-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uon338SqPbU8heJ5k0tFpNqnqFW1TsImyeIsNHJ8uTxzTv+pzJUe4KiIhe+MwlVJ 6t76wg7g1Nry5ZScMkZhbQ== 0000950124-98-003508.txt : 19980622 0000950124-98-003508.hdr.sgml : 19980622 ACCESSION NUMBER: 0000950124-98-003508 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980619 SROS: NYSE GROUP MEMBERS: HEALTH CARE & RETIREMENT CO. GROUP MEMBERS: HEALTH CARE & RETIREMENT CORP / DE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MANOR CARE INC/NEW CENTRAL INDEX KEY: 0000354604 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 521200376 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-19322 FILM NUMBER: 98651149 BUSINESS ADDRESS: STREET 1: 11555 DARNESTOWN RD CITY: GAITHERSBURG STATE: MD ZIP: 20878 BUSINESS PHONE: 3017974000 MAIL ADDRESS: STREET 1: 11555 DARNESTOWN RD CITY: GAITHERSBURG STATE: MD ZIP: 20878 FORMER COMPANY: FORMER CONFORMED NAME: MANOR CARE HOLDING CO DATE OF NAME CHANGE: 19810826 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH CARE & RETIREMENT CORP / DE CENTRAL INDEX KEY: 0000878736 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 341687107 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43604-2616 BUSINESS PHONE: 4192525500 MAIL ADDRESS: STREET 1: ONE SEAGATE CITY: TOLEDO STATE: OH ZIP: 43604-2616 SC 13D 1 SCHEDULE 13D 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 MANOR CARE, INC. ---------------------------------------------------------------- (Name of issuer) Common Stock, par value $.10 per share ---------------------------------------------------------------- (Title of class of securities) 564-054-10-4 ----------------------------- (CUSIP number) R. Jeffrey Bixler Vice President and General Counsel Health Care and Retirement Corporation One SeaGate Toledo, Ohio 43604-2616 (419) 252-5500 - ------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) June 10, 1997 ------------------------------------------------------ (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g) check the following box / /. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 (the "Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Exhibit Index appears on page 11. Page 1 of 11 Pages 2 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 26633L103 Page 2 of 11 Pages - ------------------- ------------------- - ------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS Health Care and Retirement Corporation IRS. No. 34-1687107 - ------------------------------------------------------------------------------- (a) /X/ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (b) / / - ------------------------------------------------------------------------------- 3. SEC USE ONLY - ------------------------------------------------------------------------------- 4. SOURCE OF FUNDS* OO - ------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED / / PURSUANT TO ITEM 2(d) or 2(e) - ------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware - ------------------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 0 SHARES --------------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 19,696,761 EACH --------------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER PERSON 0 WITH --------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 19,696,761 - ------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES / / CERTAIN SHARES* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.9% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 2 of 11 Pages 3 SCHEDULE 13D - ------------------- ------------------- CUSIP No. 26633L103 Page 3 of 11 Pages - ------------------- ------------------- - ------------------------------------------------------------------------------- 1. NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS Catera Acquisition Corp. No S.S. or IRS Identification Number - ------------------------------------------------------------------------------- (a) /X/ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (b) / / - ------------------------------------------------------------------------------- 3. SEC USE ONLY - ------------------------------------------------------------------------------- 4. SOURCE OF FUNDS* OO - ------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED / / PURSUANT TO ITEM 2(d) or 2(e) - ------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION State of Delaware - ------------------------------------------------------------------------------- 7. SOLE VOTING POWER NUMBER OF 0 SHARES --------------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 19,696,761 EACH --------------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER PERSON 0 WITH --------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------- 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 19,696,761 - ------------------------------------------------------------------------------- 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES / / CERTAIN SHARES* - -------------------------------------------------------------------------------- 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.9% - -------------------------------------------------------------------------------- 14. TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 11 Pages 4 ITEM 1. SECURITY AND ISSUER ------------------- This statement on Schedule 13D relates to the common stock, par value $.10 per share (the "Common Stock"), of Manor Care, Inc. (the "Issuer"). The Issuer is a Delaware corporation with its principal executive offices located at 11555 Darnestown Road, Gaithersburg, Maryland 20878. ITEM 2. IDENTITY AND BACKGROUND. ----------------------- This Schedule 13D is filed on behalf of Health Care and Retirement Corporation, a Delaware corporation ("HCR") and Catera Acquisition Corp, a Delaware corporation and a wholly-own subsidiary of HCR ("Merger Sub" and together with HCR, the "Filing Persons"). The Filing Persons' principal place of business is located at One SeaGate, Toledo, Ohio 43604-2616. HCR is a provider of a range of health care services, including long-term care, subacute medical care, rehabilitation therapy, home health care, pharmacy services and management services for subacute care, rehabilitation therapy, vision care and eye surgery. Set forth in Schedule A is the name, citizenship, business or residence address and present principal occupation or employment, as well as the name and address of any corporation or other organization in which such occupation or employment is conducted, of each of the directors and executive officers of HCR, as of the date hereof. Merger Sub was incorporated solely for the purpose of merging with and into Issuer, and has no other business. Set forth in Schedule B is the name, citizenship, business or residence address and present principal occupation or employment, as well as the name and address of any corporation or other organization in which such occupation or employment is conducted, of each of the directors and executive officers of Merger Sub, as of the date hereof. During the last five years, neither of the Filing Persons, nor, to the knowledge of the Filing Persons, any person named in either Schedule A or Schedule B, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors); or (ii) has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. ------------------------------------------------- On June 10, 1998, HCR, Merger Sub and the Issuer entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Issuer (the "Merger")and the Issuer will become a wholly owned subsidiary of the Filing Person and each share of Common Stock (except as otherwise provided in the Merger Agreement) will be converted into the right to receive one (1.0) share of common stock of the HCR. The consummation of the transactions contemplated by the Merger Agreement