10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
	Quarterly report pursuant to Section 13 or 15(d) of the Securities
	Exchange Act of 1934
	For the quarterly period ended March 31, 2002
	Transition report pursuant to Section 13 or 15(d) of the Securities
	Exchange Act of 1934
	For the transition period from                          to

Commission file number 01-13031

AMERICAN RETIREMENT CORPORATION

(Exact name of Registrant as specified in its charter)

Tennessee	62-1674303
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
111 Westwood Place, Suite 200, Brentwood, TN	37027
(Address of principal executive offices)	(Zip Code)

(615) 221-2250

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes        No  

As of May 10, 2002, there were 17,276,520 shares of the Registrant’s common stock, $.01 par value, outstanding.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of
	March 31, 2002 and December 31, 2001		3
	Condensed Consolidated Statements of
	Operations for the Three Months Ended
	March 31, 2002 and 2001		4
	Condensed Consolidated Statements of Cash
	Flows for the Three Months Ended March 31,
	2002 and 2001		5
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of
	Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		28
PART II. OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K		29
Signatures			30

2

AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data)

			March 31, 2002			December 31, 2001
ASSETS
Current assets:
	Cash and cash equivalents		$	25,696		$	19,334
	Assets limited as to use			12,077			10,122
	Accounts receivable, net of allowance for doubtful accounts			13,533			11,447
	Inventory			1,264			1,249
	Prepaid expenses			5,196			3,016
	Deferred income taxes			1,285			1,285
	Other current assets			5,969			5,799
		Total current assets		65,020			52,252
Assets limited as to use, excluding amounts classified as current				62,415			68,618
Land, buildings and equipment, net				496,238			525,174
Notes receivable				29,403			84,537
Goodwill, net				36,463			36,463
Leasehold acquisition costs, net				26,650			33,484
Other assets				55,934			49,663
		Total assets	$	772,123		$	850,191
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt, including convertible subordinated debentures		$	295,922		$	371,667
	Accounts payable			5,628			7,919
	Accrued interest			5,007			3,584
	Accrued payroll and benefits			5,139			4,838
	Accrued property taxes			5,605			7,998
	Other accrued expenses			8,131			9,926
	Other current liabilities			17,155			17,436
		Total current liabilities		342,587			423,368
Long-term debt, excluding current portion				212,167			190,458
Refundable portion of life estate fees				45,298			46,309
Deferred life estate income				52,828			51,211
Tenant deposits				5,594			6,016
Deferred gain on sale-leaseback transactions				30,218			13,055
Deferred income taxes				1,904			2,055
Other long-term liabilities				12,050			10,171
		Total liabilities		702,646			742,643
Commitments and contingencies (See notes)
Shareholders’ equity:
	Preferred stock, no par value; 5,000,000 shares authorized, no shares issued or outstanding			—			—
	Common stock, $.01 par value; 200,000,000 shares authorized, 17,276,520 and 17,276,520 shares issued and outstanding, respectively			173			173
	Additional paid-in capital			145,590			145,590
	Accumulated deficit			(76,286	)		(38,215	)
		Total shareholders’ equity		69,477			107,548
		Total liabilities and shareholders’ equity	$	772,123		$	850,191

See accompanying notes to condensed consolidated financial statements.

3

AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share data)

				Three Months Ended March 31,
				2002			2001
Revenues:
		Resident and health care		$	75,253		$	59,672
		Management and development services			65			709
			Total revenues		75,318			60,381
Operating expenses:
		Community operating expenses			53,977			41,789
		General and administrative			5,920			4,994
		Lease expense			32,965			6,751
		Depreciation and amortization			5,022			4,696
		Amortization of leasehold acquisition costs			7,122			396
			Total operating expenses		105,006			58,626
			Operating (loss) income		(29,688	)		1,755
Other income (expense):
		Interest expense			(9,725	)		(9,226	)
		Interest income			1,660			3,184
		(Loss) gain on sale of assets			(26	)		181
		Equity in losses of managed special purpose entity communities			—			(966	)
		Lease income			561			513
			Other expense, net		(7,530	)		(6,314	)
			Loss from continuing operations before income taxes, minority interest, and extraordinary item		(37,218	)		(4,559	)
Income tax expense (benefit)					97			(1,446	)
			Loss from continuing operations before minority interest and extraordinary item		(37,315	)		(3,113	)
Minority interest in earnings of consolidated subsidiary, net of tax					—			(100	)
			Loss from continuing operations before extraordinary item		(37,315	)		(3,213	)
Extraordinary (loss) gain on extinguishment of debt, net of tax					(756	)		395
			Net loss	$	(38,071	)	$	(2,818	)
Basic loss per share:
	Basic loss per share from continuing operations before extraordinary item			$	(2.16	)	$	(0.18	)
	Extraordinary (loss) gain, net of tax				(0.04	)		0.02
	Basic loss per share			$	(2.20	)	$	(0.16	)
Diluted loss per share:
	Diluted loss per share from continuing operations before extraordinary item			$	(2.16	)	$	(0.18	)
	Extraordinary (loss) gain, net of tax				(0.04	)		0.02
	Diluted loss per share			$	(2.20	)	$	(0.16	)
Weighted average shares used for basic loss per share data					17,277			17,135
Effect of dilutive common stock options					—			—
Weighted average shares used for diluted loss per share data					17,277			17,135

See accompanying notes to condensed consolidated financial statements.

4

AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

			Three Months Ended March 31,
			2002			2001
Cash flows from operating activities:
	Net loss		$	(38,071	)	$	(2,818	)
		Extraordinary loss (gain) on extinguishment of debt, net of tax		756			(395	)
	Loss from continuing operations			(37,315	)		(3,213	)
	Adjustments to reconcile loss from continuing operations to net cash and cash equivalents (used) provided by operating activities:
		Depreciation and amortization		12,144			5,092
		Amortization of deferred entrance fee revenue		(2,461	)		(2,625	)
		Amortization of deferred financing costs		841			595
		Residual value guarantee lease costs		23,222			—
		Proceeds from life estate sales, net of refunds		3,402			985
		Deferred income tax benefit		(151	)		(1,467	)
		Amortization of deferred gain on sale-leaseback transactions		(558	)		(612	)
		Minority interest in earnings of consolidated subsidiaries		—			100
		Losses from unconsolidated joint ventures		153			—
		Loss (gain) on sale of assets		26			(181	)
		Issuance of stock to employee 401k plan		—			189
	Changes in assets and liabilities:
		Accounts receivable		(2,086	)		(327	)
		Inventory		(15	)		(8	)
		Prepaid expenses		(2,180	)		511
		Other assets		(47	)		2,193
		Accounts payable		(2,611	)		(3,720	)
		Accrued expenses and other current liabilities		(796	)		3,756
		Tenant deposits		(422	)		(16	)
		Other liabilities		1,879			(620	)
Net cash and cash equivalents (used) provided by operating activities				(6,975	)		632
Cash flows from investing activities:
		Additions to land, buildings and equipment		(7,345	)		(6,808	)
		Purchase of assets limited as to use		(6,928	)		(4,812	)
		(Issuance of) receipts from notes receivable		(2,230	)		1,172
		Proceeds from the sale of assets		93,469			2,853
		Other investing activities		(1,863	)		48
Net cash provided (used) by investing activities				75,103			(7,547	)

See accompanying notes to condensed consolidated financial statements.

5

AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED
(UNAUDITED)
(in thousands)

			Three Months Ended March 31,
			2002			2001
Cash flows from financing activities:
		Proceeds from the issuance of long-term debt		76,216			21,563
		Principal payments on long-term debt		(130,600	)		(4,028	)
		Purchase of convertible debentures		—			(2,625	)
		Principal reductions in master trust liability		(1,720	)		(1,640	)
		Expenditures for contingent earnouts		(5,294	)		—
		Expenditures for financing costs		(368	)		(392	)
Net cash (used) provided by financing activities				(61,766	)		12,878
	Net increase in cash and cash equivalents			6,362			5,963
Cash and cash equivalents at beginning of period				19,334			19,850
Cash and cash equivalents at end of period			$	25,696		$	25,813
Supplemental disclosure of cash flow information:
	Cash paid during the period for interest (including capitalized interest)		$	6,464		$	7,236
	Income taxes paid		$	274		$	—

Supplemental disclosure of non-cash transactions:

During the quarter ended March 31, 2002, the Company terminated five operating leases, and acquired $69.3 million of land, buildings and equipment in exchange for $58.1 million of notes receivable and $11.2 million of certificates of deposit (included in assets whose use is limited), previously securing these leases. In conjunction with the transactions, assets and liabilities changed as follows:

Notes receivable	$	(58,108	)	$	—
Assets limited as to use		(11,176	)		—
Land, buildings and equipment		69,284			—

During the quarter ended March 31, 2001, the Company funded its 401(k) contribution with 44,260 shares of its common stock at a fair market value of $189,000.

See accompanying notes to condensed consolidated financial statements.

6

AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Retirement Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain fiscal year 2001 amounts have been reclassified to conform to the fiscal year 2002 presentation. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

2.     Liquidity and Refinancing Plan

The Company has a substantial amount of debt and lease obligations maturing during 2002. The Company has scheduled debt maturities during the twelve months ended March 31, 2003 of $295.9 million, which includes $163.0 million of mortgage debt and $132.9 million of its 53/4% Convertible Subordinated Debentures due October 1, 2002 (the “Debentures”). As a result of these current maturities, the Company had a net working capital deficit of $277.6 million as of March 31, 2002. As of March 31, 2002, the Company also has minimum rental obligations of $30.3 million under long-term operating leases due during the balance of 2002. In addition, the Company and certain of its lenders and lessors agreed to amendments or waivers of various financial covenants as of March 31, 2002, and the Company will likely need to negotiate further amendments or waivers in order to remain in compliance in future periods. As of March 31, 2002, the Company had approximately $25.7 million in unrestricted cash and cash equivalents. The Company expects that its current cash and cash equivalents, expected cash flow from operations, and the proceeds from certain recently completed financings will be sufficient to fund its operating requirements, its capital expenditure requirements and its periodic debt service requirements during 2002. However, the Company’s current cash balances and internally generated cash will not be sufficient to satisfy its scheduled debt maturities in 2002.

In order to satisfy or extend these obligations and to address its net working capital deficit, the Company has developed a refinancing plan in consultation with its investment banking advisor and its legal counsel and through discussions with its lenders (the “Refinancing Plan”). The Refinancing Plan includes extensions of existing debt agreements, refinancings of existing mortgage facilities, new mortgage financings, sale lease-back arrangements, the termination of certain operating leases, and a mezzanine financing arrangement. As part of its Refinancing Plan, the Company intends to extend the maturity dates of substantially all of its remaining credit facilities to January 2004 or later. In addition, the Company intends to renegotiate its financial covenants to levels that the Company believes it can satisfy for the foreseeable future and eliminate other financial covenants no longer applicable to the Company. The Company believes that, if consummated as currently planned, the Refinancing Plan will place the Company in a position to address its scheduled debt maturities during 2002 and, therefore, its negative working capital.

Pursuant to its Refinancing Plan, the Company has consummated, as of March 31, 2002, fourteen sale lease-back and other capital raising transactions since November 1, 2001, raising gross proceeds of approximately $193.2 million, which yielded net proceeds of approximately $25.8 million after payment of related debt and transaction costs for use by the Company as working capital or to repay its maturing debt obligations.

In addition to these recently completed transactions, the Company has either executed nonbinding agreements or is in advanced discussions with several different parties relating to the refinancing or sale lease-back of up to ten additional communities. If completed on the terms being considered, these proposed transactions would generate gross proceeds to the Company of approximately $174.7 million prior to payment of related debt and transaction

7

costs of approximately $153.4 million. Furthermore, the Company is in advanced discussions with certain of its existing lenders concerning the amendment or removal of the Company’s financial covenants following consummation of the Refinancing Plan. These transactions and discussions are in various stages and in certain instances are non-binding. All of these transactions will be subject to conditions and approvals that must be satisfied.

If the foregoing transactions are consummated as currently contemplated, the Debentures will be the Company’s primary remaining outstanding debt obligation maturing in 2002. In order to address the maturity of the Debentures before October 2002, the Company has entered into a non-binding letter of intent with a third-party that will provide the Company with approximately $125.0 million of term mezzanine financing involving certain of the Company’s Retirement Centers. The Company intends to use the net proceeds from this transaction, together with the net proceeds generated by the transactions described above, to address the final resolution of the outstanding Debentures and to satisfy its working capital requirements. The letter of intent regarding this transaction is preliminary and non-binding, and is subject to conditions that must be satisfied prior to closing, including certain approvals and consents. If the Company is able to reach a definitive agreement with respect to this proposed mezzanine and sale lease-back financing, the transaction is expected to close during the second or third quarter of 2002.

The Company currently anticipates completing the balance of its Refinancing Plan prior to October 2002. Nevertheless, the Refinancing Plan and its various remaining components are subject to a number of contingencies, uncertainties and conditions that are outside of the Company’s control, and are dependent upon the receipt of required approvals and consents. Accordingly, there can be no assurance that the Company will be able to consummate its Refinancing Plan. A significant amount of the Company’s indebtedness is cross-defaulted. Any non-payment or other default with respect to such obligations (including non-compliance with a financial covenant) could cause lenders and lessors to declare defaults, accelerate payment obligations or foreclose upon the communities securing such indebtedness or exercise their remedies with respect to such communities. The failure to consummate the Refinancing Plan, or another plan to extend, refinance or repay the Company’s debts, will have a material adverse effect upon the Company, will result in the Company having insufficient capital to satisfy its maturing obligations and could make it necessary for the Company to seek protection from its creditors. In the event that the Company successfully consummates its Refinancing Plan, it will remain highly leveraged with a substantial amount of debt and lease obligations, and will have increased interest and lease expenses. The terms of the transactions and agreements comprising the Refinancing Plan will likely impose significant burdens on the Company. The Company is also likely to incur certain costs, including significant non-cash charges in connection with the consummation of the Refinancing Plan.

3.     Earnings per Share

Basic loss per share for the three months ended March 31, 2002 has been computed on the basis of the weighted average number of shares outstanding. During the three months ended March 31, 2002, there were 2,132,897 options to purchase shares of common stock outstanding which had an exercise price below the average market price of the common shares. Such options were anti-dilutive because the Company incurred a loss from continuing operations for the three months ended March 31, 2002, and therefore were not included in the computation of diluted earnings per share.

The Debentures outstanding during the periods presented were not included in the computation of diluted earnings per share because the conversion price of $24.00 per share was greater than the average market price of the common shares for the respective periods and, therefore, the effect would be anti-dilutive.

8

The following options to purchase shares of common stock were outstanding during each of the following periods, but were also not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares for the respective periods and, therefore, the effect would be anti-dilutive.

	Three Months Ended March 31,
	2002		2001
Average number of options (in thousands)		2,133		778
Weighted-average exercise price	$	4.84	$	8.45

4.     Long Term Debt and Other Financing Transactions

On January 1, 2002, the Company sold Carriage Club of Charlotte, a retirement center in Charlotte, North Carolina, for $45.0 million. The Company used a majority of the sale proceeds to pay $34.8 million of debt associated with the property, resulting in an early payment penalty of $348,000, as well as $50,000 of unamortized financing costs, which the Company has recorded as an extraordinary loss. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company recorded a gain of $11.7 million on the sale, which is being amortized over the term of the lease. In conjunction with this sale, on January 1, 2002, the Company acquired a Free-standing assisted living community (“Free-standing AL”) in Clearwater, Florida for $7.1 million, which it had previously managed for the buyer of Carriage Club of Charlotte. The Company funded this acquisition by assuming a $4.7 million mortgage note, bearing interest at a floating rate of 5.63% at March 31, 2002. Interest is due monthly with remaining principal and unpaid interest due December 31, 2002. The note is secured by certain land, buildings, and equipment. The community has 83 units, of which 57 are assisted living and 26 are memory enhanced.

On January 25, 2002, the Company amended two loan agreements with aggregate outstanding indebtedness of $7.2 million. The amendment extends the due dates of the agreements to December 31, 2002, requires additional monthly principal payments of $60,000, and required a $1.0 million cash collateral deposit. In connection with the amendment, the Company agreed to, among other things, (1) retire or refinance approximately $92.3 million of indebtedness on or before July 1, 2002, so as to mature no earlier than December 1, 2003 and (2) retire or refinance the $132.9 million outstanding principal amount of its Debentures on or before September 1, 2002 so as to mature no earlier than October 1, 2004. See note 2.

On February 12, 2002, the Company sold The Homewood at Coconut Creek, a Free-standing AL in Coconut Creek, Florida, for $9.7 million. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company used a portion of the sale proceeds to pay $8.6 million of debt associated with the property. The sale agreement contains certain formula-based earnout provisions which may provide additional sales proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, this transaction was recorded as a financing transaction and the Company recorded $9.7 million of lease obligation as debt, bearing interest of 7.55%.

On February 12, 2002, the Company sold for $18.5 million a retirement center in Oak Park, Illinois. The Company used a majority of the sale proceeds to pay $12.9 million of debt associated with the property, resulting in the Company expensing $259,000 of unamortized financing cost as an extraordinary item. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company recorded a gain of $5.3 million on the sale, which is being amortized over the term of the lease.

On March 22, 2002, the Company sold The Heritage Club at Greenwood Village, a Free-standing AL in Denver, Colorado, for $17.9 million. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company used a portion of the sale proceeds to pay $16.3 million of debt associated with the property. The sale agreement contains certain formula-based earnout provisions which may provide additional sales

9

proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, this transaction was recorded as a financing transaction and the Company recorded $17.9 million of lease obligation as debt, bearing interest of 7.46%.

On March 28, 2002, the Company sold two retirement centers and three Free-standing ALs for $73.2 million. The Company used a portion of the proceeds to repay $55.2 million of debt, resulting in the Company expensing $99,000 of unamortized financing cost as an extraordinary item. The Company contemporaneously leased the properties back from the buyer under a 15-year lease agreement with two ten-year renewal options. The sale agreements for the three Free-standing ALs contain certain formula-based earnout provisions which may provide additional sales proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, the Free-standing AL transactions were recorded as financing transactions and the Company recorded $18.2 million of lease obligation as debt, bearing interest of 9.37%. One of the retirement center leases is recorded as a capital lease and the Company recorded $25.0 million of lease obligation as debt, bearing interest of 8.27%. The other retirement center lease is being accounted for as an operating lease, since the sales agreements for this community did not contain a contingent earnout provision or other continuing involvement provisions. The Company recorded a gain of $697,000 on the sale of this retirement center, which is being amortized over the term of the lease. The Company has an option to acquire the capital leased retirement center after March 28, 2006, subject to certain conditions.

As a result of completed and anticipated transactions under the Refinancing Plan, the Company has recorded losses from sale lease-back transactions of $7.9 million during the quarter ended December 31, 2001 and $23.2 million during the quarter ended March 31, 2002, and anticipates recording approximately $6.0 million of additional loss during the second quarter of 2002, bringing the total loss on these sale lease-back transactions to approximately $37.1 million. For financial reporting purposes, these losses are considered residual value guarantee amounts under the previous leases terminated in connection with the sale lease-back transaction and are being recognized as lease expense.

In addition, due to the shorter than expected remaining life of the previous leases terminated in connection with the sale lease-back transactions, the Company accelerated the amortization of leasehold acquisition costs beginning in the fourth quarter of 2001. As a result of this acceleration, the Company recorded additional amortization costs of $472,000 during the quarter ended December 31, 2001 and $6.5 million during the quarter ended March 31, 2002, and anticipates that it will record approximately $2.3 million of additional amortization during the second quarter of 2002, bringing the total amount of accelerated amortization related to these sale lease-back transactions to approximately $9.3 million.

Effective as of March 31, 2002, the Company obtained waivers under various financing agreements with respect to certain of its financial covenants. See note 2.

The Company announced, during the quarter ended March 31, 2000, that the Board of Directors had authorized the repurchase, from time to time, of up to $30.0 million of its Debentures. The timing and amount of purchases of the Debentures will depend upon prevailing market conditions, availability of capital, alternative uses of capital and other factors. During the quarter ended March 31, 2001, the Company purchased $3.3 million of the Debentures, resulting in an extraordinary gain on extinguishment of debt, net of tax, of $395,000. Additional purchases of Debentures, if any, are likely to be made primarily in the open market.

5.     Asset Impairments and Contractual Losses

During the quarter ended December 31, 1999, the Company abandoned certain development projects and recorded charges of approximately $6.7 million for contractual losses and other costs. The Company made cash payments of $5.9 million in 2000, $467,000 in 2001, and $3,000 during the quarter ended March 31, 2002 related to these costs. An accrual of $784,000 remained at March 31, 2002. The Company will continue to evaluate the adequacy of this accrual. The Company has sold two of the five land parcels associated with the abandoned projects, and intends to continue marketing the remaining three land parcels during 2002. The remaining three land parcels are classified as held for sale and are included in other assets. The net carrying amount of these assets was $3.2 million at March 31, 2002.

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6.     Acquisition

On January 1, 2002, the Company acquired a Free-standing AL community in Clearwater, Florida for $7.1 million. The Company funded this acquisition by assuming a $4.7 million mortgage note. The community has 83 units, of which 57 are assisted living and 26 are memory enhanced. See note 4.

7.     Segment Information

The Company has significant operations principally in two industry segments: (1) retirement centers and (2) Free-standing ALs. Retirement centers represent 31 of the Company’s senior living communities and provide a continuum of care services such as, independent living, assisted living and skilled nursing care. The Company currently operates 34 Free-standing ALs. Free-standing ALs are generally comprised of stand-alone assisted living communities that are not located on a retirement center campus, some of which also provide some skilled nursing and/or specialized care such as Alzheimer’s and memory enhancement programs. Free-standing ALs are generally much smaller than retirement centers.

The Company evaluates its performance in part based upon EBITDAR, which is defined as earnings before net interest expense, income tax expense, depreciation, amortization, rent, and other special charges related to asset impairment and other losses, equity in loss of special purpose entities, other income (expense), minority interest, and extraordinary items. The following is a summary of total revenues, EBITDAR, and total assets by segment for the three months ended March 31, 2002 and 2001 (in thousands).(1)(2)(3)

Three Months Ended
		March 31,			March 31,			$			%
		2002			2001			Change			Change
Revenues:
	Retirement centers	$	57,616		$	52,238		$	5,378			10.3	%
	Free-standing ALs		17,637			7,434			10,203			137.3	%
	Corporate/other		65			709			(644	)		(90.8	%)
	Total	$	75,318		$	60,381		$	14,937			24.7	%
NOI / Community EBITDAR:
	Retirement centers	$	20,711		$	18,679		$	2,032			10.9	%
	Free-standing ALs		949			(800	)		1,749			218.6	%
	Corporate/other		(6,239	)		(4,281	)		(1,958	)		(45.7	%)
	Net operating income	$	15,421		$	13,598		$	1,823			13.4	%
Lease expense(4)			32,965			6,751			26,214			388.3	%
Depreciation and amortization(5)			12,144			5,092			7,052			138.5	%
	Operating (loss) income	$	(29,688	)	$	1,755		$	(31,443	)		(1791.6	%)

Total Assets
		March 31,		December 31,		$			%
		2002		2001		Change			Change
Total Assets:
	Retirement centers	$	435,390	$	509,732	$	(74,342	)		(14.6	%)
	Free-standing ALs		221,489		241,069		(19,580	)		(8.1	%)
	Corporate/other		115,244		99,390		15,854			16.0	%
	Total	$	772,123	$	850,191	$	(78,068	)		(9.2	%)

(1)

Segment data does not include any inter-segment transactions or allocated costs.

(2)

Net Operating Income (“NOI”), or Community EBITDAR, is defined as earnings before net interest expense, income tax expense (benefit), depreciation, amortization, rent, and other special charges related to asset write-offs and write-downs, equity in loss of communities that are managed by the Company and owned by special purpose entities, other income (expense), minority interest, and extraordinary items.

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(3)	Corporate/other revenues represent the Company’s development and management fee revenues. Corporate/Other NOI includes operating expenses related to corporate operations, including human resources, financial services, and information systems, as well as senior living network and assisted living management costs.
(4)	Includes $23.2 million of additional lease expense for the 2002 quarter as a result of sale lease-back transactions. See note 4 to the condensed consolidated financial statements.
(5)	Includes $6.5 million of additional amortization expense for the 2002 quarter as a result of sale lease-back transactions. See note 4 to the condensed consolidated financial statements.

8.     Commitments and Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the ultimate liability with respect to those proceedings and claims will not materially affect the financial position, operations, or liquidity of the Company. The Company maintains commercial insurance on a claims-made basis for medical malpractice liabilities.

Insurance

The Company is self-insured for workers’ compensation claims with excess loss coverage of $350,000 per individual claim and approximately $5.9 million in the aggregate. The Company utilizes a third party administrator to process and pay filed claims. The Company has accrued amounts to cover open claims not yet settled and incurred but not reported claims as of March 31, 2002, which management believes is adequate.

The delivery of personal and health care services entails an inherent risk of liability. In recent years, participants in the senior living and health care services industry have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and result in the incurrence of significant defense costs and significant exposure. The Company currently maintains property, liability, and professional medical malpractice insurance policies for the Company’s owned and certain of its managed communities under a master insurance program. The number of insurance companies willing to provide general and professional liability insurance for the nursing and assisted living industry has declined dramatically and the premiums and deductibles associated with such insurance has risen substantially.

The Company’s previous liability policies expired on July 1, 2001, and the Company was able to obtain an extended policy through December 2001 only by paying significantly higher premiums and agreeing to higher deductibles (ranging from $200,000 to $3,000,000). As a result, beginning in the third quarter of 2001, the Company began incurring significantly higher costs for premiums and accruals for potential liability claims. As part of this renewal, four incidents were excluded from policy coverage. To date, the Company believes one of these incidents may result in liability exposure to the Company, which has been accrued for as of March 31, 2002. The Company renewed this liability policy effective January 1, 2002, expiring December 31, 2002, and was required to pay increased premiums and continue the foregoing deductible program. The Company also has underlying and umbrella excess liability protection policies in the amount of up to $25.0 million in the aggregate.

Leases

As of March 31, 2002, the Company operated 37 of its senior living communities under long-term operating leases. The Company also leases its corporate offices and has a ground lease for a senior living community purchased during 2001. The remaining base lease terms vary from two to 16 years. Certain of the leases provide for renewal and purchase options.

At March 31, 2002, the Company operated nine of its leased senior living communities under leases which are treated as operating leases for financial reporting purposes and financing leases for income tax purposes. At March 31, 2002, the Company was a guarantor on $61.0 million of the $64.4 million of third party lessor debt and had $14.3 million of notes receivable from the lessors. These leases provide the Company with termination rights whereby the Company can terminate the leases and acquire the property at predetermined amounts in exchange for assuming the lessors’ debt, forgiving the notes receivable from the lessor, and repaying the lessors’ equity. The Company may also elect to terminate the leases and remarket the properties on behalf of the lessors. If the net sales proceeds from a

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leased property are an amount higher than the lessors’ costs, such excess is paid to the Company. If the net sales proceeds are less than the lessors’ costs, the Company is obligated, under residual value guarantees, to pay to the lessors any shortfall, not to exceed approximately 85% of the lessors’ original cost of the properties. At March 31, 2002, the Company’s residual value guarantees under these nine leases aggregated $162.8 million. These residual value guaranties represent an off-balance sheet contingent liability, for which the Company does not believe it has any significant exposure for additional cash costs. During the fourth quarter of 2001, the Company determined that in order to simplify its financial structure, and as a condition of certain elements of its Refinancing Plan, it will exercise its termination rights under these leases during 2002. As a result of the termination of these leases, the Company will become the direct owner of each community for financial reporting purposes. See note 4.

9.     New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial accounting and reporting for business combinations requiring the use of the purchase method of accounting and reporting for goodwill and other intangible assets requiring that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires intangible assets with estimate useful lives be amortized over their respective useful life to their estimated residual values, and reviewed for impairment. As of March 31, 2002, the Company had $36.5 million of goodwill. Amortization expense related to goodwill was approximately $1.0 million for the years ended December 31, 2001 and 2000. The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets on January 1, 2002. Because of the extensive effort needed to comply with adopting Statement No. 142, the Company has not determined the impact of adopting this Statement on the Company’s financial statements at the date of this report, including whether the Company will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes both SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in APB Opinion No. 30). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. For example, SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of APB Opinion No. 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142.

The Company adopted SFAS No. 144 for the quarter ending March 31, 2002. The adoption had no material impact on the Company’s financial statements because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121.

10.     Subsequent Events

The Company managed a senior living community in Peoria, Arizona under a long-term management agreement with a third party owner. The Arizona Department of Insurance notified the owner of the Company’s managed community in Peoria, Arizona, that the owner was not in compliance with a net worth requirement imposed by Arizona law. While the compliance with this net worth requirement was technically the responsibility of the owner, in order to facilitate discussions with the Arizona Department of Insurance, the Company provided the Department with a guaranty relating to the mortgage debt and financial performance of the community. The owner of the community agreed to terminate the existing management agreement and to enter into a long-term lease with the Company upon the Department’s approval of the Company as the “provider” at the Community. The Company

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submitted an application to the Arizona DOI to enter into the lease and become the provider for the community. On April 1, 2002, the Department approved the application of the Company as the “provider” at the Community. Therefore, on April 1, 2002, the Company contemporaneously terminated the management agreement and leased the property from the owner under an approximate 16 year term (the remainder of the original management agreement), with two 10 year renewals.

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company is a national senior living and health care services provider offering a broad range of care and services to seniors within a residential setting. As of March 31, 2002, the Company operated 65 senior living communities, consisting of 31 large continuing care retirement communities and independent living communities (“Retirement Centers”) and 34 Free-standing ALs in 14 states with an aggregate capacity for approximately 11,200 and 3,100 residents, respectively. The Company owns 21 communities, leases 37 communities pursuant to long-term leases, and manages seven communities pursuant to management agreements. Of its Retirement Centers, the Company owns 12, leases 12, and manages seven. Of its Free-standing ALs, the Company owns nine and leases 25. During the three months ended March 31, 2002 and 2001, the Company’s Retirement Centers and Free-standing ALs generated 76.6% and 23.4%, respectively, and 87.5% and 12.5%, respectively, of resident and healthcare revenues, respectively.

The Company’s long-term strategy is to develop and operate multiple communities within a major metropolitan region in order to create a Senior Living Network that provides a continuum of housing and care for seniors. Many of the Free-standing ALs are located within the same major metropolitan regions as the Retirement Centers and function as satellites to those Retirement Center hubs in order to form Senior Living Networks and expand the continuum of housing and care into the market. The Company believes that this hub and satellite approach produces management efficiencies and market penetration by offering a range of senior living arrangements at various price levels.

Critical Accounting Policies

Certain critical accounting policies are complex and involve significant judgments by management, including the use of estimates and assumptions, which affect the reported amounts of assets, liabilities, revenues and expenses. As a result, changes in these estimates and assumptions could significantly affect the Company’s financial position or results of operations. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. The significant accounting policies used in the preparation of the Company’s financial statements are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 and the Company’s consolidated financial statements and the notes thereto.

Synthetic Lease Communities

As of March 31, 2002, the Company operated nine of its communities (two Retirement Centers and seven Free-standing ALs) under an operating lease structure commonly referred to as a synthetic lease. As of December 31, 2001, the Company operated 14 of its communities (two Retirement Centers and 12 Free-standing ALs) under synthetic leases. During the fourth quarter of 2001, the Company determined that in order to simplify its financial structure, and as a condition of certain elements of its Refinancing Plan, it would terminate all synthetic leases during 2002. Upon the termination of these synthetic leases, the Company will become the owner of each community for financial reporting purposes. The Company will not incur any cash costs in connection with the termination of the synthetic leases other than transaction costs. As of March 31, 2002, the Company has completed the termination of five of these synthetic leases, and expects to terminate the nine remaining synthetic leases during 2002. Upon completion of these transactions, the Company will not have any remaining synthetic leases.

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The Company has substantial investments in these communities in the form of land, security deposits (certificates of deposit and treasury bills) and loans to the lessors (notes receivable). The Company has pledged security deposits to the lessors to secure its obligations under the synthetic lease agreements. As of March 31, 2002, the Company had approximately $81.0 million of assets related to the nine communities being operated under synthetic leases (including $24.7 million of notes receivable, $43.1 million of security deposits, $10.9 million of land and $2.3 million of leasehold acquisition costs). The Company owns the land under seven of the synthetic lease communities, and leases such land to the lessors under long-term operating leases.

As of March 31, 2002, of the third party mortgage debt secured by the synthetic lease assets, the Company is the borrower of approximately $5.6 million of mortgage loans, which is debt recorded on the Company’s condensed consolidated balance sheets. As of March 31, 2002, the Company is the guarantor of approximately $61.0 million of third party mortgage debt associated with these synthetic leases. These mortgage loans were made directly to the lessors and therefore are not recorded on the Company’s condensed consolidated balance sheet. This nonconsolidated debt is also secured by the synthetic lease assets, with the Company contingently liable as guarantor, and is cross-defaulted with a portion of the Company’s consolidated debt.

Sale Lease-back Transactions

The table below summarizes the sale lease-back transactions that the Company completed during the three months ended March 31, 2002 into two categories: the first six communities presented are accounted for as capital leases due to contingent earnout agreements or the Company having conditional purchase options and the second three communities presented are accounted for as operating leases.

						Increase in		Reduction			New Capital
						Land, Building		in Notes			Lease			Transaction
2002	Community			Proceeds		& Equipment		Receivable			Obligation(2)			Losses
February 12	Homewood at Coconut Creek	(1	)	$	9,687		9,687		(8,559	)		(9,687	)		1,381
March 22	Heritage Club at Greenwood Village	(1	)		17,865		17,865		(20,012	)		(17,865	)		5,817
March 28	Three (3) Free-standing ALs	(1	)		18,200		18,200		(29,537	)		(18,200	)		17,786
March 28	The Hampton at Post Oak				25,000		25,000		—			(25,000	)		—
				$	70,752		70,752		(58,108	)		(70,752	)		24,984

				Reduction in
				Land, Building			Reduction		Transaction
2002	Community	Proceeds		& Equipment			in Debt		Gains
January 1	Carriage Club of Charlotte	$	45,000		(32,801	)		34,780		11,758
February 12	Holley Court Terrace		18,469		(12,669	)		12,933		5,268
March 28	Carriage Club of Jacksonville		30,000		(28,387	)		19,538		697
		$	93,469		(73,858	)		67,251		17,723

(1)

In conjunction with the Refinancing Plan, the Company determined during the fourth quarter of 2001 to terminate all of the synthetic leases and subsequently enter into sale lease-back transactions with respect to eight of the fourteen synthetic lease communities during the first and second quarters of 2002. As of March 31, 2002, the Company had completed five of the eight synthetic lease termination and sale lease-back transactions. These transactions raised gross proceeds of $51.0 million (including $5.3 million of estimated earnout payments).

(2)

For financial reporting purposes, these capital lease obligations are included in debt.

As a result of completed and anticipated transactions under the Refinancing Plan, the Company has recorded losses from sale lease-back transactions of $7.9 million during the quarter ended December 31, 2001 and $23.2 million during the quarter ended March 31, 2002, and anticipates recording approximately $6.0 million of additional loss during the

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second quarter of 2002, bringing the total loss on these sale lease-back transactions to approximately $37.1 million. For financial reporting purposes, these losses are considered residual value guarantee amounts and are being recognized as lease expense. See note 4 to the condensed consolidated financial statements.

In addition, because the Company’s anticipated sale lease-back transactions will result in the early termination of certain existing synthetic leaseholds, the Company accelerated the amortization of leasehold acquisition costs beginning in the fourth quarter of 2001. As a result of this acceleration, the Company recorded additional amortization costs of $472,000 during the quarter ended December 31, 2001, and $6.5 million during the quarter ended March 31, 2002, and anticipates that it will record approximately $2.3 million of additional amortization during the second quarter of 2002, bringing the total amount of accelerated amortization related to these sale lease-back transactions to approximately $9.3 million.

The Company has not incurred, and does not expect to incur, any cash costs other than transaction costs in connection with these transactions. Given the long-term nature of the lease-back arrangements, the Company views these transactions as long term financings. As such, the Company believes that although sale lease-back accounting rules require the recognition of a loss in the amount of the difference between the sales prices and the Company’s cost basis in the assets (including the leasehold acquisition costs of its synthetic leases), the Company will continue to derive economic benefits from the assets in the form of future payments under the earn-out provisions in excess of the amounts currently included in the sale price, as well as from any improvement in operating results as the communities increase occupancy and performance.

Results of Operations

The Company reported a net loss of $38.1 million, or $2.20 loss per diluted share, on total revenues of $75.3 million, as compared with net loss of $2.8 million, or $0.16 loss per diluted share, on revenues of $60.4 million for the three months ended March 31, 2002 and 2001, respectively. The loss of $2.20 per dilutive share for the three months ended March 31, 2002 was comprised of a $2.16 loss from operations, plus a $0.04 loss from the extinguishment of debt. Included in the loss from operations for the quarter is approximately $23.2 million of additional lease expense resulting from losses on certain sale lease-back transactions, and approximately $6.5 million of accelerated leasehold acquisition cost amortization from these transactions. See notes 4 and 8 to the condensed consolidated financial statements.

Revenues

The Company’s revenues from continuing operations are comprised of resident and health care revenues, which includes revenues from the Company’s owned and leased communities and management and development services revenues, which include fees, net of reimbursements, for the development, marketing, and management of communities owned by third parties. The following table sets forth each of the components of the Company’s revenues and show each as a percentage of the total revenues for the three months ended 2002 and 2001:

		March 31,			March 31,
		2002			2001
Resident and health care revenues:
	Monthly service fees and ancillary revenues from independent and assisted living residents		74.7	%		75.6	%
	Per diem charges from skilled nursing and therapy services		23.1	%		20.2	%
	Amortization of non-refundable entrance fees(1)		2.1	%		3.1	%
Management and development services			0.1	%		1.1	%
Total revenues			100.0	%		100.0	%

(1) Amortized over each resident’s actuarially determined life expectancy (or building life for contingent refunds).

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The Company’s management agreements are generally for terms of three to 20 years, but certain of such agreements may be canceled by the owner of the community, without cause, on three to six months’ notice. Pursuant to the management agreements, the Company is generally responsible for providing management personnel, marketing, nursing, resident care and dietary services, accounting and data processing services, and other services for these communities at the owners’ expense, and receives a monthly fee for its services based either on a contractually fixed amount or a percentage of revenues or income. Two of the Company’s management agreements are for communities with aggregate resident capacity for approximately 1,500 residents and have terms of twenty years, with two ten year renewals and include a purchase option for one of the communities. The management fee for these two agreements is equal to all cash received from these two communities in excess of operating and financing expenses and certain cash payments to the owner of the community. The Company’s existing management agreements expire at various times through June 2018. See note 10 to the condensed consolidated financial statements.

Segment Results

The Company’s operations are divided into two segments: (1) Retirement Centers and (2) Free-standing ALs.

The Retirement Centers are generally comprised of the Company’s continuing care retirement centers and lifecare communities and its independent living communities, including those at which assisted living and/or nursing services are provided. The Retirement Centers are established communities with strong reputations within their respective markets, and generally maintain high and consistent occupancy levels, most with waiting lists of prospective residents. The Company’s Retirement Centers form the core segment of the Company’s business and comprise 31 of the 65 communities that the Company operates, with capacity for approximately 11,200 residents, representing approximately 78% of the total resident capacity of the Company’s communities. At March 31, 2002 and 2001, the Company’s Retirement Centers had occupancy rates of 93% and 93%, respectively.

The Company has also developed and acquired a number of Free-standing ALs, most of which began operations during 1999 and 2000. Free-standing ALs are much smaller than Retirement Centers and generally are stand-alone communities that are not located on a Retirement Center campus. Most Free-standing ALs provide specialized care such as Alzheimer’s, memory enhancement and other dementia programs. During the last several years and continuing through 2001, the Free-standing AL market has suffered from adverse market conditions, including significant overcapacity in most markets, longer than anticipated fill-up periods, price discounting and price pressures. The Company expects these conditions to continue for the intermediate term. Although the Company ceased development of additional Free-standing ALs in late 1999, many that were already in development were opened during 2000 and early 2001. The Company’s community operating results include only the Free-standing ALs that the Company owns or leases. The number of Free-standing ALs included in the Company’s consolidated operations grew from 22 at March 31, 2001 to 34 at March 31, 2002 as a result of acquisitions of Free-standing ALs and leasehold interests of various communities that were managed by the Company and owned by special purpose entities which were owned by third parties (“Managed SPE Communities”), including leasehold interests in ten Managed SPE Communities acquired as of December 31, 2001.

The Company operates 34 Free-standing ALs, with capacity for approximately 3,200 residents, representing approximately 22% of the total resident capacity of the Company’s communities. Many of these Free-standing ALs are in the fill-up stage. At March 31, 2002 and 2001, the Company’s Free-standing ALs had occupancy rates of 69% and 55%, respectively.

The Company evaluates its performance in part based upon EBITDAR, which is defined as earnings before net interest expense, income tax expense, depreciation, amortization, rent, and other special charges related to asset impairment and other losses, equity in loss of managed special purpose entities, other income (expense), minority interest, and extraordinary items. As a result of increased occupancy, the Company’s Free-standing ALs generated positive community EBITDAR for the fourth quarter of 2001 and the first quarter of 2002. On an operating income basis, however, they are still generating losses after lease, amortization and depreciation expense.

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The following is a summary of total revenues, EBITDAR, and total assets by segment for the three months ended March 31, 2002 and 2001 (in thousands).^(1)(2)(3)

Three Months Ended
		March 31,			March 31,			$			%
		2002			2001			Change			Change
Revenues:
	Retirement centers	$	57,616		$	52,238		$	5,378			10.3	%
	Free-standing ALs		17,637			7,434			10,203			137.3	%
	Corporate/other		65			709			(644	)		(90.8	%)
	Total	$	75,318		$	60,381		$	14,937			24.7	%
NOI / Community EBITDAR:
	Retirement centers	$	20,711		$	18,679		$	2,032			10.9	%
	Free-standing ALs		949			(800	)		1,749			218.6	%
	Corporate/other		(6,239	)		(4,281	)		(1,958	)		(45.7	%)
	Net operating income	$	15,421		$	13,598		$	1,823			13.4	%
Lease expense (4)			32,965			6,751			26,214			388.3	%
Depreciation and amortization (5)			12,144			5,092			7,052			138.5	%
	Operating income	$	(29,688	)	$	1,755		$	(31,443	)		(1791.6	%)

Total Assets
		March 31,		December 31,		$			%
		2002		2001		Change			Change
Total Assets:
	Retirement centers	$	435,390	$	509,732	$	(74,342	)		(14.6	%)
	Free-standing ALs		221,489		241,069		(19,580	)		(8.1	%)
	Corporate/other		115,244		99,390		15,854			16.0	%
	Total	$	772,123	$	850,191	$	(78,068	)		(9.2	%)

(1)	Segment data does not include any inter-segment transactions or allocated costs.
(2)	Net Operating Income (“NOI”), or Community EBITDAR, is defined as earnings before net interest expense, income tax expense (benefit), depreciation, amortization, rent, and other special charges related to asset write-offs and write-downs, equity in loss of communities that are managed by the Company and owned by special purpose entities, other income (expense), minority interest, and extraordinary items.
(3)	Corporate/Other revenues represent the Company’s development and management fee revenues. Corporate/Other NOI includes operating expenses related to corporate operations, including human resources, financial services, and information systems, as well as senior living network and assisted living management costs.
(4)	Includes $23.2 million of additional lease expense for the 2002 quarter as a result of sale lease-back transactions. See note 4 to the condensed consolidated financial statements.
(5)	Includes $6.5 million of additional amortization expense for the 2002 quarter as a result of sale lease-back transactions. See note 4 to the condensed consolidated financial statements.

The following table presents, on a pro forma basis, quarterly community results on a segment basis for each of the Company’s last five fiscal quarters (2002 and 2001), assuming that all communities currently owned or leased were consolidated for the entire period. As a result, the operating results for 24 Retirement Centers and 32 Free-standing ALs owned or leased as of March 31, 2002, are included for all quarters shown. This information is presented in order to show the historical results of the communities that currently make up each segment (many of which were not consolidated in some or all quarters shown). Communities managed as of March 31, 2002, communities sold during these periods and unconsolidated joint ventures are excluded from all quarters shown. While this pro forma information is not presented in accordance with accounting principles generally accepted in the United States of America, the Company believes such information is useful in evaluating the Company’s performance. The pro forma results of any particular quarter are not necessarily indicative of results of operations for a full year or predictive of future periods. All dollar amounts are in thousands.

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         Pro forma segment results:

			2001 Quarter Ended														2002 Quarter
														Year Ended			Ended
			March 31			June 30			Sept 30			Dec 31		Dec 31, 2001			March 31
Retirement Centers
		Revenues	$	52,143		$	54,105		$	54,893		$	55,928	$	217,069		$	57,616
		Community EBITDAR		18,978			18,852			18,318			19,738		75,886			20,711
Free-standing ALs
		Revenues		11,927			13,716			15,160			16,465		57,268			17,637
	Community EBITDAR			(1,769	)		(473	)		(86	)		648		(1,680	)		949

This pro forma table shows the significant trends in each of the two business segments. Retirement Center revenues have grown as a result of price increases for new residents, increased occupancy and the fill up of expansions at certain communities, growth of therapy services and the expansion of other service offerings. These revenue increases, as well as control of expenses and recoupment of expense increases through rate increases to current residents, have resulted in proportionally larger increases in community EBITDAR from the Retirement Centers.

During 1999 and 2000, the Company opened many new Free-standing AL communities which added significant unit capacity to the Company’s portfolio of Free-standing ALs. Free-standing AL revenues have increased primarily as a result of increased occupancy as Free-standing AL communities fill-up. Free-standing AL revenues have also increased as a result of selective price increases and growth of ancillary revenues. As the Free-standing AL communities continue to fill, the Company expects community EBITDAR to increase.

Three Months Ended March 31, 2002 Compared with the Three Months Ended March 31, 2001

Revenues. Total revenues were $75.3 million in the quarter ended March 31, 2002, compared to $60.4 million in the quarter ended March 31, 2001, representing an increase of $14.9 million, or 24.7%. Resident and health care revenues increased by $15.6 million, and management and development services revenue decreased by $644,000 during the 2002 period. The increases in resident and health care revenues resulted primarily from an increase of: (a) approximately $7.9 million as a result of the increase in the number of Free-standing ALs included in the Company’s consolidated operations, as well as $2.1 million related to the continued fill-up of these communities, (b) $1.7 million related to the July 2001 long-term lease of Freedom Plaza Care Center, (c) an increase of $3.0 million in revenue from therapy services, and (d) $726,000 attributable to increased capacity as a result of Retirement Center expansions. The remaining increase relates primarily to increased average occupancy and additional entrance fee revenues.

Management and development services revenue decreased by $644,000 and decreased as a percentage of total revenue to 0.1% in the quarter ended March 31, 2002 from 1.2% in the quarter ended March 31, 2001. The decrease is primarily related to decreased management fees at certain properties as a result of lower sales of new units, which reduces the formula-based management fees, as well as the decrease in the number of managed communities from 20 at March 31, 2001 to seven at March 31, 2002.

For all of its communities, the Company had an occupancy rate of 87% as of March 31, 2002, compared to 83% as of March 31, 2001. The increase in the total occupancy rate is a result of increased occupancy at the Free-standing ALs and Retirement Center expansions.

Retirement Center resident and health care revenues were $57.6 million in the quarter ended March 31, 2002, compared to $52.2 million in the quarter ended March 31, 2001, representing an increase of $5.4 million, or 10.3%. This increase resulted primarily from additional revenues as a result of the long-term lease of Freedom Plaza Care Center, increased capacity related to expansions and increased therapy services provided by the Company during

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2002. Retirement Center resident and health care revenues were also positively affected by increased average occupancy and additional entrance fee revenues.

Free-standing AL resident and health care revenues increased from $7.4 million in the quarter ended March 31, 2001 to $17.6 million in the quarter ended March 31, 2002. This increase is largely related to the increase in the number of Free-standing ALs included in the Company’s consolidated operations from 22 to 34 communities, as well as increased occupancy at these communities.

Community Operating Expense. Community operating expense increased to $54.0 million in the quarter ended March 31, 2002, as compared to $41.8 million in the quarter ended March 31, 2001, representing an increase of $12.2 million, or 29.2%. The increase in community operating expense was primarily attributable to expansions and communities acquired or leased during 2001. Additionally, the increase was the result of increased labor, insurance, utility, property and marketing costs at various new communities, as well as costs associated with the expansion of therapy services to additional communities during 2001 and 2002. Community operating expense as a percentage of resident and health care revenues increased to 71.7% from 70.0% for the quarters ended March 31, 2002 and 2001, respectively, primarily attributable to the acquisition of leasehold interests in various Managed SPE Communities during the second half of 2001 which are in the fill-up stage. The Company expects community operating expense to remain at greater than historical levels as a percentage of resident and health care revenues as the Free-standing ALs acquired during 2001 complete the fill-up stage.

Retirement Center operating expenses were $36.9 million in the quarter ended March 31, 2002, compared to $33.6 million in the quarter ended March 31, 2001, representing an increase of $3.3 million, or 10.0%. Approximately $1.7 million of this increase was attributable to the July 1, 2001 long-term lease of Freedom Plaza Care Center. In addition, the expansions at several Retirement Centers increased operating expenses by $701,000. Finally, $896,000 of the increase related to expenses associated with increased therapy services during the quarter ended March 31, 2002. The remaining increase relates primarily to increased average occupancies resulting in increased Retirement Center operating expenses.

Free-standing AL operating expenses increased from $8.2 million in the quarter ended March 31, 2001 to $16.7 million in the quarter ended March 31, 2002. This increase is largely related to the increase in the number of Free-standing ALs included in the Company’s consolidated operations from 22 to 34 communities, as well as increased occupancy at these communities.

General and Administrative. General and administrative expense increased to $5.9 million for the quarter ended March 31, 2002, as compared to $5.0 million for the quarter ended March 31, 2001, representing an increase of $926,000, or 18.5%. This increase is primarily attributable to additional accruals for general and professional liability claims, workers’ compensation, and other insurance related accruals, primarily as a result of changes in the Company’s insurance program and general conditions in the insurance markets. General and administrative expense as a percentage of total revenues decreased to 7.9% compared to 8.3% for the quarters ended March 31, 2002 and 2001, respectively.

EBITDAR (Community NOI). EBITDAR increased $1.8 million from $13.6 million in the quarter ended March 31, 2001 to $15.4 million in the quarter ended March 31, 2002 as further described below.

Retirement Center EBITDAR increased $2.0 million, or 10.9%, from $18.7 million for the quarter ended March 31, 2001 to $20.7 million for the quarter ended March 31, 2002. This increase primarily relates to the July 2001 addition of the long-term lease of Freedom Plaza Care Center, as well as continued operational improvement throughout the Retirement Centers, resulting from stabilized occupancy and increased capacity through expansions, rate increases, and improved control of community-level overhead expense.

Free-standing AL EBITDAR improved by $1.7 million from an $800,000 loss in the quarter ended March 31, 2001, to $949,000 of income in the quarter ended March 31, 2002, primarily as a result of increased occupancy at these communities.

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Other EBITDAR losses increased by $1.9 million to $6.2 million in the quarter ended March 31, 2002 resulting from a $644,000 reduction in management and development fees and approximately $951,000 related to increases in general liability and other insurance accruals. The remaining increase relates to additional costs associated with therapy services, marketing, corporate operations, human resources, financial services and overhead, and increased senior living network and assisted living management costs.

Lease Expense. As of March 31, 2002, the Company had operating leases for 37 of its communities, including 12 Retirement Centers and 25 Free-standing ALs. Lease expense increased $26.2 million from $6.8 million for the quarter ended March 31, 2001 to $33.0 million for the quarter ended March 31, 2002. Lease expense (excluding synthetic leases) increased to $6.9 million for the quarter ended March 31, 2002, as compared to $3.6 million for the quarter ended March 31, 2001, representing an increase of $3.3 million. This increase was attributable to 14 additional leases entered into by the Company during 2001 and 2002, consisting of four Retirement Center leases which increased lease expense $1.5 million, and the acquisition of leasehold interests in ten Free-standing AL communities, which increased lease expense $1.8 million.

As of March 31, 2002, the Company operated nine of its communities, including two Retirement Centers and seven Free-standing ALs, under operating lease structures commonly referred to as synthetic leases. Synthetic lease expense increased to $26.1 million for the quarter ended March 31, 2002, as compared to $3.2 million for the quarter ended March 31, 2001, representing an increase of $22.9 million. Of the total $26.1 million of synthetic lease expense for the quarter ended March 31, 2002, $2.2 million related to Retirement Centers and $23.9 million related to Free-standing ALs.

As a result of completed and anticipated transactions under the Refinancing Plan, the Company has recorded losses from sale lease-back transactions of $7.9 million during the quarter ended December 31, 2001, and $23.2 million during the quarter ended March 31, 2002, and anticipates recording approximately $6.0 million of additional loss during the second quarter of 2002, bringing the total loss on these sale lease-back transactions to approximately $37.1 million. For financial reporting purposes, these losses are considered residual value guarantee amounts and are being recognized as lease expense.

Depreciation and Amortization. Depreciation and amortization expense increased to $5.0 million in the quarter ended March 31, 2002 from $4.7 million in the quarter ended March 31, 2001, representing an increase of $326,000, or 6.9%. The increase was primarily related to the increase in depreciable assets of approximately $38.2 million. These assets relate primarily to the acquisition of communities, including leasehold interests, and expansion of communities since March 31, 2001, as well as ongoing capital expenditures.

