Corporate Governance Guidelines

  
                                                                          
Manor Care, Inc.                                                          February 2007    

1. Director Qualifications

The Board shall have a majority of directors who meet the criteria for independence required by the New York Stock Exchange. The Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole. This assessment will include members' qualification as independent, as well as consideration of diversity, age, skills and experience in the context of the needs of the Board. Nominees for directorship will be selected by the Governance Committee in accordance with the policies and principles of its charter and these guidelines.

The Board presently has 9 members. It is the sense of the Board that a size of  9 to 11 is about right. It is also the sense of the Board that individual directors who change the responsibility they held when they were elected to the Board should volunteer to resign from the Board. This will provide an opportunity for the Board through the Governance Committee to review the continued appropriateness of Board membership under the circumstances. 

No director should serve on more than four other public company boards unless specifically approved by the Governance Committee and the Board of Directors. Directors should advise the Chairman of the Board and the Chairman of the Governance Committee in advance of accepting an invitation to serve on another public company board. No director may be nominated to a new term if he or she would be age 70 or older at the time of the election. 

The Board does not believe it should establish term limits for directors. Term limits have the disadvantage of losing the contribution of directors who have been able to develop, over a period of time, increasing insight into the company and its operations and, therefore, provide an increasing contribution to the Board as a whole. As an alternative to term limits, the Governance Committee will review each director's continuation on the Board each year to coincide with the expiration of the director's term. This review will also afford each director the opportunity to confirm his or her desire to continue as a member of the Board.

2. Director Responsibilities

Directors must exercise sound business judgment and act in what they reasonably believe to be the best interests of the company and its stockholders. In discharging that obligation, directors should be entitled to rely on the honesty and integrity of the company's senior executives and its outside advisors and auditors. 

Directors are expected to attend Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Information and data that are important to the Board's understanding of the business to be conducted at a Board or committee meeting should generally be distributed in writing to the directors before the meeting, and directors should review these materials in advance of the meeting.

The Chairman will establish the agenda for each Board meeting. Each Board member is free to suggest the inclusion of items on the agenda. Each Board member is free to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will review the company's long-term strategic plans and the principal issues that the company will face in the future during at least one Board meeting each year.

The non-management directors will meet in executive session three times a year at regularly scheduled meetings. The presiding director at such meetings shall rotate among the committee chairmen. To the extent required by applicable rules, the name of the presiding director shall be disclosed in the annual proxy statement. 

The Board believes that the management speaks for the company. Individual Board members may, from time to time, meet or otherwise communicate with various constituencies that are involved with the company. But it is expected that Board members would do this with the knowledge of the management and, absent unusual circumstances or as contemplated by the committee charters, only at the request of management.

The directors shall also be entitled to have the company purchase reasonable directors' and officers' liability insurance on their behalf, and to indemnification to the fullest extent permitted by law and the company's charter, by-laws and any indemnification agreements. 

3. Board Committees

The Board will maintain an Audit Committee, a Compensation Committee, a Governance Committee and a Quality Committee and such other committees as the Board determines is appropriate. All of the members of the Audit, Compensation and Governance committees will be independent directors under the criteria established by the New York Stock Exchange. Committee members will be appointed by the Board upon recommendation of the Governance Committee with consideration of the desires of individual directors. It is the sense of the Board that consideration should be given to rotating committee members periodically, but the Board does not feel that rotation should be mandated as a policy.

Each committee will have its own charter. The charters will set forth the purposes, goals and responsibilities of the committees as well as qualifications for committee membership, committee structure and operations. The charters will also provide that each committee will report directly to the Board and will annually evaluate its performance.

The chairman of each committee, in consultation with the committee members, will determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee's charter. The chairman of each committee, in consultation with the appropriate members of the committee and management, will develop the committee's agenda. 

The Board and each committee shall have the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the company in advance.

4. Director Access to Officers and Employees

Directors have full and free access to officers and employees of the company. Any meetings or contacts that a director wishes to initiate may be arranged through the CEO or the Secretary or directly by the director. The directors will use their judgment to ensure that any such contact is not disruptive to the business operations of the company and will, to the extent not inappropriate, copy the CEO on any written communications between a director and an officer or employee of the company.

The Board believes that the periodic attendance of selected senior officers at Board meetings would be beneficial to the Board and to the senior officers who attend the meetings. Accordingly, the CEO is encouraged periodically to invite senior officers of the company to attend and participate as appropriate. 

5. Director Compensation

The form and amount of director compensation will be determined by the Governance Committee in accordance with the policies and principles set forth in its charter. The Governance Committee will conduct an annual review of director compensation and may request senior management or outside consultants to assist in this review process. 

In order to maintain independence and to comply with NYSE Listing Standards, members of the Audit Committee may not directly or indirectly receive fees or other compensation from the company regardless of the amount. As determined by the Board, committee chairmen may receive additional fees for fulfilling that role. 

6. Director Orientation and Continuing Education

All new directors must participate in a comprehensive orientation within a reasonable time following appointment or election to the Board. This orientation will include presentations by senior management to familiarize new directors with the company's strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Ethics for Directors, its principal officers, and its internal and independent auditors. From time to time, senior management will present continuing education information to the directors on aspects of the company's business which are not routinely discussed at Board meetings, as well as updates on legal and regulatory developments that affect the company, its directors or its employees. 

