Document:

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                                                                   Exhibit 10.16

                               SEVERANCE AGREEMENT
                               -------------------

     This SEVERANCE AGREEMENT ("Agreement"), effective as of August 28, 1999
between HEALTH CARE AND RETIREMENT CORPORATION OF AMERICA, an Ohio corporation
(the "Company"), HCR MANORCARE, INC., a Delaware corporation and sole
stockholder of the Company ("HCR") and GEOFFREY G. MEYERS ("Employee"),
supersedes and replaces all prior employment agreements between the parties
hereto.

                                    RECITALS
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A.   The Company has agreed to provide severance benefits to Employee upon a
     termination of Employee's employment resulting from certain specified
     events.

B.   The Company wishes to insure that its senior executives and other key
     employees are not practically disabled from discharging their duties in
     respect to a proposed or actual Corporate Transaction.

C.   The Company desires to assure itself of both present and future continuity
     of management and desires to establish certain minimum severance benefits
     for certain of its senior executive officers and other key employees,
     including Employee, applicable in the event of a Corporate Transaction.

                                     EVENTS
                                     ------

     In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Employee and the Company hereby agree as follows:

     1. CERTAIN DEFINED TERMS. The following terms have the meanings set forth
below:

          (a) "Accounting Firm" is defined in Section 10(b).

          (b) "Aggregate Cash Compensation" means at the time of any
     determination, the sum of: (A) the Employee's Base Pay, (B) the Employee's
     Annual Incentive Plan bonus payable for the year in which the Termination
     Date occurs, calculated by multiplying the product of the Employee's Base
     Pay and the Employee's bonus percentage by 200%, and (C) the Employee's
     Performance Award Plan award payable for the award period ending with the
     year in which the Termination Date occurs at maximum performance level.

          (c) "Base Pay" means Employee's annual base salary as in effect at any
     time of determination

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          (d) "Board" means the Board of Directors of HCR.

          (e) "Cause" means Employee's financial dishonesty, fraud in the
     performance of his duties, willful failure to perform assigned duties
     hereunder or the commission of a felony.

          (f) "Change in Control" means the occurrence during the Protected Term
     of any of the following events, but only to the extent such events do not
     constitute a Merger of Equals:

               (i) HCR is merged, consolidated or reorganized into or with
          another corporation or other legal person, and as a result of such
          merger, consolidation or reorganization less than sixty-five percent
          of the combined voting power of the then outstanding securities of
          such resulting corporation or person immediately after such
          transaction are held in the aggregate by the holders of Voting Stock
          of HCR immediately prior to such transaction;

               (ii) HCR sells or otherwise transfers all or substantially all of
          its assets to another corporation or other legal person, and as a
          result of such sale or transfer less than sixty-five percent of the
          combined voting power of the then outstanding Voting Stock of such
          corporation or person immediately after such sale or transfer is held
          in the aggregate by the holders of Voting Stock of HCR immediately
          prior to such sale or transfer;

               (iii) There is a report filed on Schedule 13D or Schedule 14D-1
          (or any successor schedule, form or report), each as promulgated
          pursuant to the Exchange Act, disclosing that any person (as the term
          "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
          Exchange Act) has become the beneficial owner (as the term "beneficial
          owner" is defined under Rule l3d-3 or any successor rule or regulation
          promulgated under the Exchange Act) of 15% or more of the then
          outstanding Voting Stock of HCR;

               (iv) HCR files a report or proxy statement with the Securities
          and Exchange Commission pursuant to the Exchange Act disclosing in
          response to Form 8-K or Schedule 14A (or any successor schedule, form
          or report or item therein) that a Change in Control of HCR has
          occurred or will occur in the future pursuant to any then existing
          contract or transaction; or

               (v) If, during any consecutive twelve month period, individuals
          who at the beginning of any such period constitute the Directors cease
          for any reason to constitute at least a majority thereof, PROVIDED,
          HOWEVER, that for purposes of this clause (v) each Director who is
          first elected, or first nominated for election by HCR's stockholders,
          by a vote of at least one-half of the Directors (or a committee
          thereof) then still in office who were Directors at the beginning of
          any such period will be deemed to have been a Director at the
          beginning of such period.

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          Notwithstanding the foregoing provisions of Sections l(f)(iii) or
     1(f)(iv), unless otherwise determined in a specific case by majority vote
     of the Board, a "Change in Control" shall not be deemed to have occurred
     for purposes of Sections l(f)(iii) or 1(f)(iv) solely because (1) HCR, (2)
     any Subsidiary (including, without limitation, the Company) or (3) any
     employee stock ownership plan or any other employee benefit plan of HCR or
     any Subsidiary either files or becomes obligated to file a report or a
     proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
     8-K or Schedule 14A (or any successor schedule, form or report or item
     therein) under the Exchange Act disclosing beneficial ownership by it of
     shares of Voting Stock of HCR, whether in excess of 15% or otherwise, or
     because HCR reports that a change in control of HCR has occurred or will
     occur in the future by reason of such beneficial ownership.

          (g) "Competing Business" shall mean any person, corporation or other
     entity engaged in the United States of America in providing long-term care,
     skilled nursing or rehabilitative services or selling or attempting to sell
     or providing or attempting to provide any other product or service which is
     the same as or similar to products or services sold or provided by the
     Company within the last 2 years prior to termination of Employee's
     employment hereunder.

          (h) "Continuation Period" means the thirty-six months immediately
     following the Termination Date.

          (i) "Corporate Transaction" means either a Change of Control or a
     Merger of Equals.

          (j) "Director" means a member of the Board.

          (k) "Employee Benefits" means the perquisites and benefits as provided
     under any and all employee retirement income and welfare benefit policies,
     plans, programs or arrangements in which Employee is entitled to
     participate at any time of determination, including, without limitation,
     any stock option, stock purchase, stock appreciation, savings, pension,
     supplemental employee retirement, or other retirement income or welfare
     benefit, deferred compensation, incentive compensation, group or other
     life, health, medical/hospital or other insurance (whether funded by actual
     insurance or self-insured by the Company), disability, salary continuation,
     expense reimbursement and other employee benefit policies.

          (l) "Exchange Act" means the Securities Exchange Act of 1934, as
     amended.

          (m) "Excise Tax" is defined in Section 10(a).

          (n) "Gross-Up Payment" is defined in Section 10(a).

          (o) "ISO" is defined in Section 10(a).

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          (p) "Merger of Equals" means during the Protected Term the merger or
     consolidation of HCR with another corporation or other legal person and (i)
     as a result of such merger or consolidation less than sixty-five percent
     but more than thirty-five percent of the combined voting power of the then
     outstanding securities of the resulting corporation or person (the
     "Surviving Entity") immediately after such transaction are held in the
     aggregate by holders of Voting Stock of HCR immediately prior to such
     transaction and (ii) on the first anniversary of the transaction either:

               (i) (A) a majority of the executive officers of the Surviving
          Entity are individuals who were executive officers of HCR immediately
          prior to the transaction; or

               (ii) (B) a majority of the directors of the Surviving Entity are
          individuals who were directors of HCR immediately prior to the
          transaction.

          (q) "Payment" is defined in Section 10(a).

          (r) "Protected Term" means the three year period commencing as of the
     date hereof and expiring as of the close of business on the third
     anniversary hereof; PROVIDED, HOWEVER, that: (i) the term of this Agreement
     will automatically be extended for successive one year periods unless, not
     later than 90 days prior to the expiration of the then applicable term
     either party shall have given notice that it does not wish to have the
     Protected Term extended; and (ii) except as otherwise provided in the last
     sentence of Section 12, if, prior to a Corporate Transaction, Employee
     ceases for any reason to be an employee of the Company, thereupon without
     further action the Protected Term shall be deemed to have expired and
     Sections 8, 10, 11 and 14(a) and the last sentence of Section 12 of this
     Agreement and the portion of any other provision of this Agreement that
     incorporates such provisions will immediately terminate and be of no
     further effect. For purposes of this Section l(r), Employee shall not be
     deemed to have ceased to be an employee of the Company by reason of the
     transfer of Employee's employment between or among HCR and the Company or
     any other Subsidiary.

          (s) "Severance Period" means the period of time commencing on the date
     of the occurrence of a Corporate Transaction and continuing until the
     earliest of (i) the third anniversary of the occurrence of the Corporate
     Transaction, or (ii) Employee's death.

          (t) "Severance Benefits" are defined in Section 8(b).

          (u) "Subsidiary" means any entity in which HCR directly or indirectly
     beneficially owns 50% or more of the then outstanding Voting Stock.

          (v) "Termination Date" means the effective date of Employee's
     termination of employment with the Company; provided that for purposes of
     this Section 1(v), Employee shall not be deemed to have ceased to be an
     employee of the Company by reason of the transfer of Employee's employment
     between or among HCR and the Company or any other Subsidiary.

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          (w) "Underpayment" is defined in Section 10(a).

          (x) "Voting Stock" means securities entitled to vote generally in the
     election of directors.

