, the Realty Note, the net working capital
of the skilled nursing facilities and other net assets contributed to the
discontinued assisted living, pharmacy and home health operations at the
Effective Date.

b) Reflects the addition of assets and liabilities attributable to the
Developed Properties. These facilities would not have been purchased by
ManorCare Health Services under the terms of the Development Agreement
until such facilities achieved 80% occupancy.

c) Reflects consummation of the Exchange Offer, assuming that the holders of
100% of the Old Senior Notes accept the Exchange Offer. Consummation of the
Exchange Offer is conditioned on the Minimum Tender Condition. To the
extent that Old Senior Notes remain outstanding upon consummation of the
Exchange Offer, the principal amount of the Realty Note or the amount of
the cash contribution to ManorCare Health Services may be reduced. Also
reflects the redemption of the Senior Subordinated Notes.

d) Reflects the working capital transfer related to the skilled nursing
facilities under the terms of the Distribution Agreement.

e) Reflects the additional $150 million of Term Loan indebtedness and $350
million of Notes offered hereby as well as the redemption of $140 million
of Senior Subordinated Notes, the repayment of $85 million outstanding
under the Existing Revolving Credit Facility and the repayment of the $14
million Promissory Note.

f) Reflects capitalized deferred financing fees.

g) Reflects the transfer of the assisted living facility mortgages to
ManorCare Health Services on the Effective Date.

28
<PAGE>

BUSINESS OF MANOR CARE REALTY AFTER THE DISTRIBUTION

Manor Care Realty will own 168 skilled nursing facilities in 28 states and
will be a leading health care real estate company focused on the ownership,
construction, development and acquisition of health care properties, including
skilled nursing and assisted living facilities. Manor Care Realty will also
own and operate Mesquite Community Hospital, a 172 licensed bed
medical/surgical acute care hospital located in Mesquite, Texas. At or prior
to the Distribution, Manor Care Realty will enter into a series of agreements
with ManorCare Health Services pursuant to which ManorCare Health Services
will lease and operate all of Manor Care Realty's 168 Skilled Nursing
Facilities and Manor Care Realty will develop assisted living facilities for
sale to ManorCare Health Services. See "Relationship Between Manor Care Realty
and ManorCare Health Services After the Distribution." Manor Care and its
predecessor companies have been engaged in the development, construction and
acquisition of health care properties since 1959.

Over the next five years, Manor Care Realty plans to focus principally on
the development of over 200 assisted living facilities for sale to ManorCare
Health Services, including approximately 170 Arden Courts and 38 Springhouse
senior residences. Following the Distribution, Manor Care Realty's principal
sources of revenue will arise from payments pursuant to the lease of the
Skilled Nursing Facilities to ManorCare Health Services, the proceeds of the
sale to ManorCare Health Services of assisted living facilities developed by
Manor Care Realty and revenues derived from Mesquite Hospital. Manor Care
Realty's principal expenditures will include the costs incurred in developing
the assisted living facilities for ManorCare Health Services, the costs of
operating the assisted living facilities prior to their sale to ManorCare
Health Services and financing costs, including interest expense. On a Pro
Forma Basis for the fiscal year ended May 31, 1997, Manor Care Realty would
have had approximately $217 million in revenue and $158 million in EBITDA.

Manor Care Realty's geographically diversified portfolio of properties will
include:

. 168 Skilled Nursing Facilities in 28 states containing approximately
23,691 beds.

. 25 assisted living facilities in 12 states.

. 64 sites under contract and in development, including 48 Arden Court
sites and 16 Springhouse sites.

. Two skilled nursing facilities under construction with 268 beds and
three skilled nursing sites under contract and in development.

. Mesquite Community Hospital, a 172 licensed-bed hospital located in
Mesquite, Texas, a Dallas suburb.

Manor Care Realty will have an experienced management team, with specific
expertise in market feasibility, regulatory issues, site selection, design,
and project management as well as in the acquisition of health care
facilities. The five senior members of Manor Care Realty's development team
have worked with Manor Care for an average of 16.5 years. These individuals
have in-depth knowledge of the health care market with particular expertise in
the state regulatory environment for both skilled nursing and assisted living
facilities. See "Management Of Manor Care Realty After The Distribution."
Manor Care Realty believes that its experienced management and high quality,
geographically diversified portfolio of long term care properties will ensure
that it continues to be one of the nation's leading health care real estate
developers and owners.

29
<PAGE>

living revenues in fiscal 1997 compared to a 1996 industry average of
approximately 30% for for-profit nursing care providers. Application will be
made to list the common stock of ManorCare Health Services on the New York
Stock Exchange.

BUSINESS STRATEGY

Manor Care Realty plans to maintain its status as a leading developer and
owner of senior support health care service facilities and to enhance its
growth and profitability through the following key initiatives:

. Generate Consistent Cash Flows From High Quality Portfolio of
Properties. Upon consummation of the Distribution, Manor Care Realty
believes that it will have one of the highest quality portfolios of
skilled nursing facilities in the industry. The majority of the Skilled
Nursing Facilities were purpose-built (that is, designed and built as
skilled nursing facilities as opposed to having been converted from
some other use). Manor Care Realty believes these facilities are among
the industry leaders in terms of percentage of beds dedicated to
specialty products and quality payor mix. A significant portion of the
beds in Manor Care Realty's Skilled Nursing Facilities are dedicated to
specialty products, including Arcadia (Alzheimer's special care unit),
Heritage and Williamsburg (high-end lifestyle products), and Medbridge
(high acuity unit). For fiscal years 1997 and 1996, Manor Care's
occupancy rates for skilled nursing facilities that had been operated
by Manor Care for at least two years were 89.8% and 90.3%,
respectively.

. Benefit From Strategic Relationship with ManorCare Health
Services. Manor Care Realty believes it will benefit from a strategic
relationship with ManorCare Health Services, one of the nation's
leading providers of high-quality senior support health care services
within the private pay segment. Under the terms of the Lease Agreements
(as defined herein), ManorCare Health Services will operate Manor Care
Realty's 168 Skilled Nursing Facilities. Manor Care Realty believes
that the operation of the Skilled Nursing Facilities by ManorCare
Health Services will allow Manor Care Realty to benefit from the strong
brand name recognition, well established treatment protocols and
reputation for high quality, personalized care standards of ManorCare
Health Services. The Lease Agreements provide Manor Care Realty with
lease payments equal to the greater of 10% of the value of each
facility (as agreed to by Manor Care Realty and ManorCare Health
Services) or 77% of the Net Operating Profit (as defined herein) of
each facility, Manor Care Realty believes this structure will provide a
base level of rent along with the opportunity to participate in any
improvements in operating performance of the Skilled Nursing
Facilities. In addition, by serving as a developer of assisted living
facilities for ManorCare Health Services, Manor Care Realty believes it
will be well positioned to profit from the anticipated growth in the
demand for assisted living care. Pursuant to the Development Agreement,
Manor Care Realty will develop assisted living facilities for sale to
ManorCare Health Services at any time during the two-year period
following the time a particular facility opens occupancy reaches 80%
for a period of 30 days, ManorCare Health Services will be obligated to
purchase the facility. The purchase price for each facility will be at
a 15-35% premium to total approved development costs of Manor Care
Realty, based on the number of months elapsed since the opening of the
facility. Prior to purchase by ManorCare Health Services, ManorCare
Health Services will operate Manor Care Realty's assisted living
facilities for a fixed monthly fee pursuant to the Assisted Living
Facility Management Agreement. See "Relationship Between Manor Care
Realty and ManorCare Health Services After the Distribution."

30
<PAGE>

efficiently develop purpose-built assisted living projects through the
planned development of approximately 200 assisted living facilities for
sale to ManorCare Health Services over the next five years, including
approximately 170 Arden Courts and 38 Springhouse senior residences. In
addition to developing assisted living facilities for ManorCare Health
Services and leasing the Skilled Nursing Facilities to ManorCare Health
Services, Manor Care Realty and ManorCare Health Services plan to work
closely together to develop new assisted living products aimed at
segments of the assisted living business not currently served by the
Springhouse and Arden Courts concepts.

. Establish Relations with Other Leading Health Care Providers. While
Manor Care Realty expects that over the next five years the vast
majority of its revenues will be derived from ManorCare Health Services,
subject to contractual restrictions and capital constraints , Manor Care
Realty may diversify its operator base, establish relationships with
other leading health care providers to develop and lease health care
properties and pursue selective acquisition opportunities.

INDUSTRY OVERVIEW

Manor Care Realty will focus on the ownership, development, construction and
acquisition of health care properties, principally in the long-term care
segment of the health care industry. The long-term care industry encompasses a
broad range of accommodations and health care services that are provided
primarily to seniors. For example, seniors requiring limited services can use
home health care or adult day care. Retirement homes, congregate housing, and
continuing care retirement communities are options for those seniors seeking
community housing. As an individual's need for assistance increases, assisted
living facilities offer residents assistance with ADLs, such as dressing,
bathing, eating and medication management, in a residential environment.
Finally, seniors requiring around-the-clock nursing care can be placed in
skilled nursing facilities. The long-term care industry is experiencing
significant growth due to several factors:

. Favorable demographic trends. According to the U.S. Bureau of the
Census, the number of seniors 85 years and older is estimated to
increase by approximately 32% from 3.7 million seniors in 1996 to 4.9
million seniors by 2005. According to industry sources, approximately
57% of the population over age 85 currently require assistance with
ADLs, and more than 50% suffer from Alzheimer's disease or other
cognitive disorders. Manor Care Realty believes that the growth of an
increasingly frail population will drive demand for long-term care
products and services tailored to meet the unique needs of this elderly
population, including skilled nursing facilities, assisted living
facilities, and Alzheimer's care facilities. In addition, Manor Care
Realty believes that the increasing affluence of the elderly will enable
them to afford high quality care. According to the U.S. Bureau of the
Census, the median net worth of householders age 75 and older has
increased from $61,491 in 1988 to $76,541 in 1991.

. Supply/demand imbalance. The long term care industry is benefitting from
a favorable supply and demand relationship in the U.S. According to a
1997 report by the National Investment Conference and Price Waterhouse,
the demand for seniors housing exceeds the supply of available beds. The
Health Insurance Association of America estimates that approximately
seven million elderly will need long-term care in 1997, rising to nine
million by 2005 and to 12 million by 2020. Manor Care Realty believes
this imbalance will continue into the next century and drive the growth
of the long-term care industry. Despite increased demand, growth in the
supply of beds has been minimal.

. Increasing awareness of the range of options available to seniors. Manor
Care Realty believes that consumers are increasingly aware of the wide
range of long-term care options, from home health to adult day care to
assisted living facilities, that are available to meet their housing and
health care needs. The availability of information and referral sources
such as the National Council on Aging and the Alzheimer's Association,
the growth of nationally branded long-term care operators such as Manor
Care and the emerging assisted living companies, and increased press
coverage of the needs of the aging baby boomer population, have raised
the general consumer's awareness of options available to seniors in the
long-term care industry.

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. Changing family dynamics. Due to the growing number of dual income
families and the geographic dispersion of families, many children are
unable to care for their elderly parents in their own homes.
Historically, unpaid women, primarily daughters or daughters-in-law,
represented a large portion of the caregivers of the non-institutional
elderly. In addition, the greater affluence of these dual income
families enables them to better provide financial support to their
parents. Manor Care Realty believes that, as a result, adult children
are increasingly seeking high quality facilities which will provide
their parents with the care and support that they require.

Manor Care Realty, as one of the premier owners and developers in the long-
term care industry, is well positioned to capitalize on the growth of the
long-term care industry for several reasons:

. Increasing use of outside development companies by health care
operators. Health care operators are increasingly looking to
experienced health care developers, such as Manor Care Realty, to
provide them with design, construction management and zoning and
regulatory assistance as well as to reduce their investment costs and
associated risks.

. Need for capital to finance the aggressive development plans of the
seniors housing industry. Health care operators are looking for new
sources of financing to fuel their growth. The equity markets and,
increasingly, health care real estate investment trust (REITs), have
provided a source of capital for many of these companies. Manor Care
Realty believes it can capitalize on the inability of traditional
sources of capital to meet the projected growth of the seniors housing
markets.

. Complex regulatory environment. The long-term care industry is governed
by a wide variety of regulations at the local and state levels. Manor
Care Realty believes that its experience in the regulatory arena and
its in-house health planning department provide it with a significant
advantage in managing the complex regulatory process at the local and
state levels. 38 states require certificates of need ("CONs") to build
skilled nursing facilities and at least eight states require CONs for
assisted living facilities. A number of states are considering adding
regulations for assisted living development. In addition, many states
have imposed moratoriums on skilled nursing beds which further
complicates the process of securing approval to develop new or renovate
existing skilled nursing facilities. Finally, the construction of new
skilled nursing and assisted living facilities typically requires local
zoning and land use approvals, permits and certificates of occupancy.

BUSINESS

Skilled Nursing Facilities

Manor Care Realty believes it will be the premier owner of skilled nursing
facilities in the United States. Through a cohesive framework of proprietary
care protocols, Manor Care Realty's Skilled Nursing Facilities provide (i)
long-term care for chronically ill and frail elderly individuals who need 24-
hour skilled nursing and physical, occupational and speech therapies; (ii)
high acuity, short-term, post-hospital care for medically complex patients and
persons in need of aggressive rehabilitation; and (iii) long-term care for
individuals with middle to late-stage Alzheimer's disease or related memory
impairment. In all cases these services include appropriate nursing care, room
and board, special diets, occupational, speech, physical and recreational
therapy and other services designed to improve the well-being of the resident.

ManorCare Health Services will lease, operate and manage Manor Care Realty's
Skilled Nursing Facilities pursuant to Lease Agreements under which ManorCare
Health Services will pay monthly fees to Manor Care Realty. See "Relationship
Between Manor Care Realty and Manor Care Health Services After the
Distribution--Lease Agreements Relating to Skilled Nursing Facilities."

Manor Care Realty's Skilled Nursing Facilities target affluent to middle
income seniors in need of skilled nursing care. Manor Care Realty believes its
facilities enjoy a more attractive quality mix compared to other long-term
care operators. Manor Care's private pay residents accounted for approximately
60% of revenues in

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fiscal year 1997. Manor Care Realty believes it will benefit from its strong
portfolio by participating in the operating profit generated by these
facilities in accordance with the terms of the Lease Agreements.

Manor Care Realty's Skilled Nursing Facilities differentiate themselves from
their competitors by offering unique specialty products designed to meet the
needs of specific customer segments. A significant portion of the beds at
Manor Care Realty's Skilled Nursing Facilities are dedicated to specialty
services, which are attractive because they generate higher per patient day
revenues and profits than standard long-term care beds. For example, the
Heritage and Williamsburg wings in 107 of Manor Care Realty's Skilled Nursing
Facilities provide residents with upgraded decor, a private lounge and special
programs and, in the case of the Williamsburg wings, concierge services and a
private dining area with a gourmet menu. Manor Care Realty believes that the
Heritage and Williamsburg design concepts contribute to Manor Care's high
percentage of private pay residents compared to the rest of the industry.
Within Manor Care Realty's Skilled Nursing Facilities, ManorCare Health
Services also will continue to operate 141 Arcadia special-care units
providing services to individuals in the middle to late stages of Alzheimer's
disease or afflicted with related memory impairment. Finally, ManorCare Health
Services will continue to operate within the Skilled Nursing Facilities 22
dedicated MedBridge high acuity units featuring high staff-to-patient ratios,
sophisticated clinical capabilities and state-of-the-art rehabilitation
departments. Manor Care Realty believes these high-end specialty products will
facilitate marketing efforts to attract longer stay (1-3 years) private pay
residents.

Manor Care is currently constructing two skilled nursing facilities and has
three nursing sites under contract and in development. A typical skilled
nursing facility built by Manor Care has 120 beds, costs approximately $8.5
million to build (including the cost of the land) and takes approximately
twelve to thirteen months to construct.

Assisted Living Facilities

Assisted living facilities serve elderly persons who require assistance with
activities of daily living but who do not require the constant nursing
supervision that skilled nursing facilities provide. Manor Care Realty
currently has 25 assisted living facilities under construction and 64 sites
for new assisted living facilities under contract and in development. These
facilities will be managed by and if the requisite occupancy levels are
achieved within two years, purchased by ManorCare Health Services pursuant to
the terms of the Assisted Living Facility Management Agreement and the
Development Agreement. Also, pursuant to the Development Agreement, Manor Care
Realty plans to develop approximately 200 assisted living facilities for sale
to ManorCare Health Services over the next five years, including approximately
170 Arden Courts and 38 Springhouse senior residences. See "Relationship
Between Manor Care Realty and Manor Care Health Services After the
Distribution--Development Agreement Relating to Assisted Living Facilities."
Manor Care Realty believes that upon completion of this development plan
ManorCare Health Services will be the nation's largest operator of Alzheimer's
assisted living facilities. Manor Care Realty's assisted living units are
generally rented to occupants pursuant to 30-day or one-year leases, subject
to Manor Care's right to terminate the lease if the occupant becomes too frail
for the facility.

In a strategy similar to that employed in connection with the Skilled
Nursing Facilities, the assisted living facilities to be developed by Manor
Care Realty will target affluent to middle income seniors in need of a full
range of assisted living services to optimize their quality of life. These
services will be available 24 hours a day and generally include meal service,
housekeeping, personal care, nursing and health related services, social and
recreational services, transportation and special services (such as banking
and shopping). Personal services will include bathing, dressing, personal
hygiene, grooming, ambulating and dining assistance. Health-related services,
which are tailored to individual patient needs and applicable state regulatory
requirements, may also include assistance with medication management, skin
care and injections, as well as health care monitoring.

The Arden Courts assisted living facilities to be developed by Manor Care
Realty are a distinct product and service segment focused exclusively on
individuals suffering from the early to middle stages of Alzheimer's

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<PAGE>

disease or related memory impairment. These special purpose assisted living
facilities offer a proprietary, specially designed physical plant with
security systems, structured activities and related resident services and
support systems. These facilities are typically divided into four color-coded
houses comprising a total of 56 units with access to communal living rooms,
kitchens, dining rooms and protected gardens. All aspects of the facilities'
operations are managed by an Executive Director specially trained in the care
of Alzheimer's patients. Arden Courts assisted living facilities are designed
to allow residents the freedom to move about independently while keeping them
safely contained within a secured area. A typical Arden Courts facility has 56
units, costs approximately $4.5 million to build (including the cost of the
land) and takes approximately ten months to construct.

The Springhouse senior residences to be developed by Manor Care Realty are
freestanding, residential-style facilities designed to meet the needs of the
general assisted living population. These facilities are functionally arranged
to provide a home-like atmosphere. The architectural and interior design
concepts incorporate the Manor Care operating philosophy of delivering
superior quality care, protecting resident privacy, enabling freedom of
choice, encouraging independence and fostering individuality in a home-like
setting. Each facility is operated with certain protocols designed to maintain
the health of the residents and to provide a measure of security and support
for those individuals. Each facility includes common areas designed to promote
social interaction among residents, such as a dining area, a laundry room, a
library, a wellness center, barber and beauty shop, crafts room, spa and a
snack room or ice cream parlor. In addition, Springhouse residents have access
to medication management services, therapy and other ancillary services, as
well as dementia programs and dedicated dementia units in some locations. A
typical Springhouse senior residence has 105 beds, costs approximately $9.5
million to build and takes approximately twelve to thirteen months to
construct.

