<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) Of The Securities Exchange Act Of 1934
(Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Manor Care, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Manor Care, Inc.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per cash party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF MANOR CARE APPEARS HERE]
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
------------------------------------
MANOR CARE, INC.
------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1997
<PAGE>
MANOR CARE, INC.
11555 DARNESTOWN ROAD
GAITHERSBURG, MARYLAND 20878
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 15, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Manor Care,
Inc. (the "Company"), will be held in the Auditorium of Manor Care's corporate
headquarters, 11555 Darnestown Road, Gaithersburg, Maryland, on September 15,
1997, at 9:00 a.m., to consider and vote upon the following matters:
1. To elect a Board of Directors consisting of seven persons to serve until
the next Annual Meeting of Stockholders of the Company and until their
successors are duly elected and qualified.
2. To transact such other business as may properly come before such meeting
or any adjournment thereof.
The close of business on August 5, 1997, has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof.
Your management sincerely desires the presence in person of every stockholder
able to attend the meeting; however, in order to be assured of the representa-
tion of the greatest number of stockholders either in person or by proxy, it
is requested that you date and sign the accompanying proxy and return it as
promptly as possible in the enclosed self-addressed envelope. No postage is
required if mailed in the United States.
If you attend the meeting in person, you may revoke your proxy at such meet-
ing and cast your vote in person. If you receive more than one proxy because
your shares are held in various names or accounts, each proxy should be com-
pleted and returned.
By Order of the Board of Directors:
/s/ James H. Rempe
James H. Rempe
Secretary
Gaithersburg, Maryland
August 15, 1997
<PAGE>
MANOR CARE, INC.
11555 DARNESTOWN ROAD
GAITHERSBURG, MARYLAND 20878
301-979-4000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 15, 1997
INTRODUCTION
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Manor Care, Inc. (the "Company"), a Delaware corporation, to be used at the
1997 Annual Meeting of Stockholders to be held on Monday, September 15, 1997,
at 9:00 a.m., in the Auditorium of Manor Care's corporate headquarters, 11555
Darnestown Road, Gaithersburg, Maryland, and at any and all adjournments
thereof. All shares represented by proxies will be voted at the meeting in ac-
cordance with the specifications marked thereon, or if no specifications are
made, proxies will be voted FOR all matters set forth in the attached Notice
of Meeting and in the discretion of the proxy holder as to any other business
which comes before the meeting. Any stockholder giving a proxy may revoke the
same at any time prior to the voting of such proxy by giving written notice of
revocation to the Secretary, by submitting a later dated proxy or by attending
the meeting and voting in person. The Proxy Statement is first being mailed to
stockholders on or about August 15, 1997.
The Company's Annual Report (including certified financial statements) for
the fiscal year ended May 31, 1997, is accompanying this Proxy Statement. The
Annual Report is not a part of the proxy soliciting material.
Except where the context requires otherwise, the term "Company" includes
Manor Care, Inc. and its subsidiaries.
VOTING AT THE ANNUAL MEETING
The Board of Directors has fixed August 5, 1997 (the "Record Date") as the
record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting. On that date, there were outstanding 66,709,912
shares of Common Stock, par value $.10 per share (the "Common Stock"). Each
such share of Common Stock is entitled to one vote. The presence in person or
by proxy of the holders of a majority of the Company's outstanding shares of
Common Stock will constitute a quorum.
A plurality of the shares of Common Stock present and voting at the Annual
Meeting, in person or by proxy, will be necessary for the election of direc-
tors. The affirmative vote of a majority of the Company's outstanding shares
of Common Stock present and voting at the Annual Meeting, in person or by
proxy, will be necessary for the taking of all other action at the Annual
Meeting.
A stockholder who is present in person or by proxy at the Annual Meeting and
who abstains from voting on any or all proposals will be included in the num-
ber of stockholders present at the meeting for the purpose of determining the
presence of a quorum. However, an abstention with respect to any matter will
not be counted either in favor of or against such matter.
Brokers who hold shares for the account of their clients may vote such shares
either as directed by their clients or in their own discretion if permitted by
the exchange or other organization of which they are members. Members of the
New York Stock Exchange are permitted to vote their clients' proxies in their
own discretion as to the election of directors. Proxies which are voted by
brokers on some but not all of the proposals are referred to as "broker non-
votes." Broker non-votes will be included in determining the presence of a
quorum. However, a broker non-vote is not treated as being in favor of or
against the particular proposal under consideration.
If any nominee for election to the Board of Directors named in this Proxy
Statement shall become unavailable for election for any reason, the proxy will
be voted for a substitute nominee selected by the Board of Directors, or the
Board of Directors may elect not to fill the vacancy and reduce the number of
directors.
SOLICITATION OF PROXIES
The cost of the proxy solicitations will be borne by the Company. In addition
to the use of the mails, proxies may be solicited by the directors, officers
and employees of the Company without additional compensation, by personal in-
terview, telephone, telegram or otherwise. Arrangements may also be made with
brokerage firms and other custodians,
1
<PAGE>
nominees and fiduciaries for the forwarding of soliciting material to the ben-
eficial owners of Common Stock held of record by such persons, and the Company
will reimburse such respective brokers, custodians, nominees and fiduciaries
for the reasonable out-of-pocket expenses incurred by them in connection
therewith.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Ex-
change Act") requires the Company's reporting officers and directors, and per-
sons who own more than ten percent of the Company's Common Stock, to file re-
ports of ownership and changes in ownership on Forms 3, 4 and 5 with the Secu-
rities and Exchange Commission (the "Commission"), the New York Stock Exchange
and the Company. Based solely on the Company's review of the forms filed with
the Commission and written representations from reporting persons that they
were not required to file Form 5 for certain specified years, the Company be-
lieves that all of its reporting officers, directors and greater than ten per-
cent beneficial owners, except for Joseph R. Buckley, complied with all filing
requirements applicable to them during the fiscal year ended May 31, 1997. Mr.
Buckley was one day late filing a Form 4 for the month of February 1997 due to
an error by a courier service.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth as of the Record Date the amount of the
Company's Common Stock beneficially owned by (1) each director and nominee,
(2) the chief executive officer and the four other most highly compensated ex-
ecutive officers, (3) all executive officers and directors as a group, and (4)
all persons who own beneficially more than 5% of the Company's Common Stock.
Unless otherwise specified, the address for each of them is:
<TABLE>
<CAPTION>
PERCENT
NAME OF BENEFICIAL OWNER TOTAL OF CLASS(1)
------------------------ ---------- -----------
<S> <C> <C>
Stewart Bainum 10,140,743(2) 15.20%
Stewart Bainum, Jr. 15,269,851(3) 22.86%
Regina E. Herzlinger 7,731(4) *
William H. Longfield 9,207(5) *
Frederic V. Malek 5,457(6) *
Jerry E. Robertson, Ph. D. 19,125(7) *
Kenneth L. Simmons 792
Donald C. Tomasso 143,424(8) *
James H. Rempe 61,162(9) *
Joseph R. Buckley 101,631(10) *
Scott J. Van Hove 83,181(11) *
All Directors and Officers as a Group (14
persons) 20,279,164(12) 30.21%
Ronald Baron 7,976,459(13) 11.96%
Barbara Bainum 5,485,815(14) 8.22%
Bruce Bainum 5,482,302(15) 8.21%
</TABLE>
- ----------------
* Less than 1% of class.