     2. SALARY AND POSITION. Employee's Base Pay and job title shown on Schedule
I are correct as of the date hereof and in accordance with Employee's
understanding.

     3. AT-WILL EMPLOYMENT. Employee's employment with the Company is not for
any specified term and may be terminated by Employee or by the Company at any
time for any reason, with or without Cause.

     4. NO OTHER AGREEMENTS. Except as specifically set forth herein and in
Schedule II attached hereto, Employee represents and warrants that there are no
other written or oral agreements, understandings or commitments relating to
Employee's severance entitlements upon termination.

     5. ENTIRE AGREEMENT

     This Agreement and the agreements listed in Schedule II attached hereto
constitute the complete agreement between Employee and the Company regarding
severance upon termination of their employment relationship and supersede any
and all prior written or oral agreements, understandings or commitments.
Employee understands that no representative of the Company has been authorized
to enter into any agreement, understanding or commitment with Employee which is
inconsistent in any way with the terms of this Agreement.

     6. PROHIBITION AGAINST AMENDMENT. Employee's Base Pay may be modified by
the Company at any time in its sole discretion. The Employee Benefits in which
Employee is entitled to participate or receive may be improved, reduced or
terminated by the Company at any time in its sole discretion; provided, however,
that no vested or accrued benefit shall be adversely affected. No term set forth
in this Agreement, including without limitation the terms set forth in Section 3
hereof, may be modified in any way except by a written agreement signed by
Employee and by an authorized representative of the Company which expressly
states the intention of the parties to modify the terms of this Agreement.

     7. SEVERANCE PAYMENT NOT FOLLOWING A CORPORATE TRANSACTION. Except as
provided in Section 8:

          (a) Upon the termination of Employee's employment as a result of
     Employee's electing to resign his employment or to retire without the
     consent of the Company, no payments shall be required or made pursuant to
     this Section 7.

          (b) Upon the termination of Employee's employment by the Company for
     Cause, no payments shall be required or made pursuant to this Section 7.

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          (c) Upon the termination of Employee's employment by the Company for
     any reason other than for Cause, death or disability, the Company shall
     continue payment of Employee's Base Pay, at the rate then in effect on the
     Termination Date, for a period of three years after such Termination Date.
     The Company shall give thirty (30) days written notice of any such
     termination which notice shall specify the Termination Date.

          (d) Upon the termination of Employee's employment as a result of the
     death of Employee, the Company shall continue payment of Employee's Base
     Pay, at the rate then in effect on the Termination Date, for a period of
     three years after such Termination Date; PROVIDED, HOWEVER, that such
     payments shall be offset by any survivor benefits, excluding life insurance
     proceeds, received by Employee's spouse or other designated beneficiary
     under the Company's plans, programs and policies.

          (e) Upon the termination of Employee's employment as a result of his
     becoming unable to perform his duties due to a disability as established by
     the award of long-term disability benefits under the Company's long-term
     disability plan, the Company may terminate Employee's employment by giving
     Employee thirty (30) days written notice of its intention to terminate. In
     such event, Company shall continue payment of Employee's Base Pay, at the
     rate then in effect on the Termination Date, for a period of three years
     after such Termination Date; provided, however, that such payments shall be
     offset by any disability benefits received by Employee, or his legal
     guardian, under the Company's plans, programs and policies.

          (f) Notwithstanding anything to the contrary contained in this Section
     7, upon the termination of Employee's employment for any reason other than
     pursuant to Section 8, whether voluntarily or involuntarily and whether
     with or without Cause, Employee shall be entitled to the payments provided
     for hereunder and such rights as he otherwise has under the Company's
     Restricted Stock Plan and the Company's Stock Option Plan in the
     circumstances of his particular termination.

     8. TERMINATION FOLLOWING A CORPORATE TRANSACTION.

          (a) ELIGIBILITY FOR SEVERANCE BENEFITS.

               (i) If, during the Severance Period, Employee's employment is
          terminated by the Company other than for Cause and other than as a
          result of his death or disability pursuant to Section 7(d) or (e),
          Employee shall be entitled to the Severance Benefits.

               (ii) Following the consummation of a Corporate Transaction and
          the occurrence of one of the following events, Employee may elect,
          within either the 6 month period following the occurrence of one of
          the following events, or the 180 day period following the first
          anniversary of the Corporate Transaction, to terminate employment with
          the Company and receive the Severance Benefits (pursuant to written
          notice to the Board specifying the effective date of such termination
          which shall not be earlier than the date of the Board's receipt of
          such

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          notice and shall not be later than the end of such six month or 180
          day period, as applicable):

                    (A) Failure to elect or reelect or otherwise to maintain
               Employee in the office or position, or a substantially equivalent
               office or position, of or with the Company, HCR, or any successor
               thereof, as the case may be, which Employee held immediately
               prior to the Corporate Transaction , or the removal of Employee
               as a Director (or as a member of the board of directors of any
               successor thereto) or Chairman of the Board if Employee shall
               have been a Director or Chairman of the Board immediately prior
               to the Corporate Transaction;

                    (A) The occurrence of any of the following which is not
                    remedied within 10 calendar days after written notice to the
                    Board (or the board of any successor) from Employee:

                         (I) a significant adverse change, whether such change
                    involves a reduction or expansion, in the nature or scope of
                    the authorities, positions, powers, functions,
                    responsibilities or duties attached to the position with the
                    Company, HCR, or any successor thereof, as the case may be,
                    which Employee held immediately prior to the Corporate
                    Transaction, including but not limited to any change in the
                    reporting lines, offices and/or positions to which Employee
                    reported immediately prior to the Corporate Transaction
                    and/or changes due to HCR or any successor no longer being a
                    reporting company under the Exchange Act;

                         (II) a reduction in Employee's Base Pay as in effect
                    immediately prior to the Corporate Transaction;

                         (III) a material reduction in the scope or value of
                    Employee Benefits as in I effect immediately prior to the
                    Corporate Transaction;

                         (IV) any material breach of this Agreement by the
                    Company, HCR, or any successor thereof; or

                         (V) the continuation or repetition of harassing or
                    denigrating treatment of Employee which is inconsistent with
                    Employee's position with the Company, HCR, or any successor
                    thereof.

                    (B) The liquidation, dissolution, merger, consolidation or
               reorganization of the Company or HCR, or transfer of all or
               substantially all of its business and/or assets, unless the
               surviving or successor entity, if other than the Company or HCR
               (by liquidation, merger, consolidation,

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               reorganization, transfer or otherwise), to which all or
               substantially all of such business and/or assets have been
               transferred (directly or by operation of law) assumes all duties
               and obligations of the Company and HCR under this Agreement
               pursuant to Section 16(a);

                    (C) The Company, HCR, or any successor thereof, as the case
               may be, by which Employee is employed relocates its principal
               executive offices, or requires Employee to have his principal
               location of work changed, to any location which increases by more
               than 25 miles Employee's commute to such location immediately
               prior to the Corporate Transaction, or requires Employee to
               travel away from his office in the course of discharging his
               responsibilities or duties hereunder at least 20% more (in terms
               of aggregate days in any calendar year or in any calendar quarter
               when annualized for purposes of comparison to any prior year)
               than the average of such time that was required of Employee in
               the three full years immediately prior to the Corporate
               Transaction without, in either case, his prior written consent.

               (iii) If Employee elects to terminate employment with the Company
          or any successor, as the case may be, for any reason, or without
          reason, during such portion of the 180-day period immediately
          following the first anniversary of the occurrence of any Change in
          Control, Employee shall be entitled to the Severance Benefits.

          (b) SEVERANCE BENEFITS. If, Employee's employment with the Company is
     terminated pursuant to Section 8(a), the Company will pay to Employee the
     following amounts within five business days after the Termination Date and
     will provide to Employee the following benefits (collectively, the
     "Severance Benefits"):

               (i) A lump sum payment equal to three times Employee's Aggregate
          Cash Compensation for the year in which the Termination Date occurs;

               (ii) During the Continuation Period:

                    (A) the Company will arrange to provide Employee with group
               medical, dental and vision benefits substantially similar to
               those which Employee was receiving or entitled to receive
               immediately prior to the Corporate Transaction; and

                    (B) the Company (or successor) will provide Employee the use
               of office space, furnishings and secretarial support services
               comparable to those provided to Employee immediately prior to the
               Corporate Transaction;

                    If and to the extent that any benefit described in Section
               8(b)(ii)(A) is not or cannot be paid or provided under any
               policy, plan program or

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               arrangement of the Company, then the Company will pay or provide
               for the payment to Employee, his dependents and beneficiaries, of
               such Employee Benefits in any manner selected by the Company.
               Without otherwise limiting the purposes or effect of Section 8,
               Employee Benefits otherwise receivable by Employee pursuant to
               Section 8(b)(ii)(A) will be reduced to the extent comparable
               welfare benefits are actually received by Employee from another
               employer during the Continuation Period, and any such benefits
               received by Employee shall be reported by Employee to the
               Company.