Real Estate Development and Acquisition Activities

Pursuant to the Development Agreement, Manor Care Realty plans to develop
approximately 200 assisted living facilities for sale to ManorCare Health
Services over the next five years. In this regard, Manor Care Realty will
continue to employ its integrated internal development process pursuant to
which Manor Care Realty's market feasibility, health planning, interior
design, architecture, development, and construction personnel will develop and
open these facilities. Manor Care Realty's development process is divided into
three discrete phases.

The first phase of the development process involves market feasibility and
site selection. Manor Care Realty's in-house market feasibility team will be
responsible for identifying and prioritizing the top metropolitan statistical
areas for development on a national basis, based on (i) the demographics of
each market, (ii) fit with ManorCare Health Services' existing cluster
markets, and (iii) the competitive environment in each market. Following
market selection, regionally focused development teams will be responsible for
identifying potential sites, creating site schematics, executing purchase
agreements, selecting external civil engineers and consultants, preparing an
initial budget, and obtaining land use approval. At the same time, Manor Care
Realty's health planning department will perform CON analyses and, if needed,
file for any required CONs and obtain CON approval for each approved site.
Manor Care Realty will conduct full market feasibility studies, including
demographic analyses, evaluations of existing and planned competitors, and
rate assessments. The market feasibility and site selection phase takes
approximately nine to twelve months.

The second phase of the process consists of project planning and design.
During this stage, Manor Care Realty's development team will determine the
project schedule and select external fee architects responsible for adopting
prototype designs to local building requirements. Manor Care Realty's
architectural and construction departments will conduct regular review of
progress by the fee architect to ensure that Manor Care Realty's standards are
being met. In addition, Manor Care Realty's centralized construction
purchasing and interior design departments will create finish schedules and
preliminary lists of furniture, fixtures, and equipment (FF&E) for the
facility. The architecture and interior design teams maintain a running log of
design issues during this phase of the process which will be used to refine
Manor Care Realty's prototypes. The final steps of the planning and design
phase involve creating the final project budget, finalizing the financial pro
formas, and securing the relevant permits. The planning and design phase takes
approximately three to six months.

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The last phase of Manor Care Realty's development process is the
construction and licensure of the facility. Regionally focused construction
teams will be responsible for selecting the general contractor, obtaining
final permits and conducting biweekly reviews of progress. These biweekly
meetings involve construction management, the general contractor, the fee
architect, and ManorCare Health Services' district operations team. The
construction teams are also responsible for coordinating with all state and
local jurisdictions and health departments to obtain certificates of occupancy
and licensure of facilities. The construction and licensure phase takes
approximately ten months for an Arden Courts facility and twelve to thirteen
months for a Springhouse or skilled nursing facility.

In addition to its development efforts, subject to the terms of the Non-
Competition Agreement, Manor Care Realty may selectively acquire assisted
living and skilled nursing operations. Manor Care Realty expects that
acquisition opportunities will be identified through Manor Care Realty's
senior management, industry contacts, leads from real estate brokers and
consultants, and a proactive acquisition review process by Manor Care Realty's
acquisitions group. In reviewing acquisition opportunities, Manor Care Realty
considers, among other factors, the competitive climate, the current
reputation of the facility, the quality of the management team and staff, the
need to reposition the facility in the marketplace and associated costs, and
the construction quality and need for renovations.

Mesquite Community Hospital

Manor Care Realty will own and operate Mesquite Community Hospital
("Mesquite Hospital"), a 172 licensed-bed hospital located in Mesquite, Texas,
a Dallas suburb. Mesquite Hospital, 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 offered by
Mesquite Hospital include obstetrics, emergency services, coronary/intensive
care, day surgery nursing, and geriatric psychiatry. In addition, Mesquite
Hospital's 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, admits and
refers patients into Mesquite from their private office practices. Patient
services are reimbursed from traditional insurance programs, managed care (HMO
and PPO), Medicare and Medicaid. Renovation of 14,400 square feet of existing
hospital space was completed in October 1996. According to a December 1995
industry survey, Mesquite Hospital was among the top 100 hospitals in the
nation based on a performance analysis evaluating key measures related to
clinical practices, operations, and financial management.

COMPETITION

Manor Care Realty competes for land, property acquisitions and development
opportunities with health care providers, real estate developers, health care
real estate investment trusts, real estate partnerships, and other investors.
ManorCare Health Services, the operator of the Skilled Nursing Facilities and
the assisted living facilities to be developed by Manor Care Realty, is
subject to competition from the operators of comparable facilities, including
skilled nursing, assisted living, and hospital providers. These competitors
include independent operators as well as regional and national companies that
manage multiple facilities. Certain operators have capital resources
substantially in excess of ManorCare Health Services. Operators compete on the
basis of breadth and quality of services, reputation, location and physical
appearance of the facilities, family preferences, strength of the operator's
referral stream and pricing. Mesquite Hospital encounters competition in the
Mesquite, Texas area where it competes with other hospitals for community and
physician acceptance.

In general, regulatory and other barriers to competitive entry in the
assisted living industry are not substantial. Some of the present and
potential competitors of ManorCare Health Services operate on a not-for-profit
basis or as charitable organizations, while others have, or may obtain,
greater financial resources than those of ManorCare Health Services.
Consequently, there can be no assurance that ManorCare Health Services will
not encounter increased competition that could limit its ability to attract
residents or expand its business. Moreover, if the development of new assisted
living facilities outpaces demand for those facilities in certain

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markets, such markets may become saturated. Such an oversupply of facilities
could cause ManorCare Health Services to experience decreased occupancy,
depressed margins and lower operating results which may in turn have an
adverse effect on Manor Care Realty's results of operations.

GOVERNMENT REGULATION

The facilities which Manor Care Realty owns and develops and Mesquite
Hospital are subject to comprehensive and intricate federal, state and local
regulatory guidelines. The facilities themselves, as well as their respective
purposes and activities, are also subject to various local building codes and
other ordinances. In most cases compliance with the applicable statutes and
regulations will be the responsibility of ManorCare Health Services. Manor
Care Realty's success will depend in part upon the ability of ManorCare Health
Services to satisfy applicable regulations and requirements and to procure and
maintain required licenses in rapidly changing regulatory environments. The
failure of ManorCare Health Services or Mesquite Hospital to satisfy
applicable regulations or to procure or maintain a required license could have
a material adverse effect on Manor Care Realty. Moreover, certain regulatory
developments such as revisions in the building code requirements for assisted
living or skilled nursing facilities, mandatory increases in the scope and
quality of care to be offered to residents and revisions in licensing and
certification standards could also have a material adverse effect on Manor
Care Realty.

Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on
licensure of Manor Care Realty facilities, eligibility for participation in
federal and state programs, permissible activities, costs of doing business or
the levels of reimbursement from governmental, private and other sources. Any
one of these potential developments could have an immediate and very
significant effect on the revenues and profitability of the Skilled Nursing
Facilities or Mesquite Hospital. Apart from extensive existing health care
statutes and regulations, there are numerous initiatives on the federal and
state levels for comprehensive reforms. Manor Care Realty cannot predict the
ultimate timing, content or possible impact of future legislation and
regulations affecting the Skilled Nursing Facilities or Mesquite Hospital and
the health care industry in general. See "Risk Factors--Regulation."

Both ManorCare Health Services, as the operator of the Skilled Nursing
Facilities, and Mesquite Hospital are subject to Federal and state laws which
govern financial and other arrangements between health care providers. These
laws often prohibit certain direct and indirect payments or fee-splitting
arrangements between health care providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the Federal
"Stark Legislation" which prohibits, with limited exceptions, the referral of
patients for certain services, including home health services, physical
therapy and occupational therapy, by a physician to an entity in which the
physician has an ownership interest and the Federal "anti-kickback law" which
prohibits, among other things, the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare and Medicaid
patients or the purchasing, leasing, ordering or arranging for any goods,
facility services or items for which payment can be made under Medicare and
Medicaid. The Federal government, private insurers and various state
enforcement agencies have increased their scrutiny of providers, business
practices and claims in an effort to identify and prosecute fraudulent and
abusive practices. The Federal government has issued recent fraud alerts
concerning nursing services, double billing, home health services and the
provision of medical supplies to nursing facilities; accordingly, these areas
may come under closer scrutiny by the government. Some states restrict certain
business relationships between physicians and other providers of health care
services and many states prohibit business corporations from providing, or
holding themselves out as a provider of, medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of
licensure or eligibility to participate in reimbursement programs, as well as
civil and criminal penalties. These laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies.
There can be no assurance that such laws will ultimately be interpreted in a
manner consistent with the practices of ManorCare Health Services, as the
operator of the Skilled Nursing Facilities, or Mesquite Hospital.

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Certificate of Need

Many of the states in which Manor Care Realty's facilities are leased and
operated have adopted Certificate of Need ("CON") statutes applicable to the
assisted living and skilled nursing facilities. CONs are required to build
skilled nursing facilities in 38 states and in at least eight states to build
assisted living facilities. CON or similar laws generally require that
approval must be obtained from the designated state health planning agency for
certain acquisitions and capital expenditures, and determine that a need
exists prior to the expansion of existing facilities, construction of new
facilities, addition of beds, acquisition of major items of equipment or
introduction of new services. In addition, many states currently have a
moratorium on the construction of new skilled nursing facilities. Failure to
obtain the necessary state approval may result in (i) the inability to provide
services, to operate a facility or to complete an acquisition, addition or
other change; (ii) the imposition of sanctions; (iii) adverse action on the
facility's license; and (iv) adverse reimbursement action. CONs or other
approvals may be required in connection with Manor Care Realty's future
developments and acquisitions. There can be no assurance that Manor Care
Realty or ManorCare Health Services will be able to obtain the CONs or other
approvals necessary for any or all such projects. There can be no assurance
that states with CON laws may not abolish such laws or that states without
such laws will not enact such CON laws.

Federal and State Assistance Programs

Substantially all of Manor Care Realty's Skilled Nursing Facilities and
Mesquite Hospital are currently certified to receive benefits under Medicare
and Medicaid. Both initial and continuing qualification of a nursing center or
hospital to participate in such programs depends on many factors including
accommodations, equipment, services, patient care, safety, personnel, physical
environment and adequate policies, procedures and controls.

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
health care facilities. Manor Care Realty can give no assurance that payments
to ManorCare Health Services 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.

There have been numerous initiatives on the Federal and state levels for
comprehensive reforms affecting payment for and availability of health care
services. On August 5, 1997, Congress enacted the Balanced Budget Act of 1997
(the "Budget Act") which changes the manner in which Medicare reimburses
skilled nursing facilities for cost reporting periods beginning July 1, 1998.
Medicare is currently a retrospective payment system in which each facility
receives an interim payment during the year, which is later adjusted to
reflect actual allowable direct and indirect costs of services based on the
submission of a cost report at the end of each year. The Budget Act will
result in a shift to a prospective Medicare payment system in which skilled
nursing facilities will be reimbursed per diem for specific covered services
regardless of actual cost. Specifically, the Budget Act provides that, over
three reporting periods starting July 1, 1998, the Medicare program will phase
into this prospective payment system. During the first reporting period,
skilled nursing facilities will receive 75% of their reimbursement based on
actual costs and 25% based on a federally-scheduled per diem rate. In the
second reporting period, reimbursement will be 50% cost-based and 50% rate-
based, in the third, 25% cost-based and 75% rate-based. Thereafter, skilled
nursing facilities will be reimbursed by Medicare solely based on a
prospective payment system. Pursuant to the Balanced Budget Act of 1997,
between November 1998 and June 1999, the Medicare payment system for ManorCare
Health Services will become prospective rather than retrospective. The Budget
Act also gives states greater flexibility in the administration of their
Medicaid programs in that the Budget Act repeals the requirement that payment
be reasonable and adequate to cover the costs of "efficiently and economically
operated" skilled nursing facilities. Manor Care Realty cannot predict the
impact that this change will have on ManorCare Health Services and,
indirectly, on Manor Care Realty. Manor Care Realty cannot predict whether any
other proposals will be adopted at the Federal or state level or, if adopted
and implemented, what effect, if any, such proposals will have on ManorCare
Health Services and, indirectly,

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Manor Care Realty. Manor Care Realty believes, however, that government and
private efforts to contain or reduce health care costs will continue and that
these trends are likely to lead to reduced or slower growth in reimbursement
for certain services provided by ManorCare Health Services, which in turn will
affect the revenue derived by Manor Care Realty from ManorCare Health
Services. A significant change in coverage, reduction in payment rates by
third-party payors or the decline in availability of funding could have a
material adverse effect on the business and financial condition of ManorCare
Health Services and, indirectly, Manor Care Realty's results of operations and
financial condition.

Environmental Regulation

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or
toxic substances, that could be located on, in or under such property. Such
laws and regulation often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous of
toxic substances. The costs of any required remediation or removal of these
substances could be substantial and the liability of an owner or operator as
to any property is generally not limited under such laws and regulation and
could exceed the property's value and the aggregate assets of the owner or
operator. The presence of these substances or failure to remediate such
substances properly may also adversely affect the owner's ability to sell or
rent the property, or to borrow using the property as collateral. Under these
laws and regulations, an owner, operator or an entity that arranges for the
disposal of hazardous or toxic substances at a disposal site may also be
liable for the costs of any required remediation or removal of the hazardous
or toxic substances at the disposal site. In connection with the ownership and
leasing to third-parties of its properties, Manor Care Realty could be liable
for these costs, as well as certain other costs, including governmental fines
and injuries to persons or properties. See "--Legal Proceedings."

LEGAL PROCEEDINGS

Environmental. One or more subsidiaries or affiliates of Manor Care have
been identified as potentially responsible parties ("PRPs") in a variety of
actions (the "Actions") relating to waste disposal sites which allegedly are
subject to remedial action under the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. (S)(S)9601 et seq.
("CERCLA") and similar state laws. CERCLA imposes retroactive, strict joint
and several liability on PRPs for the costs of hazardous waste clean-up. The
Actions arise out of the alleged activities of Cenco Incorporated and its
subsidiary and affiliated companies ("Cenco"). Cenco was acquired in 1981 by a
wholly owned subsidiary of Manor Care. The Actions allege that Cenco
transported and/or generated hazardous substances that came to be located at
the sites in question. The Company believes these Actions occurred prior to
the Manor Care subsidiary's acquisition of Cenco. Environmental proceedings
such as the Actions may involve owners and/or operators of the hazardous waste
site, multiple waste generators and multiple waste transportation disposal
companies. Such proceedings typically involve efforts by governmental entities
and/or private parties to allocate or recover site investigation and cleanup
costs, which costs may be substantial.

Manor Care believes it has adequate insurance coverage for a substantial
portion of the claims asserted in the actions. Manor Care is engaged in
litigation with its insurers as to the extent of coverage available in
connection with the Actions. Manor Care Realty believes it will ultimately be
successful in settling the claims with its insurers.

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 the Kramer landfill, located in Mantua, New
Jersey, where subsidiaries of Cenco allegedly transported waste. About the
same time, the United States filed a lawsuit against approximately 25
defendants in the same court seeking recovery of its expenses arising in
connection with this site. Manor Care is also defendant in that suit. Based
upon a court approved final allocation plan, and also in view of its insurance
coverage (assuming Manor Care prevails in its

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litigation with such insurers), Manor Care Realty believes that the Kramer
Action will not have a material adverse effect on its financial condition or
results of operations. This final allocation plan is not binding. If the
matter is not resolved by settlement, a court would have to allocate
responsibility and Manor Care Realty's allocation could change. In addition,
should Manor Care Realty fail to favorably resolve the litigation with its
insurers, the Actions could have an adverse effect on its financial condition
or results of operations.

After the Distribution, Manor Care Realty will retain liability for the
Actions and pursuant to the Distribution Agreement will indemnify ManorCare
Health Services against any liabilities and losses arising out of the Actions.
Although Manor Care, together with its insurers, is vigorously contesting its
liability in the Actions, it is not possible at the present time to estimate
the ultimate legal and financial liability of Manor Care Realty in respect to
the Actions. Manor Care Realty believes, however, that any such Action will
not be material. See "Relationship Between Manor Care Realty and ManorCare
Health Services After the Distribution--The Distribution Agreement."

Other. Manor Care Realty will also retain liability for certain regulatory
and legal actions, investigations or claims for damages that have arisen in
the ordinary course of business. Although it is impossible to predict the
outcome of any legal proceeding and Manor Care Realty cannot estimate the
range of the ultimate liability, if any, relating to these proceedings, Manor
Care Realty believes that it has meritorious defenses to these pending claims
and proceedings and that the outcome of such proceedings should not,
individually or in the aggregate, have a material adverse effect on the
results of operations or financial condition of Manor Care Realty.

EMPLOYEES

After consummation of the Distribution, Manor Care Realty will have
approximately 160 full and part-time employees, 100 of whom will be employed
in development operations and the remainder in Manor Care Realty's
Headquarters. In addition, Mesquite Hospital will have approximately 600 full
and part-time employees.

PROPERTIES

The real estate portfolio of Manor Care Realty consists of 168 skilled
nursing facilities, two skilled nursing and 25 assisted living facilities
under construction, three skilled nursing and 64 assisted living facilities
under contract and in development, and one acute care hospital.

The skilled nursing facilities owned by Manor Care Realty and operated by
ManorCare Health Services range in bed capacity from 48 to 278 beds and have
an aggregate bed capacity of 23,691 beds. Most of the skilled nursing
facilities have been designed to permit private and semi-private patient room
accommodations. Most facilities have individually controlled heating and air-
conditioning units. Each skilled nursing facility contains a fully equipped
kitchen, day room areas, administrative offices and in most cases a physical
therapy room.