are subject to approval of the stockholders of each of the Issuer and HCR, the receipt of certain regulatory approvals and the expiration of the antitrust waiting periods. Upon the consummation of the Merger, the number of directors on HCR's board of directors shall be increased from seven to ten directors and half of the persons serving on the board of directors of HCR shall be designated by the Issuer and half the persons serving thereon shall be designated by HCR. On June 10, 1998 in connection with the Merger Agreement, a voting agreement ("Voting Agreement") was executed between HCR and each of Bainum Associates Limited Partnership, M. C. Investments Limited Partnership, Mid Pines Associates Limited Partnership, Realty Investment Company, Inc., The Stewart Bainum Declaration of Trust and the Jane L. Bainum Declaration of Trust (collectively, the "Stockholders"), with respect to the 19,696,761 shares of Common Stock beneficially owned by the Stockholders. Pursuant to the Voting Agreement, the Stockholders, severally and not jointly, have agreed, among other things, to vote their shares of Common Stock and granted the Merger Sub and certain officers thereof an irrevocable proxy to vote their shares of Common Stock (a) in favor of the Merger, the adoption of and execution and delivery of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated thereby and (b) against certain actions involving the Issuer described in such Voting Agreement. The Stockholders also agreed not to Page 4 of 11 Pages 5 offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any of their shares of Common Stock, except under certain circumstances specified in the Voting Agreement. The Stockholders also agreed not to solicit or respond to any inquiries or the making of any proposal by any person or entity (other than the Filing Person or any affiliate thereof) with respect to the Issuer that constitutes or could reasonably be expected to lead to an Alternative Transaction (as such term is defined within the Merger Agreement). ITEM 4. PURPOSE OF TRANSACTION. ---------------------- (a)-(b) The purpose of the transaction is to facilitate the approval of the Merger by the stockholders of the Issuer. See Item 3. (c)-(i) Not applicable. (j) Other than as described above, the Filing Persons currently have no plans or proposals which relate to, or may result in, any of the matters listed in Items 4(a) - (j) of Schedule 13D (although the Filing Persons reserve the right to develop such plans). ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. ------------------------------------ (a)-(b) As a result of the Voting Agreement, the Filing Persons may be deemed to be the beneficial owners of 19,696,761 shares of Common Stock. Based upon information contained in the most recently available filing by the Issuer with the Securities and Exchange Commission (the "SEC"), such shares constitute approximately 30.9% of the issued and outstanding shares of Common Stock. See Item 3. To the knowledge of the Filing Persons, no shares of Common Stock are beneficially owned by any of the persons named in either Schedule A or Schedule B. (c) HCR has acquired a stock option to acquire in certain circumstances and subject to certain contingencies up to 19.9% of the Issuer's Common Stock. See Item 6. To the knowledge of the Filing Persons, no person named in either Schedule A or Schedule B, has effected any other transaction in the Common Stock during the past sixty (60) days. (d) N/A (e) N/A ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. ----------------------------------- 1. A stock option agreement (the "Stock Option Agreement") was also executed between HCR and the Issuer, on June 10, 1998 in connection with the Merger Agreement, pursuant to which the Issuer granted the HCR the right to purchase up to 19.9% of the then issued and outstanding shares of Common Stock, exercisable upon the occurrence of certain events, at the price equal to the lower of (i) $31.00 and (ii) the average closing sales price of the Common Stock on the New York Stock Exchange for the five consecutive trading days beginning on and including the day that the Merger is publicly announced (as adjusted as provided in the Stock Option Agreement). 2. See Item 3 regarding the Voting Agreement. Page 5 of 11 Pages 6 ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. -------------------------------- Exhibit Description - ------- ----------- 1. Voting Agreement dated June 10, 1998 between Health Care and Retirement Corporation and Bainum Associates Limited Partnership, M. C. Investments Limited Partnership, Mid Pines Associates Limited Partnership, Realty Investment Company, Inc., The Stewart Bainum Declaration of Trust and the Jane L. Bainum Declaration of Trust. 2. Stock Option Agreement dated June 10, 1998 between Health Care and Retirement Corporation and Manor Care, Inc. 3. Joint Filing Agreement dated June 19, 1998 between Health Care and Retirement Corporation and Catera Acquisition Corp.
Page 6 of 11 7 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: June 19, 1998 HEALTH CARE AND RETIREMENT CORPORATION By: /s/ R. Jeffrey Bixler -------------------------------- Name: R. Jeffrey Bixler Title: Vice President and General Counsel CATERA ACQUISITION CORP. By: /s/ R. Jeffrey Bixler -------------------------------- Name: R. Jeffrey Bixler Title: Vice President and Secretary Page 7 of 11 Pages 8 Schedule A ---------- DIRECTORS AND EXECUTIVE OFFICERS OF HEALTH CARE AND RETIREMENT CORPORATION The name, business address and title with Health Care and Retirement Corporation and present principal occupation or employment, of each of the directors and executive officers of Health Care and Retirement Corporation are set forth below. Except as indicated, each person's business address is One SeaGate, Toledo, Ohio 43604-2616. Each person listed below is a citizen of the United States.
Present Principal Occupation Including Name and Title Name of Employer -------------- ---------------- Paul A. Ormond, Chairman of Chairman of the Board and Chief the Board, President and Chief Executive Officer, Health Care Executive Officer and Retirement Corporation John J. Clair, Jr., Director Partner at law firm of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071-2007 Joseph H. Lemieux, Director Chief Executive Officer of Owens-Illinois, Inc. Geoffrey G. Meyers, Executive Executive Vice President, Vice President, Chief Financial Chief Financial Officer and Officer and Treasurer Treasurer, Health Care and Retirement Corporation Robert G. Siefers, Director Vice Chairman and Chief Financial Officer, National City Corporation, 1900 E. Ninth Street Cleveland, Ohio 44114-3484 M. Keith Weikel, Senior Senior Executive Vice President and Executive Vice President Chief Operating Officer, Chief Operating Officer Health Care and Retirement Corporation Thomas L. Young, Director Executive Vice President- Administration and General Counsel, Owens-Illinois, Inc. Executive Officers ------------------ Name Title ---- ----- Paul A. Ormond Chairman of the Board and Chief Executive Officer M. Keith Weikel Senior Executive Vice President and Chief Operating Officer Geoffrey G. Meyers Executive Vice President, Chief Financial Officer and Treasurer R. Jeffrey Bixler Vice President and General Counsel
Pages 8 of 11 Pages 9 Schedule B ---------- DIRECTORS AND EXECUTIVE OFFICERS OF CATERA ACQUISITION CORP. The name, business address and title with Catera Acquisition Corp. and present principal occupation or employment, of each of the directors and executive officers of Health Care and Retirement Corporation are set forth below. Except as indicated, each person's business address is One SeaGate, Toledo, Ohio 43604-2616. Each person listed below is a citizen of the United States.