Amortization of Leasehold Acquisition Costs. Amortization of leasehold acquisition costs increased $6.7 million from $396,000 in the quarter ended March 31, 2001 to $7.1 million in the quarter ended March 31, 2002. During the fourth quarter of 2001, the Company determined that in order to simplify its financial structure, and as a condition of certain elements of its Refinancing Plan, it will exercise its termination rights under its synthetic leases during 2002. As a result of the completed and anticipated transactions under the Refinancing Plan, which will result in a shorter than expected remaining life of various leases, the Company accelerated the amortization of leasehold acquisition costs beginning in the fourth quarter of 2001. As a result of this acceleration, the Company recorded additional amortization costs of $472,000 during the quarter ended December 31, 2001, and $6.5 million during the quarter ended March 31, 2002, and anticipates that it will record approximately $2.3 million of additional amortization during the second quarter of 2002, bringing the total amount of accelerated amortization related to these sale lease-back transactions to approximately $9.3 million. The remaining portion of this increase relates to the acquisition of twelve leasehold interests in Free-standing ALs during 2001.

Other Income (Expense). Interest expense increased to $9.7 million in the quarter ended March 31, 2002 from $9.2 million in the quarter ended March 31, 2001, representing an increase of $499,000, or 5.4%. Although total indebtedness has decreased slightly to $508.1 million from $510.0 million at March 31, 2002 and March 31, 2001, respectively, this increase was primarily attributable to a higher average amount of indebtedness, prior to certain refinancing transactions, during the quarter ended March 31, 2002, as well as higher interest rates. Interest expense,

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as a percentage of total revenues, decreased to 12.9% for the quarter ended March 31, 2002 from 15.3% in the quarter ended March 31, 2001. Interest income decreased to $1.7 million in the quarter ended March 31, 2002 from $3.2 million in the quarter ended March 31, 2001, representing a decrease of $1.5 million, or 47.9%. The decrease in interest income was primarily attributable to lower income generated from the reduced amount of certificates of deposit and notes receivable balances associated with certain leasing transactions and management agreements. Equity in loss of Managed SPE Communities (representing the losses that the Company funded when operating deficits at the Managed SPE Communities exceeded specified limits) decreased from $966,000 in the quarter ended March 31, 2001 to $0 in the quarter ended March 31, 2002. The Company has no further Managed SPE Communities after December 31, 2001.

Income Tax Benefit. The provision for income taxes was a $97,000 expense, compared to a $1.4 million benefit for the quarters ended March 31, 2002 and 2001, respectively. The Company’s effective tax rate was 0.3% and 31.7% for the quarter ended March 31, 2002 and 2001, respectively. The Company has applied a valuation allowance against its net operating carryforwards.

Minority Interest in Earnings of Consolidated Subsidiary, Net of Tax. Minority interest in earnings of one consolidated subsidiary, net of tax, for the quarters ended March 31, 2002 and 2001, respectively, was $0 and $100,000 of income, representing a decrease of $100,000. The decrease was a result of the Company’s acquisition of the minority interest of this subsidiary on September 30, 2001.

Extraordinary Loss. During the quarter ended March 31, 2001, the Company repaid a term note to a bank in connection with the sale of its Carriage Club Charlotte community, resulting in a prepayment penalty of $348,000. In addition, the Company expensed the unamortized portions of financing costs, totaling $408,000 related to the sale lease-backs of Holley Court Terrace and Hampton at Post Oak. The Company recorded $756,000 or a $0.04 loss per dilutive share, net of income taxes, which was recorded as an extraordinary loss on the extinguishment of debt.

Net Loss. Based upon the factors noted above, the Company experienced a net loss of $38.1 million, or $2.20 loss per dilutive share, compared to a net loss of $2.8 million, or $0.16 loss per dilutive share, for the quarters ended March 31, 2002 and 2001, respectively. The $2.20 loss per dilutive share for the quarter ended March 31, 2002 was comprised of a $2.16 loss from operations and a $0.04 loss from the Company’s extinguishment of debt. The loss of $0.16 per dilutive share for the quarter ended March 31, 2001 was comprised of a $0.18 loss from operations and a $0.02 gain from the extinguishment of debt.

Liquidity and Capital Resources

Refinancing Plan

The Company has scheduled debt maturities during the twelve months ended March 31, 2003 of $295.9 million, which includes $163.0 million of mortgage debt and $132.9 million of its Debentures. As a result of these current maturities, the Company had a net working capital deficit of $277.6 million as of March 31, 2002.

In order to satisfy or extend these obligations and to address its net working capital deficit, the Company has developed the Refinancing Plan in consultation with its investment banking advisor and its legal counsel and through discussions with its lenders. The Refinancing Plan includes extensions of existing debt agreements, refinancings of existing mortgage facilities, new mortgage financings, sale lease-back arrangements, and a mezzanine financing arrangement. As part of its Refinancing Plan, the Company intends to extend the maturity dates of substantially all of its remaining credit facilities to January 2004 or later. In addition, the Company intends to renegotiate its financial covenants to levels that the Company believes it can satisfy for the foreseeable future and eliminate other financial covenants no longer applicable to the Company. The Company believes that, if consummated as currently planned, the Refinancing Plan will place the Company in position to address its scheduled debt maturities during 2002 and, therefore, its negative working capital.

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Pursuant to its Refinancing Plan, the Company has consummated as of March 31, 2002, fourteen sale lease-back and other capital raising transactions since November 1, 2001 and through the first quarter of 2002, raising gross proceeds of approximately $193.2 million, which yielded net proceeds of approximately $25.8 million after payment of related debt and transaction costs for use by the Company as working capital or to repay its maturing debt obligations. See note 2 to the condensed consolidated financial statements.

In addition to these recently completed transactions, the Company has either executed nonbinding agreements or is in advanced discussions with several different parties relating to the refinancing or sale lease-back of up to ten additional communities. If completed on the terms being considered, these proposed transactions would generate gross proceeds to the Company of approximately $174.7 million prior to payment of related debt and transaction costs of approximately $153.4 million. Furthermore, the Company is in advanced discussions with certain of its existing lenders concerning the amendment or removal of the Company’s financial covenants following consummation of the Refinancing Plan. These transactions and discussions are in various stages and in certain instances are non-binding. All of these transactions will be subject to conditions and approvals that must be satisfied.

If the foregoing transactions are consummated as currently contemplated, the Debentures will be the Company’s primary remaining outstanding debt obligation maturing in 2002. In order to address the maturity of the Debentures before October 2002, the Company has entered into a non-binding letter of intent with a third-party that will provide the Company with approximately $125.0 million of term mezzanine financing involving certain of the Company’s Retirement Centers. The Company intends to use the net proceeds from this transaction, together with the net proceeds generated by the transactions described above, to address the final resolution of the outstanding Debentures and to satisfy its working capital requirements. The letter of intent regarding this transaction is preliminary and non-binding, and is subject to conditions that must be satisfied prior to closing, including certain approvals and consents. If the Company is able to reach a definitive agreement with respect to this proposed mezzanine financing, the transaction is expected to close during the second or third quarter of 2002.

The Company currently anticipates completing the balance of its Refinancing Plan prior to October 2002. Nevertheless, the Refinancing Plan and its various remaining components are subject to a number of contingencies, uncertainties and conditions that are outside of the Company’s control, and are dependent upon the receipt of required approvals and consents. Accordingly, there can be no assurance that the Company will be able to consummate its Refinancing Plan. A significant amount of the Company’s indebtedness is cross-defaulted. Any non-payment or other default with respect to such obligations (including non-compliance with a financial covenant) could cause lenders and lessors to declare defaults, accelerate payment obligations or foreclose upon the communities securing such indebtedness or exercise their remedies with respect to such communities. The failure to consummate the Refinancing Plan, or another plan to extend, refinance or repay the Company’s debts, will have a material adverse effect upon the Company, will result in the Company having insufficient capital to satisfy its maturing obligations and could make it necessary for the Company to seek protection from its creditors. In the event that the Company successfully consummates its Refinancing Plan, it will remain highly leveraged with a substantial amount of debt and lease obligations, and will have increased interest and lease expenses. The Company is also likely to incur certain costs, including significant non-cash charges in connection with the consummation of the Refinancing Plan. See “Risks Associated with Forward Looking Statements.”

Cash flow

Net cash used by operating activities was $7.0 million for the three months ended March 31, 2002, as compared with $632,000 provided for the three months ended March 31, 2001. The Company’s cash and cash equivalents totaled $25.7 million as of March 31, 2002, as compared to $19.3 million as of December 31, 2001.

Net cash provided by investing activities was $75.1 million for the three months ended March 31, 2002, as compared with $7.5 million used for the three months ended March 31, 2001. During the three months ended March 31, 2002, the Company received $93.5 million from sales of assets, purchased assets limited as to use of $6.9 million, added $7.3 million to land, building and equipment, issued $2.2 million of notes receivable, and made $1.9 million in security deposits.

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Net cash used by financing activities was $61.8 million compared with $12.9 million provided for the three months ended March 31, 2002 and 2001, respectively. During the three months ended March 31, 2002, the Company borrowed $76.2 million under long-term debt arrangements, made principal payments on its indebtedness of $130.6 million, recorded $5.3 million of contingent earnouts, and paid $368,000 of financing costs. In connection with certain lifecare communities, the Company made principal payments and refunds under master trust agreements of $1.7 million.

Liquidity

The Company is highly leveraged and has a substantial amount of debt and lease obligations. The Company has historically financed its activities with long-term mortgage borrowings, revolving credit facilities, sale lease-back arrangements, cash flows from operations, and prior to 1999, net proceeds from public offerings of debt and equity. At March 31, 2002, the Company had $508.1 million of indebtedness outstanding with fixed maturities ranging from May 2002 to June 2025. As of March 31, 2002, approximately 65.2% of the Company’s indebtedness bore interest at fixed rates, with a weighted average interest rate of 7.00%. The Company’s variable rate indebtedness carried a weighted average rate of 6.02% as of March 31, 2002.

At March 31, 2002, the Company’s scheduled debt maturities during the twelve months ended March 31, 2003 totaled $295.9 million, including $163.0 million of mortgage debt and $132.9 million of Debentures. In addition, the Company has minimum rental obligations of $30.3 million under long-term operating leases due during the nine months ended December 31, 2002. As of March 31, 2002, the Company had approximately $25.7 million in unrestricted cash and cash equivalents, and had negative working capital of $277.6 million, related mainly to the debt maturing in 2002.

The Company expects that its current cash and cash equivalents, expected cash flow from operations, and the proceeds from certain recently completed financings will be sufficient to fund its operating requirements, its capital expenditure requirements and its periodic debt service requirements during 2002. However, the Company’s internally generated cash will not be sufficient to satisfy its scheduled debt maturities in 2002. Accordingly, the Company’s ability to satisfy its maturing obligations will depend primarily upon its ability to execute and implement its Refinancing Plan. The terms of the transactions and agreements comprising the Refinancing Plan will likely impose significant burdens on the Company.

Many of the Company’s credit and other agreements contain restrictive covenants that include, among other things, the maintenance of minimum tangible net worth, prescribed debt service coverage, liquidity, capital expenditure reserves and occupancy levels. In addition, certain of these agreements require that the Company raise a prescribed amount of capital and provide evidence of sufficient capacity to pay off its Debentures by July 1, 2002. Effective as of March 31, 2002, the Company and certain of its lenders and lessors agreed to waivers relating to many of these financial covenants and agreements in order to allow the Company to remain in compliance. The Company is unlikely to be able to comply with many of its financial covenants in the future absent further concessions or waivers from certain of its creditors. There can be no assurances that the Company’s creditors will grant further amendments or waivers in the event of such non-compliance. Failure to remain in compliance with its financial covenants would have a material adverse impact on the Company, and would result in a default under a substantial majority of the Company’s indebtedness and other obligations, and could result in an acceleration of the maturity of those obligations.

A significant amount of the Company’s indebtedness and lease agreements is cross-defaulted. Any non-payment or other default with respect to such obligations (including non-compliance with a financial covenant) could cause the Company’s lenders to declare defaults, accelerate payment obligations or foreclose upon the communities securing such indebtedness or exercise their remedies with respect to such communities. Furthermore, because of cross-default and cross-collateralization provisions in certain of the Company’s mortgages, debt instruments, and leases, a default by the Company on one of its debt instruments or lease agreements is likely to result in a default or acceleration of substantially all of the Company’s other obligations, which would have a material adverse effect on the Company.

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The Company has engaged in, and anticipates continuing, discussions with its existing lenders and other lenders, lessors and third-parties in order to implement the Refinancing Plan. While the Company anticipates completing the Refinancing Plan prior to October 2002, there can be no assurances that the Company will be able to do so or that the Company will be able to satisfy its maturing obligations. In addition, the terms of the transactions comprising the Refinancing Plan may not be as expected. The Company’s ability to consummate the Refinancing Plan depends upon a number of factors, many of which are beyond the Company’s control. These factors include the satisfaction of conditions relating to various components of the Refinancing Plan, the Company’s financial condition and operating performance, the financial strength of the assets to be sold or leveraged, the requirement for regulatory approvals, and upon the receipt of required approvals and consents, general economic conditions, general conditions in the credit markets, the condition of the senior living industry, mortgage interest rates, the Company’s equity in any particular community and other factors. The Company’s efforts will be adversely affected by the condition of the assisted living market in general, the insolvency or weakened financial conditions of many assisted living competitors, a reduced number of lenders willing to finance assisted living or retirement companies, the substantial fill-up costs associated with the Company’s Free-standing ALs and the fact that the Company is highly leveraged.

The Company’s financial condition could adversely effect the Company’s ability to retain existing residents, attract prospective residents, maintain customary terms of payment from its vendors, which could have a material adverse effect on the Company’s operating results and liquidity and could adversely effect the Company’s ability to consummate the Refinancing Plan. The Company believes that, if consummated as currently planned, the Refinancing Plan will satisfy the scheduled debt maturities during 2002, as well as the Company’s negative working capital.

In the event that the Company successfully consummates its Refinancing Plan, it will continue to be highly leveraged, and will have substantial debt and lease obligations, and will have increased interest and lease expenses. The Company is also likely to incur certain costs, including significant non-cash charges in connection with the consummation of the Refinancing Plan.

Financing Activity

During the three months ended March 31, 2002, the Company entered into various financing transactions.

On January 1, 2002, the Company sold Carriage Club of Charlotte, a retirement center in Charlotte, North Carolina, for $45.0 million. The Company used a majority of the sale proceeds to pay $34.8 million of debt associated with the property, resulting in an early payment penalty of $348,000, as well as $50,000 of unamortized financing costs, which the Company has recorded as an extraordinary loss. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company recorded a gain of $11.7 million on the sale, which is being amortized over the term of the lease. In conjunction with this sale, on January 1, 2002, the Company acquired a Free-standing AL in Clearwater, Florida for $7.1 million, which it had previously managed for the buyer of Carriage Club of Charlotte. The Company funded this acquisition by assuming a $4.7 million mortgage note, bearing interest at a floating rate of 5.63% at March 31, 2002. Interest is due monthly with remaining principal and unpaid interest due December 31, 2002. The note is secured by certain land, buildings, and equipment. The community has 83 units, of which 57 are assisted living and 26 are memory enhanced.

On January 25, 2002, the Company amended two loan agreements with aggregate outstanding indebtedness of $7.2 million. The amendment extends the due dates of the agreements to December 31, 2002, requires additional monthly principal payments of $60,000, and required a $1.0 million cash collateral deposit. In connection with the amendment, the Company agreed to, among other things, (1) retire or refinance approximately $92.3 million of indebtedness on or before July 1, 2002, so as to mature no earlier than December 1, 2003 and (2) retire or refinance the $132.9 million outstanding principal amount of its Debentures on or before September 1, 2002 so as to mature no earlier than October 1, 2004. See note 2 to the condensed consolidated financial statements.

On February 12, 2002, the Company sold The Homewood at Coconut Creek, a Free-standing AL in Coconut Creek, Florida, for $9.7 million. The Company contemporaneously leased the property back from the buyer under a 15-year

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lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company used a portion of the sale proceeds to pay $8.6 million of debt associated with the property. The sale agreement contains certain formula-based earnout provisions which may provide additional sales proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, this transaction was recorded as a financing transaction and the Company recorded $9.7 million of lease obligation as debt, bearing interest of 7.55%.

On February 12, 2002, the Company sold for $18.5 million a retirement center in Oak Park, Illinois. The Company used a majority of the sale proceeds to pay $12.9 million of debt associated with the property, resulting in the Company expensing $259,000 of unamortized financing cost as an extraordinary item. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company recorded a gain of $5.3 million on the sale, which is being amortized over the term of the lease.

On March 22, 2002, the Company sold The Heritage Club at Greenwood Village, a Free-standing AL in Denver, Colorado, for $17.9 million. The Company contemporaneously leased the property back from the buyer under a 15-year lease agreement with two five-year renewal options, and has the right of first refusal to repurchase the community. The Company used a portion of the sale proceeds to pay $16.3 million of debt associated with the property. The sale agreement contains certain formula-based earnout provisions which may provide additional sales proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, this transaction was recorded as a financing transaction and the Company recorded $17.9 million of lease obligation as debt, bearing interest of 7.46%.

On March 28, 2002, the Company sold two retirement centers and three Free-standing ALs for $73.2 million. The Company used a portion of the proceeds to repay $55.2 million of debt, resulting in the Company expensing $99,000 of unamortized financing cost as an extraordinary item. The Company contemporaneously leased the properties back from the buyer under a 15-year lease agreement with two ten-year renewal options. The sale agreements for the three Free-standing ALs contain certain formula-based earnout provisions which may provide additional sales proceeds to the Company based on future performance. As a result of the contingent earn-out provisions, for financial reporting purposes, the Free-standing AL transactions were recorded as financing transactions and the Company recorded $18.2 million of lease obligation as debt, bearing interest of 9.37%. One of the retirement center leases is recorded as a capital lease and the Company recorded $25.0 million of lease obligation as debt, bearing interest of 8.27%. The other retirement center lease is being accounted for as an operating lease, since the sales agreements for this community did not contain a contingent earnout provision or other continuing involvement provisions. The Company recorded a gain of $697,000 on the sale of this retirement center, which is being amortized over the term of the lease. The Company has an option to acquire the capital leased retirement center after March 28, 2006, subject to certain conditions.

Effective as of March 31, 2002, the Company obtained waivers under various financing agreements with respect to certain of its financial covenants. See note 2 to the condensed consolidated financial statements.

The Company announced, during the quarter ended March 31, 2000, that the Board of Directors had authorized the repurchase, from time to time, of up to $30.0 million of its Debentures. The timing and amount of purchases of the Debentures will depend upon prevailing market conditions, availability of capital, alternative uses of capital and other factors. During the quarter ended March 31, 2001, the Company purchased $3.3 million of the Debentures, resulting in an extraordinary gain on extinguishment of debt, net of tax, of $395,000. Additional purchases of Debentures, if any, are likely to be made primarily in the open market.

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Future Cash Commitments

The following tables summarize the Company’s total contractual obligations and commercial commitments as of March 31, 2002 (amounts in thousands). This information only reflects the effect of those elements of the Company’s Refinancing Plan that have been completed as of March 31, 2002, and does not include the impact of remaining transactions contemplated in the Refinancing Plan that were not yet completed as of that date:

	Payments Due by Period
				Less than			1 – 3			4 - 5			After 5
	Total			1 year			years			years			years
Long-term debt	$	507,390		$	289,623		$	39,016		$	22,869		$	155,882
Capital lease obligations		699			463			236			—			—
Operating leases		523,831			30,306			83,047			82,134			328,344
Lease payments that apply to debt		(48,296	)		(48,296	)		—			—			—
Interest income on notes receivable and security deposits(1)		(8,270	)		(882	)		(3,514	)		(2,078	)		(1,796	)
Total contractual cash obligations(2)	$	975,354		$	271,214		$	118,785		$	102,925		$	482,430

(1)	A portion of the lease payments noted in the above table are repaid to the Company as interest income on notes receivable from lessors.
(2)	See note 2 to the condensed consolidated financial statements related to the Company’s plans regarding the 2002 obligations. These amounts do not include the impact of the remaining transactions contemplated in the Refinancing Plan that were not yet completed as of March 31, 2002.

	Amount of Commitment Expiration Per Period
	Total
	Amounts		Less than		1 - 3		4 - 5		After 5
	Committed		1 year		years		years		Years
Guaranties(1)	$	91,184		30,999		19,597		14,842		25,746
Total commercial commitments	$	91,184	$	30,999	$	19,597	$	14,842	$	25,746

(1) Guaranties include mortgage debt related to 10 communities (three Retirement Centers, five Free-standing ALs, and two joint ventures). Approximately $61.0 million of the $91.2 million is associated with seven of the 14 synthetic leases the Company determined during the fourth quarter of 2001 to terminate. The remaining mortgage debt guaranteed by the Company relates to a Retirement Center under a long-term management agreement and the Company’s two joint ventures. These amounts do not include the Company’s residual value guarantees under the remaining nine synthetic leases which were $162.8 million as of March 31, 2002.

The Company routinely makes capital expenditures to maintain or enhance communities under its control. The Company’s capital expenditure budget for fiscal 2002 is approximately $14.7 million.

Risks Associated with Forward Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company or its management including, but not limited to, all statements concerning the Company’s Refinancing Plan and the transactions, sale lease-backs, financings, and refinancings anticipated in conjunction with the Refinancing Plan; the Company’s anticipated or expected cashflow; the discussions of the Company’s operating and growth strategy (including its development plans and possible dispositions); the Company’s liquidity and financing

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needs; the alternatives that the Company is considering for raising additional capital and satisfying its maturing obligations; the projections of revenue, income or loss, capital expenditures, and future operations; and the availability of insurance programs. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, (i) the possibility of future defaults under the Company’s debt and lease agreements (including the Company’s inability to meet financial covenants or satisfy these obligations at their maturity), (ii) the risks associated with the Company’s financial condition and the fact that the Company is highly leveraged, (iii) the risk that the Company will be unable to close anticipated financings, obtain new credit facilities, raise additional capital or consummate any of the capital raising alternatives that the Company is contemplating, (iv) the risk that the Company will be unable to reduce the operating losses at its Free-standing ALs, (v) the risks associated with the adverse market conditions for the senior living industry, (vi) the risk that the Company will not generate expected levels of cash or will be unable to obtain liability insurance in the future or that the costs associated with such insurance (including the costs of deductibles) will be prohibitive, (vii) the likelihood of further and tighter governmental regulation, and (viii) the risks and uncertainties set forth under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and the Company’s other filings with the Securities and Exchange Commission.

Should one or more of these risks materialize, actual results could differ materially from those forecasted or expected. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could prove to be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the forecasts, expectations, objectives or plans of the Company will be achieved. The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosure About Interest Rate Risk. The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing, and cash management activities. The Company utilizes a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. The Company has entered into an interest rate swap agreement with a major financial institution to manage its exposure. The swap involves the receipt of a fixed interest rate payment in exchange for the payment of a variable rate interest payment without exchanging the notional principal amount. Receipts on the agreement are recorded as a reduction to interest expense. At March 31, 2002, the Company’s outstanding principal under its existing swap agreement was $34.8 million maturing July 1, 2008. Under the agreement the Company receives a fixed rate of 6.87% and pays floating rates based upon LIBOR and a foreign currency index with a maximum rate through July 1, 2002 of 8.12%. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2002, since 62.5% of the Company’s debt has fixed rates. There can be no assurances, however, that interest rates will not significantly change and materially affect the Company. Additionally, the Company anticipates refinancing and/or renegotiating certain debt in 2002, which, if consummated, would result in higher interest rates in the future. There can be no assurance, however, that the Company will be able to refinance and/or renegotiate any of its indebtedness.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

10.1	Lease Agreement by and between Countryside ALF, LLC and ARCLP – Charlotte, LLC, dated January 1, 2002
10.2	Lease Agreement by and between CNL Retirement – AM Illinois L.P. and ARC Holley Court, LLC, dated February 11, 2002
10.3	Lease Agreement by and between CNL Retirement – AM Colorado L.P. and ARC Greenwood Village, Inc., dated March 21, 2002
10.4	First Amendment to Master Lease and Security Agreement, dated February 7, 2002
10.5	Master Lease Agreement, dated March 29, 2002, between ARC Shavano, L.P., ARC Richmond Heights, LLC, ARC Delray Beach, LLC, ARC Victoria, L.P., ARC Carriage Club of Jacksonville, Inc., ARC Post Oak, L.P. and Healthcare Property Investors Inc.

b.	Reports on Form 8-K
	The Company did not file any reports on Form 8-K during the quarter ended March 31, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AMERICAN RETIREMENT CORPORATION
Date: May 14, 2002	By:	/s/ George T. Hicks George T. Hicks Executive Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer)