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The table below summarizes certain information regarding Manor Care Realty's
existing facilities:

SKILLED NURSING FACILITIES

FACILITY LOCATION BEDS FACILITY LOCATION BEDS
----------------- ---- ----------------- ----
<S> <C> <C> <C>

ARIZONA
Tucson................................ 116
Total........................ 116
=====
CALIFORNIA
Citrus Heights........................ 146 Fountain Valley.............. 147
Sunnyvale............................. 139 Hemet........................ 176
Walnut Creek.......................... 154 Palm Desert.................. 178
Encinitas............................. 98 Rancho Bernardo.............. 94
Rossmoor.............................. 129
-----
Total........................ 1,261
=====
COLORADO
Denver................................ 155 Boulder...................... 149
-----
Total........................ 304
=====
DELAWARE
Pike Creek............................ 151 Wilmington................... 138
-----
Total........................ 289
=====
FLORIDA
Palm Harbor........................... 179 Naples....................... 118
Carrollwood........................... 117 Dunedin...................... 120
Sarasota.............................. 179 Boca Raton................... 180
Boynton Beach......................... 179 Plantation................... 119
Winter Park........................... 132 Jacksonville................. 113
West Palm Beach....................... 119 Venice....................... 129
-----
Total........................ 1,684
=====
GEORGIA
Decatur............................... 128 Marietta..................... 116
-----
244
Total........................ =====

ILLINOIS
South Holland......................... 176 Orchard Manor................ 53
Naperville............................ 112 Libertyville................. 150
Palos Heights......................... 176 Elgin........................ 79
Hinsdale.............................. 191 Oak Lawn..................... 179
Elk Grove............................. 178 Rolling Meadows.............. 156
Normal................................ 96 Peoria....................... 122
Decatur............................... 93 Kankakee..................... 103
Urbana................................ 98 Champaign.................... 99
Wilmette.............................. 74 Palos Heights West........... 120
Arlington Heights..................... 151 Oak Lawn Americana........... 141
Westmont.............................. 115
-----
Total........................ 2,662
=====
INDIANA
Anderson.............................. 225 Kokomo....................... 99
Indianapolis North.................... 184 Indianapolis South........... 117
-----
Total........................ 625
=====
IOWA
Waterloo.............................. 95 Cedar Rapids................. 104
Davenport............................. 101 Dubuque...................... 94
-----
Total........... 394
=====
</TABLE>

40
<PAGE>

<TABLE>
FACILITY LOCATION BEDS FACILITY LOCATION BEDS
----------------- ---- ----------------- ----
<S> <C> <C> <C>
KANSAS
Topeka.................................. 119 Overland Park.............. 173
Wichita................................. 123
-----
Total...................... 415
=====
MARYLAND
Silver Spring........................... 118 Towson..................... 126
Ruxton.................................. 222 Largo...................... 128
Potomac................................. 136 Chevy Chase................ 92
Bethesda................................ 151 Wheaton.................... 98
Baltimore............................... 176 Roland Park................ 71
-----
Total...................... 1,318
=====
MISSOURI
Fremont................................. 222 Florissant................. 97
-----
Total...................... 319
=====
MICHIGAN
Kingsford............................... 105 Michigan................... 188
-----
Total...................... 293
=====
NEVADA
Reno.................................... 151
-----
Total...................... 151
=====
NEW JERSEY
Cherry Hill............................. 105 West Deptford.............. 136
Mountainside............................ 148
-----
Total...................... 389
=====
NEW MEXICO
Camino Vista............................ 133 Northeast Heights.......... 138
Sandia.................................. 176
-----
Total...................... 447
=====
NORTH CAROLINA
Pinehurst............................... 115
-----
Total...................... 115
=====
NORTH DAKOTA
Minot................................... 105 Fargo...................... 108
-----
Total...................... 213
=====
OHIO
Woodside................................ 143 Cincinnati................. 150
Barberton............................... 117 Lake Shore................. 199
Rocky River............................. 208 Oregon..................... 108
Westerville............................. 179 Willoughby................. 154
Akron................................... 102 Belden Village............. 143
North Olmstead.......................... 178 Mayfield Heights........... 149
-----
Total...................... 1,830
=====
OKLAHOMA
Northwest Oklahoma City................. 111 Warr Acres................. 100
Midwest City............................ 108 Norman..................... 110
</TABLE>

41
<PAGE>

FACILITY LOCATION BEDS FACILITY LOCATION BEDS
----------------- ---- ----------------- ----
<S> <C> <C> <C>
Windsor Hills........................ 98 Tulsa........................ 107
Southwest Oklahoma City.............. 110 -----
Total........................ 744
=====

PENNSYLVANIA
North Hill........................... 200 Carlisle..................... 160
McMurray............................. 150 Bethel Park.................. 170
Chambersburg......................... 210 Harrisburg................... 250
Camp Hill............................ 130 Allentown.................... 164
Bethlehem-I.......................... 221 Laureldale................... 185
Bethlehem-II......................... 217 Easton....................... 222
Sinking Spring....................... 211 West Reading................. 175
Jersey Shore......................... 118 Kingston East................ 175
Pottsville........................... 175 Sunbury...................... 121
Williamsport North................... 151 Williamsport South........... 125
King of Prussia...................... 145 Yardley...................... 139
Lansdale............................. 169 Yeadon....................... 195
Dallastown........................... 200 Lebanon...................... 157
Pottstown Nursing.................... 157 Whitehall.................... 169
Manor Care North..................... 160 Manor Care South............. 121
Elizabethtown........................ 95 Manor Care Kingston Court.... 125
Pittsburgh........................... 146 Huntingdon Valley............ 118
Devon Manor.......................... 261 Monroeville.................. 116
-----
Total........................ 6,003
=====
SOUTH CAROLINA
Columbia............................. 116 Lexington.................... 130
Charleston........................... 117 -----
Total 363
=====

SOUTH DAKOTA
Aberdeen............................. 98
-----
Total........................ 98
=====
TEXAS
Dallas 201 Fort Worth NRH............... 159
Forth Worth NW....................... 104 San Antonio-Babcock.......... 208
San Antonio-North.................... 92 San Antonio-Northwest........ 144
San Antonio-Windcrest................ 185 Temple....................... 101
Webster.............................. 110 Temple Care.................. 140
Sharpview............................ 129 -----
Total........................ 1,573
=====

UTAH
Ogden................................ 134
-----
Total........................ 134
=====
VIRGINIA
Stratford Hall....................... 231 Arlington.................... 191
Fair Oaks............................ 116 Imperial..................... 127
-----
Total........................ 665
=====
WASHINGTON
Lynwood.............................. 112 Spokane...................... 124
</TABLE>

42
<PAGE>

FACILITY LOCATION BEDS FACILITY LOCATION BEDS
----------------- ---- ----------------- ----
<S> <C> <C> <C>
Meadow Park........................ 125 Gig Harbor........................ 120
----
Total............................. 481
====
WISCONSIN
Green Bay-East..................... 78 Green Bay-West.................... 105
Fond du Lac........................ 107 Madison........................... 171
Appleton........................... 100
----
Total............ 561
====
</TABLE>

TOTAL SKILLED NURSING FACILITIES 168

TOTAL SKILLED NURSING BEDS 23,691

All of the facilities listed in the above table are owned or leased by Manor
Care Realty and leased by ManorCare Health Services except for certain
facilities which Manor Care Realty either leases or has an ownership interest
pursuant to joint venture agreements. Manor Care Realty owns 35% of the Winter
Park, Florida facility and 94% of the Decatur, Georgia facility.

Mesquite Hospital is licensed for 172 beds in all private rooms and is a
modern, fully equipped, acute care facility.

The table below summarizes certain information regarding Manor Care Realty's
facilities under contract and in development or under construction:

<TABLE>
<CAPTION>
SPRINGHOUSES SPRINGHOUSES ARDEN COURTS ARDEN COURTS
UNDER IN UNDER IN
STATE CONSTRUCTION DEVELOPMENT CONSTRUCTION DEVELOPMENT TOTALS
----- ------------ ------------ ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
Arizona........... 0 1 1 3 5
California........ 0 1 1 3 5
Colorado.......... 0 1 0 4 5
Connecticut....... 0 0 0 2 2
Delaware.......... 0 0 1 0 1
Florida........... 1 0 5 6 12
Georgia........... 1 0 2 1 4
Illinois.......... 0 2 1 1 4
Kansas............ 0 0 1 0 1
Maryland.......... 1 2 1 3 7
Michigan.......... 0 0 0 1 1
Nevada............ 0 0 1 0 1
New Jersey........ 3 1 2 3 9
New York.......... 0 0 0 3 3
North Carolina.... 0 0 1 1 2
Ohio.............. 0 1 0 5 6
Pennsylvania...... 0 3 0 6 9
Texas............. 0 2 2 3 7
Virginia.......... 0 1 0 1 2
Washington........ 0 1 0 2 3
--- --- --- --- ---
Total............. 6 16 19 48 89
=== === === === ===
</TABLE>

43
<PAGE>

DESCRIPTION OF THE TRANSACTIONS

THE DISTRIBUTION

Pursuant to the Distribution Agreement (as defined herein), on or prior to
the Effective Date, Manor Care will convey or cause to be conveyed to
ManorCare Health Services all of the right, title and interest of Manor Care
and its subsidiaries in: (i) all of the business and assets of the Assisted
Living Business; (ii) the shares of Common Stock of Vitalink owned by Manor
Care; and (iii) the shares of Common and Preferred Stock of In Home Health
owned by Manor Care (the "Contribution of Assets").

Pursuant to the Distribution Agreement, ManorCare Health Services will
assume, and indemnify and hold Manor Care Realty harmless against certain
liabilities, including: (i) liabilities arising after the Effective Date
relating to (x) the ownership, operation and management of the assisted living
facilities and (y) the operation and management of the Skilled Nursing
Facilities; (ii) liabilities arising out of the ownership of the stock of
Vitalink and In Home Health, whether arising before or after the Effective
Date; (iii) liabilities arising out of information contained in or omitted
from the Registration Statement on Form 10 (the "Form 10") filed by Manor Care
with the Commission in connection with the Distribution; (iii) liabilities set
forth in the ManorCare Health Services balance sheet or the notes thereto
contained in the Form 10; (iv) liabilities arising out of information
contained in or omitted from the information contained in the Registration
Statement on Form S-4 filed by ManorCare Health Services in connection with
the Exchange Offer; (v) liabilities relating to the Assisted Living Business
arising under any officer and director indemnification agreements in effect at
the Effective Date; (vi) third-party claims relating to the operation and
management of the assisted living facilities prior to the Effective Date and
the operation and management of the Skilled Nursing Facilities prior to the
Effective Date (in each case, only to the extent such claims are not covered
by insurance or self-insurance of ManorCare in effect immediately prior to the
Effective Date and are of the type set forth on a schedule to the Distribution
Agreement); and (vii) certain environmental liabilities.

Pursuant to the Distribution Agreement, Manor Care Realty will retain, and
indemnify and hold ManorCare Health Services harmless against, certain
liabilities, including: (i) any liabilities of Manor Care for money borrowed;
(ii) third-party claims arising out of the operation and management of the
assisted living facilities prior to the Effective Date and the operation and
management of the Skilled Nursing Facilities prior to the Effective Date (in
each case, only to the extent such claims are covered by insurance or self-
insurance of Manor Care in effect immediately prior to the Effective Date and
are of the type set forth on a schedule to the Distribution Agreement); (iii)
(x) certain pending environmental claims, including the Actions, as specified
in a schedule to the Distribution Agreement; (y) any and all currently unknown
but potential environmental and other claims arising out of the activities of
Cenco Incorporated, and its subsidiary and affiliated companies, and any and
all of Cenco Incorporated's predecessor corporations and affiliates ("Cenco"),
including new claims arising out of the sites identified in a schedule to the
Distribution Agreement, and (z) all other claims arising out of Cenco's
discontinued operations; and (iv) certain environmental liabilities.

In addition, the Distribution Agreement provides that ManorCare Health
Services will use its best efforts to obtain the releases of Manor Care's
guarantees of certain ManorCare Health Service obligations and if unsuccessful
in this regard will pay certain fees to Manor Care Realty.

44
<PAGE>

In addition, on or prior to the Effective Date, Manor Care will make or
cause to be made a capital contribution (the "Capital Contribution") to
ManorCare Health Services consisting of (i) approximately $250 million in cash
and (ii) $250 million of Senior Notes of Manor Care Real Estate (the "Realty
Note"). To the extent that Old Senior Notes remain outstanding upon
consummation of the Exchange Offer, the principal amount of the Realty Note or
the amount of the cash contribution to ManorCare Health Services may be
reduced. See "--The Realty Note."

THE REALTY NOTE

In connection with the Distribution and in order to fund ManorCare Health
Services' capital expenditures in connection with the expansion of the
Assisted Living Business, on or prior to the Effective Date, Manor Care will
make or cause to be made the Capital Contribution (as herein defined). As part
of the Capital Contribution, Manor Care will contribute or cause to be
contributed to ManorCare Health Services the Realty Note (as herein defined).
ManorCare Health Services expects that the Realty Note will have the same
general terms (including interest rate and maturity, and parent and subsidiary
guarantees) as the Notes except that Manor Care Realty may redeem the Realty
Note after three years at a redemption price equal to 100% of the principal
amount thereof plus accrued and unpaid interest. In addition, ManorCare Health
Services has agreed not to transfer the Realty Note on or prior to the third
anniversary of issuance thereof and, after such date, transfer shall be
subject to Manor Care Realty's right to so redeem the Realty Note. On or after
such third anniversary, if ManorCare Health Services gives notice to Manor
Care Realty requesting Manor Care Realty to redeem the Realty Note and Manor
Care Realty does not redeem the Realty Note, the interest rate on the Realty
Note will increase by 200 basis points. The principal amount of the Realty
Note may be decreased to the extent Old Senior Notes remain outstanding upon
consummation of the Exchange Offer.

THE CREDIT FACILITIES

Concurrently with the sale of the Notes hereby, Manor Care Real Estate
anticipates entering into new credit facilities to be provided by a group of
banks (the "Credit Facilities"). Manor Care is currently negotiating a
commitment letter relating to the Credit Facilities. Manor Care Real Estate
anticipates that the Credit Facilities will consist of a $300 million
revolving credit facility and a $150 million term loan facility. Manor Care
Real Estate expects that the Credit Facilities will be secured by
substantially all of the assets of Manor Care Realty and its subsidiaries and
will be available for general corporate purposes and working capital purposes,
including acquisitions. See "Description of Certain Indebtedness--The Credit
Facilities."

THE EXCHANGE OFFER AND SOLICITATION

Concurrently with the Offering made hereby, ManorCare Health Services plans
to offer $1,000 principal amount of its 7 1/2% Senior Notes due June 15, 2006
(the "New MCHS Senior Notes") in exchange for each $1,000 principal amount of
7 1/2% Senior Notes due June 15, 2006 of Manor Care properly tendered (the
"Old Senior Notes"). Concurrently with the Exchange Offer, Manor Care plans to
solicit (the "Solicitation") consents ("Consents") to certain amendments (the
"Proposed Amendments") to the indenture governing the Old Senior Notes (the
"Old Indenture"). The Proposed Amendments would, among other things, eliminate
the covenants in the Old Indenture that restrict (i) the creation, incurrence
or assumption of liens, (ii) sale leaseback transactions and (iii)
transactions with affiliates. If Consents are received from the holders of at
least a majority in principal amount of the Old Senior Notes (the "Requisite
Consents"), the Old Indenture will be amended in accordance with the Proposed
Amendments. As a result of the Exchange Offer, ManorCare Health Services, not
Manor Care Realty, will be the obligor on the New MCHS Senior Notes; and Manor
Care Realty, not ManorCare Health Services, will remain the obligor on the Old
Senior Notes. Consummation of the Exchange Offer is conditioned upon, among
other things, acceptance of the Exchange Offer by holders of at least a
majority in principal amount of the Old Senior Notes (the "Minimum Tender
Condition") and consummation of the Distribution. Manor Care may in its sole
discretion waive any such conditions and accept for exchange any Old Senior
Notes properly tendered. Holders of Old Senior Notes who tender into the
Exchange Offer will be required, as a condition to

45
<PAGE>

valid tender, to have given their Consent to the Proposed Amendments. The
Proposed Amendments will become operative only upon consummation of the
Exchange Offer. If the Exchange Offer is consummated, then, unless the
Requisite Consents have not been obtained, the Proposed Amendments will become
effective and each non-exchanging holder of the New MCHS Senior Notes will be
bound by such amendment even though such holder did not consent to the Proposed
Amendments. See "Distribution of Certain Indebtedness--New Senior Notes."

The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997 or at any later time and date to which the Exchange Offer may be extended
by Manor Care.

46
<PAGE>

RELATIONSHIP BETWEEN MANOR CARE REALTY AND
MANORCARE HEALTH SERVICES AFTER THE DISTRIBUTION

The following summarizes certain provisions of the various agreements to be
entered into by Manor Care Realty and ManorCare Health Services in connection
with the Distribution. The following summaries do not purport to be complete
and are qualified in their entirety by reference to the forms of agreement
referred to below, copies of which will be filed as exhibits to the
Registration Statement of which this Prospectus forms a part. In addition, the
terms of such agreements may be amended by the parties thereto in the future.
See "Risk Factors" for certain additional information relating to the
relationship between Manor Care Realty and ManorCare Health Services after the
Distribution.

LEASE AGREEMENTS RELATING TO SKILLED NURSING FACILITIES

Manor Care Realty and ManorCare Health Services will enter into Lease
Agreements (each a "Lease Agreement," and collectively the "Lease
Agreements"), pursuant to which Manor Care Realty will lease to ManorCare
Health Services all the skilled nursing facilities owned by Manor Care, and
Manor Care Realty will grant to ManorCare Health Services, the right to
operate and manage, pursuant to the Lease Agreements, all of Manor Care
Realty's current skilled nursing facilities and, by separate agreement, its
future skilled nursing facilities. Under each Lease Agreement, ManorCare
Health Services' use of the subject facility will be limited to operating a
skilled nursing facility together with such other ancillary uses as exist on
the Effective Date at such facility. Manor Care Realty and ManorCare Health
Services will also enter into Lease Agreements or similar arrangements
pursuant to which ManorCare Health Services will also lease and operate
skilled nursing facilities in which Manor Care Realty is a substantial equity
investor by joint venture, common ownership or otherwise.

Under the Lease Agreements, ManorCare Health Services will operate and
manage the facilities and will collect all revenues from the facilities. Under
the Lease Agreement for each facility, ManorCare Health Services will be
obligated to pay Manor Care Realty annual rent ("Premises Rent") equal to the
greater of (i) 77% of Net Operating Profit and (ii) 10% of a value of the
subject facility agreed upon by ManorCare Health Services and Manor Care
Realty (the "Priority Basis"); provided that the Premises Rent for a specific
Lease Year may be reduced below these two amounts as a result of the deferral
mechanism described below. Manor Care Realty and ManorCare Health Services
have determined that Premises Rent for the fiscal year ended May 31, 1998 will
be paid on an aggregate portfolio basis, not on a facility by facility basis.
The Premises Rent on a facility is payable in installments (each "Monthly
Premises Rent"), as follows: (i) on the first day of each calendar month of
each Lease Year, commencing with the first day of the month following the
month in which the commencement date of the Lease Agreement occurs, ManorCare
Health Services shall pay to Manor Care Realty an amount equal to one-twelfth
of the Priority Basis (the "Monthly Priority Sum"); and (ii) on or before the
fifteenth day of each calendar month of each Lease Year, commencing with the
month following the month in which the commencement date of the Lease
Agreement occurs, if seventy seven percent of the Net Operating Profit for the
Lease Year to date is greater than the Priority Basis (the "Priority Sum")
multiplied by a fraction the numerator of which is the number of days that
have passed in the applicable Lease Year and the denominator of which is 365,
ManorCare Health Services shall pay to Manor Care Realty an amount equal to
such excess. The computation of Net Operating Profit includes as a Project
Expense an amount equal to 6% of Project Revenues ("Tenant's Base Fee"), which
is in effect a base fee out of Project Revenues which ManorCare Health
Services is entitled to retain without reduction. Project Revenues generally
include all revenues and income derived by ManorCare Health Services from the
facilities. Project Expenses generally include all expenses incurred by
ManorCare Health Services to comply with its obligations under the Lease
Agreements including Tenant's Base Fee; provided however that Project Expenses
do not include Premises Rent.