(1) Percentages are based on 66,709,912 shares outstanding on the Record Date
plus shares which would be issued assuming that the person exercises all
options which are exercisable within 60 days thereafter.
(2) Includes 3,765,478 shares held directly or indirectly by the Stewart
Bainum Declaration of Trust, the sole trustee of which is Mr. Bainum; his
joint interest in 895,466 shares owned by Bainum Associates Limited
Partnership ("Bainum Associates"), and 1,082,857 shares owned by MC
Investments Limited Partnership ("MC Investments"), each of which is a
limited partnership in which Mr. Bainum has joint ownership with his wife
as a limited partner and as such has the right to acquire at any time a
number of shares equal in value to the liquidation preference of their
limited partnership interest; 3,567,869 shares held direct by Realty
Investment Company, Inc. ("Realty Investment"), a real estate investment
and management company in which Mr Bainum and his wife have shared voting
authority; and 40,305 shares held by the Commonweal Foundation of which
Mr. Bainum is Chairman of the Board of Directors and has shared voting
authority. Also includes 792 shares of restricted stock granted pursuant
to the Manor Care, Inc. Non-Employee Director Stock Compensation Plan.
Also
2
<PAGE>
includes 798,711 shares held by the Jane L. Bainum Declaration of Trust,
the sole trustee of which is Mr. Bainum's wife. Also includes 3,665 shares
which Mr. Bainum has the right to acquire pursuant to stock options which
are presently exercisable or which become exercisable within 60 days after
the Record Date. Does not include shares owned beneficially by Stewart
Bainum, Jr., Mr. Bainum's son, whose interests are stated in the above
table, except shares owned by Bainum Associates, MC Investments and the
Commonweal Foundation in which Mr. Bainum has a beneficial interest. Also
does not include shares held by his other three adult children.
(3) Includes 20,598 shares held directly by Mr. Bainum, Jr.; also includes
5,417,761 shares owned by Bainum Associates and 4,415,250 shares owned by
MC Investments, in both of which Mr. Bainum, Jr. is managing general
partner with the sole right to dispose of the shares. Authority to vote
such shares is held by the voting general partner, Mr. B. Houston McCeney.
Also includes 1,779,628 shares owned by Mid Pines, in which Mr. Bainum,
Jr. is managing general partner and has shared voting authority; 3,567,869
shares held by Realty Investment in which Mr. Bainum, Jr. has shared
voting authority. Also includes 88,000 shares which Mr. Bainum, Jr. has
the right to acquire pursuant to stock options which are presently
exercisable or which become exercisable within 60 days after the Record
Date, and 350 shares and 993 shares, respectively, which Mr. Bainum, Jr.
has the right to receive upon termination of his employment with the
Company pursuant to the terms of the Manor Care, Inc. Retirement Savings
and Investment Plan (the "401(k) Plan") and the Manor Care, Inc.
Nonqualified Retirement Savings and Investment Plan (the "Nonqualified
Savings Plan") (based upon a report of each plan's trustee for June 1997).
(4) Includes 3,159 shares which Professor Herzlinger has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date. Also includes 200 shares
held by spouse as custodian for a minor. Beneficial ownership of such
shares is disclaimed.
(5) Includes 5,791 shares which Mr. Longfield has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date.
(6) Includes 3,665 shares which Mr. Malek has the right to acquire pursuant to
stock options which are presently exercisable or which become exercisable
within 60 days after the Record Date.
(7) Includes 13,500 shares held by the JJ Robertson Limited Partnership, of
which Mr. Robertson and his wife are the general partners with shared
voting authority; also includes 3,665 shares which Mr. Robertson has the
right to acquire pursuant to stock options which are presently exercisable
or which become exercisable within 60 days after the Record Date.
(8) Includes 40 shares held by adult children of Mr. Tomasso who share the
same household. Beneficial ownership of such shares is disclaimed. Also
includes 135,984 shares which Mr. Tomasso has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date, and 326 shares and 574
shares, respectively, which Mr. Tomasso has the right to receive upon
termination of his employment with the Company pursuant to the terms of
the 401(k) Plan and the Nonqualified Savings Plan (based upon a report of
each plan's trustee for June 1997).
(9) Includes 3,552 shares which Mr. Rempe has the right to acquire pursuant to
stock options which are presently exercisable or which become exercisable
within 60 days after the Record Date, and 780 shares and 424 shares,
respectively, which Mr. Rempe has the right to receive upon termination of
his employment with the Company pursuant to the terms of the 401(k) Plan
and Nonqualified Savings Plan (based upon a report of each plan's trustee
for June 1997).
(10) Includes 100,423 shares which Mr. Buckley has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date, and 668 shares and 540
shares, respectively, which Mr. Buckley has the right to receive upon
termination of his employment with the Company pursuant to the terms of
the 401(k) Plan and the Nonqualified Savings Plan (based upon a report of
each plan's trustee for June 1997).
(11) Includes 81,823 shares which Mr. Van Hove has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date, and 337 shares and 376
shares, respectively, which Mr. Van Hove has the right to receive upon
termination of his employment with the Company pursuant to the terms of
the 401(k) Plan and Nonqualified Savings Plan (based upon a report of
each plan's trustee for June 1997).
(12) Includes a total of 410,173 shares which the officers and directors
included in the group have the right to acquire pursuant to stock options
which are presently exercisable or which become exercisable within 60
days after the Record Date, and a total of 2,592 shares and 3,220 shares,
respectively, which such directors and officers have the right to receive
upon termination of their employment with the Company pursuant to the
terms of the 401(k) Plan and the Nonqualified Savings Plan (based upon a
report of each plan's trustee for June 1997).
(13) As of May 28, 1997, based on a Schedule 13-D, as amended, filed by Mr.
Baron with the Securities and Exchange Commission. Mr. Baron's address is
450 Park Avenue, Suite 2800, New York, New York 10022.
(14) Includes 98,013 shares held directly by Ms. Bainum; 3,567,869 shares held
by Realty Investment, and 1,779,628 shares held by Mid Pines, in both of
which Ms. Bainum has shared voting authority. Also includes 40,305 shares
held by the Commonweal Foundation in which Ms. Bainum has shared voting
authority.
(15) Includes 94,500 shares held directly by Mr. Bainum; 3,567,869 shares held
by Realty Investment, 1,779,628 shares held by Mid Pines and 40,305
shares held by the Commonweal Foundation, all of which Mr. Bainum has
shared voting authority in.
3
<PAGE>
NOMINATION AND ELECTION OF DIRECTORS
The entire Board of Directors, which consists of seven (7) members, will be
elected to serve until the next Annual Meeting of Stockholders of the Company
and until their successors are duly elected and qualified.
Stewart Bainum, Jr. is Stewart Bainum's son. Aside from the foregoing, no nom-
inee has any family relationship with any other director or executive officer
of the Company.
The following table sets forth information with respect to each nominee for
election as a Director of the Company. All of the nominees have previously been
elected by the stockholders of the Company.
<TABLE>
<CAPTION>
SERVED AS POSITIONS WITH THE COMPANY; BUSINESS
NAME AND AGE DIRECTOR SINCE EXPERIENCE: OTHER DIRECTORSHIPS
- ------------ -------------- ------------------------------------------------------------
<S> <C> <C>
Stewart Bainum, Jr. (51) 1976 Chairman of the Board and Chief Executive Officer since
March 1987; also President since June 1989; Vice Chairman
from June 1982 to March 1987. Director: Choice Hotels
International, Inc. and Vitalink Pharmacy Services, Inc.