30 EX-10.1 3 g76095ex10-1.txt LEASE AGREEMENT DATED 1-1-02 EXHIBIT 10.1 Lease Agreement by and between COUNTRYSIDE ALF, LLC, a New York limited liability company as "Landlord" and ARCLP - CHARLOTTE, LLC a Tennessee limited liability company as "Tenant" Dated December 31, 2001 LEASE AGREEMENT THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the 31st day of December, 2001 by and between COUNTRYSIDE ALF, LLC, a New York limited liability company ("LANDLORD") having an address of 760 Brooks Avenue, Rochester, New York 14619, and ARCLP-CHARLOTTE, LLC, a Tennessee limited liability company ("TENANT"), having an address of c/o American Retirement Corporation, 111 Westwood Place, Suite 412, Brentwood, Tennessee 37027. W I T N E S S E T H: WHEREAS, Landlord has purchased from Tenant, a subsidiary of American Retirement Corporation, a Tennessee corporation ("ARC"), certain real property, all improvements thereon (the "IMPROVEMENTS") and all appurtenances thereto, comprising a continuing care retirement community known as "Carriage Club of Charlotte", located in Charlotte, North Carolina and more specifically described in Exhibit "A" attached hereto, together with the furniture, machinery, equipment, appliances, fixtures, supplies and other personal property used in connection therewith as more specifically described on Exhibit "B" attached hereto ("LANDLORD PERSONAL Property"). The foregoing real and personal property owned by Landlord as described in this Recital shall be collectively referred to in this Lease as the "PREMISES"; WHEREAS, Landlord desires to lease the Premises to Tenant, and Tenant desires to lease the Premises from Landlord. 1 NOW THEREFORE, in consideration of the mutual covenants, conditions and agreements set forth herein, Landlord hereby leases and lets unto Tenant the Premises for the term and upon the conditions and provisions hereinafter set forth. 1. TERM. 1.1 TERM. The term of this Lease shall commence at 12:01 a.m. on December 31, 2001 (the "COMMENCEMENT Date") and shall end at 11:59 p.m. on December 31, 2016 (the "INITIAL TERM") unless extended pursuant to Section 1.2 or earlier terminated in accordance with the provisions hereof. The Initial Term and all Renewal Terms are referred to collectively as the "TERM". (Each 12 month period commencing on January 1st of each calendar year during the Term shall be referred to herein as a "LEASE YEAR".) 1.2 RENEWAL TERMS. The Initial Term may be extended for two (2) separate renewal terms (each a "RENEWAL Term") of five (5) years each, upon the satisfaction of all of the following terms and conditions: 1.2.1 At least three hundred sixty (360) days prior to the end of the then current Term, Tenant shall have given Landlord written notice that Tenant desires to exercise its right to extend the then current Term for the succeeding Renewal Term. 1.2.2 This Lease shall be in full force and effect and Tenant shall not then be in material default of its obligations beyond any applicable periods of grace and/or notice and cure. 1.2.3 All other provisions of this Lease shall remain in full force and effect and shall continuously apply throughout the Renewal Term(s). 2 2. RENT. During the Initial Term and all Renewal Terms, minimum rent ("MINIMUM RENT") shall be paid by Tenant to Landlord at the address set forth in Section 14 of this Lease (except as otherwise provided in Section 2.1 below), without abatement, deduction or set-off, as follows: 2.1 MINIMUM RENT. During the Initial Term and all Renewal Terms Minimum Rent shall be paid to Landlord by Tenant monthly in advance on the first business day of each month (except for the payment made upon the execution hereof as provided in Section 2.1.1 below), and shall be calculated as follows: 2.1.1 Upon the execution hereof, Tenant has delivered to Landlord Minimum Rent in the amount of $_______________, representing prorated Minimum Rent for December 31, 2001. 2.1.2 Except as provided in Section 2.1.1, the Minimum Rent for each month from January, 2002 through July, 2008 (the scheduled maturity of the Heller Loan), inclusive, shall be the sum of $236,374.11 (the monthly Permitted Loan Debt Service to Heller), plus an amount equal to the Landlord Investment Component. 2.1.3 For the month of August, 2008 and for each month during the Term thereafter, the Minimum Rent shall be the sum of the Theoretical Debt Service plus an amount equal to the Landlord Investment Component. The Minimum Rent shall be calculated every month and shall be adjusted to reflect any change in the interest rate of any Permitted Mortgage Loan. Exhibit "D-1" attached hereto demonstrates the calculation of Minimum Rent as set forth in this Section 2.1.3. 3 2.1.4 As used herein: "HELLER" shall mean Heller Financial, Inc., a Delaware corporation, together with its successors and assigns. "HELLER LOAN" shall mean that certain loan from Heller to Tenant, in the original principal amount of $36,000,000, evidenced by that certain Fixed Rate Program Promissory Note Secured by Mortgage dated July 9, 1998 in said principal amount, payable to Heller, and any modifications, renewals or extensions thereof, as assumed by Landlord pursuant to that certain Assumption Agreement and Amendment to Loan Documents of even date herewith. The parties hereto agree that the terms and conditions of the Heller Loan as of the commencement date of this Lease are commercially reasonable and customary. "INDEX" means the Consumer Price Index - All Urban Consumers, U.S. City Average (All Items) (1982=100), as published by the Department of the Bureau of Labor Statistics, United States Department of Labor. In the event the Index ceases to be published there shall be made in the method of computation of Minimum Rent herein provided such revisions as the circumstances may require to carry out the intent of this Section 2.1. "LANDLORD INVESTMENT COMPONENT" shall mean, for any month, Landlord's Adjusted Investment Amount as determined for the year in which such month occurs, multiplied by ten percent (10%) and divided by twelve (12). 4 "LANDLORD'S ADJUSTED INVESTMENT AMOUNT" shall mean, (a) during the first calendar year of the Term (i.e., January, 2002 through December, 2002), the sum of $10,567,851.72 (the sum of the purchase price for the Premises paid by Landlord plus Landlord's closing expenses minus the principal balance of Heller Loan as of the closing) and (b) for each subsequent calendar year of the Term, the Landlord's Adjusted Investment Amount as in effect during the immediately preceding calendar year, multiplied by a fraction, the numerator of which shall be the Index number as in effect on (i.e., as published immediately prior to) January 1 of such subsequent calendar year and the denominator of which shall be the Index number as in effect on (i.e., as published immediately prior to) January 1 of the immediately preceding calendar year. In addition, Landlord's Adjusted Investment Amount shall be adjusted as provided in Section 4.10 hereof. "PERMITTED LOAN DEBT SERVICE" shall mean, for any month, the regularly scheduled installments of principal and/or interest and any other payments required under any Permitted Mortgage Loan first due and payable during such month. "PERMITTED MORTGAGE LENDER" shall mean Heller and any other commercial lending institution that generally engages in the business of making real estate loans, but shall not include any competitor of ARC. "PERMITTED MORTGAGE LOAN" shall mean any loan to Landlord from a Permitted Mortgage Lender that is secured by a valid mortgage or 5 deed of trust lien on the Premises; provided that (i) the terms and conditions of such loan, and all instruments, documents and agreements evidencing or relating to such loan (collectively, "PERMITTED MORTGAGE LOAN DOCUMENTS"), shall be commercially reasonable and customary, (ii) Tenant shall have consented in writing to such Permitted Mortgage Loan Documents and their terms and conditions in advance of the making of such loan (which consent shall not be unreasonably withheld, conditioned or delayed), (iii) the amount of such loan shall not, when aggregated with the outstanding principal amount of any other Permitted Mortgage Loans then in effect, exceed eighty-five percent (85%) of the Fair Market Value (as defined in attached Exhibit "C") of the Premises at the time that such loan is first made, and (iv) such loan is permitted by, and will not constitute a default under, any other Permitted Mortgage Loan. "PREVAILING INTEREST RATE" shall mean the per annum interest rate in effect with respect to any Permitted Mortgage Loan. "THEORETICAL PRINCIPAL" shall mean (i) as of July 1, 2008, the sum of $31,400,131, and (ii) for each month of the Term thereafter, the theoretical principal balance of a loan in such amount amortized in equal consecutive monthly installments of principal and interest over the Theoretical Loan Term at the rate of 6.87% per annum, compounded monthly. Exhibit "D-2" attached hereto demonstrates the amortization of Theoretical Principal. 6 "THEORETICAL DEBT SERVICE" shall mean, as of any date of determination, the theoretical amount that would be necessary to amortize fully a loan in the principal amount of the Theoretical Principal in equal consecutive monthly installments of principal and interest over the Theoretical Loan Term, in each case at the Prevailing Interest Rate in effect on such date. "THEORETICAL LOAN TERM" shall mean, as of any date of determination, 300 months less the number of full months of the Term that have elapsed prior to the month in which the date of determination occurs. 2.1.5 When so agreed by the parties, and in any event if Landlord has defaulted in the making of payments in respect of any Permitted Mortgage Loan or Tenant reasonably believes any such default is likely, Tenant may pay the portion of the Minimum Rent attributable to Permitted Loan Debt Service directly to the Permitted Mortgage Lender(s) entitled thereto. 2.2 ADDITIONAL RENT. In addition to Minimum Rent, Tenant shall pay as additional rent hereunder all other amounts, liabilities, obligations and Impositions (as hereinafter defined) which Tenant assumes or agrees to pay under this Lease and any fine, penalty, interest, charge and cost which may be added for nonpayment or late payment of such items (collectively the "ADDITIONAL RENT"). The Minimum Rent and Additional Rent are referred to herein as "RENT". Landlord shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of nonpayment of the Rent. 7 2.3 PAYMENT ON TERMINATION. In the event the Tenant shall fail to exercise any option to renew this Lease, or this Lease otherwise terminates for any reason prior to December 31, 2026, Tenant shall pay to Landlord upon termination an amount (the "SPECIAL LUMP SUM PAYMENT") calculated as follows: (a) If the termination is effective as of a date prior to July 1, 2008, the Special Lump Sum Payment shall be in an amount equal to the difference between (i) the principal balance of the Heller Loan as of the date of termination and (ii) the principal balance, as of the date of termination, of a theoretical loan in the initial principal amount of $34,779,918 as of December 31, 2001, amortized in equal consecutive monthly installments of principal and interest over a period of 300 months at the rate of 6.87% per annum, compounded monthly. (b) If the termination is effective as of July 1, 2008, the Special Lump Sum Payment shall be in the amount of $914,098. (c) If the termination is effective as of a date subsequent to July 1, 2008, the Special Lump Sum Payment shall be in an amount equal to the principal balance, as of the date of termination, of a theoretical loan in the initial principal amount of $914,098 as of July 1, 2008, amortized in equal consecutive monthly installments of principal and interest over a period of 222 months at the rate of 6.87% per annum, compounded monthly. 2.4 PRORATION FOR PARTIAL PERIODS. Except as otherwise provided herein, the Rent for any month during the Term that begins or ends on other than the first or last calendar day of such month shall be prorated based on actual days elapsed. 2.5 ABSOLUTE NET LEASE. All rent payments shall be absolutely net to the Landlord free of all Impositions (as defined below), utility charges, operating expenses, refurnishings, insurance premiums or any other charge or expense in connection with the Premises. All expenses and charges, whether for upkeep, maintenance, repair, refurnishing, refurbishing, restoration, replacement, insurance premiums, real estate or other property taxes, utilities, and other operating or other charges of a like nature or otherwise, shall be paid by 8 Tenant. This provision is not in derogation of the specific provisions of this Lease, but in expansion thereof and as an indication of the general intention of the parties hereto. 2.6 NO TERMINATION, ABATEMENT, ETC. Except as otherwise specifically provided in this Lease, Tenant shall remain bound by this Lease in accordance with its terms. Tenant shall not, without the consent of Landlord, modify, surrender or terminate the Lease, nor seek nor be entitled to any abatement, deduction, deferment or reduction of Rent, or set-off against the Rent. Except as expressly provided in this Lease, the obligations of Landlord and Tenant shall not be affected by reason of (i) any damage to, or destruction of, the Premises or any part thereof from whatever cause or any Taking (as hereinafter defined) of the Premises or any part thereof; or (ii) the lawful or unlawful prohibition of, or restriction upon, Tenant's use of the Premises, or any part thereof, the interference with such use by any person, corporation, partnership or other entity, or by reason of eviction by paramount title. Except as otherwise specifically provided in this Lease, Tenant hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to modify, surrender or terminate this Lease or quit or surrender the Premises or any portion thereof. 3. TAXES, ASSESSMENTS AND OTHER CHARGES. 3.1 PAYMENT OF IMPOSITIONS. Tenant shall pay, as Additional Rent, all Impositions that may be levied or become a lien on the Premises or any part thereof at any time (whether prior to or during the Term), without regard to prior ownership of said Premises, before any fine, penalty, interest, or cost is incurred; provided, however, Tenant may contest any Imposition in accordance with Section 3.4. Tenant shall deliver to Landlord [i] not more than five (5) days after the due date of each Imposition, copies of the invoice for such Imposition and the check delivered for payment thereof; and [ii] not more than 30 days after the due date of each 9 Imposition, a copy of the original receipt evidencing such payment or other proof of payment satisfactory to Landlord. Tenant's obligation to pay such Impositions shall be deemed absolutely fixed upon the date such Impositions become a lien upon the Premises or any part thereof. Tenant, at its expense, shall prepare and file all tax returns and reports in respect of any Imposition as may be required by governmental authorities. Tenant shall be entitled to any refund due from any taxing authority if no Event of Default shall have occurred hereunder and be continuing. Landlord shall be entitled to any refund from any taxing authority if an Event of Default has occurred and is continuing. Landlord and Tenant shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Premises as may be necessary to prepare any required returns and reports. In the event any governmental authority having jurisdiction classifies any property covered by this Lease as personal property, Tenant shall file any required personal property tax returns in each jurisdiction in which the same must be filed. Landlord, to the extent it possesses the same, and Tenant, to the extent it possesses the same, will provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. In the event Landlord is legally required to file personal property tax returns, Tenant will be provided with copies of assessment notices indicating a value in excess of the reported value in sufficient time for Tenant to file a protest. Tenant shall reimburse Landlord for all personal property taxes paid by Landlord within thirty (30) days after receipt of billings accompanied by copies of a bill therefor and payments thereof which identify the personal property with respect to which such payments are made. 3.2 DEFINITION OF IMPOSITIONS. "IMPOSITIONS" means, collectively, [i] all real estate and personal property ad valorem, sales and use, business or occupation, single business, 10 gross receipts, transaction privilege, rent or similar taxes assessed against or with respect to the Premises, this Lease, the Rent payable hereunder or Tenant's business operation at the Premises; [ii] assessments (including without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed with the Term); [iii] ground rents, water, sewer or other rents and charges, excises, tax levies, and fees (including without limitation, license, permit, inspection, authorization and similar fees); [iv] all taxes imposed on Tenant's operations of the Premises, including without limitation, employee withholding taxes, income taxes and intangible taxes; [v] all taxes imposed by the State of North Carolina (the "STATE") or any governmental entity in the State with respect to the conveyance of the Premises by Landlord to Tenant or Tenant's designee, including without limitation, conveyance taxes and capital gains taxes; and [vi] all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Premises or any part thereof and/or the Rent (including all interest and penalties thereon due to any failure in payment by Tenant), which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be in a lien upon [a] Landlord or Landlord's interest in the Premises or any part thereof; [b] the Premises or any part thereof or any rent therefrom or any estate, right, title or interest therein; or [c] any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Premises or the leasing or use of the Premises or any part thereof. Notwithstanding anything herein to the contrary, "Impositions" shall not include, and Tenant shall not be required to pay, any tax based on, or calculated with reference to, Landlord's income or revenues by any governmental entity. 11 3.3 PRORATION. Impositions imposed in respect of the tax-fiscal period during which the Term terminates shall be adjusted and prorated between Landlord and Tenant, regardless of whether such Imposition is imposed before or after such termination, and Tenant's obligation to pay its prorated share thereof shall survive such termination. Notwithstanding the foregoing to the contrary, (a) if Tenant or its assignee exercises the right of first refusal pursuant to the terms of Section 6.2 hereof, Impositions shall not be prorated and shall remain the obligation of Tenant after termination of this Lease, and (b) if this Lease is terminated because of the occurrence of an Event of Default, Impositions imposed in respect of the portion of the tax-fiscal period during which the Term terminates that are attributable to the period prior to termination shall remain the obligation of Tenant, shall not be prorated and shall be considered an element of the damages recoverable by the Landlord because of the occurrence of such Event of Default. 3.4 RIGHT TO PROTEST. Landlord and/or Tenant shall have the right, but not the obligation, to protest the amount or payment of any Impositions; provided that in the event of any protest by Tenant, Landlord shall not incur any expense because of any such protest, Tenant shall diligently and continuously prosecute any such protest and notwithstanding such protest Tenant shall pay any such Imposition before the imposition of any penalty. 3.5 TAX BILLS. Landlord shall promptly forward to Tenant copies of all tax bills and payment receipts relating to the Impositions received by Landlord. 3.6 OTHER CHARGES. Tenant agrees to pay and discharge, punctually as and when the same shall become due and payable without penalty, all electricity, gas, garbage collection, cable television, telephone, water, sewer, and other utilities costs and all other charges, obligations or deposits assessed against the Premises during the Term. 12 4. INSURANCE. 4.1 GENERAL INSURANCE REQUIREMENTS. All insurance provided for in this Lease shall be maintained under valid and enforceable policies issued by insurers of recognized responsibility, approved to do business in the State having a general policyholders rating of not less than "A" and a financial rating of not less than "X" in the then most current Best's Insurance Report. Any and all policies of liability insurance required under this Lease shall name the Landlord and any Permitted Mortgage Lender (as defined hereinafter) as an additional named insured and shall be on an "occurrence" or "claims made" basis (at Tenant's election); provided, however, the proceeds of any business interruption policy shall be payable to Tenant without relieving Tenant in any way of its obligation to pay Rent under this Lease. In addition, Landlord shall be shown as the loss payable beneficiary under the casualty insurance policy maintained by Tenant pursuant to Section 4.2. All policies of insurance required herein may be in the form of "blanket" or "umbrella" type policies which shall name the Landlord and Tenant as their interests may appear and allocate to the Premises the full amount of insurance required hereunder. All policies of insurance required herein shall have deductibles and/or self-insured retention limits, as applicable, in such amounts as are reasonably available to Tenant and as are then customary for businesses engaged in activities similar to the Retirement Care Facility (as defined in Section 5.2 below) in similar locales. Certificates from the insurers evidencing the existence of all policies of insurance required by this Lease and showing the interest of the Landlord shall be filed with the Landlord prior to the commencement of the Term and shall provide that the subject policy may not be canceled except upon not less than ten (10) days' prior written notice to Landlord. Certificates from the insurers evidencing the existence of any renewal policies shall be deposited with Landlord upon renewal of the applicable policies. Any 13 claims under any policies of property insurance described in this Lease shall be adjudicated by and at the expense of the Tenant or of its insurance carrier, and if (and to the extent that) either Landlord or Tenant participates in such adjudication then the parties shall cooperate fully with each other in such participation. 4.2 PROPERTY INSURANCE. At Tenant's expense, Tenant shall maintain in full force and effect a property insurance policy or policies insuring the Premises against the following: 4.2.1 Loss or damage commonly covered by a "Special Form" policy (also known as an "All Risk Policy") insuring against physical loss or damage to the Premises, including but not limited to, risk of loss from fire and other hazards, collapse, transit coverage, vandalism, malicious mischief, and any other risk as is normally covered under such a policy. The policy shall be in the amount of the Full Replacement Value (as hereinafter defined) of the Premises and shall contain a deductible amount reasonably acceptable to Landlord and any Permitted Mortgage Lender (as hereinafter defined) in light of all applicable circumstances (including general industry conditions), but in no event shall Landlord require such deductible amount to be less than the deductible amount in effect immediately prior to the Commencement Date. Landlord shall be named as an additional insured. The policy shall include a stipulated value endorsement or agreed amount endorsement and endorsements for contingent liability for operations of building laws, demolition costs, and increased cost of construction. 14 4.2.2 If applicable, loss or damage by explosion of steam boilers, pressure vessels, or similar apparatus, now or hereafter installed on the Premises, in commercially reasonable amounts acceptable to Landlord. 4.2.3 Consequential loss of rents and income coverage insuring against all "Special Form" risk of physical loss or damage with limits and deductible amounts acceptable to Landlord covering risk of loss during the first 9 months of reconstruction, and containing an endorsement for extended period of indemnity of at least 6 months, and shall be written with a stipulated amount of coverage if available at a reasonable premium. 4.2.4 If the Premises is located, in whole or in part, in a federally designated 100-year flood plain area, flood insurance for all Improvements of every nature whatsoever now or hereafter situated on the Premises in an amount equal to the lesser of (i) the Full Replacement Value (as defined in Section 4.6) of the Improvements; or (ii) the maximum amount of insurance available for the Improvements under all federal and private flood insurance programs. 4.2.5 Loss or damage caused by the breakage of plate glass in commercially reasonable amounts acceptable to Landlord. 4.2.6 Loss or damage commonly covered by blanket crime insurance including employee dishonesty, loss of money orders or paper currency, depositor's forgery, and loss of property of patients accepted by Tenant for safekeeping, in commercially reasonable amounts acceptable to the Landlord. 4.3 PUBLIC LIABILITY. At Tenant's expense, Tenant shall maintain liability insurance against the following: 15 4.3.1 Claims for personal injury or property damage commonly covered by commercial general liability insurance, with endorsements for contractual, personal injury, products and completed operations, broad form property damage and extended bodily injury, in commercially reasonable amounts for bodily injury and property damage acceptable to Landlord, but with a combined single limit of not more than $5,000,000.00 per occurrence; provided, however, this amount shall be adjusted at the commencement of each Renewal Term according to reasonable and customary practices for similar businesses in similar locales. 4.3.2 Claims for personal injury and property damage commonly covered by comprehensive automobile liability insurance, covering all owned and non-owned automobiles, with commercially reasonable amounts for bodily injury, property damage, and or automobile medical payments acceptable to Landlord, but with a combined single limit of not less than $3,000,000.00 per occurrence. 4.3.3 Claims for personal injury commonly covered by medical malpractice insurance in commercially reasonable amounts acceptable to Landlord. 4.3.4 Claims commonly covered by worker's compensation insurance for all persons employed by Tenant on the Premises. Such worker's compensation insurance shall be in accordance with the requirements of all applicable local, state, and federal law. 4.4 BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain, at its expense, business interruption and extra expense insurance insuring a period of not less than three (3) months. 16 4.5 BUILDER'S RISK INSURANCE. In connection with any construction, Tenant shall maintain in full force and effect a builder's completed value risk policy ("BUILDER'S RISK POLICY") of insurance in a nonreporting form insuring against all "Special Form" risk of physical loss or damage to the Improvements, including but not limited to, risk of loss from fire and other hazards, collapse, transit coverage, vandalism, malicious mischief, theft, earthquake (if the Premises are in earthquake zone 1 or 2) and sinkholes (if usually recommended in the area of the Premises). The Builder's Risk Policy shall include endorsements providing coverage for building materials and supplies and temporary premises. The Builder's Risk Policy shall be in the amount of the Full Replacement Value of the improvements on the Premises and shall contain a deductible amount acceptable to Landlord. Landlord shall be named as additional insured. The Builder's Risk Policy shall include an endorsement permitting initial occupancy. 4.6 REPLACEMENT VALUE. The term "FULL REPLACEMENT VALUE" means the actual replacement cost thereof from time to time including increased cost of construction endorsement, with no reductions or deductions. Tenant shall, in connection with each annual policy renewal, deliver to Landlord a redetermination of the full replacement value by the insurer or an endorsement indicating that the Premises is insured for its full replacement value. If Tenant makes any alterations to the Premises, Landlord may have such full replacement value redetermined at any time after such alterations are made, regardless of when the full replacement value was last determined. 4.7 PERMITTED MORTGAGE LENDER'S INSURANCE REQUIREMENTS. Notwithstanding anything to the contrary in this Lease, Tenant's obligations with respect to insurance as described in this Section 4 shall at all times be subject to any Permitted Mortgage Lender's insurance requirements as described in any of the documents evidencing a Permitted 17 Mortgage Loan (the "PERMITTED MORTGAGE LOAN INSURANCE REQUIREMENTS"). Should the Permitted Mortgage Loan Insurance Requirements exceed the insurance requirements set forth in this Lease in any way, including without limitation, scope of coverage and coverage amounts, Tenant shall comply with terms of the Permitted Mortgage Loan Insurance Requirements to the extent that such requirements exceed Tenant's obligations in this Section 4. Absent acquiescence, waiver or amendment by any Permitted Mortgage Lender, failure of Tenant to so comply with the Permitted Mortgage Loan Insurance Requirements shall be an Event of Default under this Lease, and shall entitle Landlord to all of the remedies set forth in Section 10.2 of this Lease. 4.8 PERMITTED MORTGAGE LENDER'S TAX AND INSURANCE ESCROWS. Notwithstanding anything in this Lease to the contrary, in addition to all of Tenant's obligations with respect to taxes and insurance, as set forth in Sections 3 and 4 of this Lease, Tenant agrees to comply with any tax and/or insurance escrows required by any Permitted Mortgage Lender under any Permitted Mortgage Loan. Landlord and Tenant agree that Tenant's compliance with the tax and/or insurance escrows requirements of each Permitted Mortgage Loan shall, to the extent of any payment actually made into any Permitted Mortgage Loan escrow account, satisfy Tenant's requirements (a) with respect to the payment of Impositions, (b) relating to taxes, and, (c) associated with obtaining insurance under this Lease. 4.9 INTENTIONALLY OMITTED. 4.10 COST OF REFINANCING. Any reasonable costs of refinancing the Heller Loan that are charged by the Permitted Mortgage Lender making such refinancing shall, at the sole option of Tenant, (a) be paid to such Permitted Mortgage Lender by Tenant, or (b) be paid to such Permitted Mortgage Lender by Landlord; provided, however, if Tenant elects to have 18 Landlord pay such refinancing costs then Landlord's Adjusted Investment Amount shall be increased by an amount equal to such payment on the effective date of such refinancing and the Minimum Rent thereafter shall be adjusted accordingly. 5. USE, MAINTENANCE AND ALTERATION OF THE PREMISES. 5.1 TENANT'S MAINTENANCE OBLIGATIONS. 5.1.1 Except as provided in Sections 11 and 12, Tenant will keep and maintain the Premises in good appearance, repair and condition and maintain proper housekeeping. Tenant shall make or cause to be made all repairs, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, necessary to keep and maintain the overall condition and repair of the Premises substantially the same as at the Commencement Date and in compliance with applicable law and otherwise generally in accord with standards historically used for determining the Retirement Care Facility's (as defined in Section 5.2 below) quality. Tenant covenants and agrees that during the Term (i) it shall use, keep and operate the Premises in a careful, safe and proper manner; (ii) not commit or suffer waste thereon; (iii) not use or occupy the Premises for any unlawful purposes; (iv) not use or occupy the Premises or permit the same to be used or occupied, for any purpose or business deemed extrahazardous on account of fire or otherwise; (v) keep the Premises in such repair and condition as may be required by the local Board of Health or other city, state or federal authorities, free of all cost to Landlord; (vi) not permit any acts to be done which will cause the cancellation, invalidation, or suspension of any insurance policy; 19 and (vii) permit Landlord and its agents to enter upon the Premises at all reasonable times upon reasonable notice to examine the condition thereof. 5.1.2 As part of Tenant's obligations under this Section 5.1, Tenant shall be responsible to maintain, repair and replace all Landlord Personal Property and all Tenant Personal Property (as defined in Section 7.1 below) as necessary to maintain the same in good and operable condition consistent with the standard set forth in Section 5.1.1 and prudent industry practice as applicable to the Retirement Care Facility (as defined in Section 5.2 below). 5.2 REGULATORY COMPLIANCE. 5.2.1 Tenant and the Premises shall comply in all material respects with (i) all federal, state and local licensing and other laws and regulations applicable to the continuing care retirement community on the Premises (the "RETIREMENT CARE FACILITY"), (ii) the certification requirements of Medicare and Medicaid (or any successor program) as currently exist or as are obtained by Tenant at a later date, and (iii) the healthcare compliance covenants set forth on Exhibit "G" attached hereto. Further, Tenant shall not commit any act or omission that would in any way violate any certificate of occupancy affecting the Premises. Tenant shall deliver to Landlord complete copies of any material surveys, examinations, certification and licensure inspections, compliance certificates, and other similar reports issued to Tenant by any governmental agency within 10 days after Tenant's receipt of each item. 5.2.2 During the Term, all inspection fees, costs and charges associated with a change of any licensure or certification shall be borne solely by Tenant. 20 Tenant shall at its sole cost make any additions or alterations to the Premises necessitated by, or imposed in connection with, a change of ownership inspection survey for the transfer of operation of the Premises from Tenant or Tenant's assignee or subtenant to Landlord or Landlord's designee at the expiration or earlier termination of the Term in accordance herewith. 5.3 PERMITTED USE. Tenant shall continuously use and occupy the Premises during the Term solely as a Retirement Care Facility or other senior housing, independent living, assisted living, skilled and intermediate nursing, subacute care, Alzheimer's care, and related uses, and no other use without Landlord's prior written consent. 5.4 NO LIENS. Tenant shall have no authority to permit or create a lien against the Premises, and Tenant shall post notices or file such documents as may be required to protect Landlord's interest in the Premises against liens. Tenant hereby agrees to defend, indemnify, and hold Landlord harmless from and against any mechanic's liens against the Premises by reason of work, labor, services or materials supplied or claimed to have been supplied on or to the Premises through or under Tenant. Tenant shall remove, bond-off, or otherwise obtain the release of any mechanic's lien filed against the Premises within 10 days after the filing thereof. Tenant shall pay all expenses in connection therewith, including without limitation, damages, interest, court costs and reasonable attorneys' fees. 5.5 ALTERATIONS BY TENANT. Tenant shall have the right of altering, improving, replacing, modifying or expanding the facilities, equipment or appliances in the Premises from time to time as it may determine is desirable for the continuing and proper use and maintenance of the Premises under this Lease; provided, however, that any alterations, improvements, replacements, expansions or modifications to the Premises in excess of Five 21 Hundred Thousand Dollars ($500,000) in any rolling twelve (12) month period shall require the prior written consent of the Landlord, which shall not be unreasonably withheld, conditioned, or delayed; provided, however, no such alterations, improvements, replacements, modifications or expansions shall result in a material diminution of value of the Premises or shall materially adversely affect the use and operation of the Premises upon completion. Any amounts funded by Tenant as necessitated by damage to the Premises by casualty or condemnation or in the nature of routine or ordinary course capital expenditures shall not be included in the foregoing calculation. The cost of all alterations, improvements, replacements, modifications, expansions or other purchases, covered by this Section 5.5 shall be borne solely and exclusively by Tenant and shall immediately become a part of the Premises and the property of the Landlord subject to the terms and conditions of this Lease. All work done in connection therewith shall be done in a good and workmanlike manner and in compliance with all existing codes and regulations pertaining to the Premises and shall comply with the requirements of insurance policies required under this Lease. In the event any items of the Premises have become inadequate, obsolete or worn out or require replacement (by direction of any regulatory body or otherwise), Tenant shall remove such items and exchange or replace the same at Tenant's sole cost and the same shall become part of the Premises and property of the Landlord. 5.6 CAPITAL EXPENDITURES ACCOUNT. 5.6.1 Commencing on the fifteenth (15th) day of the second full month of the Initial Term and every fifteenth (15th) day of each month during the Term thereafter, Tenant shall deposit (the "CAPITAL EXPENDITURE DEPOSITS") in an interest-bearing account (the "CAPITAL EXPENDITURE ACCOUNT") an amount equal to three percent (3%) of the gross revenues generated from Tenant's ordinary 22 course of business operations at the Premises during the previous month; provided, however, that calculation of the Capital Expenditure Deposits shall not include any revenues attributable to therapy services or home health agency services. Except to the extent otherwise required by any Permitted Mortgage Lender, the Capital Expenditure Account shall be maintained with Genesee Regional Bank, a New York State Chartered Commercial Bank ("GENESEE") for so long as, in the exercise of Tenant's reasonable discretion from time to time, Genesee has sufficient financial strength and stability to assure reasonably that funds deposited with it will not be subject to risk of loss. The Capital Expenditure Account shall be used for funding repairs, replacements and capital improvements to be made on the Premises from time to time. Tenant may withdraw monies deposited in the Capital Expenditure Account for the purpose of making repairs, replacements and capital improvements on the Premises, to be applied as follows: first, as required to comply with the provisions of this Lease relating to repairs, replacements and capital improvements to be made on the Premises, and second, as Tenant deems necessary or desirable. All such repairs, replacements and capital improvements funded by the Capital Expenditure Account shall be deemed to be a part of the Premises. 5.6.2 If Tenant's capital expenditures at the Premises in any Lease Year shall exceed the Capital Expenditure Deposit for said Lease Year (the "CAPITAL EXPENDITURE DIFFERENCE"), Tenant shall fund the remaining cost of such Capital Expenditure Difference. Tenant shall receive a corresponding credit against 23 future Capital Expenditure Deposits for subsequent months until Tenant receives full credit for any Capital Expenditure Difference. 5.6.3 Any interest that accrues on the funds in the Capital Expenditure Account shall at all times remain the property of Tenant, and Tenant shall have the right to withdraw any interest earned from time to time. 5.6.4 At the expiration of the Term, any funds remaining in the Capital Expenditure Account shall become the property of Landlord, other than the interest thereon, which shall remain Tenant's property. 5.6.5 Notwithstanding anything to the contrary herein, in the event that any Permitted Mortgage Loan requires similar capital expenditure deposits, any amounts so deposited by Tenant shall be a credit to Tenant against the Capital Expenditure Account requirements set forth herein. In no event shall Tenant be required to make any duplicate payments to the Capital Expenditure Account and/or any accounts for capital expenditures pursuant to any Permitted Mortgage Loan. 5.7 ANNUAL CAPITAL EXPENDITURE BUDGET. Within ninety (90) days after the commencement of each calendar year, Tenant shall deliver to Landlord, at Tenant's expense, a budget (the "ANNUAL CAPITAL EXPENDITURE BUDGET") setting forth Tenant's reasonable estimate of the capital repairs, replacements and improvements to the Premises that Tenant anticipates will be required to be made in such calendar year pursuant to the terms of this Lease; provided, however, that failure by Tenant to make, or to cause to be made, in any year, any capital repairs, replacements or improvements included in the Annual Capital Expenditure Budget for such year shall not, in and of itself, be a default or Event of Default under this Lease. 24 5.8 INITIAL CAPITAL EXPENDITURE REQUIREMENTS. At Tenant's sole expense, Tenant shall make the repairs and refurbishments set forth on Exhibit "E" attached hereto and incorporated herein (the "INITIAL R&R"). The Initial R&R shall be completed on or before June 30, 2002. If the Initial R&R are not completed on or before June 30, 2002, Landlord shall either (a) cause completion of the Initial R&R, or (b) direct Tenant and/or ARC to complete the Initial R&R, and Landlord may offset any reasonable costs and expenses actually incurred by Landlord in completing the Initial R&R against principal and interest due under that certain 2002 Promissory Note and, to the extent the 2002 Promissory Note is insufficient for such offset, that certain 2003 Promissory Note (as defined in the Purchase Agreement) by delivery of written notice to Tenant sufficiently evidencing the costs and expenses to be offset. 5.9 INITIAL ENGINEERING REPORT; REMEDIAL ACTION. Within ninety (90) days after the Commencement Date (or within such reasonably longer period as may be required, so long as Tenant pursues the same with reasonable diligence) Tenant shall provide to Landlord, at Tenant's expense, a report (the "INITIAL ENGINEERING REPORT") to be prepared by professional engineering firm selected by Landlord and reasonably acceptable to Tenant. In the event that the Initial Engineering Report advises any material repairs or replacements to be made to or of the Premises, Tenant will make such repairs or replacements with reasonable diligence. If Tenant does not complete such repairs and replacements on or before June 30, 2002, or within such reasonable time thereafter as may be required (provided Tenant is proceeding with reasonable diligence to complete such repairs and replacements), Landlord may either (a) cause completion of the same, or (b) direct Tenant and/or ARC to complete the same, and Landlord may offset any reasonable costs and expenses actually incurred by Landlord in completing the same against principal and interest due under the 2002 Promissory Note and, to the extent the 2002 25 Promissory Note is insufficient for such offset, the 2003 Promissory Note, by delivery of written notice to Tenant sufficiently evidencing the costs and expenses to be offset. 6. CONDITION AND TITLE OF PREMISES; RIGHT OF FIRST REFUSAL. 6.1 CONDITION AND TITLE OF PREMISES. Tenant previously owned the Premises, and Tenant has thoroughly investigated the Premises, has selected the Premises to its own specifications, and has concluded that no improvements or modifications to the Premises are required in order to operate the Premises for its intended use. Tenant accepts the Premises for use as a Retirement Care Facility under this Lease on an "AS IS, WHERE IS, WITH ALL FAULTS" basis and will assume all responsibility and cost for the correction of any observed or unobserved deficiencies or violations. In making its decision to enter into this Lease, Tenant has not relied on any representations or warranties, express or implied, of any kind from Landlord. Notwithstanding any other provision of this Lease to the contrary, Tenant accepts the Premises in their present condition, AS IS, WHERE IS, WITH ALL FAULTS, and without any representations or warranties whatsoever, express or implied, including, without limitation, any express or implied representations or warranties as to the fitness, use, suitability, or condition of the Premises. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT. Tenant hereby represents and warrants to Landlord that Tenant is thoroughly familiar with the Premises and the condition thereof, that Tenant is relying on Tenant's own personal knowledge of the condition of the Premises, that 26 neither Landlord nor any person or entity acting or allegedly acting for or on behalf of Landlord or any other person or entity having or claiming any interest in the Premises has made any representations, warranties, agreements, statements, or expressions of opinions in any way or manner whatsoever related to, connected with, or concerning the Premises, the condition of the Premises, or any other fact or circumstance whatsoever on which Tenant is relying, and, to the maximum extent not prohibited by applicable law, Tenant hereby releases and discharges Landlord and all other persons and entities having or claiming any interest in the Premises from all liability, damages, costs, and expenses of every kind and nature whatsoever in any way or manner arising out of, connected with, related to, or emanating from the condition of the Premises at any time prior to or during the Term of this Lease. Tenant has examined the condition of title to the Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory, including without limitation, all of the encumbrances and other exceptions to title set forth more fully on Exhibit "A-1" (the "PERMITTED EXCEPTIONS"). 6.2 RIGHT OF FIRST REFUSAL TO PURCHASE PREMISES. 6.2.1 Subject to and upon the terms and conditions set forth in this Section 6.2, Tenant shall have the right of first refusal to purchase (a) the Premises at any time during the Term, and/or (b) any equity securities or equity interests of Landlord ("LANDLORD'S EQUITY SECURITIES"); provided, however, Tenant shall not have the right to exercise its rights under this Section 6.2 if any Event of Default has occurred and is continuing as of any of the following dates: (i) the date on which Landlord delivers an Offering Notice to Tenant pursuant to Section 6.2.2(i), or (ii) the date of Tenant's delivery of an Exercise Notice pursuant to Section 6.2.2(ii), or (iii) the closing date established to consummate 27 the purchase of the Premises or equity securities, as applicable, pursuant to Section 6.2.2(iii). Notwithstanding the foregoing, the right of first refusal to purchase Landlord's Equity Securities as set forth in this Section 6.2 shall not apply to: (a) any transfer by bequest or devise; (b) any transfer to, or to a trust for the benefit of, one or more of E. Philip Saunders and/or the spouse, children and grandchildren of E. Philip Saunders (the "SAUNDERS FAMILY"), provided that the Tenant shall have the right to approve the identity of the trustee of any such trust that is not either E. Philip Saunders or an institutional trustee (such approval not to be unreasonably withheld or delayed); or (c) any transfer following which E. Philip Saunders and/or the trustee of a trust described in the preceding clause (b) will continue to have the power and authority to manage, direct, regulate and govern Landlord, directly or indirectly. 6.2.2 Subject to Section 6.2.1 above, if during the Term Landlord or any owner of Landlord's Equity Securities receives a bona fide offer ("OFFER") to purchase the Premises, or any portion thereof, or all or any portion of Landlord's Equity Securities (the "OFFERED PROPERTY"), from any person or entity, Landlord and Tenant shall take the following steps prior to Landlord's acceptance of such offer: (i) Landlord shall give written notice to Tenant of its intention to accept such Offer ("OFFERING NOTICE"), which notice shall set forth the price, terms and conditions contained in the Offer that Landlord intends to accept; (ii) Within thirty (30) days after receipt of an Offering Notice, Tenant shall either (A) deliver to Landlord written notice that Tenant does not desire to purchase the Offered Property on the terms set forth in the Offering Notice, or (B) 28 deliver to Landlord written notice of Tenant's desire to exercise its right to purchase the Offered Property on the terms set forth in the Offering Notice pursuant to this Section 6.2 ("EXERCISE NOTICE"); (iii) If Tenant delivers an Exercise Notice within such thirty (30) day period, and if the Offered Property consists of all or any portion of the Premises, Landlord as seller and Tenant as buyer shall immediately open an escrow to consummate such purchase at a national title company selected by Landlord in its reasonable discretion on the following terms: (A) the form of such instructions to be then signed by Landlord and Tenant shall be such title company's standard sale escrow instructions and, notwithstanding anything set forth in the Offering Notice to the contrary, shall not provide for any representations or warranties by Landlord as seller or for any due diligence in favor of Tenant as buyer, (B) the purchase price shall be payable in cash by Tenant or on such other terms as are set forth in the Offering Notice with escrow to close on or before the date set forth in the Offering Notice, (C) transaction costs shall be paid as set forth in the Offering Notice, (D) at close, Landlord shall deliver title to the Offered Property subject only to those title exceptions permitted by the terms of the Offer, (E) the sale escrow instructions shall provide for an earnest money deposit in the amount set forth in the Offering Notice and shall further provide, to the extent so provided by the terms of the Offer, that such deposit may be retained by Landlord as liquidated damages in the event of any breach by Tenant of the terms of the escrow instructions (provided, however, such liquidated damages shall relate only to Landlord's damages by reason of a breach of the escrow instructions and shall 29 in no way liquidate or limit Landlord's or Tenant's damages by reason of a breach of this Lease), and (F) the escrow instructions shall otherwise be in form and substance reasonably satisfactory to Landlord. If Tenant fails to close the escrow for any reason other than a breach by Landlord, then Landlord may elect to pursue all remedies available to Landlord against Tenant under the escrow instructions or under applicable law, and the provisions of this Section 6 shall be of no further force or effect. (iv) If Tenant delivers an Exercise Notice within such thirty (30) day period, and if the Offered Property consists of all or any portion of Landlord's Equity Securities, Landlord as seller and Tenant as buyer shall consummate the sale of Landlord's Equity Securities according to the terms and conditions of the Offering Notice within sixty (60) days of Landlord's receipt of the Exercise Notice and (a) Landlord shall cause its members (partners or shareholders) to sell, transfer and assign to Tenant or its designee all such membership (partnership or shareholder) interests, equity securities and other ownership interest in the Landlord, all of which shall be free and clear of all liens and encumbrances whatsoever, (b) Tenant or its designee shall pay to said members (partners or shareholders) the purchase price set forth in the Offering Notice (prorated among said parties in accordance with their respective ownership interests), and (c) the parties hereto (and all members, partners or shareholders of Landlord) shall execute all securities purchase agreements, assignments and other documents that are reasonably necessary to consummate said transaction, which documents shall contain (x) indemnifications of such members (partners or shareholders) by 30 Tenant for matters occurring after the closing, and (y) other representations and warranties that are reasonably and customary for a transactions of such size and nature. By entering into this Lease, Landlord represents and warrants that each owner of its equity securities (whether now or in the future) has agreed, or will agree, to be bound by the provisions of this Section 6.2.2. (v) If within the thirty (30) day period following Landlord's delivery of an Offering Notice, Tenant either delivers to Landlord the notice set forth in Section 6.2.2(ii)(A) or fails to deliver either of the notices set forth in Section 6.2.2(ii), then for a period of six (6) months following the expiration of such fifteen (15) day period Landlord shall be free to sell the Offered Property on the terms set forth in the Offering Notice or on any other revised terms deemed appropriate by Landlord in its sole discretion; provided, however, if such other revised terms include a price that is below the price set forth in the Offering Notice, then prior to completing any sale on such revised terms Landlord shall notify Tenant of such revised offering terms. During the fifteen (15) business day period after receipt by Tenant of such notice, Tenant shall have the right (to be exercised if at all by Tenant's execution of escrow instructions and deposit of earnest money under Section 6.2.2(iii) or by delivery of a notice of intent to purchase under Section 6.2.2(iv), as applicable, within such fifteen (15) business day period) to require that Landlord sell the Offered Property to Tenant on such revised offering terms. If Tenant fails to timely exercise its right as required by the preceding proviso, Landlord shall be free to sell the Offered Property to a third party on the revised offering terms. 31 (vi) If at the end of the six (6) month period described in Section 6.2.1(iv), Landlord has not sold the Offered Property, then Landlord shall again be required to comply with the provisions of this Section 6.2 if Landlord desires to accept a third party offer to purchase the Offered Property. (vii) If an escrow is opened pursuant to Section 6.2.2(iii) and such escrow fails to close by reason of Tenant's default, in addition to all of the other rights and remedies of Landlord with respect to such breach, Landlord shall thereafter be free to sell the Premises or any portion thereof to any Person on any terms whatsoever without being required to comply with this Section 6.2. 6.2.3 If Landlord has hypothecated its interest in the Premises, this Section 6.2 shall not apply to any judicial or non-judicial sale of the Premises in connection with any foreclosure action or proceeding by the lender. 6.3 FIRST REFUSAL RIGHTS SUBJECT TO PERMITTED MORTGAGE LOAN DOCUMENTS. Notwithstanding anything in this Lease to the contrary, Tenant's right of first refusal, as set forth more fully in this Section 6, shall be subject to compliance with any applicable provisions of any outstanding Permitted Mortgage Loan Documents if and to the same extent that the terms of the corresponding Offer are so subject. 7. LANDLORD AND TENANT PERSONAL PROPERTY. 7.1 TENANT PERSONAL PROPERTY. Tenant shall install, place, and use on the Premises such fixtures, furniture, equipment, inventory and other personal property in addition to Landlord Personal Property as may be required or as Tenant may, from time to time, deem necessary or useful to operate the Premises for its permitted purposes. All fixtures, furniture, equipment, inventory, and other personal property installed, placed, or used on the Premises 32 which is owned by Tenant or leased by Tenant from third parties is hereinafter referred to as "TENANT PERSONAL PROPERTY." 7.2 REQUIREMENTS FOR TENANT PERSONAL PROPERTY. Tenant shall comply with all of the following requirements in connection with Tenant Personal Property: 7.2.1 Tenant shall, at Tenant's sole cost and expense, maintain, repair, and replace Tenant Personal Property. 7.2.2 Tenant shall, at Tenant's sole cost and expense, keep Tenant Personal Property insured against loss or damage by fire, vandalism and malicious mischief, sprinkler leakage, earthquake, and other physical loss perils commonly covered by fire and extended coverage and boiler and machinery insurance, in an amount not less than 90% of the then full replacement cost thereof. Tenant shall use the proceeds from any such policy for the repair and replacement of Tenant Personal Property. The insurance shall meet the requirements of Section 4.1 to the extent applicable. 7.2.3 Tenant shall pay all taxes applicable to Tenant Personal Property. 7.2.4 Unless an Event of Default or any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default has occurred and is continuing beyond all applicable periods of grace and/or notice and cure, Tenant may remove Tenant Personal Property from the Premises from time to time provided that [i] the items removed are not required to operate the Premises for the permitted use hereunder (unless such items are being replaced by Tenant); and [ii] Tenant repairs any damage to the Premises resulting from the removal of Tenant Personal Property. 33 7.2.5 Upon the expiration of the Term, Landlord shall have the option to purchase the Tenant Personal Property for an amount equal to its depreciated value determined in accordance with GAAP (as hereinafter defined). If Landlord desires to exercise its option to purchase, Landlord shall notify Tenant at least ninety (90) days prior to the expiration of the Term. Landlord's option to purchase the Tenant Personal Property shall not include such property as bears the tradenames, trademarks or patents of ARC, Tenant, or any affiliate, successor or assign thereof or any rights in and to such tradenames, trademarks or patents (the "EXCLUDED PROPERTY"). The purchase price to be paid by Landlord may be paid, at Landlord's election and upon notice to Tenant, by offsetting all or any portion of the purchase price against any unsatisfied obligations of Tenant under this Lease. If Landlord elects not to exercise Landlord's option to purchase Tenant Personal Property, Tenant shall remove Tenant Personal Property upon the termination or expiration of this Lease and shall repair any damage to the Premises resulting from the removal of the Tenant Personal Property. If Tenant fails to remove Tenant Personal Property within 30 days after request by Landlord, then Tenant shall be deemed to have abandoned the Tenant Personal Property, the Tenant Personal Property shall become the property of Landlord, and Landlord may remove, store and dispose of Tenant Personal Property. In such event, Tenant shall have no claim or right against Landlord for such property or the value thereof regardless of the disposition thereof by Landlord. Tenant shall pay Landlord, upon demand, all expenses incurred by Landlord in removing, storing, and disposing of Tenant Personal Property and repairing any damage 34 caused by such removal. Tenant's obligations hereunder shall survive the termination or expiration of this Lease. 7.2.6 In the event this Lease is terminated by reason of an Event of Default, any Tenant Personal Property remaining at the Premises shall, at Landlord's option, be deemed abandoned and shall be and remain property of Landlord. Notwithstanding the foregoing to the contrary, in no event shall Tenant be deemed to have abandoned any Excluded Property, which shall remain the sole property of Tenant, ARC or any affiliates, successors, or assigns thereof, as the case may be. 7.3 COMPLIANCE WITH LAWS. Tenant shall comply with all legal requirements applicable to the Premises and operation of the Retirement Care Facility and shall keep all government authorizations in full force and effect. Tenant shall pay when due all taxes and governmental charges of every kind and nature that are assessed or imposed upon Tenant's operation of the Premises at any time during the term of the Lease, including, without limitation, all income, franchise, capital stock, property, sales and use, business, intangible, employee withholding, and other taxes and charges relating to Tenant's business and operations. Tenant shall be solely responsible for compliance with all Legal Requirements, including the Americans with Disabilities Act, and Landlord shall have no responsibility for such compliance. 7.4 RESIDENT TENANT LEASES. During the Term, the lessor under all subleases with residents or patients of the Retirement Care Facility (the "RESIDENT TENANT LEASES") shall be Landlord. Tenant agrees to assign, or cause to be assigned, to Landlord all Resident Tenant Leases existing as of the Commencement Date. Throughout the Term, Tenant assumes and agrees to perform all of Landlord's obligations under the Resident Tenant Leases. Except to the 35 extent actually caused by Landlord, Tenant agrees to keep and hold Landlord harmless of and from any loss, cost, damage, liability or expense arising under the Resident Tenant Leases during the Term, however arising. Landlord hereby grants Tenant a power of attorney to (a) enter into commercially reasonable Resident Tenant Leases on standard lease forms in the ordinary course of business on behalf of Landlord, (b) collect and receive all rents and other sums due under any Resident Tenant Leases, and (c) perform all other activities required of lessor under the Resident Tenant Leases or otherwise necessary in such capacity. This power of attorney is coupled with an interest, and shall only terminate upon the expiration or earlier termination of this Lease or upon any Event of Default by Tenant beyond any applicable notice, grace or cure periods. So long as this Lease remains in effect, and no Event of Default shall have occurred and be continuing beyond all applicable periods of grace and/or notice and cure, Landlord shall take no action as lessor under the Resident Tenant Leases and Tenant shall be entitled to all rents and other sums due under any Resident Tenant Leases. 7.4.1 If Tenant or its affiliate purchases the Property pursuant to Section 6.2 of this Lease, Landlord shall assign all then existing Resident Tenant Leases to the purchaser simultaneous with transfer of the Property. 7.5 TRANSFER OF LICENSE, ETC. If this Lease is terminated due to expiration of the Term, pursuant to an Event of Default or for any reason other than Tenant's purchase of the Premises, or if Tenant vacates the Premises without termination of this Lease, Tenant shall, at Landlord's request: 7.5.1 Execute, deliver and file all documents and statements reasonably requested by Landlord to effect the transfer of all licenses and government authorizations related to the Retirement Care Facility to Landlord or an entity 36 designated by Landlord, subject to any required approval of governmental regulatory authorities, and Tenant shall provide to Landlord all information and records required by Landlord in connection with the transfer of the license and government authorizations. 7.5.2 Use commercial best efforts to cooperate with and facilitate transfer of the business and operations of the Retirement Care Facility to Landlord or its designee, without unreasonable disruption in operations. 8. REPRESENTATIONS, WARRANTIES AND COVENANTS. 8.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Landlord and Tenant do hereby each for itself represent and warrant to each other as follows: 8.1.1 DUE AUTHORIZATION AND EXECUTION. This Lease and all agreements, instruments and documents executed or to be executed in connection herewith by either Landlord or Tenant were duly authorized and shall be binding upon the party that executed and delivered the same. 8.1.2 DUE ORGANIZATION. Landlord and Tenant are duly organized, validly existing and in good standing under the laws of the State of their respective formations and are duly authorized and qualified to do all things required of the applicable party under this Lease within the State of North Carolina. 8.1.3 NO BREACH OF OTHER AGREEMENTS. Neither this Lease nor any agreement, document or instrument executed or to be executed in connection herewith, violates the terms of any other agreement to which either Landlord or Tenant is a party where such violation would have a material adverse effect. 37 8.2 MUTUAL COVENANTS. Landlord and Tenant do hereby each for itself make the following covenants: 8.2.1 NO DEFAULT UNDER PERMITTED MORTGAGE LOAN. For so long as this Lease is in effect and any Permitted Mortgage Loan is outstanding, Tenant shall comply with the terms and conditions of the Permitted Mortgage Loan Documents; provided, however, Tenant shall not be required to take any action or otherwise cause compliance with or be deemed responsible for performance of such Permitted Mortgage Loan Documents as to any affirmative or negative obligation of Landlord that does not relate to management or operation of the Premises, including, without limitation, accuracy and delivery of Landlord's financial statements, and the maintenance by Landlord of its good standing in any states required by such Permitted Mortgage Loan Documents. For so long as this Lease is in effect and any Permitted Mortgage Loan is outstanding, Landlord covenants and agrees to comply, or cause compliance, with the Permitted Mortgage Loan Documents with respect each affirmative or negative obligation of Landlord that does not relate solely to management or operation of the Premises, including, without limitation, accuracy and delivery of Landlord's financial statements, and the maintenance by Landlord of its good standing in any states required by such Permitted Mortgage Loan Documents. 8.2.2 NO AMENDMENT OF PERMITTED MORTGAGE LOAN DOCUMENTS. Neither Landlord nor Tenant shall amend, alter, extend, renew or otherwise modify any Permitted Mortgage Loan Document without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld, 38 conditioned or delayed. Any amendment of the Permitted Mortgage Loan Documents without Tenant's reasonable consent shall not be binding on Tenant. 8.3 NEGATIVE COVENANTS OF LANDLORD. Landlord hereby makes the following covenants: 8.3.1 INCURRENCE OF INDEBTEDNESS. Landlord hereby agrees that it will not incur any indebtedness or obligation whatsoever with respect to the Premises, except a Permitted Mortgage Loan. 8.3.2 NO REMOVAL. During the Term, Landlord shall not take or remove any assets or items or personal property comprising a portion of, associated with or related to the Premises without first obtaining the prior written consent of Tenant, which may be denied in Tenant's sole discretion. 8.3.3 NO OWNER ACTIONS. For so long as this Lease remains in effect, and Tenant shall not then be in material default of its obligations beyond any applicable periods of grace and/or notice and cure, Landlord shall take no action with respect to the business or operation of the Premises without Tenant's prior written consent, which may be denied by Tenant in its sole discretion. 8.3.4 NO OTHER ACTIVITIES; SINGLE PURPOSE ENTITY REQUIREMENTS. Landlord hereby agrees that it will not engage in any business activity other than those activities relating to the ownership of the Premises and performance of its obligations hereunder, and shall comply with the single purpose entity covenants and requirements set forth on Exhibit "F-1" attached hereto. 8.4 NEGATIVE COVENANTS OF TENANT. Tenant hereby agrees that it will not engage in any business activity other than the operation of the Retirement Care Facility as 39 contemplated in this Lease, and shall comply with the single purpose entity covenants and requirements set forth on Exhibit "F-2" attached hereto. Notwithstanding anything to the contrary foregoing, Tenant shall be permitted to grant Heller Lender a security interest in Tenant's rights to payment under the 2002 Promissory Note and the 2003 Promissory Note pursuant to the terms and conditions of that certain Collateral Assignment of Loan Documents and Estoppel Agreement dated as of January 25, 2002, by and between Landlord, Tenant and Heller Lender. 9. FINANCIAL, REGULATORY AND ENGINEER'S REPORTS. 9.1 ANNUAL FINANCIAL STATEMENT. Within one hundred twenty (120) days of the fiscal year end of Tenant, Tenant shall deliver to Landlord the annual financial statement of Tenant, with respect to Tenant's business operations on the Premises, prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and, if requested by Landlord not less than thirty (30) nor more than sixty (60) days prior to the end of the fiscal year of Tenant, audited by a certified public accounting firm reasonably acceptable to Landlord. Within forty-five (45) days after each fiscal quarter ends, Tenant shall deliver to Landlord unaudited financial statements of Tenant, with respect to Tenant's business operations on the Premises, prepared in accordance with GAAP. Notwithstanding any of the other terms of this Section 9.1, if Tenant is subject to any reporting requirements of the Securities and Exchange Commission (the "SEC") during the Term, Tenant shall concurrently deliver to Landlord such reports as are delivered to the SEC pursuant to applicable securities laws. 9.2 REGULATORY REPORTS. Tenant shall within ten (10) business days of receipt thereof deliver to Landlord all federal, state and local licensing and reimbursement certification surveys, inspection and other reports received by Tenant as to the Premises or any 40 portion thereof and the operation of business thereon, including, without limitation, state department of health licensing surveys, Medicare and Medicaid (and successor programs) certification surveys (if applicable) and life safety code reports. Within ten (10) business days of receipt thereof, Tenant shall give Landlord a copy of any written notice of any violation of any federal, state or local licensing or reimbursement certification statute or regulation including without limitation Medicare and Medicaid or successor programs (if applicable to the Premises or any portion thereof), any suspension, termination or restriction placed upon Tenant or the Premises or any portion thereof, the operation of business thereon or the ability to admit residents, or any violation of any other permit, approval or certification in connection with the Premises or any portion thereof or its business, by any federal, state or local authority including without limitation Medicare and Medicaid or successor programs if applicable to the Premises or any portion thereof. 9.3 ENGINEER'S REPORT. Within ninety (90) days after the end of the fifth (5th) Lease Year, the tenth (10th) Lease Year, and, if Tenant exercises its option to renew as set forth in Section 1.2) the fifteenth (15th) Lease Year, Tenant shall provide to Landlord, at Tenant's expense, a report (the "ENGINEER'S REPORT") to be prepared by professional engineering firm selected by Landlord and reasonably acceptable to Tenant. The Engineer's Report shall (a) assess the general condition of the Improvements, (b) be reasonably sufficient to assist Landlord and Tenant in prioritizing repairs and refurbishments to be funded by the Capital Expenditure Account and as otherwise required to be made under this Lease, and (c) provide generalized cost estimates for major repair and refurbishment projects. If the Engineer's Report discloses any repairs that Tenant is required to make pursuant to Section 5.1.1 of this Lease, Tenant shall make such repairs in accordance with Section 5.1.1 of the Lease. 41 10. EVENTS OF DEFAULT AND LANDLORD'S REMEDIES. 10.1 EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an event of default on the part of Tenant hereunder ("EVENT OF DEFAULT"), and all notice and cure periods provided below shall run concurrently with any notice or cure periods provided by applicable law: 10.1.1 The failure to pay within five (5) calendar days of (i) the date when due, any Minimum Rent or Additional Rent, or (ii) the date when delinquent, any Impositions required to be paid by Tenant under this Lease. 10.1.2 A material breach by the seller thereunder of any of the representations, warranties or covenants in favor of Landlord as set forth in that certain Purchase and Sale Agreement of even date herewith, by and between Landlord, as purchaser, and Tenant, as seller, relating to the Premises (the "PURCHASE AGREEMENT"); 10.1.3 The appointment of a receiver, trustee, or liquidator for Tenant, or any of the property of Tenant, if within ten (10) business days of such appointment Tenant does not inform Landlord in writing that Tenant intends to cause such appointment to be discharged or Tenant does not thereafter diligently prosecute such discharge to completion within sixty (60) days after the date of such appointment; 10.1.4 The filing by Tenant of a voluntary petition under any federal bankruptcy law or under the law of any state to be adjudicated as bankrupt or for any arrangement or other debtor's relief, or in the alternative, if any such petition is involuntarily filed against Tenant by any other party and Tenant does not within 42 ten (10) business days of any such filing inform Landlord in writing of the intent by Tenant to cause such petition to be dismissed, if Tenant does not thereafter diligently prosecute such dismissal, or if such filing is not dismissed within ninety (90) days after filing thereof; 10.1.5 The failure to make any monetary payment required by Tenant under this Lease not covered in Section 10.1.1 or the failure to perform or comply in any material respect with any other term or provision of this Lease not requiring the payment of money, including, without limitation, the failure to comply with the provisions hereof pertaining to the use, operation and maintenance of the Premises (or any portion thereof) or the breach of any representation or warranty of Tenant in this Lease; provided, however, if the default described in this Section 10.1.5 is curable it shall be deemed cured, if Tenant cures such default within thirty (30) days after notice from Landlord, unless such default cannot with due diligence be cured within a period of thirty (30) days because of the nature of the default or delays beyond the control of Tenant, in which case such default shall not constitute an Event of Default if Tenant uses its best efforts to cure such default by promptly commencing and diligently pursuing such cure to the completion thereof. 10.1.6 Tenant abandons or vacates the Premises or any material part thereof or ceases to do business or ceases to exist for any reason for any one or more days. 10.1.7 Notwithstanding anything to the contrary in this Section 10.1, any act or omission of Tenant that causes an Event of Default under and as defined in 43 the Permitted Mortgage Loan Documents evidencing the Heller Loan shall constitute an Event of Default hereunder. 10.2 REMEDIES. Upon the occurrence of an Event of Default and during the pendency thereof, Landlord may exercise all rights and remedies under this Lease and the laws of the State available to a lessor of real and personal property in the event of a default by its lessee. Without limiting the foregoing, Landlord shall have the right to do any of the following: 10.2.1 re-enter and take possession of the Premises without terminating the Lease, and lease the Premises for the account of Tenant, holding Tenant liable for all costs of the Landlord in reletting the Premises and for the difference in the amount received by such reletting and the amounts payable by Tenant under the Lease. 10.2.2 terminate this Lease, exclude Tenant from possession of the Premises and lease the Premises to others, holding Tenant liable for the difference in the amounts received from such reletting and the amounts payable by Tenant under the Lease. 10.2.3 re-enter the Premises and have, repossess and enjoy the Premises as if the Lease had not been made, and in such event, Tenant and its successors and assigns shall remain liable for any contingent or unliquidated obligations or sums owing at the time of such repossession. 10.2.4 have access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other returns of Tenant insofar as they pertain to the Premises. 44 10.2.5 to the extent consistent with and permitted by applicable law, accelerate all of the unpaid Rent hereunder so that the aggregate Rent for the unexpired term of this Lease becomes immediately due and payable. 10.2.6 take whatever action at law or in equity as may appear necessary or desirable to collect the Rent and other amounts payable under this Lease then due and thereafter to become due (subject to any applicable limitations on the damages collectible by a landlord provided by applicable law), or to enforce performance and observance of any obligations, agreements or covenants of Tenant under this Lease. 10.2.7 setoff against the 2002 Promissory Note (according to the terms set forth therein), the 2003 Promissory Note (according to the terms set forth therein), and any obligation of Landlord to Tenant under this Lease any Rent due and owing Landlord pursuant to this Lease. 10.2.8 Before or after repossession of the Premises pursuant to Section 10.2.1, and whether or not this Lease has been terminated, Landlord shall have the right (but shall be under no obligation except to the extent required by applicable law) to relet any portion of the Premises to such tenant or tenants, for such term or terms (which may be greater or less than the remaining balance of the Term), for such rent, or such conditions (which may include concessions or free rent) and for such uses, as Landlord, in its absolute discretion, may determine, and Landlord may collect and receive any rents payable by reason of such reletting. Tenant agrees to pay Landlord, immediately upon demand, all reasonable expenses 45 incurred by Landlord in obtaining possession and in reletting any of the Premises, including fees, commissions and costs of attorneys, architects, agents and brokers. 10.3 RECEIVERSHIP. Tenant acknowledges that one of the rights and remedies available to Landlord under applicable law is to secure a court-appointed receiver to take possession of the Premises or any portion thereof, to collect the rents, issues, profits and income of the Premises or any portion thereof, and to manage the operation of the Premises or any portion thereof. Tenant further acknowledges that the revocation, suspension or material limitation of the certification of the Premises or any portion thereof for provider status under Medicare or Medicaid (or successor programs) as they currently exist or as are obtained by Tenant at a later date (if applicable to the Premises or any portion thereof) and/or the revocation, suspension or material limitation of the license of the Premises or any portion thereof as a Retirement Care Facility under the laws of the State will materially and irreparably impair the value of Landlord's investment in the Premises. Therefore, in the event of any such revocation, suspension or material limitation, and in addition to any other right or remedy of Landlord under this Lease, Tenant hereby consents to the appointment of such a receiver to enter upon and take possession of the Premises or any portion thereof, to manage the operation of the Premises or any portion thereof, to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible the licenses and provider certifications of the Premises required for the operation of the Retirement Care Facility or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for its services as a receiver. All such fees and other expenses of the receivership estate shall be added to the monthly rent due to Landlord under this Lease. Tenant hereby irrevocably stipulates to the 46 appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. 10.4 REMEDIES CUMULATIVE; NO WAIVER. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity. No failure of Landlord to insist at any time upon the strict performance of any provision of this Lease or to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof as to any similar or different breach (future or otherwise) by Tenant. A receipt by Landlord of any rent or other sum due hereunder (including any late charge) with knowledge of the breach of any provision contained in this Lease shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in a writing signed by Landlord. 10.5 PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD. Notwithstanding anything herein to the contrary, if Tenant at any time after applicable notice and cure periods shall fail to make any payment or perform any act on its part required to be made or performed under this Lease, then Landlord may, without waiving or releasing Tenant from any obligations or default of Tenant hereunder, make any such payment or perform any such act for the account and at the expense of Tenant, and may enter upon the Premises for the purpose of taking all such action thereon as may be reasonably necessary therefor. No such entry shall be deemed an eviction of Tenant. All reasonable sums so paid by Landlord and all necessary and incidental costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection with the performance of any such act by Landlord, together with interest 47 at the rate of the Prime Rate as reported daily by the Wall Street Journal plus 2% (or if said interest rate is violative of any applicable statute or law, then the maximum interest rate allowable) from the date of the making of such payment or the incurring of such costs and expenses by Landlord, shall be payable by Tenant to Landlord on demand. 10.6 LATE PAYMENT CHARGE. Tenant acknowledges that any default in the payment of any installment of Rent payable hereunder will result in loss and additional expense to Landlord in servicing any indebtedness of Landlord secured by the Premises, handling such delinquent payments, and meeting its other financial obligations, and because such loss and additional expense is extremely difficult and impractical to ascertain, Tenant agrees that in the event any Rent payable to Landlord hereunder is not paid within five (5) days after the due date, Tenant shall pay a late charge of 5% of the amount of the overdue payment as a reasonable estimate of such loss and expenses, unless applicable law requires a lesser charge, in which event the maximum rate permitted by such law may be charged by Landlord; provided that nothing herein shall extend the time for payment of Rent or the period for curing any default or constitute a waiver of such default, or limit Landlord's remedies in the event of any such default. 10.7 PERMITTED MORTGAGE LENDER'S RIGHT TO CURE. Notwithstanding any provision in this Lease to the contrary, no default in the performance of any of Landlord's obligations under the Lease that is of such a nature as to give Tenant a right to terminate the Lease or to reduce the rent payable under the Lease or to any credit, reduction or offset against future rents shall entitle Tenant to exercise any such right, power or remedy unless and until notice of such default is given to Landlord and any Permitted Mortgage Lender and unless and until fifteen (15) days shall have elapsed following delivery of such notice by Tenant, during which period any Permitted Mortgage Lender shall have the right, but not the obligation, to 48 remedy or cure such default; provided, however, that if such default cannot be cured within fifteen (15) days, then any Permitted Mortgage Lender shall have such longer period of time as may be reasonably necessary to cure such default so long as such Permitted Mortgage Lender pursues the cure of same with due diligence. 11. DAMAGE BY FIRE OR OTHER CASUALTY. 11.1 NOTICE OF CASUALTY. If the Premises shall be destroyed, in whole or in part, or damaged by fire, flood, windstorm or other casualty (a "CASUALTY"), Tenant shall give written notice thereof to the Landlord within one business day after the occurrence of the Casualty. Within 15 days after the occurrence of the Casualty or as soon thereafter as such information is reasonably available to Tenant, Tenant shall provide the following information to Landlord: [i] the date of the Casualty; [ii] the nature of the Casualty; [iii] a description of the damage or destruction caused by the Casualty including the type of Premises damaged and the area of the Improvements damaged; [iv] a preliminary estimate of the cost to repair, rebuild, restore or replace the Premises; [v] a preliminary estimate of the schedule to complete the repair, rebuilding, restoration or replacement of the Premises; [vi] a description of the anticipated property insurance claim including the name of the insurer, the insurance coverage limits, the deductible amount, the expected settlement amount, and the expected settlement date; and [vii] a description of the business interruption claim including the name of the insurer, the insurance coverage limits, the deductible amount, the expected settlement amount, and the expected settlement date. Within five days after request from Landlord, Tenant will provide Landlord with copies of all correspondence to the insurer and any other information reasonably requested by Landlord. 49 11.2 SUBSTANTIAL DESTRUCTION. 11.2.1 If the Improvements are substantially destroyed at any time other than during the final 18 months of the Initial Term or any Renewal Term, Tenant shall promptly rebuild and restore the Premises in accordance with Section 11.4 and Landlord shall make the insurance proceeds available to Tenant for such restoration. The term "SUBSTANTIALLY DESTROYED" means any casualty resulting in the loss of use of 50% or more of the licensed beds at the Retirement Care Facility. 11.2.2 If the Improvements are substantially destroyed during the final 18 months of the Initial Term or any Renewal Term, Landlord may elect to terminate the Lease at Landlord's option, and Landlord shall retain the insurance proceeds, except that Landlord shall not be entitled to so terminate this Lease nor to retain the insurance proceeds if Tenant (within 15 days after the applicable casualty) exercises its right to extend the term hereof for any remaining Renewal Term (if any). If Landlord elects to terminate, Landlord shall give notice ("TERMINATION NOTICE") to Tenant of its election to terminate this Lease within 30 days after receipt of Tenant's notice of the damage. If this Lease is so terminated pursuant to the foregoing (and if Tenant has not renewed this Lease, as described above) this Lease shall terminate and Rent shall be apportioned as of the later of the date of termination, the date Tenant surrenders possession of the Premises or the latest date through which insurance described in Section 4.2.3 fully compensates for loss of rent. If this Lease is so terminated, Tenant shall be liable to Landlord for all Rent and all other obligations accrued under this Lease through the effective date of termination. 50 11.3 PARTIAL DESTRUCTION. If the Premises are not substantially destroyed, then Tenant shall comply with the provisions of Section 11.4 and Landlord shall make the insurance proceeds available to Tenant for such restoration. 11.4 RESTORATION. Tenant shall promptly repair, rebuild, or restore the Premises, at Tenant's expense, so as to make the Premises at least equal in value to the Premises existing immediately prior to such occurrence and as nearly similar to it in character as is practicable and reasonable. Before beginning such repairs or rebuilding, or letting any contracts in connection with such repairs or rebuilding, Tenant will submit for Landlord's approval, which approval Landlord will not unreasonably withhold or delay, plans and specifications. Promptly after receiving Landlord's approval of the plans and specifications and receiving the proceeds of insurance, Tenant will begin such repairs or rebuilding and will prosecute the repairs and rebuilding to completion with diligence, subject, however, to strikes, lockouts, acts of God, embargoes, governmental restrictions, and other all causes beyond Tenant's reasonable control. Landlord will make available to Tenant the net proceeds of any fire or other casualty insurance paid to Landlord for such repair or rebuilding as the same progresses, after deduction of any costs of collection, including attorneys' fees. Payments will be made against properly certified vouchers of a competent architect in charge of the work and approved by Landlord. Prior to commencing the repairing or rebuilding, Tenant shall deliver to Landlord for Landlord's approval a schedule setting forth the estimated monthly draws for such work. Landlord will contribute to such payments out of the insurance proceeds an amount equal to the proportion that the total net amount received by Landlord from insurers bears to the total estimated cost of the rebuilding or repairing, multiplied by the payment by Tenant on account of such work. Landlord may, however, withhold 10% from each payment until the work is completed and proof has been 51 furnished to Landlord that no lien or liability has attached or will attach to the Premises or to Landlord in connection with such repairing or rebuilding. Upon the completion of rebuilding and the furnishing of such proof, the balance of the net proceeds of such insurance payable to Tenant on account of such repairing or rebuilding will be paid to Tenant. Tenant will obtain and deliver to Landlord a temporary or final certificate of occupancy before the Premises is reoccupied for any purpose. Tenant shall complete such repairs or rebuilding free and clear of mechanic's or other liens, and in accordance with the building codes and all applicable laws, ordinances, regulations, or orders of any state, municipal, or other public authority affecting the repairs or rebuilding, and also in accordance with all requirements of the insurance rating organization, or similar body. Subject to Tenant's compliance with this Section 11, any remaining proceeds of insurance after such restoration will be disbursed to Tenant. 11.5 INSUFFICIENT PROCEEDS. So long as Landlord makes available to Tenant the net proceeds of any insurance as provided in Section 11.4 for the repair, rebuilding and restoration of the Premises, Tenant shall repair, rebuild or restore that Premises as provided in Section 11.4 regardless of the existence or sufficiency of any such insurance proceeds. If the proceeds of any insurance settlement are not sufficient to pay the costs of Tenant's repair, rebuilding or restoration under Section 11.4 in full, Tenant shall deposit with Landlord at Landlord's option, and within 10 days of Landlord's request, an amount sufficient in Landlord's reasonable judgment to complete such repair, rebuilding or restoration. Tenant shall not, by reason of the deposit or payment, be entitled to any reimbursement from Landlord or diminution in or postponement of the payment of the Rent. 11.6 NOT TRUST FUNDS. Notwithstanding anything herein or at law or equity to the contrary, none of the insurance proceeds paid to Landlord as herein provided shall be deemed 52 trust funds, and Landlord shall be entitled to dispose of such proceeds as provided in this Section 11. Tenant expressly assumes all risk of loss, including a decrease in the use, enjoyment or value, of the Premises from any casualty whatsoever, whether or not insurable or insured against. 11.7 LANDLORD'S INSPECTION. During the progress of such repairs or rebuilding, Landlord and its architects and engineers may, from time to time, inspect the Premises and will be furnished, if required by them, with copies of all plans, shop drawings, and specifications relating to such repairs or rebuilding. Tenant will keep all plans, shop drawings, and specifications at the Premises, and Landlord and its architects and engineers may examine them at al reasonable times. If, during such repairs or rebuilding are not being done in accordance with the approved plans and specifications, Landlord will give prompt notice in writing to Tenant, specifying in detail the particular deficiency, omission, or other respect in which Landlord claims such repairs or rebuilding do not accord with the approved plans and specification. Upon the receipt of any such notice, Tenant will cause corrections to be made to any deficiencies, omissions, or such other respect. Tenant's obligations to supply insurance, according to Section 4, will be applicable to any repairs or rebuilding under this section. 11.8 LANDLORD'S COSTS. Tenant shall, within 30 days after receipt of an invoice from Landlord, pay the reasonable costs, expenses, and fees of any architect or engineer employed by Landlord to review any plans and specifications and to supervise and approve any construction, or for any services rendered by such architect or engineer to Landlord as contemplated by any of the provisions of this Lease, or for any services performed by Landlord's attorneys in connection therewith. 11.9 NO RENT ABATEMENT. Rent will not abate pending the repairs or rebuilding of the Premises. 53 11.10 SURPLUS PROCEEDS. Subject to Tenant's compliance with this Section 11, if there remains any surplus of insurance proceeds after the completion of the repair or reconstruction of the Premises, such surplus shall belong to and be paid to Tenant. 11.11 END OF TERM. Notwithstanding any other provision of this Section 11, if the Premises are more than 30% destroyed (measured by square footage) by casualty during the last nine (9) months of the Initial Term or any Renewal Term, Tenant may terminate this Lease by written notice to Landlord delivered within thirty (30) days after the date of such casualty, in which event (a) this Lease shall be terminated as of the later of the date Tenant surrenders possession of the Premises or the latest date through which insurance described in Section 4.2.3 fully compensates for loss of rent, and (b) Landlord shall retain all insurance proceeds. 12. CONDEMNATION. 12.1 TOTAL TAKING. If, by exercise of the right of eminent domain or by conveyance made in response to the threat of the exercise of such right ("TAKING"), the entire Premises is taken, or so much of the Premises is taken that the Premises cannot be used by Tenant for the purposes for which it was used immediately before the Taking, then this Lease will end on the earlier of the vesting of title to the Premises in the condemning authority or the taking of possession of the Premises by the condemning authority. All damages awarded for such Taking under the power of eminent domain shall be the property of the Landlord, whether such damages shall be awarded as compensation for diminution in value of the leasehold or the fee of the Premises; provided, however, Tenant shall be entitled to any damages awarded for Tenant's relocation expenses. 12.2 PARTIAL TAKING. If, after a Taking, so much of the Premises remains that the Premises can be used for substantially the same purposes for which it was used immediately 54 before the Taking, then [i] this Lease will end as to the part taken on the earlier of the vesting of title to the Premises in the condemning authority or the taking of possession of the Premises by the condemning authority; [ii] at its cost, Tenant shall restore so much of the Premises as remains to a sound architectural unit substantially suitable for the purposes for which it was used immediately before the Taking, using good workmanship and new materials; [iii] upon completion of the restoration, Landlord will pay Tenant the lesser of the net award made to Landlord on the account of the Taking (after deducting from the total award, attorneys', appraisers', and other fees and costs incurred in connection with the obtaining of the award and amounts paid to the holders of mortgages secured by the Premises), or Tenant's actual out-of-pocket costs of restoring the Premises; and [iv] Landlord shall be entitled to the balance of the net award. The restoration shall be completed in accordance with Section 11.4 and with such other provisions deemed to apply to condemnation instead of casualty. 12.3 CONDEMNATION PROCEEDS NOT TRUST FUNDS. Notwithstanding anything in this Lease or at law or equity to the contrary, none of the condemnation award paid to Landlord shall be deemed trust funds, and Landlord shall be entitled to dispose of such proceeds as provided in this Section 12. Tenant expressly assumes all risk of loss, including a decrease in the use, enjoyment, or value, of the Premises from any Condemnation. 13. PROVISIONS ON TERMINATION OF TERM. 13.1 SURRENDER OF POSSESSION. Tenant shall, on or before the last day of the Term, or upon earlier termination of this Lease (unless Tenant has purchased the Premises pursuant to Section 6.2), surrender to Landlord the Premises (including all resident charts and records along with appropriate resident consents) in the condition in which the Premises are required to be maintained pursuant to Section 5 hereof except for (a) alterations made in 55 accordance with the terms of this Lease; (b) normal and reasonable wear and tear (subject to the obligation of Tenant to maintain the Premises during the Term as elsewhere provided herein); and (c) damage or destruction not required to be repaired by Tenant, whether caused by Casualty, Taking or otherwise. 13.2 REMOVAL OF PERSONAL PROPERTY. Subject to Section 7.2.5 above, if Tenant is not then in default hereunder Tenant shall have the right in connection with the surrender of the Premises to remove from the Premises all Tenant Personal Property but not the Landlord Personal Property (including the Landlord Personal Property replaced by Tenant or required by the State or any other governmental entity to operate the Premises for the purpose set forth in Section 5.3 above). Any such removal shall be done in a workmanlike manner leaving the Premises in good and presentable condition and appearance, including repair of any damage caused by such removal. At the end of the Term or upon the earlier termination of this Lease, (unless Tenant has purchased the Premises pursuant to Section 6.2), Tenant shall return the Premises to Landlord with the Landlord Personal Property (or replacements thereof) in the condition in which the Premises and such Landlord Personal Property are required to be maintained pursuant to Section 5 hereof. 13.3 TITLE TO PERSONAL PROPERTY NOT REMOVED. Title to any of Tenant Personal Property which is not removed by Tenant upon the expiration of the Term shall, at Landlord's election, vest in Landlord; provided, however, that Landlord at Tenant's expense may remove and dispose of any or all of such Tenant Personal Property which is not so removed by Tenant without obligation or accounting to the Tenant. 13.4 MANAGEMENT OF PREMISES. Upon the expiration or earlier termination of the Term (unless Tenant has purchased the Premises pursuant to Section 6.2), Landlord or its 56 designee, upon written notice to Tenant, may elect to assume the responsibilities and obligations for the management and operation of the Premises and Tenant agrees to cooperate fully with Landlord or its designee to accomplish the transfer of such management and operation without interrupting the operation of the Premises. Tenant shall not commit any act or be remiss in the undertaking of any act that would jeopardize any licensure or certification of the facility, and Tenant shall comply with all requests for an orderly transfer of the Retirement Care Facility license, Medicare and Medicaid (or any successor program) certifications and possession at the time of any such surrender. Upon the expiration or earlier termination of the Term, Tenant shall promptly deliver copies of all of Tenant's books and records relating to the Premises and its operations to Landlord. 13.5 CORRECTION OF DEFICIENCIES. Upon termination or cancellation of this Lease, Tenant shall indemnify Landlord for any loss, damage, cost or expense incurred by Landlord to correct all deficiencies of a physical nature identified by the North Carolina Department of Human Services, local health, fire and safety agencies or any other government agency or Medicare or Medicaid (or any successor program) providers in the course of the change of ownership inspection and audit. 14. NOTICES AND DEMANDS. All notices and demands, certificates, requests, consents, approvals, and other similar instruments under this Lease shall be in writing and shall be deemed to have been properly given upon actual receipt thereof or within three (3) business days of being placed in the United States certified or registered mail, return receipt requested, postage prepaid (a) if to Tenant, addressed to ARCLP-Charlotte, LLC, c/o American Retirement Corporation, 111 Westwood Place, Suite 412, Brentwood, Tennessee 37027, Attn: Chief Executive Officer, Fax No. (615) 221-2269, with a copy to Bass, Berry & Sims PLC, 315 Deaderick Street, Suite 57 2700, AmSouth Center, Nashville, Tennessee 37238, Attn: T. Andrew Smith, Esq., Fax No. (615) 742-2766, or at such other address as Tenant from time to time may have designated by written notice to Landlord, and (b) if to Landlord, addressed to Countryside ALF, LLC, 760 Brooks Avenue, Rochester, New York 14619 Attn: Joe Kuby, Fax No. 716-328-7374 with a copy to Robert J. Sant, 760 Brooks Avenue, Rochester, NY 14619, Facsimile: (716) 328-0787, or at such address as Landlord may from time to time have designated by written notice to Tenant. Refusal to accept delivery shall be deemed delivery. If Tenant is not an individual, notice may be made to any senior officer, general partner or principal thereof. 15. RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its representative may enter the Premises at any reasonable time after reasonable notice to Tenant for the purpose of inspecting the Premises for any reason including, without limitation, examination of records and/or Tenant's default under this Lease, or to exhibit the Premises for sale, lease or mortgage financing, or posting notices of default, or non-responsibility under any mechanic's or materialman's lien law or to otherwise inspect the Premises for compliance with the terms of this Lease. Any such entry shall not unreasonably interfere with residents, resident care, or any other of Tenant's operations. 16. QUIET ENJOYMENT. So long as there is no Event of Default which is existing and continuing by Tenant, Landlord covenants and agrees that Tenant shall peaceably and quietly have, hold and enjoy the Premises for the Term, free of any claim or other action of Landlord, or anyone claiming by through or under Landlord, not caused or created by Tenant (excepting, however, intrusion of Tenant's quiet enjoyment occasioned by condemnation or destruction of the property as referred to in Sections 11 and 12 hereof). 58 17. APPLICABLE LAW. This Lease shall be governed by and construed in accordance with the internal laws of the State of North Carolina without regard to the conflict of laws rules of such State. 18. HAZARDOUS MATERIALS. 18.1 HAZARDOUS MATERIAL COVENANTS. Tenant's use of the Premises shall comply in all material respects with all Hazardous Materials Laws. In the event any Environmental Activities occur or are suspected to have occurred in violation in any material respect of any Hazardous Materials Laws or if Tenant has received any Hazardous Materials Claim against the Premises, Tenant shall promptly obtain all permits and approvals necessary to remedy any such actual or suspected problem through the removal of Hazardous Materials or otherwise, and upon Landlord's approval of the remediation plan, remedy any such problem to the satisfaction of Landlord, in accordance with all Hazardous Materials Laws and good business practices. 18.2 TENANT NOTICES TO LANDLORD. Tenant shall immediately advise Landlord in writing of: 18.2.1 any Environmental Activities in violation of any Hazardous Materials Laws, 18.2.2 any Hazardous Materials Claims against Tenant or the Premises, 18.2.3 any remedial action taken by Tenant in response to any Hazardous Materials Claims or any Hazardous Materials on, under or about the Premises in violation of any Hazardous Materials Laws, 18.2.4 Tenant's discovery of any occurrence or condition on or in the vicinity of the Premises that materially increase the risk that the Premises will be 59 exposed to Hazardous Materials in violation of any Hazardous Materials Laws, and 18.2.5 all communications to or from Tenant, any governmental authority or any other person relating to Hazardous Materials Laws or Hazardous Materials Claims with respect to the Premises, including copies thereof. 18.3 PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord shall have the right, at Tenant's sole cost and expense and with counsel chosen by Landlord, to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims. 18.4 ENVIRONMENTAL ACTIVITIES. Shall mean the use, generation, transportation, handling, discharge, production, treatment, storage, release or disposal of any Hazardous Materials at any time to or from the Premises or located on or present on or under the Premises. Nothing contained in the foregoing or elsewhere in this Section 18 is intended to, nor shall it, limit the liability of Tenant, if any, to Landlord with respect to any representation or warranty given by Tenant to Landlord with respect to Hazardous Materials or environmental matters generally as set forth in the Purchase Agreement. 18.5 HAZARDOUS MATERIALS INDEMNITY. Tenant agrees to indemnify and hold Landlord and its officers, directors, members, agents, employees, affiliates and representatives harmless from and against any and all claims, demands, damages, losses, liens, liabilities, penalties, fines, lawsuits, actions, orders, judgments, investigations, regulatory proceedings and other proceedings, and all costs and expenses (including but not limited to attorney's and consultant's fees and expenses), incurred in connection therewith, arising directly or indirectly from or out of, or in any way connected with (a) the presence or alleged presence of any 60 Hazardous Materials or underground storage tanks in, on or under the Premises occurring before or during the Term of this Lease; (b) any cleanup, removal and/or remedial proceeding, investigation, order or other action undertaken or required pursuant to any Hazardous Materials Laws for violations or alleged violations accruing before or during the Term of this Lease, (c) any violation or alleged violation of any Hazardous Materials Laws relating to the Premises, attributable to events occurring before or during the Term of this Lease; (d) any inaccuracy of the certifications, representations and warranties contained herein; or (e) any Hazardous Materials Claims asserted against Landlord. 18.6 HAZARDOUS MATERIALS. "HAZARDOUS MATERIALS" shall mean (i) any petroleum products and/or by-products (including any fraction thereof), flammable substances, explosives, radioactive materials, hazardous or toxic wastes, substances or materials, known carcinogens or any other materials, contaminants or pollutants which pose a hazard to the Premises or to persons on or about the Premises or cause the Premises to be in violation of any Hazardous Materials Laws; (ii) asbestos in any form which is friable; (iii) urea formaldehyde in foam insulation or any other form; (iv) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million or any other more restrictive standard then prevailing; (v) medical wastes and biohazards; (vi) radon gas; and (vii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or may or could pose a hazard to the health and safety of the occupants of the Premises or the owners and/or occupants of property adjacent to or surrounding the Premises. 18.7 HAZARDOUS MATERIALS CLAIMS. "HAZARDOUS MATERIALS CLAIMS" shall mean any and all enforcement, clean-up, removal or other governmental or regulatory actions or 61 orders threatened, instituted or completed pursuant to any Hazardous Material Laws, together with all claims made or threatened by any third party against the Premises, Landlord or Tenant relating to damage, contribution, cost recovery compensation, loss or injury resulting from violation of any Hazardous Materials Laws. 18.8 HAZARDOUS MATERIALS LAWS. "HAZARDOUS MATERIALS LAWS" shall mean any laws, ordinances, regulations, rules, orders, guidelines or policies relating to the environment, health and safety, Environmental Activities, Hazardous Materials, air and water quality, waste disposal and other environmental matters, if the failure to comply with the same does or would have a material adverse effect on the Premises or the operation thereof. 18.9 PHASE I INSPECTION AND REPORT; REMEDIAL ACTION. Within thirty (30) days after the Commencement Date (or within such reasonably longer period as may be required, so long as Tenant pursues the same with reasonable diligence), Tenant will provide to Lender a so-called "Phase I" environmental inspection report regarding the Premises prepared by an environmental inspector selected by Tenant and reasonably approved by Landlord. In the event that such report reasonably recommends that a so-called "Phase II" environmental inspection report be completed to indemnify Landlord from any material potential Hazardous Materials Claims or violations of Hazardous Materials Laws, within thirty (30) days after the completion of the so-called "Phase I" environmental inspection report (or within such reasonably longer period as may be required, so long as Tenant pursues the same with reasonable diligence), Tenant will provided to Lender such Phase II environmental inspection report prepared by an environmental inspector selected by Tenant and reasonably acceptable by Landlord. If either or both of such reports disclose any material noncompliances with Hazardous Materials Laws, Tenant will remedy same with reasonable diligence. If Tenant's remedial action is not completed 62 on or before June 30, 2002, or within such reasonable time thereafter as may be required (provided Tenant is proceeding with reasonable diligence to correct and remedy such noncompliance), Landlord may either (a) cause completion of the same, or (b) direct Tenant and/or ARC to complete the same, and Landlord may offset any reasonable costs and expenses actually incurred by Landlord in completing the same against principal and interest due under the 2002 Promissory Note and, to the extent the 2002 Promissory Note is insufficient for such offset, the 2003 Promissory Note, by delivery of written notice to Tenant sufficiently evidencing the costs and expenses to be offset. 19. ASSIGNMENT AND SUBLETTING. 19.1 PROHIBITION ON ASSIGNMENT AND SUBLETTING. Tenant acknowledges that Landlord has entered into this Lease in reliance on the personal services and business expertise of Tenant. Tenant may not assign, sublet, mortgage, hypothecate, pledge, or transfer any interest in this Lease, or in the Premises, in whole or in part, without the prior written consent of Landlord, which Landlord may not unreasonably withhold, condition or delay. Tenant acknowledges that, without limiting the foregoing, Landlord may withhold its consent to any such assignment, sublease, mortgage, hypothecation, pledge or transfer if the experience, reputation or creditworthiness of the proposed assignee, sublessee, mortgagee or transferee is not reasonably satisfactory to Landlord. The following transactions will be deemed an assignment or sublease requiring Landlord's prior written consent: [i] an assignment by operation of law; [ii] an imposition (whether or not consensual) of a lien, mortgage, or encumbrance upon Tenant's interest in the Lease; and [iii] an arrangement (including, but not limited to, management agreements, concessions, licenses, and easements) which allows the use or occupancy or operation of all or part of the Premises by anyone other than Tenant. Landlord's consent to any 63 assignment or sublease will not release Tenant from its payment and performance obligations under this Lease, but rather Tenant and Tenant's assignee or sublessee will be jointly and severally liable for such payment and performance. An assignment or sublease without the prior written consent of Landlord will be void at the Landlord's option. Landlord's consent to one assignment or sublease will not waive the requirement of its consent to any subsequent assignment or sublease. 19.2 ASSIGNMENT AND SUBLETTING WITHOUT LANDLORD'S CONSENT. Notwithstanding the provisions of Section 19.1, Tenant may without Landlord's consent, assign this Lease or sublet the Premises or any portion thereof to a Successor (as such term is defined below) or to a wholly-owned, direct or indirect, subsidiary of ARC or Tenant ("SUBSIDIARY"), provided that in each case such Successor or Subsidiary fully assumes the obligations of Tenant and ARC is not released from its guaranty of this Lease. 19.3 REQUESTS FOR LANDLORD'S CONSENT TO ASSIGNMENT, SUBLEASE OR MANAGEMENT AGREEMENT. If Tenant requests Landlord's consent to a specific assignment, sublease, or management agreement, Tenant shall give Landlord [i] the name and address of the proposed assignee, subtenant or manager; [ii] a copy of the proposed assignment, sublease or management agreement; [iii] reasonably satisfactory information about the nature, business and business history of the proposed assignee, subtenant, or manager and its proposed use of the Premises; and [iv] banking, financial, and other credit information, and references about the proposed assignee, subtenant or manager reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee, subtenant or manager. Any assignment, sublease or management agreement shall contain provisions to the effect that [a] such assignment, sublease or management agreement is subject and subordinate to all of the 64 terms and provisions of this Lease and to the rights of Landlord; [b] such assignment, sublease or management agreement may not be modified without the prior written consent of Landlord not to be unreasonably withheld, conditioned or delayed; [c] if this Lease shall terminate before the expiration of such assignment, sublease or management agreement, the assignee, subtenant or manager hereunder will, at Landlord's option, attorn to Landlord and waive any right the assignee, subtenant or manager may have to terminate the assignment, sublease or management agreement or surrender possession thereunder as a result of the termination of this Lease; and [d] if the assignee, subtenant or manager receives a written notice from Landlord stating that Tenant is in default under this Lease, the assignee, subtenant or manager shall thereafter pay all rentals or payments under the assignment, sublease or management agreement directly to Landlord until such default has been cured. 19.4 TRANSFER OR ASSIGNMENT BY LANDLORD. Landlord may not transfer, assign, mortgage, collaterally assign, or otherwise, directly or indirectly, dispose of Landlord's interest in this Lease or the Premises to a competitor of Tenant or ARC for so long as Tenant, ARC, or an affiliate of Tenant and/or ARC is tenant hereunder. The foregoing limitation shall not be applicable if an Event of Default has occurred and is continuing beyond the expiration of any applicable grace and/or cure periods and Landlord is proceeding to take action to exercise its remedies pursuant to Section 10.2.1 or 10.2.2. 19.5 ORDINARY COURSE SUBLEASES NOT TO REQUIRE CONSENT. Notwithstanding anything to the contrary contained in Section 19, (i) a lease of a unit or bed to a resident of the Premises, (ii) a sublease of any space in the Premises to an entity that provides services to such residents, and (iii) a sublease of any space for uses ancillary to the Retirement Care Facility, so long as each is made in the ordinary course of Tenant's business, shall not be deemed to be an 65 assignment of this Lease, or an unpermitted subletting hereunder, and shall not require Landlord's consent. 19.6 SUCCESSOR. As used herein, a "SUCCESSOR" is any entity, which succeeds to materially, all of the assets, operations and business of Tenant by merger or reorganization and which is controlled by the same person or persons as control Tenant prior to such merger or reorganization. 20. INDEMNIFICATION. 20.1 TENANT'S INDEMNIFICATION. Tenant hereby indemnifies and agrees to hold harmless Landlord, any successors or assigns of Landlord, and Landlord's and such successor's and assign's directors, officers, employees and agents from and against any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), losses, liabilities (including strict liability), judgments, and expenses (including, without limitation, reasonable attorneys' fees and court costs), incurred in connection with or arising from [i] the use or occupancy of the Premises by Tenant or any persons claiming under Tenant, [ii] any activity, work, or thing done, or permitted or suffered by Tenant in or about the Premises, [iii] any acts, omissions, or negligence of Tenant or any person claiming under Tenant, or the contractors, agents, employees, invitees, or visitors of Tenant or any such person, [iv] any breach, violation, or nonperformance by Tenant or any person claiming under Tenant or the employees, agents, contractors, invitees, or visitors of Tenant or of any such person, of any term, covenant, or provision of this Lease or any law, ordinance, or governmental requirement of any kind including, without limitation, any failure to comply with any applicable requirements under the Americans with Disabilities Act, [v] any injury or damage to the person, property or business of Tenant, its employees, agents, contractors, invitees, visitors, or any other person entering upon 66 the Premises, and [vi] any construction, alterations, changes or demolition of the Premises performed by or contracted for Tenant or its employees, agents or contractors. If any action or proceeding is brought against Landlord, its employees, or agents by reason of any such claim, Tenant, upon notice from Landlord, will defend the claim at Tenant's expense with counsel reasonably satisfactory to Landlord. All amounts payable to Landlord under this section shall be payable on written demand and any such amounts which are not paid within 20 days after demand therefor by Landlord shall bear interest at the maximum permitted interest rate under applicable law. In case any action, suit or proceeding is brought against Tenant by reason of any such occurrence, Tenant shall use its best efforts to defend such action, suit or proceeding. Notwithstanding anything in this Lease to the contrary, Tenant shall not indemnify or hold Landlord harmless, nor successors or assigns of Landlord, nor Landlord's and such successor's and assign's directors, officers, employees and agents, from and against any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), losses, liabilities (including strict liability), judgments, and expenses (including, without limitation, reasonable attorneys' fees, and court costs) to the extent resulting from a breach of or default under this Lease, or negligence or misconduct on the part of Landlord, the successors and assigns of Landlord, and Landlord's and such successor's and assign's directors, officers, employees and agents. 20.2 NOTICE OF CLAIM. Landlord shall notify Tenant in writing of any claim or action brought against Landlord in which indemnity may be sought against Tenant pursuant to this section. Such notice shall be given in sufficient time to allow Tenant to defend or participate in such claim or action, but the failure to give such notice in sufficient time shall not constitute a 67 defense hereunder nor in any way impair the obligations of Tenant under this section unless the failure to give such notice precludes Tenant's defense of any such action. 20.3 SURVIVAL OF COVENANTS. The covenants of Tenant contained in this section shall remain in full force and effect after the termination of this Agreement until the expiration of the period stated in the applicable statute of limitations during which a claim or cause of action may be brought and payment in full or the satisfaction of such claim or cause of action and of all expenses and charges incurred by Landlord relating to the enforcement of the provisions herein specified. 20.4 REIMBURSEMENT OF EXPENSES. Unless prohibited by law, Tenant hereby agrees to pay to Landlord all of the reasonable fees, charges and reasonable out-of-pocket expenses related to the Retirement Care Facility, or incurred by Landlord in enforcing the provisions of this Agreement. 20.5 LIMITATION OF LANDLORD'S LIABILITY. Landlord, its agents, and employees, will not be liable for any loss, injury, death, or damage (including consequential damages) to persons, property, or Tenant's business occasioned by theft, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, order of governmental body or authority, fire, explosion, falling objects, stream, water, rain or snow, leak or flow of water (including water from the elevator system), rain or snow from the Premises or into the Premises or from the roof, street, subsurface or from any other place or by dampness or from the breakage, leakage, obstruction, or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, or lighting fixtures of the Premises, or from construction, repair, or alteration of the Premises or from any acts or omissions of any other occupant or visitor of the Premises, or from any other cause beyond Landlord's control. 68 21. HOLDING OVER. Should Tenant, with or without the express or implied consent of Landlord, continue to hold and occupy the Premises after the expiration of the Term, such holding over beyond the Term and the acceptance or collection of Rent by the Landlord shall operate and be construed as creating a tenancy from month-to-month and not for any other term whatsoever. Said month-to-month tenancy may be terminated by Landlord by giving Tenant 10 days' written notice, and at any time thereafter Landlord may re-enter and take possession of the Premises. 22. ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less than fifteen (15) days' prior written request by Landlord, execute, acknowledge and deliver to Landlord or its designee a statement in writing, executed by an officer or general partner of Tenant, certifying that this Lease is unmodified and in full force and effect (or, if there have been any modifications, that this Lease is in full force and effect as modified, and setting forth such modifications), the dates to which Minimum Rent, Additional Rent and additional charges hereunder have been paid, certifying that to Tenant's knowledge, no default by either Landlord or Tenant exists hereunder or specifying each such default and as to other matters as Landlord may reasonably request. 23. CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the Premises shall convey the Premises in accordance with the terms hereof, Landlord or such successor owner shall thereupon be released from all future liabilities and obligations of Landlord under this Lease arising or accruing from and after the date of such conveyance or other transfer as to the Premises and all such future liabilities and obligations shall thereupon be binding upon the new owner. 69 24. WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive any rights to trial by jury in any action, proceedings or counterclaim brought by either of the parties against the other in connection with any matter whatsoever arising out of or in any way connected with this Lease, including, without limitation, the relationship of Landlord and Tenant, Tenant's use and occupancy of the Premises, or any claim of injury or damage relating to the foregoing or the enforcement of any remedy hereunder. 25. ATTORNEYS' FEES. If Landlord or Tenant brings any action to interpret or enforce this Lease, or for damages for any alleged breach hereof, the prevailing party in any such action shall be entitled to reasonable attorneys' fees and costs as awarded by the court in addition to all other recovery, damages and costs. 26. SEVERABILITY. In the event any part or provision of the Lease shall be determined to be invalid or enforceable, the remaining portion of this Lease shall nevertheless continue in full force and effect. 27. COUNTERPARTS. This Lease may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. 28. BINDING EFFECT. Subject to the provisions of Section 19 above, this Lease shall be binding upon and inure to the benefit of Landlord and Tenant and their respective heirs, personal representatives, successors in interest and assigns. 29. WAIVER AND SUBROGATION. Landlord and Tenant hereby waive to each other all rights of subrogation which any insurance carrier, or either of them, may have as to the Landlord or Tenant by reason of any provision in any policy of insurance issued to Landlord or Tenant, provided such waiver does not thereby invalidate the policy of insurance. 70 30. MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the request of either, enter into a short form memorandum of this Lease, in form suitable for recording under the laws of the State, in which reference to this Lease shall be made. The party requesting such recordation shall pay all costs and expenses of preparing and recording such memorandum of this Lease. 31. INCORPORATION OF RECITALS AND ATTACHMENTS. The recitals and exhibits, schedules, addenda and other attachments to this Lease are hereby incorporated into this Lease and made a part hereof. 32. TITLES AND HEADINGS. The titles and headings of sections of this Lease are intended for convenience only and shall not in any way affect the meaning or construction of any provision of this Lease. 33. NATURE OF RELATIONSHIP; USURY SAVINGS CLAUSE. The parties intend that their relationship shall be that of lessor and lessee only. Nothing contained in this Lease shall be deemed or construed to constitute an extension of credit by Landlord to Tenant, nor shall this Lease be deemed to be a partnership or venture agreement between Landlord and Tenant. Notwithstanding the foregoing, in the event any payment made to Landlord hereunder is deemed to violate any applicable laws regarding usury, the portion of any payment deemed to be usurious shall be held by Landlord to pay the future obligations of Tenant as such obligations arise and, in the event Tenant discharges and performs all obligations hereunder, such funds will be reimbursed to Tenant upon the expiration of the Term. No interest shall be paid on any such funds held by Landlord. 34. JOINT AND SEVERAL. If more than one person or entity is the Tenant hereunder, the liability and obligations of such persons or entities under this Lease shall be joint and several. 71 35. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the obligations, representations, warranties and covenants of Tenant under this Lease shall survive the expiration or earlier termination of the Term. 36. INTERPRETATION. Both Landlord and Tenant have been represented by counsel and this Lease has been freely and fairly negotiated. Consequently, all provisions of this Lease shall be interpreted according to their fair meaning and shall not be strictly construed against any party. 37. [INTENTIONALLY OMITTED.] 38. SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT. Upon written notice by Landlord to Tenant, this Lease shall be and become subject and subordinate to any and all mortgages or deeds of trust now existing, or that hereafter may secure Permitted Mortgage Loans, on the Premises, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon, and subject to all the terms and provisions thereof. Notwithstanding the foregoing provisions with respect to subordination, such provisions shall not be effective unless the owner or holder of any such mortgage or deed of trust shall execute with Tenant a non-disturbance and attornment agreement under which said owner or holder shall agree to accept the attornment of Tenant and not disturb Tenant's right of possession hereunder upon foreclosure of any such mortgage or deed of trust, if Tenant is not in default. Tenant hereby agrees to attorn to any person, firm or corporation purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, power or remedies under such mortgages or deeds of trust, as if such person, firm or corporation had been named as Landlord herein. Upon request of Landlord, Tenant agrees to execute and deliver an instrument suitable for recording 72 subordinating Tenant's interest in the Premises to any such Permitted Mortgage Loan, subject to the provisions of this Section 38. 39. ENTIRE AGREEMENT. The entire understanding between the parties with respect to the transactions contemplated herein is set out in this Lease. This Lease supersedes and voids all prior proposals, letters and agreements, oral or written, with respect to the subject matter hereof. No modification or alteration of this Lease shall be effective unless evidenced by an instrument in writing and signed by all parties. 40. OPERATING LEASE. The parties hereto intend that this Lease be treated as an operating lease for tax and accounting purposes. 41. LANDLORD'S LIEN. To secure the payment of all Rent due and to become due hereunder, and the faithful performance of all other covenants of this Lease required by Tenant to be performed, Tenant hereby gives to Landlord a lien on, and security interest in and to, all Tenant Personal Property (except any part of such property as may be Excluded Property), and all proceeds therefrom. Upon the occurrence of an Event of Default, Landlord may, in addition to any other remedies provided herein, enter upon the Premises and take possession of any and all such Tenant Personal Property and sell the same at public or private sale all in accordance with the Uniform Commercial Code as enacted in the State (the "UCC"). Tenant hereby authorizes Landlord to file any UCC financing statements necessary to perfect the security interest of Landlord in such Personal Property under the provisions of the UCC. [Signatures on following page(s).] 73 [SIGNATURE PAGE TO LEASE AGREEMENT Doc #2246890] IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement of have caused this Lease Agreement to be duly executed on or as of the day and date first above written. TENANT: Witness: ARCLP-CHARLOTTE, LLC a Tennessee limited liability company - --------------------------- By: ARC Charlotte, Inc., managing member By: ------------------------------------- - --------------------------- Title: ---------------------------------- LANDLORD: Witness: COUNTRYSIDE ALF, LLC a New York limited liability company - --------------------------- By: ------------------------------------- - --------------------------- Title: ---------------------------------- 74 STATE OF __________________ COUNTY OF ________________ BEFORE ME, a notary public in and for said County, personally appeared E. Philip Sanders, Member of Countryside ALF, LLC, a limited liability company, who having been duly sworn, acknowledged that he did execute the foregoing instrument, and that the same is his free act and deed personally and as such Member. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal at office, this _______ day of January, 2002. ------------------------------------ (Print Name) Notary Public My Commission Expires: - --------------------------- STATE OF TENNESSEE COUNTY OF DAVIDSON BEFORE ME, a notary public, personally appeared __________________, ______________ OF ARC Charlotte, Inc., a corporation that is managing member of ARCLP - Charlotte, LLC, a Tennessee limited liability company, who having been duly sworn, acknowledged that he did execute the foregoing instrument, and that the same is his free act and deed personally and as such officer. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal at office, this _________ day of January, 2002. ------------------------------------ (Print Name) Notary Public My Commission Expires: - --------------------------- EXHIBIT "A" LEGAL DESCRIPTION OF PREMISES EXHIBIT "A-1" PERMITTED EXCEPTIONS EXHIBIT "B" Landlord Personal Property All furniture, furnishings, equipment, tools, machinery, fixtures, appliances and all other intangible and tangible personal property conveyed to Landlord pursuant to the Purchase Agreement. EXHIBIT "C" Fair Market Value "FAIR MARKET VALUE" shall mean the value of the Premises as agreed upon by Landlord and Tenant; provided, however, if Landlord and Tenant are unable to agree upon the value of the Premises within fifteen (15) days after the need to establish Fair Market Value arises pursuant to the terms of this Lease, then each shall within ten (10) days after written demand by either party select one MAI Appraiser each to participate in the determination of Fair Market Value. For all purposes under this Lease, the Fair Market Value of the Premises shall be based on the Fair Market Value of the Premises unencumbered by this Lease. The two appraisers shall appraise the Premises within twenty (20) days of the written demand required above and shall certify each such appraisal to both Landlord and Tenant. If the two appraisals do not differ by more than ten percent (10%) the average of the two appraisals shall be used as the Fair Market Value. If the two appraisals do differ by more than ten percent (10%), then the two appraisers shall elect a third MAI Appraiser. The third MAI Appraiser shall appraise the Premises within thirty (30) days of the selection of the third appraiser. The appraisal of the third MAI Appraiser shall be the Fair Market Value unless such amount is either greater than or less than both of the two previous appraisals, in which event the Fair Market Value shall be the amount of whichever of the two previous appraisals is closet to the amount of the third appraisal. To the extent consistent with sound appraisal practices as then existing at the time of any such appraisal, and if requested by Landlord, such appraisal, shall be made on a basis consistent with the basis on which the Premises was appraised at the time of its acquisition by Landlord. Each of Tenant and Landlord shall pay the fees and expenses of any MAI Appraiser, which such party appoints pursuant to this Exhibit plus 50% of the cost of the third appraiser. In the event either Landlord or Tenant fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, and such failure is not corrected within five (5) days of notice of such failure to the defaulting party, the MAI Appraiser selected by the other party (the "SOLE APPRAISER") shall alone determine the Fair Market Value of the Premises in accordance with the provisions of this Exhibit and the Fair Market Value so determined shall be binding upon Landlord and Tenant. In the event the MAI Appraisers selected by Landlord and Tenant are unable to agree upon a third MAI Appraiser within the time period set forth in the first paragraph of this Exhibit, either Landlord or Tenant shall have the right to apply at their mutual expense to the presiding judge of the court of original trial jurisdiction in the county in which the Premises is located to name the third MAI Appraiser. Landlord, Tenant will exercise their respective best efforts to expedite the appraisal process and will cooperate fully and with all deliberate speed with each other and with all appraisers in order to allow the determination of Fair Market Value to be finally completed. "MAI APPRAISER" shall mean an appraiser (i) licensed or otherwise qualified to do business in the State, (ii) who has substantial experience in performing appraisals of facilities similar to the Premises, (iii) who is certified as a member of the American Institute of Real Estate Appraisers or certified as a SRPA by the Society of Real Estate Appraisers, or, if such organizations no longer exist or certify appraisers, such successor organization or such other organization as is approved by Landlord and Tenant, and (iv) who does not have an interest, direct or indirect, in the Premises, Landlord or Tenant, and who will not otherwise derive a benefit from the calculation of the Fair Market Value. EXHIBIT "D-1" EXAMPLES OF CALCULATION OF MINIMUM RENT AS SET FORTH IN THIS SECTION 2.1.3. EXAMPLE 1 This example assumes that the debt to be refinanced in July of 2008 ($31,400,131) is refinanced over 300 months rather than 222 months.

