Exhibit 10.1       **EMPLOYMENT AGREEMENT**(this “Agreement”) dated as of June 13,2007, between MANOR CARE, INC., a Delaware corporation (the“Company”), and PAUL A. ORMOND (the “Executive”).          WHEREAS the Executive is a skilled and dedicated employee of the Company who has importantmanagement responsibilities and talents that benefit the Company; and          WHEREAS the Compensation Committee (the “Committee”) of the Board of Directors of theCompany (the “Board”) considers it essential to the best interests of the Company and itsstockholders to assure that the Company and its subsidiaries will have the continued dedication ofthe Executive;          NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants containedherein, and intending to be legally bound hereby, the parties hereto agree as follows:          SECTION 1. Definitions. For purposes of this Agreement, the following terms shallhave the meanings set forth below:     (a) “Affiliate(s)” means, with respect to any specified Person, any other Personthat, directly or indirectly, through one or more intermediaries, controls, is controlled by, or isunder common control with, such specified Person.     (b) “Annual Incentive Plan” means the Company’s Annual Incentive Plan as in effectfrom time to time.     (c) “Cause” means the occurrence of any one of the following:     (i) the Executive is convicted of, or pleads guilty or nolo contendere to,any felony;     (ii) the Executive commits one or more acts constituting wilful financial dishonestyor fraud in connection with the performance of his duties; or     (iii) the Executive continually and wilfully fails, for at least 14 days followingwritten notice from the Company, to perform substantially the Executive’s employment duties(other than as a result of incapacity due to physical or mental illness or after deliveryby the Executive of a Notice of Termination for Good Reason).          For purposes of this provision, no act or failure to act on the part of the Executive shall beconsidered “wilful” unless it is done, or omitted to be done, by the Executive in bad faith orwithout reasonable belief that the Executive’s action or

 

2omission was in the best interests of the Company. The termination of employment of the Executive forCause shall not be effective unless and until there has been delivered to the Executive a copy of aresolution duly adopted by the affirmative vote of not less than two-thirds of the entiremembership of the Board (excluding the Executive) at a meeting of the Board called and held forsuch purpose (after reasonable notice is provided to the Executive and the Executive is given anopportunity, together with counsel, to be heard before the Board), finding that in the good faithopinion of the Board, the Executive is guilty of the conduct described in clause (i), (ii) or (iii)above and specifying the particulars thereof in detail.     (d) “Change in Control” means the occurrence of any of the following:     (i) during any period of twelve consecutive months, the individuals who, as of thebeginning of such period, were members of the Board (the “Incumbent Directors”)cease for any reason, prior to the end of such period, to constitute at least a majority ofthe Board; provided, however, that any individual becoming a directorsubsequent to the beginning of such period whose appointment or election, or nomination forelection, by the Company’s stockholders was approved by a vote of at least a majority ofthe Incumbent Directors shall be considered as though such individual were an IncumbentDirector, but excluding, for purposes of this proviso, any such individual whose assumptionof office after the beginning of such period occurs as a result of an actual or threatenedproxy contest with respect to election or removal of directors or other actual orthreatened solicitation of proxies or consents by or on behalf of a “person” (as such termis used in Section 13(d) of the Exchange Act) (each, a “Person”) other than theBoard or the Company;     (ii) the consummation of (A) a merger, consolidation, statutory share exchange,reorganization or similar form of corporate transaction (including as a part of a series ofother transactions) involving (x) the Company or (y) any of its Subsidiaries, but in thecase of this clause (y) only if Company Voting Securities (as defined below) are issued orissuable or (B) a sale or other disposition of all or substantially all the assets of theCompany (any such event, a “Reorganization”), unless, immediately following suchReorganization, (1) all or substantially all the individuals and entities who were the“beneficial owners” (as such term is defined in Rule 13d-3 under the Exchange Act (or asuccessor rule thereto)) of shares of the Company’s common stock or other securitieseligible to vote for the election of the Board outstanding immediately prior to theconsummation of such Reorganization (such securities, the “Company VotingSecurities”) beneficially own, directly or indirectly, more than 65% of the combinedvoting power of the then outstanding voting securities of the corporation or other entityresulting from such Reorganization (including a corporation or other entity that, as aresult of such transaction, owns the Company or all or substantially all the Company’sassets either directly or through one or more subsidiaries) (the “ContinuingEntity”) in substantially the same proportions as their ownership, immediately prior tothe consummation of such Reorganization, of the outstanding Company Voting Securities(excluding any outstanding voting securities of the Continuing

 

3Entity that such beneficial owners hold immediately following the consummation of theReorganization as a result of their ownership prior to such consummation of votingsecurities of any corporation or other entity involved in or forming part of suchReorganization other than the Company or a Subsidiary), (2) no Person (excluding anyemployee benefit plan (or related trust) sponsored or maintained by the Continuing Entityor any corporation or other entity controlled by the Continuing Entity) beneficially owns,directly or indirectly, 15% or more of the combined voting power of the then outstandingvoting securities of the Continuing Entity and (3) at least a majority of the members ofthe board of directors or other governing body of the Continuing Entity immediately afterthe Reorganization are Incumbent Directors;     (iii) the stockholders of the Company approve a plan of complete liquidation ordissolution of the Company; or     (iv) any Person, corporation or other entity or group (within the meaning of Section13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner, directly orindirectly, of securities of the Company representing 15% or more of the combined votingpower of the Company Voting Securities; provided, however, that forpurposes of this subparagraph (iv), the following acquisitions shall not constitute aChange in Control: (A) any acquisition by the Company or any Subsidiary, (B) anyacquisition by any employee benefit plan (or related trust) sponsored or maintained by theCompany or any Subsidiary, (C) any acquisition by an underwriter temporarily holding suchCompany Voting Securities pursuant to an offering of such securities or (D) any acquisitionpursuant to a Reorganization that does not constitute a Change in Control.     (e) “Change in Control Date” means the date on which a Change in Control occurs (ifany).     (f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, andthe regulations promulgated thereunder.     (g) “Competing Business” shall mean any person, corporation or other entity engagedin the United States of America in providing skilled nursing, assisted living, home health, hospiceor rehabilitation services or providing or attempting to provide any other product or service whichis the same as or similar to products or services sold or provided by the Company or any of itssubsidiaries within the two-year period prior to the Termination Date.     (h) “Disability” means that either (i) the Executive is unable to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairmentthat can be expected to result in death or can be expected to last for a continuous period of notless than twelve months or (ii) the Executive is, by reason of any medically determinable physicalor mental impairment that can be expected to result in death or can be expected to last for acontinuous period of not less than twelve months,