Stewart Bainum (78) 1968 Vice Chairman of the Board since March 1987; Chairman of the
Board from 1968 to March 1987; President from December 1980
through October 1981, and May 1982 through July 1985;
Chairman of the Board of Realty Investment Company, Inc.
(private real estate investment company) since 1965.
Director: Choice Hotels International, Inc.
Regina E. Herzlinger 1992 Nancy R. McPherson Professor of Business Administration,
(53) Harvard Business School, since 1971. Director: C. R. Bard,
Inc., Deere & Company, Cardinal Health Care, Inc., Schering-
Plough Corporation and Total Renal Care Inc.
William H. Longfield 1989 Chairman and Chief Executive Officer of C. R. Bard, Inc.
(59) (medical devices) since September 1995; President and Chief
Executive Officer from June 1994 to September 1995;
President and Chief Operating Officer of C. R. Bard, Inc.
from September 1991 to June 1994; Executive Vice President
and Chief Operating Officer of C. R. Bard, Inc. from
February 1989 to September 1991. Director: C. R. Bard, Inc.,
Horizon Mental Health Management, Inc., United Dental Care,
Inc., The West Company and Atlantic Health Systems.
Frederic V. Malek (60) 1990 Chairman, Thayer Capital Partners since March 1993; Co-
chairman of CB Commercial Real Estate Group, Inc. from April
1989 to October 1996; Campaign Manager, Bush-Quayle '92
Campaign from January 1992 to December 1992; Vice Chairman
of NWA, Inc. (airlines) from July 1990 to December 1991.
Director: American Management Systems, Inc., Automatic Data
Processing Corp., CB Commercial Real Estate Group, Inc.
Choice Hotels International, Inc., FPL Group, Inc.,
Northwest Airlines, Inc. and various Paine Webber mutual
funds.
Jerry E. Robertson, 1989 Retired; Executive Vice President of 3M Life Sciences Sector
Ph.D. (64) and Corporate Services from November 1984 to March 1994.
Director: Allianz Life Insurance Company of North America,
Cardinal Inc., Choice Hotels International, Inc., Coherent,
Inc., Haemonetics Corporation, Medwave, Inc., Project Hope
and Steris Corporation.
Kennett L. Simmons (55) 1996 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: United
Healthcare Corporation and Virginia Health Care Foundation.
</TABLE>
4
<PAGE>
STRUCTURE AND FUNCTIONING OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during the fiscal year ended May 31,
1997. During such fiscal year, each incumbent attended 75% or more of the ag-
gregate of (1) the total number of meetings of the Board of Directors and (2)
the total number of meetings of all Committees on which such director served.
The standing committees of the Board include the Audit Committee, the Quality
Assurance Committee, the Compensation/Key Executive Stock Option Plan Commit-
tee, the Compensation/Key Executive Stock Option Plan Committee No. 2, and the
Nominating/Governance Committee, the current members of which are as follows:
<TABLE>
<CAPTION>
Compensation/Key Executive
Stock Option Plan Committee Finance Committee
--------------------------- -----------------
(elimination in April 1997)
<S> <C>
Jerry E. Robertson, Chairman Stewart Bainum, Chairman
Stewart Bainum Stewart Bainum, Jr.
William H. Longfield Frederic V. Malek
Frederic V. Malek Jerry E. Robertson
<CAPTION>
Compensation/Key Executive Stock
Option Plan Committee No. 2 Audit Committee
-------------------------------- -------------------
<S> <C>
Jerry E. Robertson, Chairman Regina E. Herzlinger, Chairwoman
Frederic V. Malek William H. Longfield
Kennett L. Simmons
<CAPTION>
Nominating/Governance Committee Quality Assurance Committee
------------------------------- ---------------------------
<S> <C>
Frederic V. Malek, Chairman William H. Longfield, Chairman
Regina E. Herzlinger Regina E. Herzlinger
Kennett L. Simmons Kennett L. Simmons
</TABLE>
The Compensation/Key Executive Stock Option Plan Committee held five meetings
during the 1997 fiscal year. Except with respect to the CEO and the four most
highly compensated officers in a particular fiscal year, the Committee admin-
isters the Company's stock option plans and grants stock options thereunder,
reviews compensation of officers and key management employees, recommends de-
velopment programs for employees such as training, bonus and incentive plans,
pensions and retirement, and reviews other employee fringe benefit programs.
The Compensation/Key Executive Stock Option Plan Committee No. 2, which held
one meeting in fiscal year 1997, was formed in fiscal year 1996 to comply with
certain provisions of the Omnibus Budget Reconciliation Act of 1993 and Rule
16b-3 under the Exchange Act. The Committee administers the Company's stock
option plans, grants stock options thereunder and reviews the compensation of
the CEO and the four most highly compensated officers (and others potentially
in that classification) for each fiscal year.
The Finance Committee, which held three meetings during the 1997 fiscal year,
reviews the financial affairs of the Company and recommends financial objec-
tives, goals and programs to the Board of Directors and to management. In
April 1997, the Board of Directors eliminated the Finance Committee.
The Audit Committee, which held two meetings during the 1997 fiscal year, re-
views the scope and results of the annual audit, reviews and approves the
services and related fees of the Company's independent public accountants, re-
views the Company's internal accounting controls and reviews the Company's In-
ternal Audit Department and its activities.
The Quality Assurance Committee, which met once during the 1997 fiscal year,
reviews the operations of the Company and facilities to determine if accept-
able standards of quality are being maintained.
5
<PAGE>
The Nominating/Governance Committee, which held one meeting during the 1997
fiscal year, recommends to the Board of Directors the members to serve on the
Board of Directors during the ensuing year and deals with corporate governance
issues. The Committee does not consider nominees recommended by stockholders.
Directors who are full-time employees of the Company receive no separate re-
muneration for their services as directors. Beginning in fiscal year 1997, the
remuneration of all non-employee directors for Board retainer and Board meet-
ing fees is a grant of restricted stock, the fair market value of which is
equal to $30,000, pursuant to the Manor Care, Inc. Non-Employee Director Stock
Compensation Plan. Non-employee directors also receive $1,610 per diem for
Committee meetings attended, except where the Committee meeting is on the same
day as a Board meeting. In addition, directors are also reimbursed for travel
expenses and other out-of-pocket costs incurred in attending meetings.
The purpose of the Non-Employee Director Stock Compensation Plan is to en-
courage stock ownership by directors and to further align the interests of di-
rectors and stockholders.
Pursuant to the Manor Care, Inc. Non-Employee Director Stock Option and De-
ferred Compensation Stock Purchase Plan, approved by the stockholders on Sep-
tember 9, 1994 ("1994 Plan"), eligible non-employee directors may elect, prior
to May 31 of each year, to defer a minimum of 25% of committee fees earned
during the ensuing fiscal year. The fees which are so deferred will be used to
purchase Common Stock on the open market within 15 days after December 1, Feb-
ruary 28 and May 31 of such fiscal year. Pending such purchases, the funds are
credited to an Interest Deferred Account, which will be interest bearing.
Stock which is so purchased is deposited in a Stock Deferred Account pending
distribution in accordance with the Plan. Two of the incumbent Directors
(Messrs. Robertson and Longfield) have elected to participate in the 1994 Plan
for the 1998 fiscal year. The amount of compensation that will accrue to such
participating directors is not currently determinable.