Present Principal Occupation Including Name and Title Name of Employer -------------- ---------------- Paul A. Ormond, Chairman of Chairman of the Board and Chief the Board Executive Officer, Health Care and Retirement Corporation Geoffrey G. Meyers, Director Executive Vice President, Chief Financial Officer and Treasurer, Health Care and Retirement Corporation M. Keith Weikel, Director Executive Vice President and Chief Operating Officer, Health Care and Retirement Corporation Executive Officers ------------------ Name and Title Present Principal Occupation -------------- ---------------------------- Paul A. Ormond, President Chairman of the Board and Chief Executive Officer, Health Care and Retirement Corporation M. Keith Weikel, Vice President Senior Executive Vice President and Chief Operating Officer, Health Care and Retirement Corporation Geoffrey G. Meyers, Vice President Executive Vice President, Chief Financial Officer and Treasurer, Health Care and Retirement Corporation R. Jeffrey Bixler, Vice President Vice President and General Counsel, and Secretary Health Care and Retirement Corporation
Page 10 of 11 Pages 10 Nancy A. Edwards Vice President Jeffrey W. Ferguson Vice President Spencer C. Moler Vice President and Controller F. Joseph Schmitt Vice President Paul G. Sieben Vice President
Page 9 of 11 Pages 11 Exhibit Index -------------
Exhibit Description - ------- ----------- 1. Voting Agreement dated June 10, 1998 between Health Care and Retirement Corporation and Bainum Associates Limited Partnership, M. C. Investments Limited Partnership, Mid Pines Associates Limited Partnership, Realty Investment Company, Inc., The Stewart Bainum Declaration of Trust and the Jane L. Bainum Declaration of Trust. 2. Stock Option Agreement dated June 10, 1998 between Health Care and Retirement Corporation and Manor Care, Inc. 3. Joint Filing Agreement dated June 19, 1998 between Health Care and Retirement Corporation and Catera Acquisition Corp.
Page 11 of 11 Pages EX-1 2 VOTING AGREEMENT 1 EXHIBIT 1 VOTING AGREEMENT VOTING AGREEMENT, dated as of June 10, 1998 (the "Agreement"), between the undersigned holders (collectively the "Holders" and each a "Holder") of shares of the common stock, $.10 par value (the "Manor Care Common Stock"), of MANOR CARE, INC., a Delaware corporation ("Manor Care"), and HEALTH CARE AND RETIREMENT CORPORATION, a Delaware corporation ("HCR"). RECITALS Manor Care, HCR and Catera Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of HCR ("Merger Sub"), propose to enter into an Agreement and Plan of Merger dated the date hereof (the "Merger Agreement"; capitalized terms not otherwise defined herein being used herein as therein defined), pursuant to which Merger Sub would be merged (the "Merger") with and into Manor Care, and each outstanding share of Manor Care Common Stock would be converted into the right to receive shares ("HCR Shares") of HCR Common Stock; As a condition of its entering into the Merger Agreement, HCR has requested each Holder to agree, and each Holder has agreed, to enter into this Agreement; Prior to the date hereof, HCR and the Holders had no agreement, arrangement or understanding (as such terms are used in Section 203 of the Delaware General Corporation Law (the "DGCL")) for the purpose of acquiring, holding, voting or disposing of shares of Manor Care Common Stock; and In consideration for the agreements contained herein, prior to the execution hereof, and prior to HCR becoming an "interested stockholder" for purposes of Section 203 of the DGCL, the board of the directors of Manor Care has approved this Agreement, the Merger Agreement and the transactions contemplated hereby and thereby, including the agreement of the Holders to vote as provided in Section 2 of this Agreement and not to transfer shares of Manor Care Common Stock as provided in Section 5(B) of this Agreement. AGREEMENT NOW, THEREFORE, the parties hereto agree as follows: 1. Representations and Warranties of the Holders. Each Holder, with respect to itself and its Subject Securities, represents and warrants, severally and not jointly, to HCR as follows: A. Ownership of Securities. Each Holder is the record and/or beneficial owner of the number of shares of Manor Care Common Stock (the "Existing Securities") (together with any shares of Manor Care Common Stock or other securities of Manor 1 2 Care hereafter acquired by the Holder, the "Subject Securities") set forth on the signature page to this Agreement, with such authority or power concerning such shares as is described on Schedule 1.A hereto with respect to such Holder. Such Holder does not beneficially or of record own any securities of Manor Care on the date hereof other than the Existing Securities. The Holder has sole voting power and sole power to issue instructions with respect to the voting of the Existing Securities, sole power of disposition, sole power of exercise and the sole power to demand appraisal rights, except as described on Schedule 1.A, in each case with respect to all of the Existing Securities, except as indicated on said Schedule and, on the date of the Manor Care Stockholders Meeting (as defined in the Merger Agreement), will have the sole voting power and power to issue instructions with respect to the voting of all of such Holder's Subject Securities, the sole powers of disposition, exercise and the sole power to demand appraisal rights, in each case with respect to all of such Holder's Subject Securities, except as described on Schedule 1.A. B. Power; Binding Agreement. Each Holder has the legal capacity, power and authority to enter into and perform all of such Holder's obligations under this Agreement. The execution, delivery and performance of this Agreement by each Holder will not violate any other agreement relating to the Subject Securities to which the Holder is a party, including, without limitation, any voting agreement, shareholder's agreement, partnership agreement or voting trust. This Agreement has been duly and validly executed and delivered by such Holder and constitutes a valid and binding agreement of such Holder, enforceable against such Holder in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. C. No Conflicts. No filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by such Holder and the consummation by such Holder of the transactions contemplated hereby and neither the execution and delivery of this Agreement by such Holder nor the consummation by such Holder of the transactions contemplated hereby nor compliance by such Holder with any of the provisions hereof shall conflict with or result in any breach of any applicable partnership or other organizational documents applicable to such Holder, result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third-party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which such Holder is a party or by which such Holder's properties or assets may be bound or violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to such Holder or any of such Holder's properties or assets, 2 3 except for any such conflicts, breaches, defaults or violations as would not materially impair such Holder's performance of its obligations hereunder. D. No Liens. The Existing Securities are now and, at all times during the term hereof, the Subject Securities will be held by such Holder, or by a nominee or custodian for the benefit of such Holder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any encumbrances arising hereunder or as set forth on Schedule 1.A. E. Certain Representations. Each Holder covenants that, at or immediately prior to the Effective Time, it will execute and deliver to each of HCR and Manor Care a letter in substantially the form of Exhibit A attached hereto. Each Holder acknowledges that the representations made in such letter may, among other things, be relied upon by counsel in opining that the Merger constitutes a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. 