Amortization Principal Rate Payment Theoretical Debt Service portion of Minimum Rent 222 months 31,400,131 6.87% 250,225 Actual debt service 300 months 31,400,131 6.87% 219,332

EXAMPLE 2 This example assumes that the debt to be refinanced in July, 2008 ($31,400,131) is refinanced over 300 months rather than 222 months and at 8% rather than 6.87%.

Amortization Principal Rate Payment Theoretical Debt Service portion of Minimum Rent 222 months 31,400,131 8.00% 271,425 Actual debt service 300 months 31,400,131 8.00% 242,351

EXAMPLE 3 This example assumes that the debt to be refinanced in July, 2008 ($31,400,131) is refinanced over 300 months rather than 222 months and the amount financed is increased from $31,400,131 to $34,400,131.

Amortization Principal Rate Payment Theoretical Debt Service portion of Minimum Rent 222 months 31,400,131 6.87% 250,225 Actual debt service 300 months 34,400,131 6.87% 240,288

EXAMPLE 4 This example assumes that the debt to be refinanced in July, 2008 ($31,400,131) is refinanced over 300 months rather than 222 months, with a change of interest rate to 8% and a change in amount from $31,400,131 to $34,400,131.

Amortization Principal Rate Payment Theoretical Debt Service portion of Minimum Rent 222 months 31,400,131 8.00% 271,425 Actual debt service 300 months 34,400,131 8.00% 265,505

EXHIBIT "D-2" AMORTIZATION OF THEORETICAL PRINCIPAL 31,400,131 Principal Amount 222 Amortization 0.0687 Rate 250,225 Payment Amount

Ending Prin Principal Interest 1st of Month 1 Aug-08 31,329,672 70,459 179,766 2 Sep-08 31,258,809 70,863 179,362 3 Oct-08 31,187,541 71,268 178,957 4 Nov-08 31,115,864 71,676 178,549 5 Dec-08 31,043,778 72,087 178,138 6 Jan-09 30,971,278 72,499 177,726 7 Feb-09 30,898,364 72,914 177,311 8 Mar-09 30,825,032 73,332 176,893 9 Apr-09 30,751,280 73,752 176,473 10 May-09 30,677,106 74,174 176,051 11 Jun-09 30,602,508 74,599 175,626 12 Jul-09 30,527,482 75,026 175,199 13 Aug-09 30,452,027 75,455 174,770 14 Sep-09 30,376,140 75,887 174,338 15 Oct-09 30,299,818 76,322 173,903 16 Nov-09 30,223,059 76,759 173,466 17 Dec-09 30,145,861 77,198 173,027 18 Jan-10 30,068,221 77,640 172,585 19 Feb-10 29,990,137 78,084 172,141 20 Mar-10 29,911,606 78,531 171,694

21 Apr-10 29,832,624 78,981 171,244 22 May-10 29,753,191 79,433 170,792 23 Jun-10 29,673,303 79,888 170,337 24 Jul-10 29,592,958 80,345 169,880 25 Aug-10 29,512,152 80,805 169,420 26 Sep-10 29,430,885 81,268 168,957 27 Oct-10 29,349,151 81,733 168,492 28 Nov-10 29,266,950 82,201 168,024 29 Dec-10 29,184,278 82,672 167,553 30 Jan-11 29,101,133 83,145 167,080 31 Feb-11 29,017,512 83,621 166,604 32 Mar-11 28,933,413 84,100 166,125 33 Apr-11 28,848,831 84,581 165,644 34 May-11 28,763,766 85,065 165,160 35 Jun-11 28,678,213 85,552 164,673 36 Jul-11 28,592,171 86,042 164,183 37 Aug-11 28,505,636 86,535 163,690 38 Sep-11 28,418,606 87,030 163,195 39 Oct-11 28,331,078 87,529 162,697 40 Nov-11 28,243,048 88,030 162,195 41 Dec-11 28,154,514 88,534 161,691 42 Jan-12 28,065,474 89,040 161,185 43 Feb-12 27,975,924 89,550 160,675 44 Mar-12 27,885,861 90,063 160,162 45 Apr-12 27,795,282 90,578 159,647 46 May-12 27,704,185 91,097 159,128 47 Jun-12 27,612,567 91,619 158,606 48 Jul-12 27,520,424 92,143 158,082 49 Aug-12 27,427,753 92,671 157,554 50 Sep-12 27,334,552 93,201 157,024 51 Oct-12 27,240,817 93,735 156,490 52 Nov-12 27,146,546 94,271 155,954 53 Dec-12 27,051,735 94,811 155,414 54 Jan-13 26,956,381 95,354 154,871 55 Feb-13 26,860,481 95,900 154,325 56 Mar-13 26,764,033 96,449 153,776 57 Apr-13 26,667,032 97,001 153,224 58 May-13 26,569,475 97,556 152,669 59 Jun-13 26,471,361 98,115 152,110 60 Jul-13 26,372,684 98,676 151,549 61 Aug-13 26,273,443 99,241 150,984 62 Sep-13 26,173,633 99,810 150,415 63 Oct-13 26,073,252 100,381 149,844 64 Nov-13 25,972,297 100,956 149,269 65 Dec-13 25,870,763 101,534 148,691 66 Jan-14 25,768,648 102,115 148,110 67 Feb-14 25,665,948 102,700 147,526 68 Mar-14 25,562,661 103,287 146,938 69 Apr-14 25,458,782 103,879 146,346 70 May-14 25,354,309 104,473 145,752 71 Jun-14 25,249,237 105,072 145,153 72 Jul-14 25,143,564 105,673 144,552 73 Aug-14 25,037,286 106,278 143,947 74 Sep-14 24,930,399 106,887 143,338 75 Oct-14 24,822,901 107,498 142,727 76 Nov-14 24,714,787 108,114 142,111 77 Dec-14 24,606,054 108,733 141,492 78 Jan-15 24,496,699 109,355 140,870 79 Feb-15 24,386,717 109,981 140,244 80 Mar-15 24,276,106 110,611 139,614 81 Apr-15 24,164,862 111,244 138,981 82 May-15 24,052,981 111,881 138,344 83 Jun-15 23,940,459 112,522 137,703 84 Jul-15 23,827,293 113,166 137,059 85 Aug-15 23,713,479 113,814 136,411 86 Sep-15 23,599,014 114,465 135,760 87 Oct-15 23,483,893 115,121 135,104 88 Nov-15 23,368,113 115,780 134,445 89 Dec-15 23,251,671 116,443 133,782 90 Jan-16 23,134,562 117,109 133,116 91 Feb-16 23,016,782 117,780 132,445 92 Mar-16 22,898,328 118,454 131,771 93 Apr-16 22,779,196 119,132 131,093 94 May-16 22,659,382 119,814 130,411 95 Jun-16 22,538,882 120,500 129,725 96 Jul-16 22,417,692 121,190 129,035 97 Aug-16 22,295,808 121,884 128,341 98 Sep-16 22,173,227 122,582 127,644 99 Oct-16 22,049,943 123,283 126,942 100 Nov-16 21,925,954 123,989 126,236 101 Dec-16 21,801,255 124,699 125,526 102 Jan-17 21,675,842 125,413 124,812 103 Feb-17 21,549,712 126,131 124,094 104 Mar-17 21,422,859 126,853 123,372 105 Apr-17 21,295,280 127,579 122,646 106 May-17 21,166,970 128,310 121,915 107 Jun-17 21,037,926 129,044 121,181 108 Jul-17 20,908,143 129,783 120,442 109 Aug-17 20,777,617 130,526 119,699 110 Sep-17 20,646,344 131,273 118,952 111 Oct-17 20,514,319 132,025 118,200 112 Nov-17 20,381,539 132,781 117,444 113 Dec-17 20,247,998 133,541 116,684 114 Jan-18 20,113,693 134,305 115,920 115 Feb-18 19,978,619 135,074 115,151 116 Mar-18 19,842,771 135,847 114,378 117 Apr-18 19,706,146 136,625 113,600 118 May-18 19,568,739 137,407 112,818 119 Jun-18 19,430,545 138,194 112,031 120 Jul-18 19,291,559 138,985 111,240 121 Aug-18 19,151,779 139,781 110,444 122 Sep-18 19,011,198 140,581 109,644 123 Oct-18 18,869,812 141,386 108,839 124 Nov-18 18,727,616 142,195 108,030 125 Dec-18 18,584,607 143,009 107,216 126 Jan-19 18,440,779 143,828 106,397 127 Feb-19 18,296,127 144,652 105,573 128 Mar-19 18,150,647 145,480 104,745 129 Apr-19 18,004,335 146,313 103,912 130 May-19 17,857,185 147,150 103,075 131 Jun-19 17,709,192 147,993 102,232 132 Jul-19 17,560,352 148,840 101,385 133 Aug-19 17,410,660 149,692 100,533 134 Sep-19 17,260,111 150,549 99,676 135 Oct-19 17,108,700 151,411 98,814 136 Nov-19 16,956,422 152,278 97,947 137 Dec-19 16,803,273 153,150 97,076 138 Jan-20 16,649,247 154,026 96,199 139 Feb-20 16,494,339 154,908 95,317 140 Mar-20 16,338,544 155,795 94,430 141 Apr-20 16,181,857 156,687 93,538 142 May-20 16,024,273 157,584 92,641 143 Jun-20 15,865,787 158,486 91,739 144 Jul-20 15,706,393 159,393 90,832 145 Aug-20 15,546,088 160,306 89,919 146 Sep-20 15,384,864 161,224 89,001 147 Oct-20 15,222,717 162,147 88,078 148 Nov-20 15,059,642 163,075 87,150 149 Dec-20 14,895,634 164,009 86,216 150 Jan-21 14,730,686 164,948 85,278 151 Feb-21 14,564,794 165,892 84,333 152 Mar-21 14,397,953 166,842 83,383 153 Apr-21 14,230,156 167,797 82,428 154 May-21 14,061,399 168,757 81,468 155 Jun-21 13,891,675 169,724 80,502 156 Jul-21 13,720,980 170,695 79,530 157 Aug-21 13,549,307 171,672 78,553 158 Sep-21 13,376,652 172,655 77,570 159 Oct-21 13,203,009 173,644 76,581 160 Nov-21 13,028,371 174,638 75,587 161 Dec-21 12,852,733 175,638 74,587 162 Jan-22 12,676,090 176,643 73,582 163 Feb-22 12,498,436 177,654 72,571 164 Mar-22 12,319,764 178,671 71,554 165 Apr-22 12,140,070 179,694 70,531 166 May-22 11,959,347 180,723 69,502 167 Jun-22 11,777,589 181,758 68,467 168 Jul-22 11,594,790 182,798 67,427 169 Aug-22 11,410,946 183,845 66,380 170 Sep-22 11,226,048 184,897 65,328 171 Oct-22 11,040,092 185,956 64,269 172 Nov-22 10,853,072 187,020 63,205 173 Dec-22 10,664,981 188,091 62,134 174 Jan-23 10,475,813 189,168 61,057 175 Feb-23 10,285,562 190,251 59,974 176 Mar-23 10,094,222 191,340 58,885 177 Apr-23 9,901,786 192,436 57,789 178 May-23 9,708,249 193,537 56,688 179 Jun-23 9,513,603 194,645 55,580 180 Jul-23 9,317,844 195,760 54,465 181 Aug-23 9,120,963 196,880 53,345 182 Sep-23 8,922,956 198,008 52,218 183 Oct-23 8,723,815 199,141 51,084 184 Nov-23 8,523,533 200,281 49,944 185 Dec-23 8,322,106 201,428 48,797 186 Jan-24 8,119,525 202,581 47,644 187 Feb-24 7,915,784 203,741 46,484 188 Mar-24 7,710,877 204,907 45,318 189 Apr-24 7,504,797 206,080 44,145 190 May-24 7,297,536 207,260 42,965 191 Jun-24 7,089,090 208,447 41,778 192 Jul-24 6,879,450 209,640 40,585 193 Aug-24 6,668,610 210,840 39,385 194 Sep-24 6,456,562 212,047 38,178 195 Oct-24 6,243,301 213,261 36,964 196 Nov-24 6,028,819 214,482 35,743 197 Dec-24 5,813,109 215,710 34,515 198 Jan-25 5,596,164 216,945 33,280 199 Feb-25 5,377,977 218,187 32,038 200 Mar-25 5,158,541 219,436 30,789 201 Apr-25 4,937,849 220,692 29,533 202 May-25 4,715,893 221,956 28,269 203 Jun-25 4,492,666 223,227 26,998 204 Jul-25 4,268,162 224,505 25,721 205 Aug-25 4,042,372 225,790 24,435 206 Sep-25 3,815,290 227,082 23,143 207 Oct-25 3,586,907 228,382 21,843 208 Nov-25 3,357,217 229,690 20,535 209 Dec-25 3,126,212 231,005 19,220 210 Jan-26 2,893,885 232,327 17,898 211 Feb-26 2,660,227 233,658 16,567 212 Mar-26 2,425,232 234,995 15,230 213 Apr-26 2,188,891 236,341 13,884 214 May-26 1,951,198 237,694 12,531 215 Jun-26 1,712,143 239,054 11,171 216 Jul-26 1,471,720 240,423 9,802 217 Aug-26 1,229,921 241,799 8,426 218 Sep-26 986,737 243,184 7,041 219 Oct-26 742,161 244,576 5,649 220 Nov-26 496,185 245,976 4,249 221 Dec-26 248,801 247,384 2,841 222 Jan-27 248,801 1,424 EXHIBIT "E" INITIAL CAPITAL EXPENDITURE REQUIREMENTS

Repair Budget ------ ------ 1 Repair of Wood Exterior/Doors 100,000 2 Repaint Exterior of Buildings 250,000 3 Replacement of Window Glass 25,000 4 Roofing Work 50,000 5 Asphalt parking lot 45,000 6 Pool Deck 5,000 7 Carbon Monoxide Detectors 7,500 8 Elevator Hold Opens 15,000 9 Plumbing Repairs 80,000 10 Former Executive Director's Residence Repairs 20,000 11 Signage 3,500 12 Flooring 35,000 13 Lighting 30,000 14 Kitchen Improvements 30,000 15 Awning 7,500 16 AL Entrance Walkway Cover 15,000 17 Bridge Connector 40,000 ------- 758,500