               (iii) The Company shall take whatever action is necessary to fund
          completely any split-dollar life insurance arrangement maintained by
          the Company for the benefit of Employee, effective as of the
          Termination Date and based on Employee's service through the end of
          the Continuation Period;

               (iv) Effective as of the Termination Date, Employee will be
          credited with service with the Company for an additional 36 months for
          the purpose of determining service credits and benefits due and
          payable to Employee under the Company's retirement income,
          supplemental retirement and other benefit plans of the Company
          applicable to Employee, his dependents or his beneficiaries
          immediately prior to the Corporate Transaction;

               (v) If the Termination Date is prior to the Employee's attainment
          of age 55 or the fifth anniversary of the date of the Corporate
          Transaction, the Employee's qualified and non-qualified defined
          benefit plan retirement benefits shall be calculated as if Employee
          had attained at least age 55 and had at least five years of service
          from and after the date of the Corporate Transaction. Any additional
          benefit to which Employee is entitled pursuant to this Section 8(b)(v)
          shall be paid either by the Company directly or pursuant to the terms
          of the non-qualified plan.

               (vi) Effective as of the Termination Date the option (the "1998
          Option") to purchase Company stock granted to Employee pursuant to
          that certain Non-Qualified Stock Option Agreement dated as of
          September 25, 1998 by and between HCR and Employee shall be fully
          vested and exercisable in full as of such date; and

               (vii) Employee shall be permitted to elect to defer receipt of
          amounts payable to him, if any, under the Company's Senior Management
          Savings Plan and Senior Management Savings Plan for Corporate Officers
          until any date not later than the expiration of the Continuation
          Period.

          (c) Without limiting the rights of Employee at law or in equity, if
     the Company fails to make any payment or provide any benefit required to be
     made or provided under this Section 8 on a timely basis, the Company will
     pay interest on the amount or value thereof at an annualized rate of
     interest equal to the so-called composite

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     "prime rate" as quoted from time to time during the relevant period in the
     Midwest Edition of The Wall Street Journal. Any change in such prime rate
     will be effective on and as of the date such change is so published.

          (d) Notwithstanding any other provision hereof, the parties'
     respective rights and obligations under this Section 8 and under Section 11
     will survive:

             (i) any termination or expiration of this Agreement following a
          Corporate Transaction prior to the expiration of the Protected Term;
          and

             (ii) the termination of Employee's employment for any reason
          whatsoever following a Corporate Transaction prior to the expiration
          of the Protected Term.

     9. NO SET-OFF; NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible (a) for Employee to find
reasonably comparable employment following the Termination Date; and (b) to
measure the amount of damages which Employee may suffer as a result of
termination of employment hereunder. In addition, the Company acknowledges that
its severance pay plans applicable to corporate officers do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to
Employee in accordance with the terms of this Agreement is hereby acknowledged
by the Company to be reasonable and will be liquidated damages, and Employee
will not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of Employee
hereunder or otherwise, except as expressly provided in Sections 7(d) and (e)
and the last sentence of Section 8 (b)(ii).

     10. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

          (a) Anything in this Agreement to the contrary notwithstanding, in the
     event that a Corporate Transaction occurs prior to the expiration of the
     Protected Term and it shall be determined (as hereafter provided) that any
     payment or distribution by the Company or any of its affiliates to or for
     the benefit of Employee, whether paid or payable or distributed or
     distributable pursuant to the terms of this Agreement or otherwise pursuant
     to or by reason of any other agreement, policy, plan, program or
     arrangement, including without limitation any stock option, stock
     appreciation right or similar right, or the lapse or termination of any
     restriction on or the vesting or exercisability of any of the foregoing
     (collectively, a "Payment"), would be subject to the excise tax imposed by
     Section 4999 of the Internal Revenue Code (or any successor provision
     thereto) by reason of being considered "contingent on a change in ownership
     or control" of the Company, within the meaning of Section 280G of the
     Internal Revenue Code (or any successor provision thereto) or to any
     similar tax imposed by state or local law, or any interest or penalties
     with respect to such tax (such tax or taxes, together with any such
     interest and penalties, being hereafter collectively referred to as the
     "Excise

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     Tax"), then Employee shall be entitled to receive an additional payment or
     payments (collectively, a "Gross-Up Payment"); PROVIDED, HOWEVER, that no
     Gross-Up Payment shall be made with respect to the Excise Tax, if any,
     attributable to: (i) any incentive stock option, as defined by Section 422
     of the Internal Revenue Code ("ISO"), granted prior to the execution of
     this Agreement; or (ii) any stock appreciation or similar right, whether or
     not limited, granted in tandem with any ISO described in clause (i). The
     Gross-Up Payment shall be in an amount such that, after payment by Employee
     of all taxes, including any Excise Tax (and including any interest or
     penalties imposed with respect to such taxes), imposed upon the Gross-Up
     Payment, Employee retains an amount of the Gross-Up Payment equal to the
     Excise Tax imposed upon the Payment.

          (b) Subject to the provisions of Section 10(f) hereof, all
     determinations required to be made under this Section 10, including whether
     an Excise Tax is payable by Employee and the amount of such Excise Tax and
     whether a Gross-Up Payment is required to be paid by the Company to
     Employee and the amount of such Gross-Up Payment, if any, shall be made by
     a nationally recognized accounting firm (the "Accounting Firm") selected by
     the Company. The Company shall direct the Accounting Firm to submit its
     determination and detailed supporting calculations to both the Company and
     Employee within thirty (30) calendar days after any Termination Date
     arising pursuant to Section 8(a). If the Accounting Firm determines that
     any Excise Tax is payable by Employee, the Company shall pay the required
     Gross-Up Payment to Employee within five (5) business days after receipt of
     such determination. If the Accounting Firm determines that no Excise Tax is
     payable by Employee, it shall, at the same time as it makes such
     determination, furnish the Company and Employee an opinion that Employee
     has substantial authority not to report any Excise Tax on his federal,
     state or local income or other tax return. As a result of the uncertainty
     in the application of Section 4999 of the Internal Revenue Code (or any
     successor provision thereto) and the possibility of similar uncertainty
     regarding applicable state or local tax law at the time of any
     determination by the Accounting Firm hereunder, it is possible that a
     Gross-Up Payment which will not have been made by the Company should have
     been made (an "Underpayment"), consistent with the calculations required to
     be made hereunder. In the event that the Company exhausts or fails to
     pursue its remedies pursuant to Section 10(f) hereof and Employee
     thereafter is required to make a payment of any Excise Tax, Employee shall
     direct the Accounting Firm to determine the amount of the Underpayment that
     has occurred and to submit its determination and detailed supporting
     calculations to both the Company and Employee as promptly as possible. Any
     such Underpayment shall be promptly paid by the Company to, or for the
     benefit of, Employee within five business days after receipt of such
     determination and calculations.

          (c) The Company and Employee shall each provide the Accounting Firm
     access to and copies of any books, records and documents in the possession
     of the Company or Employee, as the case may be, reasonably requested by the
     Accounting Firm, and otherwise cooperate with the Accounting Firm in
     connection with the preparation and issuance of the determination and
     calculations contemplated by Section 10(b) hereof. Except as contemplated
     by Sections 10(f) or 10(g), any final determination

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     by the Accounting Firm as to the amount of the Gross-Up Payment shall be
     binding upon the Company and Employee.

          (d) The federal, state and local income or other tax returns filed by
     Employee shall be prepared and filed on a consistent basis with the
     determinations of the Accounting Firm with respect to the Excise Tax
     payable by Employee. Employee shall make proper payment of the amount of
     any Excise Payment, and at the request of the Company, provide to the
     company true and correct copies (with any amendments ) of his federal
     income tax return as filed with the Internal Revenue Service and
     corresponding state and local tax returns, if relevant, as filed with the
     applicable taxing authority, and such other documents reasonably requested
     by the Company, evidencing such payment. If prior to the filing of
     Employee's federal income tax return, or corresponding state or local tax
     return, if relevant, the Accounting Firm determines that the amount of the
     Gross-Up Payment should be reduced, Employee shall within five business
     days pay to the Company the amount of such reduction.

          (e) The fees and expenses of the Accounting Firm for its services in
     connection with the determinations and calculations contemplated by Section
     10(b) hereof shall be borne by the Company.