In the event that the Net Operating Profit for the Lease Year to date is
less than the Priority Sum allocable to the Lease Year to date, a portion of
the next succeeding payment of Monthly Premises Rent in an amount equal to
such deficiency (the aggregate of all such amounts, the "Deferred Premises
Rent") may be deferred until such time as Net Operating Profit is available to
pay it; provided that as of the first day of each new Lease Year all Deferred
Premises Rent for the prior Lease Year which has not become due and payable
shall be deemed

47
<PAGE>

cancelled and extinguished and shall not thereafter be due and payable. To the
extent that Net Operating Profit supports less than all Monthly Premises Rent
and Deferred Premises Rent then due, payments made with respect thereto shall
be deemed to be made first to Deferred Premises Rent (from longest to shortest
outstanding) and then to Monthly Premises Rent.

Each facility will be operated pursuant to an Operating Budget (as defined in
the Lease Agreements). The Operating Budget for the period ending May 31, 1998
is attached to each of the Lease Agreements as an exhibit. The Operating Budget
for each facility for the period from June 1, 1998 through May 31, 1999 will be
agreed upon by Manor Care Realty and ManorCare Health Services. Thereafter,
each Operating Budget will not be subject to Manor Care Realty's approval
unless (i) the Net Operating Profit for the Lease Year (as defined in the Lease
Agreements) immediately prior to the Lease Year with respect to which the
Operating Budget in question is being prepared was less than the greater of (A)
the Priority Sum and (B) 90% of budgeted Net Operating Profit for such Lease
Year or (ii) budgeted Net Operating Profit for the current Lease Year is less
than the greater of (A) the Priority Sum for the current Lease Year and (B) 90%
of budgeted Net Operating Profit for the prior Lease Year. In addition,
ManorCare Health Services will have the right to use 3% of aggregate Project
Revenues (aggregated across all facilities under all Lease Agreements) for
capital expenditures at the facilities. Each year, ManorCare Health Services
must prepare and submit to Manor Care Realty for approval a budget setting
forth ManorCare Health Services' estimate of the cost of performing proposed
revenue generating alterations, additions and improvements of the facilities.
Manor Care Realty may withhold its approval in its absolute discretion. If
Manor Care Realty withholds its approval and ManorCare Health Services believes
that the proposed revenue generating items are necessary to the maintenance of
the facility as a competitive, efficient and economical operation, ManorCare
Health Services may elect to terminate the subject Lease Agreement effective as
of the first anniversary of the date of ManorCare Health Services' election. If
Manor Care Realty disputes ManorCare Health Services' belief, the dispute shall
be resolved by arbitration. In the event the arbitrator decides in favor of
Manor Care Realty, ManorCare Health Services' notice of termination will be
deemed void ab initio.

The Lease Agreements provide that ManorCare Health Services, on behalf of the
underlying property, will have the right to enter into service agreements with
its affiliates, provided, among other conditions, that such services are
competitively priced. In addition, Manor Care Realty will have the right to
mortgage its interest in each facility to the extent of 75% of the value agreed
to by Manor Care Realty and ManorCare Health Services with respect to the
facility. Any such mortgage will be superior to the Lease Agreements; provided
that the holder of any such mortgage will deliver to ManorCare Health Services
a non-disturbance agreement. Each Lease Agreement will have an initial term of
five years with up to thirty-five one year renewals at the option of ManorCare
Health Services; provided that in certain states total lease terms will not
exceed the maximum term permitted by statute such that such Lease Agreement
will not be deemed a change of ownership for real estate transfer tax purposes.

Manor Care Realty will have the right to terminate a Lease Agreement in the
event that (A) either (i) actual Net Operating Profit is less than 90% of
budgeted Net Operating Profit for two consecutive twelve month Lease Years or
(ii) actual Net Operating Profit fails to exceed the Priority Sum for two
consecutive twelve month Lease Years, subject to ManorCare Health Services'
right to cure with respect to one year only by making a cash payment to Manor
Care Realty of 105% of the amount by which budgeted Net Operating Profit or the
Priority Sum, as applicable, exceeds actual Net Operating Profit, (B) the
facility is decertified as a skilled nursing facility, is disqualified from
participation in Medicare or Medicaid or ManorCare Health Services loses its
license to operate the subject facility as a skilled nursing facility or (C)
any one of certain additional defaults occurs, such as monetary default, breach
of covenant and bankruptcy defaults. All termination rights will be subject to
"right to cure" provisions, except that ManorCare Health Services will have no
right to cure if the subject facility is disqualified from Medicare or Medicaid
or decertified or if ManorCare Health Services loses its license to operate a
skilled nursing facility. In addition to the above-described termination
rights, if (i) Manor Care Realty withholds its approval of a proposed revenue
generating expenditure and (ii) ManorCare Health Services believes that such
expenditure is reasonably necessary to the maintenance of the subject facility
as a competitive, efficient

48
<PAGE>

and economical operation, ManorCare Health Services shall have the right to
terminate the Lease Agreement (subject to Manor Care Realty's right to have
ManorCare Health Services' belief arbitrated). Finally, ManorCare Health
Services will have the right to terminate a Lease Agreement in the event a
facility is damaged and either (y) the insurance proceeds are insufficient to
cover the restoration costs or (z) the restoration could not reasonably be
completed within 12 months following the damage. A Lease Agreement will
automatically terminate upon the condemnation of so much of a facility that, in
ManorCare Health Services' reasonable judgment, the conduct of its business
would be substantially prevented or impaired.

In the event that Manor Care Realty terminates a Lease Agreement based upon
actual Net Operating Profit being less than 90% of budgeted Net Operating
Profit for two consecutive Lease Years, Manor Care Realty will be obligated to
pay to ManorCare Health Services a termination fee, which fee will be based on
the performance of the subject facility, in accordance with the formula
therefor set forth in the Lease Agreements. Unless ManorCare Health Services
consents to the sale, Manor Care Realty will also be obligated to pay to
ManorCare Health Services a termination fee upon the sale of a facility. The
termination fee is formula-based and intended to approximate ManorCare Health
Services' future income from the operation of that facility.

ManorCare Health Services is prohibited from assigning a Lease Agreement or
subletting any facility without Manor Care Realty's approval, which it may
withhold in its sole discretion, except that Manor Care Realty's consent is not
required for assignments or sublettings (i) in connection with ManorCare Health
Services' sale of its business operations as a going concern or with its merger
or consolidation into or with another company or (iii) to an affiliate
succeeding to ManorCare Health Services' business operations.

ManorCare Health Services is obligated to comply with all applicable laws and
must obtain and keep in full force and effect all licenses and permits
necessary to operate the facilities. Notwithstanding anything to the contrary
in the Lease Agreements, ManorCare Health Services will not have any liability
in connection with performing its obligations under the Lease Agreements,
except to the extent of (i) Project Revenues and (ii) insurance proceeds and
condemnation awards actually received by ManorCare Health Services.

49
<PAGE>

DEVELOPMENT AGREEMENT RELATING TO ASSISTED LIVING FACILITIES

Manor Care Realty and ManorCare Health Services will enter into a Master
Development Agreement (the "Development Agreement") pursuant to which Manor
Care Realty will develop assisted living facilities for ManorCare Health
Services. Neither Manor Care Realty nor ManorCare Health Services is obligated
to proceed with the development of a facility unless and until ManorCare Health
Services has approved the project budget. Each facility will be built by Manor
Care Realty based upon ManorCare Health Services' then existing prototype
designs. Under the Development Agreement, if stabilized occupancy of 80% or
more is achieved within two years of commencing operations, ManorCare Health
Services will be obligated to purchase the facility. If stabilized occupancy is
not achieved within two years of commencing operations, ManorCare Health
Services may, but will be not obligated to, purchase the facility. The purchase
price for each facility (regardless of whether or not ManorCare Health Services
is obligated to purchase) will be equal to (i) the actual project costs (but in
no event in excess of an amount equal to the amount of the project budget
approved by ManorCare Health Services plus 5%) plus (ii) such actual project
costs multiplied by the applicable premium percentage plus (iii) Manor Care
Realty's portion of shared cost savings, if any. Manor Care Realty's portion of
shared cost savings is an amount equal to 50% of the excess of the amount of
the approved project budget over the amount of the actual project costs. The
premium percentage is the percentage set forth below opposite the month in
which the purchase of the facility occurs:

<TABLE>
<CAPTION>
MONTH PREMIUM
- ----- -------
<S> <C>
Opening Date Month and first full calendar month thru the ninth full
calendar month thereafter............................................. 15.0%
Tenth calendar month................................................... 16.5%
Eleventh calendar month................................................ 17.8%
Twelfth calendar month................................................. 18.8%
Thirteenth calendar month.............................................. 20.4%
Fourteenth calendar month.............................................. 21.5%
Fifteenth calendar month............................................... 22.9%
Sixteenth calendar month............................................... 24.5%
Seventeenth calendar month............................................. 25.7%
Eighteenth calendar month.............................................. 26.9%
Nineteenth calendar month.............................................. 28.1%
Twentieth calendar month............................................... 29.9%
Twenty first calendar month............................................ 31.0%
Twenty second calendar month........................................... 32.5%
Twenty third calendar month............................................ 34.0%
Twenty fourth calendar month........................................... 35.5%
</TABLE>

Pursuant to the Assisted Living Facility Management Agreement, during the two-
year stabilization period, ManorCare Health Services will manage the facility
for Manor Care Realty for a fixed monthly fee. See "--Assisted Living Facility
Management Agreement." If ManorCare Health Services does not acquire a facility
developed by Manor Care Realty during the two-year stabilization period, Manor
Care Realty will have the right to sell the facility to a third party.
ManorCare Health Services will, however, retain the rights to the Arden Courts
or Springhouse brand name in the event of a third-party sale. The Development
Agreement will have a term of seven years and may be terminated for cause by
either Manor Care Realty or ManorCare Health Services under certain
circumstances.

ASSISTED LIVING FACILITY MANAGEMENT AGREEMENT

Prior to the commencement of the development of an assisted living facility,
Manor Care Realty and ManorCare Health Services will execute and deliver an
Assisted Living Facility Management Agreement (the "Assisted Living Facility
Management Agreement") pursuant to which ManorCare Health Services will manage
the assisted living facility for the period from the first day of the calendar
month in which the subject facility is opened to the earlier of (a) the date of
the sale of the subject facility by Manor Care Realty to ManorCare Health

50
<PAGE>

Services or (b) the second anniversary of the date on which the subject
facility opened for business. ManorCare Health Services will manage each
facility for Manor Care Realty for a fixed monthly fee.

NON-COMPETITION AGREEMENT

Manor Care Realty and ManorCare Health Services will enter into a Non-
Competition Agreement (the "Non-Competition Agreement"), which will impose
certain non-competition restrictions on each of Manor Care Realty and ManorCare
Health Services for an indefinite term.

Restrictions on Manor Care Realty. Subject to certain exceptions, Manor Care
Realty may not enter into management agreements with third parties with respect
to its acquired or developed skilled nursing properties unless ManorCare Health
Services has declined to manage such facility. Manor Care Realty may not,
subject to certain exceptions, enter, or make a significant investment in any
entity engaged in, the institutional pharmacy or home health care business.
Subject to certain exceptions, Manor Care Realty will be prohibited from making
assisted living acquisitions and will not be allowed to compete in the business
of managing either skilled nursing or assisted living facilities, except in
cases in which it is managing a facility that it owns and which ManorCare
Health Services has declined to manage. Manor Care Realty will only be
permitted to develop new assisted living facilities for anyone other than
ManorCare Health Services insofar as ManorCare Health Services has previously
declined to pursue such opportunities and such facilities are not within a
five-mile radius of an assisted living facility owned by or being developed for
ManorCare Health Services.

Restrictions on ManorCare Health Services. ManorCare Health Services will be
prohibited from developing or acquiring skilled nursing facilities and, subject
to certain exceptions, will be prohibited from entering the hospital management
business. ManorCare Health Services will only be permitted to develop new
assisted living facilities insofar as Manor Care Realty has previously declined
to pursue such opportunities and such facilities are not within a five-mile
radius of an assisted living facility owned or being constructed by Manor Care
Realty. ManorCare Health Services will not without Manor Care Realty's consent
(which consent will not be unreasonably withheld) be permitted to manage
skilled nursing facilities owned by anyone but Manor Care Realty (other than
certain skilled nursing facilities held by joint ventures in which ManorCare
Health Services holds an interest) within a five-mile radius of any Manor Care
Realty-affiliated/ManorCare Health Services-operated skilled nursing facility.
ManorCare Health Services will be free to manage any assisted living facility
without regard to the identity of its ownership.

EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT

ManorCare Health Services and Manor Care Realty will enter into an Employee
Benefits and Other Employment Matters Allocation Agreement (the "Employee
Benefits Allocation Agreement"), pursuant to which the employee benefits with
respect to employees who remain employed by Manor Care Realty or its
subsidiaries immediately after the Distribution ("Manor Care Realty Employees")
and the employee benefits of employees who are employed by ManorCare Health
Services immediately after the Distribution ("ManorCare Health Services
Employees") will be allocated.

The Employee Benefits Allocation Agreement will also provide for the
adjustment of outstanding stock options of Manor Care. In connection with the
Distribution, it is contemplated that options to purchase Manor Care common
stock will be converted to options to purchase a combination of ManorCare
Health Services common stock and Manor Care Realty common stock. In all cases,
however, the exercise prices of the options will be adjusted to maintain the
same financial value to the option holder immediately before and after the
Distribution.

EMPLOYEE BENEFITS ADMINISTRATION AGREEMENT

ManorCare Health Services and Manor Care Realty will enter into a Employee
Benefits Administration Agreement (the "Employee Benefits Administration
Agreement"), pursuant to which ManorCare Health

51
<PAGE>

Services will administer the employee benefits plans and programs of Manor Care
Realty following the Distribution on a time and materials and/or fixed fee
basis as specified in the Employee Benefits Administration Agreement.

OFFICE LEASE AGREEMENT

ManorCare Health Services and Manor Care Realty will enter into a lease
agreement with respect to the building complex in Gaithersburg, Maryland at
which the principal executive offices of both ManorCare Health Services and
Manor Care Realty are located (the "Office Lease Agreement").

DISTRIBUTION AGREEMENT

Manor Care and ManorCare Health Services will enter into a Distribution
Agreement (the "Distribution Agreement") which will provide for, among other
things, the principal corporate transactions required to effect the
Distribution, including the Assumption of Liabilities, the Contribution of
Assets and the Capital Contribution. The Distribution Agreement also provides
for the allocation between ManorCare Health Services and Manor Care of certain
other liabilities and the execution and delivery of the agreements to be
entered into between Manor Care Realty and ManorCare Health Services in
connection with the Distribution. See "Description of the Transactions--The
Distribution."

TAX SHARING AGREEMENT

Manor Care Realty and ManorCare Health Services will enter into a tax sharing
agreement (the "Tax Sharing Agreement") which will provide for, among other
things, the allocation of federal, state and local income tax liabilities
between Manor Care Realty and its subsidiaries, on the one hand, and ManorCare
Health Services and its subsidiaries, on the other hand. In general, under the
Tax Sharing Agreement, Manor Care Realty will be responsible for paying all
income taxes shown to be due on any Manor Care Realty consolidated federal
income tax return (including the consolidated federal income tax return for the
fiscal year ended May 31, 1998), and any other tax return filed with respect to
Manor Care Realty or any of its subsidiaries for any taxable period. ManorCare
Health Services will be responsible for paying all income taxes shown to be due
on any tax return filed with respect to ManorCare Health Services or any of its
subsidiaries for any taxable period beginning on or after the Effective Date.

ManorCare Health Services will indemnify Manor Care Realty from and against
any additional income tax liability of Manor Care or any of its subsidiaries,
resulting from any tax audit or any judicial or administrative proceeding or
otherwise for any taxable period (including any taxable period ending on or
before the Effective Date), relating to the businesses that will be conducted
by ManorCare Health Services following the Distribution. Conversely, Manor Care
Realty will indemnify ManorCare Health Services from and against any additional
income tax liability of ManorCare Health Services or any of its subsidiaries,
resulting from any tax audit or any judicial or administrative proceeding or
otherwise for any taxable period (including any taxable period ending on or
before the Effective Date), relating to the businesses that will be conducted
by Manor Care Realty following the Distribution. In addition, Manor Care
Realty, on the one hand, and ManorCare Health Services, on the other hand, will
each be entitled to any income tax refund received from any taxing authority to
the extent that such refund relates to the businesses conducted by that party
following the Distribution.

The Tax Sharing Agreement also provides that if the Distribution (including
certain related transactions) fails to qualify as a tax-free transaction under
Sections 355 and 368 of the Code as a result of either party taking or failing
to take certain specified actions, then that party will be liable for and will
indemnify the other party from and against all taxes and other damages
resulting from such failure to qualify. If the failure to qualify as a tax-free
transaction results from both parties taking or failing to take certain
specified actions or neither party taking or failing to take such actions, then
the parties will each be responsible for one-half of any taxes and other
damages resulting from such failure to qualify.

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<PAGE>

TAX ADMINISTRATION AGREEMENT

Manor Care Realty and ManorCare Health Services will enter a tax
administration agreement (the "Tax Administration Agreement"). The Tax
Administration Agreement sets forth the terms and conditions pursuant to which
ManorCare Health Services will provide certain tax-related administrative
services to Manor Care Realty following the Distribution. Such services will
include audit and compliance work related to income, real estate, personal
property and sales and use taxes.

CORPORATE SERVICES AGREEMENT

Manor Care Realty and ManorCare Health Services will enter into a Corporate
Services Agreement (the "Corporate Services Agreement") pursuant to which
following the Distribution, ManorCare Health Services will provide certain
corporate services, to Manor Care Realty including administrative, payroll and
accounting systems on a time and materials and/or fixed fee basis as specified
in the Corporate Services Agreement. The Corporate Services Agreement will
expire on .

TRADEMARK AGREEMENT

Manor Care Realty and ManorCare Health Services will enter into a Trademark
Agreement (the "Trademark Agreement") pursuant to which Manor Care Realty will
assign approximately fifty (50) registrations and applications to ManorCare
Health Services representing all of the trade marks necessary for the
operations of the business of ManorCare Health Services. ManorCare Health
Services, under a separate agreement, will license to Manor Care Realty the
right to use certain marks in the business of Manor Care Realty.

CASH MANAGEMENT AGREEMENT

ManorCare Health Services and Manor Care Realty will enter into a Cash
Management Agreement (the "Cash Management Agreement"), pursuant to which
ManorCare Health Services will perform cash management services for Manor Care
Realty after the Distribution for a fee, payable quarterly, based on the time
incurred by ManorCare Health Services to perform such services. The Cash
Management Agreement will expire on .

RISK MANAGEMENT CONSULTING SERVICES AGREEMENT

Manor Care Realty and ManorCare Health Services will enter into a Risk
Management Consulting Services Agreement (the "Risk Management Consulting
Services Agreement"), pursuant to which ManorCare Health Services will provide
to Manor Care Realty risk management services for a fee. The Risk Management
Consulting Services Agreement will expire on .