1. REPAIR OF WOOD EXTERIOR/DOORS - The exterior siding and wood trim of the building are in need of repairs. There has been an ongoing program of periodic repairs to some areas of the buildings. It is now time to perform more in depth repairs that would include wood filling, caulking, and replacement. A majority of the repairs are at the ground level where moisture is abundant and also located around column bases and wall trim that may not have readily visible damage. This allowance would also include the replacement of several pairs of heavily worn wood exterior doors. Wood doors at building 3, Clubhouse dining level and pool level will need to be replaced. Some garage door replacement and repairs are covered in this allowance. A trial replacement has been completed in the dining room area where the wood doors were successfully replaced with metal storefront type units. This has been well received and is very low maintenance. PRIORITY: A BUDGET: 100,000 2. REPAINT EXTERIOR OF BUILDINGS - The buildings have not been completely painted since 1994. There have been partial areas repainted when repairs were made, but not a complete paint job. We recommend that the entire exteriors of the buildings be repainted. This would include the EIFS (stucco), wood siding and trim, wood stairs and railings. Typically a paint job should last 7 years, so we are at the last of the effective life of the last application. The painting should be performed after the necessary exterior wood repairs are made. This new coating will protect the exterior materials and extend the life of them as well. Refer to the photos as examples of the faded paint/stain and staining throughout the property. The projected cost for this work is an in house estimate based on prior painting jobs. The scope of this work is made up of mostly the original buildings (IL and SC), but will include the metal railings on the AL building and the fiberglass site lighting poles in the parking lot as well. PRIORITY: A BUDGET: 250,000 3. REPLACEMENT OF WINDOW GLASS - There are several windows throughout the community that are fogged. The seal on the insulation glass has leaked and now there is condensate and staining inside the window units causing an opaque appearance. This is occurring in the public areas as well as the resident apartments. There has been an ongoing annual program to change out some of these windows. We are recommending that we try to address all of the remaining units at one time. PRIORITY: A BUDGET: 25,000 4. ROOFING - There has been an ongoing annual replacement of some of the flat roof areas of the campus buildings. We have identified that the remaining roofing (rubber membrane, two well areas per building) are due for replacement. Currently there are no known leaks, but the product is past the effective life of 10 years and is showing signs of wear. Rather than total replacement, we are recommending a new product that is applied as a coating to the flat roof sections that will reduce the cost from 130,000 to 50,000. This includes the clubhouse building. Although the singled roof area of the buildings is stained, they still have remaining life and there are no known leaks to date. PRIORITY: A BUDGET: 50,000 5. ASPHALT PARKING LOT - The asphalt on the campus is original to construction, although some patches and repairs have been made. The entire surface was seal coated four years ago. We are recommending re-striping of the faded lines and spaces with some limited crack filling and repairs. An allowance has been established to cover patching and repairs of trouble spots as well as seal coating areas. There are some buckled pavers that need to be reset in the courtyard of building 1. PRIORITY: A BUDGET: 45,000 6. POOL DECK - The cool deck of the pool surround is flaking in some areas. We suggest patching these areas rather than total replacement. We suggest a repair allowance of 5,000. PRIORITY: A BUDGET: 5,000 7. CARBON MONOXIDE DETECTORS - The county Health Department will require our community to comply with the new ordinance to have carbon monoxide detectors in all of our resident apartments by 1-1-02. The detectors must be placed in areas where there are gas appliances (hot water heaters) and/or automobiles (garages). This can be a simple plug in type model with battery back up. The cost is approx. $25 each and can be installed with in house labor. PRIORITY: A BUDGET: 7,500 8. ELEVATOR HOLD OPEN DEVICES - There are 13 elevators on campus. 10 have the old fashion rubber bumper devices, but all will be required to have the motion sensor devise installed per the new elevator code. This sensor will keep the door from closing on slow residents as they enter/exit the elevator cabs. PRIORITY: A BUDGET: 15,000 9. PLUMBING REPAIRS - There are on going upgrades to the plumbing lines in the resident apartments. This has been a source of many leaks. The original pvc tube type plumbing lines are failing. We are in the process of replacing these lines in buildings 6 and 7 that were funded with emergency cap ex funding of 38,000. We estimate an additional 80,000 to complete all of the replacements in buildings 1 through 5. PRIORITY: A BUDGET: 80,000 10. FORMER ED RESIDENCE - The house located on the property is currently being used as a meeting area, arts/crafts shop and offices. This structure is in need of many exterior repairs. The gutters need to be replaced, wood soffit areas and fascia boards are rotted, missing and need replacement. The exterior wood siding needs scraping, sanding and a new coat of paint. The main focus of these repairs will be directed to the exterior of the structure. PRIORITY: A BUDGET: 20,000 11. SIGNAGE - The main directional sign at the entrance to the community is cracked and badly weathered. Also since we have added ME (alzhm.) to the campus and relocated Home Health off site, we need to revise this sign and a second directional sign. PRIORITY: A BUDGET: 3,500 12. FLOORING - The carpeting in the entry, living, and dining room was replaced 3 years ago. There is an extreme amount of high traffic in the dining and entryway. Another challenge we have is the failing gypcrete concrete topping that lies beneath the carpeted areas. The cement type material is original to the building and is deteriorating and crumbling. This causes dips, bumps, and wrinkles in the carpet that becomes trip hazards. This is occurring throughout the buildings but is the worst at the lobby/entrance area. The time to replace the gypcrete topping is when the carpet is to be replaced. It is our recommendation to replace gypcrete and carpeting in the entry lobby immediately. We can either keep carpeting in the lobby entrance or go to a vinyl type product that simulates wood for easier maintenance and slip resistance. There is some effective life remaining in the carpeting in the living and dining room. One option is to leave this product in place for a couple more years and place a tile insert in the high traffic/stained areas at the bar in the living room and the salad bar/buffet line in the dining room and the serving area for the main dining area. PRIORITY: A BUDGET: 35,000 13. LIGHTING - The current lighting fixtures in the hallways/corridors are insufficient and cause the areas to be dark. We recommend that first we replace the existing sconces with a different design/style that will throw off more light. Then if additional lighting is required, we could add fluorescent ceiling mount fixtures, but this will require more electrical work and drywall repairs. There have also been discussions to change out the dining room fixtures as well. Several of the lighting fixtures throughout the facility are discontinued and parts are no longer available. Several are beyond repair. We recommend an allowance of 30,000 to address this issue. PRIORITY: A BUDGET: 30,000 14. KITCHEN IMPROVEMENTS - At one time we were considering a major kitchen renovation and redesign. Our thoughts have changed as to the operation and extreme costs of this design, but there are several issues that will still need to be addressed in the kitchen area. Currently, the AC system in the kitchen is inadequate. Pricing has been taken on adding a separate cooling unit to serve the main kitchen area. This would be a 7.5-ton unit costing approx. 12,500. There are also leaks in the kitchen floor at the dishwashing area and the 3-compartment sink that have damaged the ceiling of the auditorium below. The ceiling tiles in the kitchen need to be replaced with a washable tile. These repairs will need to be made and we have targeted 17,500 as a budget. PRIORITY: A BUDGET: 30,000 15. AWNINGS - The awning at the living/dining room deck of the clubhouse is in poor condition, we recommend replacing it with a more durable material, like a plastic coated fabric rather than standard canvas. Also the awning frame at the SC/IL connector has been damaged and should be repaired. PRIORITY: A BUDGET: 7,500 16. AL WALKWAY/ENTRANCE COVER - The original entrance roof structure has an open design with metal decorative metal tubing that has been difficult to maintain. The pipes rust and streak the paint giving a poor appearance at our main entrance to the AL facility. We recommend enclosing this soffit area with vinyl material (low maintenance) and use lapped vinyl siding on the ends to create a matching appearance to the remainder of the building. This is similar to what has already been done on the AL patio beneath this area. PRIORITY: A BUDGET: 15,000 17. BRIDGE CONNECTOR - The bridge connector is used by the residents in the villas and other apartment buildings located across the lake from the main campus. This is their primary walking path to the main campus. In the past we have had several roof leaks that now have been repaired, but we have interior damage to repair now. There are expansion joints that are cracked in the ceiling that need drywall repair as well as water spots that need repainting. There is wallpaper damage (original wallpaper) and flooring damage. We suggest that we replace the faded and peeling wallpaper with a painted surface that will be more durable in this situation and replace the original carpet with new product. PRIORITY: A BUDGET: 40,000 EXHIBIT "F-1" LANDLORD'S SINGLE PURPOSE ENTITY REQUIREMENTS A. Without limiting any other provision of this Lease, the following requirements are applicable to Landlord: 1. Landlord's purpose shall be limited to owning the Premises. 2. Landlord shall be prohibited from engaging in any dissolution, liquidation, consolidation, merger, or asset sale, except as expressly permitted by this Lease. 3. Subject to the provisions of this Lease, the consent of all of the members of the Landlord shall be required in order to voluntarily: (a) file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings; (b) dissolve, liquidate, consolidate, merge, or sell all or substantially all of the assets of the Landlord; and (c) amend Landlord's Operating Agreement or Articles of Organization. 4. Landlord agrees: (a) to maintain books and records and bank accounts separate from any other person or entity; (b) not to commingle assets or funds with those of any other person or entity; (c) to conduct its own business in its own name; (d) to maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets; (e) to prepare separate tax returns and financial statements, or if part of a consolidated group, to be shown as a separate member of such group; (f) to pay its own liabilities out of its own funds; (g) to observe all limited liability company formalities; (h) to transact all business with affiliates on an arm's-length basis and pursuant to enforceable agreements; (i) to pay the salaries of its own employees; (j) not to guarantee or become obligated for the debts of any other person or entity or hold out its credit as being available to satisfy the obligations of others or pay the debts or obligations of any other person or entity; (k) to allocate and charge fairly and reasonably any common employee or overhead shared with affiliates; (l) to use separate stationery, invoices, and checks; (m) not to pledge its assets for the benefit of any other person or entity. (n) to hold itself out to creditors and the public as a legal entity separate and distinct from any other person or entity. B. The above requirements are applicable so long as the Landlord is a limited liability company. If the entity structure of Landlord is different, Tenant shall formulate requirements that are specific to Landlord's actual entity structure, but similar in concept to the requirements set forth above. EXHIBIT "F-2" TENANTS'S SINGLE PURPOSE ENTITY REQUIREMENTS A. Without limiting any other provision of this Lease, the following requirements are applicable to Tenant: 1. Tenant's purpose shall be limited to operating the Premises pursuant to the terms and conditions of this Lease. 2. Tenant shall be prohibited from engaging in any dissolution, liquidation, consolidation, merger, or asset sale, except as expressly permitted by this Lease. 3. Subject to the provisions of this Lease, the consent of all of the members of the Tenant shall be required in order to voluntarily: (a) file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings; (b) dissolve, liquidate, consolidate, merge, or sell all or substantially all of the assets of the Tenant; and (c) amend Tenant's Operating Agreement or Articles of Organization. 4. Except as otherwise permitted by the terms of this Lease, Tenant agrees: (a) to maintain books and records and bank accounts separate from any other person or entity; (b) not to commingle assets or funds with those of any other person or entity; (c) to conduct its own business in its own name; (d) to maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets; (e) to prepare separate tax returns and financial statements, or if part of a consolidated group, to be shown as a separate member of such group; (f) to pay its own liabilities out of its own funds; (g) to observe all limited liability company formalities; (h) to transact all business with affiliates on an arm's-length basis and pursuant to enforceable agreements; (i) to pay the salaries of its own employees; (j) not to guarantee or become obligated for the debts of any other person or entity or hold out its credit as being available to satisfy the obligations of others or pay the debts or obligations of any other person or entity; (k) to allocate and charge fairly and reasonably any common employee or overhead shared with affiliates; (l) to use separate stationery, invoices, and checks; (m) not to pledge its assets for the benefit of any other person or entity. (n) to hold itself out to creditors and the public as a legal entity separate and distinct from any other person or entity. B. The above requirements are applicable so long as the Tenant is a limited liability company. If the entity structure of Tenant is different, Landlord shall formulate requirements that are specific to Tenant's actual entity structure, but similar in concept to the requirements set forth above. EXHIBIT "G" TENANT'S HEALTHCARE COMPLIANCE COVENANTS Tenant hereby makes the following representations, warranties and covenants as of the date hereof and throughout the term of the Lease, which representations, warranties and covenants are in addition to those found within the body of the Lease: 1. Tenant is using and operating the Premises as a Retirement Care Facility (as modified from time to time with Landlord's and any Permitted Mortgage Lender's consent, which consent shall not be unreasonably withheld, conditioned or delayed, the "LICENSED USE"). Tenant will comply in all material respects, with all applicable federal, state and local laws, regulations, quality and safety standards, accreditation standards and requirements of the applicable state department of health (each a "DOH") and all other applicable federal, state or local governmental authorities including those relating to the quality and adequacy of medical care, distribution of pharmaceuticals, rate setting, equipment, personnel, operating policies, additions to facilities and services and fee splitting. The Retirement Care Facility and any other assisted and/or independent senior housing and/or skilled nursing facilities which is owned, leased or operated by Tenant (a "FACILITY") shall be operated at all times in compliance in all material respects with such laws and requirements. Nothing in this subsection (a) or anywhere else in this Exhibit "F" to the contrary, Landlord acknowledges that pursuant to the Lease, Tenant is responsible for all of the covenants set forth in this Exhibit "F" (other than those pertaining to Landlord's own acts), and that performance of such covenants by ARC as guarantor (the "GUARANTOR") shall constitute performance by Tenant thereof. 2. All governmental licenses, permits, regulatory agreements or other approvals or agreements necessary or desirable for the Licensed Use of the Retirement Care Facility are held by Tenant, Guarantor or an affiliate of Tenant ("AFFILIATE") in the name of Lessee, Guarantor or Affiliate as required under applicable law and are in full force and effect, including a valid certificate of need ("CON") or similar certificate, license, or approval issued by the DOH for the requisite number of beds and units in the Retirement Care Facility, and a provider agreement or other required documentation of approved provider status for each provider payment or reimbursement program effecting the Retirement Care Facility, if applicable. All required permits, certificates, licenses and governmental approvals necessary for operation of the Retirement Care Facility for the Licensed Use are listed on Schedule hereto (collectively, the "LICENSES"). So long as the Lease remains in effect, Tenant and Guarantor shall operate the Project or cause the Project to be operated in a manner such that the Licenses shall remain in full force and effect. 3. The Licenses for the Retirement Care Facility, including without limitation, if applicable, the CON: (a) May not be, and have not been, and will not be transferred to any location other than the Premises; (b) Are not now and will not be pledged as collateral security for any other loan or indebtedness; and (c) Are held free and will remain free from restrictions or known conflicts which would materially impair the use or operation of the Retirement Care Facility for the Licensed Use, and shall not be provisional, probationary or restricted in any way. 4. None of Lessee, Guarantor or Affiliate shall: (a) Rescind, withdraw, revoke, amend, modify, supplement, or otherwise alter the nature, tenor or scope of the Licenses for the Retirement Care Facility; (b) Amend or otherwise change the Retirement Care Facility's authorized units/beds capacity and/or the number of units/beds approved by the DOH; (c) Replace or transfer all or any part of the Retirement Care Facility's units/beds to another site or location; or (d) Voluntarily transfer or encourage the transfer of any resident of the Retirement Care Facility to any other Facility, unless such transfer is at the request of the resident or is for reasons relating to the health, required level of medical care or safety of the resident to be transferred. 5. If and when Tenant, Affiliate or Guarantor participates in any Medicare or Medicaid or other third party payor program with respect to the Retirement Care Facility, the Retirement Care Facility will remain in compliance with all requirements for participation in Medicare and Medicaid, including the Medicare and Medicaid Patient Protection Act of 1987, and other federal or state third party payor programs. The Retirement Care Facility is and will remain in conformance in all material respects with all insurance, reimbursement and cost reporting requirements, and if applicable, has a current provider agreement, which is in full force and effect under Medicare and Medicaid. 6. There is no, and during the term of the Lease shall be no, threatened, existing or pending revocation, suspension, termination, probation, restriction, limitation, or nonrenewal affecting Tenant, Guarantor, Affiliate or the Retirement Care Facility or any participation or provider agreement with any third-party payor, including Medicare, Medicaid, Blue Cross and/or Blue Shield, other and any other private commercial insurance managed care and employee assistance program (such programs, the "THIRD-PARTY PAYOR PROGRAMS") to which Tenant, Guarantor or Affiliate may presently be subject with respect to the Retirement Care Facility or any other Facility, or at any time hereafter is subject. All Medicaid, Medicare, and private insurance cost reports and financial reports submitted by Tenant, Affiliate or Guarantor, if any, are and will be materially accurate and complete and have not been and will not be misleading in any material respects. No cost reports for the Retirement Care Facility remain open or unsettled. Nothing in this subsection (f) shall be interpreted as requiring Tenant, Affiliate or Guarantor to participate in Medicare, Medicaid or any other federal or state health care programs; such participation shall be solely at the option of Tenant or Guarantor. 7. None of Tenant, Affiliate or Guarantor or the Retirement Care Facility is or will be the subject of any proceeding by any governmental agency, and no notice of any violation has been or will be issued by a governmental agency that would, directly or indirectly, or with the passage of time: (a) Have a material adverse impact on Tenant's or Guarantor's ability to accept and/or retain patients or operate the Retirement Care Facility for the Licensed Use or result in the imposition of a fine, a sanction, a lower rate certification or a lower reimbursement rate for services rendered to eligible patients; (b) Modify, limit or annul or result in the transfer, suspension, revocation or imposition of probationary use of any of the Licenses; or (c) If applicable, affect Tenant's or Guarantor's continued participation in the Medicaid or Medicare programs or any other of the Third-Party Payor Programs, or any successor programs thereto, at current rate certifications. 8. The Retirement Care Facility and the use thereof complies and will continue to comply in all material respects with all applicable local, state and federal building codes, fire codes, health care, senior housing and other regulatory requirements (the "PHYSICAL PLANT STANDARDS"). 9. The Retirement Care Facility has not received a "Level A" (or equivalent) violation, and no statement of charges or deficiencies has been made or penalty enforcement action has been undertaken against the Retirement Care Facility, Tenant or Guarantor or against any officer, director, partner, member, stockholder or affiliate of Tenant or Guarantor by any governmental agency during the last three calendar years, and there have been no violations over the past three years which have threatened the Retirement Care Facility's, Tenant's, Affiliate's or Guarantor's certification for participation in Medicare or Medicaid, or the other Third-Party Payor Programs. 10. There are no current, pending or outstanding Medicaid, Medicare, or other Third-Party Payor Programs reimbursement audits or appeals pending at the Retirement Care Facility, and there are no years that are subject to audit. 11. There are no current or pending Medicaid, Medicare, or other Third-Party Payor Programs recoupment efforts at the Retirement Care Facility. Tenant, Affiliate and Guarantor are not participants in any federal program whereby any governmental agency may have the right to recover funds by reason of the advance of federal funds, including those authorized under the Hill-Burton Act (42 U.S.C. 291, et seq.). 12. Tenant will pledge its receivables as collateral security for any other loan or indebtedness. 13. All patient or resident records at the Retirement Care Facility, including patient or resident trust fund accounts, are true and correct in all material respects, and will remain true and correct in all material respects. 14. Tenant and Guarantor shall not, nor shall the Retirement Care Facility, other than in the normal course of business, change the terms of any of the Third-Party Payor Programs now or hereinafter in effect or their normal billing payment or reimbursement policies and procedures with respect thereto (including the amount and timing of finance charges, fees and write-offs). 15. Tenant and Guarantor shall at all times comply with all obligations under the contracts and leases with residents of the Retirement Care Facility, and shall not commit or permit any default thereunder. Tenant hereby indemnifies and holds harmless Landlord and agrees to defend Landlord from and against (collectively, the "INDEMNIFIED CLAIMS") any (i) claims, proceedings or causes of action brought by any resident of the Retirement Care Facility, and (ii) loss, damage, cost or expense, including attorney's fees, incurred or suffered by Landlord as a result of any (x) breach by Tenant or Guarantor of any contract or lease with a resident of the Retirement Care Facility or (y) violation of any license or any federal, state or local law governing the Retirement Care Facility or the use, operation or maintenance thereof for the Licensed Use. EX-10.2 4 g76095ex10-2.txt LEASE AGREEMENT DATED 2-11-02 EXHIBIT 10.2 Holley Court Terrace Oak Park, Cook County, Illinois LEASE AGREEMENT DATED AS OF FEBRUARY 11, 2002 BY AND BETWEEN CNL RETIREMENT-AM/ILLINOIS LP, a Delaware limited partnership, AS LANDLORD, AND ARC HOLLEY COURT, LLC, a Tennessee limited liability company AS TENANT TABLE OF CONTENTS ARTICLE 1...........................................................................................1 DEFINITIONS......................................................................................1 ARTICLE 2..........................................................................................11 LEASED PROPERTY AND TERM........................................................................11 2.1 Leased Property.....................................................................11 2.2 Condition of Leased Property........................................................12 2.3 Initial Term........................................................................13 2.4 Extended Term.......................................................................13 2.5 Yield Up............................................................................13 ARTICLE 3..........................................................................................13 RENT............................................................................................13 3.1 Rent................................................................................13 3.2 Minimum Rent........................................................................14 3.3 Percentage Rent.....................................................................15 3.4 Additional Charges..................................................................16 3.5 Landlord Advances...................................................................17 3.6 Late Payment of Rent................................................................18 3.7 Net Lease...........................................................................18 3.8 No Abatement of Rent................................................................19 3.9 INTENTIONALLY OMITTED...............................................................19 3.10 Tenant Security Deposit.............................................................19 3.11 Security for all ARC-Related Leases.................................................20 3.12 Security Agreement..................................................................20 ARTICLE 4..........................................................................................20 USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS................................................20 4.1 Permitted Use.......................................................................20 4.2 Environmental Matters...............................................................22 4.3 Conflicting Businesses Prohibited...................................................22 4.4 Continuous Operations...............................................................23 4.5 Compliance With Restrictions, Etc...................................................23 4.6 Standard of Operation...............................................................24 4.7 Resident Agreements and Service Licenses............................................25 4.8 Standards, Not Control..............................................................25 4.9 Survival............................................................................25 ARTICLE 5..........................................................................................26 MAINTENANCE AND REPAIRS.........................................................................26 5.1 Tenant's Obligations................................................................26 5.2 Reserve.............................................................................26 ARTICLE 6..........................................................................................29 IMPROVEMENTS, ETC...............................................................................29 6.1 Prohibition.........................................................................29 6.2 Permitted Renovations...............................................................29 i 6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....30 6.4 Salvage.............................................................................31 ARTICLE 7..........................................................................................31 LANDLORD'S INTEREST NOT SUBJECT TO LIENS........................................................31 7.1 Liens, Generally....................................................................31 7.2 Construction or Mechanics Liens.....................................................31 7.3 Contest of Liens....................................................................32 7.4 Notices of Commencement of Construction.............................................32 ARTICLE 8..........................................................................................32 TAXES AND ASSESSMENTS...........................................................................32 8.1 Obligation to Pay Taxes and Assessments.............................................32 8.2 Tenant's Right to Contest Taxes.....................................................33 8.3 Tax and Insurance Escrow Account....................................................33 ARTICLE 9..........................................................................................34 INSURANCE.......................................................................................34 9.1 General Insurance Requirements......................................................34 9.2 Waiver of Subrogation...............................................................36 9.3 General Provisions..................................................................36 9.4 Blanket Policy......................................................................37 9.5 Indemnification of Landlord.........................................................37 ARTICLE 10.........................................................................................38 CASUALTY........................................................................................38 10.1 Restoration and Repair..............................................................38 10.2 Escrow and Disbursement of Insurance Proceeds.......................................38 10.3 No Abatement of Rent................................................................39 10.4 Tenant's Property and Business Interruption Insurance...............................39 10.5 Restoration of Tenant's Property....................................................39 10.6 Waiver..............................................................................40 ARTICLE 11.........................................................................................40 CONDEMNATION....................................................................................40 11.1 Total Condemnation, Etc.............................................................40 11.2 Partial Condemnation................................................................40 11.3 Disbursement of Award...............................................................40 11.4 No Abatement of Rent................................................................41 11.5 Disputes............................................................................41 ARTICLE 12.........................................................................................41 DEFAULTS AND REMEDIES...........................................................................41 12.1 Events of Default...................................................................41 12.2 Remedies on Default.................................................................44 12.3 Application of Funds................................................................47 12.4 Landlord's Right to Cure Tenant's Default...........................................47 12.5 Landlord's Lien.....................................................................48 ii ARTICLE 13.........................................................................................48 HOLDING OVER....................................................................................48 ARTICLE 14.........................................................................................48 LIABILITY OF LANDLORD; INDEMNIFICATION..........................................................48 14.1 Liability of Landlord...............................................................48 14.2 Indemnification of Landlord.........................................................49 14.3 Notice of Claim or Suit.............................................................50 14.4 Limitation on Liability of Landlord.................................................50 ARTICLE 15.........................................................................................50 REIT AND UBTI REQUIREMENTS......................................................................50 15.1 Limitations on Rents Attributable to Personal Property..............................50 15.2 Basis for Sublease Rent Restricted..................................................51 15.3 Landlord Affiliate Subleases Restricted.............................................51 15.4 Landlord Interests in Tenant Restricted.............................................51 15.5 Rents from Personal Property Restricted.............................................51 15.6 Landlord Services...................................................................52 15.7 Certain Subtenants Prohibited.......................................................52 15.8 Future Amendment....................................................................52 ARTICLE 16.........................................................................................52 SUBLETTING AND ASSIGNMENT.......................................................................52 16.1 Transfers Prohibited Without Consent................................................52 16.2 Indirect Transfer Prohibited Without Consent........................................53 16.3 Adequate Assurances.................................................................53 ARTICLE 17.........................................................................................53 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..................................................53 17.1 Estoppel Certificates...............................................................53 17.2 Monthly Financial Statements........................................................53 17.3 Annual Financial Statements.........................................................54 17.4 Records.............................................................................54 17.5 General Operations Budget...........................................................55 17.6 Quarterly Meetings..................................................................55 ARTICLE 18.........................................................................................55 LANDLORD'S RIGHT TO INSPECT.....................................................................55 ARTICLE 19.........................................................................................55 FACILITY MORTGAGES..............................................................................55 19.1 Subordination.......................................................................55 19.2 Attornment..........................................................................56 19.3 Rights of Mortgagees and Assignees..................................................56 ARTICLE 20.........................................................................................57 ADDITIONAL COVENANTS OF TENANT..................................................................57 20.1 Conduct of Business.................................................................57 20.2 Additional Covenants of Tenant......................................................57 iii 20.3 Tenant a Single Purpose Entity......................................................59 20.4 Intentionally Omitted...............................................................59 ARTICLE 21.........................................................................................59 MISCELLANEOUS...................................................................................59 21.1 Limitation on Payment of Rent.......................................................59 21.2 No Waiver...........................................................................60 21.3 Remedies Cumulative.................................................................60 21.4 Severability........................................................................60 21.5 Acceptance of Surrender.............................................................60 21.6 No Merger of Title..................................................................60 21.7 Tenant's Representations............................................................60 21.8 Quiet Enjoyment.....................................................................62 21.9 Recordation of Memorandum of Lease..................................................62 21.10 Notices. (a).......................................................................63 21.11 Construction; Nonrecourse...........................................................64 21.12 Counterparts; Headings..............................................................64 21.13 Applicable Law......................................................................64 21.14 Right to Make Agreement.............................................................64 21.15 Brokerage...........................................................................65 21.16 No Partnership or Joint Venture.....................................................65 21.17 Entire Agreement....................................................................65 21.18 Costs and Attorneys' Fees...........................................................65 21.19 Approval of Landlord................................................................65 21.20 Successors and Assigns..............................................................66 21.21 Waiver of Jury Trial................................................................66 21.22 Treatment of Lease..................................................................66 21.23 Transfer of Licenses................................................................66 21.24 Tenant's Personal Property..........................................................66 21.25 Landlord's Representations..........................................................67 21.26 Guaranty of Lease...................................................................67 21.27 Guaranty of ARC-Related Leases......................................................67 21.28 Landlord's Assumed Financing........................................................67 EXHIBITS Exhibit "A" - The Land Exhibit "B" - Minimum Rent Exhibit "C" - Appraisal Process Exhibit "D" - Tenant Estoppel Certificate Exhibit "E" - Memorandum of Lease Exhibit "F" - Single Purpose Entity Requirements Exhibit "G" - Tenant Equity Ownership Exhibit "H" - Property Expenses Exhibit "I" - Initial Landlord P&E Exhibit "J" - Initial Tenant Personal Property Exhibit "K" - Landlord's Financing Terms iv LEASE AGREEMENT THIS LEASE AGREEMENT is entered into as of February 11, 2002 by and between CNL RETIREMENT-AM/ILLINOIS LP, a Delaware limited partnership, as landlord ("Landlord"), and ARC HOLLEY COURT, LLC, a Tennessee limited liability company, as tenant ("Tenant"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, Landlord has heretofore acquired fee simple title to the Land and the Facility (these and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1); and WHEREAS, Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, all subject to and upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article and used in this Agreement shall have the meanings assigned to them in this Article and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (iii) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. "Accessibility Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to accessibility for the disabled or handicapped, including, but not limited to, any applicable provisions of The Architectural Barriers Act of 1968, The Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With Disabilities Act, the accessibility code(s), if any, of the State in which the Leased Property is located, and all regulations and guidelines promulgated under any all of the foregoing, as the same may be amended from time to time. 1 "Accounting Period" shall mean each calendar month accounting period of Tenant. If Tenant shall, for a bona fide business reason, change its accounting period during the Term, appropriate adjustments, if any, shall be made with respect to the timing of applicable accounting and reporting requirements of this Agreement; provided, however, that in no event shall any such change or adjustment alter the amount or frequency of payment of Minimum Rent within any Fiscal Year, or alter the frequency of payment of Percentage Rent to less than four (4) times within any Fiscal Year, or otherwise increase or reduce any monetary obligation under this Agreement. "Accounting Year" shall mean each period of twelve (12) consecutive Accounting Periods during the Term of this Agreement; the first Accounting Year shall commence with the first full Accounting Period after the Commencement Date of this Agreement. "Additional Charges" shall have the meaning given such term in Section 3.4. "Additional Rent" shall have the meaning given such term in Section 3.5. "Affiliated Person" shall mean, with respect to any Person, (i) any Person directly or indirectly Controlling, Controlled by or under common Control with any such Person, (ii) in the case of any such Person which is a partnership, any partner in such partnership, (iii) in the case of any such Person which is a limited liability company, any member of such company, (iv) in the case of any such Person which is a corporation, any officer, director or stockholder of such corporation, (v) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (i) through (iv), (vi) any other Person who is an officer, director, trustee or employee of, or partner in, such Person or any Person referred to in the preceding clauses (i) through (v) and (vii) any other Person who is a member of, or trustee of any trust for the benefit of, the Immediate Family of such Person or of any Person referred to in the preceding clauses (i) through (vi). Provided, however, a Person shall not be deemed to be an Affiliated Person solely by virtue of the ownership of shares of stock registered under the Securities Act of 1934, as amended, unless such Person, as holder of such stock, is required to file a Schedule 13 D, pursuant to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder. "Agreement" shall mean this Lease Agreement, including all Exhibits hereto, as it and they may be amended or restated from time to time as herein provided. "Annual Operations Statement" shall have the meaning given such term in Section 3.3.2. "Applicable Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations of any kind, including without limitation, those relating to (i) damage to, or the protection of real or personal property, (ii) human health and safety (except those requirements which, by definition, are solely the responsibility of employers), (iii) the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground 2 improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, (iv) Accessibility Laws, (v) independent living, assisted living and/or dementia care facility licensure (as applicable) or (vi) participation in Medicare or Medicaid programs (if applicable). "Applicable Reserve Percentage" shall mean, with respect to any Accounting Period, or portion thereof, the greater of (x) $350.00 per year per licensed bed (if applicable) or living unit located on the Leased Property, prorated for such Accounting Period and divided by and expressed as a percentage of Total Facility Revenues for such Accounting Period, or (y) with respect to (i) the period beginning on the Commencement Date and ending on the last day of the sixtieth (60th) full Accounting Period next following the Commencement Date, two percent (2%) of Total Facility Revenue, and, (ii) with respect to each Accounting Period thereafter, three percent (3%) of Total Facility Revenue. "Approved Reserve Estimate" shall have the meaning given such term in Section 5.2.3. "ARC-Related Leases" shall mean, collectively, all present and future property leases between Landlord or CNL Retirement, or any Affiliated Person of Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any Affiliated Person of Tenant or Guarantor, as tenant. "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in the State are authorized by law or executive action to close. "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland corporation. "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as amended from time to time. "Commencement Date" shall mean the date of this Agreement. "Condemnation" shall mean (a) the exercise of any governmental power with respect to the Leased Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of the Leased Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of all or part of the Leased Property, or any interest therein, or right accruing thereto or use thereof, as the result or in settlement of any Condemnation or other eminent domain proceeding affecting the Leased Property, whether or not the same shall have actually been commenced. "Condemnor" shall mean any public or quasi-public authority, or Person having the power of Condemnation. 3 "Conflicting Business" shall have the meaning given such term in Section 4.3. "Control" (including the correlative meanings of the terms "Controlling", "Controlled by", and "under common control with") as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person whether through the ownership of voting securities, by contract or otherwise. "CRC" shall mean CNL Retirement Corp., a Florida corporation. "Default" shall mean any event or condition existing which with the giving of notice and/or lapse of time would ripen into an Event of Default. "Disbursement Rate" shall mean an annual rate of interest equal to the greater of, as of the date of determination, (i) ten percent (10.00%) and (ii) the per annum rate for ten (10) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred fifty (350) basis points. "Distribution" shall mean (a) any declaration or payment of any dividend on or in respect of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any cash distributions in respect of any partnership interests or membership interests in Tenant, if Tenant is a partnership or a limited liability company, (b) any purchase, redemption, retirement or other acquisition of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any purchase, redemption, retirement or other acquisition of any partnership or membership interests in Tenant, if Tenant is a partnership or a limited liability company, (c) any other distribution on or in respect of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any other distribution in respect of any partnership interests or membership interests in Tenant, if Tenant is a partnership or a limited liability company, or (d) any return of capital to shareholders of Tenant, if Tenant is a corporation, or any return of capital to partners of Tenant, if Tenant is a partnership or a limited liability company. "Entity" shall mean any corporation, general or limited partnership, limited liability company, partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency or political subdivision thereof or any other entity. "Environment" shall mean soil, surface waters, ground waters, land, streams, sediments, surface or subsurface strata and ambient air. "Event of Default" shall have the meaning given such term in Section 12.1. "Extended Terms" shall have the meaning given such term in Section 2.4. "Facility" shall mean the independent living, and/or assisted living and dementia care ( if applicable), facility located and operated on the Land. "Facility Mortgage" shall mean any encumbrance placed upon the Leased Property as referenced in Article 19. 4 "Fiscal Quarter" shall mean the first, second, third and fourth three-month period (each consisting of three Accounting Periods) during each Fiscal Year. "Fiscal Year" shall mean Tenant's Fiscal Year which as of the Commencement Date begins on January 1 and ends on December 31 in each calendar year. Any partial Fiscal Year between the Commencement Date and the commencement of the first full Fiscal Year (except with respect to the calculation and payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall constitute a separate Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the termination of this Agreement shall also constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the future, appropriate adjustments to this Agreement's reporting and accounting procedures shall be made; provided, however, that no such change or adjustment shall alter the Term of this Agreement or in any way reduce the distribution of Percentage Rent or other payments due hereunder. Each full Fiscal Year shall consist of twelve Accounting Periods. "Force Majeure Event" means any circumstance which is not in the reasonable control of either party hereto, caused by any of the following: strikes, lockouts; acts of God; civil commotion; fire or any other casualty; governmental action; or other similar cause or circumstance which is not in the reasonable control of either party hereto. Neither lack of financing nor general economic and/or market factors is a Force Majeure Event. "GAAP" shall mean generally accepted accounting principles consistently applied. "Guarantor" shall mean American Retirement Corporation, a Tennessee corporation ("Guarantor"). "Government Agencies" shall mean any legislative body, court, agency, authority, board (including, without limitation, health and long term care, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or the State or any county or any political subdivision of any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or the Leased Property or any portion thereof or the Facility operated thereon. "Hazardous Substances" shall mean any substance: (a) the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or (b) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" or "pollutant" or "contaminant" under any present or future federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the regulations promulgated thereunder; or 5 (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (d) the presence of which on the Leased Property causes or materially threatens to cause an unlawful nuisance upon the Leased Property or to adjacent properties or poses or materially threatens to pose a hazard to the Leased Property or to the health or safety of persons on or about the Leased Property; or (e) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or (f) without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or (g) without limitation, which contains or emits radioactive particles, waves or material; or (h) without limitation, constitutes materials which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws promulgated by any Government Agencies. "Immediate Family" shall mean, with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. "Indebtedness" shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor's balance sheet as liabilities. "Initial Landlord P&E" shall mean and refer to all P&E of any kind or description which are located on or in the Leased Improvements as of the Commencement Date, including without limitation those items enumerated on Exhibit "I" attached hereto and made a part hereof, but specifically excluding any specific items of Tenant's Personal Property identified on Exhibit "J" attached hereto and made a part hereof. "Initial Term" shall have the meaning given such term in Section 2.3. "Insurance Requirements" shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant or the Leased Property. "Inventories" shall mean all inventories, as such term is customarily used and defined in its most broad and inclusive sense including, but not limited to, all inventories of food, beverages and other consumables held by Tenant for sale or use at or from the Leased Property or the Facility, and soap, cleaning supplies, paper supplies, operating supplies, china, glassware, silver, 6 linen, uniforms, building and maintenance supplies, spare parts and attic stock, medical supplies, drugs and all other such goods, wares and merchandise held by Tenant for sale to or for consumption by residents or patients of the Leased Property or the Facility and all such other goods returned to or repossessed by Tenant. "Land" shall have the meaning given such term in Section 2.1(a). "Landlord" shall have the meaning given such term in the preambles to this Agreement and shall include its successors and assigns. "Landlord's Original Investment" shall mean the sum of Eighteen Million Four Hundred Sixty-Nine Thousand Two Hundred Seventy-Five and No/100 Dollars ($18,469,275.00), which represents, for purposes of this Lease, Landlord's total acquisition and transactional costs incurred in acquiring the Leased Property. "Lease" shall mean this Lease Agreement, including all Exhibits hereto, as it and they may be amended or restated from time to time as herein provided. "Lease Year" shall mean any Fiscal Year during the Term and any partial Fiscal Year at the beginning or end of the Term. "Leased Improvements" shall have the meaning given such term in Section 2.1(b). "Leased Intangible Property" shall mean all transferable or assignable (a) governmental permits, including licenses and authorizations, required for the construction, ownership and operation of the Leased Improvements, including without limitation, certificates of need, certificates of authority, certificates of occupancy, building permits, signage permits, site use approvals, zoning certificates, environmental and land use permits and any and all necessary approvals from state or local authorities and other approvals granted by any public body or by any private party pursuant to a recorded instrument relating to such Leased Improvements or the Land; (b) development rights, trade names, telephone exchange numbers identified with the Leased Property, if any (specifically excluding, however, any specific items of Tenant's Personal Property identified on Exhibit "J" hereto); and (c) certificates, licenses, warranties and guarantees and contracts other than such permits, operating permits, certificates, licenses and approvals which are to held by, or transferred to, the Tenant in order to permit the Tenant to operate such Leased Improvements properly and in accordance with the terms of this Agreement. "Leased Property" shall have the meaning given such term in Section 2.1. "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Leased Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, certificates and regulations necessary to operate the Leased Property for its Permitted Use, (b) all covenants, agreements, declarations, restrictions and encumbrances contained in any instruments at any time in force affecting the Leased Property or to which Tenant has consented or which are required to be granted pursuant to Applicable Laws, including those which may (i) require material repairs, modifications or 7 alterations in or to the Leased Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord's status as a real estate investment trust, and (c) Applicable Laws. "Lien" shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the payment of Indebtedness or performance of any other obligation in priority to payment of the obligor's general creditors. "Major Alterations" shall have the meaning given such term in Section 6.2.2. "Major Violation" shall mean any violation of Applicable Laws relating to the use, operation or maintenance of the Facility or to the care of residents which presents an imminent danger to the residents or guests of the Facility or a substantial probability that death or serious harm would result therefrom. "Minimum Rent" shall mean annual rent as set forth in Section 3.2, subject to prorations and adjustments as set forth in Section 3.2. "Minor Alterations" shall have the meaning given such term in Section 6.2.1. "Mortgagee" shall mean the holder of any Facility Mortgage. "Notice" shall mean a notice given in accordance with Section 21.10. "Opening Date" shall mean the date on which the Facility first opened for business to the general public. "Overdue Rate" shall mean, on any date, a per annum rate of interest equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then permitted under applicable law. "P&E" shall mean all items of personal property, as defined under the Model Uniform Commercial Code, including, but not limited to: (a) all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto; (b) all furniture, furnishings, movable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property; (c) all linen, china, glassware, tableware, uniforms and similar items, whether used in connection with public space or tenant rooms; and (d) "Property and Equipment," "P&E," and "FF&E" (as such terms are customarily used and defined in the most broad and inclusive sense), as well as all other items included within the category of Inventory; 8 and all including, without limitation, the Initial Landlord P&E, but not including, however, any item of Tenant's Personal Property identified in Exhibit "J" hereto. "P&E Replacements" shall mean all items purchased with funds from the Reserve established under Article 5 of this Lease and all other items of P&E added and used at the Leased Property during the Term of this Lease, together with all leasehold improvements made by Tenant during the Term of this Lease to the extent not constituting real property affixed to the Land, whether purchased from the Reserve or with other funds of Tenant, all subject to disposal and further replacement at the end of their useful lives. "Parent" shall mean, with respect to any Person, any Person which directly, or indirectly through one or more Subsidiaries or Affiliated Persons, (i) owns more than fifty percent (50%) of the voting or beneficial interest in, or (ii) otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person. "Percentage Rent" shall have the meaning given such term in Section 3.3. "Permits" means all licenses, permits and certificates used or useful in connection with the ownership, operation, use or occupancy of the Leased Property or the Facility, including, without limitation, business licenses, state health department licenses, food service licenses, licenses to conduct business, certificates of need and all such other permits, licenses and rights, obtained from any governmental, quasi-governmental or private person or entity whatsoever. "Permitted Encumbrances" shall mean all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner's title insurance policy issued to Landlord for the Land, plus any other such encumbrances as may have been consented to in writing by Landlord from time to time. "Permitted Renovations" shall have the meaning given that term in Section 6.2. "Permitted Use" shall mean any use of the Leased Property permitted pursuant to Section 4.1.1. "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. "Property Expenses" shall mean those expenses more particularly described on Exhibit "H" attached hereto. "Proscribed Area" shall have the meaning given such term in Section 4.3. "Reimbursement Contracts" means all third party reimbursement contracts for the Facility which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including private insurance agreements, Medicare and Medicaid and any successor program or other similar reimbursement program and/or private insurance agreements. "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and Additional Rent. 9 "Reserve" shall have the meaning given such term in Section 5.2. "Reserve Estimate" shall have the meaning given such term in Section 5.2. "Reserve Expenditures" shall have the meaning given such term in Section 5.2. "SEC" shall mean the Securities and Exchange Commission. "Security Deposit" shall have the meaning given such term in Section 3.10. "Single Purpose Entity" shall have the meaning given such term in Exhibit "F" attached hereto. "State" shall mean the State in which the Facility is located. "Subsidiary" shall mean, with respect to any Person, any Entity in which such Person directly, or indirectly through one or more Subsidiaries or Affiliated Persons, (a) owns more than fifty percent (50%) of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise). "Tax and Insurance Account" shall have the meaning given such term in Section 8.3. "Tax and Insurance Escrow Amount" shall have the meaning given such term in Section 8.3. "Tenant" shall be the entity identified in the preamble to this Agreement and shall include its successors and assigns expressly permitted hereunder. "Tenant's Personal Property" shall mean any specific items of P&E listed in Exhibit "J" to this Lease, or replacements for such items or items within any specific categories of P&E listed in Exhibit "J" to this Lease which hereafter are acquired by Tenant with its own funds after the Commencement Date and located at the Leased Property (but not including any property purchased with funds from the Reserve established under Section 5.2). "Term" shall mean, collectively, the Initial Term and the Extended Terms, unless sooner terminated pursuant to the provisions of this Agreement. "Threshold" shall mean the sum of Total Facility Revenue for the twelve (12) Accounting Periods ending on the end of the twenty-fourth (24th) full Accounting Period following the Commencement Date. "Total Facility Revenue" shall mean, for the applicable period of time, but without duplication, all gross revenues and receipts of every kind derived by or for the benefit of Tenant, or its Affiliated Persons from operating or causing the operation of the Leased Property and all parts thereof, including, but not limited to: income from both cash and credit transactions (after reasonable deductions for bad debts and discounts for prompt or cash payments and refunds) from rental or subleasing of every kind; entrance fees, fees for health care and personal care services, license, lease and concession fees and rentals, off premises catering, if any, and parking 10 (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixtures and equipment no longer necessary to the operation of the Facility, which shall be deposited in the Reserve) and service charges, to the extent not distributed to employees at the Facility as gratuities; provided, however, that Total Facility Revenue shall not include the following: (a) gratuities to Facility employees; (b) federal, state or municipal excise, sales, occupancy, use or similar taxes collected directly from residents or included as part of the sales price of any goods or services; (c) insurance proceeds; (d) any proceeds from any sale of the Leased Property or from the refinancing of any debt encumbering the Leased Property; (e) proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of the Facility; and (f) interest which accrues on amounts deposited in the Reserve. "Unsuitable for Its Permitted Use" shall mean a state or condition of the Leased Property such that following any damage or destruction involving the Leased Property, the Leased Property cannot be operated in the reasonable judgement of Landlord (after conferring with Tenant) on a commercially practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to substantially the same condition as existed before such damage or destruction and as is otherwise required by Article 12 within (i) twelve (12) months following such damage or destruction, or (ii) eighteen (18) months following such damage or destruction in the event that Tenant has extended the term of the business income insurance to pay at least eighteen (18) months Rent for the benefit of Landlord or provides other reasonably acceptable security for any uninsured portion of the eighteen (18) months Rent. ARTICLE 2 LEASED PROPERTY AND TERM 2.1 Leased Property. Upon and subject to the terms and conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord all of Landlord's right, title and interest in and to all of the following (collectively, the "Leased Property"): (a) all that certain tract, piece and parcel of land, as more particularly described in Exhibit "A", attached hereto and made a part hereof (the "Land"); (b) the Facility, all buildings, structures and other improvements of every kind, including without limitation all roofs, plumbing systems, electric systems and HVAC systems, roadways, alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility pipes, conduits and lines (on-site and off-site) appurtenant to or presently situated upon the Land (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; 11 (d) all P&E and Inventory; (e) all moveable machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such property, but specifically excluding all items included within the category of Tenant's Personal Property; (f) all of the Leased Intangible Property; (g) any and all subleases of space in the Leased Improvements to subtenants thereof; and (h) all other property and interests in property conveyed or assigned to Landlord pursuant to the Real Estate Purchase and Sale Agreement governing the sale and conveyance of the Leased Property from Tenant to Landlord on or about the effective date hereof (the "Purchase Agreement"). 2.2 Condition of Leased Property. Tenant acknowledges and agrees that the Leased Property is and shall be leased by Landlord to Tenant and from Landlord by Tenant in its present "as is" condition, subject to the existing state of title and all applicable legal or governmental requirements, and Landlord makes absolutely no representations or warranties whatsoever with respect to the Leased Property or the condition thereof. Tenant acknowledges that Landlord has not investigated and does not warrant or represent to Tenant that the Leased Property is fit for the purposes intended by Tenant or for any other purpose or purposes whatsoever, and Tenant acknowledges that the Leased Property is to be leased to Tenant in its existing condition, i.e., "as-is", and "where-is", without any representation or warranty as to habitability or fitness for any particular purpose, on and as of the Commencement Date. Tenant represents and acknowledges that all permits, licenses and approvals required by any governmental or quasi-governmental body, department, commission, board, bureau, instrumentality or officer, or otherwise appropriate with respect to the construction, operation, leasing, maintenance or use of the Leased Property or any part thereof, have been issued, are past all appeals periods and are valid and in full force and effect and that no provision, condition or limitation of any of the same has been breached or violated. Tenant acknowledges that Tenant shall be solely responsible for any and all actions, repairs, permits, approvals and costs required for the rehabilitation, renovation, use, occupancy and operation of the Leased Property in accordance with applicable governmental requirements, foreseen or unforeseen, including, without limitation, all governmental charges and fees, if any, which may be due or payable to applicable authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants and represents that Tenant has examined and approved all things concerning the Leased Property which Tenant deems material to Tenant's leasing and use of the Leased Property. Tenant further acknowledges and agrees that (a) neither Landlord nor any agent of Landlord has made any representation or warranty, express or implied, concerning the Leased Property or which have induced Tenant to execute this Agreement and (b) any other representations and warranties are expressly disclaimed by Landlord. 12 2.3 Initial Term. The initial term of this Agreement (the "Initial Term") shall commence on the Commencement Date and shall terminate and expire at 11:59 p.m. on the last calendar day of the month on which the fifteenth (15th) annual anniversary of the Commencement Date shall occur. 2.4 Extended Term. Tenant shall have and is hereby granted two (2) option(s) to extend this Agreement for an additional five (5) years each (individually an "Extended Term"), upon the same terms, covenants, conditions and rental as set forth herein; provided there exists no continuing Event of Default hereunder, or Default which Tenant has had an opportunity but failed to cure as provided hereunder, during any applicable cure hereunder at the commencement of the respective Extended Term. Tenant may exercise each such five (5) year option successively by giving written notice to Landlord not less than twelve (12) months nor more than eighteen (18) months prior to the respective expiration of the Initial Term of this Agreement or of the then applicable Extended Term. Should Tenant fail to give Landlord such timely written notice during the required period, all remaining rights of renewal shall automatically expire. 2.5 Yield Up. Tenant shall, on or before the last day of the Term or upon the sooner termination thereof, peaceably and quietly surrender and deliver to Landlord the Leased Property, including, without limitation, all Leased Improvements and P&E and all additions thereto and replacements thereof made from time to time during the Term, together with and including without limitation the P&E Replacements, in good order, condition and repair, reasonable wear and tear excepted, and free and clear of all liens and encumbrances (other than Permitted Encumbrances, liens or encumbrances in favor of or granted by Landlord, and any other encumbrances expressly permitted under the terms of this Agreement). Tenant acknowledges that both the Initial Landlord P&E described on Exhibit "I" attached hereto and consumable items of Inventory located at the Leased Property as of the Commencement Date may be completely consumed and/or otherwise disposed of in the course of operation of the Leased Property during the Term of this Agreement. Tenant agrees that, at the expiration or earlier termination of this Agreement, at Landlord's option: (i) Tenant shall fully restore the Initial Landlord P&E, inclusive with and after consideration of all P&E Replacements which will become the property of Landlord, to at least the approximate types and amounts (with reasonably equivalent value) as shown on Exhibit "I", and shall fully restore an adequate supply of Inventory consistent with the full stocking levels to be maintained by Tenant pursuant to Section 4.6 of this Lease (or a full thirty days supply, which ever is greater), or (ii) Landlord shall deduct the then-current value of amounts needed to fully restore the required P&E and Inventory, as aforesaid, to the extent that this sum exceeds the Reserve amount to be transferred to Landlord under Section 5.2.6 hereof, from the Security Deposit. ARTICLE 3 RENT 3.1 Rent. Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this Agreement), Rent to Landlord 13 during the Term at the address to which notices to Landlord are to be given or to such other party or to such other address as Landlord may designate from time to time by written notice to Tenant. All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion and all such payments shall, upon receipt by Landlord, be and remain the sole and absolute property of Landlord. If Landlord shall at any time accept any such Rent or other sums after the same shall become due and payable, or any partial payment of Rent, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. 3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum Rent") to Landlord in equal installments in advance, on the first (1st) Business Day of each Accounting Period; provided, however, that the first payment of Minimum Rent shall be payable on the Commencement Date. Further, if applicable, the first payment of Minimum Rent and the last payment of Minimum Rent shall be prorated on a per diem basis provided, however, that for purposes of Minimum Rent, any prorated payment for any partial Accounting Period prior to the first full Accounting Period shall be prorated based upon the installment of Minimum Rent payable for the first full Accounting Period, and any prorated Rent at the end of the Term shall be prorated based upon the installment of Minimum Rent payable for the last full Accounting Period. 3.2.1 Calculation of Initial Term Minimum Rent. Subject to proration as set forth above, Tenant shall pay Minimum Rent during each Accounting Year of the Initial Term of this Agreement in the amounts set forth on Exhibit "B" attached hereto and made a part hereof. 3.2.2 Calculation of Extended Term Minimum Rent. Subject to proration as set forth above, Tenant shall pay Minimum Rent under this Agreement during the first Accounting Year of each Extended Term in an amount equal to the greater of: (a) two and five-tenths percent (2.5%) over the amount of Minimum Rent due in the immediately preceding Accounting Year; or (b) the product of the fair market value of the Leased Property on the date of Tenant's Notice of exercise pursuant to Section 2.4, multiplied by Ten Percent (10.00%). Minimum Rent for each Accounting Year after the first Accounting Year in an Extended Term shall increase by one percent (1%) over the amount of Minimum Rent due in the immediately preceding Accounting Year. If within ten (10) days of the date of Tenant's Notice of exercise pursuant to Section 2.4, Landlord and Tenant are unable to agree on the fair market value of the Premises for purposes of this calculation, such fair market value shall be established by the appraisal process described on Exhibit "C" attached hereto. Landlord and Tenant acknowledge and agree that this Section is designed to establish a fair market Minimum Rent for the Leased Property during each applicable Extended Term. In the event that the Minimum 14 Rent for the applicable Extended Term is not finally determined by such appraisal process prior to the commencement of the Extended Term, then in such event until such amount is finally determined the Tenant shall pay to Landlord as "Interim Rent" for the Extended Term an amount equal to one hundred twenty-five percent (125%) of the established Minimum Rent as of the end of the Accounting Year immediately preceding the Extended Term until such appraisal process and any dispute relating thereto is finally resolved. In such an event, the amount of any differential between the Interim Rent and Minimum Rent established shall, if resulting in an underpayment, be paid by Tenant to Landlord within fifteen (15) days, or if resulting in an overpayment be credited by Landlord against the next installment(s) of Rent coming due hereunder. 3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent, Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal Year or portion thereof. Installments of Percentage Rent shall be due and payable in arrears within thirty (30) days after the end of each Fiscal Quarter of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter and an allocation of one-quarter of the Threshold amount to each such Fiscal Quarter; provided, however, that no Percentage Rent shall be payable hereunder with respect to the initial portion of the Term ending on the end of the twenty-fourth (24th) full Accounting Period following the Commencement Date. Along with each Percentage Rent payment Tenant shall submit to Landlord an unaudited (but certified by a duly authorized officer or managing member of Tenant) statement showing a detailed breakdown of the calculation of Percentage Rent for that Fiscal Quarter and Fiscal Year-to-date on a cumulative basis. Percentage Rent for any partial Fiscal Quarter in the final Fiscal Year shall be prorated proportionately. Tenant's obligation to pay Percentage Rent for the Fiscal Quarter which includes the date of termination of this Agreement shall survive the termination hereof. 3.3.1 Calculation of Percentage Rent. Subject to proration as set forth above, Tenant shall pay Percentage Rent in respect of each Fiscal Year under this Agreement equal to (a) ten percent (10%) of the Total Facility Revenue for such Fiscal Year in excess of the Threshold, less (b) the amount by which annual Minimum Rent in the Fiscal Year for which Percentage Rent is being calculated exceeds the amount of annual Minimum Rent due for the first (1st) Accounting Year under this Agreement. 