 

4receiving income replacement benefits for a period of not less than three months under anaccident and health plan covering the Company’s employees.     (i) “Employee Benefits” means the perquisites and benefits as provided under any andall employee retirement income and welfare benefit policies, plans, programs or arrangements inwhich the Executive is entitled to participate at any time of determination, including any stockoption, stock purchase, stock appreciation, savings, pension, supplemental employee retirement, orother retirement income or welfare benefit, deferred compensation, incentive compensation, group orother life, health, medical, hospital or other insurance (whether funded by actual insurance orself-insured by the Company), disability, salary continuation, expense reimbursement and otheremployee benefit policies.     (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time totime, or any successor statute thereto.     (k) “Excise Tax” means the excise tax imposed by Section 4999 of the Code, togetherwith any interest or penalties imposed with respect to such tax.     (l) “Good Reason” means, without the Executive’s express written consent, theoccurrence of any one or more of the following:     (i) the failure to elect or reelect or otherwise to maintain Executive in theoffice(s) or position(s) with the Company set forth in Section 3 and any other office(s) orposition(s) that Executive held immediately prior to the Change in Control Date, or theremoval of Executive as a member of the Board or Chairman of the Board;     (ii) the occurrence of any of the following which is not remedied within ten daysafter written notice to the Board from Executive:     (A) a significant adverse change, whether involving a reduction or expansion,in the nature or scope of the authorities, positions, powers, functions,responsibilities or duties attached to the office(s) and position(s) with theCompany set forth in Section 3 and any other office(s) or position(s) thatExecutive held immediately prior to the Change in Control Date, including anychange in the reporting lines, offices and positions to which Executive reported orwhich reported to the Executive immediately prior to the Change in Control Date andany change due to the Company no longer being a reporting company under theExchange Act;     (B) a reduction in Executive’s annual base salary as in effect immediatelyprior to the Change in Control Date;     (C) a material reduction in the scope or value of Employee Benefits as ineffect immediately prior to the Change in Control Date;     (D) any material breach of this Agreement by the Company; or

 

5     (E) the continuation or repetition of harassing or denigrating treatment ofExecutive which is inconsistent with Executive’s position with the Company;     (iii) the failure of the Company to comply with and satisfy the requirements ofSection 14(c); or     (iv) the Company (A) relocates its principal executive offices, or requires Executiveto have his principal place of employment changed, to any location which increases by morethan 25 miles Executive’s commuting distance as compared to his commuting distanceimmediately prior to the Change in Control Date or (B) requires Executive to travel awayfrom his principal place of employment in the course of discharging his responsibilities orduties hereunder at least 20% more (in terms of aggregate days in any calendar year or inany two consecutive calendar quarters when annualized for purposes of comparison to anyprior year) than the average of such time that was required of Executive in the three fullyears immediately prior to the Change in Control Date.          The Executive’s right to terminate employment for Good Reason shall not be affected by theExecutive’s incapacity due to physical or mental illness. A termination of employment by theExecutive for Good Reason for purposes of this Agreement shall be effectuated by giving the Companywritten notice (“Notice of Termination for Good Reason”) of the termination setting forthin reasonable detail the specific conduct of the Company that constitutes Good Reason and thespecific provisions of this Agreement on which the Executive relied. A termination of employmentby the Executive for Good Reason shall be effective on the 30th day following the date when theNotice of Termination for Good Reason is given, unless the Company elects to treat such terminationas effective as of an earlier date. If the Executive continues to provide services to the Companyafter one of the events giving rise to Good Reason has occurred, the Executive shall not be deemedto have consented to such event or to have waived the Executive’s right to terminate his or heremployment for Good Reason in connection with such event.     (m) “Incentive Amount” means the sum of (i) the amount payable on a full-year basisto the Executive under his Performance Award Plan award for the award period ending in the year inwhich the Change in Control Date occurs (if any) determined on the basis of maximum performanceachievement and (ii) the amount payable on a full-year basis to the Executive under his AnnualIncentive Plan award for the award period ending in the year in which the Change in Control Dateoccurs determined on the basis of maximum award level achievement.     (n) “Payment” means any payment, benefit or distribution (or combination thereof) bythe Company, any of its Affiliates or any trust established by the Company or its Affiliates, to orfor the benefit of the Executive, whether paid, payable, distributed, distributable or providedpursuant to this Agreement or otherwise, including any payment, benefit or other right thatconstitutes a “parachute payment” within the meaning of Section 280G of the Code.

 