2. Agreement to Vote Shares. At every meeting of the stockholders of Manor Care called with respect to any of the following, and at every adjournment thereof, and on every action or approval by written consent of the stockholders of Manor Care with respect to any of the following, each Holder, severally and not jointly, agrees that it shall vote or execute a written consent, with respect to, as appropriate all the Subject Securities as to which it has power to vote in any such vote or consent: (i) in favor of the Merger, the adoption of and execution and delivery of the Merger Agreement and the approval of the terms thereof and each of the other transactions contemplated by the Merger Agreement and (ii) against the following actions (other than the Merger and the transactions contemplated by the Merger Agreement): (1) any extraordinary corporate transaction, including, but not limited to a merger, consolidation or other business combination involving Manor Care or any of its subsidiaries (other than IHH); (2) a sale, lease or transfer of a material amount of assets of Manor Care or any of its subsidiaries (other than IHH) or a reorganization, recapitalization, dissolution or liquidation of Manor Care or any of its subsidiaries (other than IHH); (3) (a) any change in the majority of the board of directors of Manor Care except as contemplated by this Agreement; (b) any material change in the present capitalization of Manor Care or any amendment of Manor Care's Certificate of Incorporation; (c) any other material change in Manor Care's corporate structure or business; or (d) any other action, which, in the case of each of the matters referred to in clauses (a), (b), (c) or (d) above, is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, discourage or materially adversely affect the consummation of the Merger or the transactions contemplated by the Merger Agreement or this Agreement. 3. IRREVOCABLE PROXY. EACH HOLDER HEREBY, SEVERALLY AND NOT JOINTLY, GRANTS TO, AND APPOINTS MERGER SUB AND THE PRESIDENT OF MERGER SUB AND THE TREASURER OF MERGER SUB, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF MERGER SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF MERGER SUB, AND ANY OTHER 3 4 DESIGNEE OF MERGER SUB, EACH OF THEM INDIVIDUALLY, SUCH HOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH RESPECT TO SUCH HOLDER'S SUBJECT SECURITIES IN ACCORDANCE WITH SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND EACH HOLDER WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY REASONABLY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY IT WITH RESPECT TO THE SUBJECT SECURITIES. 4. Representations and Warranties of HCR. A. Power; Binding Agreement. HCR has full corporate power and authority to enter into and perform all of HCR's obligations under this Agreement. This Agreement has been duly and validly executed and delivered by HCR and constitutes a valid and binding agreement of HCR, enforceable against HCR in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. B. No Conflicts. No filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority is necessary for the execution of this Agreement by HCR and the consummation by HCR of the transactions contemplated hereby and neither the execution and delivery of this Agreement by HCR nor the consummation by HCR of the transactions contemplated hereby nor compliance by HCR with any of the provisions hereof shall conflict with or result in any breach of any organizational documents applicable, to HCR result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third-party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which HCR is a party or by which HCR's properties or assets may be bound or violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to HCR or any of HCR's properties or assets, except for any such conflicts, breaches, defaults or violations as would not materially impair HCR's performance of its obligations hereunder. 5. Covenants of the Holders. Each Holder, severally and not jointly, hereby agrees and covenants that: A. No Solicitation. Such Holder shall not, directly or indirectly, solicit (including by way of furnishing information) or respond to any inquiries or the making of 4 5 any proposal by any person or entity (other than HCR or any affiliate of HCR) with respect to Manor Care that constitutes or could reasonably be expected to lead to an Alternative Transaction. If any Holder receives any such inquiry or proposal, then it shall promptly inform HCR of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Such Holder will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. B. Restriction on Transfer, Proxies and Noninterference. Such Holder shall not, directly or indirectly: (i) except pursuant to the terms of the Merger Agreement, offer for sale, sell, transfer (whether by merger, operation of law or otherwise), tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of such Holder's Subject Securities; provided, however, that such Holder may in connection with its estate planning objectives, transfer or assign any or all of its Subject Securities to (a) Stewart Bainum or his spouse or widow, their lineal descendants or their spouses or widows or widowers (so long as they remain spouses) (each a "Member of the Bainum Family"), or the estate of the foregoing persons (but only until such time as such shares of the Common Stock are distributed therefrom), (b) any partnership, trust, corporation or other entity (each, an "Entity"), but only if a Member or Members of the Bainum Family or another Entity satisfying the requirements hereof are the sole "Beneficial Owners" (as such term is defined under the HCR Rights Plan (as defined in the Merger Agreement)) of the Common Stock held by such Entity, other than any officer, trustee, director, or other managing person or managing partner or managing member of any such Entity to the extent any such person is deemed to be the Beneficial Owner of Common Stock held by such Entity, provided such person is not the Beneficial Owner, other than through an Entity described in this clause (b), of in excess of 1% of the total outstanding Common Stock; (ii) except as contemplated hereby, grant any proxies or powers of attorney, deposit any such Subject Securities into a voting trust or enter into a voting agreement with respect to any of such Holder's Subject Securities; or (iii) take any action that would make any representation or warranty contained herein untrue or incorrect or have the effect of preventing or disabling such Holder from performing its obligations under this Agreement. The Holder's Manor Care stock certificates shall be legended to reflect the above restrictions. 6. Fiduciary Duties. Notwithstanding anything in this Agreement to the contrary, the covenants and agreements set forth herein shall not prevent any Holders serving on Manor Care's Board of Directors from taking any action, subject to applicable provisions of the Merger Agreement, which such director shall deem to be required by his fiduciary duties to Manor Care or its stockholders while acting in such person's capacity as a director of Manor Care. 7. Assignment; Benefits. The rights (but not the obligations) of HCR hereunder may be assigned, in whole or in part, to Merger Sub or any other direct wholly-owned subsidiary of 5 6 HCR, to the extent and for so long as it remains a direct wholly-owned subsidiary of HCR. Other than as permitted in the preceding sentence, this Agreement may not be assigned by any party hereto without the prior written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the Holder, HCR and their respective successors and permitted assigns. 8. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier or sent by electronic transmission, with confirmation received, as specified below: If to each Holder: AT THE ADDRESSES SET FORTH ON THE SIGNATURE PAGES HERETO If to HCR: One SeaGate Toledo, OH 43604-2616 Telecopier No.: (419) 252-5559 Telephone No.: (419) 252-5500 Attention: R. Jeffrey Bixler With a copy to: Latham & Watkins 233 South Wacker Drive Sears Tower, Suite 5800 Chicago, IL 60606 Telecopier No.: (312) 993-9767 Telephone No.: (312) 876-7700 Attention: Mark D. Gerstein or to such other address or telecopy number as any party may have furnished to the other parties in writing in accordance herewith. 9. Specific Performance. The parties hereto agree that irreparable harm would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 6 7 10. Amendment. This Agreement may not be amended or modified, except by an instrument in writing signed by or on behalf of each of the parties hereto. This Agreement may not be waived by either party hereto, except by an instrument in writing signed by or on behalf of the party granting such waiver. 