3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no later than ninety (90) days following the end of each Fiscal Year during the Term hereof furnish to Landlord for such Fiscal Year a complete statement (the "Annual Operations Statement") certified true and correct by the Chief Financial Officer of Tenant's general partner or managing member and the Chief Financial Officer of the Guarantor, setting forth, with respect to such Fiscal Year in reasonable detail the Total Facility Revenue derived by or for the benefit of Tenant in respect of such Fiscal Year. If the Annual Operations Statement for any Fiscal Year indicates that the aggregate of the installment payments theretofore made with respect to such Fiscal Year pursuant to Section 3.3.1 exceeds the Percentage Rent due for such Fiscal Year, Landlord shall credit such overpayment against the next installment or installments of Minimum Rent falling due (or will pay the amount of such overpayment to Tenant if this Agreement shall have terminated other than by reason of Tenant's default or if Landlord so elects to do so). If, on the other hand, the Annual Operations Statement indicates that the aggregate of the installment payments 15 theretofore made with respect to such Fiscal Year is less than the Percentage Rent due for such Fiscal Year then Tenant shall pay the balance or excess, as the case may be, together with interest thereon determined as set forth below in this paragraph, to Landlord concurrently with the submission of the Annual Operations Statement. Interest shall accrue on payments pursuant to this paragraph at the Disbursement Rate from the date when first due and payable until the date when the adjusted amount is fully paid in the manner as set forth above, except to the extent of de minimus adjustments of not more than ten percent (10%) of the amount initially paid resulting from the calculation method used or unintentional errors which could not reasonably have been avoided by reasonable care and diligence. 3.3.3 Landlord Audit of Annual Operations Statement. Notwithstanding the foregoing, Landlord at its own expense, except as provided hereinbelow, shall have the right, exercisable by Notice to Tenant given within 270 days after receipt of the applicable Annual Operations Statement, by its accountants or representatives, to commence within such 270 day period an audit of the information set forth in such Annual Operations Statement and, in connection with such audit, to examine all of Tenant's books and records with respect thereto (including supporting data and sales and excise tax returns); provided, however, if Landlord reasonably believes Tenant has intentionally misrepresented Total Facility Revenue on any such Annual Operations Statement, the said 270 day period shall commence to run on the date Landlord obtains credible evidence that Tenant has intentionally misrepresented Total Facility Revenue on any such Annual Operations Statement. If Landlord does not commence an audit with such 270 day period, such Annual Operations Statement shall be deemed to be accepted by Landlord as correct. Landlord shall use commercially reasonable efforts to complete any such audit as soon as practicable. If such audit discloses a deficiency in the payment of Percentage Rent, Tenant shall forthwith pay to Landlord the amount of the deficiency, together with interest at the Disbursement Rate from the date such payment should have been made to the date of payment therefore. If such deficiency is more than three percent (3%) of the Total Facility Revenue reported by Tenant for such Fiscal Year, Tenant shall also pay the costs of such audit and examination. 3.4 Additional Charges. In addition to the Minimum Rent and Percentage Rent payable hereunder, Tenant shall pay to the appropriate parties and discharge as and when due and payable hereunder the following (collectively the "Additional Charges"): 3.4.1 Taxes and Assessments. Tenant shall pay or cause to be paid all taxes and assessments required to be paid pursuant to Article 8. 3.4.2 Utility Charges. Tenant shall be liable for and shall promptly pay directly to the utility company all deposits, charges and fees (together with any applicable taxes or assessments thereon) when due for water, gas, electricity, air conditioning, heat, septic, sewer, refuse collection, telephone and any other utility charges, impact fees, or similar items in connection with the use or occupancy of the Leased Property. Landlord shall not be responsible or liable in any way whatsoever for the quality, quantity, impairment, interruption, stoppage, or other interference with any utility service, including, without limitation, water, air conditioning, heat, gas, electric current for light and power, 16 telephone, or any other utility service provided to or serving the Leased Property. No interruption, termination or cessation of utility services shall relieve Tenant of its duties and obligations pursuant to this Agreement, including, without limitation, its obligation to pay all Rent as and when the same shall be due hereunder. 3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. 3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid all fees, dues and charges of any kind which are necessary in order to acquire and keep in effect and good standing all licenses and permits required for operation of the Leased Property in accordance with the terms of Article 4. 3.4.5 Sales Tax. Simultaneously with each payment of Rent and Additional Charges hereunder, Tenant shall pay to Landlord the amount of any applicable sales, use, excise or similar or other tax on any such Rent and Additional Charges, whether the same be levied, imposed or assessed by the State in which the Leased Property is located or any Governmental Agencies, but specifically excluding any income taxes imposed on Landlord's net income. Landlord shall, upon written request by Tenant, provide to Tenant on an annual basis such reasonable information in Landlord's possession or control as shall be necessary to enable Tenant to pay such tax. 3.4.6 Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations arising in connection with the Leased Property except those obligations expressly stated not to be an obligation of Tenant pursuant to this Agreement. 3.4.7 Penalties and Interest. Tenant shall pay or cause to be paid every fine, penalty, interest and cost which may be added for non-payment or late payment of the items referenced in this Section 3.4. Tenant shall prepare and file at its expense, to the extent required or permitted by Applicable Laws, all tax returns and other reports in respect of any Additional Charge as may be required by Governmental Agencies. 3.5 Landlord Advances. Except as specifically provided otherwise in this Agreement, if Tenant does not pay or discharge all Additional Charges, and provide proof of payment if requested by Landlord, at least fifteen (15) days prior to delinquency, Landlord shall have the right but not the obligation to pay such Additional Charges on behalf of Tenant. If Landlord shall make any such expenditure for which Tenant is responsible or liable under this Agreement, or if Tenant shall become obligated to Landlord under this Agreement for any other sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount thereof shall be deemed to constitute "Additional Rent" and shall be due and payable by Tenant to Landlord, together with interest at the Overdue Rate and all applicable sales or other taxes thereon, if any, simultaneously with the next succeeding monthly installment of Minimum Rent or at such other time as may be expressly provided in this Agreement for the payment of the same. 17 3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on or before the fifth business day after the date such payment is due and payable, Tenant shall pay to Landlord an administrative late charge of five percent (5%) of the amount of such payment. In addition, such past due payment shall bear interest at the Overdue Rate from the date first due until paid. Such late charge and interest shall constitute Additional Rent and shall be due and payable with the next installment of Rent due hereunder. 3.7 Net Lease. Landlord and Tenant acknowledge and agree that both parties intend that this Agreement shall be and constitute what is generally referred to in the real estate industry as a "triple net" or "absolute net" lease, such that Tenant shall be obligated hereunder to pay all costs and expenses incurred with respect to, and associated with, the Leased Property and all personal property thereon and therein and the business operated thereon and therein, including, without limitation, all taxes and assessments, utility charges, insurance costs, maintenance costs and repair, replacement and restoration expenses (all as more particularly herein provided), together with any and all other assessments, charges, costs and expenses of any kind or nature whatsoever related to, or associated with, the Leased Property and the business operated thereon and therein, other than Landlord's financing costs and expenses and related debt service; provided, however, that Landlord shall nonetheless be obligated to pay Landlord's personal income taxes with respect to the Rent and other amounts received by Landlord under this Agreement. Except as expressly hereinabove provided, Landlord shall bear no cost or expense of any type or nature with respect to, or associated with, the Leased Property. Except to the extent otherwise expressly provided in this Agreement, it is agreed and intended that Rent payable hereunder by Tenant shall be paid without notice, demand, counterclaim, set-off, deduction or defense and without abatement, suspension, deferment, diminution or reduction and that Tenant's obligation to pay Rent throughout the Term and any applicable Extended Term is absolute and unconditional and the respective obligations and liabilities of Tenant and Landlord hereunder shall in no way be released, discharged or otherwise affected for any reason, including without limitation: (a) any defect in the condition, merchantability, design, quality or fitness for use of the Leased Property or any part thereof, or the failure of the Leased Property to comply with Applicable Laws, including any inability to occupy or use the Leased Property by reason of such non-compliance; (b) any damage to, removal, abandonment, salvage, loss, condemnation, theft, scrapping or destruction of or any requisition or taking of the Leased Property or any part thereof, or any environmental condition on the Leased Property or any property in the vicinity of the Leased Property; (c) any restriction, prevention or curtailment of or interference with any use of the Leased Property or any part thereof, including eviction; (d) any defect in title to or rights to the Leased Property or any lien on such title or rights to the Leased Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by any Person; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Tenant or any other Person or any action taken with respect to this Agreement by any trustee or receiver of Tenant or any other Person or by any court, in any such proceedings; (g) any right or claim that Tenant has or might have against any Person, including, without limitation, Landlord or any vendor, manufacturer or contractor of or for the Leased Property (other than a claim resulting from any willful misconduct or gross negligence of Landlord); (h) any failure on the part of Landlord or any other Person to perform or comply with any of the terms of this Agreement, or of any other agreement; (i) any invalidity, unenforceability, rejection or disaffirmance of this Agreement by 18 operation of law or otherwise against or by Tenant or any provision hereof; (j) the impossibility of performance by Tenant or Landlord, or both; (k) any action by any court, administrative agency or other Government Agencies; (l) any interference, interruption or cessation in the use, possession or quiet enjoyment of the Leased Property or otherwise; or (m) any other occurrence whatsoever whether similar or dissimilar to the foregoing, whether foreseeable or unforeseeable, and whether or not Tenant shall have notice or knowledge of any of the foregoing. Except as specifically set forth in this Agreement, this Agreement shall be non-cancellable by Tenant for any reason whatsoever and, except as expressly provided in this Agreement Tenant, to the extent now or hereafter permitted by Applicable Laws, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Agreement or to any diminution, abatement or reduction of Rent payable hereunder. Except as specifically set forth in this Agreement, under no circumstances or conditions shall Landlord be expected or required to make any payment of any kind hereunder or have any obligations with respect to the use, possession, control, maintenance, alteration, rebuilding, replacing, repair, restoration or operation of all or any part of the Leased Property, so long as the Leased Property or any part thereof is subject to this Agreement, and Tenant expressly waives the right to perform any such action at the expense of Landlord pursuant to any law. 3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of Rent, charges or other compensation, or (b) of Tenant's other obligations hereunder shall be allowed to Tenant or any person claiming under Tenant, under any circumstances or for any reason whatsoever and to the maximum extent permitted by law, Tenant hereby waives the application of any local or state statutes, land rules, regulations or ordinance providing to the contrary. 3.9 INTENTIONALLY OMITTED 3.10 Tenant Security Deposit. On the Commencement Date Tenant shall deposit with Landlord in cash the sum of Seven Hundred Thirty-Eight Thousand Seven Hundred Seventy-One and No/100 Dollars ($738,771.00), as a security deposit (the "Security Deposit"), for Tenant's faithful performance of all of Tenant's obligations under this Agreement. If Tenant fails to pay Rent or Additional Charges due hereunder, fails to fund Reserve Expenditures which exceed available funds in the Reserve, or otherwise defaults with respect to any provision of this Agreement, then in addition to and not exclusive of any other remedies available under this Agreement, Landlord may use, apply or retain all or any portion of the Security Deposit for the payment of any Rent, the funding of Additional Charges or Reserve Expenditures or other charges in default, or for the payment of any sum to which Landlord may become obligated by reason of Tenant's default. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant performs all of Tenant's obligations hereunder, at the expiration of the Term, and after Tenant has vacated the Leased Property, the Security Deposit, or so much thereof as has not been applied or used by Landlord as provided in this Agreement, shall be returned to Tenant, without payment of interest or other increment for its use. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit. The Security Deposit shall be paid by Tenant to Landlord upon the Commencement Date. 19 3.11 Security for all ARC-Related Leases. Tenant acknowledges that the Security Deposit constitutes security for the faithful observance and performance by Tenant of all the terms, covenants and conditions of this Agreement and of all ARC-Related Leases (whether now in effect or entered into in the future) to be observed and performed. If any Event of Default shall occur and be continuing under this Agreement, Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply, first, the amount of the Security Deposit in accordance with the terms set forth herein and, second, the amount of any other security deposits under all ARC-Related Leases (herein the "Collective Security Deposit") as may be necessary to compensate Landlord toward the payment of the Rent or other sums due Landlord under this Agreement as a result of such breach by Tenant. Additionally, Landlord may, if any Event of Default shall occur and be continuing under any other ARC-Related Lease, appropriate and apply the Security Deposit after first applying the security deposit under such other ARC-Related Lease that is in default. It is understood and agreed that neither the Security Deposit nor the Collective Security Deposit is to be considered as prepaid rent, nor shall damages be limited to the amount of the Collective Security Deposit. 3.12 Security Agreement. Tenant hereby grants to Landlord a security interest in the Security Deposit and the Reserve as set forth below, as security for all obligations of the Guarantor and as further security for Tenant's obligations to Landlord hereunder, and agrees to execute and deliver all such instruments as may be required by Landlord to evidence and perfect these security interests. ARTICLE 4 USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS 4.1 Permitted Use. 4.1.1 Permitted Use. Tenant covenants and agrees that it shall, throughout the Term of this Agreement, continuously use and occupy the Leased Property solely and exclusively as a first class independent living facility (and, subject to Landlord's consent pursuant to Section 4.1.2 below, as a first class licensed assisted living and dementia care facility), and for such other uses as may be necessary or incidental to such use (such as services provided directly to residents by Tenant or under Service Licenses, as such term is defined below), with appropriate amenities for the same and for no other purpose without interruption except for minimum necessary interruptions in respect to portions of the Leased Property for periods provided herein for repairs, renovations, replacements and rebuilding all of which shall be carried out pursuant to, and in accordance with the applicable provisions of this Agreement (the foregoing being referred to as the "Permitted Use"). Without the prior written consent of the Landlord, no Affiliated Person of Tenant may be a subtenant or concessionaire in the Leased Property, provided however that Landlord hereby consents and agrees that a qualified and fully-insured Affiliated Person of Tenant may provide therapy and therapy-related services at the Facility for customary and appropriate charges. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any 20 insurance policy covering the Leased Property or any part thereof (unless another adequate policy is available), nor shall Tenant sell or otherwise provide or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. Tenant shall, at its sole cost, comply with all Insurance Requirements. Tenant shall not take or omit to take any action, the taking or omission of which materially impairs the value or the usefulness of the Leased Property or any part thereof for its Permitted Use, or causes the Leased Property to no longer be considered a first class facility. 4.1.2 Assisted Living Units Conversion. Landlord shall not unreasonably withhold its consent to the use of portions of the Leased Property for licensed assisted living residential purposes provided that Tenant first provides to Landlord direct written evidence that (i) Tenant has received all necessary government licenses and approvals required for such use; (ii) Tenant remains in compliance with all applicable terms and requirements under any Facility Mortgage and at Tenant's sole expense but with Landlord's good faith cooperation has obtained any and all consents and approvals as may be required thereunder in respect of any proposed change in use and related construction and alterations; (iii) all required alterations and improvements will be made in accordance with plans and specifications reasonably acceptable to Landlord at no cost, expense or liability to Landlord; (iv) Tenant has secured all necessary funds for the costs of such alternations and improvements (insuring completion on a lien-free basis) and to cover all revenue losses resulting from the construction and interim vacancy of the units to be converted; and (v) Tenant provides updated appraisal and cash flow analyses acceptable to Landlord reflecting that the value of the Leased Property and anticipated revenues and profits (cash flow) should not be diminished as a result of such changes and any related alterations. 4.1.3 Necessary Approvals. Tenant shall maintain all Permits and approvals necessary to use and operate, for its Permitted Use, the Leased Property and the Facility located thereon under Applicable Law and shall provide to Landlord a copy of Tenant's federal, state and Medicare survey regarding the Facility, and such other information or documents pertaining to said approvals. Landlord shall at no cost or liability to Landlord cooperate with Tenant in this regard, limited to executing all applications and consents required to be signed by Landlord in order for Tenant to obtain and maintain such approvals. 4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of the Leased Property or Tenant's Personal Property, if any, for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on the Leased Property, or in the Facility, nor shall Tenant cause or permit any unlawful nuisance thereon or therein. Tenant shall not suffer nor permit the Leased Property, or any portion thereof, to be used in such a manner as (i) might reasonably impair Landlord's title thereto or to any portion thereof, or (ii) might reasonably allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 21 4.1.5 Compliance with Legal Requirements. Tenant shall at all times at its sole cost and expense, keep and maintain the Leased Property in compliance with all Legal Requirements. Tenant agrees to give Landlord Notice of any notices, orders or other communications relating to Legal Requirements affecting the Leased Property which is or are enacted, passed, promulgated, made, issued or adopted, a copy of which is served upon, or received by, Tenant, or a copy of which is posted on or fastened or attached to the Leased Property, within ten (10) business days after service, receipt, posting, fastening or attaching. At the same time, the Tenant will inform Landlord as to the work or steps which Tenant proposes to do or take in order to comply therewith. 4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant shall at all times during the Term keep the Leased Property free of Hazardous Substances. Neither Tenant nor any of its employees, agents, invitees, licensees, contractors, guests, or subtenants (if permitted) shall use, generate, manufacture, refine, treat, process, produce, store, deposit, handle, transport, release, or dispose of Hazardous Substances in, on or about the Leased Property or the groundwater thereof, in violation of any federal, state or municipal law, decision, statute, rule, ordinance or regulation currently in existence or hereafter enacted or rendered. Tenant shall give Landlord prompt Notice of any claim received by Tenant from any person, entity, or Governmental Agencies that a release or disposal of Hazardous Substances has occurred on the Leased Property or the groundwater thereof. Tenant shall not discharge or permit to be discharged into any septic facility or sanitary sewer system serving the Leased Property any toxic or hazardous sewage or waste other than that which is permitted by Applicable Law or which is normal domestic waste water for the type of business contemplated by this Agreement to be conducted by Tenant on, in or from the Leased Property. Any toxic or hazardous sewage or waste which is produced or generated in connection with the use or operation of the Leased Property shall be handled and disposed of as required by and in compliance with all applicable local, state and federal laws, ordinances and rules or regulations or shall be pre-treated to the level of domestic wastewater prior to discharge into any septic facility or sanitary sewer system serving the Leased Property. 4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent payable by Tenant to Landlord under this Agreement have been established at the levels specified in this Agreement upon the premise and with the expectation that the Minimum Rent and Percentage Rent may determine the market value of the Leased Property and constitute a material consideration for Landlord's willingness to execute this Agreement and thereby lease and demise the Leased Property to Tenant, and (b) that the operation, management, franchising or ownership by Tenant or an Affiliated Person of Tenant of another Facility of the Permitted Use as specified in Section 4.1.1 above (such other Facility being referred to herein as a "Conflicting Business") within a ten (10) mile radius of the Leased Property (the "Proscribed Area") will tend to result in a decrease in the amount of Total Facility Revenue which would otherwise reasonably be expected to be made upon, within and from the Leased Property and thereby result in a reduction of the market value of the Leased Property and a reduction in the Rent which would otherwise be received by Landlord pursuant to this Agreement in the absence of the operation of a Conflicting Business by Tenant or any such Affiliated Person of Tenant within the Proscribed Area. Accordingly, Tenant on behalf of itself and such Affiliated Persons, agrees that during the Term of this Agreement 22 neither Tenant, nor any Affiliated Person of Tenant shall open, develop, operate, manage, franchise, own, lease or have any other interest in a Conflicting Business within the Proscribed Area. In the event of a breach of this covenant, Landlord shall have the right to terminate this Agreement and retain the Security Deposit, and pursue any other remedy at law available to Landlord, including injunctive relief, or in lieu thereof but not in addition thereto, Landlord may, at its election, require that forty percent (40%) of all revenues (calculated in the same manner as if such revenues were Total Facility Revenue) of such Conflicting Business opened, operated, managed, leased, developed or owned by Tenant or any affiliated person of Tenant as defined in this Section within the Proscribed Area be included in the amount of Total Facility Revenue made from the Leased Property for purposes of the determination and calculation of the Percentage Rent due from Tenant to Landlord under this Agreement (i.e., as though such Total Facility Revenue of the Conflicting Business had actually been made upon, within and from the Leased Property). If Landlord so elects, all provisions of Article 17 of this Agreement relating to Tenant's maintenance and submission to Landlord of books, records and statements shall be applicable to all books, records and statements pertaining to any such Conflicting Businesses. Further, Tenant agrees that Tenant's sole business shall be to lease, and Tenant shall not incur any expenses or liability related to any business or activity other than leasing and operating, the Leased Property and other premises owned or hereinafter owned by Landlord or its Affiliated Persons pursuant to terms acceptable to Landlord and Tenant. Landlord will not unreasonably withhold its consent to a waiver of this Conflicting Business restriction for any Conflicting Business which is approximately five (5) or more miles away so long as Landlord is provided with evidence reasonably acceptable to it that the proposed Conflicting Business is not likely to draw from the demographic base otherwise available to support full occupancy of the Facility and/or a revenue protection agreement acceptable to Landlord with respect to adverse affects on Facility occupancy or residents tied to the Facility's identified demographic base served at the Conflicting Business. 4.4 Continuous Operations. Tenant shall continuously operate the Leased Property and maintain sufficient skilled staff and employees, either directly or through a qualified manager approved by Landlord, and shall maintain adequate levels and quality of Tenant's Personal Property, to operate the Leased Property as a first class independent living facility (and, subject to Landlord's consent pursuant to Section 4.1.2 above, as a first class licensed assisted living and dementia care facility) as herein required at its sole cost and expense throughout the entire Term of this Agreement. 4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall comply with all restrictive covenants and other title exceptions affecting the Leased Property as of the date of this Lease and comply with and perform all of the obligations set forth in the same to the extent that the same are applicable to the Leased Property or to the extent that the same would, if not complied with or performed, impair or prevent the continued use, occupancy and operation of the Leased Property for the purposes set forth in this Agreement. Further, in addition to Tenant's payment obligations under this Agreement, Tenant shall pay all sums charged, levied or assessed under any restrictive covenants, declaration, reciprocal easement agreement or other title exceptions (not including obligations of Landlord only under the GMACCMC Loan Documents identified in Exhibit "K" hereto), equipment leases, leases and all other agreements affecting the Leased Property as of the date of this Lease promptly as the same become due and shall promptly furnish Landlord evidence of payment thereof. 23 4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant shall continuously operate the Leased Property in full compliance with the terms hereof in a manner consistent with the level of operation of a national, first class independent living or licensed assisted living and dementia care facility, as applicable, including without limitation, the following: (a) to maintain the standard of care for the residents/patients of the Facility at all times at a level necessary to ensure quality care for the residents/patients of the Facility in accordance with customary and prudent industry standards; (b) to operate the Facility in a prudent manner and in compliance with applicable laws and regulations relating thereto and cause all Permits, Reimbursement Contracts and any other agreements necessary for the use and operation of the Facility or as may be necessary for participation in applicable reimbursement programs; (c) to maintain sufficient P&E and Inventories, and Tenant Personal Property, of types and quantities at the Facility to enable Tenant adequately to perform operations of the Facility; and (d) to keep all Leased Improvements and P&E located on or used or useful in connection with the Facility in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needed and proper repairs, renewals, replacements, additions and improvements thereto to keep the same in good operating condition. (e) to maintain sufficient working capital to operate the Leased Property as a first class facility (working capital shall mean assets which are reasonably necessary and used for the day to day operation of the Leased Property, including, without limitation, amounts sufficient for the maintenance of change and petty cash funds, amounts deposited in operating bank accounts, receivables, prepaid expenses, and funds required to maintain Inventories and pay all operating expenses as they become due, less accounts payable and accrued current liabilities). (f) to operate and use the Leased Property to a standard consistent with national chain first class independent living or licensed assisted living and dementia care facilities, as applicable, at least equal to or better in quality than independent living and licensed assisted living and dementia care facilities (as applicable) operated by Guarantor and its Affiliated Persons at the Commencement Date, and to operate the Facility only under the Guarantor's name, trademarks, logos and service marks, with all required licenses and permits for such operation, if any. (g) to follow and conform to all of the same operating, employment, marketing, insurance, risk management and management standards and practices 24 employed at first class independent living and licensed assisted living and dementia care facilities (as applicable) operated by Guarantor and its Affiliated Persons. (h) to recruit, train and employ appropriate personnel, or retain management services from Guarantor or other qualified operator or service-provider approved by Landlord for same. (i) to provide prompt written notice to Guarantor and to Landlord of material or extraordinary developments, lawsuits, violation of any Legal Requirements and fines relating to the use and operation of the Facility. Throughout the term of the Lease, Tenant shall continuously operate the Leased Property as a national, first-class independent living and/or licensed assisted living and dementia care facility (as applicable) in the manner set forth above, and to a standard consistent with national chain, first-class independent living and licensed assisted living and dementia care facilities (as applicable) at least equal to or better in quality than independent living and licensed assisted living and dementia care facilities (as applicable) operated currently by Guarantor under Guarantor's name, trademarks, logos and service marks. Tenant shall endeavor and use its best efforts to maximize Total Facility Revenue for the Leased Property. Tenant shall further provide, or cause to be provided, all group services, facilities and benefits generally available to a national chain, first-class independent living and licensed assisted living and dementia care facilities (as applicable) of a similar type operated elsewhere by Guarantor or any successor to Guarantor (or by other national operators of first-class independent living and licensed assisted living and dementia care facilities, such as those operated by Marriott Senior Living Services). 4.7 Resident Agreements and Service Licenses. Tenant shall comply in all material respects with the terms and provisions of each agreement and undertaking entered into with or provided to the residents of the Facility ("Resident Agreements"), including without limitation to fulfill or cause to be fulfilled all undertakings and representations regarding the use, condition and operation of the Facility and services to provided the residents and the standards and services of and benefits to be provided by the Guarantor and its Affiliated Persons. In addition, Tenant shall comply in all material respects with the terms and conditions of any contract or license entered into with respect to the provision of services to the residents at the Facility ("Service Licenses"). 4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that Tenant is obligated to undertake such actions as are reasonably necessary to properly achieve the highest standard of operation for the Facility as set forth herein, and that although Landlord shall have the right to undertake all enforcement rights as provided herein in the event that the required standard of operation is not maintained by Tenant, the means and methods used and actions taken to operate the Facility are within the sole control and election of Tenant, and are not specified by or under the control of Landlord. Accordingly, Landlord shall have no responsibility for any action taken by Tenant in order to manage or operate the Facility. 4.9 Survival. As to conditions and uses of Tenant existing or occurring prior to the expiration or sooner termination of this Agreement, the provisions of this Article 4 shall survive 25 the expiration or sooner termination of this Agreement to extent of any ongoing effects on Landlord or its successors with respect to the Facility (specifically including the prohibitions relating to conflicting businesses under Section 4.3. ARTICLE 5 MAINTENANCE AND REPAIRS 5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep the Leased Property in good order and repair, and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term and whether or not necessitated by wear, tear, obsolescence or defects, latent or otherwise, and shall use all reasonable precautions to prevent damage or injury. All repairs shall be made in a good, workmanlike manner, consistent with the industry standards for like independent living and licensed assisted living and dementia care facilities, as applicable, in like locales, in accordance with all applicable federal, state and local statutes, ordinances, by-laws, codes, rules and regulations relating to any such work. In addition, Tenant shall also, at its sole cost and expense, put, keep, replace and maintain Tenant's Personal Property in good repair and in good, safe and substantial order, howsoever the necessity or desirability for repairs may occur, and whether or not necessitated by wear, tear, obsolescence or defects. Tenant may at any time and from time to time remove and dispose of any of Tenant's Personal Property which has become obsolete or unfit for use or which is no longer useful in the operation of the Facility's business conducted by Tenant on the Leased Property; provided, however, that Tenant's Personal Property so disposed of shall be promptly replaced with other Tenant's Personal Property not necessarily of the same character, but of at least equal usefulness and quality as, and having a value at least equal to the value of, those disposed of, and in any event in accordance with and in compliance with the standards required by and the provisions of this Agreement. Tenant shall further at all times maintain the Leased Property, including the grounds and landscaping, in an aesthetically pleasing manner. 5.2 Reserve. 5.2.1 Tenant shall establish an interest bearing reserve account (the "Reserve") in a bank designated by Tenant and approved by Landlord. All interest earned on the Reserve shall be added to and remain a part of the Reserve. Both Tenant and Landlord shall be signatories on the Reserve, provided only one signature shall be required to withdraw funds and Landlord agrees that so long as Tenant is not in default hereunder, Landlord shall not be required to sign on any checks and Landlord shall not withdraw any funds from such account. Upon the occurrence and continuation of any Default or Event of Default hereunder the Tenant signatory party shall no longer be an authorized signatory on the Reserve account. Such account shall be established in Landlord's name and control for the benefit of Tenant and shall not include or contemplate "overdraft protection" and Tenant shall not request or attempt to draw or draft any funds which are not actually on deposit in such account. The purpose of the Reserve is to cover the cost 26 of the following, to the extent carried out in accordance with this Agreement (collectively, "Reserve Expenditures"): (a) Replacements (including P&E Replacements), renewals and additions to the P&E at the Facility; and (b) repairs, alterations, improvements, renewals, replacements and additions, whether routine, non-routine or major, to the Leased Improvements, including without limitation those which are normally capitalized under GAAP such as repairs, alterations, improvements, renewals, replacements and additions to the structure, the exterior facade, the mechanical, electrical, heating, ventilating, air conditioning, plumbing and vertical transportation elements of the Leased Improvements, which expenditures Tenant believes should be made for the Leased Property for the following Fiscal Year. 5.2.2 Commencing with the Commencement Date and continuing throughout the Term, Tenant shall on the last day of each Accounting Period during the Term, transfer into the Reserve an amount equal to the Applicable Reserve Percentage of Total Facility Revenues for such Accounting Period (based upon estimates of Total Facility Revenue if necessary, to be adjusted as soon as Tenant has had an opportunity to confirm actual Total Facility Revenue). At the time Tenant provides Landlord the documentation described in Section 3.3, Tenant shall also deliver to Landlord a statement setting forth the total amount of deposits made to and expenditures from the Reserve for the preceding Fiscal Year. 5.2.3 On or before December 1 of each Fiscal Year, Tenant shall prepare an estimate (the "Reserve Estimate") of Reserve Expenditures anticipated during the ensuing Fiscal Year and shall submit such Reserve Estimate to Landlord for its review. Such Reserve Estimate shall reflect by line item the projected budget for Reserve Expenditures for the Leased Property and assumptions on the basis of which such line items were prepared in narrative form if necessary, including separate budget items for all projected expenditures for replacements, substitutions and additions to Tenant's Personal Property. Tenant shall provide to Landlord reasonable additional detail, information and assumptions used in the preparation of the Reserve Estimate as requested by Landlord and shall also submit to Landlord with the Reserve Estimate good faith longer-range projections of planned Reserve Expenditures for an additional three (3) Fiscal Years. Tenant shall review the Reserve Estimate with Landlord, and subject to Landlord's approval, Tenant shall implement such Reserve Estimate for the successive Fiscal Year (during which it shall, if approved by Landlord, be referred to as the "Approved Reserve Estimate"). In addition, Landlord shall have the right to disapprove any expenditures to be made pursuant to the Reserve Estimate which are not in compliance with Applicable Laws. Further, Landlord's approval of any expenditure pursuant to the Reserve Estimate shall not be, or be deemed to be, an assumption by Landlord of any liability in connection with the expenditures made. Pending resolution of any dispute, the specific disputed item of the Reserve Estimate shall be suspended and replaced for the Fiscal Year in question by an amount equal to the lesser of (a) that proposed by Tenant for such Fiscal Year or (b) such budget item for the Fiscal Year prior thereto. Tenant shall not make any 27 expenditures from the Reserve, nor shall Tenant deviate from the Approved Reserve Estimate without the prior approval of Landlord, except in the case of emergency where immediate action is necessary to prevent imminent danger to person or property. 5.2.4 Tenant shall, consistent with the Approved Reserve Estimate, from time to time make Reserve Expenditures from the Reserve as it reasonably deems necessary in accordance with Section 5.2.1 and Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days after the end of each Fiscal Quarter, an itemized statement setting forth Reserve Expenditures made to date during the Fiscal Year. 5.2.5 In the event Reserve Expenditures not set forth in the Approved Reserve Estimate are required (i) as a result of Legal Requirements or are otherwise required for the continued safe and orderly operation of the Leased Property, (ii) due to an emergency threatening the Leased Property, its residents, patients, guests, invitees or employees, or (iii) because the continuation of a given condition will subject Tenant or Landlord to civil or criminal liability, Landlord agrees that it will not unreasonably withhold its approval of such expenditures. 5.2.6 All interest earned on the Reserve shall be added to and become a part thereof, and all property purchased with funds from the Reserve shall be and remain the property of Tenant until the end of the Term of the Lease or earlier expiration or termination of this Agreement (subject to Landlord's lien rights hereunder), at which time all P&E at the Leased Property, including without limitation all P&E Replacements or other items purchased with funds from the Reserve (but not including Tenant's Personal Property except as specifically provided herein) shall be and become the sole property of Landlord. All funds in the Reserve shall be and remain the property of Tenant throughout the Lease Term, subject to the control rights and liens and security interests of Landlord, but following expiration or earlier termination of this Agreement and payment in full on all contracts entered into prior to such expiration or termination for work to be done or furniture, furnishings, fixtures and equipment to be supplied in accordance with this Section 5.2 out of the Reserve, ownership of the Reserve shall be transferred from Tenant to Landlord except (provided Tenant is not in Default at the time of termination) to the extent of the amount, if any, by which Tenant's cumulative cash expenditures on P&E used solely at the Leased Property (not including any of Tenant's Personal Property which is not used at the Leased Property throughout the useful life thereof), less all amounts received upon any disposition thereof, exceeds the cumulative amount deposited by Tenant into the Reserve. It is understood and agreed that the Reserve pursuant to this Agreement shall be maintained and used solely in connection with the Leased Property. 5.2.7 If Landlord wishes to grant a security interest in or create another encumbrance on its interest in the Reserve in connection with a Facility Mortgage, all or any part of the existing or future funds therein, or any general intangible in connection therewith, the instrument granting such security interest or creating such other encumbrance shall expressly provide that such security interest or encumbrance is prior in right to the rights of Tenant with respect to the Reserve as set forth herein, provided that the same is subject to a Tenant non-disturbance agreement as provided herein and the 28 Mortgagee thereunder agrees to be responsible to Tenant and to properly disburse all amounts of the Reserve received by it for use and disposition as provided herein. 5.2.8 If, at any time, funds in the Reserve shall be insufficient or are reasonably projected by Tenant to be insufficient for necessary and permitted expenditures thereof or funding is necessary for Reserve Expenditures, Tenant shall give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required or permitted action and the estimated cost thereof, and Tenant shall thereafter fund such additional Reserve Expenditures. ARTICLE 6 IMPROVEMENTS, ETC. 6.1 Prohibition. Except for work funded by Reserve Expenditures and Minor Alterations as hereinafter expressly provided in Section 6.2, no portion of the Leased Property shall be demolished, removed or altered by Tenant in any manner whatsoever without the prior written consent and approval of Landlord. Notwithstanding the foregoing, however, Tenant shall be entitled and obligated to undertake all alterations to the Leased Property required by any Legal Requirements and, in such event, Tenant shall comply with the provisions of Section 6.2 below. 6.2 Permitted Renovations. The activities permitted pursuant to Section 6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted Renovations". 6.2.1 Minor Alterations. Landlord acknowledges that certain minor alterations and renovations may be undertaken by Tenant from time to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall be entitled to perform such Minor Alterations on or about the Leased Improvements; provided, however, that the cost of the same shall not exceed $20,000.00 and the same shall not weaken or impair the structural strength of the Leased Improvements, or alter their exterior design or appearance, materially impair the use of any of the service facilities located in, or fundamentally affect the character or suitability of, the Leased Improvements for the Permitted Use specified in Section 4.1.1 above or materially lessen or impair their value. 6.2.2 Additions, Expansions and Structural Alterations. Except as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing in this Article 6 or elsewhere in this Agreement shall be deemed to authorize Tenant to construct and erect any additions to or expansions of the Leased Improvements, or perform any alterations of a structural nature whatsoever (collectively referred to herein as the "Major Alterations"); it being understood that Tenant may do so only with the prior written consent and approval of Landlord, which consent and approval may be withheld by Landlord in its sole and absolute discretion and may be conditioned upon the payment by Tenant to Landlord of all reasonable costs incurred by Landlord in evaluating the same. 29 6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations. In connection with any Reserve Expenditures, Permitted Renovations or Major Alterations of the Leased Property the following conditions shall be met, to wit: (a) Before the commencement of any such work, plans and specifications therefor or a detailed itemization thereof prepared by a licensed architect approved by Landlord or other design professional appropriate under the circumstances approved by Landlord and Tenant shall be furnished to Landlord for its review and approval. Such approval shall not constitute Landlord's agreement that the plans and specification are in compliance with Applicable Laws or an assumption by Landlord of any liability in connection with the renovation work contemplated thereby. (b) Before the commencement of any such work Tenant shall obtain the approval thereof by all Governmental Agencies having or claiming jurisdiction of or over the Leased Property, and with any public utility companies having an interest therein. In connection with any such work Tenant shall comply with all Legal Requirements and Applicable Laws, of all other Governmental Agencies having or claiming jurisdiction of or over the Leased Property and of all their respective departments, bureaus and offices, and with the requirements and regulations, if any, of such public utilities, of the insurance underwriting board or insurance inspection bureau having or claiming jurisdiction, or any other body exercising similar functions, and of all insurance companies then writing policies covering the Leased Property or any part thereof. (c) Tenant represents and warrants to Landlord that all such work will be performed in a good and workmanlike manner and in accordance with the plans and specifications therefor approved by Landlord, the terms, provisions and conditions of this Agreement and all governmental requirements. (d) Landlord shall have the right, at Tenant's expense, to inspect any such work at all times during normal working hours using such inspector(s) as it may deem necessary so long as such inspections do not unreasonably interfere with Tenant's work (but Landlord shall not thereby assume any responsibility for the proper performance of the work in accordance with the terms of this Agreement, nor any liability arising from the improper performance thereof). (e) All such work shall be performed free of any liens on Landlord's fee simple interest on or Tenant's leasehold interest in the Leased Property. (f) Upon substantial completion of any such work, Tenant shall procure a certificate of occupancy or other final approvals, if applicable, from the appropriate Governmental Agencies and provide copies of same to Landlord. (g) Tenant shall, and hereby agrees to, indemnify and save and hold Landlord and its Affiliated Parties harmless from and against and reimburse Landlord for any and all loss, damage, cost, liability, fee and expense (including, 30 without limitation, reasonable attorney's fees based upon service rendered at hourly rates) incurred by or asserted against Landlord which is occasioned by or results, directly or indirectly, from any such work conducted upon the Leased Property; whether or not the same is caused by, or is the fault of Tenant or any agent, employee, manager, contractor, subcontractor, laborer, supplier, materialman or any other third party; but Tenant shall not be obligated to indemnify Landlord from any loss as aforesaid caused by Landlord's gross negligence or willful misconduct. 6.4 Salvage. Other than Tenant's Personal Property, all materials which are scrapped or removed in connection with maintenance and repair performed pursuant to Article 5 and the making of Permitted Renovations pursuant to Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any, shall be deposited in the Reserve. ARTICLE 7 LANDLORD'S INTEREST NOT SUBJECT TO LIENS 7.1 Liens, Generally. Tenant shall not, directly or indirectly, create or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's assets, properties or income or any portion thereof, or upon the interest of Landlord therein, any Lien of any nature whatsoever. If, because of any act or omission of Tenant, any such Lien shall be imposed, claimed or filed by any party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause the same to be promptly (and in no event later than thirty (30) days following receipt of notice of such Lien) fully paid and satisfied or otherwise promptly discharged of record (by bonding or otherwise) and Tenant shall indemnify and save and hold Landlord harmless from and against any and all costs, liabilities, suits, penalties, claims and demands whatsoever, and from and against any and all reasonable attorney's fees, at both trial and all appellate levels, resulting or on account thereof and therefrom. In the event that Tenant shall fail to comply with the foregoing provisions of this Section 7, Landlord shall have the option, but not the obligation, of paying, satisfying or otherwise discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse Landlord, upon demand and as Additional Rent, for all sums so paid and for all costs and expenses incurred by Landlord in connection therewith, together with interest thereon, until paid. 7.2 Construction or Mechanics Liens. Landlord's interest in the Leased Property shall not be subjected to Liens of any nature by reason of Tenant's construction, alteration, renovation, repair, restoration, replacement or reconstruction of any improvements on or in the Leased Property, or by reason of any other act or omission of Tenant (or of any person claiming by, through or under Tenant) including, but not limited to, construction, mechanics' and materialmen's liens. All persons dealing with Tenant are hereby placed on notice that such persons shall not look to Landlord or to Landlord's credit or assets (including Landlord's interest in the Leased Property) for payment or satisfaction of any obligations incurred in connection with the construction, alteration, renovation, repair, restoration, replacement or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right or authority to subject Landlord's interest in the Leased Property to any construction, mechanic's or materialmen's lien or claim of 31 lien. If a Lien, a claim of lien or an order for the payment of money shall be imposed against the Leased Property on account of work performed, or alleged to have been performed, for or on behalf of Tenant, Tenant shall, within thirty (30) days after written notice of the imposition of such Lien, claim or order, cause the Leased Property to be released therefrom by the payment of the obligation secured thereby or by furnishing a bond or by any other method prescribed or permitted by law. If a Lien is released, Tenant shall thereupon furnish Landlord with a written instrument of release which has been recorded or filed in the appropriate office of land records of the County in which the Leased Property is located, and otherwise sufficient to establish the release as a matter of record. 7.3 Contest of Liens. Tenant may, at its option, contest the validity of any Lien or claim of lien if Tenant shall have first posted an appropriate and sufficient bond in favor of the claimant or paid the appropriate sum into court, if permitted by and in strict compliance with Applicable Laws, and thereby obtained the release of the Leased Property from such Lien. If judgment is obtained by the claimant under any Lien, Tenant shall pay the same immediately after such judgment shall have become final and the time for appeal therefrom has expired without appeal having been taken. Tenant shall, at its own expense, using counsel reasonably approved by Landlord, diligently defend the interests of Tenant and Landlord in any and all such suits; provided, however, that Landlord may, nonetheless, at its election and expense, engage its own counsel and assert its own defenses, in which event Tenant shall cooperate with Landlord and make available to Landlord all information and data which Landlord deems necessary or desirable for such defense. 7.4 Notices of Commencement of Construction. If required by the laws of the State in which the Leased Property is located, prior to commencement by Tenant of any work on the Leased Property which shall have been previously permitted by Landlord as provided in this Agreement, Tenant shall record or file a notice of the commencement of such work or similar notice required by Applicable Law (the "Notice of Commencement") in the land records of the County in which the Leased Property is located, identifying Tenant as the party for whom such work is being performed, stating such other matters as may be required by law and requiring the service of copies of all notices, Liens or claims of lien upon Landlord. Any such Notice of Commencement shall clearly reflect that the interest of Tenant in the Leased Property is that of a leasehold estate and shall also clearly reflect that the interest of Landlord as the fee simple owner of the Leased Property shall not be subject to construction, mechanics or materialmen's liens on account of the work which is the subject of such Notice of Commencement. A copy of any such Notice of Commencement shall be furnished to and approved by Landlord and its attorneys prior to the recording or filing thereof, as aforesaid. ARTICLE 8 TAXES AND ASSESSMENTS 8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term, Tenant shall bear, pay and discharge as Additional Charges and not later than the last day on which payment may be made without penalty or interest, any and all taxes, assessments, charges, levies, 32 fees (including, without limitation, license, permit, inspection, authorization and similar fees) and other impositions and charges of every kind and nature whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each and every installment thereof which shall or may during or with respect to the Term hereof be charged, laid, levied, assessed, or imposed upon, or arise in connection with, the use, occupancy, operation or possession of the Leased Property or any part thereof or the business conducted thereon, including, without limitation, ad valorem real and personal property taxes, all taxes charged, laid, levied, assessed or imposed in lieu of or in addition to any of the foregoing by virtue of all present or future laws, ordinances, requirements, orders, directions, rules or regulations of Governmental Agencies, and all assessments and charges imposed pursuant to the Permitted Encumbrances (other than obligations of Landlord only under the GMACCM Loan Documents as described in Exhibit "K" hereto) or other documents of record affecting title to the Leased Property (provided however that such documents have been approved by Tenant, which approval shall not unreasonably be withheld, delayed or conditioned provided that the same are appropriate and reasonably necessary in connection with the normal and ordinary course of ownership and use of the Facility), whether or not such Additional Charges become due and payable during or after the Term. Notwithstanding the foregoing, Tenant shall not be responsible for Additional Charges due and payable after the expiration of the Term to the extent that the same relate and apply interests and benefits accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly furnish to Landlord satisfactory evidence of the payment of all such taxes, assessments, impositions or charges. Tenant shall have no right to approve, nor shall Tenant be obligated for any amounts due by virtue of, any Facility Mortgage or other documents relating to indebtedness of Landlord. 8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing, Tenant shall have the right, after prior written notice to Landlord, to contest at its own expense the amount and validity of any taxes affecting the Leased Property by appropriate proceedings under Applicable Law conducted in good faith and with due diligence and to postpone or defer payment thereof, provided and so long as: (a) Such proceedings shall operate to suspend the collection of such taxes with respect to the Leased Property; (b) Neither the Leased Property nor any part thereof would be in immediate danger of being forfeited or lost by reason of such proceedings, postponement or deferment; and (c) Tenant shall have furnished Landlord with security for payment of the contested taxes which is satisfactory to Landlord, and, in the event that the preconditions set forth in (a) and (b) above are no longer met, Landlord shall have the right to draw upon such security to pay and discharge the taxes in question and any liens against the Leased Property arising thereunder. 8.3 Tax and Insurance Escrow Account. In the event Tenant fails to timely pay any tax, assessment, imposition or charge required to be paid by Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice to Tenant effective as of the date of such notice, to require Tenant to pay or cause to be paid into a separate account (the "Tax and Insurance Account") to be established by Tenant with a lending institution designated by Landlord (which 33 Tax and Insurance Account shall not be removed from such lending institution without the express prior approval of Landlord), and which Landlord may draw upon, a reserve amount sufficient to discharge the obligations of Tenant under Section 8.1 and Article 9 hereof (other than worker's compensation insurance premiums) with respect to real estate taxes and insurance premiums for the applicable Fiscal Year as and when they become due (such amounts, the "Tax and Insurance Escrow Amount"). During each month commencing with the first full calendar month following the receipt of said notice from Landlord, Tenant shall deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance Escrow Amount so that as each installment of insurance premiums and real estate taxes becomes due and payable, there are sufficient funds in the Tax and Insurance Account to pay the same. If the amount of such insurance premiums and real estate taxes has not been definitively ascertained by Tenant at the time when any such monthly deposit is to be paid, Landlord shall require payment of the Tax and Insurance Escrow Amount based upon the amount of premiums and real estate taxes paid for the preceding year, subject to adjustment as and when the amount of such premiums and real estate taxes are ascertained by Tenant. The Tax and Insurance Escrow Amount in the Tax and Insurance Account shall be and constitute additional security for the performance of Tenant's obligations hereunder and shall be subject to Landlord's security interest therein and shall, if there are sufficient funds in escrow, be used to pay taxes and insurance premiums when due. Landlord and Tenant shall execute such documentation as may be necessary to create and maintain Landlord's security interest in the Tax and Insurance Account. ARTICLE 9 INSURANCE 9.1 General Insurance Requirements. Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of the Leased Property, keep the Leased Property and all property located therein or thereon, insured against the following risks in the following amounts: (a) "All-risk" property insurance (and to the extent applicable, Builder's Risk Insurance) on the Leased Improvements and all items of business personal property, including but not limited to signs, awnings, canopies, gazebos, fences and retaining walls, and all P&E, including without limitation, insurance against loss or damage from the perils under "All Risk" (Special) form, including but not limited to the following: fire, windstorm, sprinkler leakage, vandalism and malicious mischief, water damage, explosion of steam boilers, pressure vessels and other similar apparatus, and other hazards generally included under extended coverage, all in an amount equal to one hundred percent (100%) of the replacement value of the Leased Improvements (excluding excavation and foundation costs), business personal property and P&E, without a co-insurance provision, and shall include an Agreed Value endorsement; (b) Ordinance or Law Coverage with limits of not less than the Leased Improvements for Coverage A (Loss to the undamaged portion of the building), limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and limits not less than $500,000.00 for Coverage C (Increased Cost of Construction Coverage); 34 (c) Business income insurance to be written on "Special Form" (and on "Earthquake" and "Flood" forms if such insurance for those risks is required) including "Extra Expense", without a provision for co-insurance, including an amount sufficient to pay at least twelve (12) months of Rent for the benefit of Landlord, as its interest may appear, and at least twelve (12) months of "Net Operating Income" less Rent for the benefit of Tenant; (d) Occurrence form commercial general liability insurance, including bodily injury and property damage, liquor liability (if applicable), fire legal liability, contractual liability and independent contractor's hazard and completed operations coverage in an amount not less than $1,000,000.00 per occurrence and $2,000,000.00 per location, aggregate; (e) Umbrella liability coverage which shall be on a following form for the General Liability, Automobile Liability, Employers' Liability, Malpractice and Liquor Liability (if applicable), with limits in a minimum amount of not less than $20,000,000.00 per occurrence/aggregate; (f) Malpractice insurance/professional liability insurance in an amount not less than $5,000,000.00 for each person and each occurrence to cover the professional medical care providers working on the Leased Property; (g) Flood insurance (if the Leased Property is located in whole or in part within an area identified as an area having special flood hazards under the National Flood Insurance Program) for the full (100%) replacement value of the improvements and all items of business personal property or any greater amount as may be required by the National Flood Insurance Program; (h) Worker's compensation coverage for all persons employed by Tenant on the Leased Property with statutory limits, and Employers' Liability insurance in an amount of at least $1,000,000.00 per accident/disease; (i) Business auto liability insurance, including owned, non-owned and hired vehicles for combined single limit of bodily injury and property damage of not less than $1,000,000.00 per occurrence; (j) [Intentionally Omitted]; (k) "Earthquake" insurance, if the Leased Property is currently, or at any time in the future, located within a major earthquake disaster area, in amount, and in such form and substance and with such limits and deductibles as are satisfactory to Landlord; and (l) Crime insurance covering employee theft in an amount not less than $1,500,000. (m) Such additional insurance or increased insurance limits as may be reasonably required, from time to time, by Landlord (including, without limitation, any mortgage, security agreement or other financing permitted hereunder and then affecting the Leased Property, as well as any declaration, ground lease or easement agreement affecting the Leased Property), or any Mortgagee, provided the same is customarily carried by a majority of comparable independent living and/or licensed assisted living and dementia care facilities (as applicable) in the area. 35 Without limiting the generality of the foregoing Section 9.1(m), the required commercial liability insurance and umbrella liability coverage limits and deductible amounts pertaining thereto as set forth in this Article 9 shall in no event provide less coverage (lower limits or higher deductibles) than the "Comparable Insurance Coverage" carried on any of the other independent living or licensed assisted living and dementia care facilities, as applicable, leased or owned by Tenant and Guarantor and their Affiliated Persons, and the insurance coverage for the Leased Property shall immediately be increased by Tenant to equal any greater or increased "Comparable Insurance Coverage" carried or obtained for such other facilities. For purposes of the foregoing, "Comparable Insurance Coverage" shall mean insurance coverage levels adjusted for relevant variations in risk and insurability characteristics between the insured facilities being compared, including without limitation consideration of variations in insurance coverages carried by Guarantor and its Affiliated Persons between different insurance markets (states or other jurisdictional subdivisions) where insured risks or insurance pricing or availability varies materially. Tenant shall use all reasonable efforts to obtain increased umbrella liability coverage of not less than $50,000,000 per occurrence/aggregate, and decreased liability insurance deductibles, at such time as the same can be obtained at commercially reasonable or economically feasible rates for the Leased Property. Until such increased coverages are obtained the Tenant shall provide to Landlord a thorough annual update and review of the overall liability insurance coverage program and strategy for Tenant and Guarantor and their Affiliated Persons, which shall include an analysis of market rates for the current and desired liability insurance coverages. In addition, Tenant shall have the right to provide commercial general liability insurance coverage on a "claims made" basis, so long as the general liability insurance coverages otherwise required hereunder are maintained or continued in existence at all times throughout the Lease Term for all periods that Tenant or its Affiliates have had any ownership or use of the Leased Property, and evidence thereof has been provided to Landlord. 9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof. 9.3 General Provisions. The Facility's allocated chargeback/deductible for general liability insurance shall not exceed $1,000,000 for independent living or assisted living and $1,000,000 for Memory Impaired, to the extent commercially available, and $350,000.00 for workmen's compensation insurance, to the extent commercially available, unless any greater amounts are agreeable to both Landlord and Tenant. The Facility's property insurance deductible shall not exceed $25,000.00 unless such greater amount is agreeable to both Landlord and Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is mandated by the insurance carrier. All insurance policies pursuant to this Article 9 shall be issued by insurance carriers having a general policy holder's rating of no less than A-/VII in Best's latest rating guide, and shall contain clauses or endorsements to the effect that (a) Landlord shall not be liable for any insurance premiums thereon or subject to any assessments thereunder, and (b) the coverages provided thereby will be primary and any insurance carried by any additional insured shall be excess and non-contributory to the extent of the indemnification obligation pursuant to Section 9.5 below. All such policies described in Section 9.1 shall name Landlord, CRC and CNL Retirement and any Mortgagee whose name and address has been provided to Tenant as 36 additional insureds, loss payees, or mortgagees, as their interests may appear and to the extent of their indemnity. All loss adjustments shall be payable as provided in Article 10. Tenant shall deliver certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, no less than thirty (30) days prior to the expiration of the existing policy), which certificates shall state the nature and level of coverage reported thereby, as well as the amount of the applicable deductible. Upon Landlord's request, duplicate original copies of all insurance policies to be obtained by Tenant shall be provided to Landlord by Tenant. All such policies shall provide Landlord (and any Mortgagee whose name and address has been provided to Tenant if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy. In the event Tenant shall fail to effect such insurance as herein required, to pay the premiums therefor or to deliver such certificates to Landlord or any Mortgagee at the times required, Landlord shall have the right, but not the obligation, subject to the provisions of Section 12.4, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Rent, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid. 9.4 Blanket Policy. Notwithstanding anything to the contrary contained in this Article 9, Tenant's obligation to maintain the insurance herein required may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, so long as such policies otherwise meet all requirements under this Article 9. 9.5 Indemnification of Landlord. Except as expressly provided herein, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property of third parties occurring on or about the Leased Property or adjoining sidewalks or rights of way under Tenant's control, and (b) any use, misuse, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by Governmental Agencies relating to such use, misuse, condition, management, maintenance, or repair thereof to which Landlord is made a party; provided, however, that Tenant's obligations hereunder shall not apply to any liability, obligation, claim, damage, penalty, cause of action, cost or expense arising from any gross negligence or willful misconduct of Landlord, its employees, agents, contractors or invitees. Any such claim, action or proceeding asserted or instituted against Landlord covered under this indemnity shall be defended by counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's expense. Notwithstanding the foregoing, indemnification with respect to Hazardous Substances is governed by Section 4.3. The obligations of Tenant under this Section 9.5 shall survive the expiration or any early termination of this Agreement. 37 ARTICLE 10 CASUALTY 10.1 Restoration and Repair. If during the Term the Leased Property shall be totally or partially destroyed and thereby rendered Unsuitable for Its Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord or Tenant may, by the giving of Notice thereof to the other party within sixty (60) days after such casualty occurs, terminate this Agreement, whereupon Landlord shall be entitled to retain the insurance proceeds payable on account of such damage and Tenant shall pay to Landlord the amount of any deductible. Tenant further expressly acknowledges, understands and agrees that in the event that the Agreement is terminated as aforesaid, Landlord may settle any insurance claims and Tenant shall, upon request of Landlord, cooperate in any such settlement. If during the Term, the Leased Property shall be destroyed or damaged in whole or in part by fire, windstorm or any other cause whatsoever, but the Leased Property either (i) is not rendered Unsuitable for Its Permitted Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord nor Tenant terminate this Agreement in the manner provided above, then, Tenant shall give Landlord immediate Notice thereof and Tenant shall, subject to the provisions of Section 10.2 below, repair, reconstruct and replace the Leased Property, or the portion thereof so destroyed or damaged, at least to the extent of the value and character thereof existing immediately prior to such occurrence and in compliance with all Legal Requirements, including any alterations to the Leased Property required to be made by any Governmental Agencies due to any changes in code or building regulations (which Tenant acknowledges may increase the replacement value of the Leased Property which Tenant will then be required to insure, due to any changes in code or building regulations). All such restoration work shall be started as promptly as practicable and diligently completed at Tenant's sole cost and expense (using available insurance proceeds). Tenant shall, however, immediately take such action as is necessary to assure that the Leased Property (or any portion thereof), does not constitute a nuisance or otherwise present or constitute a health or safety hazard. Notwithstanding the foregoing the Tenant shall have the right to elect not to repair any material casualty damage (estimated to cost greater than $250,000 to repair) occurring within twelve (12) months prior to the scheduled expiration of the then-current Term, provided and on the condition that: (i) Tenant promptly pays to Landlord the full amount of all deductibles applying to the insured loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee also receive and retain all insurance proceeds; (ii) Tenant has provided adequate assurance that applicable business interruption insurance will continue to be available through the end of the then-current Term to cover all resulting loss of income or else adequate security therefor as requested by Landlord; and (iii) Tenant, at Tenant's sole cost and expense, properly secures and protects and preserves any damaged portion of the Facility in such a fashion as to insure the safety of all Facility Residents, guest, invitees and others (to the extent that such persons are reasonably expected to continue to occupy or come upon the relevant portions of the Leased Property), and the value of the affected improvements. 