6     (o) “Performance Award Plan” means the Company’s Performance Award Plan as in effectfrom time to time.     (p) “Person” shall have the meaning set forth in Section 1(d)(i).     (q) “Protection Period” means the period commencing on the Change in Control Date andending on the third anniversary thereof.     (r) “Qualifying Termination” means any termination of the Executive’s employment (i)by the Company, other than for Cause, death or Disability, that is effective (or with respect towhich the Executive is given written notice) during the period beginning on the date that is 60days prior to the first public announcement by the Company of the potential occurrence of an eventthat would constitute a Change in Control and ending on the expiration of the Protection Period,(ii) by the Executive for Good Reason that is effective (or with respect to which the Executive hasgiven Notice of Termination for Good Reason) during the Protection Period, or (iii) by theExecutive, whether or not for Good Reason, during the 180-day period beginning on the firstanniversary of the Change in Control Date.     (s) “Specified Performance Level” means (i) in the case of any Performance Share (asdefined in Section 7), performance achievement (expressed as a percentage) relative to theapplicable performance goals established by the Company for each applicable year for PerformanceShares generally (provided that, in the case of any such year for which more than one actualperformance level was determined, the actual performance level for such year shall be deemed to bethe average of all such levels for such year), equal to the greatest of, as applicable, (A) theaverage actual aggregate award level or levels of the Company (as approved bythe Committee and expressed as a percentage) for each of the three full years prior to the year inwhich the Change in Control Date occurs, (B) if the Change in Control Date occurs after June 30 inany year, the average actual aggregate award level or levels of the Company (as approved by theCommittee and expressed as a percentage) for each of the two full years prior to the year in whichthe Change in Control Date occurs and the partial year in which the Change in Control Date occurs,utilizing, in the case of such partial year, the aggregate award level of the Company for such yearas determined by the Committee prior to the Change in Control Date and expressed as a percentagebased on the Committee’s review of year-to-date financial performance of the Company for such year,and (C) such other performance achievement level as may be determined by the Committee prior to theChange in Control Date (expressed as a percentage) based on the Committee’s review of Companyperformance, in comparison to actual award levels approved by the Committee, for the multi-yearperiod commencing in 2005 with respect to which various awards of Performance Shares were made andsuch other factors as the Committee determines are relevant to determining an appropriateperformance achievement level, (ii) in the case of any Annual Incentive Plan award, award levelachievement (expressed as a percentage) equal to the greater of (A) the average actual award levelachievement of the Executive (as approved by the Committee and expressed as a percentage) for eachof the three full years prior to the year in which the Change in Control Date occurs (or suchlesser number of years for which the Executive was employed by the Company) relative to the

 

7applicable performance goals established by the Company for each of such full years and (B)such other award level achievement as may be determined by the Committee prior to the Change inControl Date (expressed as a percentage) based on the Committee’s review of year-to-dateperformance of the Company and the Executive for the year in which the Change in Control Dateoccurs and such other factors as the Committee determines are relevant to determining anappropriate performance achievement level and (iii) in the case of any Performance Award Planaward, performance achievement (expressed as a percentage) relative to the applicable performancegoals established by the Company for each applicable year for Performance Award Plan awardsgenerally (provided that, in the case of any such year for which more than one actual performancelevel was determined, the actual performance level for such year shall be deemed to be the averageof all such levels for such year), equal to the greatest of, as applicable, (A) the average actualperformance achievement level of the Company (as approved by the Committee and expressedas a percentage) for each of the three full years prior to the year in which the Change in ControlDate occurs, (B) if the Change in Control Date occurs after June 30 in any year, the average actualperformance achievement level of the Company (as approved by the Committee and expressed as apercentage) for each of the two full years prior to the year in which the Change in Control Dateoccurs and the partial year in which the Change in Control Date occurs, utilizing, in the case ofsuch partial year, the performance achievement level of the Company for such year as determined bythe Committee prior to the Change in Control Date and expressed as a percentage based on theCommittee’s review of year-to-date financial performance of the Company for such year, and (C) suchother performance achievement level as may be determined by the Committee prior to the Change inControl Date (expressed as a percentage) based on the Committee’s review of Company performance, incomparison to actual performance achievement levels approved by the Committee, for the multi-yearperiod commencing in 2005 with respect to which various awards under the Performance AchievementPlan were made and such other factors as the Committee determines are relevant to determining anappropriate performance achievement level.     (t) “Subsidiary” means any entity in which the Company, directly or indirectly,possesses 50% or more of the total combined voting power of all classes of its stock.     (u) “Termination Date” means the date (if any) on which the termination of theExecutive’s employment, in accordance with the terms of this Agreement, is effective.          SECTION 2. Effectiveness; Effect on Prior Agreement. (a) This Agreement andExecutive’s employment hereunder shall become effective as of the date hereof (the “EffectiveDate”). This Agreement and Executive’s employment hereunder shall remain in effect until thethird anniversary of the Effective Date, except that, beginning on the second anniversary of theEffective Date and on each anniversary thereafter (i.e., one year prior to the scheduled expirationof the term hereof), the term of this Agreement and Executive’s employment hereunder shall beautomatically extended for an additional one-year period, unless, prior to the occurrence of aChange in Control, the Company or Executive provides the other party with 90 days’ prior writtennotice

 

8before the applicable anniversary that the term of this Agreement and Executive’s employmenthereunder shall not be so extended (the last day of such period, giving effect to all suchextensions, the “Normal Expiration Date”), provided that upon the occurrence of aChange in Control prior to the Normal Expiration Date, (A) the term of this Agreement shall notexpire or terminate, (B) the Company shall have no further right to amend, modify or terminate thisAgreement or the term thereof without the Executive’s written consent in accordance with Section18, (C) the Employment Term (as defined in Section 3) shall not expire unless expressly terminatedby the Company or Executive in accordance with Section 4 and (D) any purported termination of thisAgreement or the term thereof by the Company (other than in connection with a termination ofExecutive’s employment for any reason other than Cause, death or Disability) shall be deemed to bea termination of Executive’s employment by the Company other than for Cause; provided,however, that Sections 6, 7 and 8 of this Agreement shall only be effective with respect tothe first Change in Control that occurs during the term of this Agreement.     (b) Effective as of the Effective Date, this Agreement shall replace and supersede in itsentirety the Severance Agreement dated as of August 20, 1999 among the Executive, the Company andthe other parties thereto (the “Prior Agreement”), which shall have no further force oreffect. In addition, the receipt of severance benefits under Section 5 or 6 shall be conditionedon the waiver of any other cash severance benefits otherwise payable to the Executive under anyseverance plan or policy available generally to Company employees.          SECTION 3. Terms and Conditions of Employment. (a) The Company hereby agrees tocontinue to employ the Executive, and the Executive hereby agrees to continue to be employed by theCompany, as its Chairman, President and Chief Executive Officer on the terms and conditions setforth herein for the period commencing on the Effective Date and ending on the earlier of (i) thetermination of the Executive’s employment for any reason and (ii) the termination of this Agreementin accordance with its terms (such period of employment, the “Employment Term”).     (b) During the Employment Term, the Executive shall have authorities, powers, functions,responsibilities and duties consistent with those held by the Executive immediately prior to theEffective Date and shall devote substantially all the Executive’s business time to the performanceof such responsibilities and duties.     (c) During the Employment Term, the Executive shall report directly to the Board.     (d) During the Employment Term, the Executive’s principal place of employment shall be at theCompany’s current principal executive offices in Toledo, Ohio. The Executive acknowledges that hisresponsibilities and duties shall require him to travel on business to the extent necessary tofully perform such responsibilities and duties.