REALTY NOTE

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<PAGE>

MANAGEMENT OF MANOR CARE REALTY AFTER THE DISTRIBUTION

DIRECTORS AND EXECUTIVE OFFICERS OF MANOR CARE REALTY

The name, age, proposed title upon consummation of the Distribution and
business background of certain of the persons who are expected to become on the
Effective Date the directors and executive officers of Manor Care Realty are
set forth below. At or prior to the Effective Date, certain additional
individuals may be appointed as directors or executive officers. The business
address of each of the prospective executive officers is 11555 Darnestown Road,
Gaithersburg, Maryland, 20878, unless otherwise indicated.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Stewart Bainum, Jr. 51 Chairman of the Board and Director
Joseph R. Buckley 49 Chief Executive Officer and Director
Leigh C. Comas 31 Chief Financial Officer
Larry Godla 40 Vice President--Construction and Development
Donald Feltman 42 Vice President--Development
Stewart Bainum 78 Director
Kennett L. Simmons 55 Director
Ann Torre Grant 38 Director
William Jews 45 Director
</TABLE>

Stewart Bainum, Jr. Chairman of the Board of Manor Care and Chairman of the
Board of the principal operating subsidiary of Manor Care, which prior to the
Distribution owned and operated Manor Care's assisted living and skilled
nursing facilities ("Old ManorCare Health Services") since March 1987; Chief
Executive Officer of Manor Care since March 1987 and President since June 1989;
Chairman of the Board of Vitalink since February 1997; Vice Chairman of the
Board of Vitalink from February 1995 to February 1997; Chairman of the Board of
Choice since November 1996; 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 Old ManorCare Health Services since
1976 and of Choice and its predecessors since 1977; Chief Executive Officer of
Old ManorCare Health Services 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.

Joseph R. Buckley. Executive Vice President of Manor Care and Old ManorCare
Health Services since March 1996; Director of Vitalink since July 1996;
President, Assisted Living Division of Old ManorCare Health Services from
February 1995 to March 1996; Senior Vice President-Information Resources and
Development of Manor Care from June 1990 to February 1995; Vice President-
Information Resources and Development of Manor Care from July 1989 to June
1990; Vice President-Real Estate from September 1983 to July 1989; Director of
Vitalink since July 1996; Chairman of the Board of In Home Health since June
1997 and Director since October 1995.

Leigh C. Comas. Vice President, Finance and Treasurer of Manor Care and Old
ManorCare Health Services since September 1996; Vice President, Finance and
Assistant Treasurer of Manor Care from September 1995 to September 1996;
Assistant Treasurer of Manor Care and Old ManorCare Health Services from
September 1993 to September 1995.

Larry Godla. Vice President of Development and Construction, Manor Care Inc.
since March 1996; Vice President of Construction of Manor Care, Inc. from March
1993 to March 1996; Director of Construction of Manor Care, Inc. from January
1990 to March 1993; Vice President of Construction at Spaulding and Slye
Company from January 1984 to January 1990; Project Manager at Omni Construction
from August 1981 to December 1983.

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<PAGE>

Donald Feltman. Vice President of Development at Manor Care, Inc. since March
1993; Director of Development at Marriott Senior Living Services from July 1988
to March 1993; Director of Development and various other development positions
at Manor Care, Inc. from March 1977 to July 1988.

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

Kennett L. Simmons. Chairman and Chief Executive Officer of the Metra Health
Companies from June 1994 to October 1995; Senior Advisor to E.M. Warburg,
Pincus & Co. from 1991 to 1994; Chairman and Chief Executive Officer of United
Healthcare Corporation from October 1987 to February 1991; Director of United
Healthcare and Virginia Health Care Foundation.

Ann Torre Grant. Executive Vice President, Chief Financial Officer and
Treasurer of NHP Incorporated since February 1995; Vice President and Treasurer
of USAir, Inc. and USAir Group, Inc. from 1991 to January 1995; Director of
Franklin Mutual Series Funds and SLM Holding Corp.

William Jews. President and Chief Executive Officer, Blue Cross and Blue
Shield of Maryland since April 1993; President and Chief Executive Officer,
Dimensions Health Corporation from March 1990 through March 1993; Director of
Crown Central Petroleum Corp., Municipal Mortgage and Equity, L.L.C.,
NationsBank, N.A. and The Ryland Group, Inc.

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<PAGE>

DESCRIPTION OF THE NOTES

The Notes will be issued under an Indenture (the "Indenture") to be dated as
of , 1997 among Manor Care Real Estate Corp., the Guarantors and , as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the Trust Indenture Act, as in effect on the
date of the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." References
in this "Description of the Notes" section to "Manor Care Real Estate" mean
only Manor Care Real Estate Corp. and not any of its Subsidiaries.

GENERAL

The Notes will be unsecured general obligations of Manor Care Real Estate.
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Pursuant to the
Indenture, the Trustee, initially, will serve as registrar and paying agent. No
service charge will be made for any registration of transfer or exchange of the
Notes, except for any tax or other governmental charge that may be imposed in
connection therewith.

MATURITY, INTEREST AND PRINCIPAL OF THE NOTES

The Notes will be limited to $350 million aggregate principal amount and will
mature on , 2007. Cash interest on the Notes will accrue at a rate of %
per annum and will be payable semi-annually in arrears on each and ,
commencing on , 1998, to the holders of record of Notes at the close of
business on and , respectively, immediately preceding such interest
payment date. Interest will accrue from the most recent interest payment date
to which interest has been paid or, if no interest has been paid, from ,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.

OPTIONAL REDEMPTION

The Notes will be redeemable at the option of Manor Care Real Estate, in
whole or in part, at any time on or after , 2002, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date and unpaid interest
thereon, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period beginning on
of the years indicated below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.............................. %
2003.............................. %
2004.............................. %
2005 and thereafter............... 100.000%
</TABLE>

In addition, at any time and from time to time on or prior to , 2002,
Manor Care Realty may redeem in the aggregate up to 35% of the originally
issued aggregate principal amount of the Notes with the net cash proceeds of
one or more Public Equity Offerings by the Parent Guarantor or Manor Care Real
Estate at a redemption price in cash equal to % of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the date of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date); provided,
however, that at least % of the originally issued aggregate principal amount
of the Notes must remain outstanding immediately after giving effect to each

56
<PAGE>

such redemption (excluding any Notes held by Manor Care Real Estate or any of
its Affiliates). Notice of any such redemption must be given within 60 days
after the date of the closing of the relevant Public Equity Offering of Manor
Care Realty.

SELECTION AND NOTICE OF REDEMPTION

In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part; provided, further, however, that if a
partial redemption is made with the net cash proceeds of a Public Equity
Offering by Manor Care Realty or Manor Care Real Estate, selection of the
Notes or portions thereof for redemption shall be made by the Trustee only on
a pro rata basis or on as nearly a pro rata basis as is practicable (subject
to the procedures of The Depository Trust Company), unless such method is
otherwise prohibited. Notice of redemption shall be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Note. On and after the redemption date, interest will cease to accrue on Notes
or portions thereof called for redemption as long as Manor Care Real Estate
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.

GUARANTEES

Manor Care Real Estate's obligations under the Notes will be fully and
unconditionally guaranteed on a senior unsecured and joint and several basis
(the "Guarantees") by the Guarantors. The obligations of each Guarantor are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, without
limitation, any guarantees of Senior Indebtedness) and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount
based on the net assets of each Guarantor. The Guarantees, other than the
guarantee of the Parent Guarantor, will be released (i) at such time as the
senior unsecured indebtedness of Manor Care Realty, without benefit of any
credit enhancement, is rated at least BBB- by Standard & Poor's Corporation
and at least Baa3 by Moody's Investors Service, Inc., or (ii) to the extent
that any of the Subsidiary Guarantors ceases to be a guarantor under the
Credit Facilities, in each case provided that no Default or Event of Default
has occurred and is continuing.

OFFER TO PURCHASE UPON CHANGE OF CONTROL

Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), Manor Care Real Estate shall notify the
Holders of the Notes of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon (the "Change of Control Offer Price"), if any, to the
Purchase Date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).

If Manor Care Real Estate is required to make an Offer to Purchase, Manor
Care Real Estate will comply with all applicable tender offer laws and
regulations, including, to the extent applicable, Section 14(e) and Rule

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<PAGE>

14e-1 under the Exchange Act, and any other applicable Federal or state
securities laws and regulations and any applicable requirements of any
securities exchange on which the Notes are listed, and any violation of the
provisions of the Indenture relating to such Offer to Purchase occurring as a
result of such compliance shall not be deemed an Event of Default or an event
that, with the passing of time or giving of notice, or both, would constitute
an Event of Default.

Notwithstanding the foregoing, Manor Care Real Estate shall not be required
to make an Offer to Purchase upon a Change of Control, as provided above, if,
in connection with any Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all Notes validly tendered at a cash price equal to
or higher than the Change of Control Offer Price and has purchased all Notes
properly tendered in accordance with the terms of such Alternate Offer.

Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transactions.

CERTAIN COVENANTS

The Indenture under which the Notes will be issued (the "Indenture") will
limit, among other things, (i) the incurrence of additional indebtedness by
Manor Care Realty and its Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of Manor Care Realty and its
Restricted Subsidiaries, (iii) investments, (iv) sales of assets and Restricted
Subsidiary stock, (v) transactions with affiliates and (vi) consolidations,
mergers and transfers of all or substantially all of the assets of Manor Care
Real Estate or Manor Care Realty. The Indenture will also contain certain
restrictions on distributions from Restricted Subsidiaries. However, all of
these limitations and prohibitions are subject to a number of important
qualifications and exceptions.

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<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

THE REALTY NOTE

On or prior to the Effective Date, Manor Care will make or cause to be made a
capital contribution to ManorCare Health Services of (i) approximately $250
million in cash and (ii) the $250 million Realty Note of Manor Care Real
Estate. See "Description of the Transactions--The Realty Note."

THE CREDIT FACILITIES

Concurrently with the sale of the Notes offered hereby, Manor Care Real
Estate anticipates entering into new credit facilities to be provided by a
group of banks (the "Credit Facilities"). Manor Care Real Estate anticipates
that the Credit Facilities will consist of a $300 million revolving credit
facility and a $150 million term loan facility. Manor Care Real Estate expects
that the Credit Facilities will be secured by substantially all of the assets
of Manor Care Realty and its subsidiaries and will be available for general
corporate and working capital purposes, including acquisitions.

Term Loan Facility. Manor Care expects that the Term Loan Facility will be
subject to nominal amortization on a quarterly basis for the four years after
the consummation of the Distribution and substantial amortization on a
quarterly basis beginning in the fifth year with the final payment due on the
date five years after the consummation of the Distribution; provided that the
Term Loan Facility will be automatically extended for up to three years if a
certain portion of the ManorCare Health Services' Skilled Nursing Facility
leases are renewed. If the Term Loan is extended it will provide for
substantial quarterly amortization payments in years six through eight with the
final payment due on the date eight years after consummation of the
Distribution.

Revolving Credit Facility. Manor Care expects that the Revolving Credit
Facility will have a maturity of five years, and that the ability of Manor Care
Real Estate to draw amounts there under will be dependent upon applicable
conditions to borrowing to be agreed upon by Manor Care and the lenders. Manor
Care expects that a portion of the Revolving Credit Facility will be available
in the form of letters of credit which will expire no later than the earlier of
one year after the issuance of such letters of credit and five days prior to
the final maturity of the Revolving Credit Facility.

Restrictive Covenants under the Credit Facilities. Manor Care expects that
the Credit Facilities will contain certain customary affirmative and negative
covenants, including, without limitation, covenants that will restrict, subject
to certain exceptions, (i) incurrence of additional indebtedness, (ii) certain
mergers and consolidations, (iii) non-ordinary course asset sales, (iv)
granting of liens to secure indebtedness and entering into sale-leaseback
transactions, (v) prepayment or modification of the terms of other
indebtedness, (vi) transactions with affiliates, (vii) declaration or payment
of dividends or distributions on Manor Care Real Estate's capital stock and
(viii) granting of negative pledges. Manor Care also expects that Manor Care
Real Estate will be required to satisfy certain financial ratios and tests
under the Credit Facilities.

Notwithstanding clause (iii) above, Manor Care expects that the Credit
Facilities will provide that Manor Care may dispose of assets in non-ordinary
course asset sales; provided that, subject to certain exceptions, Manor Care
Real Estate will use 100% of the net proceeds therefrom to prepay amounts
outstanding under the Term Loan Facility.

Security. Manor Care expects that amounts outstanding under the Credit
Facilities will be secured by substantially all of the assets of Manor Care
Realty and its subsidiaries, including a pledge of all of Manor Care Realty's
subsidiaries' capital stock and an assignment of Manor Care Realty's rights
under the Lease Agreements and Development Agreements.

Events of Default. Manor Care expects that the Credit Facilities will contain
various events of default customary for such type of agreement, including the
occurrence of a change of control of Manor Care Realty or Manor Care Real
Estate.

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<PAGE>

CERTAIN RELATIONSHIPS

On November 1, 1996, Manor Care completed the spin-off of its lodging
segment. Manor Care's shareholders of record on October 10, 1996 received one
share of Choice Hotels International, Inc. ("Choice") common stock for each
outstanding share of Manor Care common stock. Accordingly, lodging results are
reported as discontinued operations for all periods presented. As of May 31,
1997, advances to Choice totalled $115.7 million. Such advances are due in full
on November 1, 1999 and accrue interest at an annual rate of 9%. Choice has
notified Manor Care that it will repay in full all outstanding advances on
October 15, 1997. For purposes of providing an orderly transition after the
spin-off, Manor Care has entered into various agreements with the discontinued
lodging segment, including, among others, a Tax Sharing Agreement, Corporate
Services Agreement, Employee Benefits Allocation Agreement and Support Services
Agreement. These agreements provide, among other things, that Manor Care (i)
will provide certain corporate and support services, such as accounting, tax,
and computer systems support and (ii) will provide certain risk management
services and other miscellaneous administrative services. These agreements will
extend for a period of 30 months from the spin-off date or until such time as
the discontinued lodging segment has arranged to provide such services in-house
or through another unrelated provider of such services. See "Notes to
Consolidated Financial Statements--Discontinued Lodging Operations."

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<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") dated 1997, among Manor Care Real Estate,
the Parent Guarantor and the Underwriters, Manor Care Realty has agreed to sell
to the Underwriters, and the Underwriters have severally agreed to purchase
from Manor Care Real Estate, the following respective amounts of the Notes:

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT OF NOTES
----------- ---------------
<S> <C>
Chase Securities Inc. ....................................... $
SBC Warburg Dillon Read Inc. ................................
------------
Total...................................................... $350,000,000
============
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if they purchase any of the Notes. Manor Care Realty has been advised by
the Underwriters that the Underwriters propose to offer the Notes to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers initially at such price less a discount not
in excess of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession to certain other dealers not
in excess of % of the principal amount of the Notes. After the initial
offering of the Notes to the public, the Underwriters may change the public
offering price, the discount and the concession.

The Notes comprise new issues of securities with no established trading
market. Manor Care Realty has been advised by each of the Underwriters that
such Underwriter intends to make a market in the Notes as permitted by
applicable laws and regulations. However, neither of the Underwriters are under
any obligation to make such a market and any such Market-making may be
discontinued by such Underwriter at any time. No assurance can be given, that
the Underwriters will make a market in the Notes, or as to the liquidity of, or
the trading market for the Notes.

Chase Securities Inc. ("CSI") is an affiliate of The Chase Manhattan Bank,
which is the agent bank and a lender under the Existing Revolving Credit
Facility. The Chase Manhattan Bank will receive its proportionate share of any
repayment by Manor Care Realty of amounts outstanding under the Existing
Revolving Credit Facility from the proceeds of the Offering. CSI is acting as
dealer manager of the Exchange Offer. SBC Warburg Dillon Read Inc. has acted as
Manor Care's financial advisor in connection with the Distribution and will
receive customary compensation in connection therewith. CSI and its affiliates
and SBC Warburg Dillon Read Inc. continue to, and may, in the future, provide
financial advisory, investment banking and commercial banking services for
Manor Care Realty and ManorCare Health Services and their respective
affiliates.

In connection with the Offering, CSI, on behalf of the Underwriters, may
engage in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Overallotment involves sales in excess of the offering
size, which creates a short position for the Underwriters. Stabilizing
transactions involve bids to purchase the Notes in the open market for purposes
of pegging, fixing or maintaining the price of the Notes. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover short positions. Such
stabilizing transactions and syndicate covering transactions may cause the
price of the Notes to be higher than it would otherwise be in the absence of
such transactions. Such activities, if commenced, may be discontinued at any
time.

Manor Care Real Estate and the Parent Guarantor have agreed to indemnify the
Underwriters, jointly and severally, against certain civil liabilities,
including liabilities under the Securities Act, and to contribute to payments
which the Underwriters might be required to make in respect thereof.

61
<PAGE>

LEGAL MATTERS

Certain legal matters as to the validity of the Notes offered hereby will be
passed upon for Manor Care Realty by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York and James H. Rempe, General Counsel for the Company. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York. Cahill Gordon & Reindel has provided and
continues to provide legal services for Manor Care and its affiliates.

EXPERTS

The consolidated financial statements and schedules of Manor Care, Inc. as of
May 31, 1997 and 1996 and for each of the three years in the period ended May
31, 1997 have been audited by Arthur Andersen LLP, independent auditors, as set
forth in their reports with respect thereto, and are included and incorporated
by reference herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.

62
<PAGE>

INDEX OF FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants of Manor Care, Inc. ............. F-2
Consolidated Statements of Income of Manor Care, Inc.
for the fiscal years ended May 31, 1997, 1996 and 1995 .................. F-3
Consolidated Balance Sheets of Manor Care, Inc. as of May 31, 1997 and
1996..................................................................... F-4
Consolidated Statements of Shareholders' Equity of Manor Care, Inc.
at May 31, 1997, 1996, 1995 and 1994..................................... F-5
Consolidated Statements of Cash Flows of Manor Care, Inc.
for the fiscal years ended May 31, 1997, 1996 and 1995 .................. F-6
Notes to the Consolidated Financial Statements of Manor Care, Inc......... F-7
Schedule II-- Valuation and Qualifying Accounts........................... F-20
</TABLE>

F-1
<PAGE>

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, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended May 31, 1997. These
consolidated financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule 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 present fairly,
in all material respects, the financial position of Manor Care, Inc. and
subsidiaries as of May 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
1997 in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule attached as Schedule II--
Valuation and Qualifying Accounts is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This 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.