10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is not otherwise terminated pursuant to Section 10.1, then in the event of a casualty resulting in a loss to the Leased Improvements and/or P&E in an amount greater than Fifty Thousand and No/100 Dollars ($50,000.00) (as determined by an architect or engineer selected by Landlord), the 38 proceeds of all insurance policies maintained by Tenant shall be deposited in Landlord's name in an escrow account at a bank or other financial institution designated by Landlord, and shall be used by Tenant for the repair, reconstruction or restoration of the Leased Property to its original condition. Tenant shall, at the time of establishment of such escrow account and from time to time thereafter until said work shall have been completed and paid for, furnish Landlord with adequate evidence acceptable to Landlord that at all times the undisbursed portion of the escrowed insurance proceeds, together with any funds made available by Tenant, is sufficient to pay for the repair, reconstruction or restoration in its entirety. Landlord may, at its option, require, prior to advancement of said escrowed insurance proceeds (i) approval of plans and specifications by an architect or other design professional appropriate under the circumstances and approved by Landlord and Tenant (which approval shall not be unreasonably withheld or delayed), (ii) general contractors' estimates, (iii) architect's certificates, (iv) unconditional lien waivers of general contractors, if available, (v) evidence of approval by all Governmental Agencies and other regulatory bodies whose approval is required, and (vi) such other terms as a Mortgagee or lender of Landlord may reasonably require. The escrowed insurance proceeds shall be disbursed by Landlord, not more than monthly, upon (i) certification of the architect or engineer selected by Landlord and having supervision of the work that such amounts are the amounts paid or payable for the repair, reconstruction or restoration and (ii) submittal by Tenant of a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord). Tenant shall obtain, and make available to Landlord, receipted bills and, upon completion of said work, full and final waivers of lien. In the event of a casualty resulting in a loss payment for the Leased Improvements in an amount equal to or less than the amount stated above, the proceeds shall be paid to Tenant, and shall be applied towards repair, reconstruction and restoration. Any and all loss adjustments with respect to losses payable hereunder shall require the prior written consent of Landlord. All salvage resulting from any risk covered by insurance shall belong to Tenant, provided any rights to the same have been waived by the insurer. In addition, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall pay for all repairs, reconstruction or alterations up to the full amount of such deductible (and provide evidence of such payment to Landlord by documentation reasonably acceptable to Landlord) before any insurance proceeds are used for repairs, reconstruction or alterations. 10.3 No Abatement of Rent. Unless terminated in accordance with the provisions of Section 10.1 above, this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all Additional Charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any casualty to the Leased Property (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder). The provisions of this Article 10 shall be considered an express agreement governing any event of casualty involving the Leased Property and, to the maximum extent permitted by law, Tenant hereby waives the application of any local or state statute, law, rule, regulation or ordinance in effect during the Term which provides for such abatement. 10.4 Tenant's Property and Business Interruption Insurance. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property and the business interruption insurance maintained for the benefit of Tenant shall be paid to Tenant; 39 provided, however, no such payments shall diminish or reduce the insurance payments otherwise payable to or for the benefit of Landlord hereunder. 10.5 Restoration of Tenant's Property. If Tenant is required to restore the Leased Property as hereinabove provided, Tenant shall either (i) restore all alterations and improvements made by Tenant and Tenant's Personal Property, or (ii) replace such alterations and improvements and Tenant's Personal Property with improvements or items of the same or better quality and utility in the operation of the Leased Property. 10.6 Waiver. Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property and agrees that its rights shall be limited to those set forth in Section 10.1. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation, Etc. If the whole of the Leased Property shall be taken or condemned for any public or quasi-public use or purpose, by right of eminent domain or by purchase in lieu thereof, or if a substantial portion of the Leased Property shall be so taken or condemned that the portion or portions remaining is or are not sufficient and suitable, in the mutual reasonable judgment of Landlord and Tenant, for the continued operation thereof as required herein, so as to effectively render the Leased Property Unsuitable for Its Permitted Use, then this Agreement and the Term hereby granted shall cease and terminate (without prejudice to Landlord's and Tenant's respective rights to an award under Section 11.3 below), as of the date on which the Condemnor takes possession and all Rent shall be paid by Tenant to Landlord up to that date or refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond that date. 11.2 Partial Condemnation. If a portion of the Leased Property is taken, and the portion or portions remaining can, in the mutual reasonable judgment of Landlord and Tenant, be adapted and used for the conduct of Tenant's business operation in accordance with the terms of this Agreement, such that the Leased Property is not effectively rendered Unsuitable for Its Permitted Use, then the Tenant shall, utilizing condemnation proceeds paid to Landlord from the Condemnor, promptly restore the remaining portion or portions thereof to a condition comparable to their condition at the time of such taking or condemnation, less the portion or portions lost by the taking, and this Agreement shall continue in full force and effect except that the Rent payable hereunder shall, if necessary, be equitably adjusted to take into account the proportionate reduction in the number of licensed beds or living units located on the Leased Property as a result of the taking. 11.3 Disbursement of Award. The entire award for the Leased Property or the portion or portions thereof so taken shall be apportioned between Landlord and Tenant as follows: (a) if this Agreement terminates due to a taking or condemnation, Landlord shall be entitled to the entire award; provided, however, that any portion of the award expressly made for the taking of 40 Tenant's leasehold interest in the Leased Property, loss of business during the remainder of the Term, and the taking of Tenant's Personal Property shall be the sole property of and payable to Tenant, and (b) if this Agreement does not terminate due to such taking or condemnation, Tenant shall be entitled to the award to the extent required for restoration of the Leased Property, and Landlord shall be entitled to the balance of the award not applied to restoration. In any condemnation proceedings, Landlord and Tenant shall each seek its own award in conformity herewith, at its own expense. If this Agreement does not terminate due to a taking or condemnation, Tenant shall, with due diligence, restore the remaining portion or portions of the Leased Property in the manner hereinabove provided. In such event, the proceeds of the award to be applied to restoration shall be deposited with a bank or financial institution designated by Landlord as if such award were insurance proceeds, and the amount so deposited will thereafter be treated in the same manner as insurance proceeds are to be treated under Section 10.2 of this Agreement until the restoration has been completed and Tenant has been reimbursed for all the costs and expenses thereof. If the award is insufficient to pay for the restoration, Tenant shall be responsible for the remaining cost and expense of such restoration. 11.4 No Abatement of Rent. This Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Leased Property. The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving the Leased Property and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such abatement shall have any application in such case. 11.5 Disputes. If Landlord and Tenant cannot agree in respect of any matters to be determined under this Article, a determination shall be requested of the court having jurisdiction over the taking or condemnation; provided, however, that if said court will not accept such matters for determination, either party may have the matters determined by a court otherwise having jurisdiction over the parties. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. Each of the following events shall be an Event of Default hereunder by Tenant and shall constitute a breach of this Agreement: (a) If Tenant shall fail to (i) pay, when due, any Rent or any Additional Charge due hereunder; (ii) fully fund and maintain the Security Deposit as required by Section 3.11; or (iii) fully fund and maintain the Reserve and fund all Reserve Expenditures as required by Section 5.2, and such failure in each such event shall continue for a period of five (5) days after such amounts become due and payable. 41 (b) If Tenant shall violate or fail to comply with or perform any other term, provision, covenant, agreement or condition to be performed or observed by Tenant under this Agreement which is not otherwise identified in this Section 12.1, and such violation or failure shall continue for a period of thirty (30) days after written notice thereof from Landlord; provided, however, if such violation or failure is incapable of cure by Tenant within such thirty (30) days after Tenant's diligent and continuous efforts to cure the same, Tenant shall have an additional period of sixty (60) days to cure the same. (c) If any assignment, transfer, sublease or encumbrance shall be made or deemed to be made that is in violation of the provisions of this Agreement. (d) If Tenant shall cease the actual and continuous operation of the business contemplated by this Agreement to be conducted by Tenant upon the Leased Property (and such cessation is not the result of casualty, condemnation or renovation and accompanying restoration or is not otherwise permitted by Landlord or is not the result of a legal requirement or during an emergency); or if Tenant shall vacate, desert or abandon the Leased Property; or if the Leased Property shall become empty and unoccupied; or if the Leased Property or Leased Improvements are used or are permitted to be used for any purpose, or for the conduct of any activity, other than the Permitted Use. (e) If, at any time during the Term of this Agreement, Tenant or Guarantor shall file in any court, pursuant to any statute of either the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization or arrangement, or for the appointment of a receiver or trustee of all or any portion of Tenant's or Guarantor's property, including, without limitation, the leasehold interest in the Leased Property, or if Tenant or Guarantor shall make an assignment for the benefit of its creditors or petitions for or enters into an arrangement with its creditors. (f) If, at any time during the Term of this Agreement, there shall be filed against Tenant or Guarantor in any court pursuant to any statute of the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization, or for the appointment of a receiver or trustee of all or a portion of Tenant's or Guarantor's property, including, without limitation, the leasehold interest in the Leased Property, and any such proceeding against Tenant or Guarantor shall not be dismissed within sixty (60) days following the commencement thereof. (g) If Tenant's leasehold interest in the Leased Property or any property therein (including without limitation Tenant's Personal Property and the P&E Replacements) shall be seized under any levy, execution, attachment or other process of court where the same shall not be vacated or stayed on appeal or otherwise within thirty (30) days thereafter, or if Tenant's leasehold interest in the Leased Property is sold by judicial sale and such sale is not vacated, set aside or stayed on appeal or otherwise within thirty (30) days thereafter. (h) If any of the Facility's Permits material to the Facility's operation for its Permitted Use are at any time suspended and the suspension is not stayed pending appeal 42 within five (5) days, or voluntarily terminated without the prior written consent of Landlord. (i) If any Governmental Agencies having jurisdiction over the operation of the Facility removes ten percent (10%) or more of the total number of patients or residents located in the Facility at the time of such removal. (j) If Tenant voluntarily transfers ten (10) or more patients or residents located in the Facility in any one (1) year period (except as necessitated by a casualty), provided that any such transfer to a different type of care facility as a result of such patient's or resident's special needs that cannot be met at the Facility shall not be deemed a voluntary transfer. (k) If Tenant fails to give notice to Landlord not later than ten (10) days after Tenant's receipt of any fine notice from any Government Agency relating to a Major Violation at the Facility. (l) If Tenant fails to notify Landlord within twenty-four (24) hours after receipt of any notice from any Governmental Agency terminating or suspending or reflecting a material risk of an imminent termination or suspension, of any material Permit relating to the Facility. (m) If Tenant fails during the Term of this Lease to cure or abate any Major Violation occurring during the Term that is claimed by any Governmental Agency of any law, order, ordinance, rule or regulation pertaining to the operation of the Facility, and within the time permitted by such authority for such cure or abatement. (n) The failure of Tenant to correct, within the time deadlines set by any Governmental Agency, any deficiency which would result in the following actions by such agency with respect to the Facility: (i) a termination of any Reimbursement Contract or any Permit material to the operation of the Facility; or (ii) the issuance of a stop placement order or ban on new admissions generally. (o) If a final unappealable determination is made by applicable state authorities of the revocation or limitation of any Permit required for the lawful operation of the Leased Property in accordance with its Permitted Use or there occurs the loss or material limitation of any Permit under any other circumstances under which Tenant is required to cease its operation of the Leased Property in accordance with its Permitted Use at the time of such loss or limitation. (p) If Tenant or the Facility should be assessed fines or penalties by any state health or licensing agency having jurisdiction over such Persons or the Facility in excess of $25,000.00 in any Fiscal Year. 43 (q) If Tenant or Guarantor or an Affiliated Person of Tenant or Guarantor shall default under any other ARC-Related Lease (whether now in effect or entered into in the future) and shall fail to cure such default in the time period provided for in that lease. (r) If Guarantor shall default under the Guaranty and any such default shall remain uncured through any applicable notice and cure period thereunder. 12.2 Remedies on Default. If any of the Events of Default hereinabove specified shall occur, Landlord, at any time thereafter, shall have and may exercise any of the following rights and remedies: (a) Landlord may, pursuant to written notice thereof to Tenant, immediately terminate this Agreement and, peaceably or pursuant to appropriate legal proceedings, re-enter, retake and resume possession of the Leased Property for Landlord's own account without liability for trespass (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and, for Tenant's breach of and default under this Agreement, recover immediately from Tenant any and all sums and damages due or in existence at the time of such termination, including, without limitation, (i) all Rent and other sums, charges, payments, costs and expenses agreed and/or required to be paid by Tenant to Landlord hereunder prior to such termination, (ii) all costs and expenses of Landlord in connection with the recovery of possession of the Leased Property, including reasonable attorney's fees based upon services rendered at hourly rates and court costs, and (iii) all costs and expenses of Landlord in connection with any reletting or attempted reletting of the Leased Property or any part or parts thereof, including, without limitation, brokerage fees, advertising costs, reasonable attorney's fees based upon services rendered at hourly rates based upon service rendered at hourly rates and the cost of any alterations or repairs or tenant improvements which may be reasonably required to so relet the Leased Property, or any part or parts thereof. (b) Landlord may, pursuant to any prior notice required by law, and without terminating this Agreement, peaceably or pursuant to appropriate legal proceedings, re-enter, retake and resume possession of the Leased Property for the account of Tenant, make such alterations of and repairs and improvements to the Leased Property as may be reasonably necessary in order to relet the same or any part or parts thereof and, directly or through a qualified management or operating company which may include an Affiliated Person of Landlord, operate and manage the Leased Property, and relet or attempt to relet the Leased Property or any part or parts thereof for such term or terms (which may be for a term or terms extending beyond the Term of this Agreement), at such rents and upon such other terms and provisions as Landlord, in its sole discretion, may deem advisable. If Landlord takes possession and control of the Leased Property and operates the same, Tenant shall, for so long as Landlord is actively operating the Leased Property, have no obligation to operate the Leased Property but agrees that Landlord, any contract manager or operator, or any new tenant or sublessee may, to the extent permitted by law, operate the Facility under Tenant's Permits, including its Medicaid and Medicare provider agreements, if any, until same are issued in the name of the Landlord or the new manager/operator or tenant or sublessee, as applicable. If Landlord relets or attempts to 44 relet the Leased Property, or obtains a contract manager or operator for the Leased Property, Landlord shall at its sole discretion determine the terms and provisions of any new lease or sublease, or management or operating agreement, and whether or not a particular proposed manager or operator, or new tenant or sublessee, is acceptable to Landlord. Upon any such reletting, or the operation of the Leased Property by a contract manager or operator, all rents or incomes received by the Landlord from such reletting or otherwise from the operation of the Leased Property shall be applied, (i) first, to the payment of all costs and expenses of recovering possession of the Leased Property, (ii) second, to the payment of any costs and expenses of such reletting and or operation, including brokerage fees, advertising costs, reasonable attorney's fees based upon service rendered at hourly rates, a management fee of between five percent (5%) and ten percent (10%) of the gross revenues generated, and the cost of any alterations and repairs reasonably required for such reletting or operation of the Leased Property; (iii) third, to the payment of any indebtedness, other than Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the payment of all Rent and other sums due and unpaid hereunder, and (v) fifth, the residue, if any, shall be held by the Landlord and applied in payment of future Rent as the same may become due and payable hereunder. If the rents received from such reletting or net income from the operation of the Leased Property during any period shall be less than the Rent and Additional Charges required to be paid during that period by the Tenant hereunder, Tenant shall promptly pay any such deficiency to the Landlord and failing the prompt payment thereof by Tenant to Landlord, Landlord shall immediately be entitled to institute legal proceedings for the recovery and collection of the same. Such deficiency shall be calculated and paid at the time each payment of Minimum Rent, Percentage Rent or any other sum shall otherwise become due under this Agreement, or, at the option of Landlord, at the end of the Term of this Agreement. Landlord shall, in addition, be immediately entitled to sue for and otherwise recover from Tenant any other damages occasioned by or resulting from any abandonment of the Leased Property or other breach of or default under this Agreement other than a default in the payment of Rent. No such re-entry, retaking or resumption of possession of the Leased Property by the Landlord for the account of Tenant shall be construed as an election on the part of Landlord to terminate this Agreement unless a written notice of such intention shall be given to the Tenant or unless the termination of this Agreement be decreed by a court of competent jurisdiction. Notwithstanding any such re-entry and reletting or attempted reletting of the Leased Property or any part or parts thereof for the account of Tenant without termination, Landlord may at any time thereafter, upon written notice to Tenant, elect to terminate this Agreement or pursue any other remedy available to Landlord for Tenant's previous breach of or default under this Agreement. (c) Landlord may, without re-entering, retaking or resuming possession of the Leased Property, sue for all Rent and all other sums, charges, payments, costs and expenses due from Tenant to Landlord hereunder (discounted to present value) either: (i) as they become due under this Agreement, taking into account that Tenant's right and option to pay the Rent hereunder on a monthly basis in any particular Fiscal Year is conditioned upon the absence of a Default on Tenant's part in the performance of its obligations under this Agreement, or (ii) at Landlord's option, accelerate the maturity and 45 due date of the whole or any part of the Rent for the entire then-remaining unexpired balance of the Term of this Agreement, as well as all other sums, charges, payments, costs and expenses required to be paid by Tenant to Landlord hereunder, including, without limitation, damages for breach or default of Tenant's obligations hereunder in existence at the time of such acceleration, such that all sums due and payable under this Agreement shall, following such acceleration, be treated as being and, in fact, be due and payable in advance as of the date of such acceleration. Landlord may then proceed to recover and collect all such unpaid Rent and other sums so sued for from Tenant by distress, levy, execution or otherwise. Regardless of which of the foregoing alternative remedies is chosen by Landlord under this subparagraph (c), Landlord shall not be required to relet the Leased Property nor exercise any other right granted to Landlord pursuant to this Agreement, nor, except as may be required by Applicable Laws, shall Landlord be under any obligation to minimize or mitigate Landlord's damages or Tenant's loss as a result of Tenant's breach of or default under this Agreement. Notwithstanding the foregoing, following such time as Landlord may obtain possession of the Leased Property, Landlord or its successor Landlord at the time of any Lease termination, shall continue to make the Leased Property available for lease, on an "as is" basis, and shall turn over the net proceeds thereof to Tenant to the extent actually received by Landlord in respect of any time period for which Landlord shall have received the full amount of Rent payable with respect thereto (albeit perhaps on a basis reasonably discounted for the time value of money or present-value basis). (d) Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property or any portion thereof and take possession of (i) any and all of Tenant's Personal Property, if any, (ii) Tenant's books and records necessary to operate the Leased Property, and (iii) all the bank accounts concerning, or established for, the Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same by public or private sale, after giving Tenant reasonable notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant's Personal Property, if any, unless otherwise prevented by law. Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given at least ten (10) days before the date of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such Property (including reasonable attorneys' fees based upon services rendered at hourly rates) shall be credited against Rent which is due hereunder. (e) Tenant acknowledges that one of the rights and remedies available to Landlord under Applicable Law is to apply to a court of competent jurisdiction for the appointment of a receiver to collect the rents, issues, profits and income of the Leased Property and to manage the operation of the Leased Property. Tenant hereby further acknowledges that the revocation, suspension or material limitation of any certification of the Leased Property for provider status under Medicare or Medicaid (or successor programs), if applicable, and/or the revocation, suspension or material limitation of any licenses for the use of the Leased Property as an independent living or licensed assisted living and dementia care facility, as applicable, under the laws of the State will materially 46 and irreparably impair the value of Landlord's investment in the Leased Property. Therefore, in any of such events, and in addition to any other right or remedy of Landlord under this Agreement, Landlord may petition any appropriate court for appointment of a receiver to manage the operation of the Leased Property (or any portion thereof as to which Tenant has suffered the revocation, suspension or material limitation of any license), to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible the operating license and provider certification of the Leased Property or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for his services as receiver. All such fees and other expenses of the receivership estate shall be payable as Additional Charges under this Agreement. Tenant hereby irrevocably stipulates to the appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. (f) In addition to the remedies hereinabove specified and enumerated, Landlord shall have and may exercise the right to invoke any other remedies allowed at law or in equity as if the remedies of re-entry, unlawful detainer proceedings and other remedies were not herein provided. Accordingly, the mention in this Agreement of any particular remedy shall not preclude Landlord from having or exercising any other remedy at law or in equity. Nothing herein contained shall be construed as precluding the Landlord from having or exercising such lawful remedies as may be and become necessary in order to preserve the Landlord's right or the interest of the Landlord in the Leased Property and in this Agreement, even before the expiration of any notice periods provided for in this Agreement, if under the particular circumstances then existing the allowance of such notice periods will prejudice or will endanger the rights and estate of the Landlord in this Agreement and in the Leased Property. In addition, any provision of this Agreement to the contrary notwithstanding, no provision of this Agreement shall delay or otherwise limit Landlord's right to seek injunctive relief or Tenant's obligation to comply with any such injunctive relief. 12.3 Application of Funds. Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant's current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default in the performance of any term, provisions, covenant or condition on its part to be performed hereunder, Landlord may, but shall have no obligation to perform the same for the account and at the expense of Tenant. If, at any time and by reason of such default, Landlord is compelled to pay, or elects to pay, any sum of money or do any act which will require the payment of any sum of money, or is compelled to incur any expense in the enforcement of its rights hereunder or otherwise, such sum or sums, together with interest thereon at the Overdue Rate shall be deemed Additional Rent hereunder and shall be repaid to Landlord by Tenant promptly when billed therefor, and Landlord shall have all the same rights and remedies in respect thereof as Landlord has in respect of the rents herein reserved. 47 12.5 Landlord's Lien. Landlord shall have at all times during the Term of this Agreement, a valid lien for all rents and other sums of money becoming due hereunder from Tenant, upon all goods, accounts, wares, merchandise, inventory, furniture, fixtures, equipment, vehicles and other personal property and effects of Tenant situated in or upon the Leased Property, including Tenant's Personal Property and any interest of Tenant in P&E Replacements, but specifically excluding the trade names "ARC," "American Retirement Corporation," or any derivation or replacement thereof or addition thereto applied by Affiliated Persons of Guarantor to other facilities, and such property shall not be removed therefrom except in accordance with the terms of this Agreement without the approval and consent of Landlord until all arrearages in Rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged in full. Alternatively, the lien hereby granted may be foreclosed in the manner and form provided by law for foreclosure of security interests or in any other manner and form provided by law. The statutory lien for Rent, if any, is not hereby waived and the express contractual lien herein granted is in addition thereto and supplementary thereto. Tenant agrees to execute and deliver to Landlord from time to time during the Term of this Agreement such Financing Statements as may be required by Landlord in order to perfect the Landlord's lien provided herein or granted or created by state law. Tenant further agrees that during an Event of Default, Tenant shall not make any distributions to its shareholders, partners, members or other owners and any such distributions shall be considered and deemed to be fraudulent and preferential and subordinate to Landlord's claim for Rent and other sums hereunder. ARTICLE 13 HOLDING OVER If Tenant or any other person or party shall remain in possession of the Leased Property or any part thereof following the expiration of the Term or earlier termination of this Agreement without an agreement in writing between Landlord and Tenant with respect thereto, the person or party remaining in possession shall be deemed to be a tenant at sufferance, and during any such holdover, the Rent payable under this Agreement by such tenant at sufferance shall be double the rate or rates in effect immediately prior to the expiration of the Term or earlier termination of this Agreement. In no event, however, shall such holding over be deemed or construed to be or constitute a renewal or extension of this Agreement. ARTICLE 14 LIABILITY OF LANDLORD; INDEMNIFICATION 14.1 Liability of Landlord. Landlord and its affiliates shall not be liable to Tenant, its employees, agents, invitees, licensees, customers, clients, residents and their respective family members or guests for any damage, injury, loss, compensation or claim, including, but not limited to, claims for the interruption of or loss to Tenant's business, based on, arising out of or resulting from any cause whatsoever (other than Landlord's gross negligence or willful misconduct), including, but not limited to: (a) repairs to any portion of the Leased Property; (b) 48 interruption in Tenant's use of the Leased Property; (c) any accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons) of any equipment within the Leased Property, including without limitation, heating, cooling, electrical or plumbing equipment or apparatus; (d) the termination of this Agreement by reason of the condemnation or destruction of the Leased Property in accordance with the provisions of this Agreement; (e) any fire, robbery, theft, mysterious disappearance or other casualty; (f) the actions of any other person or persons; and (g) any leakage or seepage in or from any part or portion of the Leased Property, whether from water, rain or other precipitation that may leak into, or flow from, any part of the Leased Property, or from drains, pipes or plumbing fixtures in the Leased Improvements. Any goods, property or personal effects stored or placed by the Tenant or its employees in or about the Leased Property including Tenant's Personal Property, shall be at the sole risk of the Tenant. 14.2 Indemnification of Landlord. Tenant shall defend, indemnify and save and hold Landlord harmless from and against any and all liabilities, obligations, losses, damages, injunctions, suits, actions, fines, penalties, claims, demands, costs and expenses of every kind or nature, including reasonable attorneys' fees and court costs, incurred by Landlord, arising directly or indirectly from or out of: (a) any failure by Tenant to perform any of the terms, provisions, covenants or conditions of this Agreement, on Tenant's part to be performed including but not limited to the payment of any fee, cost or expense which Tenant is obligated to pay and discharge hereunder, (b) any accident, injury or damage which shall happen at, in or upon the Leased Property, however occurring; (c) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by any person of the Leased Property, or any part thereof, or the operation of the business contemplated by this Agreement to be conducted thereon, thereat, therein, or therefrom; (d) any failure of Tenant to comply with the Legal Requirements; (e) any contamination of the Leased Property, or the groundwaters thereof, arising on or after the date Tenant takes possession of the Leased Property and occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any toxic or hazardous chemicals, compounds, materials or substances, whether by Tenant or by any agent or invitee of Tenant; (f) any discharge of toxic or hazardous sewage or waste materials from the Leased Property into any septic facility or sanitary sewer system serving the Leased Property arising on or after the date Tenant takes possession of the Leased Property, whether by Tenant or by any agent of Tenant; or (g) any other act or omission of Tenant, its employees, agents, invitees, customers, licensees or contractors, provided, however, Tenant shall not be liable for or be obligated to indemnify Landlord from and against any damages resulting from Landlord's gross negligence or willful misconduct. THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE, UNLESS SPECIFICALLY OTHERWISE PROVIDED. Tenant's indemnity obligations under this Article and elsewhere in this Agreement arising prior to the termination or permitted assignment of this Agreement shall survive any such termination or assignment. 49 14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of any claim, action, proceeding or suit instituted or threatened against Tenant or Landlord of which Tenant receives notice or of which Tenant acquires knowledge. In the event Landlord is made a party to any action for damages or other relief against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its own expense using counsel reasonably approved by Landlord, diligently defend Landlord, pay all costs in such litigation or, at Landlord's option, and expense, Landlord may nonetheless engage its own counsel in connection with its own defense or settlement of said litigation in which event Tenant shall cooperate with Landlord and make available to Landlord all information and data which Landlord deems necessary or desirable for such defense. In the event Landlord is required to secure its own counsel due to a conflict in the interests of Tenant and Landlord in any action for damages or other relief against which Tenant has indemnified Landlord, Tenant shall pay all of Landlord's costs in such litigation. Tenant is required to approve a settlement agreement for any such claim or suit as requested by Landlord and which is consistent with applicable insurance company requirements, unless Tenant posts a bond or other security acceptable to Landlord for any potentially uninsured liability amounts. 14.4 Limitation on Liability of Landlord. In the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against the Landlord's interest in the Leased Property. In no event shall any partner, member, officer, director, stockholder or shareholder of Landlord or any partner thereof or Affiliated Person or Subsidiary thereof, be personally liable for the obligations of Landlord hereunder. ARTICLE 15 REIT AND UBTI REQUIREMENTS Tenant understands that, in order for Landlord to qualify as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), the following requirements must be satisfied. The parties intend that amounts to be paid by Tenant hereunder and received or accrued, directly or indirectly, by Landlord with respect to the Leased Property (including any rents attributable to personal property that is leased with respect thereto) will qualify as "rents from real property" (within the meaning of Code Section 856(d) and Section 512(b)(3)), and that neither party will take, or permit to take, any action that would cause any amount received by the Landlord under this Agreement to fail to qualify as such under the Code. Consistent with this intent, the parties agree that: 15.1 Limitations on Rents Attributable to Personal Property. "Rents attributable to any personal property" leased to the Tenant cannot exceed fifteen percent (15%) of the total rent received or accrued by Landlord under this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the average of the adjusted tax bases of the personal property (within the meaning set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury Regulations) that is leased to Tenant with respect to the Leased Property at the beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the average of the aggregate adjusted tax bases of the real and personal property comprising such Leased Property that is leased to Tenant under such lease 50 at the beginning and end of such Fiscal Year (the "REIT Personal Property Limitation"). If Landlord reasonably anticipates that the REIT Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good faith the purchase by Tenant of items of personal property anticipated by Landlord to be in excess of the Personal Property Limitation. Provided, however, that Tenant's responsibility to purchase such personal property will be offset by Landlord in some mutually agreeable manner, which would not result in the Landlord earning income which would constitute "unrelated business taxable income" within the meaning of Section 512 of the Code, if the Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of the Code. 15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the property that is leased to it by Landlord, or enter into any similar arrangement, on any basis such that the rental or other amounts paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee or (b) any other formula such that any portion of the rent paid by Tenant to Landlord would fail to qualify as "rent from real property" within the meaning of Section 856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder. 15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary in this Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or enter into any similar arrangement with, any person in which Landlord owns, directly or indirectly, a ten percent (10%) or more interest, with the meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed void ab initio. Anything to the contrary in this Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or enter into any similar arrangement with, any Person that Landlord would be deemed to control within the meaning of Section 512 (b)(13) of the Code. 15.4 Landlord Interests in Tenant Restricted. Anything to the contrary in this Agreement notwithstanding, neither party shall take, or permit to take, any action that would cause Landlord to own, directly or indirectly, a ten percent (10%) or greater interest in the Tenant within the meaning of Section 856(d)(2)(B) of the Code, and any similar or successor provision thereto, and any such action shall be deemed void ab initio. In addition, anything to the contrary in this Agreement notwithstanding, Tenant shall not take or permit to take, any action that would cause Landlord to own, directly or indirectly, such interest in Tenant such that amounts received from Tenant would represent amounts received from a controlled entity within the meaning of Section 512(b)(13) of the Code. 15.5 Rents from Personal Property Restricted. Rents attributable to personal property within the meaning of Treasury Regulation Section 1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good faith the purchase by Tenant of items of personal property anticipated by Landlord to be in excess of the UBTI Personal Property Limitation; provided, However, that Tenant's responsibility to purchase such personal property will be offset by Landlord in some mutually agreeable manner which will 51 not result in the Landlord earning income which would constitute "unrelated business taxable income" within the meaning of Section 512 of the Code if the Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of the Code. 15.6 Landlord Services. Any services provided by, or on behalf of, Landlord will not prevent any amounts received or accrued from qualifying as "Rents from real property" (within the meaning of Section 856(d)(2) or Section 512(b)(3) of the Code). 15.7 Certain Subtenants Prohibited. Anything to the contrary in this Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or enter into any similar arrangement with, any Person that would be described in Section 514(c)(9)(B)(iii) or (iv) of the Code. 15.8 Future Amendment. Tenant hereby agrees to amend this Article 15 from time to time as Landlord deems necessary or desirable in order to effectuate the intent hereof. ARTICLE 16 SUBLETTING AND ASSIGNMENT 16.1 Transfers Prohibited Without Consent. Tenant shall not, without the prior written consent of Landlord in each instance which may be withheld in Landlord's sole opinion and discretion, sell, assign or otherwise transfer this Agreement, or Tenant's interest in the Leased Property together with all interests of Tenant in all property of any nature located and used at the Leased Property (including without limitation Tenant's Personal Property and the P&E Replacements), in whole or in part, or any rights or interest which Tenant may have under this Agreement, or sublet any part of the Leased Property, or grant or permit any lien or encumbrance on or security interest in Tenant's interest in this Agreement; notwithstanding the foregoing, Tenant shall be permitted to grant sublease, rental or other occupancy rights in the Facility to individual residents in connection with the operation of the Leased Property in accordance with the Permitted Use. Notwithstanding the foregoing, Tenant may sell, assign or otherwise transfer this Agreement, or Tenant's interest in the Leased Property, in whole but not in part, without the consent of the Landlord, to an Affiliated Person or to Guarantor provided (i) Tenant gives Landlord prior written notice of such sale or assignment, (ii) Tenant shall remain liable under this Agreement for the remaining Term, and (iii) such assignee or purchaser shall continue to operate the Leased Property as a first-class independent living and/or licensed assisted living and dementia care facility, as applicable, consistent with other independent living and licensed assisted living and dementia care facilities (as applicable) being operated by Guarantor and its Affiliated Persons. Landlord shall not, without the prior written consent of Tenant in each instance which may be withheld in Tenant's sole opinion and discretion, sell, assign or otherwise transfer this Agreement, or Landlord's interest in the Leased Property, in whole or in part, or any rights or interest which Landlord may have under this Agreement, either directly or indirectly in the form of a Facility Mortgage as contemplated under Article 19 hereof, to a direct competitor of Tenant 52 or Guarantor. In the event that a direct competitor of Tenant or Guarantor becomes a Mortgagee of the Leased Property the subordination provisions of Section 19.1 shall not apply. 16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment, pledge, transfer, exchange or other disposition of (a) the stock of Tenant or any general partner interest in Tenant or (b) any interest of a member or members of Tenant which results in a change or transfer of management or control of Tenant, or a merger, consolidation or other combination of Tenant with another entity which results in a change or transfer of management or control of Tenant, shall be deemed an assignment hereunder and shall be subject to Section 16.1 hereof. For purposes hereof, exchange or transfer of management or control or effective control, shall mean a transfer of 50% or more of the economic benefit of, or Control of, any such entity. 16.3 Adequate Assurances. Without limiting any of the foregoing provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the same may be amended from time to time, Tenant is permitted to assign or otherwise transfer its rights and obligations under this Agreement in disregard of the restrictions contained in this Article, the assignee shall be deemed to agree to provide adequate assurance to Landlord (a) that any Percentage Rent shall not decline substantially after the date of such assignment, (b) of the continued use of the Leased Property solely in accordance with the Permitted Use thereof, (c) of the continuous operation of the business in the Leased Property in strict accordance with the requirements of Article 4 hereof, and (d) of such other matters as Landlord may reasonably require at the time of such assumption or assignment. Without limiting the generality of the foregoing, adequate assurance shall include the requirement that any such assignee shall have a net worth (exclusive of good will) of not less than the aggregate of the Rent due and payable for the previous Fiscal Year and is or can be licensed to operate the Facility by the appropriate Governmental Agencies. Such assignee shall expressly assume this Agreement by an agreement in recordable form, an original counterpart of which shall be delivered to Landlord prior to an assignment of the Agreement. Any approval of such successor Tenant shall not affect or alter Landlord's approval rights of each manager of the Leased Property. ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 17.1 Estoppel Certificates. Tenant shall from time to time, within fifteen (15) days after request by Landlord and without charge, give a Tenant Estoppel Certificate in the form (or substantially the form) attached hereto as Exhibit "D" and containing such other matters as may be reasonably requested by Landlord to any person, firm or corporation specified by Landlord. 17.2 Monthly Financial Statements. Throughout the Term of this Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end of each month during the Term hereof, an income (or profit and loss) statement and operating balance sheet showing the results of the operation of the Leased Property for the immediately preceding month and for the Fiscal Year to date. This information shall be provided to Landlord under a complete financial statement for 53 the Facility which shall be delivered prior to the end of the next following month, in the form customarily provided in the industry and approved in advance by the Landlord, and which shall: (a) be taken from the books and records maintained by Tenant, Guarantor and any manager in the form specified herein; (b) follow a consistent form as approved in advance in writing by Landlord; and (c) indicate variances from budgeted results for each line item against the Tenant's budget for the Leased Property for such Fiscal Year. The aforesaid financial statements shall be accompanied by an Officer's Certificate which, for purposes hereof shall mean a Certificate of the Chief Financial Officer of Tenant or Tenant's sole or Managing Member, and of Guarantor's Chief Financial Officer, in which such Officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of the Tenant at and as of the dates thereof and the results of its operations for the period covered thereby, and (b) that no Event of Default has occurred and is continuing hereunder. 17.3 Annual Financial Statements. Tenant shall deliver to Landlord within ninety (90) days after the end of each Fiscal Year, a profit and loss statement, balance sheet and statement of cash flow certified by an independent certified public accountant who is actively engaged in the practice of his profession and who is acceptable to Landlord (which statement shall also be certified by an officer, partner or member in Tenant) together with copies of all reports and communications furnished to Guarantor, Tenant's other Affiliated Persons or any manager of the Leased Property, showing results from the operation of the Leased Property during such Fiscal Year, and reasons for material variations from the approved budget for such year. Tenant shall also deliver to Landlord at Landlord's expense at any time and from time to time, upon not less than twenty (20) days notice from Landlord, any financial statements or other financial reporting information required to be filed by Landlord with the SEC or any other governmental authority or required pursuant to any order issued by any Governmental Agencies or arbitrator in any litigation to which Landlord is a party for purposes of compliance therewith. The financial statements required herein are in addition to the statements required under Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's financial records are not otherwise being reviewed or audited by an independent certified public accountant then the Landlord will accept financial statements certified true and correct by the Chief Financial Officer of Tenant or Tenant's sole or Managing Member and by the Guarantor's Chief Financial Officer. 17.4 Records. Tenant shall keep and maintain at all times in accordance with GAAP (separate and apart from its other books, records and accounts) complete and accurate up-to-date books and records adequate to reflect clearly and correctly the results of operations of the Leased Property, on an accrual basis, including but not limited to, each calculation of Percentage Rent. Such books and records shall be kept and maintained at the Leased Property or Tenant's principal office in Nashville, Tennessee. Landlord or its representatives shall have, at all reasonable times during normal business hours, reasonable access, on reasonable advance notice, to examine and copy the books and records pertaining to the Leased Property. Such books and records shall be available for at least four (4) years after the applicable quarterly calculation of Percentage Rent for Landlord's inspection, copying, review and audit at Landlord's expense during reasonable business hours and upon reasonable notice for the purpose of verifying the accuracy of Tenant's calculation of Percentage Rent. 54 17.5 General Operations Budget. In addition to the Reserve Estimate, Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year proposed annual budgets in a form satisfactory to Landlord and consistent with the then standards for the same brand of independent living and/or licensed assisted living and dementia care facilities (as applicable) as the Facility setting forth projected income and costs and expenses projected to be incurred by Tenant in managing, leasing, maintaining and operating the Facility during the following Fiscal Year. 17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the Tenant's property management team and the executive officers of Tenant or its sole or Managing Member available to meet with Landlord on a quarterly basis to discuss the Reserve Estimate, the annual budgets and any other items related to the operation of the Facility, which Landlord wishes to discuss. Tenant agrees to give good faith consideration to any suggestions or requests that Landlord may have. ARTICLE 18 LANDLORD'S RIGHT TO INSPECT Landlord, Mortgagee and their agents shall have the right to enter upon the Leased Property or any portion thereof at any reasonable time to inspect the same, including but not limited to, the operation, sanitation, safety, maintenance and use of the same, or any portions of the same and to assure itself that Tenant is in full compliance with its obligations under this Agreement (but Landlord and Mortgagee shall not thereby assume any responsibility for the performance of any of Tenant's obligations hereunder, nor any liability arising from the improper performance thereof). In making any such inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere with the conduct of Tenant's business. ARTICLE 19 FACILITY MORTGAGES 19.1 Subordination. This Agreement, Tenant's interest hereunder and Tenant's leasehold interest in and to the Leased Property are hereby agreed by Tenant to be and are hereby made junior, inferior, subordinate and subject in right, title, interest, lien, encumbrance, priority and all other respects to any mortgage or mortgages and security interests now or hereafter in force and effect upon or encumbering Landlord's interest in the Leased Property, or any portion thereof, and to all collateral assignments by Landlord to any third party or parties of any of Landlord's rights under this Agreement or the rents, issues and profits thereof or therefrom as security for any liability or indebtedness, direct, indirect or contingent, of Landlord to such third party or parties, and to all future modifications, extensions, renewals, consolidations and replacements of, and all amendments and supplements to any such mortgage, mortgages or assignments, and upon recording of any such mortgage, mortgages or assignments, the same shall be deemed to be prior in dignity, lien and encumbrance to this Agreement, Tenant's interest 55 hereunder and Tenant's leasehold interest in and to the Leased Property irrespective of the dates of execution, delivery or recordation of any such mortgage, mortgages or assignments (such mortgages, mortgages, security interests, assignments, modifications, extensions, renewals, amendments, supplements and replacement being a "Facility Mortgage"). The subordination of this Lease shall be upon the express condition that the validity of this Lease shall be recognized by the Mortgagee, and that, notwithstanding any default by the mortgagor, with respect to such mortgage, Tenant's possession and right of use under this Lease in and to the Leased Property (including without limitation rights to have insurance and condemnation proceeds made available for proper reconstruction of the Leased Property and the right to convert units within the Facility to assisted living and/or dementia care uses in accordance with Section 4.1.2 above) shall not be disturbed by such Mortgagee unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated or shall be terminable in accordance with the provisions of this Lease. The foregoing subordination and non-disturbance provisions of this Section shall be automatic and self-operative without the necessity of the execution of any further instrument or agreement of subordination on the part of Tenant. Tenant acknowledges and agrees that notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee shall request that Tenant execute and deliver any further instrument or agreement of subordination of this Agreement or Tenant's interest hereunder or Tenant's leasehold interest in the Leased Property to any such Facility Mortgage, in confirmation or furtherance of or in addition to the foregoing subordination provisions of this Section, Tenant shall promptly execute and deliver the same to the requesting party (provided that such instrument or agreement also reflects the non-disturbance provisions set forth above). Further, Tenant agrees that it will, from time to time, execute such documentation as may be requested by Landlord and any Mortgagee (a) to assist Landlord and such Mortgagee in establishing or perfecting any security interest in Landlord's interest in the Reserve and the funds therein; and (b) to facilitate or allow Landlord to encumber the Leased Property as herein contemplated. If, within thirty (30) days following Tenant's receipt of a written request by Landlord or the holder or proposed holder of any such Facility Mortgage, Tenant shall fail or refuse or shall have not executed any such further instrument or agreement of subordination, for whatever reason, Tenant shall be in breach and default of its obligation to do so and of this Agreement and Landlord shall be entitled thereupon to exercise any and all remedies available to Landlord pursuant to this Agreement or otherwise provided by law. 19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound under all of the terms, provisions, covenants and conditions of this Agreement, to any successor of the interest of Landlord under this Agreement for the balance of the Term of this Agreement remaining at the time of the succession of such interest to such successor. In particular, in the event that any proceedings are brought for the foreclosure of any Facility Mortgage, Tenant shall attorn to the purchaser at any such foreclosure sale and recognize such purchaser as Landlord under this Agreement. Tenant agrees that neither the purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder of any such Facility Mortgage shall have any liability for any act or omission of Landlord, be subject to any offsets or defenses which Tenant may have as claims against Landlord, or be bound by any advance rents which may have been paid by Tenant to Landlord for more than the current period in which such rents come due. 19.3 Rights of Mortgagees and Assignees. Provided Landlord has given Tenant notice thereof, any Mortgagee shall have the right to unilateral enjoyment, exercise or control over the 56 rights, remedies, powers and interests of Landlord hereunder, or otherwise arising under Applicable Law, as assigned or granted to such Mortgagee by Landlord or as provided in any Facility Mortgage. At the time of giving any notice of default to Landlord, Tenant shall mail or deliver to any Mortgagee of whom Tenant has notice, a copy of any such notice. No notice of default or termination of this Agreement by Tenant shall be effective until each Mortgagee shall have been furnished a copy of such notice by Tenant. In the event Landlord fails to cure any default by it under this Agreement, the Mortgagee shall have, at its option, a period of thirty (30) days after expiration of any cure period of Landlord within which to remedy such default of Landlord or to cause such default to be remedied. In the event that the Mortgagee elects to cure any such default by Landlord, then Tenant shall accept such performance on the part of such Mortgagee as though the same had been performed by Landlord, and for such purpose Tenant hereby authorizes any Mortgagee to enter upon the Leased Property to the extent necessary to exercise any of Landlord's rights, powers and duties under this Agreement. If, in the event of any default by Landlord which is reasonably capable of being cured by a Mortgagee, the Mortgagee promptly commences and diligently pursues to cure the default, then Tenant will not terminate this Agreement or cease to perform any of its obligations under this Agreement so long as the Mortgagee is, with due diligence, engaged in the curing of such default. ARTICLE 20 ADDITIONAL COVENANTS OF TENANT 20.1 Conduct of Business. Tenant shall not engage in any business other than the leasing and operation of the Leased Property for the Permitted Use and activities incidental thereto, including without limitation the delivery of services to the Facility residents under the Service Licenses or otherwise, and shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its legal entity existence and its rights and licenses necessary to conduct such business. Promptly upon receipt of same, Tenant shall provide Landlord with copies of all licenses, licensure and certification surveys and related plans of correction, and notices of corrective action required, of loss of licensure or certification of the Facility, or of any limits imposed upon admissions to the Facility. 20.2 Additional Covenants of Tenant. In addition to the other covenants and representations of Tenant herein and in this Agreement, Tenant hereby covenants, acknowledges and agrees that Tenant shall: (a) Not guaranty any obligation of any Person other than the tenant under any ARC-Related Lease; (b) Pay or cause to be paid all lawful claims for labor and rents with respect to the Leased Property; (c) Pay or cause to be paid all trade payables; (d) Not declare, order, pay or make, directly or indirectly, any Distribution or any payments to any members or Affiliated Persons as to Tenant 57 (including payments in the ordinary course of business and payments pursuant to any management agreements with any such Affiliate), or set apart any sum of property therefor, or agree to do so, if, at the time of such proposed action or immediately after giving effect thereto, any Event of Default shall exist; (e) Except as otherwise permitted by this Agreement, not sell, lease (as lessor or sublessor), transfer or otherwise dispose of or abandon, all or any material portion of its assets or business to any Person, or sell, lease, transfer or otherwise dispose of or abandon any of Tenant's Personal Property, provided, however, Tenant may dispose of portions of Tenant's Personal Property which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility have been provided. (f) Provide and maintain throughout the Term, all Tenant's Personal Property and P&E Replacements as shall be necessary in order to operate the Leased Property in compliance with applicable legal requirements and insurance requirements and otherwise in accordance with customary practice in the industry for the Permitted Use. If, from and after the Commencement Date, Tenant acquires an interest in any items of tangible personal property (other than motor vehicles) on, or in connection with the Leased Property which belong to anyone other than Tenant, Tenant shall require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights and obligations under such agreement upon the termination of this Agreement and any assumption of management or operation of the Leased Property by Landlord or its designee. (g) Deliver to Landlord within thirty (30) days after receipt of or after modification thereof, copies of all licenses authorizing Tenant to operate the Leased Property for its Permitted Use. (h) Undertake a risk management analysis and report regarding the operation of the Facility annually for compliance with all Applicable Laws governing the ongoing use and operation of the Facility for the Permitted Use and provide Landlord with a copy of the report and any other results of the analysis. (i) Give prompt notice to Landlord of any litigation or any administrative proceeding involving Tenant, Landlord or the Leased Property of which Tenant has notice or actual knowledge and which involves a potential uninsured liability equal to or greater than $100,000.00 or which, in Tenant's reasonable opinion, may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or conditions, financial or otherwise, of Tenant or the Facility. (j) Not, except as approved in writing by Landlord, either directly or indirectly, for itself, or through, or on behalf of, or in connection with any Person, divert or attempt to divert any business or customer of the Leased Property to any competitor, by direct or indirect inducement or otherwise, or do or perform, 58 directly or indirectly, any other act injurious or prejudicial to the good will associated with the Landlord or the Leased Property. (k) Except for liabilities incurred in the ordinary course of business, not create, incur, assume or guarantee, or permit to exist or become or remain liable directly or indirectly upon, any Indebtedness except Indebtedness of Tenant to Landlord (or, if unsecured and expressly subject to the terms of this Agreement and Landlord's interest hereunder, and payable solely out of excess cash flow after payment of all Rent hereunder, to Tenant's shareholders, partners or members, as applicable). Tenant further agrees that the obligee in respect of any such Indebtedness shall agree in writing, in form and substance satisfactory to Landlord that (w) the payment of such Indebtedness shall be expressly subordinated in all respects to all of Tenant's obligations under this Agreement, (x) no remedies may be exercised by the obligee with respect to enforcement or collection of such Indebtedness until such time as this Agreement shall be terminated and all of Tenant's obligations hereunder shall have been discharged in full; (y) such Indebtedness shall not be assigned by the obligee to any other party; and (z) the obligee shall not initiate or join in any bankruptcy proceedings against Tenant. As used in this Section 20.2(k) (and notwithstanding any other definition of Indebtedness herein), Indebtedness shall mean all obligations, contingent or otherwise, to pay or repay monies irrespective of whether, in accordance with GAAP, such obligations should be reflected on the obligor's balance sheet as debt. 20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and warrants that Tenant is, and throughout the Term will remain, a Single Purpose Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the foregoing, the Landlord agrees that the requirements for an Independent Director or Independent Member thereunder shall not apply so long as Tenant is an Affiliated Person of Guarantor. 20.4 Intentionally Omitted. ARTICLE 21 MISCELLANEOUS 21.1 Limitation on Payment of Rent. All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this Agreement exceed the maximum permissible under Applicable Laws, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount. This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant. 59 21.2 No Waiver. No release, discharge or waiver of any provision hereof shall be enforceable against or binding upon Landlord or Tenant unless in writing and executed by Landlord or Tenant, as the case may be. Neither the failure of Landlord or Tenant to insist upon a strict performance of any of the terms, provisions, covenants, agreements and conditions hereof, nor the acceptance of any Rent by Landlord with knowledge of a breach of this Agreement by Tenant in the performance of its obligations hereunder, or the following of any practice or custom at variance with the terms hereof, shall be deemed or constitute a waiver of any rights or remedies that Landlord or Tenant may have or a waiver of any subsequent breach or default in any of such terms, provisions, covenants, agreements and conditions or the waiver of the right to demand exact compliance with the terms hereof. 21.3 Remedies Cumulative. To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies. 21.4 Severability. Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein. 21.5 Acceptance of Surrender. No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 21.6 No Merger of Title. It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Agreement or the leasehold estate created hereby and the fee estate or ground landlord's interest in the Leased Property. 21.7 Tenant's Representations. In addition to any other representation or warranty set forth herein and as an inducement to Landlord to enter into this Agreement, Tenant hereby represents and warrants to Landlord as follows: (a) Tenant is a limited liability company duly organized and validly existing and in good standing under the laws of the State of Tennessee. Tenant has all requisite power and authority under the laws of the State of Tennessee and the laws of the State of Illinois and its limited liability company operating agreement or other charter documents to enter into and perform its obligations under this Agreement and to consummate the 60 transactions contemplated hereby. Tenant is duly authorized to transact business in any jurisdiction in which the nature of the business conducted by it requires such qualification. (b) Tenant has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by Tenant, prior to the date hereof, such document shall constitute the valid and binding obligation and agreement of Tenant, enforceable against Tenant in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors and except to the extent that the availability of equitable relief may be subject to the discretion of the court before which any proceeding may be brought. (c) There are no judgments presently outstanding and unsatisfied against Tenant or any of its properties, and neither Tenant nor any of its properties are involved in any material litigation at law or in equity or any proceeding before any court, or by or before any governmental or administrative agency, which litigation or proceeding could materially adversely affect Tenant, and no such material litigation or proceeding is, to the knowledge of Tenant, threatened against Tenant and no investigation looking toward such a proceeding has begun or is contemplated. (d) To the knowledge of Tenant, neither this Agreement nor any other document, certificate or statement furnished to Landlord by or on behalf of Tenant in connection with the transaction contemplated herein contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the knowledge of Tenant there is no fact or condition which materially and adversely affects the business, operations, affairs, properties or condition of Tenant which has not been set forth in this Agreement or in other documents, certificates or statements furnished to Landlord in connection with the transaction contemplated hereby. (e) Tenant hereby represents to Landlord that, in the reasonable opinion of Tenant, the Leased Property and the Leased Improvements therein are adequately furnished and contain adequate P&E and Inventories consistent with the amount of P&E and Inventories which is customarily maintained in an independent living or licensed assisted living and dementia care facility, as applicable, of the type and character of the Leased Property as otherwise required to operate the Leased Property in a manner contemplated by this Agreement and in compliance with all legal requirements. (f) Tenant acknowledges that Tenant's failure or repeated delays in making prompt payment in accordance with the terms of any agreement, leases, invoices or statements for purchase or lease of P&E, Inventories or other goods or services will be detrimental to the reputation of Landlord and Tenant. (g) All employees of Tenant are solely employees of Tenant and not Landlord. Tenant is not Landlord's agent for any purpose in regard to Tenant's employees or 61 otherwise. Further, Tenant expressly acknowledges and agrees that Landlord does not exercise any direction or control over the employment policies or employment decisions of Tenant. (h) Tenant has not (i) made any contributions, payments or gifts to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift is illegal under the laws of the United States or the jurisdiction in which made, (ii) established or maintained any unrecorded fund or asset for any purpose or made any false or artificial entries on its books, (iii) given or received any payments or other forms of remuneration in connection with the referral of patients which would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous state statute or (iv) made any payments to any person with the intention or understanding that any part of such payment was to be used for any purpose other than that described in the documents supporting the payment. Tenant shall not take any such actions during the Term of this Agreement. (i) Tenant's equity is directly and (if applicable) indirectly owned as shown on Exhibit "G". Tenant shall promptly provide to Landlord, upon the occurrence thereof but in any event not more than fifteen (15) days following a written request therefor, written notice of any change in the executive officers, directors, shareholders, partners, and/or members of Tenant, as applicable to Tenant's formation and structure, and of any change in the respective interests in Tenant held by each of such Persons. 21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as Tenant shall timely pay all rents due to Landlord from Tenant hereunder and keep, observe and perform all covenants, promises and agreements on Tenant's part to be kept, observed and performed hereunder, Tenant shall and may peacefully and quietly have, hold and occupy the Leased Property free of any interference from Landlord or any Person claiming by, through or under Landlord; subject, however, and nevertheless to the terms, provisions and conditions of this Agreement, the Permitted Encumbrances, any other documents affecting record title to or the use and occupancy of the Leased Property immediately prior to the conveyance thereof to Landlord on or about the date hereof, and documents affecting title to the Leased Property approved by Tenant. Landlord shall not, without the prior written approval of Tenant, enter into or record any document which purports to or which by its terms will materially and adversely affect the Tenant, Tenant's use and enjoyment of the Leased Property or Tenant's rights under this Agreement (such approval not to be unreasonably withheld, delayed or conditioned provided that the same is appropriate and reasonably necessary in connection with the normal and ordinary course of ownership and use of the Facility). 21.9 Recordation of Memorandum of Lease. At either party's option, a short form memorandum of this Agreement, in the form attached hereto as Exhibit "E" shall be recorded or filed among the appropriate land records of the County in which the Leased Property is located, and Tenant shall pay the transfer and all recording costs associated therewith. In the event of a discrepancy between the provisions of this Agreement and such short form memorandum thereof, the provisions of this Agreement shall prevail. 62 21.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, If to Landlord to: CNL Retirement-AM/Illinois LP CNL Center at City Commons 450 South Orange Avenue Orlando, Florida 32801 Attn: Mr. Phillip M. Anderson, Jr. Or Chief Operating Officer Phone: (407) 650-1000 Fax: (407) 835-3232 With a copy to: Lowndes, Drosdick, Doster, Kantor & Reed, P.A. 215 North Eola Drive Post Office Box 2809 Orlando, Florida 32809 Attn: Scott C. Thompson, Esquire Phone: (407) 843-4600 Fax: (407) 843-4444 If to Tenant to: ARC Holley Court, LLC 111 Westwood Place, Suite 402 Brentwood, Tennessee 37027 Attn: Mr. George Hicks, Chief Financial Officer Phone: (615) 221-2250 Fax: (615) 221-2269 63 With a copy to: Bass, Berry & Sims PLC 315 Deaderick Street, Suite 2700 Nashville, Tennessee 37238 Attn: T. Andrew Smith, Esquire Phone: (615) 742-6200 Fax: (615) 742-2766 (d) By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America. 21.11 Construction; Nonrecourse. Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration. Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition. Time is of the essence with respect to the performance by Tenant of its obligations under this Agreement, including, without limitation, obligations for the payment of money. Except as otherwise set forth in this Agreement, any obligations arising prior to the expiration or sooner termination of this Agreement of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement. In addition, solely with respect to Landlord, nothing contained in this Agreement shall be construed to create or impose any liabilities or obligations and no such liabilities or obligations shall be imposed on any of the shareholders, beneficial owners, direct or indirect, officers, directors, trustees, employees or agents of Landlord or Tenant for the payment or performance of the obligations or liabilities of Landlord hereunder. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 21.12 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Captions and headings in this Agreement are for purposes of reference only and shall in no way define, limit or describe the scope or intent of, or otherwise affect, the provisions of this Agreement. 21.13 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State in which the Leased Property is located. 21.14 Right to Make Agreement. Each party warrants, with respect to itself, that neither the execution and delivery of this Agreement, nor the compliance with the terms and provisions 64 hereof, shall violate any provision of any law, or any judgment, writ, injunction, order or decree of any court or Governmental Authority; nor result in or constitute a breach or default under or the creation of any lien, charge or encumbrance upon any of its property or assets under, any indenture, mortgage, deed of trust, contract, other commitment or restriction to which it is a party or by which it is bound; nor require any consent, vote or approval which has not been given or taken, or at the time of the transaction involved shall not have been given or taken. Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder. 21.15 Brokerage. Landlord and Tenant hereby represent and warrant to each other that they have not engaged, employed or utilized the services of any business or real estate brokers, salesmen, agents or finders in the initiation, negotiation or consummation of the business and real estate transaction reflected in this Agreement. On the basis of such representation and warranty, each party shall and hereby agrees to indemnify and save and hold the other party harmless from and against the payment of any commissions or fees to or claims for commissions or fees by any real estate or business broker, salesman, agent or finder resulting from or arising out of any actions taken or agreements made by them with respect to the business and real estate transaction reflected in this Agreement. 