In addition, pursuant to the 1994 Plan, eligible non-employee directors will
be granted options to purchase 5,000 shares of Common Stock on their date of
initial election and will be granted options to purchase 1,000 shares on the
date of election in subsequent calendar years. Pursuant to the 1994 Plan, on
September 30, 1996, Messrs. Bainum, Longfield, Malek, Simmons and Robertson
and Professor Herzlinger were granted options to purchase 1,000 shares at
$37.88 (which was adjusted in connection with the Choice Spin-off, defined be-
low, to $23.9867). The amount of compensation that will accrue to such direc-
tors is not currently determinable.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the annual and
long term compensation for services in all capacities to the Company for the
fiscal years ended May 31, 1997, 1996 and 1995, of the chief executive officer
and the four other most highly compensated executive officers in the Company's
employ at May 31, 1997 and two additional persons who were officers during the
fiscal year, but upon the distribution by the Company of the shares of its
wholly-owned subsidiary, Choice Hotels International, Inc. ("Choice") on No-
vember 1, 1996, via a tax-free spin-off (the "Choice Spin-off"), became offi-
cers of Choice.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- -----------------------
RESTRICTED
STOCK STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS(#) SHARES(#)(1) COMPENSATION(2)
- --------------------------- ---- -------- -------- ----- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr. 1997 $568,062 $340,837 (3) - 60,000(4) $35,074
Chairman, President and 1996 625,102 337,555 (3) - 60,000(4) 33,543
Chief Executive Officer 1995 572,308 343,385 (3) - - 9,000
Donald C. Tomasso 1997 428,002 235,401 (3) - 35,000(5) 18,760
Executive Vice Presi-
dent; 1996 400,005 145,602 (3) - 50,000(6) 5,750
President, ManorCare
Health 1995 345,737 190,155 (3) - - 2,250
Services, Inc.
James H. Rempe 1997 281,507 140,754 (3) $271,250 15,000(9) 16,727
Senior Vice President, 1996 269,048 121,072 (3) - 15,000(10) 15,969
General Counsel and Sec-
retary 1995 267,349 133,675 (3) - - 9,000
Joseph R. Buckley 1997 255,154 140,335 (3) - 20,000(7) 15,466
Executive Vice President 1996 233,617 69,209 (3) - 30,000(8) 13,406
1995 205,000 102,500 (3) - - 9,000
Scott J. Van Hove 1997 240,192 116,753 (3) - 50,000(11) 14,542
Senior Vice President
and 1996 210,310 89,754 (3) - 40,000(12) 8,690
Chief Administrative Of-
ficer; 1995 183,393 68,311 (3) - - 6,750
Executive Vice Presi-
dent--Operations,
ManorCare Health Servic-
es, Inc.
James A. MacCutcheon
(13) 1997 104,526 52,263 (3) - 67,500(14) -
Executive Vice President
and 1996 301,517 135,682 (3) - 25,000(15) 13,176
Chief Financial Officer 1995 273,199 136,600 (3) - - 13,176
Choice Hotels Interna-
tional, Inc.
Donald J. Landry (16) 1997 168,437 - (3) - 100,000(17) -
President, 1996 366,702 201,686 (3) - - 5,000
Choice Hotels Interna-
tional, Inc. 1995 311,635 171,399 (3) - 40,000(18) 2,250
</TABLE>
- ----------------
(1) In connection with the Choice Spin-off, outstanding options to purchase
Company Common Stock were converted into options to purchase Company
Common Stock and options to purchase Choice common stock. In all cases,
however, the exercise prices of the converted options were adjusted to
maintain the same financial value to option holder before and after the
Choice Spin-off.
(2) Represents amounts contributed by the Company for fiscal 1997, 1996 and
1995 for the five individuals named in the above Summary Compensation
Table (the "Named Officers") under the 401(k) Plan and the Nonqualified
Savings Plan, which provide retirement and other benefits to eligible
employees, including the Named Officers. Amounts contributed in cash or
stock by the Company during fiscal 1997 under the 401(k) Plan for the
Named Officers were as follows: Mr. Bainum, Jr. $9,000; Mr. Tomasso,
$6,253; Mr. Buckley, $4,933; Mr. Rempe, $5,591; and Mr. Van Hove, $4,655.
Amounts contributed in cash or stock by the Company during fiscal 1997
under the Nonqualified Savings Plan for the Named Officers were as
follows: Mr. Bainum, $26,074; Mr. Tomasso, $12,507; Mr. Buckley, $10,534;
Mr. Rempe, $11,137; and Mr. Van Hove, $9,887.
(3) The value of perquisites and other compensation does not exceed the lesser
of $50,000 or 10% of the amount of annual salary and bonus paid as to any
of the Named Officers.
(4) In connection with the Choice Spin-off, these options were converted on a
pro rata basis into options to purchase Company Common Stock and options
to purchase Choice common stock.
7
<PAGE>
(5) In connection with the Choice Spin-off, these options were converted into
options to purchase 55,272 shares of Company Common Stock at an adjusted
exercise price of $25.0505 per share.
(6) In connection with the Choice Spin-off, these options were converted into
options to purchase 74,617 shares of Company Common stock at an adjusted
exercise price of $19.1932 per share and 7,500 shares to purchase Choice
common stock at an adjusted exercise price of $11.1168.
(7) In connection with the Choice Spin-off, these options were converted into
options to purchase 27,239 shares of Company Common stock at an adjusted
exercise price of $25.0505 per share and 7,500 shares of Choice common
stock at an adjusted exercise price of $14.5095.
(8) In connection with the Choice Spin-off, these options were converted into
options to purchase 39,557 shares of Company Common stock at an adjusted
exercise price of $19.1932 per share and 13,500 shares of Choice common
stock at an adjusted exercise price of $11.1168.
(9) In connection with the Choice Spin-off, these options were converted into
options to purchase 20,430 shares of Company Common stock at an adjusted
exercise price of $25.0505 per share and 5,625 shares of Choice common
stock at an adjusted exercise price of $14.5095.
(10) In connection with the Choice Spin-off, these options were converted into
options to purchase 19,306 shares of Company Common stock at an adjusted
exercise price of $19.1932 per share and 7,568 shares of Choice common
stock at an adjusted exercise price of $11.1168.
(11) In connection with the Choice Spin-off, 25,000 of these options were
converted into options to purchase 39,480 shares of Company Common stock
at an adjusted exercise price of $25.0505 per share.
(12) In connection with the Choice Spin-off, these options were converted into
options to purchase 37,309 shares and 22,385 shares of Company Common
stock at an adjusted exercise price of $21.4918 and 19.1932,
respectively, per share and 3,750 shares and 2,250 shares of Choice
common stock at adjusted exercise prices of $12.4482 and $11.1168,
respectively, per share.
(13) At the time of the Choice Spin-off on November 1, 1996, Mr. MacCutcheon
resigned as Senior Vice President, Chief Financial Officer and Treasurer
of the Company and assumed the position of Executive Vice President,
Chief Financial Officer and Treasurer of Choice.
(14) In connection with the Choice Spin-off, these options were converted into
options to purchase 6,563 shares of Company Common stock at an adjusted
exercise price of $25.0505 and 36,387 shares and 136,326 shares of Choice
common stock at adjusted exercise prices of $14.5095 and $13.8933,
respectively, per share.
(15) In connection with the Choice Spin-off, these options were converted into
options to purchase 10,462 shares of Company Common stock at an adjusted
exercise price of $19.1932 and 50,102 shares of Choice common stock at
adjusted exercise prices of $11.1168.