          (f) Employee shall notify the Company in writing of any claim by the
     Internal Revenue Service or any other taxing authority that, if successful,
     would require the payment by the Company of a Gross-Up Payment. Such
     notification shall be given as promptly as practicable but no later than 10
     business days after Employee actually receives notice of such claim and
     Employee shall further apprise the Company of the nature of such claim and
     the date on which such claim is requested to be paid (in each case, to the
     extent known by Employee). Employee shall not pay such claim prior to the
     earlier of: (i) the expiration of the ten (10) calendar day period
     following the date on which he gives such notice to the Company; and (ii)
     the date that any payment of such amount with respect to such claim is due.
     If the Company notifies Employee in writing prior to the expiration of such
     period that it desires to contest such claim, Employee shall:

               (A) provide the Company with any written records or documents in
          his possession relating to such claim reasonably requested by the
          Company;

               (B) take such action in connection with contesting such claim as
          the Company shall reasonably request in writing from time to time,
          including without limitation accepting legal representation with
          respect to such claim by an attorney competent in respect of the
          subject matter and reasonably selected by the Company;

               (C) cooperate with the Company in good faith in order effectively
          to contest such claim; and

                                       12
<PAGE>   13

               (D) permit the Company to participate in any proceedings relating
          to such claim;

PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless Employee, on an after-tax basis,
for and against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing provisions of this Section
10(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 10(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that Employee may participate therein at his own cost and expense) and
may, at its option, either direct Employee to pay the tax claimed and sue for
refund or contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, HOWEVER, that if the Company directs Employee
to pay the tax claimed and sue for a refund, the Company shall advance the
amount of such payment to Employee on an interest-free basis and shall indemnify
and hold Employee harmless, on an after tax basis, from any Excise Tax or income
or other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and PROVIDED, FURTHER, HOWEVER, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Employee with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

          (g) If, after the receipt by Employee of any amount advanced by the
     Company pursuant to Section 10(f) hereof, Employee receives any refund with
     respect to such claim, Employee shall (subject to the Company's complying
     with the requirements of Section 10(f) hereof) promptly pay to the Company
     the amount of such refund (together with any interest paid or credited
     thereon after any taxes applicable thereto). If, after the receipt by
     Employee of any amount advanced by the Company pursuant to Section 10(f)
     hereof, a determination is made that Employee shall not be entitled to any
     refund with respect to such claim and the Company does not notify Employee
     in writing of its intent to contest such denial or refund prior to the
     expiration of 30 calendar days after such determination, then such advance
     shall be forgiven and shall not be required to be repaid and the amount of
     any such advance shall offset, to the extent thereof, the amount of
     Gross-Up Payment required to be paid by the Company to Employee pursuant to
     this Section 10.

     11. LEGAL FEES AND EXPENSES. It is the intent of the Company that Employee
not be required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Employee's rights under Section 8 of
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits

                                       13
<PAGE>   14

intended to be extended to Employee hereunder. Accordingly, if the Company fails
to comply with any of its obligations under it this Agreement or in the event
that the Company or any other person takes any action to declare this Agreement
void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, Employee the benefits provided
or intended to be provided to Employee hereunder, the Company irrevocably
authorizes Employee from time to time to retain counsel of Employee's choice, at
the expense of the Company as hereafter provided, to advise and represent
Employee in connection with any such interpretation, enforcement or defense,
including, without limitation, the initiation or defense of any litigation or
other legal action, whether by or against the Company or any Director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction.
Without respect to whether Employee prevails, in whole or in part, in connection
with any of the foregoing, the Company will pay and be solely financially
responsible for any and all reasonable attorneys' and related fees and expenses
by Employee in connection with any of the foregoing.

     12. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CORPORATE TRANSACTION. Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or Employee to have Employee remain in the employment of the
Company prior to or following any Corporate Transaction. Any termination of
employment of Employee by the Company other than for Cause or by reason of his
death or disability pursuant to Sections 7(b), (d) or (e) during the period
beginning on the date that is sixty (60) days prior to the date of the first
public announcement by the Company of the potential occurrence of an event that
would constitute a Corporate Transaction and ending on the date of consummation
of such Corporate Transaction shall be deemed to be a termination of Employee
after a Corporate Transaction for purposes of this Agreement.

     13. NON-COMPETITION/NON-SOLICITATION.

          (a) COVENANT NOT TO COMPETE. Employee covenants and agrees that during
     Employee's employment with the Company and for a period of one (1) year
     following the termination of Employee's employment, including without
     limitation termination by the Company for cause or without cause, Employee
     shall not, in the United States of America, engage, directly or indirectly,
     whether as principal or as agent, officer, director, employee, consultant,
     shareholder or otherwise, alone or in association with any other person,
     corporation or other entity, in any Competing Business. Notwithstanding the
     foregoing, Employee may own, directly or indirectly, up to 1% of the
     outstanding equity of any business which may be a Competing Business
     without violating the provisions of this Section 13(a).

          (b) NON-SOLICITATION OF CUSTOMERS. Employee agrees that during his
     employment with the Company he shall not, directly or indirectly, solicit
     the business of, or do business with, any customer or prospective customer
     of the Company for any business purpose other than for the benefit of the
     Company. Employee further agrees that for one (1) year following
     termination of his employment with the Company, including without
     limitation termination by the Company for cause or without cause, Employee

                                       14
<PAGE>   15

     shall not, directly or indirectly, solicit the business of, or do business
     with, any customers or prospective customers of the Company.

          (c) NON-SOLICITATION OF EMPLOYEES. Employee agrees that, during his
     employment with the Company and for one (1) year following termination of
     Employee's employment with the Company, including without limitation
     termination by the Company for cause or without cause, Employee shall not,
     directly or indirectly, solicit or induce, or attempt to solicit or induce,
     any employee of the Company to leave the employment of the Company for any
     reason whatsoever, or hire any employee of the Company except into the
     employment of the Company.

     14. VESTING OF OPTIONS AND RESTRICTED STOCK; EMPLOYEE BENEFITS.

          (a) Upon the consummation of a Corporate Transaction prior to the
     expiration of the Protected Term,

               (i) all options to purchase Company stock, other than the 1998
          Option, then held by Employee shall be fully vested and exercisable in
          full as of such date;

               (ii) all shares of restricted Company stock issuable to Employee
          under outstanding restricted stock awards made to Employee prior to
          the date of such Corporate Transaction shall be issued to Employee as
          of such date; and

               (iii) the restrictions applicable to all shares of restricted
          stock then held by Employee (including shares issued pursuant to
          subsection (ii) above) shall lapse as of such date.

          (b) Except as otherwise expressly provided herein, no termination of
     Employee's employment with the Company will affect any rights which
     Employee may have pursuant to any agreement, policy, plan, program or
     arrangement of the Company providing Employee Benefits.

     15. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the Company is
required to withhold pursuant to any law or governmental regulation or ruling.

     16. SUCCESSORS AND BINDING AGREEMENT.

          (a) The Company will require all successors (whether direct or
     indirect, by purchase, merger, consolidation, reorganization or otherwise)
     to any substantial portion of the business or assets of the Company, by
     agreement in form and substance satisfactory to Employee, jointly and
     severally expressly to assume and agree to perform this Agreement in the
     same manner and to the same extent the Company would be required to perform
     if no such succession had taken place. This Agreement will be binding upon
     and inure to the benefit of the Company and any successor to the Company,

                                       15
<PAGE>   16

     including without limitation any persons acquiring directly or indirectly
     all or substantially all of the business or assets of the Company whether
     by purchase, merger, consolidation, reorganization or otherwise (and such
     successor shall thereafter be deemed the "Company" for the purposes of this
     Agreement), but will not otherwise be assignable, transferable or delegable
     by the Company.

          (b) This Agreement will inure to the benefit of and be enforceable by
     Employee's personal or legal representatives, executors, administrators,
     successors, heirs, distributees and legatees.

          (c) This Agreement is personal in nature and neither of the parties
     hereto shall, without the consent of the other, assign, transfer or
     delegate this Agreement or any rights or obligations hereunder except as
     expressly provided in Sections 16(a) and 16(b) hereof. Without limiting the
     generality or effect of the foregoing, Employee's right to receive payments
     hereunder will not be assignable, transferable or delegable, whether by
     pledge, creation of a security interest, or otherwise, other than by a
     transfer by Employee's will or by the laws of descent and distribution and,
     in the event of any attempted assignment or transfer contrary to this
     Section 16(c), the Company shall have no liability to pay any amount so
     attempted to be assigned, transferred or delegated.

     17. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic .facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express or UPS, addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to Employee at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.

     18. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.

     19. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal will be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid or legal.

     20. MISCELLANEOUS. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or

                                       16
<PAGE>   17

conditions at the same or at any prior or subsequent time. References to
Sections are to references to Sections of this Agreement.

     21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.

     22. TITLES. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

                                       THE COMPANY:

                                       HEALTH CARE AND RETIREMENT
                                       CORPORATION OF AMERICA

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

                                       Its:
                                           -------------------------

                                       HCR MANORCARE, INC.

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

                                       Its:
                                           -------------------------

                                       EMPLOYEE:

                                       -----------------------------
                                       GEOFFREY G. MEYERS

                                       17
<PAGE>   18

                                   SCHEDULE I
                                   ----------

Employee:
Current Base Rate:
Job Titles:

                                       18
<PAGE>   19

                                   SCHEDULE II
                                   -----------

Executive Retention Agreement

                                       19<PAGE>   1
                                                                   Exhibit 10.17

                               SEVERANCE AGREEMENT
                               -------------------

     This SEVERANCE AGREEMENT ("Agreement"), effective as of August 20, 1999
between HEALTH CARE AND RETIREMENT CORPORATION OF AMERICA, an Ohio corporation
(the "Company"), HCR MANORCARE, INC., a Delaware corporation and sole
stockholder of the Company ("HCR") and R. JEFFREY BIXLER ("Employee"),
supersedes and replaces all prior employment agreements between the parties
hereto.