11. Governing Law. The Laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under principles of conflicts of law. Any suit, action or proceeding by a party hereto with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any state or federal court of competent jurisdiction in the State of Delaware, and each party hereto hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. By the execution and delivery of this Agreement, (i) HCR and Merger Sub each appoints The Corporation Trust Company, at its office in Wilmington, Delaware, as its agent upon which process may be served in any such suit, action or proceeding and (ii) each Stockholder appoints CSC/The United States Corporation Company at its office in Wilmington, Delaware, as its agent upon which process may be served in any such suit, action or proceeding. Service of process upon such agent, together with notice of such service given to a party hereto in the manner provided in Section 8 hereof, shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. Nothing herein shall in any way be deemed to limit the ability of a party hereto to serve any such writs, process or summonses in any other manner permitted by applicable Law. Each party hereto hereby irrevocably waives any objections which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any state or federal court of competent jurisdiction in the State of Delaware, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. No suit, action or proceeding against a party hereto with respect to this Agreement may be brought in any court, domestic or foreign, or before any similar domestic or foreign authority other than in a court of competent jurisdiction in the State of Delaware, and each party hereto hereby irrevocably waives any right which it may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. 12. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 13. Defined Terms. Terms used herein but not otherwise defined shall have the meanings set forth in the Merger Agreement. 14. Termination. This Agreement shall terminate upon the earlier of (i) the Effective Time the Merger and (ii) the date of termination of the Merger Agreement, unless the termination of the Merger Agreement gives rise to the obligation of Manor Care to pay a termination fee pursuant to Section 9.3 of the Merger Agreement, in which case the Voting Agreement shall terminate on the date that is the six month anniversary of the date of termination of the Merger 7 8 Agreement. The date and time at which this Agreement is terminated in accordance with this Section 14 is referred to herein as the "Termination Date." Upon any termination of this Agreement, this Agreement shall thereupon become void and of no further force and effect, and there shall be no liability in respect of this Agreement or of any transactions contemplated hereby or by the Merger Agreement on the part of any party hereto or any of its directors, officers, partners, stockholders, employees, agents, advisors, representatives or affiliates; provided, however, that nothing herein shall relieve any party from any liability for such party's willful breach of this Agreement; and provided further that nothing herein shall limit, restrict, impair, amend or otherwise modify the rights, remedies, obligations or liabilities of any person under any other contract or agreement, including, without limitation, the Merger Agreement. 8 9 IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of the parties hereto, all as of the date first above written. Bainum Associates Limited Partnership 5,417,761 By: /s/ B. Houston McCeney ------------------------------------- B. Houston McCeney Its Voting General Partner MC Investments Limited Partnership 4,415,250 By: /s/ B. Houston McCeney ------------------------------------- B. Houston McCeney Its Voting General Partner Mid Pines Associates Limited Partnership 1,779,628 By: /s/ Stewart Bainum, Jr. ------------------------------------- Stewart Bainum, Jr. Its Managing General Partner Realty Investment Company, Inc. 3,567,869 By: /s/ Stewart Bainum ------------------------------------- Stewart Bainum President The Stewart Bainum Declaration of Trust 3,717,542 By: /s/ Stewart Bainum ------------------------------------- Stewart Bainum Trustee The Jane L. Bainum Declaration of Trust 798,711 By: /s/ Jane L. Bainum ------------------------------------- Jane L. Bainum Trustee EX-2 3 STOCK OPTION AGREEMENT 1 EXHIBIT 2 HEALTH CARE AND RETIREMENT CORPORATION STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of June 10, 1998 (the "Agreement"), between Health Care and Retirement Corporation, a Delaware corporation (the "Grantee"), and Manor Care, Inc., a Delaware corporation (the "Grantor"). WHEREAS, the Grantee, Catera Acquisition Corp., a Delaware corporation ("Sub"), and the Grantor have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides, among other things, for the merger (the "Merger") of Sub with and into the Grantor such that the Grantor will become a wholly-owned subsidiary of Grantee and the stockholders of the Grantor will become stockholders of Grantee; WHEREAS, as a condition and inducement to their willingness to enter into the Merger Agreement, the Grantee and Sub requested that the Grantor grant to the Grantee an option to purchase up to 12,675,421 (subject to adjustment as set forth herein) shares of Common Stock, par value $.10 per share, of the Grantor (the "Common Stock"), upon the terms and subject to the conditions hereof; WHEREAS, prior to the date hereof, Grantee and the Holders (as defined in the Voting Agreement dated the date hereof among the Holders party thereto, Grantor and the Grantee (the "Voting Agreement")) had no agreement, arrangement or understanding (as such terms are used in Section 203 of the Delaware General Corporation Law (the "DGCL")) for the purpose of acquiring, holding, voting or disposing of shares of Common Stock; WHEREAS, in consideration for the agreements contained herein, prior to the date hereof, and prior to Grantee becoming an "interested stockholder" for purposes of Section 203 of the DGCL, the board of the directors of Grantor has approved this Agreement and the Voting Agreement, and the transactions, agreements, arrangements and understandings contemplated hereby and thereby, including the agreement of the Holders to vote as provided in Section 2 of the Voting Agreement and not to transfer shares of Common Stock as provided in Section 5(B) of the Voting Agreement and the option to purchase Common Stock as provided in this Agreement; and WHEREAS, in order to induce the Grantee to enter into the Merger Agreement, the Grantor hereby agrees to grant the Grantee the requested option. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 2 1. The Option; Exercise; Adjustments; Payment of Spread. (a) Immediately prior hereto the Grantee, Sub and the Grantor are entering into the Merger Agreement. Subject to the other terms and conditions set forth herein, the Grantor hereby grants to the Grantee an irrevocable option (the "Option") to purchase up to 12,675,421 (as adjusted as provided herein) shares of Common Stock (together with the associated purchase rights (the "Rights") issued with respect thereto pursuant to the Rights Agreement dated February 25, 1998, as amended, between the Grantor and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Grantor Rights Plan") (including the Rights, the "Shares") at a per share cash purchase price equal to the lower of (i) $31.00 per Share and (ii) the average closing sales price of the Common Stock on the New York Stock Exchange ("NYSE") for the five consecutive trading days beginning on and including the day that the Merger is publicly announced (as adjusted as provided herein) (such lower price being the "Purchase Price"). The Option may be exercised by the Grantee, in whole but not in part, at any time, following the occurrence of a Purchase Event (as defined) and prior to the termination of the Option in accordance with the terms of this Agreement. A Purchase Event shall be the earliest of: (i) termination of the Merger Agreement by Grantee pursuant to Section 9.1(d) of the Merger Agreement, but only if a proposal for an Alternative Transaction (as defined in the Merger Agreement) involving Grantor shall have been made prior to the Grantor stockholders' meeting and either an Alternative Transaction with Grantor is entered into, or an Alternative Transaction with Grantor is consummated, within eighteen months of such termination (or twelve months in the case of the Restructuring Transaction), (ii) the termination of the Merger Agreement by Grantee pursuant to Section 9.1(f) of the Merger Agreement, or (iii) the termination of the Merger Agreement by Grantor pursuant to Section 9.1(h) of