(16) As of the Choice Spin-off on November 1, 1997, Mr. Landry was no longer
deemed an employee of the Company.
(17) In connection with the Choice Spin-off, these options were converted into
options to purchase 272,727 shares of Choice common stock at an adjusted
exercise price of $14.5095 per share.
(18) In connection with the Choice Spin-off, these options were converted into
options to purchase 109,061 shares of Choice common stock at an adjusted
exercise price of $10.5007 per share.
8
<PAGE>
The following tables set forth certain information at May 31, 1997, and for
the fiscal year then ended concerning stock options granted to the Named Offi-
cers. All Common Stock figures and exercise prices have been adjusted to re-
flect stock dividends and stock splits effective in prior fiscal years. In
connection with the Choice Spin-off, existing options to purchase Company Com-
mon Stock were converted into options to purchase Company Common Stock and
Choice common stock.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
------------------------------------------------------- ---------------------
PERCENTAGE OF
TOTAL OPTIONS
NUMBER OF GRANTED TO ALL EXERCISE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME COMPANY GRANTED(1) FISCAL 1997 PER SHARE DATE 5%(3) 10%(4)
---- ------- ---------- -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr.(5) MNR 60,000 6.3% $25.0505 7/1/06 $ 945,246 $2,395,440
CHI 60,000 (6) $14.5095 7/1/06 547,494 1,387,464
------- ---------- ----------
Total 120,000 1,492,750 3,783,904
Donald C. Tomasso(5) MNR 55,272 3.7%(7) $25.0505 7/1/06 $ 870,760 $2,206,679
CHI 0 - - - -
------- ---------- ----------
Total 55,272 870,760 2,206,679
James H. Rempe(5) MNR 20,430 1.6%(7) $25.0505 7/1/06 $ 321,856 $ 815,647
CHI 5,625 (6) $14.5095 7/1/06 51,327 130,075
------- ---------- ----------
Total 26,055 373,183 945,722
Joseph R. Buckley(5) MNR 27,239 2.1%(7) $25.0505 7/1/06 $ 429,126 1,087,490
CHI 7,500 (6) $14.5095 7/1/06 68,437 173,433
------- ---------- ----------
Total 34,739 497,563 1,260,923
Scott J. Van Hove(5) MNR 39,480 2.6%(7) $25.0505 7/1/06 $ 621,972 $1,576,199
MNR 25,000 2.6% $27.0000 1/15/07 424,500 1,075,750
CHI 0 - - - -
------- ---------- ----------
Total 64,480 1,046,472 2,651,949
James A. MacCutcheon(5) MNR 6,563 7.1%(7) $25.0505 7/1/06 $ 103,394 $ 262,021
CHI 136,326 (6) $13.8933 9/30/06 1,191,135 $3,018,571
CHI 36,387 (6) $14.5095 7/1/06 332,028 841,428
------- ---------- ----------
Total 179,276 $1,626,557 $4,122,020
Donald J. Landry(5) MNR 0 - - - $ - $ -
CHI 272,727 (6) $14.5095 7/1/06 2,488,607 6,306,648
------- ---------- ----------
Total 272,727 $2,488,607 $6,306,648
</TABLE>
9
<PAGE>
- ----------------
* References to "MNR" are to the Company and "CHI" are to Choice.
(1) All of the options shown, except for Mr. Van Hove's 25,000 MNR options,
were granted prior to the Choice Spin-off. In connection with the Choice
Spin-off, the existing options were converted, in some cases, into options
to purchase Company Common Stock and options to purchase Choice common
stock. In all cases, the exercise prices were adjusted to maintain the
same financial value to the option holder before and after the Choice
Spin-off. The number of options set forth in the above table represent the
number and exercise prices of the options after the Choice Spin-off.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast future possible appreciation, if
any, of the Company's stock price. Since options are granted at market
price, a zero percent gain in the stock price will result in no realizable
value to the optionees.
(3) A 5% per year appreciation in stock price from $25.0505 per share yields
$40.8046, from $14.5095 per share yields $23.6344, from $13.8933 per share
yields $22.6344 and from $27.00 per share yields $43.98.
(4) A 10% per year appreciation in stock price from $25.0505 per share yields
$64.9745, from $14.5095 per share yields $37.6339, from $13.8933 per share
yields $36.0356 and from $27.00 per share yields $70.03.
(5) The options granted to the officers vest at the rate of 20% per year
commencing on the first through the fifth anniversary of the date of the
stock option grant.
(6) Information is not available for the total number of Choice options
granted during fiscal year 1997.
(7) This percentage relates to the number of options granted to the officers
prior to the conversion of such options in the Choice Spin-off. The
converted number of options is listed in this table.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED VALUE OPTIONS AT MAY 31, 1997 IN-THE-MONEY OPTIONS
COMPANY ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE AT MAY 31, 1997(1)
------- ----------- ---------- ----------- ------------- -------------------------
# $ # # EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr. MNR 293,791 $2,318,180 174,000 221,000 $3,633,404 $2,749,771
CHI 465,000 3,105,452 239,000 221,000 2,758,324 1,334,863
Donald C. Tomasso MNR - - 109,138 278,734 1,178,161 3,491,641
CHI - - 66,500 0 612,534 -
James H. Rempe MNR 30,587 543,625 22,835 82,881 352,453 1,086,277
CHI - - 57,374 28,000 600,600 205,906
Joseph R. Buckley MNR 11,180 164,712 98,053 121,830 2,053,587 1,543,129
CHI - - 94,500 40,500 1,088,257 286,514
Scott J. Van Hove MNR - - 61,894 212,142 1,159,075 2,415,701
CHI - - 45,000 0 457,268 -
James A. MacCutcheon MNR - - 91,362 46,563 1,962,041 704,946
CHI - - 162,639 335,408 1,858,096 1,708,638
Donald J. Landry MNR - - 0 0 - -
CHI - - 151,321 625,810 1,376,894 2,897,138
</TABLE>
- ----------------
* References to "MNR" are to the Company and "CHI" are to Choice.
(1) The closing price of the Company's Common Stock and for Choice common
stock as reported by the New York Stock Exchange on May 30, 1997, was
$28.625 and $15.75, respectively. The value is calculated on the basis of
the difference between the option exercise price and such closing price
multiplied by the number of shares of Common Stock underlying the option.
10
<PAGE>
RETIREMENT PLANS
In February 1985, the Board of Directors adopted the Supplemental Executive
Retirement Plan (the "SERP"). Participants are selected by the Board and are
at the level of Senior Vice President or above. A total of six officers of the
Company, including Messrs. Bainum, Jr., Rempe, Tomasso, Buckley and Van Hove
have been selected to participate in the SERP.
Participants in the SERP will receive a monthly benefit for life based upon
final average salary and years of service. Final average salary is the average
of the monthly base salary, excluding bonuses or commissions, earned in a 60
month period out of the 120 months of employment, which produces the highest
average, prior to the first occurring of the early retirement date or the nor-
mal retirement date. The normal retirement age is 65, and participants must
have a minimum of 15 years of service. Participants may retire at age 60 and
may elect to receive reduced benefits commencing prior to age 65, each subject
to Board approval. All of the Named Officers who are participants, except for
Mr. Rempe, are age 55 or younger. With respect to such named officers, except
for Mr. Rempe, none of their compensation reported above would be included in
the final average salary calculation.