                                    RECITALS
                                    --------

A.   The Company has agreed to provide severance benefits to Employee upon a
     termination of Employee's employment resulting from certain specified
     events.

B.   The Company wishes to insure that its senior executives and other key
     employees are not practically disabled from discharging their duties in
     respect to a proposed or actual Corporate Transaction.

C.   The Company desires to assure itself of both present and future continuity
     of management and desires to establish certain minimum severance benefits
     for certain of its senior executive officers and other key employees,
     including Employee, applicable in the event of a Corporate Transaction.

                                     EVENTS
                                     ------

     In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Employee and the Company hereby agree as follows:

     1. CERTAIN DEFINED TERMS. The following terms have the meanings set forth
below:

          (a) "Accounting Firm" is defined in Section 10(b).

          (b) "Aggregate Cash Compensation" means at the time of any
     determination, the sum of: (A) the Employee's Base Pay, (B) the Employee's
     Annual Incentive Plan bonus payable for the year in which the Termination
     Date occurs, calculated by multiplying the product of the Employee's Base
     Pay and the Employee's bonus percentage by 200%, and (C) the Employee's
     Performance Award Plan award payable for the award period ending with the
     year in which the Termination Date occurs at maximum performance level.

          (c) "Base Pay" means Employee's annual base salary as in effect at any
     time of determination

<PAGE>   2

          (d) "Board" means the Board of Directors of HCR.

          (e) "Cause" means Employee's financial dishonesty, fraud in the
     performance of his duties, willful failure to perform assigned duties
     hereunder or the commission of a felony.

          (f) "Change in Control" means the occurrence during the Protected Term
     of any of the following events, but only to the extent such events do not
     constitute a Merger of Equals:

               (i) HCR is merged, consolidated or reorganized into or with
          another corporation or other legal person, and as a result of such
          merger, consolidation or reorganization less than sixty-five percent
          of the combined voting power of the then outstanding securities of
          such resulting corporation or person immediately after such
          transaction are held in the aggregate by the holders of Voting Stock
          of HCR immediately prior to such transaction;

               (ii) HCR sells or otherwise transfers all or substantially all of
          its assets to another corporation or other legal person, and as a
          result of such sale or transfer less than sixty-five percent of the
          combined voting power of the then outstanding Voting Stock of such
          corporation or person immediately after such sale or transfer is held
          in the aggregate by the holders of Voting Stock of HCR immediately
          prior to such sale or transfer;

               (iii) There is a report filed on Schedule 13D or Schedule 14D-1
          (or any successor schedule, form or report), each as promulgated
          pursuant to the Exchange Act, disclosing that any person (as the term
          "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
          Exchange Act) has become the beneficial owner (as the term "beneficial
          owner" is defined under Rule l3d-3 or any successor rule or regulation
          promulgated under the Exchange Act) of 15% or more of the then
          outstanding Voting Stock of HCR;

               (iv) HCR files a report or proxy statement with the Securities
          and Exchange Commission pursuant to the Exchange Act disclosing in
          response to Form 8-K or Schedule 14A (or any successor schedule, form
          or report or item therein) that a Change in Control of HCR has
          occurred or will occur in the future pursuant to any then existing
          contract or transaction; or

               (v) If, during any consecutive twelve month period, individuals
          who at the beginning of any such period constitute the Directors cease
          for any reason to constitute at least a majority thereof, PROVIDED,
          HOWEVER, that for purposes of this clause (v) each Director who is
          first elected, or first nominated for election by HCR's stockholders,
          by a vote of at least one-half of the Directors (or a committee
          thereof) then still in office who were Directors at the beginning of
          any such period will be deemed to have been a Director at the
          beginning of such period.

                                       2
<PAGE>   3

          Notwithstanding the foregoing provisions of Sections l(f)(iii) or
     1(f)(iv), unless otherwise determined in a specific case by majority vote
     of the Board, a "Change in Control" shall not be deemed to have occurred
     for purposes of Sections l(f)(iii) or 1(f)(iv) solely because (1) HCR, (2)
     any Subsidiary (including, without limitation, the Company) or (3) any
     employee stock ownership plan or any other employee benefit plan of HCR or
     any Subsidiary either files or becomes obligated to file a report or a
     proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
     8-K or Schedule 14A (or any successor schedule, form or report or item
     therein) under the Exchange Act disclosing beneficial ownership by it of
     shares of Voting Stock of HCR, whether in excess of 15% or otherwise, or
     because HCR reports that a change in control of HCR has occurred or will
     occur in the future by reason of such beneficial ownership.

          (g) "Competing Business" shall mean any person, corporation or
     other entity engaged in the United States of America in providing long-term
     care, skilled nursing or rehabilitative services or selling or attempting
     to sell or providing or attempting to provide any other product or service
     which is the same as or similar to products or services sold or provided by
     the Company within the last 2 years prior to termination of Employee's
     employment hereunder.

          (h) "Continuation Period" means the thirty-six months immediately
     following the Termination Date.

          (i) "Corporate Transaction" means either a Change of Control or a
     Merger of Equals.

          (j) "Director" means a member of the Board.

          (k) "Employee Benefits" means the perquisites and benefits as provided
     under any and all employee retirement income and welfare benefit policies,
     plans, programs or arrangements in which Employee is entitled to
     participate at any time of determination, including, without limitation,
     any stock option, stock purchase, stock appreciation, savings, pension,
     supplemental employee retirement, or other retirement income or welfare
     benefit, deferred compensation, incentive compensation, group or other
     life, health, medical/hospital or other insurance (whether funded by actual
     insurance or self-insured by the Company), disability, salary continuation,
     expense reimbursement and other employee benefit policies.

          (l) "Exchange Act" means the Securities Exchange Act of 1934, as
     amended.

          (m) "Excise Tax" is defined in Section 10(a).

          (n) "Gross-Up Payment" is defined in Section 10(a).

          (o) "ISO" is defined in Section 10(a).

                                       3
<PAGE>   4

          (p) "Merger of Equals" means during the Protected Term the merger or
     consolidation of HCR with another corporation or other legal person and (i)
     as a result of such merger or consolidation less than sixty-five percent
     but more than thirty-five percent of the combined voting power of the then
     outstanding securities of the resulting corporation or person (the
     "Surviving Entity") immediately after such transaction are held in the
     aggregate by holders of Voting Stock of HCR immediately prior to such
     transaction and (ii) on the first anniversary of the transaction either:

               (i) (A) a majority of the executive officers of the Surviving
          Entity are individuals who were executive officers of HCR immediately
          prior to the transaction; or

               (ii) (B) a majority of the directors of the Surviving Entity are
          individuals who were directors of HCR immediately prior to the
          transaction.

          (q) "Payment" is defined in Section 10(a).

          (r) "Protected Term" means the three year period commencing as of the
     date hereof and expiring as of the close of business on the third
     anniversary hereof; PROVIDED, HOWEVER, that: (i) the term of this Agreement
     will automatically be extended for successive one year periods unless, not
     later than 90 days prior to the expiration of the then applicable term
     either party shall have given notice that it does not wish to have the
     Protected Term extended; and (ii) except as otherwise provided in the last
     sentence of Section 12, if, prior to a Corporate Transaction, Employee
     ceases for any reason to be an employee of the Company, thereupon without
     further action the Protected Term shall be deemed to have expired and
     Sections 8, 10, 11 and 14(a) and the last sentence of Section 12 of this
     Agreement and the portion of any other provision of this Agreement that
     incorporates such provisions will immediately terminate and be of no
     further effect. For purposes of this Section l(r), Employee shall not be
     deemed to have ceased to be an employee of the Company by reason of the
     transfer of Employee's employment between or among HCR and the Company or
     any other Subsidiary.

          (s) "Severance Period" means the period of time commencing on the date
     of the occurrence of a Corporate Transaction and continuing until the
     earliest of (i) the third anniversary of the occurrence of the Corporate
     Transaction, or (ii) Employee's death.

          (t) "Severance Benefits" are defined in Section 8(b).

          (u) "Subsidiary" means any entity in which HCR directly or indirectly
     beneficially owns 50% or more of the then outstanding Voting Stock.

          (v) "Termination Date" means the effective date of Employee's
     termination of employment with the Company; provided that for purposes of
     this Section 1(v), Employee shall not be deemed to have ceased to be an
     employee of the Company by reason of the transfer of Employee's employment
     between or among HCR and the Company or any other Subsidiary.

                                       4
<PAGE>   5

          (w) "Underpayment" is defined in Section 10(a).

          (x) "Voting Stock" means securities entitled to vote generally in the
     election of directors.

     2. SALARY AND POSITION. Employee's Base Pay and job title shown on Schedule
I are correct as of the date hereof and in accordance with Employee's
understanding.

     3. AT-WILL EMPLOYMENT. Employee's employment with the Company is not for
any specified term and may be terminated by Employee or by the Company at any
time for any reason, with or without Cause.