 

9     (e) During the Employment Term, the Executive shall, without limitation to Sections 3 and 4,be entitled to the following compensation and benefits:     (i) Annual base salary at a rate no less than the rate in effect immediately prior tothe Effective Date, subject to such subsequent upward adjustments as may be determined bythe Board from time to time, which shall be payable on the Company’s normal payrollschedule;     (ii) Such annual, short-term and long-term incentive and equity compensation awardsas may be determined by the Board; and     (iii) Participation in the employee benefit, welfare, retirement, perquisite andother plans, programs and policies provided to other similarly situated employees orprovided to other senior executives of the Company, as determined by the Board from time totime, and subject to the terms and conditions of such arrangements as in effect from timeto time.     (f) Exhibit A of this Agreement sets forth, as of the date of this Agreement:     (i) With respect to Performance Shares, (A) the Executive’s outstanding awards,including the applicable performance goals and target and maximum award levels, and (B) theactual aggregate award levels of the Company (as approved by the Committee and expressed asa percentage) for each of 2005 and 2006 relative to the applicable performance goalsestablished by the Company for each of such years for Performance Shares generally.     (ii) With respect to the Annual Incentive Plan, (A) the Executive’s target andmaximum award levels, and (B) the Executive’s actual award level (expressed as apercentage) under the Annual Incentive Plan with respect to each of 2004, 2005 and 2006 (orsuch lesser number of years for which the Executive was employed by the Company).     (iii) With respect to the Performance Award Plan, (A) the Executive’s outstandingawards, including the applicable performance goals and payout levels, and (B) the actualpayout levels of the Company (as approved by the Committee and expressed as a percentage)for each of 2004, 2005 and 2006 relative to the applicable performance goals established bythe Company for each of such years for Performance Award Plan awards generally.     (g) The Company hereby agrees to amend the Executive’s benefit accrual formula under theCompany’s Senior Executive Retirement Plan in the manner described in the minutes to the May 8,2007 meeting of the Committee in order to reflect the Company’s decision to cease granting awardsunder the Performance Award Plan for performance periods beginning in 2007 and thereafter.          SECTION 4. Termination of Employment. (a) The Executive’s employment hereunder maybe terminated by the Company or the Executive at any time and for any reason, subject to the termsand conditions of this Agreement.

 

10     (b) Except as otherwise provided herein, each party hereto shall give the other party atleast 30 days prior written notice of any termination of the Executive’s employment by such party.Notwithstanding the foregoing, the Executive’s employment shall automatically terminate withoutnotice in the event of the Executive’s death.     (c) In the event of any termination of the Executive’s employment hereunder, the Executiveshall be entitled to receive promptly (i) any annual base salary, annual bonus or other amountsearned and payable, but not yet paid as of the Termination Date, under the terms of the applicablebenefit plan, practice, policy or program, (ii) reimbursement of any unreimbursed business expensesincurred through the Termination Date, (iii) any other payments explicitly set forth in any benefitplans, practices, policies and programs in which the Executive participates and (iv) as otherwiserequired by applicable law (the rights to such payments, the “Accrued Rights”).     (d) In addition to the Accrued Rights, the Executive may be entitled to additional paymentsand benefits under Section 5 or 6. In the event that payments and benefits under Section 6 becomepayable, the Executive shall not be entitled to receive any payments or benefits under Section 5.          SECTION 5. Severance Prior to a Change in Control. (a) Upon any voluntarytermination of the Executive’s employment, whether or not for Good Reason, the Executive shall notbe entitled to any additional payments or benefits under this Section 5 other than the AccruedRights.     (b) Upon the termination of Executive’s employment by the Company for Cause, the Executiveshall not be entitled to any additional payments or benefits under this Section 5 other than theAccrued Rights.     (c) Upon the termination of Executive’s employment by the Company for any reason other thanfor Cause, death or Disability, the Company shall, in addition to payment of the Accrued Rights,continue payment of Executive’s then-current annual base salary, on the Company’s normal payrollschedule, for a period of three years after the Termination Date.     (d) Upon the termination of Executive’s employment as a result of death prior to the Changein Control Date, the Company shall, in addition to payment of the Accrued Rights, continue paymentof Executive’s then-current annual base salary on the Company’s normal payroll schedule for aperiod of three years after the Termination Date; provided, however, that suchpayments shall be offset by any survivor benefits, excluding life insurance proceeds, received byExecutive’s spouse or other designated beneficiary under the Company’s plans, programs andpolicies.     (e) Upon the termination of Executive’s employment as a result of his Disability prior to theChange in Control Date, the Company shall, in addition to paymentof the Accrued Rights, continue payment of Executive’s then-current annual base salary onCompany’s normal payroll schedule for a period of three years after the Termination Date;provided, however, that such payments shall be offset by any disability benefits

 