/s/ Arthur Andersen LLP

Washington, D.C.
June 27, 1997
(except for the transaction as discussed in the
footnote entitled "Discontinued Assisted Living,
Pharmacy and Home Health Operations" which
is dated September 14, 1997)

F-2
<PAGE>

MANOR CARE, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED MAY 31
------------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES....................................... $1,056,095 $985,150 $893,471
EXPENSES
Operating expenses........................... 789,074 735,671 670,987
Depreciation and amortization................ 60,243 56,503 48,284
General corporate and other.................. 60,177 63,127 60,240
Provisions for asset impairment and restruc- -- 25,100 --
turing...................................... ---------- -------- --------
Total expenses................................. 909,494 880,401 779,511
---------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE OTHER 146,601 104,749 113,960
INCOME AND (EXPENSES) AND INCOME TAXES........ ---------- -------- --------
OTHER INCOME AND (EXPENSES)
Interest income from advances to discontinued
lodging segment............................. 21,221 19,673 15,492
Interest income and other.................... 6,400 3,452 6,372
Interest expense............................. (24,514) (18,951) (18,872)
---------- -------- --------
Total other income and (expenses), net....... 3,107 4,174 2,992
---------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................... 149,708 108,923 116,952
INCOME TAXES................................... 60,783 44,563 46,101
---------- -------- --------
INCOME FROM CONTINUING OPERATIONS.............. 88,925 64,360 70,851
DISCONTINUED ASSISTED LIVING, PHARMACY AND
HOME HEALTH OPERATIONS
Income from discontinued assisted living,
pharmacy and home health operations (net of
income taxes of $23,917, $1,437 and $6,055)... 36,188 1,111 6,824
DISCONTINUED LODGING OPERATIONS
Income from discontinued lodging operations
(net of income taxes of $8,734, $14,966 and
$13,144, respectively)........................ 11,829 20,436 16,811
---------- -------- --------
NET INCOME..................................... $ 136,942 $ 85,907 $ 94,486
========== ======== ========
WEIGHTED AVERAGE SHARES OF COMMON STOCK........ 63,257 62,628 62,480
========== ======== ========
INCOME PER SHARE OF COMMON STOCK
Income from continuing operations.............. $1.40 $1.03 $1.13
Income from discontinued assisted living, phar-
macy and home
health operations............................. 0.57 0.01 0.11
Income from discontinued lodging operations.... 0.19 0.33 0.27
---------- -------- --------
Net income per share of common stock........... $ 2.16 $ 1.37 $ 1.51
========== ======== ========
</TABLE>

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

F-3
<PAGE>

MANOR CARE, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
AS OF MAY 31
----------------------
1997 1996
---------- ----------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................. $ 18,396 $ 38,943
Receivables (net of allowances for doubtful accounts
of $24,670 and $21,170).............................. 126,043 73,558
Inventories........................................... 11,273 10,523
Income taxes.......................................... 32,083 39,237
Due from discontinued assisted living, pharmacy and
home health segments................................. 2,625 2,481
Other................................................. 3,249 1,439
---------- ----------
Total current assets............................... 193,669 166,181
---------- ----------
PROPERTY AND EQUIPMENT, AT COST, NET OF ACCUMULATED
DEPRECIATION.......................................... 805,793 737,038
---------- ----------
GOODWILL, NET OF ACCUMULATED AMORTIZATION.............. 9,479 5,298
---------- ----------
DUE FROM DISCONTINUED ASSISTED LIVING, PHARMACY AND
HOME HEALTH SEGMENTS.................................. 75,560 49,946
---------- ----------
ADVANCES TO DISCONTINUED LODGING SEGMENT............... 115,723 225,723
---------- ----------
NET INVESTMENT IN DISCONTINUED LODGING SEGMENT......... -- 159,537
---------- ----------
NET INVESTMENT IN DISCONTINUED ASSISTED LIVING,
PHARMACY AND HOME HEALTH SEGMENTS..................... 277,066 193,807
---------- ----------
OTHER ASSETS........................................... 70,288 55,663
---------- ----------
$1,547,578 $1,593,193
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt..................... $ 11,649 $ 22,171
Accounts payable...................................... 53,462 73,712
Accrued expenses...................................... 94,840 95,766
Income taxes payable.................................. -- 7,889
---------- ----------
Total current liabilities.......................... 159,951 199,538
---------- ----------
MORTGAGES AND OTHER LONG-TERM DEBT..................... 491,190 490,575
---------- ----------
DEFERRED INCOME TAXES ($151,138 AND $135,975) AND
OTHER................................................. 206,006 195,311
---------- ----------
SHAREHOLDERS' EQUITY
Common stock $.10 par, 160.0 million shares autho-
rized, 66.8 million and 65.8 million shares issued
and outstanding...................................... 6,682 6,581
Contributed capital................................... 194,640 174,364
Retained earnings..................................... 538,630 571,925
Cumulative translation adjustment..................... -- (1,362)
Treasury stock, 3.2 million and 3.0 million shares, at
cost................................................. (49,521) (43,739)
---------- ----------
Total shareholders' equity......................... 690,431 707,769
---------- ----------
$1,547,578 $1,593,193
========== ==========
</TABLE>

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

F-4
<PAGE>

MANOR CARE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK CONTRIBUTED RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
---------- ------ ----------- -------- -----------
(IN THOUSANDS OF DOLLARS EXCEPT COMMON SHARES)
<S> <C> <C> <C> <C> <C>
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
Net income................ -- -- -- 85,907 --
Exercise of stock options. 269,156 28 3,279 -- --
Cash dividends............ -- -- -- (5,502) --
Other..................... -- -- 2,386 -- (2,071)
---------- ------ -------- -------- ------
Balance, May 31, 1996...... 65,782,890 6,581 174,364 571,925 (1,362)
Net income................ -- -- -- 136,942 --
Exercise of stock options. 1,011,951 101 12,153 -- --
Cash dividends............ -- -- -- (6,108) --
Dividend of discontinued
lodging segment.......... -- -- -- (164,225) 1,362
Tax benefit of stock op-
tion transactions........ -- -- 6,818 -- --
Other..................... -- -- 1,305 96 --
---------- ------ -------- -------- ------
Balance, May 31, 1997...... 66,794,841 $6,682 $194,640 $538,630 $ --
========== ====== ======== ======== ======
</TABLE>

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

F-5
<PAGE>

MANOR CARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED MAY 31
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $136,942 $ 85,907 $ 94,486
Reconciliation of net income to net cash pro-
vided by operating activities:
Income from discontinued assisted living,
pharmacy and home health operations.......... (36,188) (1,111) (6,824)
Income from discontinued lodging operations... (11,829) (20,436) (16,811)
Depreciation and amortization................. 60,243 56,503 48,284
Provisions for asset impairment and restruc-
turing....................................... -- 25,100 --
Amortization of debt discount................. 513 455 499
Provisions for bad debt....................... 15,442 13,776 10,723
Increase (decrease) in deferred taxes......... 23,538 (5,970) 858
Gain on sale of healthcare facilities......... (7,322) -- --
Minority interest............................. 120 137 82
Changes in assets and liabilities (excluding sold facilities & acquisitions):
Change in receivables........................... (69,662) (27,017) (18,283)
Change in inventories and other current assets.. (2,371) 2,749 (8,118)
Change in current liabilities................... (21,506) 43,805 13,490
Change in income taxes payable.................. (5,444) 11,202 (12,598)
Change in other liabilities..................... (6,726) 6,164 (1,729)
-------- -------- --------
NET CASH PROVIDED BY CONTINUING OPERATIONS....... 75,750 191,264 104,059
NET CASH PROVIDED (UTILIZED) BY DISCONTINUED
ASSISTED LIVING, PHARMACY AND HOME HEALTH
OPERATIONS...................................... 13,505 (15,305) 17,111
NET CASH PROVIDED BY DISCONTINUED LODGING 40,599 52,682 48,604
OPERATIONS...................................... -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 129,854 228,641 169,774
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment............ (128,238) (90,164) (58,721)
Investment in systems development............... (15,257) (14,167) (8,159)
Acquisition of healthcare facilities............ (17,793) (32,369) (26,560)
Sale of healthcare business..................... -- -- 13,334
Sale of healthcare facilities................... 17,283 -- --
Receipts from (advances to) discontinued lodg-
ing segment.................................... 113,267 (27,201) (51,461)
Advances to discontinued assisted living seg-
ment........................................... (75,267) (102,803) (42,072)
Other items, net................................ 7,105 (8,614) (963)
-------- -------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES OF
CONTINUING OPERATIONS........................... (98,900) (275,318) (174,602)
NET CASH (UTILIZED) PROVIDED BY INVESTING
ACTIVITIES OF DISCONTINUED
ASSISTED LIVING, PHARMACY AND HOME HEALTH
OPERATIONS...................................... (136,093) 18,454 (18,883)
NET CASH UTILIZED BY INVESTING ACTIVITIES OF (29,424) (169,641) (92,422)
DISCONTINUED LODGING OPERATIONS................. -------- -------- --------
NET CASH UTILIZED BY INVESTING ACTIVITIES........ (264,417) (426,505) (285,907)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.................... 179,400 149,000 207,254
Principal payments of long-term debt............ (179,090) (22,135) (122,496)
Proceeds from exercise of stock options......... 12,254 3,307 841
Treasury stock acquired......................... (5,782) (1,131) (73)
Retirement of debentures........................ (9,900) -- --
Dividends paid.................................. (6,108) (5,502) (5,489)
-------- -------- --------
NET CASH (UTILIZED) PROVIDED BY FINANCING
ACTIVITIES OF CONTINUING OPERATIONS............. (9,226) 123,539 80,037
NET CASH PROVIDED (UTILIZED) BY FINANCING ACTIVI-
TIES OF
DISCONTINUED ASSISTED LIVING, PHARMACY AND HOME
HEALTH OPERATIONS............................... 122,588 (3,149) 1,772
NET CASH PROVIDED BY FINANCING ACTIVITIES OF
DISCONTINUED 654 43,687 50,008
LODGING OPERATIONS.............................. -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 114,016 164,077 131,817
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... (20,547) (33,787) 15,684
-------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 38,943 72,730 57,046
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $ 18,396 $ 38,943 $ 72,730
======== ======== ========
NONCASH ACTIVITIES:
Liabilities assumed in connection with acquisi-
tion of property............................... $ -- $ 13,000 $ --
======== ======== ========
</TABLE>

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

F-6
<PAGE>

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"). As a result of the Company's
announcement of its intent to spin-off its assisted living, pharmacy and home
health businesses, the financial statements reflect these segments as a
discontinued operation. As a result of the Company's spin-off of its lodging
operations, the accompanying financial statements reflect the lodging segment
as a discontinued operation. All significant intercompany transactions have
been eliminated, except for advances to the discontinued segments and the
related interest income and interest expense.

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 as follows.

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS OF
DOLLARS)
--------------------
<S> <C> <C>
Land................................................ $ 76,130 $ 74,969
Building and improvements........................... 815,851 759,273
Capitalized leases.................................. 12,747 12,747
Furniture, fixtures and equipment................... 175,896 161,067
Facilities in progress.............................. 48,154 39,282
--------- ---------
1,128,778 1,047,338
Less: accumulated depreciation and amortization..... (322,985) (310,300)
--------- ---------
$ 805,793 $ 737,038
========= =========
</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>
<CAPTION>
<S> <C>
Building and improvements..................................... 10-40 years
Furniture, fixtures and equipment............................. 3-20 years
</TABLE>

Accumulated depreciation includes $6.4 million and $6.0 million at May 31,
1997 and 1996, respectively, relating to capitalized leases. Capitalized
leases are amortized on a straight-line basis over the lesser of the lease
term or the remaining useful life of the leased property.

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.

F-7
<PAGE>

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.

Costs incurred for systems development are capitalized and are amortized
over the estimated useful lives of the related assets.

The Company capitalizes interest on borrowings applicable to facilities in
progress. Interest has been capitalized as follows: 1997, $3.3 million; 1996,
$2.6 million; 1995, $1.2 million.

GOODWILL

Goodwill primarily represents an allocation of the excess purchase price of
certain acquisitions over the recorded fair value of the net assets. Goodwill
is amortized over 40 years. Amortization expense amounted to $0.2 million,
$0.1 million and $0.1 million in each of the years ended May 31, 1997, 1996
and 1995, respectively.

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 at a discount
rate of 7% based on actuarial projections for known and incurred but not
reported claims.

PRO FORMA INFORMATION (UNAUDITED)

After giving effect to the Distribution and related transactions (see
"Discontinued Assisted Living, Pharmacy and Home Health Operations") pro forma
revenues, net income and net equity for fiscal year 1997 would have been
$217.1 million, $45.8 million, and $5.4 million, respectively.

Pro forma income per share for 1997, after giving effect to the transaction
described in the pro forma consolidated financial statements, would have been
$0.72. Pro forma income per common share is computed by dividing pro forma net
income by the weighted average number of outstanding common shares,
aggregating 63.3 million in 1997.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company has elected the disclosure-only alternative permitted under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The Company has disclosed herein pro
forma net income and pro forma earnings per share in the footnotes using the
fair value based method beginning in fiscal year 1997 with comparable
disclosures for fiscal year 1996.

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. Stock options are included in
the calculation when dilutive.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported or disclosed in its financial
statements and the notes related thereto. Actual results could differ from
those estimates.

RECLASSIFICATIONS

Certain amounts previously presented have been reclassified to conform to the
1997 presentation.

F-8
<PAGE>

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share" ("SFAS 128"), which is effective for fiscal years
ending after December 15, 1997, including interim periods. Earlier adoption is
not permitted. However, an entity is permitted to disclose pro forma earnings
per share amounts computed under SFAS 128 in the notes to the financial
statements in periods prior to adoption. The statement requires restatement of
all prior-period earnings per share data presented after the effective date.
SFAS 128 specifies the computation, presentation, and disclosure requirements
for earnings per share and is substantially similar to the standard recently
issued by the International Accounting Standards Committee entitled
"International Accounting Standards, Earnings Per Share." The Company plans to
adopt SFAS 128 in fiscal year 1998 and has not determined the impact of
adoption.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income" ("SFAS 130"), which is effective for fiscal
years beginning after December 15, 1997. The statement establishes standards
for reporting and display of comprehensive income and its components. The
Company plans to adopt SFAS 130 in fiscal year 1999 and has not determined the
impact of adoption.

ACCRUED EXPENSES

Accrued expenses at May 31, 1997 and 1996 were as follows.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Payroll......................................... $ 50,323 $ 47,108
Taxes other than income......................... 12,892 11,568
Insurance....................................... 9,832 14,079
Interest........................................ 6,928 1,246
Other........................................... 14,865 21,765
------------ ------------
$ 94,840 $95,766
============ ============
</TABLE>

LONG-TERM DEBT

Maturities of long-term debt at May 31, 1997 were as follows.

<TABLE>
<CAPTION>
FISCAL (IN THOUSANDS
YEAR OF DOLLARS)
------ -------------
<S> <C>
1998........................................................ $ 11,649
1999........................................................ 6,042
2000........................................................ 6,523
2001........................................................ 5,965
2002........................................................ 6,024
2003 to 2024................................................ 466,636
--------
$502,839
========
</TABLE>

Long-term debt, consisting of mortgages, capital leases, Senior Notes, and
Senior Subordinated Notes, was net of discount of $1.2 million and $1.0
million at May 31, 1997 and 1996, respectively. Amortization of discount was
$0.5 million in 1997, 1996, and 1995, including write-offs associated with
debt redemptions. At May 31, 1997, the Company had mortgages and capital
leases of $80.2 million, of which $45.6 million is related to mortgages on
assisted living facilities. Mortgages on assisted living facilities are held
by the Company and will be transferred to ManorCare Health Services on the
Distribution Date.

Interest paid was $34.1 million in 1997, $29.8 million in 1996 and $22.4
million in 1995. During fiscal year 1997, interest rates on subordinated debt
ranged from 4.8% to 9.5%. Interest rates on mortgages and other long-term debt
ranged from 2.6% to 12.0%. The weighted average interest rate in fiscal year
1997 was 7.5%.

F-9
<PAGE>

In June 1996, the Company issued $150.0 million of 7 1/2% Senior Notes due
2006. These notes are redeemable at the option of the Company at any time at a
price equal to the greater of (a) the principal amount or (b) the sum of the
present values of the remaining scheduled payments of principal and interest,
discounted with an applicable treasury rate plus 15 basis points, plus accrued
interest to the date of redemption. The proceeds of this offering were used to
repay borrowings under the Company's $250.0 million competitive advance and
multi-currency revolving credit facility (the "Facility").

In November 1992, the Company issued $150.0 million of 9 1/2% Senior
Subordinated Notes due November 2002. In July 1996, the Company repurchased
$9.9 million of the 9 1/2% Senior Subordinated Notes for $10.5 million.

In September 1996, the Company amended the Facility provided by a group of
sixteen banks. The 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 20 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
1/10 of 1% on the entire loan commitment. The Facility will terminate on
September 6, 2001. At May 31, 1997, outstanding revolver borrowings amounted
to $85.0 million.

Various debt agreements impose, among other restrictions, restrictions
regarding financial ratios and payment of dividends. Pursuant to such
restrictions, owned property with a net book value of $91.6 million was
pledged or mortgaged and approximately $167.4 million of retained earnings was
not available for cash dividends.

LEASES

The Company operates certain property and equipment under leases, some with
purchase options that expire at various dates through 2035. Future minimum
lease payments are as follows.

<TABLE>
<CAPTION>
OPERATING CAPITALIZED
LEASES LEASES
------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
1998.......................................... $ 5,123 $ 701
1999.......................................... 4,870 702
2000.......................................... 4,677 615
2001.......................................... 4,360 292
2002.......................................... 4,179 292
Thereafter.................................... 36,364 1,904
------------- ------------
Total minimum lease payments.................. $ 59,573 4,506
============= ============
Less: amount representing interest............ 1,435
------------
Present value of lease payments............... 3,071
------------
Less: current portion......................... 414
------------
Lease obligations included in long-term debt.. $ 2,657
============
</TABLE>

Rental expense under noncancelable operating leases was $3.9 million in
1997, $4.5 million in 1996 and $3.6 million in 1995.

INTEREST RATE HEDGING

The Company has entered into multiple interest rate swap agreements to hedge
its exposure to fluctuations in interest rates on its long-term debt and
operating leases. At May 31, 1997, the Company had three interest

F-10
<PAGE>

rate swap agreements outstanding, with a total notional principal amount of
$30.3 million. These agreements effectively convert the Company's interest
rate exposure on a floating rate operating lease to a fixed interest rate of
5.60% and mature simultaneously with the relevant operating lease in 2002.
While the Company is exposed to credit loss in the event of nonperformance by
other parties to outstanding interest rate swap agreements, the Company does
not anticipate any such credit losses.

In conjunction with the June 1996 issuance of $150.0 million of 7 1/2%
Senior Notes, the Company also entered into a series of interest rate swap and
treasury lock agreements having a total notional principal amount of $150.0
million. Agreements with a total notional principal amount of $100.0 million
were terminated concurrent with the pricing of the notes offering on May 30,
1996 with a $2.7 million cash gain. The remaining agreement, with a total
notional principal amount of $50.0 million was terminated on October 23, 1996
with a $1.4 million cash gain. The gains on the termination of the agreements
have been deferred and are being amortized against interest expense over the
life of the 7 1/2% Senior Notes.

INCOME TAXES

The Company files a consolidated return which includes the assisted living
operations. The income tax provision of the Company is calculated based on a
separate company basis.

Income tax provisions were as follows for the year ended May 31.