     4. NO OTHER AGREEMENTS. Except as specifically set forth herein and in
Schedule II attached hereto, Employee represents and warrants that there are no
other written or oral agreements, understandings or commitments relating to
Employee's severance entitlements upon termination.

     5. ENTIRE AGREEMENT. This Agreement and the agreements listed in Schedule
II attached hereto constitute the complete agreement between Employee and the
Company regarding severance upon termination of their employment relationship
and supersede any and all prior written or oral agreements, understandings or
commitments. Employee understands that no representative of the Company has been
authorized to enter into any agreement, understanding or commitment with
Employee which is inconsistent in any way with the terms of this Agreement.

     6. PROHIBITION AGAINST AMENDMENT. Employee's Base Pay may be modified by
the Company at any time in its sole discretion. The Employee Benefits in which
Employee is entitled to participate or receive may be improved, reduced or
terminated by the Company at any time in its sole discretion; provided, however,
that no vested or accrued benefit shall be adversely affected. No term set forth
in this Agreement, including without limitation the terms set forth in Section 3
hereof, may be modified in any way except by a written agreement signed by
Employee and by an authorized representative of the Company which expressly
states the intention of the parties to modify the terms of this Agreement.

     7. SEVERANCE PAYMENT NOT FOLLOWING A CORPORATE TRANSACTION. Except as
provided in Section 8:

          (a) Upon the termination of Employee's employment as a result of
     Employee's electing to resign his employment or to retire without the
     consent of the Company, no payments shall be required or made pursuant to
     this Section 7.

          (b) Upon the termination of Employee's employment by the Company for
     Cause, no payments shall be required or made pursuant to this Section 7.

          (c) Upon the termination of Employee's employment by the Company for
     any reason other than for Cause, death or disability, the Company shall
     continue payment of Employee's Base Pay, at the rate then in effect on the
     Termination Date, for a period of

                                       5
<PAGE>   6

     three years after such Termination Date. The Company shall give thirty (30)
     days written notice of any such termination which notice shall specify the
     Termination Date.

          (d) Upon the termination of Employee's employment as a result of the
     death of Employee, the Company shall continue payment of Employee's Base
     Pay, at the rate then in effect on the Termination Date, for a period of
     three years after such Termination Date; PROVIDED, HOWEVER, that such
     payments shall be offset by any survivor benefits, excluding life insurance
     proceeds, received by Employee's spouse or other designated beneficiary
     under the Company's plans, programs and policies.

          (e) Upon the termination of Employee's employment as a result of his
     becoming unable to perform his duties due to a disability as established by
     the award of long-term disability benefits under the Company's long-term
     disability plan, the Company may terminate Employee's employment by giving
     Employee thirty (30) days written notice of its intention to terminate. In
     such event, Company shall continue payment of Employee's Base Pay, at the
     rate then in effect on the Termination Date, for a period of three years
     after such Termination Date; provided, however, that such payments shall be
     offset by any disability benefits received by Employee, or his legal
     guardian, under the Company's plans, programs and policies.

          (f) Notwithstanding anything to the contrary contained in this Section
     7, upon the termination of Employee's employment for any reason other than
     pursuant to Section 8, whether voluntarily or involuntarily and whether
     with or without Cause, Employee shall be entitled to the payments provided
     for hereunder and such rights as he otherwise has under the Company's
     Restricted Stock Plan and the Company's Stock Option Plan in the
     circumstances of his particular termination.

     8. TERMINATION FOLLOWING A CORPORATE TRANSACTION.

          (a) ELIGIBILITY FOR SEVERANCE BENEFITS.

               (i) If, during the Severance Period, Employee's employment is
          terminated by the Company other than for Cause and other than as a
          result of his death or disability pursuant to Section 7(d) or (e),
          Employee shall be entitled to the Severance Benefits.

               (ii) Following the consummation of a Corporate Transaction and
          the occurrence of one of the following events, Employee may elect,
          within either the 6 month period following the occurrence of one of
          the following events, or the 180 day period following the first
          anniversary of the Corporate Transaction, to terminate employment with
          the Company and receive the Severance Benefits (pursuant to written
          notice to the Board specifying the effective date of such termination
          which shall not be earlier than the date of the Board's receipt of
          such notice and shall not be later than the end of such six month or
          180 day period, as applicable):

                                       6
<PAGE>   7

                    (A) Failure to elect or reelect or otherwise to maintain
               Employee in the office or position, or a substantially equivalent
               office or position, of or with the Company, HCR, or any successor
               thereof, as the case may be, which Employee held immediately
               prior to the Corporate Transaction , or the removal of Employee
               as a Director (or as a member of the board of directors of any
               successor thereto) or Chairman of the Board if Employee shall
               have been a Director or Chairman of the Board immediately prior
               to the Corporate Transaction;

                    (A) The occurrence of any of the following which is not
                    remedied within 10 calendar days after written notice to the
                    Board (or the board of any successor) from Employee:

                         (I) a significant adverse change, whether such change
                    involves a reduction or expansion, in the nature or scope of
                    the authorities, positions, powers, functions,
                    responsibilities or duties attached to the position with the
                    Company, HCR, or any successor thereof, as the case may be,
                    which Employee held immediately prior to the Corporate
                    Transaction, including but not limited to any change in the
                    reporting lines, offices and/or positions to which Employee
                    reported immediately prior to the Corporate Transaction
                    and/or changes due to HCR or any successor no longer being a
                    reporting company under the Exchange Act;

                         (II) a reduction in Employee's Base Pay as in effect
                    immediately prior to the Corporate Transaction;

                         (III) a material reduction in the scope or value of
                    Employee Benefits as in effect immediately prior to the
                    Corporate Transaction;

                         (IV) any material breach of this Agreement by the
                    Company, HCR, or any successor thereof; or

                         (V) the continuation or repetition of harassing or
                    denigrating treatment of Employee which is inconsistent with
                    Employee's position with the Company, HCR, or any successor
                    thereof.

                    (B) The liquidation, dissolution, merger, consolidation or
               reorganization of the Company or HCR, or transfer of all or
               substantially all of its business and/or assets, unless the
               surviving or successor entity, if other than the Company or HCR
               (by liquidation, merger, consolidation, reorganization, transfer
               or otherwise), to which all or substantially all of such business
               and/or assets have been transferred (directly or by operation

                                       7
<PAGE>   8

               of law) assumes all duties and obligations of the Company and HCR
               under this Agreement pursuant to Section 16(a);

                    (C) The Company, HCR, or any successor thereof, as the case
               may be, by which Employee is employed relocates its principal
               executive offices, or requires Employee to have his principal
               location of work changed, to any location which increases by more
               than 25 miles Employee's commute to such location immediately
               prior to the Corporate Transaction, or requires Employee to
               travel away from his office in the course of discharging his
               responsibilities or duties hereunder at least 20% more (in terms
               of aggregate days in any calendar year or in any calendar quarter
               when annualized for purposes of comparison to any prior year)
               than the average of such time that was required of Employee in
               the three full years immediately prior to the Corporate
               Transaction without, in either case, his prior written consent.

               (iii) If Employee elects to terminate employment with the Company
          or any successor, as the case may be, for any reason, or without
          reason, during such portion of the 180-day period immediately
          following the first anniversary of the occurrence of any Change in
          Control, Employee shall be entitled to the Severance Benefits.

          (b) SEVERANCE BENEFITS. If, Employee's employment with the Company is
     terminated pursuant to Section 8(a), the Company will pay to Employee the
     following amounts within five business days after the Termination Date and
     will provide to Employee the following benefits (collectively, the
     "Severance Benefits"):

               (i) A lump sum payment equal to three times Employee's Aggregate
          Cash Compensation for the year in which the Termination Date occurs;

               (ii) During the Continuation Period:

                    (A) the Company will arrange to provide Employee with group
               medical, dental and vision benefits substantially similar to
               those which Employee was receiving or entitled to receive
               immediately prior to the Corporate Transaction; and

                    (B) the Company (or successor) will provide Employee the use
               of office space, furnishings and secretarial support services
               comparable to those provided to Employee immediately prior to the
               Corporate Transaction;

                    If and to the extent that any benefit described in Section
               8(b)(ii)(A) is not or cannot be paid or provided under any
               policy, plan program or arrangement of the Company, then the
               Company will pay or provide for the payment to Employee, his
               dependents and beneficiaries, of such

                                       8
<PAGE>   9

               Employee Benefits in any manner selected by the Company. Without
               otherwise limiting the purposes or effect of Section 8, Employee
               Benefits otherwise receivable by Employee pursuant to Section
               8(b)(ii)(A) will be reduced to the extent comparable welfare
               benefits are actually received by Employee from another employer
               during the Continuation Period, and any such benefits received by
               Employee shall be reported by Employee to the Company.