the Merger Agreement. (b) In the event the Grantee wishes to exercise the Option, the Grantee shall send a written notice to the Grantor (the "Stock Exercise Notice") specifying a date not later than 10 business days and not earlier than the second business day following the date such notice is sent for the closing of such purchase, subject to extension until such date as the conditions specified in Section 2 are satisfied. In the event of any change in the number of issued and outstanding shares of Common Stock by reason of any stock dividend, stock split, split-up, reclassification, recapitalization, merger or other change in the corporate or capital structure of the Grantor (including the occurrence of a Distribution Date under the Grantor Rights Plan), the number of Shares subject to this Option and the purchase price per Share shall be appropriately adjusted to restore the Grantee to its rights hereunder, including its right to purchase Shares representing 19.9% of the capital stock of the Grantor entitled to vote generally for the election of the directors of the Grantor which is issued and outstanding immediately prior to the exercise of the Option at a per share purchase price equal to the Purchase Price multiplied by 12,675,421. In the event that any additional shares of Common Stock are issued after the date 2 3 of this Agreement (other than pursuant to an event described in the preceding sentence), the number of Shares subject to this Option shall be increased by 19.9% of the number of the additional shares of Common Stock so issued (and such additional Shares shall have a purchase price per share equal to the Purchase Price). (c) If at any time the Option is then exercisable pursuant to the terms of Section 1(a) hereof, the Grantee may elect, in lieu of exercising the Option to purchase Shares provided in Section 1(a) hereof, to send a written notice to the Grantor (the "Cash Exercise Notice") specifying a date not later than 20 business days and not earlier than 10 business days following the date such notice is sent on which date the Grantor shall pay to the Grantee an amount in cash equal to the Spread (as hereinafter defined) multiplied by such number of the Shares subject to the Option. As used herein "Spread" shall mean the excess, if any, over the Purchase Price of the higher of (x) if applicable, the highest price per share of Common Stock (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by any person in an Alternative Transaction (as defined in Section 9.03(g) of the Merger Agreement) (the "Alternative Purchase Price") or (y) the closing sales price per share of Common Stock on the NYSE on the last trading day immediately prior to the date the Cash Exercise Notice is sent (the "Closing Price"). If the Alternative Purchase Price includes any property other than cash, the Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if any, included in the Alternative Purchase Price plus (ii) the fair market value of such other property. If such other property consists of securities with an existing public trading market, the average of the closing sales prices (or the average of the closing bid and asked prices if closing sales prices are unavailable) for such securities in their principal public trading market on the five trading days ending five days prior to the date of sending of the Cash Exercise Notice shall be deemed to equal the fair market value of such property. If such other property consists of something other than cash or securities with an existing public trading market and, as of the payment date for the Spread, agreement on the value of such other property has not been reached, the Alternative Purchase Price shall be deemed to equal the Closing Price. Upon exercise of the Grantee's right to receive cash pursuant to this Section 1(c) and the payment of such cash to the Grantee, the obligations of the Grantor to deliver Shares pursuant to Section 3 shall be terminated. 2. Conditions to Delivery of Shares. The Grantor's obligation to deliver Shares upon exercise of the Option is subject only to the conditions that: (a) No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction in the United States prohibiting the delivery of the Shares shall be in effect; and (b) Any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired or been terminated and 3 4 all other consents, approvals, orders, notifications or authorizations, the failure of which to obtain or make would have the effect of making the issuance of the Shares illegal (collectively, the "Regulatory Approvals") shall have been obtained or made. 3. The Closing. (a) Any closing hereunder shall take place on the date specified by the Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the case may be, at 8:00 A.M., local time, at the offices of Latham & Watkins, Suite 5800, Sears Tower, 233 South Wacker Drive, Chicago, Illinois, or, if the conditions set forth in Section 2(a) or 2(b) have not then been satisfied, on the second business day following the satisfaction of such conditions, or at such other time and place as the parties hereto may agree (the "Closing Date"). On the Closing Date, (i) in the event of a closing pursuant to Section 1(b) hereof, the Grantor will deliver to the Grantee a certificate or certificates, duly endorsed, representing the Shares in the denominations designated by the Grantee in its Stock Exercise Notice and the Grantee will purchase such Shares from the Grantor at the price per Share equal to the Purchase Price or (ii) in the event of a closing pursuant to Section 1(c) hereof, the Grantor will deliver to the Grantee cash in an amount determined pursuant to Section 1(c) hereof. Any payment made by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to this Agreement shall be made by certified or official bank check or by wire transfer of federal funds to a bank designated by the party receiving such funds. (b) The certificates representing the Shares may bear an appropriate legend relating to the fact that such Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). 4. Representations And Warranties of the Grantor. The Grantor represents and warrants to the Grantee that (a) the Grantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to enter into and perform this Agreement; (b) the execution and delivery of this Agreement by the Grantor and the consummation by it of the transactions contemplated hereby have been duly authorized by the Board of Directors of the Grantor and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantor and constitutes a valid and binding obligation of the Grantor, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (c) the Grantor has taken all necessary corporate action to authorize and reserve the Shares issuable upon exercise of the Option and the Shares, when issued and delivered by the Grantor upon exercise of the Option, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights and any and all liens, claims, charges or encumbrances; 4 5 (d) except as otherwise required by the HSR Act and other than any filings required under the blue sky laws of any states or by the NYSE, the execution and delivery of this Agreement by the Grantor and the issuance of Shares upon exercise of the Option do not require the consent, waiver, approval or authorization of or any filing with any person or public authority and will not violate, result in a breach of or the acceleration of any obligation under, or constitute a material default under, any provision of any charter or by-law, material indenture, mortgage, lien, lease, agreement, contract or instrument, or any order, law, rule, regulation, judgment, ordinance, or decree, or restriction by which the Grantor or any of its subsidiaries or any of their respective properties or assets is bound; (e) no "fair price", "moratorium", "control share acquisition" or other similar antitakeover statute or regulation (including, without limitation, the restrictions on "business combinations" set forth in Section 203 of the DGCL) is or shall be applicable to the acquisition of Shares pursuant to this Agreement (and the Board of Directors of Grantor has taken all action to approve the acquisition of the Shares to the extent necessary to avoid such application) and (f) the Grantor has taken all corporate action necessary so that the grant and any subsequent exercise of the Option by the Grantee will not result in the separation or exercisability of rights under the Grantor Rights Plan. 5. Representations and