11received by Executive, or his legal guardian, under the Company’s plans, programs and policies.          SECTION 6. Severance after a Change in Control. (a) In the event of a QualifyingTermination, the Executive shall be entitled to the following payments and benefits in lieu of anypayments or benefits otherwise payable under Section 5:     (i) The Company shall pay the Executive an amount equal to three times the sum of (A)the Executive’s annual base salary as in effect immediately prior to the Termination Date(without regard to any reduction giving rise to Good Reason) and (B) the Executive’sIncentive Amount, in a lump-sum payment payable no later than the tenth business day afterthe Termination Date.     (ii) The Company shall, at the Company’s expense, continue to provide for a period ofthree years after such Qualifying Termination (the “Continuation Period”) groupmedical, dental and vision benefits substantially similar to those which the Executive wasreceiving or entitled to receive immediately prior to the Change in Control Date.     (iii) During the Continuation Period, the Company shall provide the Executive the useof office space, furnishings and secretarial support services substantially similar tothose provided to the Executive immediately prior to Change in Control Date.     (iv) The Company shall take whatever action is necessary to fund completely anysplit-dollar life insurance arrangement maintained by the Company for the benefit of theExecutive, effective as of the Termination Date, and based on the assumption that theExecutive’s service with the Company continues through the end of the Continuation Period.     (v) Effective as of the Termination Date, Executive shall be credited with anadditional 36 months of service with the Company for the purpose of determining servicecredits and benefits due to Executive under the Company’s tax-qualified and non-qualifiedpension, retirement and savings plans in which the Executive, his dependents or hisbeneficiaries participated immediately prior to the Change in Control Date,provided that such credits and benefits with respect to tax-qualified plans shallbe provided under a non-qualified plan to the extent necessary under applicable law andplan terms.     (vi) The Executive shall be entitled to receive the Accrued Rights.     (b) Non-Qualifying Termination. In the event of any termination of Executive’semployment other than a Qualifying Termination (including a termination of employment as a resultof death or Disability) on or after the Change in Control Date, the Executive shall not be entitledto any payments or benefits from the Company under thisSection 6. Notwithstanding the foregoing, the Executive shall be entitled to payment of theAccrued Rights and may be entitled to payments and benefits under Section 5.

 

12          SECTION 7. Impact of a Change in Control on Equity Compensation and Other IncentiveAwards. Effective as of the Change in Control Date, notwithstanding any provision to thecontrary in the Company’s Equity Incentive Plan, as amended and restated, Annual Incentive Plan orPerformance Award Plan or any award agreements thereunder, (a) all outstanding (i) stock optionsand stock appreciation rights, (ii) restricted shares subject to service, but not performance,based vesting requirements (including any such shares delivered in connection with the vesting ofPerformance Shares (as defined below)) and (iii) restricted stock units, in each case then held bythe Executive that are unexercisable or otherwise unvested, shall automatically become fully vestedand unrestricted and immediately exercisable, as the case may be, and all such vested restrictedstock units shall be settled on the first business day of the calendar year that begins after theChange in Control Date, (b) all outstanding restricted share awards that are subject toperformance-based vesting or delivery requirements (“Performance Shares”) then held by theExecutive that are unvested shall automatically become vested on the basis that (i) all servicebased requirements have been satisfied and (ii) all performance-based requirements have beensatisfied at the Specified Performance Level for Performance Shares for all relevant periods, (c)the Executive’s outstanding Annual Incentive Plan award for the year in which the Change in ControlDate occurs shall become irrevocably payable, without regard to any term or condition applicable tosuch award except as specified herein, at the same time as similar Annual Incentive Plan awardswould generally otherwise be payable based on the terms thereof as in effect immediately prior tothe Change in Control Date (or, if earlier, upon the Executive’s termination of employment for anyreason), in an amount equal to the greater of (i) the amount payable to the Executive under suchaward determined on the basis of target performance achievement and (ii) the amount payable to theExecutive under such award determined on the basis of achieving a Specified Performance Level forsuch award, and (d) each of the Executive’s Performance Award Plan awards (if any) outstanding inthe year in which the Change in Control Date occurs shall become irrevocably payable, withoutregard to any term or condition applicable to such award except as specified herein, at the sametime or times as similar Performance Award Plan awards would generally otherwise be payable basedon the terms thereof as in effect immediately prior to the Change in Control Date (or, if earlier,upon the Executive’s termination of employment for any reason), in an amount equal to the greaterof (i) the amount payable to the Executive under such award determined on the basis of targetperformance achievement and (ii) the amount payable to the Executive under such award determined onthe basis of achieving a Specified Performance Level for such award.          SECTION 8. Certain Additional Payments by the Company. (a) Notwithstanding anything in this Agreement to the contrary and except as set forth below,in the event it shall be determined that any Payment that is paid or payable to or for the benefitof the Executive during the term of this Agreement would be subject to the Excise Tax, theExecutive shall be entitled to receive an additional payment (a “280G Gross-Up Payment”) inan amount such that, after payment by the Executive of all taxes (and any interest or penaltiesimposed with respect to such taxes), including any incomeand employment taxes and Excise Taxes imposed upon the 280G Gross-Up Payment, the Executiveretains an amount of the 280G Gross-Up Payment equal to the Excise Tax imposed upon such Payments.The Company’s obligation to make 280G Gross-Up

 

13Payments under this Section 8 shall not beconditioned upon the Executive’s termination of employment and shall survive and apply after theExecutive’s termination of employment.     (b) Subject to the provisions of Section 8(c), all determinations required to be made underthis Section 8, including whether and when a 280G Gross-Up Payment is required, the amount of such280G Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shallbe made in accordance with the terms of this Section 8 by a nationally recognized certified publicaccounting firm that shall be designated by the Company (the “Accounting Firm”). TheAccounting Firm shall provide detailed supporting calculations both to the Company and theExecutive within 15 business days of the receipt of notice from the Executive that there has been aPayment or such earlier time as is requested by the Company or the Executive. For purposes ofdetermining the amount of any 280G Gross-Up Payment, the Executive shall be deemed to pay Federalincome tax at the highest marginal rate applicable to individuals in the calendar year in which anysuch 280G Gross-Up Payment is to be made and deemed to pay state and local income taxes at thehighest marginal rates applicable to individuals in the state or locality of the Executive’sresidence or place of employment in the calendar year in which any such 280G Gross-Up Payment is tobe made, net of the maximum reduction in Federal income taxes that can be obtained from deductionof state and local taxes, taking into account limitations applicable to individuals subject toFederal income tax at the highest marginal rate. All fees and expenses of the Accounting Firmshall be borne solely by the Company. Any 280G Gross-Up Payment, as determined pursuant to thisSection 8, shall be paid by the Company to the Executive within five business days of the receiptof the Accounting Firm’s determination, provided that, in no event, shall such payment bemade later than the last day of the calendar year after the calendar year in which the applicableExcise Tax is paid. If the Accounting Firm determines that no Excise Tax is payable by theExecutive, it shall so indicate to the Executive in writing. Any determination by the AccountingFirm shall be binding upon the Company and the Executive. As a result of the uncertainty in theapplication of the Excise Tax, at the time of the initial determination by the Accounting Firmhereunder, it is possible that the amount of the 280G Gross-Up Payment determined by the AccountingFirm to be due to the Executive, consistent with the calculations required to be made hereunder,will be lower than the amount actually due (an “Underpayment”). In the event the Companyexhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make apayment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment thathas occurred and any such Underpayment (which, for the avoidance of doubt, shall be calculated onan after-tax basis consistent with this Section 8) shall be paid by the Company to the Executivewithin five business days of the receipt of the Accounting Firm’s determination.     (c) The Executive shall notify the Company in writing of any written claim by the InternalRevenue Service that, if successful, would require the payment by the Company of a 280G Gross-UpPayment. Such notification shall be given as soon aspracticable, but no later than ten business days after the Executive is informed in writing ofsuch claim. Failure to give timely notice shall not prejudice the Executive’s right to 280GGross-Up Payments and rights of indemnity under this Section 8. The Executive