               (iii) The Company shall take whatever action is necessary to fund
          completely any split-dollar life insurance arrangement maintained by
          the Company for the benefit of Employee, effective as of the
          Termination Date and based on Employee's service through the end of
          the Continuation Period;

               (iv) Effective as of the Termination Date, Employee will be
          credited with service with the Company for an additional 36 months for
          the purpose of determining service credits and benefits due and
          payable to Employee under the Company's retirement income,
          supplemental retirement and other benefit plans of the Company
          applicable to Employee, his dependents or his beneficiaries
          immediately prior to the Corporate Transaction;

               (v) If the Termination Date is prior to the Employee's attainment
          of age 55 or the fifth anniversary of the date of the Corporate
          Transaction, the Employee's qualified and non-qualified defined
          benefit plan retirement benefits shall be calculated as if Employee
          had attained at least age 55 and had at least five years of service
          from and after the date of the Corporate Transaction. Any additional
          benefit to which Employee is entitled pursuant to this Section 8(b)(v)
          shall be paid either by the Company directly or pursuant to the terms
          of the non-qualified plan.

               (vi) Effective as of the Termination Date the option (the "1998
          Option") to purchase Company stock granted to Employee pursuant to
          that certain Non-Qualified Stock Option Agreement dated as of
          September 25, 1998 by and between HCR and Employee shall be fully
          vested and exercisable in full as of such date; and

               (vii) Employee shall be permitted to elect to defer receipt of
          amounts payable to him, if any, under the Company's Senior Management
          Savings Plan and Senior Management Savings Plan for Corporate Officers
          until any date not later than the expiration of the Continuation
          Period.

          (c) Without limiting the rights of Employee at law or in equity, if
     the Company fails to make any payment or provide any benefit required to be
     made or provided under this Section 8 on a timely basis, the Company will
     pay interest on the amount or value thereof at an annualized rate of
     interest equal to the so-called composite "prime rate" as quoted from time
     to time during the relevant period in the Midwest

                                       9
<PAGE>   10

     Edition of The Wall Street Journal. Any change in such prime rate will be
     effective on and as of the date such change is so published.

          (d) Notwithstanding any other provision hereof, the parties'
     respective rights and obligations under this Section 8 and under Section 11
     will survive:

               (i) any termination or expiration of this Agreement following a
          Corporate Transaction prior to the expiration of the Protected Term;
          and

               (ii) the termination of Employee's employment for any reason
          whatsoever following a Corporate Transaction prior to the expiration
          of the Protected Term.

     9. NO SET-OFF; NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible (a) for Employee to find
reasonably comparable employment following the Termination Date; and (b) to
measure the amount of damages which Employee may suffer as a result of
termination of employment hereunder. In addition, the Company acknowledges that
its severance pay plans applicable to corporate officers do not provide for
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to
Employee in accordance with the terms of this Agreement is hereby acknowledged
by the Company to be reasonable and will be liquidated damages, and Employee
will not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of Employee
hereunder or otherwise, except as expressly provided in Sections 7(d) and (e)
and the last sentence of Section 8 (b)(ii).

     10. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

          (a) Anything in this Agreement to the contrary notwithstanding, in the
     event that a Corporate Transaction occurs prior to the expiration of the
     Protected Term and it shall be determined (as hereafter provided) that any
     payment or distribution by the Company or any of its affiliates to or for
     the benefit of Employee, whether paid or payable or distributed or
     distributable pursuant to the terms of this Agreement or otherwise pursuant
     to or by reason of any other agreement, policy, plan, program or
     arrangement, including without limitation any stock option, stock
     appreciation right or similar right, or the lapse or termination of any
     restriction on or the vesting or exercisability of any of the foregoing
     (collectively, a "Payment"), would be subject to the excise tax imposed by
     Section 4999 of the Internal Revenue Code (or any successor provision
     thereto) by reason of being considered "contingent on a change in ownership
     or control" of the Company, within the meaning of Section 280G of the
     Internal Revenue Code (or any successor provision thereto) or to any
     similar tax imposed by state or local law, or any interest or penalties
     with respect to such tax (such tax or taxes, together with any such
     interest and penalties, being hereafter collectively referred to as the
     "Excise Tax"), then Employee shall be entitled to receive an additional
     payment or payments

                                       10
<PAGE>   11

     (collectively, a "Gross-Up Payment"); PROVIDED, HOWEVER, that no Gross-Up
     Payment shall be made with respect to the Excise Tax, if any, attributable
     to: (i) any incentive stock option, as defined by Section 422 of the
     Internal Revenue Code ("ISO"), granted prior to the execution of this
     Agreement; or (ii) any stock appreciation or similar right, whether or not
     limited, granted in tandem with any ISO described in clause (i). The
     Gross-Up Payment shall be in an amount such that, after payment by Employee
     of all taxes, including any Excise Tax (and including any interest or
     penalties imposed with respect to such taxes), imposed upon the Gross-Up
     Payment, Employee retains an amount of the Gross-Up Payment equal to the
     Excise Tax imposed upon the Payment.

          (b) Subject to the provisions of Section 10(f) hereof, all
     determinations required to be made under this Section 10, including whether
     an Excise Tax is payable by Employee and the amount of such Excise Tax and
     whether a Gross-Up Payment is required to be paid by the Company to
     Employee and the amount of such Gross-Up Payment, if any, shall be made by
     a nationally recognized accounting firm (the "Accounting Firm") selected by
     the Company. The Company shall direct the Accounting Firm to submit its
     determination and detailed supporting calculations to both the Company and
     Employee within thirty (30) calendar days after any Termination Date
     arising pursuant to Section 8(a). If the Accounting Firm determines that
     any Excise Tax is payable by Employee, the Company shall pay the required
     Gross-Up Payment to Employee within five (5) business days after receipt of
     such determination. If the Accounting Firm determines that no Excise Tax is
     payable by Employee, it shall, at the same time as it makes such
     determination, furnish the Company and Employee an opinion that Employee
     has substantial authority not to report any Excise Tax on his federal,
     state or local income or other tax return. As a result of the uncertainty
     in the application of Section 4999 of the Internal Revenue Code (or any
     successor provision thereto) and the possibility of similar uncertainty
     regarding applicable state or local tax law at the time of any
     determination by the Accounting Firm hereunder, it is possible that a
     Gross-Up Payment which will not have been made by the Company should have
     been made (an "Underpayment"), consistent with the calculations required to
     be made hereunder. In the event that the Company exhausts or fails to
     pursue its remedies pursuant to Section 10(f) hereof and Employee
     thereafter is required to make a payment of any Excise Tax, Employee shall
     direct the Accounting Firm to determine the amount of the Underpayment that
     has occurred and to submit its determination and detailed supporting
     calculations to both the Company and Employee as promptly as possible. Any
     such Underpayment shall be promptly paid by the Company to, or for the
     benefit of, Employee within five business days after receipt of such
     determination and calculations.

          (c) The Company and Employee shall each provide the Accounting Firm
     access to and copies of any books, records and documents in the possession
     of the Company or Employee, as the case may be, reasonably requested by the
     Accounting Firm, and otherwise cooperate with the Accounting Firm in
     connection with the preparation and issuance of the determination and
     calculations contemplated by Section 10(b) hereof. Except as contemplated
     by Sections 10(f) or 10(g), any final determination

                                       11
<PAGE>   12

     by the Accounting Firm as to the amount of the Gross-Up Payment shall be
     binding upon the Company and Employee.

          (d) The federal, state and local income or other tax returns filed by
     Employee shall be prepared and filed on a consistent basis with the
     determinations of the Accounting Firm with respect to the Excise Tax
     payable by Employee. Employee shall make proper payment of the amount of
     any Excise Payment, and at the request of the Company, provide to the
     company true and correct copies (with any amendments ) of his federal
     income tax return as filed with the Internal Revenue Service and
     corresponding state and local tax returns, if relevant, as filed with the
     applicable taxing authority, and such other documents reasonably requested
     by the Company, evidencing such payment. If prior to the filing of
     Employee's federal income tax return, or corresponding state or local tax
     return, if relevant, the Accounting Firm determines that the amount of the
     Gross-Up Payment should be reduced, Employee shall within five business
     days pay to the Company the amount of such reduction.

          (e) The fees and expenses of the Accounting Firm for its services in
     connection with the determinations and calculations contemplated by Section
     10(b) hereof shall be borne by the Company.