Warranties of the Grantee. The Grantee represents and warrants to the Grantor that (a) the execution and delivery of this Agreement by the Grantee and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Grantee and this Agreement has been duly executed and delivered by a duly authorized officer of the Grantee and will constitute a valid and binding obligation of Grantee enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) the Grantee is acquiring the Option after the Grantee has been afforded the opportunity to obtain, and has obtained, sufficient information regarding the Grantor to make an informed investment decision with respect to the Grantee's purchase of the Shares issuable upon exercise thereof, and, if and when the Grantee exercises the Option, it will be acquiring the Shares issuable upon the exercise thereof for its own account and not with a view to distribution or resale in any manner which would be in violation of the Securities Act. 6. Quotation of Shares; HSR Act Filings; Regulatory Approvals. Subject to applicable law and the rules and regulations of the NYSE, the Grantor will promptly following receipt of a Stock Exercise Notice file an application to have the Shares quoted on the NYSE and will use its best efforts to obtain approval of such quotation and to file all necessary filings by the Grantor under the HSR Act; provided, however, that if the Grantor is unable to effect such quotation on the NYSE by the Closing Date, the Grantor will nevertheless be obligated to deliver the Shares upon the Closing Date. Each of the parties hereto will use its best efforts to obtain 5 6 consents of all third parties and all Regulatory Approvals, if any, necessary to the consummation of the transactions contemplated hereby. 7. Repurchase of Shares; Sale of Shares. If an Alternate Transaction has not occurred prior to the eighteen (18) month (twelve (12) months in the case of the Restructuring Transactions) anniversary date of the date on which the Merger Agreement terminated pursuant to the terms thereof, then beginning on such anniversary date, the Grantor shall, subject to there being legally available funds therefor, have the right to purchase (the "Repurchase Right") all, but not less than all, of the Shares then beneficially owned by the Grantee or any of its affiliates at a price per share equal to the greater of (i) the Purchase Price, or (ii) the average of the closing sales prices for shares of Common Stock on the twenty trading days ending five days prior to the date the Grantor gives written notice of its intention to exercise the Repurchase Right. If the Grantor does not exercise the Repurchase Right within ninety days following the first anniversary of the date of termination of the Merger Agreement, the Repurchase Right terminates. In the event the Grantor wishes to exercise the Repurchase Right, the Grantor shall send a written notice to the Grantee specifying a date (not later than 10 business days and not earlier than the second business day following the date such notice is sent) for the closing of such purchase. For purposes of the Agreement, an "Alternative Transaction" shall have the meaning ascribed to in such term in the Merger Agreement. 8. Registration Rights. (a) In the event that the Grantee shall desire to sell any of the Shares within two years after the purchase of such Shares pursuant to the terms hereof, and such sale requires, in the opinion of counsel to the Grantee, which opinion shall be reasonably satisfactory to the Grantor and its counsel, registration of such Shares under the Securities Act, the Grantor will cooperate with the Grantee and any underwriters in registering such Shares for resale, including, without limitation, promptly filing a registration statement which complies with the requirements of applicable federal and state securities laws, entering into an underwriting agreement with such underwriters upon such terms and conditions as are customarily contained in underwriting agreements with respect to secondary distributions; provided that the Grantor shall not be required to have declared effective more than two registration statements hereunder and shall be entitled to delay the filing or effectiveness of any registration statement for no more than 120 days in the aggregate if the offering would, in the judgment of the Board of Directors of the Grantor, after consultation with the Grantor's principal securities counsel, require disclosure of any material information that the Grantor has a bona fide business purpose for preserving as confidential. (b) If the Common Stock is registered pursuant to the provisions of this Section 8, the Grantor agrees (i) to furnish copies of the registration statement and the 6 7 prospectus relating to the Shares covered thereby in such numbers as the Grantee may from time to time reasonably request and (ii) if any event shall occur as a result of which it becomes necessary to amend or supplement any registration statement or prospectus, to prepare and file under the applicable securities laws such amendments and supplements as may be necessary to keep effective for at least 90 days a prospectus covering the Common Stock meeting the requirements of such securities laws, and to furnish the Grantee such numbers of copies of the registration statement and prospectus as amended or supplemented as may reasonably be requested. The Grantor shall bear the cost of the registration, including, but not limited to, all registration and filing fees, printing expenses, and fees and disbursements of counsel and accountants for the Grantor, except that the Grantee shall pay the fees and disbursements of its counsel, the underwriting fees and selling commissions applicable to the shares of Common Stock sold by the Grantee. The Grantor shall indemnify and hold harmless the Grantee, its affiliates and its officers, directors and controlling persons from and against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any statements contained or incorporated by reference in, and omissions or alleged omissions from, each registration statement filed pursuant to this paragraph; provided, however, that this provision does not apply to any loss, liability, claim, damage or expense to the extent it arises out of any untrue statement or omission made in reliance upon and in conformity with written information furnished to the Grantor by the Grantee, its affiliates and its officers expressly for use in any registration statement (or any amendment thereto) or any preliminary prospectus filed pursuant to this paragraph. The Grantor shall also indemnify and hold harmless each underwriter and each person who controls any underwriter within the meaning of either the Securities Act or the Securities Exchange Act of 1934, as amended, against any and all losses, claims, damages, liabilities and expenses arising out of or based upon any statements contained or incorporated by reference in, and omissions or alleged omissions from, each registration statement filed pursuant to this paragraph; provided, however, that this provision does not apply to any loss, liability, claim, damage or expense to the extent it arises out of any untrue statement or omission made in reliance upon and in conformity with written information furnished to the Grantor by the underwriters expressly for use in any registration statement (or any amendment thereto) or any preliminary prospectus filed pursuant to this paragraph. 9. Profit Limitation. (a) Notwithstanding any other provision of this Agreement, in no event shall the Total Profit (as hereinafter defined) exceed $100 million and, if it does exceed such amount, the Grantee, at its sole election, shall, within five business days, either (a) deliver to the Grantor for cancellation without consideration Shares (valued, for the purposes of this Section 9(a), at the average closing sales price of the Common Stock on the NYSE for the twenty consecutive trading days preceding the day on which the Total Profit exceeds $100 million) previously purchased by the Grantee, (b) pay cash or other consideration to the Grantor or (c) 7 8 undertake any combination thereof, so that the Total Profit shall not exceed $100 million after taking into account the foregoing actions. (b) As used herein, the term "Total Profit" shall mean the aggregate amount (before taxes) of the following: (i) the amount of cash received by the Grantee pursuant to Section 9.3(e) of the Merger Agreement and Section 1(c) hereof, (ii)(x) the net cash amount received by the Grantee pursuant to the Grantor's repurchase of Shares pursuant to Section 7 hereof, less (y) the Grantee's purchase price for such Shares, and (iii)(x) the amount received by the Grantee pursuant to the sale of Shares (or any other securities into which such Shares are converted or exchanged), less (y) the Grantee's purchase price for such Shares. 