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Current tax expense
Federal........................................ $31,171 $41,663 $37,129
State.......................................... 6,074 8,870 8,114
Deferred tax expense
Federal........................................ 19,112 (4,811) 703
State.......................................... 4,426 (1,159) 155
------- ------- -------
<CAPTION>
$60,783 $44,563 $46,101
======= ======= =======
</TABLE>

F-11
<PAGE>

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Depreciation and amortization.......... $ (92,620) $(78,946) $ (77,802)
Purchased tax benefits................. (44,110) (45,527) (46,212)
Other.................................. (21,490) (18,678) (17,881)
--------- -------- ---------
Gross deferred tax liabilities......... (158,220) (143,151) (141,895)
--------- -------- ---------
Tax deposit............................ 5,754 5,754 12,000
Reimbursement reserve.................. 4,389 16,882 4,996
Reserve for doubtful accounts.......... 12,320 9,175 7,561
Deferred compensation.................. 12,919 9,526 9,409
Other.................................. 3,636 5,076 7,552
--------- -------- ---------
Gross deferred tax assets.............. 39,018 46,413 41,518
--------- -------- ---------
Net deferred tax....................... $(119,202) $(96,738) $(100,377)
========= ======== =========

A reconciliation of income tax expense at the statutory rate to income tax
expense included in the consolidated statements of income follows.

<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax rate................ 35% 35% 35%
========= ======== =========
Federal taxes at statutory rate........ $ 52,398 $ 38,123 $ 40,933
State income taxes, net of Federal tax
benefit............................... 6,825 5,012 5,375
Minority interest...................... 931 (44) 805
Tax credits............................ (143) (19) (895)
Other.................................. 772 1,491 (117)
--------- -------- ---------
Income tax expense..................... $ 60,783 $ 44,563 $ 46,101
========= ======== =========
</TABLE>

Income taxes paid on a consolidated basis for the years ended May 31, 1997,
1996, 1995 were $47.5 million, $53.1 million, and $68.7 million, respectively.

CAPITAL STOCK

There are 5.0 million 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.

During fiscal years 1997 and 1996, the Company acquired 134,118 and 30,208
shares of its common stock for a total cost of $5.8 million and $1.1 million,
respectively. A total of 8.9 million shares of common stock have been
authorized, under various stock option plans, to be granted to key executive
officers and key employees. At May 31, 1997 and 1996, options for the purchase
of an aggregate of 3,041,807 and 3,667,527 shares were outstanding at prices
equal to the market value of the stock at date of grant. Options totaling
822,717 are presently exercisable and 2,219,090 will become exercisable from
fiscal year 1998 to 2002 and will expire at various dates to February 2007. In
addition, 49,957 options have been granted to non-employee directors. Options
totaling 7,630 are presently exercisable and 42,327 options will become
exercisable from fiscal year 1998 to 2001 and will expire at various dates to
September 2001.

F-12
<PAGE>

Option activity under the above plans was as shown in the table below.

<TABLE>
<CAPTION>
OPTIONS 1997 1996 1995
- ------- ---------- ---------- ----------
<S> <C> <C> <C>
Granted: No. of shares........................ 956,400 582,168 110,000
Avg. option price............................ $ 38.82 $ 30.89 $ 27.50
Adjustment as a result of the spin-off: No. of
shares....................................... 1,454,915 -- --
Exercised: No. of shares...................... 1,011,951 269,156 77,000
Avg. option price............................ $ 8.45 $ 12.34 $ 10.92
Canceled: No. of shares....................... 2,010,127 148,735 --
Avg. option price............................ $ 22.42 $ 20.57 --
Outstanding at May 31:
No. of shares................................ 3,091,764 3,702,527 3,538,250
Avg. option price............................ $ 14.87 $ 16.87 $ 14.36
Available for grant at May 31: No. of shares.. 1,680,826 1,089,899 1,603,500
</TABLE>

In connection with the spin-off of the Company's lodging segment, the
outstanding options held by current and former employees of the Company as of
November 1, 1996 were redenominated in both Company and lodging company stock
and the number and exercise prices of the options were adjusted based on the
relative trading prices of shares of the common stock of the two companies to
retain the intrinsic value of the options. The total number of options
outstanding increased by 1,454,915 as a result of this adjustment.

The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its various stock option plans and employee
stock purchase plan and, accordingly, no compensation expense has been
recognized for options granted and shares purchased under the provisions of
these plans. Had compensation expense for options granted and shares purchased
under the stock-based compensation plans been determined based on the fair
value at the grant dates, net income and earnings per share would have been as
follows for the years ended May 31.

<TABLE>
<CAPTION>
1997 1996
------------- ------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net income:
As reported.............................. $ 136,942 $ 85,907
Pro forma................................ $ 128,141 $ 81,697
------------- ------------
Earnings per share:
As reported.............................. $ 2.16 $ 1.37
Pro forma................................ $ 2.03 $ 1.30
============= ============
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure may not be
representative of the effects on reported net income for future years. SFAS
123 does not apply to awards granted prior to fiscal year 1996 and additional
awards are anticipated in future years.

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model. In computing these pro forma
amounts, the Company has assumed a risk-free interest rate equal to
approximately 6.36% and 6.37% for fiscal years 1997 and 1996, respectively,
expected volatility of 12.8%, dividend yields based on historical dividends of
$.088 per share annually and expected option lives of eight years. The average
fair values of the options granted during 1997 and 1996, as measured on the
dates of the grants, are estimated to be $15.12 and $11.96, respectively.

F-13
<PAGE>

ACQUISITIONS AND DIVESTITURES

During fiscal year 1997, the Company acquired a nursing center in California
for $4.4 million and a nursing center in Michigan for $13.4 million. Through
new construction, the Company opened four skilled nursing centers. The Company
sold four nursing centers in Indiana, Iowa, Illinois, and Texas for $17.3
million and transferred an assisted living facility with an approximate net
book value of $4.9 million to the discontinued lodging segment.

During fiscal year 1996, the Company acquired four nursing centers and an
operating lease for approximately $45.4 million, of which $32.4 million was
cash and the remainder was assumed liabilities.

During fiscal year 1995, the Company purchased three nursing centers for
approximately $26.6 million. In March 1995, the Company sold its investment in
a physicians' practice management business for $13.3 million. The physicians'
practice management investment was made in fiscal year 1994 in the amount of
$10.0 million.

Unless otherwise noted, acquisitions are accounted for as purchases.
Acquisition costs in excess of fair market value of the assets acquired are
allocated to goodwill.

PROVISIONS FOR ASSET IMPAIRMENT AND RESTRUCTURING

The Company recorded provisions of $25.1 million in fiscal year 1996 related
to the impairment of certain long-lived assets and costs associated with the
Company's restructuring. The most significant components of the provisions
were non-cash asset impairment charges of $20.0 million relating to writedowns
of property, equipment and capitalized systems development costs. The Company
periodically reviews the net realizable value of its long-term assets and
makes adjustments accordingly. The impairment of the property and equipment
was recorded in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS
121").

DISCONTINUED ASSISTED LIVING, PHARMACY AND HOME HEALTH OPERATIONS

On September 15, 1997, the Company announced its intention to proceed with a
separation of its assisted living, pharmacy and home health businesses
(collectively, the "Business") from its skilled nursing, real estate and
healthcare facility development business via a spin-off of the Business (the
"Distribution"). The spin-off of the Business will be effected by a
distribution to the Company's shareholders of all the common stock of
ManorCare Health Services, Inc., ("ManorCare Health Services") a wholly owned
subsidiary of the Company, which as of the date of the spin-off, will own and
operate all the Company's assisted living, pharmacy and home health operations
as well as manage the skilled nursing assets owned by the Company. The Board
of Directors voted in September 1997 to approve in principle the transaction
subject to receipt of other approvals and consents and satisfactory
implementation of the arrangements for the Distribution. The Company
anticipates that the transaction will be completed by the end of the 1997
calendar year. The Distribution is conditional upon certain matters, including
receipt of a ruling from the Internal Revenue Service that the spin-off will
be tax-free and declaration of the special dividend by the Company's Board of
Directors.

The revenues, income from operations before income taxes and net income from
discontinued assisted living, pharmacy and home health operations for the
years ended May 31, 1997, 1996, and 1995 were as follows.

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues............................................ $471,152 $263,047 $125,987
Income from discontinued assisted living, pharmacy
and home health operations before taxes............ $ 60,105 $ 2,548 $ 12,879
Net income from discontinued assisted living,
pharmacy and home health operations................ $ 36,188 $ 1,111 $ 6,824
</TABLE>

F-14
<PAGE>

Included in discontinued assisted living, pharmacy and home health
operations is interest expense charged by the Company relating to cash
advances provided to the assisted living segment for the acquisition and
construction of assisted living assets. For the years ended May 31, 1997,
1996, and 1995, interest so allocated amounted to $11.2 million, $8.4 million
and $3.8 million, respectively. The cash advances related to assisted living
acquisitions and construction are included in net investment in discontinued
assisted living, pharmacy and home health segments. Such advances amounted to
$277.1 million and $193.8 million at May 31, 1997 and 1996, respectively. The
advances will be forgiven at the date of the proposed spin-off.

General corporate expenses of $8.4 million, $9.2 million and $3.0 million,
respectively, were charged to discontinued assisted living, pharmacy and home
health operations for the years ended May 31, 1997, 1996, and 1995. Allocation
of general corporate charges was principally determined based on time
allocations.

For purposes of providing an orderly transition after the Distribution,
ManorCare Health Services and the Company will enter into various agreements,
including, among others, Lease Agreements, Development Agreement, Assisted
Living Facility Management Agreement, Tax Sharing Agreement, Tax
Administration Agreement, Corporate Services Agreement, Employee Benefits and
Other Employment Matters Allocation Agreement, and Employee Benefits
Administration Agreement. Effective at the Distribution Date, these agreements
will provide, among other things, that ManorCare Health Services (i) will
perform certain corporate and support services, such as accounting, risk
management and computer system support, (ii) will establish or participate in
pension, profit sharing and incentive plans similar to those in place at Manor
Care, (iii) will receive certain miscellaneous administrative services and
(iv) will lease skilled nursing facilities and corporate offices from the
Company.

DISCONTINUED LODGING OPERATIONS

On November 1, 1996, the Company completed the spin-off of its lodging
segment. The Company's shareholders of record on October 10, 1996 received one
share of Choice Hotels International, Inc. common stock for each outstanding
share of Manor Care common stock. Accordingly, lodging results are reported as
discontinued operations for all periods presented.

The revenues, income from discontinued lodging operations before income
taxes, and net income from discontinued lodging operations for the years ended
May 31, 1997, 1996, and 1995 were as follows.

<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues............................................. $89,849 $374,873 $302,535
Income from discontinued operations before income
taxes............................................... $20,563 $ 35,402 $ 29,955
Net income from discontinued operations.............. $11,829 $ 20,436 $ 16,811
</TABLE>

Net income from discontinued operations for the year ended May 31, 1996
includes the results of operations of the lodging segment through March 7,
1996, the measurement date. During the period from the measurement date
through May 31, 1996, the lodging segment incurred a net loss of $12.0
million. The net loss was primarily the result of provisions for asset
impairment and costs and expenses directly associated with the spin-off
totaling $33.3 million. The non-cash provision for asset impairment in the
discontinued lodging segment reflects primarily the writedown of European
hotel assets based on expected future cash flows. This non-cash provision was
recorded in accordance with SFAS 121. No loss on the disposal of the
discontinued lodging operations was recognized as the discontinued lodging
segment generated income between the measurement date and the date of the
spin-off.

Included in discontinued lodging operations is interest expense charged by
the continuing operations to the discontinued lodging segment relating to cash
advances provided to the discontinued lodging segment for the acquisition and
renovation of lodging assets. For the years ended May 31, 1997, 1996, and
1995, interest so allocated amounted to $3.4 million, $19.7 million, and $15.5
million, respectively. The indebtedness related

F-15
<PAGE>

to lodging acquisitions and renovations is reflected as advances to
discontinued lodging segment in the consolidated balance sheets. Such advances
amounted to $115.7 million and $225.7 million at May 31, 1997 and 1996,
respectively. The indebtedness is to be repaid over a three year period from
the date of the spin-off. Interest is charged at an annual rate of 9% on the
indebtedness. The Company received a prepayment of $110.0 million on the
advances to the discontinued lodging segment. This payment was subject to a
prepayment penalty of $1.9 million.

General corporate expenses of $5.5 million, $7.4 million, and $6.3 million,
respectively, were charged to discontinued lodging operations for the years
ended May 31, 1997, 1996, and 1995. Allocation of general corporate charges
was principally determined based on time allocations.

For purposes of providing an orderly transition after the spin-off, the
Company has entered into various agreements with the discontinued lodging
segment, including, among others, a Tax Sharing Agreement, Corporate Services
Agreement, Employee Benefits Allocation Agreement and Support Services
Agreement. These agreements provide, among other things, that the Company (i)
will provide certain corporate and support services, such as accounting, tax,
and computer systems support and (ii) will provide certain risk management
services and other miscellaneous administrative services. These agreements
will extend for a period of 30 months from the spin-off date or until such
time as the discontinued lodging segment has arranged to provide such services
in-house or through another unrelated provider of such services.

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 1997, 1996, and 1995 these revenues amounted to $464.1 million,
$440.6 million, and $391.1 million, respectively. In the opinion of
management, any difference between revenues recorded and final determination
will not be significant.

In fiscal year 1997, the Health Care Financing Administration issued a
modification to regulations governing the treatment of interest expense and
investment income offsets for Medicare reimbursement purposes. As a result of
this modification the Company recognized revenues of approximately $20 million
in fiscal year 1997, which had been reserved in prior years.

As of May 31, 1997, the Company had contractual commitments of $58.2 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 $11.8 million in
1997, $11.6 million in 1996, and $11.0 million in 1995. 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 the employee's level of contribution
to the plan, years of service and Company profitability. The cost of the plan
totaled $7.2 million in 1997, $5.8 million in 1996, and $4.8 million in 1995.

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 credits for years of participation after January 1, 1992. In addition,
there is a prior benefit equal to the accrued benefit at December 31, 1991 for
certain individuals

F-16
<PAGE>

who were participants in a predecessor plan. No new participants were eligible
to enter this plan after August 15, 1996 and service credits for all
participants were frozen as of December 31, 1996.

Service cost benefits earned during fiscal years 1997, 1996 and 1995
approximated the plan's annual costs of $4.0 million, $2.8 million, and $2.7
million, respectively. As of February 28, 1997, 1996, and 1995, plan assets of
approximately $20.3 million, $14.4 million, and $11.0 million compared to
vested benefit obligations of $17.0 million, $12.4 million, and $8.7 million,
respectively.

Projected benefit obligations were not significantly different from
accumulated benefit obligations of $21.0 million, $16.3 million, and $11.0
million as of the same dates. Liabilities recorded on the Company's balance
sheets as of May 31, 1997, 1996, and 1995 were $2.3 million, $2.0 million, and
$0.5 million, respectively. Projected benefit obligations were determined
using an assumed discount rate of 7.5% for 1997, 7.0% for 1996, and 8.5% for
1995, 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 expense was $3.1 million in 1997, $3.0
million in 1996, and $3.1 million in 1995.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of long-term debt instruments were determined by discounting
future cash flows using the Company's current market rates and do not vary
substantially from the amounts recorded on the balance sheet.

The balance sheet carrying amounts of cash, cash equivalents, and
receivables approximate fair value due to the short-term nature of these
items. Management believes that the fair value of the advances to the
discontinued segments approximates the carrying value.

Total fair market value for the outstanding interest rate swap agreements at
May 31, 1997 and 1996 was $1.4 million and $1.8 million, respectively. Fair
values were determined based on quoted rates.

F-17
<PAGE>

SUMMARY FINANCIAL INFORMATION OF MANOR CARE REAL ESTATE

The information below presents the condensed consolidated information for
Manor Care Real Estate and the other co-registrants. All of the co-registrants
are direct or indirect wholly owned subsidiaries of Manor Care Real Estate.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------------
1995 1996 1997
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Statements of Income Data:
Revenues..................................... 892,133 980,561 1,053,021
Expenses:
Operating................................... 669,015 730,801 786,897
Depreciation and amortization............... 42,227 48,155 50,222
General corporate and other................. 59,864 91,151 96,184
Provisions for asset impairment and
restructuring.............................. 0 21,806 0
-------- ---------- ----------
Total expenses............................. 771,106 891,913 933,303
Income from operations....................... 121,027 88,648 119,718
Interest income and other................... 474 3,122 4,220
Interest expense............................ (32,403) (39,615) (60,475)
Other income (expenses), net ............... (82) (137) (120)
-------- ---------- ----------
Income before income taxes................... 89,016 52,018 63,343
Income taxes................................. 34,995 21,563 28,183
Income from discontinued assisted living,
pharmacy and home health operations......... 6,824 1,111 36,188
-------- ---------- ----------
Net income................................... $ 60,845 $ 31,566 $ 71,348
======== ========== ==========
Balance Sheet Data:
Current assets............................... 92,568 122,428 170,552
Long-term assets............................. 753,646 982,240 1,174,552
Total assets................................. 846,214 1,104,668 1,345,104
Current liabilities.......................... 92,778 133,222 120,758
Long-term debt............................... 484,348 720,760 942,058
Other long-term liabilities.................. 138,068 138,100 147,814
Total equity................................. 131,020 112,586 134,474
</TABLE>

F-18
<PAGE>

SUMMARY OF QUARTERLY RESULTS
(UNAUDITED)

<TABLE>
<CAPTION>
INCOME FROM CONTINUING
OPERATIONS BEFORE OTHER
INCOME AND (EXPENSES)
AND NET PER
QUARTERS ENDED REVENUES INCOME TAXES INCOME SHARE
-------------- ---------- ----------------------- -------- -----
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1997
August................. $ 250,226 $ 29,939 $ 23,685 $ .38
November............... 259,336 37,572 32,444 .51
February............... 269,188 39,326 61,392 .97
May.................... 277,345 39,764 19,421 .30
---------- -------- -------- -----
$1,056,095 $146,601 $136,942 $2.16
========== ======== ======== =====
FISCAL 1996
August................. $ 236,911 $ 26,985 $ 28,426 $.45
November............... 243,451 32,717 28,788 .46
February............... 250,954 32,572 22,302 .36
May.................... 253,834 12,475 6,391 .10
---------- -------- -------- -----
$ 985,150 $104,749 $ 85,907 $1.37
========== ======== ======== =====
</TABLE>

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

<TABLE>
<CAPTION>
CASH DIVIDENDS PAID
MARKET PRICE PER SHARE PER SHARE
QUARTERS ENDED HIGH LOW AMOUNT DATE
-------------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
FISCAL 1997
August....................... $ 39.63* $ 31.50* $0.022 8/27/96
November..................... $ 42.25* $ 23.75 $0.022 11/27/96
February..................... $ 28.00 $ 24.13 $0.022 2/27/97
May.......................... $ 28.38 $ 21.88 $0.022 5/27/97
FISCAL 1996
August....................... $ 34.25* $ 27.78* $0.022 8/25/95
November..................... $ 35.58* $ 30.50* $0.022 11/27/95
February..................... $ 40.25* $ 32.75* $0.022 2/27/96
May.......................... $ 43.50* $ 36.50* $0.022 5/24/96
</TABLE>
- --------
*Market prices prior to November 1, 1996, are reflective of the stock value
prior to the spin-off of the discontinued lodging business.