7. CEO Evaluation and Management Succession

The Compensation Committee will conduct an annual review of the CEO's performance, as set forth in its charter. The Board of Directors will review the Compensation Committee's report in order to ensure that the CEO is providing strong and effective leadership for the company in the long- and short-term.

The Governance Committee should make an annual report to the Board on succession planning. The entire Board will work with the Governance Committee to nominate and evaluate potential successors to the CEO, including action which may be necessary in the event of an emergency. The CEO should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.

8. Annual Performance Evaluation

The Board of Directors will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Governance Committee will receive comments from all directors and report annually to the Board with an assessment of the Board's performance. This will be discussed with the full Board following the end of each fiscal year.

9. Stockholder Proposals

If a stockholder proposal requesting action by the Board of Directors receives the affirmative vote of the shares of at least a majority of the votes cast (excluding abstentions) at any annual meeting, the Secretary of the company shall solicit the sponsor of the proposal for any additional information to provide to the Board of Directors for its consideration of the proposal. Within four months of the annual meeting, the company will make reasonable efforts to schedule a meeting (which may be held telephonically) between the sponsor of the proposal and the Governance Committee or its designated representative. Following such a meeting, the Governance Committee shall present the subject of the proposal to the full Board of Directors with the Committee’s recommendation. The Board of Directors shall act upon the proposal consistent with the company’s charter and by-laws and in accordance with its fiduciary obligations, which shall necessarily include a consideration of the interests of the stockholders. After the Board of Directors has taken action on the proposal the Secretary of the company shall provide prompt written notification of such action to the sponsor.

10. Stockholder Communications

Stockholders who desire to communicate directly with the Board of Directors or with any non-management director may do so by directing correspondence to the Secretary of the company whose name and address appear in the public filings of the corporation. The Board has adopted a process for collecting and organizing communications from stockholders. Summaries of all correspondence will be forwarded periodically to the full Board along with copies of specific correspondence which, in the judgment of the Secretary, deals with the functions of the Board or its committees or otherwise addresses material issues which, in the judgment of the Secretary, should be brought to the attention of the full Board. The directors may at any time review the summary of stockholder correspondence and request copies of any such correspondence.

11. Nominating Process

The Governance Committee will consider candidates for board membership suggested by committee members, other board members, stockholders and management. A stockholder wishing to propose a nominee for our Board of Directors should submit a notice in writing to the company’s Secretary, setting forth the following information for each person whom the stockholder proposes to nominate:

(1) the name, age, business address and residence address of the person;

(2) the principal occupation or employment of the person;

(3) the class and number of shares of capital stock of the company which are beneficially owned by the person; and

(4) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to applicable SEC rules.

In addition, as to the stockholder giving notice and on whose behalf the nomination is made, the following information should be provided:

(1) the name and record address of the stockholder and beneficial owner, if any;

(2) the class and number of shares of the company owned of record and beneficially;

(3) a representation that the stockholder giving notice is a holder of record entitled to vote at the meeting and intends to appear in person or by proxy at the meeting and propose the nomination; and

(4) a representation whether the stockholder intends or is part of a group that intends to solicit proxies in support of the nomination.

The notice should comply with the timing requirements set forth in the last paragraph of the most recent proxy statement of the company.

After the Committee has identified a prospective nominee, the Committee will make an initial determination whether to conduct a full evaluation of the candidate. This determination will be based primarily on the need for additional board members to fill vacancies or expand the size of the Board, and the likelihood that the individual will meet the minimum qualification of prior senior management or equivalent experience in an organization that is comparable to the company in size, scope of services or other operating characteristics. If the Committee determines that further consideration is warranted, it will undertake to gather additional information about the prospective nominee’s background, experience and skills. The Committee will evaluate the nominee based on a variety of factors it deems appropriate which will include:

(1) the skills, talent and expertise of the nominee;

(2) the ability of the nominee to devote sufficient time, energy and attention to the diligent performance of his or her duties on the Board;

(3) the independence of the nominee under applicable standards;

(4) the nominee’s reputation for integrity and honesty;

(5) the Board’s need for particular expertise, such as financial expertise for the Audit Committee;

(6) diversity; and

(7) similar factors.

In making this evaluation, the Committee, through one or more of its members or other directors, may interview the candidate in person or by telephone. After completing this evaluation process, the Committee will make a report and recommendation to the Board regarding the nominee. The Board shall then determine the nominees after considering the report and recommendation of the Committee.

12. Majority Vote Policy

The Company's by-laws provide for the election of directors in an uncontested election by the vote of the majority of the votes cast with respect to each director. A "majority of the votes cast" means that the number of shares voted “for” a director must exceed the number of votes cast “against” that director. In a contested election, the by-laws provide for the election of directors by the vote of a plurality of the shares represented and entitled to vote.

If a nominee for director in an uncontested election does not receive a majority of the votes cast for that director, the director shall offer to tender his or her resignation to the Board. The Governance Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. If each member of the Governance Committee does not receive a majority of the votes cast at the same election, then the independent directors who did receive a majority of the votes cast shall appoint a committee of independent directors to consider the resignation offers and recommend to the Board whether to accept or reject them, or whether other action should be taken. The Board will act on the Governance Committee’s or, as appropriate, such other committee's recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. Any director who tenders his or her resignation in accordance with this policy will not participate in the Board’s decision.

If a vacancy occurs on the Board as a result of the application of this policy, such vacancy shall be filled in accordance with Article III, Section 3 of the
by-laws.