10. Expenses. Each party hereto shall pay its own expenses incurred in connection with this Agreement, except as otherwise specifically provided herein. 11. Specific Performance. The Grantor acknowledges that if the Grantor fails to perform any of its obligations under this Agreement immediate and irreparable harm or injury would be caused to the Grantee for which money damages would not be an adequate remedy. In such event, the Grantor agrees that the Grantee shall have the right, in addition to any other rights it may have, to specific performance of this Agreement. Accordingly, if the Grantee should institute an action or proceeding seeking specific enforcement of the provisions hereof, the Grantor hereby waives the claim or defense that the Grantee has an adequate remedy at law and hereby agrees not to assert in any such action or proceeding the claim or defense that such a remedy at law exists. The Grantor further agrees to waive any requirements for the securing or posting of any bond in connection with obtaining any such equitable relief. 12. Notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the party for whom it is intended or delivered by registered or certified mail, return receipt requested, or if sent by facsimile transmission, upon receipt of oral confirmation that such transmission has been received, to the person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such person: If to the Grantee: Health Care and Retirement Corporation One SeaGate Toledo, OH 43604-2616 Attn: R. Jeffrey Bixler Telecopy: (419) 252-5599 8 9 With a copy to: Latham & Watkins 233 South Wacker Drive Sears Tower, Suite 5800 Chicago, IL 60606 Attn: Mark D. Gerstein Telecopy: (312) 993-9767 If to the Grantor: Manor Care, Inc. 11555 Darnestown Road Gaithersburg, MD 20878-3200 Attn: James H. Rempe Telecopy: (301) 979-4007 With a copy to: Cahill Gordon & Reindel 80 Pine Street New York, NY 10005 Attn: W. Leslie Duffy Telecopy: (212)269-5420 13. Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective permitted successors and assigns; provided, however, that such successor in interest or assigns shall agree to be bound by the provisions of this Agreement. Except as set forth in Section 8, nothing in this Agreement, express or implied, is intended to confer upon any person other than the Grantor or the Grantee, or their successors or assigns, any rights or remedies under or by reason of this Agreement. 14. Entire Agreement; Amendments. This Agreement, together with the Merger Agreement and the other documents referred to therein, contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, oral or written, with respect to such transactions. This Agreement may not be changed, amended or modified orally, but may be changed only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge may be sought. 9 10 15. Assignment. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto, except that the Grantee may assign its rights and obligations hereunder to any of its direct or indirect wholly owned subsidiaries, but no such transfer shall relieve the Grantee of its obligations hereunder if such transferee does not perform such obligations. Any assignment made in violation of this Section 15 shall be void. 16. Headings. The section headings herein are for convenience only and shall not affect the construction of this Agreement. 17. Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document. 18. Governing Law. The Laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under principles of conflicts of law. Any suit, action or proceeding by a party hereto with respect to this Agreement, or any judgment entered by any court in respect of any thereof, may be brought in any state or federal court of competent jurisdiction in the State of Delaware, and each party hereto hereby submits to the exclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment. By the execution and delivery of this Agreement, (i) Grantee appoints The Corporation Trust Company in Wilmington, Delaware, as its agent upon which process may be served in any such suit, action or proceeding and (ii) Grantor appoints CSC/The United States Corporation in Wilmington, Delaware, as its agent upon which process may be served in any such suit, action or proceeding. Service of process upon such agent, together with notice of such service given to a party hereto in the manner provided in Section 12 hereof, shall be deemed in every respect effective service of process upon it in any suit, action or proceeding. Nothing herein shall in any way be deemed to limit the ability of a party hereto to serve any such writs, process or summonses in any other manner permitted by applicable Law. Each party hereto hereby irrevocably waives any objections which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any state or federal court of competent jurisdiction in the State of Delaware, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum. No suit, action or proceeding against a party hereto with respect to this Agreement may be brought in any court, domestic or foreign, or before any similar domestic or foreign authority other than in a court of competent jurisdiction in the State of Delaware, and each party hereto hereby irrevocably waives any right which it may otherwise have had to bring such an action in any other court, domestic or foreign, or before any similar domestic or foreign authority. 10 11 19. Termination. The right to exercise the Option granted pursuant to this Agreement shall terminate at the earlier of (i) the Effective Time (as defined in the Merger Agreement), (ii) the date on which the Grantee realizes a Total Profit of $100 million, (iii) the date on which the Merger Agreement is terminated; provided that the Option is not exercisable at such time and does not become exercisable simultaneous with such termination and (iv) 90 days after the date the Option becomes exercisable (the date referred to in clause (iv) being hereinafter referred to as the "Option Termination Date"); provided that, if the Option cannot be exercised or the Shares cannot be delivered to the Grantee upon such exercise because the conditions set forth in Section 2(a) or Section 2(b) hereof have not yet been satisfied, the Option Termination Date shall be extended until thirty days after such impediment to exercise has been removed. All representations and warranties contained in this Agreement shall survive delivery of and payment for the Shares. 20. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 21. Public Announcement. The Grantee will consult with the Grantor and the Grantor will consult with the Grantee before issuing any press release with respect to the initial announcement of this Agreement, the Option or the transactions contemplated hereby and neither party shall issue any such press release prior to such consultation except as may be required by law. 11 12 IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement to be signed by their respective duly authorized officers as of the date first written above. HEALTH CARE AND RETIREMENT CORPORATION By: /s/ R. Jeffrey Bixler ----------------------------------- Its: Vice President and General Counsel ---------------------------------- MANOR CARE, INC. By: /s/ James H. Rempe ----------------------------------- Its: Senior Vice President and General Counsel ---------------------------------- EX-3 4 JOINT FILING AGREEMENT 1 EXHIBIT 3 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) under the Securities Exchange Act of 1934, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D (including amendments thereto) with respect to the common stock of Manor Care, Inc. and further agree that this Joint Filing Agreement be included as an Exhibit to such joint filings. Dated: June 19, 1998 HEALTH CARE AND RETIREMENT CORPORATION By: /s/ R. Jeffrey Bixler -------------------------------- Name: R. Jeffrey Bixler Title: Vice President and General Counsel CATERA ACQUISITION CORP. By: /s/ R. Jeffrey Bixler -------------------------------- Name: R. Jeffrey Bixler Title: Vice President and Secretary -----END PRIVACY-ENHANCED MESSAGE-----