Assuming that the following officers continue to be employed by the Company
until they reach age 65, their credited years of service would be as follows:
<TABLE>
<CAPTION>
CURRENT YEARS YEARS OF SERVICE
NAME OF INDIVIDUAL OF SERVICE AT AGE 65
------------------ ------------- ----------------
<S> <C> <C>
Stewart Bainum, Jr. 23.5 38
Donald C. Tomasso 6 19
Joseph R. Buckley 17 33
Scott J. Van Hove 10 35
</TABLE>
Mr. Rempe has twenty-seven current years of service and had twenty-five years
of service at age sixty-five.
The table below sets forth estimated annual benefits payable upon retirement
to persons in specified compensation and years of service classifications.
These benefits are straight life annuity amounts, although participants have
the option of selecting a joint and 50% survivor annuity or ten-year certain
payments. The benefits are not subject to offset for Social Security and other
amounts.
<TABLE>
<CAPTION>
YEARS OF SERVICE/BENEFIT AS
PERCENTAGE OF FINAL AVERAGE SALARY
---------------------------------------------------------------
25 OR
REMUNERATION 15/15% 20/22.5% MORE/30%
------------ ---------- ------------ ------------
<S> <C> <C> <C>
$300,000 $ 45,000 $ 67,500 $ 90,000
350,000 52,500 78,750 105,000
400,000 60,000 90,000 120,000
450,000 67,500 101,250 135,000
500,000 75,000 112,500 150,000
600,000 90,000 135,000 180,000
</TABLE>
Effective January 1, 1992, the Company established the Manor Care, Inc. Re-
tirement Savings and Investment Plan (the "401(k) Plan"), a defined contribu-
tion retirement, savings and investment plan for its employees and the employ-
ees of its participating affiliated companies. The 401(k) Plan is qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and includes a cash or deferred arrangement under Section 401(k) of
the Code. All employees age 21 or over and who have worked for the Company for
a twelve month period during which such employee completed at least 1,000
hours are eligible to participate. Subject to certain non-discrimination re-
quirements, each employee may contribute an amount to the 401(k) Plan on a
pre-tax basis up to 15% of the employee's salary, but not more than the cur-
rent federal limit of $9,500. The Company will match contributions made by its
employees subject to certain limitations described in greater detail below.
The amount of the match will be equal to a percentage of the amount of salary
reduction contribution made on behalf of a participant during the plan year
based upon a formula that involves the profits of the Company for the year and
the number of years of service of the participant. In no event will the Com-
pany make a matching contribution which exceeds 6% of a participant's salary.
Amounts contributed by the Company pursuant to the 401(k) Plan for the Named
Officers for the three fiscal years ended May 31, 1997, 1996 and 1995 are in-
cluded in the Summary Compensation Table under the column headed "All Other
Compensation".
11
<PAGE>
Effective January 1, 1992, the Company adopted the Manor Care, Inc. Nonquali-
fied Retirement Savings and Investment Plan (the "Nonqualified Savings Plan").
Certain select highly compensated members of management of the Company are el-
igible to participate in the Nonqualified Savings Plan. The Nonqualified Sav-
ings Plan mirrors the provisions of the 401(k) Plan, to the extent feasible,
and is intended to provide the participants with a pre-tax savings vehicle to
the extent that pre-tax savings are limited under the 401(k) Plan as a result
of various governmental regulations, such as non-discrimination testing. All
of the Named Officers have elected to participate in the Nonqualified Savings
Plan. Amounts contributed by the Company under the Nonqualified Savings Plan
for fiscal years ended May 31, 1997, 1996 and 1995 for the Named Officers are
included in the Summary Compensation Table under the column headed "All Other
Compensation."
The Company match under the 401(k) Plan and the Nonqualified Savings Plan is
limited to a maximum aggregate of 6% of the annual salary of a participant.
Prior to January 1, 1997, participants were given the right to elect to re-
ceive the Company matching contribution either in Company stock or cash or a
combination. After January 1, 1997, the Company matching contribution is made
only in Company Stock. Participant contributions under the two plans may not
exceed the aggregate of 15% of the annual salary of a participant.
Effective January 1, 1992, the Company adopted a non-contributory Cash Accu-
mulation Retirement Plan (the "CARP") maintained by the Company for its em-
ployees and those employees of its participating affiliated companies. The
CARP is qualified under Section 401(a) of the Code. All employees age 21 or
over and who have worked for the Company for a twelve month period during
which such employee completed at least 1,000 hours are automatically members
of the CARP. Each year the account of each employee is adjusted to reflect in-
terest at a rate calculated in accordance with the CARP. Amounts accrued under
the CARP become fully vested after five years of service. On July 2, 1996, the
Board of Directors voted to not allow any new participants in the CARP after
August 15, 1996, and to discontinue the annual benefit accrual by the Company
after December 31, 1996. However, the interest will continue on the balance of
a participating employee's account. Until December 31, 1996, the annual bene-
fit accrual was made by the Company based on salary as follows:
<TABLE>
<CAPTION>
BASE PERCENTAGE BASE PERCENTAGE BASE PERCENTAGE
IF AGE PLUS SERVICE IF AGE PLUS SERVICE IF AGE PLUS SERVICE
ANNUAL SALARY IS LESS THAN 45 IS 45 TO 54 IS 55 OR MORE
- ------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
First $12,000 3% 3.5% 4%
Next $6,000 2% 2.5% 3%
Additional Compensation
up to $100,000 1% 1.5% 2%
</TABLE>
COMPENSATION/KEY EXECUTIVE STOCK OPTION PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The compensation philosophy of Manor Care, Inc. (the "Company") is to be com-
petitive with the leading service companies and selected direct competitors in
the marketplace, to attract, retain and motivate a highly qualified workforce,
and to provide career opportunities. The Company uses various compensation
surveys, primarily conducted and evaluated by independent consultants, to pro-
vide data to support the development of competitive compensation plans which
reinforce this philosophy. Summary data on service companies of similar size
participating in each survey are utilized as the basis for the evaluations
along with comparable data from peer group companies. This is the same philos-
ophy applied by the Compensation/Key Executive Stock Option Plan Committee and
the Compensation/Key Executive Stock Option Plan Committee No. 2 ("Committee
No. 2") of the Board of Directors (collectively, the "Committee") in determin-
ing compensation for the CEO and executive officers. In evaluating the CEO's
performance, the Committee, in addition to financial performance, considers
factors important to the Company such as ethical business conduct, progress
against the Company's strategic plan objectives, management succession plan-
ning, customer service satisfaction and the general overall perception of the
Company by financial leaders and customers.
The Committee is responsible for setting and administering the policies which
govern executive compensation and the stock based programs of the Company. The
members of the Committee are Messrs. Robertson (Chairman), Bainum (not a mem-
ber of Committee No. 2), Longfield (not a member of Committee No. 2) and
Malek. Mr. Bainum served as Chairman and CEO prior to March 1987.
12
<PAGE>
Compensation of the Company's officers is reviewed annually by the Committee.
Changes proposed for these employees are evaluated and approved by the Commit-
tee on an individual basis.
There are three components in the Company's executive compensation program:
1. Base salary
2. Cash bonus
3. Long-term incentive compensation
The Committee continues to believe that compensation for the CEO and other
executive officers should be weighted in favor of more "pay at risk" or "vari-
able pay."
BASE SALARY
Base salary is the only component that is not variable. Scope and complexity
of the position as well as external market factors are used to determine base
salary levels. The base salary practice is to target pay at the median of the
market range among the comparison group. Salary changes are based on guide-
lines established for all employees using individual performance to determine
the change. Mr. Bainum, Jr.'s base salary paid in fiscal 1997 is shown under
the heading "Salary" in the Summary Compensation Table.