 

14shall apprise theCompany of the nature of such claim and the date on which such claim is requested to be paid. TheExecutive shall not pay such claim prior to the expiration of the 30-day period following the dateon which the Executive gives such notice to the Company (or such shorter period ending on the datethat any payment of taxes with respect to such claim is due). If the Company notifies theExecutive in writing prior to the expiration of such period that the Company desires to contestsuch claim, the Executive shall (i) give the Company any information reasonably requested by theCompany relating to such claim, (ii) take such action in connection with contesting such claim asthe Company shall reasonably request in writing from time to time, including accepting legalrepresentation with respect to such claim by an attorney reasonably selected by the Company, (iii)cooperate with the Company in good faith in order effectively to contest such claim and (iv) permitthe Company to participate in any proceedings relating to such claim; provided,however, that the Company shall bear and pay directly all costs and expenses (includingadditional income taxes, interest and penalties) incurred in connection with such contest, andshall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax orincome tax (including interest or penalties) imposed as a result of such representation and paymentof costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), theCompany shall control all proceedings taken in connection with such contest, and, at its solediscretion, may pursue or forgo any and all administrative appeals, proceedings, hearings andconferences with the applicable taxing authority in respect of such claim and may, at its solediscretion, either direct the Executive to pay the tax claimed and sue for a refund or contest theclaim in any permissible manner, and the Executive agrees to prosecute such contest to adetermination before any administrative tribunal, in a court of initial jurisdiction and in one ormore appellate courts, as the Company shall determine; provided, however, that (A)if the Company directs the Executive to pay such claim and sue for a refund, the Company shalladvance the amount of such payment to the Executive, on an interest-free basis, and shall indemnifyand hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax(including interest or penalties) imposed with respect to such advance or with respect to anyimputed income in connection with such advance and (B) if such contest results in any extension ofthe statute of limitations relating to payment of taxes for the taxable year of the Executive withrespect to which such contested amount is claimed to be due, such extension must be limited solelyto such contested amount. Furthermore, the Company’s control of the contest shall be limited toissues with respect to which the 280G Gross-Up Payment would be payable hereunder, and theExecutive shall be entitled to settle or contest, as the case may be, any other issue raised by theInternal Revenue Service or any other taxing authority.     (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant toSection 8(c), the Executive becomes entitled to receive any refund with respect to such claim, theExecutive shall (subject to the Company’s complying with the requirements of Section 8(c)) promptlypay to the Company the amount of such refund received (together with any interest paid or creditedthereon after taxes applicablethereto). If, after the receipt by the Executive of an amount advanced by the Companypursuant to Section 8(c), a determination is made that the Executive shall not be entitled to anyrefund with respect to such claim and the Company does not notify the Executive

 

15in writing of itsintent to contest such denial of refund prior to the expiration of the 30-day period after suchdetermination, then such advance shall be forgiven and shall not be required to be repaid and theamount of such advance shall offset, to the extent thereof, the amount of 280G Gross-Up Paymentrequired to be paid.          SECTION 9. Section 409A. It is the intention of the Company and the Executive thatthe provisions of this Agreement comply with Section 409A of the Code and the final regulationspromulgated thereunder (including the transition rules thereof), and all provisions of thisAgreement shall be construed and interpreted in a manner consistent with Section 409A of the Codeand such final regulations. To the extent necessary to avoid imposition of any additional tax orinterest penalties under Section 409A (such tax and interest penalties, a “Section 409ATax”), notwithstanding the timing of payment provided in any other Section of this Agreement,the timing of any payment, distribution or benefit pursuant to this Agreement shall be subject to asix-month delay in a manner consistent with Section 409A(a)(2)(B)(i) of the Code, providedthat (a) the Executive shall be credited with interest in respect of such payment, distribution orbenefit during such six-month period at the rate set forth in Section 16 and (b) if the Executivedies during such six-month period, any such delayed payments shall not be further delayed, andshall be immediately payable to the Executive’s devisee, legatee or other designee or, should therebe no such designee, to the Executive’s estate in accordance with the applicable provisions of thisAgreement. From and after the Effective Date and for the remainder of the term of this Agreement,(i) the Company shall administer and operate this Agreement in compliance with Section 409A of theCode and the final regulations promulgated thereunder and any other applicable rules, regulationsor other guidance promulgated thereunder as in effect from time to time, (ii) in the event that theCompany determines, after conducting a reasonable review, that any provision of this Agreement doesnot comply with Section 409A of the Code or any such rules, regulations or guidance and that theExecutive may become subject to a Section 409A Tax, the Company and the Executive shall negotiatein good faith to amend or modify such provision to avoid the application of such Section 409A Tax,provided that such amendment or modification shall not (and the Executive shall not beobligated to consent to any such amendment or modification that would) reduce the economic value tothe Executive of such provision, and (iii) in the event that, notwithstanding the foregoing, theExecutive is subject to a Section 409A Tax with respect to any such provision, then except to theextent such Section 409A Tax is attributable to the Executive’s breach of the Executive’sobligations under the immediately preceding clause (ii), the Executive shall be entitled to receivean additional payment from the Company (a “409A Gross-Up Payment”) in an amount such that,after payment by the Executive of all taxes (and any interest or penalties imposed with respect tosuch taxes), including any income and employment taxes (and any interest and penalties imposed withrespect thereto) and any Section 409A Tax imposed upon the 409A Gross-Up Payment, the Executiveretains an amount of the 409A Gross-Up Payment equal to the Section 409A Tax imposed with respectto such provision. The provisions of Sections 8(c) and (d) shall apply mutatismutandis to any claim by the Internal Revenue Service that, if successful, would give rise toa 409A Gross-Up Payment by the Company.