F-19
<PAGE>

SCHEDULE II

MANOR CARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING PROFIT WRITE- AT END
DESCRIPTION OF PERIOD AND LOSS OFFS OF PERIOD
----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Year ended May 31, 1997
Allowance for doubtful
accounts..................... $21,170 $15,442 ($11,942) $24,670
Year ended May 31, 1996
Allowance for doubtful
accounts..................... $17,418 $13,776 ($10,024) $21,170
Year ended May 31, 1995
Allowance for doubtful
accounts..................... $14,300 $10,723 ($ 7,605) $17,418
</TABLE>

F-20
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDIC-
TION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDIC-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Documents by Reference................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
Selected Historical Financial Data of Manor Care.......................... 24
Pro Forma Financial Data of Manor Care Realty............................. 25
Business of Manor Care Realty After the Distribution...................... 29
Description of the Transactions........................................... 44
Relationship Between Manor Care Realty and ManorCare Health Services After
the Distribution......................................................... 47
Management of Manor Care Realty After the Distribution.................... 54
Description of the Notes.................................................. 56
Description of Certain Indebtedness....................................... 59
Certain Relationships..................................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>

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

$350,000,000

MANOR CARE REAL ESTATE CORP.

FULLY AND UNCONDITIONALLY GUARANTEED BY
MANOR CARE REALTY, INC.
AND THE OTHER GUARANTORS NAMED HEREIN

% SENIOR NOTES DUE 2007

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

PROSPECTUS

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

CHASE SECURITIES INC.

SBC WARBURG DILLON READ INC.

OCTOBER , 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee. The Company will bear all of such expenses.

<TABLE>
<S> <C>
SEC registration fee............................................ $106,061
NASD fee........................................................ 30,500
Rating Agency Fees.............................................. *
Blue sky fees and expenses...................................... *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Trustee fees.................................................... *
Miscellaneous................................................... *
Total......................................................... $ *
</TABLE>
- --------
* To be supplied by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law ("Delaware Law")
provides generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments, fines, and
settlements actually and reasonably incurred by them in connection with any
civil suit or action, expectations by or in the right of the corporation, or
any administrative or investigative proceeding if, in connection with the
matters in issue, they acted in good faith, in a manner they reasonably
believed to be in, or not opposed to, the best interest of the corporation,
and without negligence or misconduct in the performance of their duties to the
corporation. Section 145 further permits a Delaware corporation to grant its
directors and officers additional rights of indemnification through bylaw
provisions and otherwise.

Section 102(b)(7) of the Delaware law provides that a certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its violation
of law, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation at law, (iii) under Section 174
of the Delaware Law (relating to liability for unauthorized acquisitions or
redemptions of, or dividends on, capital stock) or (iv) for any transaction
from which the director derived an improper personal benefit. Article Eleventh
of the Registrant's Amended Certificate of Incorporation contains such a
provision.

Article VII of the Amended Bylaws of the Registrant provide that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by Delaware Law. The Registrant has entered into indemnification
agreements with each of its directors and executive officers. Such
indemnification agreements are intended to provide a contractual right to
indemnification, to the maximum extent permitted by law, for expenses
(including attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonable incurred by the person to be indemnified in
connection with any proceeding (including, to the extent permitted by
applicable law, any derivative action) to which they are, or are threatened to
be made, a party by reason of their status in such positions. Such
indemnification agreements do not change the basic legal standards for
indemnification set forth under Delaware Law or the Amended Certificate of
Incorporation of the Company. Such agreements are intended to be in
furtherance, and not in limitation of, the general right to indemnification
provided in the Registrant's Amended Certificate of Incorporation. The
Registrant's Amended Bylaws also authorize the Registrant to purchase and
maintain insurance on behalf of an officer or director, past or present,

II-1
<PAGE>

against any liability asserted against him in any such capacity whether or not
the Registrant would have the power to indemnify him against such liability
under the provisions of the Amended Certificate of Incorporation of the
Registrant or section 145 of the Delaware Law.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

The form of Underwriting Agreement, to be filed as Exhibit 1.1 to this
Registration Statement, obligates the underwriters to indemnify the
Registrant, their officers who sign the Registration Statement and directors,
and persons who control the Registrant under certain circumstances.

The foregoing summaries are necessarily subject to the complete text of the
statutes, the Registrant's Amended Certificate of Incorporation and the
Registrant's Amended Bylaws and the agreements referred to above and are
qualified in their entirety by reference thereto.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 --Form of Underwriting Agreement.*
2.1 --Form of Distribution Agreement, dated as of , 1997, between
Registrant and ManorCare Health Services.*
3.1 --Amended Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997.
3.2 --Amended Bylaws of the Registrant, incorporated by reference to
Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997.
4.1 --Indenture, dated as of June 4, 1996, between the Registrant and
Wilmington Trust Company, Trustee, related to the Registrant's 7
1/2% Senior Notes due 2006, incorporated by reference to Exhibit
4.1 to Registrant's Form 8-K dated June 4, 1996.
4.2 --Supplemental Indentures, dated as of June 4, 1996, between the
Registrant and Wilmington Trust Company, Trustee, relating to the
Registrant's 7 1/2% Senior Notes due 2006, incorporated by
reference to Exhibit 4.2 to Registrant's Form 8-K dated June 4,
1996.
4.3 --Form of Indenture among Manor Care Real Estate, the Guarantors
and , as Trustee.*
4.4 --Form of % Senior Note due 2007 (included in Exhibit 4.3).*
5.1 --Opinion of Skadden, Arps, Slate, Meagher and Flom, LLP
(including the consent of such counsel) regarding the legality of
securities being offered.*
10.1 --Form of Tax Sharing Agreement, dated as of , 1997, between
Registrant and ManorCare Health Services.*
10.2 --Form of Tax Administration, dated as of , 1997, between
Registrant and the ManorCare Health Services.*
10.3 --Form of Corporate Services Agreement, dated as of , 1997,
between Registrant and ManorCare Health Services.*
10.4 --Credit Agreement, dated as of , 1997, among the Registrant
and .*
10.5 --Form of Assisted Living Facility Management Agreement, dated as
of , 1997, between Registrant and ManorCare Health Services.*
10.6 --Form of Master Development Agreement, dated as of , 1997,
between Registrant and ManorCare Health Services.*
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.7 --Form of Master Lease Agreement, dated as of , 1997, between
Registrant and ManorCare Health Services.*
10.8 --Form of Non-Competition Agreement, dated as of , 1997,
between Registrant and ManorCare Health Services.*
10.9 --Form of Employee Benefits and Other Employment Matters
Allocation, dated as of , 1997, between Registrant and
ManorCare Health Services.*
10.10 --Form of Employee Benefits Administration Agreement, dated as of
, 1997, between Registrant and ManorCare Health Services.*
10.11 --Form of Office Lease Agreement, dated as of , 1997, between
Registrant and ManorCare Health Services.*
10.12 --Form of Trademark Agreement, dated as of , 1997, between
Registrant and ManorCare Health Services.*
10.13 --Form of Cash Management Agreement, dated as of , 1997,
between Registrant and ManorCare Health Services.*
10.14 --Form of Risk Management Consulting Service Agreement, dated as
of , 1997, between Registrant and ManorCare Health Services.*
10.15 --Form of Employment Agreement, dated as of , 1997, between
Stewart Bainum, Jr. and Registrant.*
12.1 --Statement re Computation of Ratio of Earnings to Fixed Charges.
23.1 --Consent of Independent Public Accountants
23.2 --Consent of Skadden, Arps, Slate, Meagher and Flom, LLP (included
as part of opinion filed pursuant to Exhibit 5 hereof).*
24.1 --Powers of Attorney (See Signature Page).
25.1 --Statement of Eligibility and Qualification of Trustee on Form T-
1 of , as Trustee.*
27.1 --Financial Data Schedule.
99.1 --Schedule II -- Valuation and Qualifying Accounts.
</TABLE>

- --------
* To be filed as amendment.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, the DGCL, the Amended
Certificate of Incorporation and the Bylaws, or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in such Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter

II-3
<PAGE>

has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Gaithersburg, State of
Maryland, on the 10th day of October, 1997.

Manor Care, Inc.

By: /s/ James H. Rempe
---------------------------------
NAME: JAMES H. REMPE
TITLE: SECRETARY

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stewart Bainum, Jr. and James H. Rempe and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Stewart Bainum, Jr. Chairman of the October 10, 1997
- ------------------------------------- Board, President,
STEWART BAINUM, JR. Chief Executive
Officer and
Director (Principal
Executive Officer)

/s/ Stewart Bainum Vice Chairman and October 10, 1997
- ------------------------------------- Director
STEWART BAINUM

/s/ Leigh C. Comas Vice President- October 10, 1997
- ------------------------------------- Finance and
LEIGH C. COMAS Treasurer
(Principal
Financial Officer)
</TABLE>

II-5
<PAGE>

/s/ Margarita A. Schoendorfer Vice President and October 10,
- ------------------------------------- Controller 1997
MARGARITA A. SCHOENDORFER (Principal
Accounting Officer)

/s/ Regina E. Herzlinger Director October 10,
- ------------------------------------- 1997
REGINA E. HERZLINGER

/s/ William H. Longfield Director October 10,
- ------------------------------------- 1997
WILLIAM H. LONGFIELD

/s/ Frederic V. Malek Director October 10,
- ------------------------------------- 1997
FREDERIC V. MALEK

/s/ Jerry E. Robertson Director October 10,
- ------------------------------------- 1997
JERRY E. ROBERTSON, PH.D.

/s/ Kennett L. Simmons Director October 10,
- ------------------------------------- 1997
KENNETT L. SIMMONS

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, each of the Co-
Registrants certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement on Form S-3 or amendment thereto to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Gaithersburg, State of Maryland, on the 10th day of October, 1997.

For the Registrants set forth on the
table of additional Co-Registrants

By: /s/ James H. Rempe
---------------------------------
NAME: JAMES H. REMPE
TITLE: (1)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James H. Rempe, his true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Stewart Baimum, Jr. (2) October 10, 1997
- -------------------------------------
STEWART BAINUM, JR.

/s/ Donald C. Tomasso (3) October 10, 1997
- -------------------------------------
DONALD C. TOMASSO

/s/ Leigh C. Comas (4) October 10, 1997
- -------------------------------------
LEIGH C. COMAS

/s/ Margarita A. Schoendorfer (5) October 10, 1997
- -------------------------------------
MARGARITA A. SCHOENORFER
</TABLE>

II-7
<PAGE>

SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ K. Peter Kemezys (6) October 10, 1997
- -------------------------------------
K. PETER KEMEZYS

/s/ Darrell A. Carlisle (7) October 10, 1997
- -------------------------------------
DARRELL A. CARLISLE

/s/ Joseph R. Buckley (8) October 10, 1997
- -------------------------------------
JOSEPH R. BUCKLEY

/s/ James A. MacCutcheon (9) October 10, 1997
- -------------------------------------
JAMES A. MACCUTCHEON
</TABLE>

- --------
(1) As Senior Vice President and Secretary of MNR Finance Corp.; as Director
and President of American Hospital Building Corp., Colewood Realty Corp.,
Distco, Inc., Executive Advertising, Inc., Healthcare Construction Corp.,
Industrial Wastes, Inc., Leader Nursing and Rehabilitation Center of
Gloucester, Inc., MRS, Inc. and Portfolio One, Inc.; and as Director,
Senior Vice President, General Counsel and Secretary of the remaining Co-
registrants.
(2) As Director of American Hospital Building Corp., Colewood Realty Corp.,
Executive Advertising, Inc. and Healthcare Construction Corp.; as Director
and President of Archive Acquisition, Inc., Archive Retrieval Systems,
Inc. and Manor Care Aviation, Inc.; and as Chief Executive Officer of the
remaining Co-Registrants, other than Distco, Inc., Industrial Wastes,
Inc., Leader Nursing Rehabilitation Center of Gloucester, Inc., MNR
Finance Corp., MRS. Inc., and Porfolio One, Inc.
(3) As Executive Vice President of Archive Acquisition, Inc., Archive
Retrieval Systems, Inc.; as Director and President of ManorCare Health
Services, Inc.; as Director of American Hospital Building Corp., Colewood
Realty Corp., Executive Advertising, Inc., Healthcare Construction Corp.
and Manor Care Aviation, Inc.; and as President of the remaining Co-
Registrants, other than Distco, Inc., Industrial Wastes, Inc., Leader
Nursing Rehabilitation Center of Gloucester, Inc., MNR Finance Corp., MRS,
Inc., and Porfolio One, Inc.
(4) As Vice President, Finance & Development of Healthcare Construction Corp.;
as Director and Treasurer of MNR Finance Corp.; as Treasurer of Colewood
Realty Corp., Distco, Inc., Industrial Wastes, Inc., MRS, Inc., and
Porfolio One, Inc.; and as Vice President, Finance and Treasurer of the
remaining Co-Registrants other than Leader Nursing Rehabilitation Center
of Gloucester, Inc.
(5) As Corporate Controller of MRS, Inc.; and as Vice President, Controller of
the remaining Co-Registrants, other than American Hospital Building Corp.,
Colewood Realty Corp., Distco, Inc., Executive Advertising, Inc.,
Healthcare Construction Corp., Industrial Wastes, Inc., Leader Nursing
Rehabilitation Center of Gloucester, Inc., Manor Care Aviation, Inc., MNR
Finance Corp., and Porfolio One, Inc.
(6) As Director and Secretary of Leader Nursing and Rehabilitation Center of
Gloucester, Inc. and MRS, Inc.; as Vice President, Associate General
Counsel and Assistant Secretary of Archive Acquisition, Inc., Archive
Retrieval Systems, Inc., Industrial Wastes, Inc., and ManorCare Health
Services, Inc.; as Assistant Secretary of Manor Care Aviation, Inc.; as
Secretary of American Hospital Building Corp., Colewood Realty Corp.,

II-8
<PAGE>

Distco, Inc., Executive Advertising, Inc., Healthcare Construction Corp.
and Porfolio One, Inc.; and as Director, Vice President, Associate General
Counsel and Assistant Secretary of the remaining Co-registrants, other than
MNR Finance Corp.
(7) As Director and Assistant Secretary of MNR Finance Corp.; and as Vice
President, Finance of the remaining Co-Registrants, other than Archive
Acquisition, Inc., Archive Retrieval Systems, Inc., American Hospital
Building Corp., Colewood Realty Corp., Distco, Inc., Executive
Advertising, Inc., Healthcare Construction Corp., Industrial Wastes, Inc.,
Leader Nursing Rehabilitation Center of Gloucester, Inc., Manor Care
Aviation, Inc., MNR Finance Corp., MRS, Inc., and Porfolio One, Inc.
(8) As Executive Vice President of Archive Acquisition, Inc., Archive
Retrieval Systems, Inc., American Hospital Building Corp., Executive
Advertising, Inc., Healthcare Construction Corp., Manor Care Aviation,
Inc.,, ManorCare Health Services, Inc., and MRS, Inc.; and as Director and
Executive Vice President of all the Co-Registrants other than Colewood
Realty Corp., Distco, Inc., Industrial Wastes, Inc., Leader Nursing
Rehabilitation Center of Gloucester, Inc., MNR Finance Corp. and Porfolio
One, Inc.
(9) As Director and President of MNR Finance Corp.; and as Director and
Treasurer of Leader Nursing and Rehabilitation Center of Gloucester, Inc.

II-9

<PAGE>

Exhibit 12.1
------------

ManorCare Realty, Inc.
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)

<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 Pro Forma 1997
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS
BEFORE TAXES $77,430 $106,216 $116,952 $108,923 $149,708 $ 58,833
PLUS: FIXED CHARGES
(NET OF CAPITALIZED INTEREST) 36,476 26,870 20,059 20,436 25,801 67,586
-------- -------- -------- -------- -------- --------
EARNINGS (AS DEFINED) $113,906 $133,086 $137,011 $129,359 $175,509 $126,419
======== ======== ======== ======== ======== ========
INTEREST EXPENSE & AMORTIZATION OF
DEBT DISCOUNT $35,386 $25,743 $18,871 $18,951 $24,514 $ 66,299
RENT EXPENSE (INTEREST PORTION) 1,090 1,127 1,188 1,485 1,287 1,287
-------- -------- -------- -------- -------- --------

TOTAL FIXED CHARGES NET OF
CAPITALIZED INTEREST 36,476 26,870 20,059 20,436 25,801 67,586
CAPITALIZED INTEREST 1,006 482 1,251 2,567 3,316 3,316
-------- -------- -------- -------- -------- --------

TOTAL FIXED CHARGES $37,482 $27,352 $21,310 $23,003 $29,117 $ 70,902
-------- -------- -------- -------- -------- --------

"EARNINGS" DIVIDED BY FIXED CHARGES 3.04x 4.87x 6.43x 5.62x 6.03x 1.78x
======== ======== ======== ======== ======== ========
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report dated June 27, 1997 (except for the transaction as discussed in the
footnote entitled "Discontinued Assisted Living, Pharmacy and Home Health
Operations" which is dated September 14, 1997) included in Manor Care, Inc.'s
Form 8-K dated September 15, 1997, and included in or made a part of this
registration statement, and the incorporation by reference in this
registration statement of our reports dated June 27, 1997, included and
incorporated by reference in Manor Care, Inc.'s Form 10-K for the year ended
May 31, 1997 and to all references to our Firm included in this registration
statement.

Washington, D.C.,
October 3, 1997

<PAGE>
<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>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 18,396
<SECURITIES> 0
<RECEIVABLES> 150,713
<ALLOWANCES> 24,670
<INVENTORY> 11,273
<CURRENT-ASSETS> 193,669
<PP&E> 1,128,778
<DEPRECIATION> 322,985
<TOTAL-ASSETS> 1,547,578
<CURRENT-LIABILITIES> 159,951
<BONDS> 491,190
0
0
<COMMON> 0
<OTHER-SE> 690,431
<TOTAL-LIABILITY-AND-EQUITY> 1,547,578
<SALES> 0
<TOTAL-REVENUES> 1,056,095
<CGS> 0
<TOTAL-COSTS> 773,632
<OTHER-EXPENSES> 60,243
<LOSS-PROVISION> 15,442
<INTEREST-EXPENSE> 24,514
<INCOME-PRETAX> 149,708
<INCOME-TAX> 60,783
<INCOME-CONTINUING> 88,925
<DISCONTINUED> 48,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,942
<EPS-PRIMARY> 2.16<F1>
<EPS-DILUTED> 2.16<F1>
<FN>
<F1>THE COMPANY PRESENTS SIMPLE EARNINGS PER SHARE (EPS) ON THE FACE OF ITS INCOME
STATEMENT AS FULLY DILUTIVE EPS IS AT LEAST 97% OF SIMPLE EPS. THE FIGURES
PRESENTED AVOVE ARE SIMPLE EPS.
</FN>

</TABLE>

<PAGE>

EXHIBIT 99.1

SCHEDULE II

MANOR CARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)