CASH BONUS
Awards under the Annual Cash Bonus Program for fiscal year 1997 were based on
certain performance measurements consisting of return on beginning equity,
business unit revenue and profit and customer satisfaction surveys of the
business unit. These measurements were used to focus management's attention on
customer services, financial results, and the effective use of Company assets.
For fiscal year 1997, the performance measurements were met or exceeded.
LONG-TERM INCENTIVE COMPENSATION
Long-term compensation has been established to:
a. Focus attention on the Company's and stockholders' long term goals;
b. Increase ownership and retention in the Company's stock.
The Manor Care, Inc. 1995 Long-Term Incentive Plan ("Long-Term Incentive
Plan") provides the Committee with the discretion to grant Restricted Shares,
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights
or Performance Shares as it may determine to be desirable in order to recruit
and retain management and to focus the optionees on the long term goals of the
Company to be more closely aligned with the interests of stockholders. In July
1996, the Compensation Committee reviewed and approved a Stock Option
Guidechart to be used to determine stock option awards for executives. The
Stock Option Guidechart utilized a market based salary multiple based on per-
formance of the Company.
The Committee believes the Company has an overall compensation plan which
fulfills current Company philosophy and, in addition, promotes increased
stockholder value through performance-based compensation.
EXECUTIVE STOCK OWNERSHIP PROGRAM
Effective June 1, 1995, the Company established an Executive Stock Ownership
program for the Chairman and the officers who report directly to the Chairman.
The program requires the relevant officers to own qualifying Common Stock as a
condition of employment in order to ensure a direct relationship between such
executives and the stockholders. The relevant officers will be required to
reach and maintain ownership of a specified amount of Common Stock within five
years from the effective date of the program, or upon the fifth anniversary of
employment as Chairman or a direct report officer, whichever is later. The
amount of shares of Common Stock required to be owned by each officer is de-
termined by the beginning base salary times a multiple which varies from 2.5
to 6 depending upon the level of responsibility of the particular officer.
IMPACT OF INTERNAL REVENUE CODE SECTION 162(M)
The Omnibus Budget Reconciliation Act of 1993 disallows, effective January 1,
1994, a federal income tax deduction for compensation, other than certain per-
formance-based compensation, in excess of $1 million annually paid by the
13
<PAGE>
Company to any currently serving Named Officer identified in the Summary Com-
pensation Table. Stock option awards under the Key Executive Stock Option Plan
of 1969, which expired in 1993, and under the Key Executive Stock Option Plan
of 1993, which has been terminated, qualify as performance-based compensation
and are exempt from consideration for purposes of calculating the one million
dollar limit. With respect to the 1995 Long-Term Incentive Plan, appropriate
steps have been and will continue to be taken to qualify awards made thereun-
der as performance-based compensation and thus be exempt from consideration
for purposes of calculating the one million dollar limit. No individual named
in the Summary Compensation Table is likely to receive compensation, not in-
cluding performance-based compensation, in fiscal 1997 which would be in ex-
cess of $1 million. The Committee intends to monitor the Company's compensa-
tion programs with respect to such laws.
COMPENSATION/KEY EXECUTIVE STOCK OPTION PLAN COMMITTEE
Jerry E. Robertson, Ph.D., Chairman
Stewart Bainum (not a member of Committee No. 2)
William H. Longfield (not a member of Committee No. 2)
Frederic V. Malek
PERFORMANCE GRAPH-STOCKHOLDER RETURN
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock against the cumulative
total return on the S&P Composite-500 Stock Index and a peer group selected by
the Company for the five fiscal years ended May 31, 1997, assuming reinvest-
ment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MANOR CARE, INC., S&P500 AND PEER GROUP
[BAR GRAPH APPEARS HERE]
Assumes $100 invested on June 1, 1992 in the Common Stock of Manor Care,
Inc., the S&P500 Index and Peer Group Companies (weighted by market capital-
ization). Total return assumes reinvestment of dividends.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Manor Care, Inc. 100 133 163 185 247 286
S&P 500 100 112 116 140 180 232
Peer Group (Weighted Average) 100 131 168 166 188 216
</TABLE>
14
<PAGE>
The Peer Group consists of ten other companies involved in the Company's
lines of business. Nine of the companies are involved in ownership and opera-
tion of nursing homes: Beverly Enterprises, Inc., GranCare, Inc., Horizon/CMS
Healthcare Corp., Integrated Health Services, Inc., Mariner Health Group,
Inc., National HealthCare, L.P., Regency Health Services, Inc., Sun Healthcare
Group, Inc. and Vencor, Inc. One company is involved in the institutional
pharmacy business: Omnicare, Inc. Doubletree Corp., LaQuinta Motor Inns, Inc.
and Red Lion Inns, L.P., which were in the Peer Group last year, were excluded
due to the spin-off of the Company's lodging business. Regency Health Servic-
es, Inc. and Sun Healthcare Group, Inc., owners and operators of nursing
homes, have replaced Geriatric and Medical Centers, Inc. and Healthsouth
Corp., which were in the Peer Group last year. Geriatric and Medical Centers,
Inc. was replaced because it was acquired in October 1996. Healthsouth Corp.
was replaced because it primarily operates rehabilitation hospitals rather
than nursing homes.
CERTAIN TRANSACTIONS
On September 1, 1994, the Company entered into a Master Aircraft Lease Agree-
ment with Wilderness Investment Company, Inc. ("Wilderness"), a corporation
which is solely owned by Stewart Bainum. The lease permits the Company to
lease from time to time a Cessna Citation VI owned by Wilderness. During fis-
cal year 1997, the Company incurred a total of $52,095 for aircraft usage pur-
suant to the lease and Vitalink Pharmacy Services, Inc., a subsidiary of the
Company, incurred a total of $32,925 for aircraft usage.
In connection with the Choice Spin-off, the Company entered into certain
agreements with Choice, of which Mr. Bainum is a director and Mr. Bainum, Jr.
is Chairman of the Board and each beneficially owns approximately 17.39% and
26.48%, respectively, of the outstanding Choice common stock.
CHOICE LEASE AGREEMENTS
The Company and Choice entered into a lease agreement with respect to the
complex in Silver Spring, Maryland at which Choice's principal executive of-
fices are located (the "Silver Spring Lease"). Pursuant to the Silver Spring
Lease, Choice leases from the Company for a period of 30 months certain office
space (approximately 38% of the complex initially, with provisions to allow
Choice to use additional square footage as needed) at a monthly rental rate
equal to one-twelfth of the operating expenses (as defined therein) of the
complex net of third party rental income paid to the Company by other tenants
of the complex, less a pro rata portion of the operating expenses attributable
to the space occupied by the Company (initially approximately 39% of the com-
plex). At the beginning of each fiscal year following the November 1 (the date
of the Choice distribution) date, the Company's occupancy percentage is rede-
termined. Operating expenses include all of the costs associated with operat-
ing and maintaining the complex including, without limitation, supplies and
materials used to maintain the complex, wages and salaries of employees who
operate the complex, insurance for the complex, costs of repairs and capital
improvements to the complex, the fees of the property manager (which may be
the Company), costs and expenses associated with leasing space at the complex
and renovating space rented to tenants, costs of environmental inspection,
testing or cleanup, principal and interest payable on indebtedness secured by
mortgages against the complex, or any portion thereof, and charges for utili-
ties, taxes and facilities services. Choice and the Company also entered into
(i) a sublease agreement with respect to certain office space in Gaithersburg,
Maryland (the "Gaithersburg Lease") pursuant to which Choice is obligated to
rent from the Company, on terms similar to the Silver Spring Lease, certain
additional space as such space becomes available during the 30 month period
following the date of the Choice Spin-off and (ii) a sublease agreement with
respect to the Comfort Inn, N.W., Pikesville, Maryland, pursuant to which
Choice subleases the property from the Company on the same terms and condi-
tions that govern the Company's rights and interests under the lease relating
to such property.