 

16          SECTION 10. Non-Competition/Non-Solicitation and Confidentiality. (a) Executivecovenants and agrees that during Executive’s employment with the Company and for a period of twoyears following the termination of Executive’s employment, including termination by the Company forCause or without Cause, Executive shall not, in the United States of America, engage, directly orindirectly, whether as principal or as agent, officer, director, employee, consultant, shareholderor otherwise, alone or in association with any other person, corporation or other entity, in anyCompeting Business. Notwithstanding the foregoing, Executive may own, directly or indirectly, upto 1% of the outstanding equity of any business which may be a Competing Business without violatingthe provisions of this Section 10(a).     (b) Executive agrees that during his employment with the Company he shall not, directly orindirectly, solicit the business of, or do business with, any customer or prospective customer ofthe Company or any of its subsidiaries for any business purpose other than for the benefit of theCompany or any of its subsidiaries. Executive further agrees that for two years followingtermination of his employment with the Company, including termination by the Company for Cause orwithout Cause, Executive shall not, directly or indirectly, solicit the business of, or do businesswith, any customers or prospective customers of the Company or any of its subsidiaries;provided, however, that this provision shall not apply to soliciting to provide orproviding any services which the Company or any of its subsidiaries does not provide, or has nottraditionally sought to provide.     (c) Executive agrees that, during his employment with the Company and for two years followingtermination of Executive’s employment with the Company, including termination by the Company forCause or without Cause, Executive shall not, directly or indirectly, solicit or induce, or attemptto solicit or induce, any employee of the Company to leave the employment of the Company for anyreason whatsoever, or hire or engage any employee of the Company except into the employment of theCompany, provided that the foregoing shall not apply to any employee hired through a general hiringprocess without any direct or indirect involvement by Executive in recruiting such person for hire.     (d) The Executive acknowledges that the confidential information and trade secrets of theCompany obtained by the Executive while employed by the Company are the property of the Company.Therefore, the Executive agrees that the Executive shall not disclose to any unauthorized Person oruse for the Executive’s own purposes any such information or trade secrets without the priorwritten consent of the Company, unless and to the extent that the aforementioned matters (i) becomegenerally known to and available for use by the public other than as a result of the Executive’sacts or omissions in violation of this Agreement, (ii) were within the Executive’s possession priorto its being obtained by the Executive in the course of the Executive’s employment with the Companyor (iii) are required to be disclosed pursuant to applicable law.          SECTION 11. No Mitigation or Offset; Enforcement of this Agreement. (a) Except asexpressly provided in Sections 5(d) and (e), the Company’s obligation to make the payments providedfor in this Agreement and otherwise to perform its

 

17obligations hereunder shall not be affected byany set-off, counterclaim, recoupment, defense or other claim, right or action which the Companymay have against the Executive or others. In no event shall the Executive be obligated to seekother employment or take any other action by way of mitigation of the amounts payable to theExecutive under any of the provisions of this Agreement and, except as otherwise expressly providedfor in this Agreement, such amounts shall not be reduced whether or not the Executive obtains otheremployment.     (b) The Company shall reimburse the Executive for, promptly upon the Executive’s demand, anyand all reasonable legal fees and expenses that the Executive may incur during the period from theEffective Date until the expiration of this Agreement in accordance with its terms, as a result ofany contest, dispute or proceeding (regardless of whether formal legal proceedings are evercommenced and regardless of the outcome thereof and including all stages of any contest, dispute orproceeding) by the Company, the Executive or any other Person with respect to the validity orenforceability of, or liability under, any provision of this Agreement (including as a result ofany contest by the Executive regarding the amount of any payment owed pursuant to this Agreement).          SECTION 12. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent orlimit the Executive’s continuing or future participation in any plan, practice, policy or programprovided by the Company or a Subsidiary for which the Executive may qualify, nor shall anything inthis Agreement limit or otherwise affect any rights the Executive may have under any plan, contractor agreement with the Company or a Subsidiary (other than the Prior Agreement). Vested benefitsand other amounts that the Executive is otherwise entitled to receive under any incentivecompensation (including any equity award agreement), deferred compensation, retirement, pension orother plan, practice, policy or program of, or any contract or agreement with, the Company or aSubsidiary (other than the Prior Agreement) shall be payable in accordance with the terms of eachsuch plan, practice, policy, program, contract or agreement, as the case may be, except asexplicitly modified by this Agreement.          SECTION 13. Withholding. The Company may deduct and withhold from any amountspayable under this Agreement such Federal, state, local, foreign or other taxes as are required tobe withheld pursuant to any applicable law or regulation.          SECTION 14. Assignment. (a) This Agreement is personal to the Executive and,without the prior written consent of the Company, shall not be assignable by the Executiveotherwise than by will or the laws of descent and distribution, and any assignment in violation ofthis Agreement shall be void.     (b) Notwithstanding the foregoing Section 14(a), this Agreement and all rights of theExecutive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personalor legal representatives, executors, administrators, successors, heirs,distributees, devisees and legatees. If the Executive should die while any amounts wouldstill be payable to him or her hereunder if he or she had continued to live, all such amounts,unless otherwise provided herein, shall be paid in accordance with the terms of

 