          (f) Employee shall notify the Company in writing of any claim by the
     Internal Revenue Service or any other taxing authority that, if successful,
     would require the payment by the Company of a Gross-Up Payment. Such
     notification shall be given as promptly as practicable but no later than 10
     business days after Employee actually receives notice of such claim and
     Employee shall further apprise the Company of the nature of such claim and
     the date on which such claim is requested to be paid (in each case, to the
     extent known by Employee). Employee shall not pay such claim prior to the
     earlier of: (i) the expiration of the ten (10) calendar day period
     following the date on which he gives such notice to the Company; and (ii)
     the date that any payment of such amount with respect to such claim is due.
     If the Company notifies Employee in writing prior to the expiration of such
     period that it desires to contest such claim, Employee shall:

               (A) provide the Company with any written records or documents in
          his possession relating to such claim reasonably requested by the
          Company;

               (B) take such action in connection with contesting such claim as
          the Company shall reasonably request in writing from time to time,
          including without limitation accepting legal representation with
          respect to such claim by an attorney competent in respect of the
          subject matter and reasonably selected by the Company;

               (C) cooperate with the Company in good faith in order effectively
          to contest such claim; and

                                       12
<PAGE>   13

               (D) permit the Company to participate in any proceedings relating
          to such claim;

PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless Employee, on an after-tax basis,
for and against any Excise Tax or income tax, including interest and penalties
with respect thereto, imposed as a result of such representation and payment of
costs and expenses. Without limiting the foregoing provisions of this Section
10(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 10(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that Employee may participate therein at his own cost and expense) and
may, at its option, either direct Employee to pay the tax claimed and sue for
refund or contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; PROVIDED, HOWEVER, that if the Company directs Employee
to pay the tax claimed and sue for a refund, the Company shall advance the
amount of such payment to Employee on an interest-free basis and shall indemnify
and hold Employee harmless, on an after tax basis, from any Excise Tax or income
or other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; and PROVIDED, FURTHER, HOWEVER, that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
Employee with respect to which the contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
any such contested claim shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Employee shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

          (g) If, after the receipt by Employee of any amount advanced by the
     Company pursuant to Section 10(f) hereof, Employee receives any refund with
     respect to such claim, Employee shall (subject to the Company's complying
     with the requirements of Section 10(f) hereof) promptly pay to the Company
     the amount of such refund (together with any interest paid or credited
     thereon after any taxes applicable thereto). If, after the receipt by
     Employee of any amount advanced by the Company pursuant to Section 10(f)
     hereof, a determination is made that Employee shall not be entitled to any
     refund with respect to such claim and the Company does not notify Employee
     in writing of its intent to contest such denial or refund prior to the
     expiration of 30 calendar days after such determination, then such advance
     shall be forgiven and shall not be required to be repaid and the amount of
     any such advance shall offset, to the extent thereof, the amount of
     Gross-Up Payment required to be paid by the Company to Employee pursuant to
     this Section 10.

     11. LEGAL FEES AND EXPENSES. It is the intent of the Company that Employee
not be required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Employee's rights under Section 8 of
this Agreement by litigation or otherwise because the cost and expense thereof
would substantially detract from the benefits

                                       13
<PAGE>   14

intended to be extended to Employee hereunder. Accordingly, if the Company fails
to comply with any of its obligations under it this Agreement or in the event
that the Company or any other person takes any action to declare this Agreement
void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, Employee the benefits provided
or intended to be provided to Employee hereunder, the Company irrevocably
authorizes Employee from time to time to retain counsel of Employee's choice, at
the expense of the Company as hereafter provided, to advise and represent
Employee in connection with any such interpretation, enforcement or defense,
including, without limitation, the initiation or defense of any litigation or
other legal action, whether by or against the Company or any Director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction.
Without respect to whether Employee prevails, in whole or in part, in connection
with any of the foregoing, the Company will pay and be solely financially
responsible for any and all reasonable attorneys' and related fees and expenses
by Employee in connection with any of the foregoing.

     12. EMPLOYMENT RIGHTS; TERMINATION PRIOR TO CORPORATE TRANSACTION. Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or Employee to have Employee remain in the employment of the
Company prior to or following any Corporate Transaction. Any termination of
employment of Employee by the Company other than for Cause or by reason of his
death or disability pursuant to Sections 7(b), (d) or (e) during the period
beginning on the date that is sixty (60) days prior to the date of the first
public announcement by the Company of the potential occurrence of an event that
would constitute a Corporate Transaction and ending on the date of consummation
of such Corporate Transaction shall be deemed to be a termination of Employee
after a Corporate Transaction for purposes of this Agreement.

     13. NON-COMPETITION/NON-SOLICITATION.

          (a) COVENANT NOT TO COMPETE. Employee covenants and agrees that during
     Employee's employment with the Company and for a period of one (1) year
     following the termination of Employee's employment, including without
     limitation termination by the Company for cause or without cause, Employee
     shall not, in the United States of America, engage, directly or indirectly,
     whether as principal or as agent, officer, director, employee, consultant,
     shareholder or otherwise, alone or in association with any other person,
     corporation or other entity, in any Competing Business. Notwithstanding the
     foregoing, Employee may own, directly or indirectly, up to 1% of the
     outstanding equity of any business which may be a Competing Business
     without violating the provisions of this Section 13(a).

          (b) NON-SOLICITATION OF CUSTOMERS. Employee agrees that during his
     employment with the Company he shall not, directly or indirectly, solicit
     the business of, or do business with, any customer or prospective customer
     of the Company for any business purpose other than for the benefit of the
     Company. Employee further agrees that for one (1) year following
     termination of his employment with the Company, including without
     limitation termination by the Company for cause or without cause, Employee

                                       14
<PAGE>   15

     shall not, directly or indirectly, solicit the business of, or do business
     with, any customers or prospective customers of the Company.

          (c) NON-SOLICITATION OF EMPLOYEES. Employee agrees that, during his
     employment with the Company and for one (1) year following termination of
     Employee's employment with the Company, including without limitation
     termination by the Company for cause or without cause, Employee shall not,
     directly or indirectly, solicit or induce, or attempt to solicit or induce,
     any employee of the Company to leave the employment of the Company for any
     reason whatsoever, or hire any employee of the Company except into the
     employment of the Company.

     14. VESTING OF OPTIONS AND RESTRICTED STOCK; EMPLOYEE BENEFITS.

          (a) Upon the consummation of a Corporate Transaction prior to the
     expiration of the Protected Term,

               (i) all options to purchase Company stock, other than the 1998
          Option, then held by Employee shall be fully vested and exercisable in
          full as of such date;

               (ii) all shares of restricted Company stock issuable to Employee
          under outstanding restricted stock awards made to Employee prior to
          the date of such Corporate Transaction shall be issued to Employee as
          of such date; and

               (iii) the restrictions applicable to all shares of restricted
          stock then held by Employee (including shares issued pursuant to
          subsection (ii) above) shall lapse as of such date.

          (b) Except as otherwise expressly provided herein, no termination of
     Employee's employment with the Company will affect any rights which
     Employee may have pursuant to any agreement, policy, plan, program or
     arrangement of the Company providing Employee Benefits.

     15. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the Company is
required to withhold pursuant to any law or governmental regulation or ruling.

     16. SUCCESSORS AND BINDING AGREEMENT.

          (a) The Company will require all successors (whether direct or
     indirect, by purchase, merger, consolidation, reorganization or otherwise)
     to any substantial portion of the business or assets of the Company, by
     agreement in form and substance satisfactory to Employee, jointly and
     severally expressly to assume and agree to perform this Agreement in the
     same manner and to the same extent the Company would be required to perform
     if no such succession had taken place. This Agreement will be binding upon
     and inure to the benefit of the Company and any successor to the Company,

                                       15
<PAGE>   16

     including without limitation any persons acquiring directly or indirectly
     all or substantially all of the business or assets of the Company whether
     by purchase, merger, consolidation, reorganization or otherwise (and such
     successor shall thereafter be deemed the "Company" for the purposes of this
     Agreement), but will not otherwise be assignable, transferable or delegable
     by the Company.

          (b) This Agreement will inure to the benefit of and be enforceable by
     Employee's personal or legal representatives, executors, administrators,
     successors, heirs, distributees and legatees.

          (c) This Agreement is personal in nature and neither of the parties
     hereto shall, without the consent of the other, assign, transfer or
     delegate this Agreement or any rights or obligations hereunder except as
     expressly provided in Sections 16(a) and 16(b) hereof. Without limiting the
     generality or effect of the foregoing, Employee's right to receive payments
     hereunder will not be assignable, transferable or delegable, whether by
     pledge, creation of a security interest, or otherwise, other than by a
     transfer by Employee's will or by the laws of descent and distribution and,
     in the event of any attempted assignment or transfer contrary to this
     Section 16(c), the Company shall have no liability to pay any amount so
     attempted to be assigned, transferred or delegated.

     17. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic .facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express or UPS, addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to Employee at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.

     18. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.

     19. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be affected, and
the provision so held to be invalid, unenforceable or otherwise illegal will be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid or legal.

     20. MISCELLANEOUS. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition or provision
of this Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or

                                       16
<PAGE>   17

conditions at the same or at any prior or subsequent time. References to
Sections are to references to Sections of this Agreement.

     21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.

     22. TITLES. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

                                       THE COMPANY:

                                       HEALTH CARE AND RETIREMENT
                                       CORPORATION OF AMERICA

                                       By:
                                          -------------------------------
                                       Its:
                                           ------------------------------

                                       HCR MANORCARE, INC.

                                       By:
                                          -------------------------------
                                       Its:
                                           ------------------------------

                                       EMPLOYEE:

                                       ----------------------------------
                                       R. JEFFREY BIXLER

                                       17
<PAGE>   18

                                   SCHEDULE I
                                   ----------

Employee:
Current Base Rate:
Job Titles:

                                       18
<PAGE>   19

                                   SCHEDULE II
                                   -----------

Executive Retention Agreement

                                       19

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