THE CHOICE LOAN AGREEMENT
On November 1, 1996, Choice and a subsidiary of the Company entered into a
loan agreement (the "Loan Agreement"), governing the repayment by Choice of an
aggregate of $225.7 million previously advanced to Choice by the Company. In-
terest on the amount of the loan is payable semiannually at a rate of 9% per
annum. The loan will mature on November 1, 1999 and may be prepaid in whole or
in part, together with accrued interest, at the option of Choice. If prepay-
ment is made on or before November 1, 1997, Choice will pay a penalty equal to
the difference between the stated interest rate and the annualized interest
rate on a U.S. Treasury Note or Bill for a relevant period until November 1,
1997. If prepayment is made after November 1, 1997, there is no penalty.
On April 23, 1997, Choice, through its wholly-owned subsidiary First Choice
Properties, completed an offering of mortgage securities. The net proceeds of
$110 million from the offering were used to prepay a portion of the loan. A
total yield maintenance payment of $1.9 million will be made to the Company as
a result of the prepayment.
15
<PAGE>
CORPORATE SERVICES AGREEMENT
The Company and Choice entered into the Corporate Services Agreement which
provides for the provision by the Company of certain corporate services, in-
cluding administrative and accounting systems on a time and materials and/or
fixed fee basis and, for a fixed annual fee of $1.0 million, certain consult-
ing services.
RISK MANAGEMENT CONSULTING SERVICES
Pursuant to the Risk Management Agreement between the Company and Choice, the
Company provides Choice with risk management services for an annual fee of
$438,000. The term of the agreement is thirty months from November 1, 1996 and
the agreement can be terminated by Choice at any time upon sixty days prior
written notice.
EMPLOYEE BENEFITS ALLOCATION AND OTHER MATTERS AGREEMENT
The Company and Choice entered into an Employee Benefits Allocation and Other
Matters Agreement which provided for the allocation of employee benefits upon
the Choice Spin-off. Pursuant to the agreement, Choice paid to the Company for
the months of November and December 1996 an amount equal to 2.1% of the pay-
roll for all Choice employees in consideration of the Company assuming all re-
sponsibilities for funding obligations and current plan year matching contri-
butions attributable to certain retirement and savings plans. During the same
period, Choice also paid to the Company a fee for each Choice employee receiv-
ing services and benefits under Company medical plans. The agreement also pro-
vides for cross-guaranties between the Company and Choice with respect to the
payment of benefits under certain plans and for cross-indemnification with re-
spect to pre-Choice Spin-off employment-related claims. The term of the agree-
ment is thirty months from November 1, 1996.
TIME SHARING AGREEMENT
The Company and Choice entered into a Time Sharing Agreement which provides
for the leasing by Choice of the Company's aircraft. Choice may terminate the
agreement at any time upon sixty days prior written notice. For fiscal year
1997, Choice paid $100,255 to the Company for aircraft usage under the Time
Sharing Agreement.
In the opinion of management, the foregoing transactions were on terms at
least as advantageous to the Company as could have been obtained from non-af-
filiated persons.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been the Company's independent public accountants
since June 1976. In the Spring of 1998, the Board of Directors will select the
Company's independent public accountants to audit the accounts of the Company
for the current fiscal year. Representatives of Arthur Andersen LLP are ex-
pected to be present at the Meeting, and will have an opportunity, if they so
desire, to make a statement and will be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
The Company's 1998 Annual Meeting is presently scheduled to be held on Sep-
tember 29, 1998. Stockholder proposals must be submitted to the Secretary no
later than April 18, 1998, in order to be eligible for inclusion in the
Company's proxy materials for such meeting.
OTHER BUSINESS
As of the date of the Proxy Statement, management does not know of any busi-
ness other than that mentioned above which will be presented for considera-
tion. However, if any other matter should properly come before the Meeting, it
is the intention of the persons named in the accompanying form of proxy to
vote the proxies in accordance with their judgment on such matter.
After the business session and a report to the stockholders on the progress
of the Company, a discussion period will take place during which stockholders
will have an opportunity to discuss matters of interest concerning the Compa-
ny.
- ----------------
A COPY OF THE COMPANY'S 1997 FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE SE-
CURITIES AND EXCHANGE COMMISSION WILL BE MADE AVAILABLE TO STOCKHOLDERS, WITH-
OUT CHARGE, UPON WRITTEN REQUEST TO THE TREASURER OF MANOR CARE, INC., 11555
DARNESTOWN ROAD, GAITHERSBURG, MARYLAND 20878. THE REPRODUCTION COST WILL BE
CHARGED IF EXHIBITS ARE REQUESTED.
16
<PAGE>
MANOR CARE, INC.
11555 Darnestown Road, Gaithersburg, Maryland 20878
This Proxy is Solicited on Behalf of the Board of Directors
PROXY FOR ANNUAL MEETING SEPTEMBER 15, 1997
The undersigned hereby appoints JERRY E. ROBERTSON and FREDERIC V. MALEK, and
each of them, the true and lawful attorneys and proxies, with full power of
substitution, to attend the Annual Meeting of Stockholders of MANOR CARE, INC.
to be held in the Auditorium of the Manor Care Corporate Offices. 11555
Darnestown Road, Gaithersburg, Maryland, on Monday, September 15, 1997 at 9:00
a.m. and at any adjournment thereof, and to vote all shares of common stock held
of record which the undersigned could vote, with all the powers the undersigned
would possess if personally present at such meeting, as designated on the
reverse side.
(Continued and to be signed on the reverse side)
(UP ARROW) FOLD AND DETACH HERE (UP ARROW)
<PAGE>
Please mark as
indicated as [X]
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM (1).
1.ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY
listed below to vote FOR all nominees listed below
[ ] [ ]
S. BAINUM, JR., S. BAINUM, R.E. HERZLINGER, W.H. LONGFIELD, F.V. MALEK,
J.E. ROBERTSON, K.L. SIMMONS
(Instructions: to withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(2) In their discretion, upon such other business as may properly come before
the meeting
If you plan to attend the Annual Meeting of Stockholders, please mark the
following box and promptly return this Proxy Card. [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE USED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NOT OTHERWISE SPECIFIED, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR ITEM (1), AND FOR AND IN ACCORDANCE
WITH THE DISCRETION OF THE PERSONS NAMED AS PROXIES AS TO SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING, OR AT ANY AND ALL ADJOURNMENTS THEREOF.
SIGNATURE SIGNATURE DATE
----------------------- --------------------- ------------
(Signature should agree exactly with the name or names appearing above. Joint
owners should both sign. In signing as attorney, administrator, executor,
guardian or trustee, please set forth your full title. If the signer is a
corporation, please sign the full corporate name by a duly authorized officer.)
(up arrow) FOLD AND DETACH HERE (up arrow)