18this Agreement tothe Executive’s devisee, legatee or other designee or, should there be no such designee, to theExecutive’s estate.     (c) The Company shall require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business or assets of the Company (a“Successor”) to assume and agree to perform this Agreement in the same manner and to thesame extent that the Company would have been required to perform it if no such succession had takenplace. As used in this Agreement (except for purposes of Section 10), (i) the term “Company” shallmean the Company as hereinbefore defined and any Successor and any permitted assignee to which thisAgreement is assigned and (ii) the term “Board” shall mean the Board as hereinbefore defined andthe board of directors or equivalent governing body of any Successor and any permitted assignee towhich this Agreement is assigned.          SECTION 15. Dispute Resolution. (a) Except as otherwise specifically providedherein, the Executive and the Company each hereby irrevocably submit to the exclusive jurisdictionof any Federal court located within the State of Ohio over any dispute arising out of or relatingto this Agreement. Except as otherwise specifically provided in this Agreement, the partiesundertake not to commence any suit, action or proceeding arising out of or relating to thisAgreement in a forum other than a forum described in this Section 15(a); provided,however, that nothing herein shall preclude the Company or the Executive from bringing anysuit, action or proceeding in any other court for the purposes of enforcing the provisions of thisSection 15 or enforcing any judgment obtained by the Company or the Executive.     (b) The agreement of the parties to the forum described in Section 15(a) is independent ofthe law that may be applied in any suit, action or proceeding and the parties agree to such forumeven if such forum may under applicable law choose to apply non-forum law. The parties herebywaive, to the fullest extent permitted by applicable law, any objection that they now or hereafterhave to personal jurisdiction or to the laying of venue of any such suit, action or proceedingbrought in an applicable court described in Section 15(a), and the parties agree that they shallnot attempt to deny or defeat such personal jurisdiction by motion or other request for leave fromany such court. The parties agree that, to the fullest extent permitted by applicable law, a finaland non-appealable judgment in any suit, action or proceeding brought in any applicable courtdescribed in Section 15(a) shall be conclusive and binding upon the parties and may be enforced inany other jurisdiction.     (c) The parties hereto irrevocably consent to the service of any and all process in any suit,action or proceeding arising out of or relating to this Agreement by the mailing of copies of suchprocess to such party at such party’s address specified in Section 22.          SECTION 16. Default in Payment. Any payment not made within ten business days afterit is due in accordance with this Agreement shall thereafter bear interest, compounded annually, atthe prime rate in effect from time to time at Citibank, N.A., or any successor thereto.

 

19          SECTION 17. **GOVERNING LAW.****THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN THE STATE OFDELAWARE AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT IN ALLRESPECTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO ITS PRINCIPLES OFCONFLICTS OF LAW.**          SECTION 18. Amendment; No Waiver. No provision of this Agreement may be amended,modified, waived or discharged except by a written document signed by the Executive and a dulyauthorized officer of the Company. The failure of a party to insist upon strict adherence to anyterm of this Agreement on any occasion shall not be considered a waiver of such party’s rights ordeprive such party of the right thereafter to insist upon strict adherence to that term or anyother term of this Agreement. No failure or delay by either party in exercising any right or powerhereunder will operate as a waiver thereof, nor will any single or partial exercise of any suchright or power, or any abandonment of any steps to enforce such right or power, preclude any otheror further exercise thereof or the exercise of any other right or power. No agreements orrepresentations, oral or otherwise, express or implied, with respect to the subject matter hereofhave been made by either party, which are not set forth expressly in this Agreement.          SECTION 19. Severability. If any term or provision of this Agreement is invalid,illegal or incapable of being enforced by any applicable law or public policy, all other conditionsand provisions of this Agreement shall nonetheless remain in full force and effect so long as theeconomic and legal substance of the transactions contemplated by this Agreement is not affected inany manner materially adverse to any party. Upon any such determination that any term or otherprovision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate ingood faith to modify this Agreement so as to effect the original intent of the parties as closelyas possible in a mutually acceptable manner in order that the transactions contemplated hereby beconsummated as originally contemplated to the fullest extent possible.          SECTION 20. Entire Agreement. This Agreement sets forth the entire agreement of theparties hereto in respect of the subject matter contained herein and, except as specifically setforth herein, supersedes all prior agreements, promises, covenants, arrangements, communications,representations or warranties, whether oral or written, by any officer, Executive or representativeof any party hereto. None of the parties shall be liable or bound to any other party in any mannerby any representations and warranties or covenants relating to such subject matter except asspecifically set forth herein.          SECTION 21. Survival. The rights and obligations of the parties under the provisionsof this Agreement, including Sections 2, 8, 9, 10 and 11, shall survive and remain binding andenforceable, notwithstanding the expiration of the Protection Period or the term of this Agreement,the termination of the Executive’s employment with the Company for any reason or any settlement ofthe financial rights and obligations arising

 

20from the Executive’s employment hereunder, to theextent necessary to preserve the intended benefits of such provisions.          SECTION 22. Notices. All notices or other communications required or permitted bythis Agreement will be made in writing and all such notices or communications will be deemed tohave been duly given when delivered or (unless otherwise specified) mailed by United Statescertified or registered mail, return receipt requested, postage prepaid, addressed as follows:       If to the Company: Manor Care, Inc. 333 N. Summit St. Toledo, Ohio 43604 Attention: General Counsel Fax: (419) 252-5599       If to the Executive: At the address for the Executive most recently on file with the Companyor to such other address as any party may have furnished to the other in writing in accordanceherewith, except that notices of change of address shall be effective only upon receipt.          SECTION 23. Headings and References. The headings of this Agreement are inserted forconvenience only and neither constitute a part of this Agreement nor affect in any way the meaningor interpretation of this Agreement. When a reference in this Agreement is made to a Section, suchreference shall be to a Section of this Agreement unless otherwise indicated.          SECTION 24. Counterparts. This Agreement may be executed in one or more counterparts(including via facsimile), each of which shall be deemed to be an original, but all of whichtogether shall constitute one and the same instrument.          SECTION 25. Interpretation. For purposes of this Agreement, the words “include” and“including”, and variations thereof, shall not be deemed to be terms of limitation but rather shallbe deemed to be followed by the words “without limitation”. The term “or” is not exclusive. Theword “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thingextends, and such phrase shall not mean simply “if”.

 

21          **IN WITNESS WHEREOF**, this Agreement has been executed by the parties as of the date firstwritten above.         **MANOR CARE, INC.**         By: /s/ Richard A. Parr II Richard A. Parr IIVice President and Secretary             /s/ Paul A. Ormond             Paul A. Ormond