21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of this Agreement, in any way or for any purpose, be deemed to be a partner of Tenant in the conduct of Tenant's business upon, within or from the Leased Property or otherwise, or a joint venturer or a member of a joint enterprise with Tenant. 21.17 Entire Agreement. This Agreement contains the entire agreement between the parties and, except as otherwise provided herein, can only be changed, modified, amended or terminated by an instrument in writing executed by the parties. It is mutually acknowledged and agreed by Landlord and Tenant that there are no verbal agreements, representations, warranties or other understandings affecting the same; and that Tenant hereby waives, as a material part of the consideration hereof, all claims against Landlord for rescission, damages or any other form of relief by reason of any alleged covenant, warranty, representation, agreement or understanding not contained in this Agreement. 21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under Sections 12.2 and 14.2, if either party shall bring an action to recover any sum due hereunder, or for any breach hereunder, and shall obtain a judgment or decree in its favor, the court may award to such prevailing party its reasonable costs and reasonable attorney's fees based upon service rendered at hourly rates, specifically including reasonable attorney's fees incurred in connection with any appeals (whether or not taxable as such by law). Landlord shall also be entitled to recover its reasonable attorney's fees based upon service rendered at hourly rates and costs incurred in any bankruptcy action filed by or against Tenant, including, without limitation, those incurred in seeking relief from the automatic stay, in dealing with the assumption or rejection of this Agreement, in any adversary proceeding, and in the preparation and filing of any proof of claim. 21.19 Approval of Landlord. Whenever Tenant is required under this Agreement to do anything to meet the satisfaction or judgement of Landlord, the reasonable satisfaction or 65 judgement of Landlord shall be deemed sufficient. The foregoing provision of this Section shall not apply in any instance where the provisions of this Agreement expressly state that the provisions of this Section do not apply or where the provisions of this Agreement expressly state that such consent, approval or satisfaction are subject to the sole and absolute discretion or judgement of Landlord, and in each such instance Landlord's approval or consent may be unreasonably withheld or unreasonable satisfaction or judgement may be exercised by Landlord. 21.20 Successors and Assigns. The agreements, terms, provisions, covenants and conditions contained in this Agreement shall be binding upon and inure to the benefit of Landlord and Tenant and, to the extent permitted herein, their respective successors and assigns. 21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S ACCEPTING THIS AGREEMENT. 21.22 Treatment of Lease. Landlord and Tenant each agree to treat this Agreement as a true lease for tax purposes and as an operating lease for generally accepted accounting principles. 21.23 Transfer of Licenses. Upon the expiration or sooner termination of this Agreement, Tenant shall use its best efforts to transfer and assign to Landlord or its designee or assist Landlord or its designee in obtaining transfer or assignment of all Leased Intangible Property, including without limitation and together with any contracts, licenses (including without limitation all licenses identified as part of the Initial Tenant Personal Property and any replacements thereof and additions thereto), permits, development rights, trade names (except for trade names as included within the Initial Tenant Personal Property), telephone exchange numbers identified with the Leased Property, approvals and certificates and all other intangible rights, benefits and privileges of any kind or character with respect to the Leased Property, useful or required for the then operation of the Leased Property (except for proprietary software as included within the Initial Tenant Personal Property). If requested by Landlord and to the extent permitted by law the Tenant shall provide a collateral assignment of such licenses and other intangible rights as further security for Tenant's obligations hereunder. 21.24 Tenant's Personal Property. Upon the expiration or sooner termination of the Term of this Agreement, Landlord may, in its sole and absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be required, within ten (10) Business Days after such expiration or termination, to remove all of Tenant's Personal Property from the Leased Property, or (ii) pay Tenant's book value of such Tenant's Personal Property (not including, however, trade names and proprietary software listed as part of the Initial Tenant Personal Property, which shall remain 66 the sole property of Tenant). Failure of Landlord to make such election shall be deemed an election to proceed in accordance with clause (ii) preceding. 21.25 Landlord's Representations. Landlord hereby represents and warrants to Tenant as follows: (a) Landlord is a limited partnership duly organized and validly existing and in good standing under the laws of the State of Delaware. Landlord has all requisite power and authority under the laws of the State of Delaware and its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. (b) Landlord has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery hereof, this Agreement shall constitute the valid and binding agreement of Landlord. 21.26 Guaranty of Lease. The Landlord has entered into this Lease in reliance upon the Unconditional Guaranty of Payment and Performance by the Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"), pursuant to which the Guarantor has unconditionally guaranteed all of the obligations of the Tenant under this Lease, including without limitation the covenants of Tenant in Section 4.4 and Section 4.6 hereof, and all of the additional covenants of Tenant in Article 20 hereof. 21.27 Guaranty of ARC-Related Leases. The obligations of each tenant under each ARC-Related Lease (whether now in effect or entered into in the future) also shall be and are hereby unconditionally guaranteed by Tenant. Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a material inducement for the execution of each ARC-Related Lease, is and shall be a guaranty of payment and performance and not of collection solely, and shall be effective in accordance with the terms and conditions of the Guaranty, which are incorporated herein by this reference. Notwithstanding the foregoing, and the automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant shall upon request of the Landlord or its Affiliated Persons promptly execute and deliver a separate Unconditional Guaranty of Payment and Performance with respect to each ARC-Related Lease. 21.28 Landlord's Assumed Financing. The obligations of Landlord and Tenant are subject to the additional provisions set forth in Exhibit "K" attached hereto relating to certain terms and conditions of the GMACCM Loan Documents assumed and executed by Landlord which affect Tenant's performance and obligations under this Lease. [SIGNATURES APPEAR ON FOLLOWING PAGE] 67 IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date above first written. NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND INDEMNITIES BY THE TENANT OF THE LANDLORD'S OWN NEGLIGENCE. LANDLORD: TENANT: CNL RETIREMENT - AM/ILLINOIS LP, a ARC HOLLEY COURT, LLC, a Tennessee Delaware limited liability company limited liability company By: CNL Retirement - GP/Illinois Corp, By: ARC Holley Court Management, Inc., a Delaware corporation, as its a Tennessee corporation, its General Partner Managing Member By: /S/ By: /S/ ----------------------- ------------------------ Name: Phillip M. Anderson Name: George T. Hicks ----------------------- ------------------------ Its: EVP-Finance, CFO, ------------------------ Its: Exec. V. P. Secretary and Treasurer ----------------------- ------------------------ (CORPORATE SEAL) 68 EXHIBIT "A" The Land A-1 EXHIBIT "B" Initial Term Minimum Rent The amount of Minimum Rent due during the Initial Term is as follows: For Accounting Year 1 - $1,846,927.50 Commencing with the 2nd Accounting Year, and on the first day of each Accounting Year thereafter during the Initial Term, Minimum Rent shall increase by one percent (1%) over the Minimum Rent owing in the immediately preceding Accounting Year. Accordingly, the Minimum Rent owing from the 2nd Accounting Year through the end of the Initial Term of this Agreement shall be as follows: For Accounting Year 2 - $1,865,396.78; For Accounting Year 3 - $1,884,050.74; For Accounting Year 4 - $1,902,891.25; For Accounting Year 5 - $1,921,920.16; For Accounting Year 6 - $1,941,139.36; For Accounting Year 7 - $1,960,550.76; For Accounting Year 8 - $1,980,156.27; For Accounting Year 9 - $1,999,957.83; For Accounting Year 10 - $2,019,957.41; For Accounting Year 11 - $2,040,156.98; For Accounting Year 12 - $2,060,558.55; For Accounting Year 13 - $2,081,164.14; For Accounting Year 14 - $2,101,975.78; For Accounting Year 15 - $2,122,995.53. B-1 EXHIBIT "C" Appraisal Process If Landlord and Tenant are unable to agree upon the fair market value of the Leased Property within any relevant period provided in this Agreement, each shall within ten (10) days after written demand by the other select one MAI Appraiser to participate in the determination of fair market value. Within ten (10) days of such selection, the MAI Appraisers so selected by Landlord and Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers shall each determine the fair market value of the Leased Property within thirty (30) days of the selection of the third appraiser. To the extent consistent with sound appraisal practices as then existing at the time of any such appraisal, and if requested by Landlord, such appraisal, shall be made on a basis consistent with the basis on which the Leased Property was appraised at the time of its acquisition by Landlord. Tenant shall pay the fees and expenses of any MAI Appraiser retained pursuant to this Exhibit. In the event either Landlord or Tenant fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, the MAI Appraiser selected by the other party shall alone determine the fair market value of the Leased Property in accordance with the provisions of this Exhibit and the fair market value so determined shall be binding upon Landlord and Tenant. In the event the MAI Appraisers selected by Landlord and Tenant are unable to agree upon a third MAI Appraiser within the time period set forth in the first paragraph of this Exhibit, either Landlord or Tenant shall have the right to apply at Tenant's expense to the presiding judge of the court of original trial jurisdiction in the county in which the Leased Property is located to name the third MAI Appraiser. Within five (5) days after completion of the third MAI Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the MAI Appraisers shall attempt to determine the fair market value of the Leased Property. If a majority is unable to determine the fair market value at such meeting, the three appraisals shall be added together and their total divided by three. The resulting quotient shall be the fair market value of the Leased Property. If, however, either or both of the low appraisal or the high appraisal are more than ten percent (10%) lower or higher than the middle appraisal, any such lower or higher appraisal shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two, and the resulting quotient shall be such fair market value. If both the lower appraisal and the higher appraisal are disregarded as provided herein, the middle appraisal shall be such fair market value. In any event, the result of the foregoing appraisal process shall be final and binding. "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified to do business in the State and who has substantial experience in performing appraisals of facilities similar to the Leased Property and is certified as a member of the American Institute of Real Estate Appraisers or certified as a SRPA by the Society of Real Estate Appraisers, or, if such organizations no longer exist or certify appraisers, such successor organization or such other organization as is approved by Landlord. C-1 EXHIBIT "D" Tenant Estoppel Certificate THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a __________, with principal office and place of business at______________________ ("Beneficiary"). RECITALS: A. Pursuant to the terms and conditions of that certain Lease Agreement ("Lease") dated ________, ___________________________ ("Landlord") leased to Tenant certain real property in ______ County, _____ ("Leased Property"), which Leased Property are more particularly described in the Lease. B. Pursuant to the terms and conditions of the Lease, the Beneficiary has requested that the Tenant execute and deliver this Certificate with respect to the Lease. NOW, THEREFORE, in consideration of the above Leased Property, the Tenant hereby makes the following statements for the benefit of the Assignee: 1. The copy of the Lease attached hereto and made a part hereof as Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in full force and effect as of the date hereof, and has not been modified or amended. 2. The Lease sets forth the entire agreement between the Landlord and the Tenant relating to the leasing of the Leased Property, and there are no other agreements, written or oral, relating to the leasing of the Leased Property. 3. There exists no uncured or outstanding defaults or events of default under the Lease, or events which, with the passage of time, and the giving of notice, or both, would be a default or event of default under the Lease. 4. No notice of termination has been given by Landlord or Tenant with respect to the Lease. 5. All payments due the Landlord under the Lease through and including the date hereof have been made, including the monthly installment of Minimum Rent (as defined in the Lease) for the period of ______________ to ________________ in the amount of $___________. 6. As of the date hereof, the annual Minimum Rent under the Lease is $__________. 7. Percentage Rent (as defined in the Lease) has been paid through and including the Fiscal Year ending ______________________. 8. There are no disputes between the Landlord and the Tenant with respect to any rental due under the Lease or with respect to any provision of the Lease. 9. Notwithstanding any provisions of the Lease to the contrary, the Tenant hereby consents to the collateral assignment of the Lease by the Landlord to the Beneficiary, and agrees that no terms and conditions of the Lease shall be altered, amended or changed as a result of such assignment. D-1 10. The Tenant hereby agrees that from and after the date hereof copies of all notices which Tenant is required to deliver to the Landlord under the Lease with respect to defaults, events of default or failure to perform by the Landlord under the Lease, shall be delivered to Beneficiary at the following address: ---------------------- ---------------------- ---------------------- ---------------------- 11. The Tenant represents and warrants that (a) all improvements constructed on the Leased Property have been approved and accepted by Tenant, (b) all utility sources and utility companies which service the Leased Property have been approved and accepted by Tenant and utility service is available to the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with respect to its obligations under the Lease. 12. The Tenant understands and acknowledges that Beneficiary is relying upon the representations set forth in this Certificate, and may rely thereon in connection with the [COLLATERAL] assignment of the Lease to Beneficiary. IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day and year first set forth above. ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- STATE OF _______ COUNTY OF _______ The foregoing instrument was acknowledged before me this ___ day of _____, 20___ by _________________, as _________________ of ____________, a ____________, on behalf of the _________. He/she is personally known to me or has produced ________ as identification. _________________________________________ Notary Public Printed Name:____________________________ expires: __________________ (NOTARY SEAL) D-2 EXHIBIT "E" Memorandum of Lease THIS MEMORANDUM OF LEASE, entered into as of this ____ day of _________, 20___, by and between __________________________________________, whose address is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord, and ____________________, a ______________, whose address is___________________ ___________________, as Tenant. W I T N E S E T H: ----------------- THAT, Landlord and Tenant have heretofore entered into a certain Lease Agreement dated ____________, 20___ (the "Lease") covering certain Leased Property consisting of, among other things, certain real property located in ______ County, ______, more particularly described on Exhibit "A" attached hereto upon which there is constructed and located certain improvements (together the "Leased Property"), and WHEREAS, it is the desire of both Landlord and Tenant to memorialize the Lease and set forth certain pertinent data with respect thereto, NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby acknowledge and agree as follows: 1. Demise. The Leased Property have been and are hereby demised, let and leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord, all pursuant to and in accordance with the Lease. 2. Term. The initial Term of the Lease is from February 11, 2002, until February 10, 2017. Tenant has the right, privilege and option to renew and extend the initial Term of the Lease for up to two (2) additional periods of five (5) years each, subject to the provisions and conditions of the Lease. 3. Possession. Landlord has delivered possession of the Leased Property to Tenant and Tenant has accepted delivery and taken possession of the Leased Property from Landlord in the "as is" condition of the Leased Property on the Commencement Date. 4. Liens on Landlord's Interest Prohibited. By the terms of the Lease, Landlord's interest in the Leased Property may not be subjected to liens of any nature by reason of Tenant's construction, alteration, repair, restoration, replacement or reconstruction of any improvements on or in the Leased Property, including those arising in connection with or as an incident to the renovation of the improvements located on the Leased Property, or by reason of any other act or omission of Tenant (or of any person claiming by, through or under Tenant) including, but not limited to, construction, mechanics' and materialmen's liens. Accordingly, all persons dealing with Tenant are hereby placed on notice that such persons shall not look to Landlord or to E-1 Landlord's credit or assets (including Landlord's interest in the Leased Property) for payment or satisfaction of any obligations incurred in connection with the construction, alteration, repair, restoration, renovation, replacement or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right or authority to subject Landlord's interest in the Leased Property to any construction, mechanic's or materialmen's lien or claim of lien. 5. Subordination and Attornment. The Lease specifically provides that the Lease and Tenant's leasehold interest in and to the Leased Property are junior, inferior, subordinate and subject in all respects to any mortgage or mortgages now or hereafter in force and effect upon or encumbering the Leased Property or any portion thereof, and that Tenant shall, and has agreed to, attorn to any successor of the interest of Landlord under the Lease, including the purchaser at any foreclosure sale occasioned by the foreclosure of any such mortgage or mortgages, for the balance of the Term of the Lease remaining at the time of the succession of such interest to such successor. Such subordination shall be upon the express condition that the validity of this Lease shall be recognized by the mortgagee, and that, notwithstanding any default by the mortgagor, with respect to such mortgage, Tenant's possession and right of use under this Lease in and to the Premises (including rights to have insurance and condemnation proceeds made available for proper reconstruction of the Premises) shall not be disturbed by such mortgagee unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated in accordance with the provisions of this Lease. 6. Inconsistent Provisions. The provisions of this Memorandum constitute only a general description of the content of the Lease with respect to matters set forth herein. Accordingly, third parties are advised that the provisions of the Lease itself shall be controlling with respect to all matters set forth herein. In the event of any discrepancy between the provisions of the Lease and this Memorandum, the provisions of the Lease shall take precedence and prevail over the provisions of this Memorandum. 7. Termination of Lease. All rights of Tenant shall terminate upon the expiration or earlier termination of the Lease, which may be evidenced by a written notice of such expiration or termination recorded or filed by Landlord among the appropriate land records of the County in which the Leased Property is located. [SIGNATURES APPEAR ON FOLLOWING PAGES] E-2 IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of Lease to be duly executed on or as of the day and year first above written. Signed, sealed and delivered in the presence of: , a -------------------------------------- ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- (CORPORATE SEAL) "LANDLORD" , a -------------------------------------- ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- "TENANT" STATE OF _______________ COUNTY OF _____________ The foregoing instrument was acknowledged before me this _____ day of _______________, 20___ by ____________________, as _________ of ____________________, a ______________________, on behalf of the _____________. He/she is personally known to me or has produced _______________________ as identification. ----------------------------------------- Notary Public Notary Public, State of ----------------- Commission #: ---------------------------- My commission expires: ------------------- (NOTARY SEAL) E-3 STATE OF __________ COUNTY OF __________ The foregoing instrument was acknowledged before me this _____ day of _______________, 20___, by ___________________, as ______________ of ___________________, a _______________________, on behalf of the _____________. He/she is personally known to me or has produced _______________________ as identification. ------------------------------------------- Notary Public Notary Public, State of ___________________ Commission No.: __________________________ My Commission Expires: ___________________ (SEAL) E-4 EXHIBIT "F" Single Purpose Entity Requirements Tenant or its assignee shall throughout the Term hereof do all things necessary to continue to be and remain a Single Purpose Entity (including without limitation, if Tenant is a partnership, insuring that each General Partner of Tenant, continues as a Single Purpose Entity and shall not amend its Articles of Organization or Operating Agreement (or if Tenant is a corporation, Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is a partnership, Tenant shall prevent any general partner from amending such general partner's Articles of Organization or Bylaws or other formation documents). For purposes hereof, Single Purpose Entity shall mean a Person, other than an individual, which (a) is formed, organized or reorganized solely for the purpose of holding, directly, the leasehold interest in the Leased Property, (b) does not engage in any business unrelated to the Leased Property and the operation and management thereof, (c) has not and will not have any assets other than those related to its interest in the Leased Property and has not and will not have any indebtedness other than incurred in the ordinary course of business and paid pursuant to the terms of financing applicable to such trade payables and indebtedness expressly authorized in Section 20.2(f) of the Agreement, (d) maintains its own separate books and records and its own accounts, in each case which are separate and apart from the books and records of any other Person, (e) holds itself out as being a Person separate and apart from any other Person, (f) does not and will not commingle its funds or assets with those of any other Person, (g) conducts its own business in its own name, (h) maintains separate financial statements, (i) pays its own liabilities out of its own funds, (j) observes all limited liability company formalities, partnership formalities or corporate formalities, as applicable, (k) maintains an arm's-length relationship with its Affiliated Persons, (l) pays the salaries of its own employees and maintains a sufficient number of employees in light of its contemplated business operation, (m) does not guarantee or otherwise obligate itself with respect to the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as required or expressly authorized under the Agreement, (n) does not acquire obligations or securities of its partners, members or shareholders, (o) allocates fairly and reasonably shared expenses, including without limitation, any overhead for shared office space, (if any), (p) uses separate stationary, invoices and checks, (q) except as required or expressly authorized under the Agreement, does not and will not pledge its assets for the benefit of any Person other than Landlord or make any loans or advances to any other Person, (r) does and will correct any known misunderstanding regarding its separate identity, (s) maintains adequate capital in light of its contemplated business operations, and (t) has and will have an Operating Agreement, partnership agreement, certificate of incorporation or other organization document which complies with the standards and requirements for a Single Purpose Entity set by Rating Agencies (as hereinafter defined) as of the date hereof applicable to a limited liability company, partnership or corporation, as applicable. In addition, if such Person is a limited liability company, (i) the managing member shall be a corporation or limited liability company (or if a partnership, shall have as its sole general partner a corporation or limited liability company) that is a Single Purpose Entity whose organization documents shall comply F-1 with the standards and requirements for a Single Purpose Entity set by the Rating Agencies as of the date hereof applicable to such managing members, (ii) its Articles of Organization, Certificate of Formation and/or Operating Agreement, as applicable, shall provide that such entity will dissolve only upon the bankruptcy of the managing member, (iii) if such Person has more than one managing member, at least one member shall be a corporation or limited liability company that qualifies as a Single Purpose Entity and the Organization Documents shall provide that such Person shall continue (and not dissolve) for so long as a solvent managing member exists (iv) such corporate member or limited liability company shall conform to the requirements hereof for Persons that are corporations or limited liability company and (v) such Person shall have at least one Independent Member. In addition, if such Person is a partnership, (a) all general partners of such Person shall be Single Purpose Entities whose organizational documents shall comply with the standards and requirements for a Single Purpose Entity set by the Rating Agencies as of the date hereof applicable to such general partners, (b) if such Person has more than one general partner, then the organization documents shall provide that such Person shall continue (and not dissolve) for so long as a solvent general partner exists. In addition, if such Person is a corporation, then at all times, (i) such Person shall have at least one Independent Director, and (ii) Board of Directors of such Person may not take any action relating to such Person's bankruptcy, dissolution or status as a Single Purpose Entity without the unanimous affirmative vote of 100% of the members of the Board of Directors unless all of the directors, including the Independent Director shall have participated in such vote. In addition, such Person which is formed or organized solely for the purpose of holding, directly, the leasehold interest in the Leased Property (i) without the unanimous consent of all of the partners, directors or members, as applicable, has not and will not with respect to itself or any other single purpose entity that owns an interest in the Leased Property in which it has a direct or indirect legal or beneficial interest (a) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or other similar official for itself for all or any portion of its properties, or (b) take any action which might cause it to become insolvent, (ii) has held and will hold its assets in its own name, (iii) has and will maintain its financial statements, accounting records and other entity documents separate and apart form any other Person, and (iv) has not and will not identify its partners, members or shareholders or any of its affiliates of any of them as a division or part of it. For purposes hereof, "Rating Agencies" shall mean any three of the following: Standards & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co., Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any such corporation shall for any reason no longer perform the functions of a securities rating agency, any other nationally recognized statistical rating agency designated by Landlord. In addition, for purposes hereof, "Independent Director" or "Independent Member" shall mean an individual appointed by CT Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar corporate service or an individual reasonably satisfactory to Landlord, who in any case shall not have been at the time of such individual's appointment, and may not have been at any time during the preceding two years (i) a shareholder of, or an officer or employee of, or a member or manager of Tenant or any of its respective shareholders, subsidiaries or Affiliated F-2 Persons, (ii) a customer of, or supplier to Tenant or any member, manager or general partner or any of its respective shareholders, subsidiaries or Affiliated Persons, (iii) a Person or other entity controlling any such shareholder, supplier, customer, member or manager, or (iv) a member of the immediate family of any such shareholder, officer, employee, supplier, customer, member or manager or of any other director of Tenant or any general partner thereof. In addition to the foregoing, and consistent with the Single Purpose Entity requirements hereof, Tenant covenants and agrees that throughout the Term hereof, Tenant shall not voluntarily file or consent to the filing of a petition for bankruptcy, insolvency, reorganization, assignment for the benefit of creditors or similar proceedings under any federal or state bankruptcy, insolvency, reorganization or other similar law or otherwise seek any relief under any laws relating to the relief of debts or the protection of debtors generally, without the unanimous consent of its manager(s), which shall at all times include the affirmative consent of the Independent Director, and if Tenant is a partnership without the unanimous consent of its general partners (including the unanimous consent of the directors of the corporate general partners or shareholders as the case may be which shall at all times include the consent of the Independent Director). F-3 EXHIBIT "G" Tenant Equity Ownership ARC Holley Court, LLC is a Tennessee limited liability company with two members: American Retirement Corporation, a Tennessee corporation: 100% economic member ARC Holley Court Management, Inc., a Tennessee corporation: non-economic member ARC Holley Court Management, Inc. is a wholly-owned subsidiary of American Retirement Corporation G-1 EXHIBIT "H" Property Expenses The term "Property Expenses" shall mean for the requisite period the sum of the following items: 1. the cost of sales, including without limitation, compensation, fringe benefits, payroll taxes and other costs relating to employees of Tenant (the foregoing costs shall not include salaries and other employee costs of executive personnel of Tenant who do not work at the Leased Property on a regular basis; except that the foregoing costs shall include the allocable portion of the salary and other employee costs of any general manager or other supervisory personnel (not including regional vice presidents or regional sales people) assigned to a "cluster" of independent living or assisted living and dementia care facilities which includes the Leased Property); 2. departmental expenses incurred at departments within the Leased Property; administrative and general expenses; the cost of marketing incurred by the Leased Property; advertising and business promotion incurred by the Leased Property; heat, light, and power; and computer line charges; 3. the cost of Inventories and P&E consumed in the operation of the Leased Property; 4. a reasonable reserve for uncollectible accounts receivable as determined by the Tenant; 5. all costs and fees of independent professionals or other third parties who are retained by Tenant to perform services required or permitted hereunder; 6. all costs and fees of technical consultants and operational experts who are retained or employed by Tenant for specialized services (including, without limitation, quality assurance inspectors) and the cost of attendance by employees of the Leased Property at training and manpower development programs sponsored by Tenant; 7. Additional Charges as referenced in Section 3.4 of the Agreement; 8. payments made into the Reserve pursuant to Section 5.2 of the Agreement; 9. management fees paid to any approved manager and such other costs and expenses incurred by an approved manager as are specifically provided for under any approved management agreement or are otherwise reasonably necessary for the proper and efficient operating of the Leased Property; 10. the term "Property Expenses" shall not include (a) debt service payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment leases or other forms of financing obtained for the Tenant's Personal Property, (c) rental payments pursuant to any ground lease of the Land, (d) any indebtedness of Tenant, or (e) any employee claim which is not covered by H-1 insurance and where the basis of such employee claim is conduct by Tenant or its manager which is (i) a substantial violation of the standards of responsible labor relations as generally practiced by prudent owners or operators of similar retirement community operations in the state in which the Facility is situated, and (ii) not the isolated act of individual employees, but rather is a direct result of corporate policies of Tenant or any manager. Neither revenues from the Facility, nor any disbursement from the Reserve, shall be used by Tenant to pay the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or 9(e) above. Notwithstanding the foregoing definition of "Property Expenses," the financial and other informational reports and statements to be provided pursuant to the Lease may be provided by Tenant consistent with Tenant's standard information reporting practices, provided that any omitted or varying item under such practices is identified and separately scheduled as adjustments if necessary to determine any financial or economic amount relevant to the Lease or if otherwise requested in writing by Landlord. H-2 EXHIBIT "I" Initial Landlord P&E I-1 EXHIBIT "J" Initial Tenant Personal Property (a) The right to use the tradename "ARC," "American Retirement Corporation," and any variations thereof; (b) Independent living facility licenses and Assisted living and Alzheimer's/dementia care licenses, if any, and any liquor licenses; (c) Any vans, cars or other motor vehicles; and (d) Any proprietary software of Tenant and its Affiliated Persons not including, however, information and data relating to the Leased Property and the ownership, operation and occupancy thereof, which information and data shall remain available to Landlord at all times during and be transferred to Landlord immediately upon the expiration or any early termination of the Lease Term. J-1 EXHIBIT "K" Landlord's Assumed Financing 1. The Leased Property is subject to certain existing GMAC Commercial Mortgage Corporation ("GMACCM") Loan Documents ("Loan Documents") as defined under that certain Agreement of Assumption and Modification of Mortgage, Note and Other Loan Documents dated of even date with this Lease and entered into by Tenant, Landlord, GMACCM and others (the "Assumption Agreement") to reflect Landlord's assumption of the Loan Documents and the first mortgage loan thereunder (the "Loan") in connection with the sale of the Leased Property from Tenant to Landlord. 2. Tenant has assigned to Landlord the tax, insurance and debt service reserve escrows held by GMACCM under the Loan Documents, and the current balance thereof has been credited (and will continue to be credited, regardless of whether or not the funds remain in escrow under the Loan Documents) by Landlord towards the Security Deposit required to be paid by Tenant under this Lease. In the event that any further deposits are required under the terms of the Loan Documents then the same shall, at the request of Landlord, be made and deposited by Tenant to and for the benefit of Landlord, as an additional Security Deposit under this Lease, and any such additional deposits in excess of the required amount of the Security Deposit as stated in this Lease which are released by GMACCM shall be refunded to Tenant as a release and reduction of any such additional Security Deposit amounts paid by Tenant hereunder. 3. Notwithstanding any provision of the Lease to the contrary, Tenant may and shall enter into all Loan Documents in respect of Tenant's interests in the Facility as are required by GMACCM and provided for under and in connection with the Assumption Agreement, and agrees with and in favor of Landlord, as an additional covenant under this Lease, to fully and timely perform and satisfy all of Tenant's obligations thereunder and that the indemnification of Landlord by Tenant under Article 14 of this Lease shall include any and all liabilities and damages incurred or suffered by Landlord arising directly or indirectly form or out of Tenant's failure to fully and timely perform all such obligations. 4. Pursuant to and consistent with the provisions of Section 3.7 of the Lease, and the agreement of Tenant and Landlord that this Lease shall constitute an absolute triple net lease, Tenant further covenants and agrees with Landlord to perform and undertake all obligations set forth in the Loan Documents relating to the use, operation, condition and status of the Facility and the obligations of Tenant (including any provisions to the effect that Landlord shall or may cause Tenant to undertake or refrain from some act or action) and all undertakings and agreements in connection therewith, not including however: (a) any obligation to pay scheduled payments of principal and interest or any sums due and payable at the scheduled maturity of the Loan; or (b) any obligation which by its terms or nature relates solely to Landlord, is susceptible to being performed solely by Landlord, or would not constitute a type of obligation which would reasonably be considered within the scope of a tenant obligation under an absolute triple net lease. K-1 EX-10.3 5 g76095ex10-3.txt LEASE AGREEMENT DATED 3-21-02 EXHIBIT 10.3 Heritage Club at Greenwood Village Denver, Arapahoe County, Colorado LEASE AGREEMENT DATED AS OF MARCH 21, 2002 BY AND BETWEEN CNL RETIREMENT - AM/COLORADO LP, a Delaware limited partnership, AS LANDLORD, AND ARC GREENWOOD VILLAGE, INC., a Tennessee corporation, AS TENANT TABLE OF CONTENTS ARTICLE 1........................................................................................1 DEFINITIONS...................................................................................1 ARTICLE 2.......................................................................................12 LEASED PROPERTY AND TERM.....................................................................12 2.1 Leased Property.....................................................................12 2.2 Condition of Leased Property........................................................13 2.3 Initial Term........................................................................13 2.4 Extended Term.......................................................................13 2.5 Yield Up............................................................................13 ARTICLE 3.......................................................................................14 RENT.........................................................................................14 3.1 Rent................................................................................14 3.2 Minimum Rent........................................................................14 3.3 Percentage Rent.....................................................................15 3.4 Additional Charges..................................................................17 3.5 Landlord Advances...................................................................18 3.6 Late Payment of Rent................................................................18 3.7 Net Lease...........................................................................18 3.8 No Abatement of Rent................................................................19 3.9 Tenant Shortfall Reserve Requirement................................................19 3.10 Tenant Security Deposit.............................................................21 3.11 Security for all ARC-Related Leases.................................................21 3.12 Security Agreement..................................................................21 ARTICLE 4.......................................................................................22 USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS.............................................22 4.1 Permitted Use.......................................................................22 4.2 Environmental Matters...............................................................23 4.3 Conflicting Businesses Prohibited...................................................23 4.4 Continuous Operations...............................................................24 4.5 Compliance With Restrictions, Etc...................................................24 4.6 Standard of Operation...............................................................24 4.7 Resident Agreements and Service Licenses............................................26 4.8 Standards, Not Control..............................................................26 4.9 Survival............................................................................26 ARTICLE 5.......................................................................................27 MAINTENANCE AND REPAIRS......................................................................27 5.1 Tenant's Obligations................................................................27 5.2 Reserve.............................................................................27 ARTICLE 6.......................................................................................30 IMPROVEMENTS, ETC............................................................................30 6.1 Prohibition.........................................................................30 i 6.2 Permitted Renovations...............................................................30 6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....31 6.4 Salvage.............................................................................32 ARTICLE 7.......................................................................................32 LANDLORD'S INTEREST NOT SUBJECT TO LIENS.....................................................32 7.1 Liens, Generally....................................................................32 7.2 Construction or Mechanics Liens.....................................................32 7.3 Contest of Liens....................................................................33 7.4 Notices of Commencement of Construction.............................................33 ARTICLE 8.......................................................................................34 TAXES AND ASSESSMENTS........................................................................34 8.1 Obligation to Pay Taxes and Assessments.............................................34 8.2 Tenant's Right to Contest Taxes.....................................................34 8.3 Tax and Insurance Escrow Account....................................................35 ARTICLE 9.......................................................................................35 INSURANCE....................................................................................35 9.1 General Insurance Requirements......................................................35 9.2 Waiver of Subrogation...............................................................37 9.3 General Provisions..................................................................37 9.4 Blanket Policy......................................................................38 9.5 Indemnification of Landlord.........................................................38 ARTICLE 10......................................................................................39 CASUALTY.....................................................................................39 10.1 Restoration and Repair..............................................................39 10.2 Escrow and Disbursement of Insurance Proceeds.......................................39 10.3 No Abatement of Rent................................................................40 10.4 Tenant's Property and Business Interruption Insurance...............................40 10.5 Restoration of Tenant's Property....................................................41 10.6 Waiver..............................................................................41 ARTICLE 11......................................................................................41 CONDEMNATION.................................................................................41 11.1 Total Condemnation, Etc.............................................................41 11.2 Partial Condemnation................................................................41 11.3 Disbursement of Award...............................................................41 11.4 No Abatement of Rent................................................................42 11.5 Disputes............................................................................42 ARTICLE 12......................................................................................42 DEFAULTS AND REMEDIES........................................................................42 12.1 Events of Default...................................................................42 12.2 Remedies on Default.................................................................44 12.3 Application of Funds................................................................48 12.4 Landlord's Right to Cure Tenant's Default...........................................48 ii 12.5 Landlord's Lien.....................................................................48 ARTICLE 13......................................................................................49 HOLDING OVER.................................................................................49 ARTICLE 14......................................................................................49 LIABILITY OF LANDLORD; INDEMNIFICATION.......................................................49 14.1 Liability of Landlord...............................................................49 14.2 Indemnification of Landlord.........................................................49 14.3 Notice of Claim or Suit.............................................................50 14.4 Limitation on Liability of Landlord.................................................50 ARTICLE 15......................................................................................51 REIT AND UBTI REQUIREMENTS...................................................................51 15.1 Limitations on Rents Attributable to Personal Property..............................51 15.2 Basis for Sublease Rent Restricted..................................................51 15.3 Landlord Affiliate Subleases Restricted.............................................51 15.4 Landlord Interests in Tenant Restricted.............................................52 15.5 Rents from Personal Property Restricted.............................................52 15.6 Landlord Services...................................................................52 15.7 Certain Subtenants Prohibited.......................................................52 15.8 Future Amendment....................................................................52 ARTICLE 16......................................................................................52 SUBLETTING AND ASSIGNMENT....................................................................52 16.1 Transfers Prohibited Without Consent................................................52 16.2 Indirect Transfer Prohibited Without Consent........................................53 16.3 Adequate Assurances.................................................................53 ARTICLE 17......................................................................................54 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...............................................54 17.1 Estoppel Certificates...............................................................54 17.2 Monthly Financial Statements........................................................54 17.3 Annual Financial Statements.........................................................54 17.4 Records.............................................................................55 17.5 General Operations Budget...........................................................55 17.6 Quarterly Meetings..................................................................55 ARTICLE 18......................................................................................55 LANDLORD'S RIGHT TO INSPECT..................................................................55 ARTICLE 19......................................................................................56 FACILITY MORTGAGES...........................................................................56 19.1 Subordination.......................................................................56 19.2 Attornment..........................................................................57 19.3 Rights of Mortgagees and Assignees..................................................57 iii ARTICLE 20......................................................................................57 ADDITIONAL COVENANTS OF TENANT...............................................................57 20.1 Conduct of Business.................................................................57 20.2 Additional Covenants of Tenant......................................................58 20.3 Tenant a Single Purpose Entity......................................................59 20.4 Intentionally Omitted...............................................................59 ARTICLE 21......................................................................................59 MISCELLANEOUS................................................................................59 21.1 Limitation on Payment of Rent.......................................................59 21.2 No Waiver...........................................................................60 21.3 Remedies Cumulative.................................................................60 21.4 Severability........................................................................60 21.5 Acceptance of Surrender.............................................................60 21.6 No Merger of Title..................................................................60 21.7 Tenant's Representations............................................................61 21.8 Quiet Enjoyment.....................................................................62 21.9 Recordation of Memorandum of Lease..................................................63 21.10 Notices. (a)...................................................................63 21.11 Construction; Nonrecourse........................................................64 21.12 Counterparts; Headings...........................................................64 21.13 Applicable Law...................................................................65 21.14 Right to Make Agreement..........................................................65 21.15 Brokerage........................................................................65 21.16 No Partnership or Joint Venture..................................................65 21.17 Entire Agreement.................................................................65 21.18 Costs and Attorneys' Fees........................................................65 21.19 Approval of Landlord.............................................................66 21.20 Successors and Assigns...........................................................66 21.21 Waiver of Jury Trial.............................................................66 21.22 Treatment of Lease...............................................................66 21.23 Transfer of Licenses.............................................................66 21.24 Tenant's Personal Property.......................................................66 21.25 Landlord's Representations.......................................................67 21.26 Guaranty of Lease................................................................67 21.27 Guaranty of ARC-Related Leases...................................................67 EXHIBITS Exhibit "A" - The Land Exhibit "B" - Minimum Rent Exhibit "C" - Appraisal Process Exhibit "D" - Tenant Estoppel Certificate Exhibit "E" - Memorandum of Lease Exhibit "F" - Single Purpose Entity Requirements Exhibit "G" - Tenant Equity Ownership Exhibit "H" - Property Expenses Exhibit "I" - Initial Landlord P&E Exhibit "J" - Initial Tenant Personal Property Exhibit "K" - Fallback Shortfall Assumption iv LEASE AGREEMENT THIS LEASE AGREEMENT is entered into as of March 21, 2002, by and between CNL RETIREMENT - AM/COLORADO LP, a Delaware limited partnership, as landlord ("Landlord"), and ARC GREENWOOD VILLAGE, INC., a Tennessee corporation, as tenant ("Tenant"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, Landlord has heretofore acquired fee simple title to the Land and the Facility (these and other capitalized terms used and not otherwise defined herein having the meanings ascribed to such terms in Article 1); and WHEREAS, Landlord wishes to lease the Leased Property to Tenant and Tenant wishes to lease the Leased Property from Landlord, all subject to and upon the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: ARTICLE 1 DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article and used in this Agreement shall have the meanings assigned to them in this Article and include the plural as well as the singular, (ii) all accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with GAAP, (iii) all references in this Agreement to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement, and (iv) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. "Accessibility Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations, relating to accessibility for the disabled or handicapped, including, but not limited to, any applicable provisions of The Architectural Barriers Act of 1968, The Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With Disabilities Act, the accessibility code(s), if any, of the State in which the Leased Property is located, and all regulations and guidelines promulgated under any all of the foregoing, as the same may be amended from time to time. 1 "Accounting Period" shall mean each calendar month accounting period of Tenant. If Tenant shall, for a bona fide business reason, change its accounting period during the Term, appropriate adjustments, if any, shall be made with respect to the timing of applicable accounting and reporting requirements of this Agreement; provided, however, that in no event shall any such change or adjustment alter the amount or frequency of payment of Minimum Rent within any Fiscal Year, or alter the frequency of payment of Percentage Rent to less than four (4) times within any Fiscal Year, or otherwise increase or reduce any monetary obligation under this Agreement. "Accounting Year" shall mean each period of twelve (12) consecutive Accounting Periods during the Term of this Agreement; the first Accounting Year shall commence with the first full Accounting Period after the Commencement Date of this Agreement. "Additional Charges" shall have the meaning given such term in Section 3.4. "Additional Rent" shall have the meaning given such term in Section 3.5. "Affiliated Person" shall mean, with respect to any Person, (i) any Person directly or indirectly Controlling, Controlled by or under common Control with any such Person, (ii) in the case of any such Person which is a partnership, any partner in such partnership, (iii) in the case of any such Person which is a limited liability company, any member of such company, (iv) in the case of any such Person which is a corporation, any officer, director or stockholder of such corporation, (v) any other Person which is a Parent, a Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or more of the Persons referred to in the preceding clauses (i) through (iv), (vi) any other Person who is an officer, director, trustee or employee of, or partner in, such Person or any Person referred to in the preceding clauses (i) through (v) and (vii) any other Person who is a member of, or trustee of any trust for the benefit of, the Immediate Family of such Person or of any Person referred to in the preceding clauses (i) through (vi). Provided, however, a Person shall not be deemed to be an Affiliated Person solely by virtue of the ownership of shares of stock registered under the Securities Act of 1934, as amended, unless such Person, as holder of such stock, is required to file a Schedule 13 D, pursuant to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder. "Agreement" shall mean this Lease Agreement, including all Exhibits hereto, as it and they may be amended or restated from time to time as herein provided. "Annual Operations Statement" shall have the meaning given such term in Section 3.3.2. "Applicable Laws" shall mean all applicable laws, statutes, regulations, rules, ordinances, codes, licenses, permits and orders, from time to time in existence, of all courts of competent jurisdiction and Government Agencies, and all applicable judicial and administrative and regulatory decrees, judgments and orders, including common law rulings and determinations of any kind, including without limitation, those relating to (i) damage to, or the protection of real or personal property, (ii) human health and safety (except those requirements which, by definition, are solely the responsibility of employers), (iii) the Environment, including, without limitation, all valid and lawful requirements of courts and other Government Agencies pertaining to reporting, licensing, permitting, investigation, remediation and removal of underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or emissions, discharges, releases or threatened releases of Hazardous Substances, chemical substances, pesticides, petroleum or petroleum products, 2 pollutants, contaminants or hazardous or toxic substances, materials or wastes whether solid, liquid or gaseous in nature, into the Environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances, underground improvements (including, without limitation, treatment or storage tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or toxic substances, materials or wastes, whether solid, liquid or gaseous in nature, (iv) Accessibility Laws, (v) dementia care/assisted facility licensure or (vi) participation in Medicare or Medicaid programs. "Applicable Reserve Percentage" shall mean, with respect to any Accounting Period, or portion thereof, the greater of $250.00 per year per licensed bed or living unit located on the Leased Property, prorated for such Accounting Period and divided by and expressed as a percentage of Total Facility Revenues for such Accounting Period, or (i) with respect to the period beginning on the later to occur of the Opening Date or the Commencement Date and ending on the last day of the twenty-fourth (24th) full Accounting Period next following, one percent (1%) of Total Facility Revenue; (ii) with respect to the twenty-fifth (25th) through sixtieth (60th) full Accounting Periods next following the Opening Date, two percent (2%) of Total Facility Revenue, and, (iii) with respect to each Accounting Period thereafter, two and five-tenths percent (2.5%) of Total Facility Revenue. "Approved Reserve Estimate" shall have the meaning given such term in Section 5.2.3. "ARC-Related Leases" shall mean, collectively, all present and future property leases between Landlord or CNL Retirement, or any Affiliated Person of Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any Affiliated Person of Tenant or Guarantor, as tenant. "Business Day" shall mean any day other than Saturday, Sunday, or any other day on which banking institutions in the State are authorized by law or executive action to close. "Calculation Period" shall mean each successive period of four (4) consecutive Fiscal Quarters commencing with the first Fiscal Quarter following the acquisition by Landlord of the Leased Property. "Cash Available for Lease Payments" shall mean for any Calculation Period the remainder of (i) Total Facility Revenue for the Leased Property during such Calculation Period, less (ii) Property Expenses for the Leased Property for the same Calculation Period. "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland corporation. "Code" shall mean the Internal Revenue Code of 1986 and, to the extent applicable, the Treasury Regulations promulgated thereunder, each as amended from time to time. "Commencement Date" shall mean the date of this Agreement. "Condemnation" shall mean (a) the exercise of any governmental power with respect to the Leased Property, whether by legal proceedings or otherwise, by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of the Leased Property by Landlord to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending, or (c) a taking or voluntary conveyance of all or part of the Leased Property, or any interest therein, or right 3 accruing thereto or use thereof, as the result or in settlement of any Condemnation or other eminent domain proceeding affecting the Leased Property, whether or not the same shall have actually been commenced. "Condemnor" shall mean any public or quasi-public authority, or Person having the power of Condemnation. "Conflicting Business" shall have the meaning given such term in Section 4.3. "Control" (including the correlative meanings of the terms "Controlling", "Controlled by", and "under common control with") as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person whether through the ownership of voting securities, by contract or otherwise. "CRC" shall mean CNL Retirement Corp., a Florida corporation. "Default" shall mean any event or condition existing which with the giving of notice and/or lapse of time would ripen into an Event of Default. "Disbursement Rate" shall mean an annual rate of interest equal to the greater of, as of the date of determination, (i) ten percent (10.00%) and (ii) the per annum rate for ten (10) year U.S. Treasury Obligations as published in The Wall Street Journal plus three hundred fifty (350) basis points. "Distribution" shall mean (a) any declaration or payment of any dividend on or in respect of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any cash distributions in respect of any partnership interests or membership interests in Tenant, if Tenant is a partnership or a limited liability company, (b) any purchase, redemption, retirement or other acquisition of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any purchase, redemption, retirement or other acquisition of any partnership or membership interests in Tenant, if Tenant is a partnership or a limited liability company, (c) any other distribution on or in respect of any shares of any class of capital stock of Tenant, if Tenant is a corporation, or any other distribution in respect of any partnership interests or membership interests in Tenant, if Tenant is a partnership or a limited liability company, or (d) any return of capital to shareholders of Tenant, if Tenant is a corporation, or any return of capital to partners of Tenant, if Tenant is a partnership or a limited liability company. "Entity" shall mean any corporation, general or limited partnership, limited liability company, partnership, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, cooperative, any government or agency or political subdivision thereof or any other entity. "Environment" shall mean soil, surface waters, ground waters, land, streams, sediments, surface or subsurface strata and ambient air. "Event of Default" shall have the meaning given such term in Section 12.1. "Extended Terms" shall have the meaning given such term in Section 2.4. 4 "Facility" shall mean the skilled nursing, assisted living and dementia care facility located and operated on the Land. "Facility Mortgage" shall mean any encumbrance placed upon the Leased Property as referenced in Article 19. "Fiscal Quarter" shall mean the first, second, third and fourth three-month period (each consisting of three Accounting Periods) during each Fiscal Year. "Fiscal Year" shall mean Tenant's Fiscal Year which as of the Commencement Date begins on January 1 and ends on December 31 in each calendar year. Any partial Fiscal Year between the Commencement Date and the commencement of the first full Fiscal Year (except with respect to the calculation and payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall constitute a separate Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the termination of this Agreement shall also constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the future, appropriate adjustments to this Agreement's reporting and accounting procedures shall be made; provided, however, that no such change or adjustment shall alter the Term of this Agreement or in any way reduce the distribution of Percentage Rent or other payments due hereunder. Each full Fiscal Year shall consist of twelve Accounting Periods. "Force Majeure Event" means any circumstance which is not in the reasonable control of either party hereto, caused by any of the following: strikes, lockouts; acts of God; civil commotion; fire or any other casualty; governmental action; or other similar cause or circumstance which is not in the reasonable control of either party hereto. Neither lack of financing nor general economic and/or market factors is a Force Majeure Event. "GAAP" shall mean generally accepted accounting principles consistently applied. "Guarantor" shall mean American Retirement Corporation, a Tennessee corporation ("Guarantor"). "Government Agencies" shall mean any legislative body, court, agency, authority, board (including, without limitation, health and long term care, environmental protection, planning and zoning), bureau, commission, department, office or instrumentality of any nature whatsoever of any governmental or quasi-governmental unit of the United States or the State or any county or any political subdivision of any of the foregoing, whether now or hereafter in existence, having jurisdiction over Tenant or the Leased Property or any portion thereof or the skilled nursing, assisted living and dementia care facility operated thereon. "Hazardous Substances" shall mean any substance: (a) the presence of which requires or may hereafter require notification, investigation or remediation under any federal, state or local statute, regulation, rule, ordinance, order, action or policy; or (b) which is or becomes defined as a "hazardous waste", "hazardous material" or "hazardous substance" or "pollutant" or "contaminant" under any present or future federal, state 5 or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the regulations promulgated thereunder; or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, any state of the United States, or any political subdivision thereof; or (d) the presence of which on the Leased Property causes or materially threatens to cause an unlawful nuisance upon the Leased Property or to adjacent properties or poses or materially threatens to pose a hazard to the Leased Property or to the health or safety of persons on or about the Leased Property; or (e) without limitation, which contains gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds; or (f) without limitation, which contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or (g) without limitation, which contains or emits radioactive particles, waves or material; or (h) without limitation, constitutes materials which are now or may hereafter be subject to regulation pursuant to the Material Waste Tracking Act of 1988, or any Applicable Laws promulgated by any Government Agencies. "Immediate Family" shall mean, with respect to any individual, such individual's spouse, parents, brothers, sisters, children (natural or adopted), stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law, sisters-in-law, nephews and nieces. "Indebtedness" shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor's balance sheet as liabilities. "Initial Landlord P&E" shall mean and refer to all P&E of any kind or description which are located on or in the Leased Improvements as of the Commencement Date, including without limitation those items enumerated on Exhibit "I" attached hereto and made a part hereof, but specifically excluding any specific items of Tenant's Personal Property identified on Exhibit "J" attached hereto and made a part hereof. "Initial Term" shall have the meaning given such term in Section 2.3. "Insurance Requirements" shall mean all terms of any insurance policy required by this Agreement and all requirements of the issuer of any such policy and all orders, rules and regulations and any other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) binding upon Landlord, Tenant or the Leased Property. 6 "Inventories" shall mean all inventories, as such term is customarily used and defined in its most broad and inclusive sense including, but not limited to, all inventories of food, beverages and other consumables held by Tenant for sale or use at or from the Leased Property or the Facility, and soap, cleaning supplies, paper supplies, operating supplies, china, glassware, silver, linen, uniforms, building and maintenance supplies, spare parts and attic stock, medical supplies, drugs and all other such goods, wares and merchandise held by Tenant for sale to or for consumption by residents or patients of the Leased Property or the Facility and all such other goods returned to or repossessed by Tenant. "Land" shall have the meaning given such term in Section 2.1(a). "Landlord" shall have the meaning given such term in the preambles to this Agreement and shall include its successors and assigns. "Landlord's Original Investment" shall mean the sum of Seventeen Million Eight Hundred Sixty-Five Thousand Three Hundred Seventy-Five and NO/100 Dollars ($17,865,375.00), which represents, for purposes of this Lease, Landlord's total acquisition and transactional costs incurred in acquiring the Leased Property. "Lease" shall mean this Lease Agreement, including all Exhibits hereto, as it and they may be amended or restated from time to time as herein provided. "Lease Year" shall mean any Fiscal Year during the Term and any partial Fiscal Year at the beginning or end of the Term. "Leased Improvements" shall have the meaning given such term in Section 2.1(b). "Leased Intangible Property" shall mean all transferable or assignable (a) governmental permits, including licenses and authorizations, required for the construction, ownership and operation of the Leased Improvements, including without limitation, certificates of need, certificates of authority, certificates of occupancy, building permits, signage permits, site use approvals, zoning certificates, environmental and land use permits and any and all necessary approvals from state or local authorities and other approvals granted by any public body or by any private party pursuant to a recorded instrument relating to such Leased Improvements or the Land; (b) development rights, trade names, telephone exchange numbers identified with the Leased Property, if any (specifically excluding, however, any specific items of Tenant's Personal Property identified on Exhibit "J" hereto); and (c) certificates, licenses, warranties and guarantees and contracts other than such permits, operating permits, certificates, licenses and approvals which are to held by, or transferred to, the Tenant in order to permit the Tenant to operate such Leased Improvements properly and in accordance with the terms of this Agreement. "Leased Property" shall have the meaning given such term in Section 2.1. "Legal Requirements" shall mean all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Leased Property or the maintenance, construction, alteration or operation thereof, whether now or hereafter enacted or in existence, including, without limitation, (a) all permits, licenses, authorizations, 7 certificates and regulations necessary to operate the Leased Property for its Permitted Use, (b) all covenants, agreements, declarations, restrictions and encumbrances contained in any instruments at any time in force affecting the Leased Property or to which Tenant has consented or which are required to be granted pursuant to Applicable Laws, including those which may (i) require material repairs, modifications or alterations in or to the Leased Property or (ii) in any way materially and adversely affect the use and enjoyment thereof, but excluding any requirements arising as a result of Landlord's status as a real estate investment trust, and (c) Applicable Laws. "Lien" shall mean any mortgage, security interest, pledge, collateral assignment, or other encumbrance, lien or charge of any kind, or any transfer of property or assets for the payment of Indebtedness or performance of any other obligation in priority to payment of the obligor's general creditors. "Major Alterations" shall have the meaning given such term in Section 6.2.2. "Major Violation" shall mean any violation of Applicable Laws relating to the use, operation or maintenance of the Facility or to the care of residents which presents an imminent danger to the residents or guests of the Facility or a substantial probability that death or serious harm would result therefrom. "Minimum Rent" shall mean annual rent as set forth in Section 3.2, subject to prorations and adjustments as set forth in Section 3.2. "Minimum Rent Coverage" shall mean the quotient, expressed as a ratio, of (i) the total Cash Available for Lease Payments during the Calculation Period divided by the (ii) total Minimum Rent paid under this Agreement for the Leased Property during such Calculation Period. "Minor Alterations" shall have the meaning given such term in Section 6.2.1. "Mortgagee" shall mean the holder of any Facility Mortgage. "Notice" shall mean a notice given in accordance with Section 21.10. "Opening Date" shall mean the date on which the Facility first opened for business to the general public. "Overdue Rate" shall mean, on any date, a per annum rate of interest equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then permitted under applicable law. "P&E" shall mean all items of personal property, as defined under the Model Uniform Commercial Code, including, but not limited to: (a) all equipment, machinery, fixtures, and other items of property, now or hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which, to the maximum extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions 8 thereto; (b) all furniture, furnishings, movable walls or partitions, computers or trade fixtures or other personal property of any kind or description used or useful in Tenant's business on or in the Leased Improvements, and located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such personal property; (c) all linen, china, glassware, tableware, uniforms and similar items, whether used in connection with public space or tenant rooms; and (d) "Property and Equipment," "P&E," and "FF&E" (as such terms are customarily used and defined in the most broad and inclusive sense), as well as all other items included within the category of Inventory; and all including, without limitation, the Initial Landlord P&E, but not including, however, any item of Tenant's Personal Property identified in Exhibit "J" hereto. "P&E Replacements" shall mean all items purchased with funds from the Reserve established under Article 5 of this Lease and all other items of P&E added and used at the Leased Property during the Term of this Lease, together with all leasehold improvements made by Tenant during the Term of this Lease to the extent not constituting real property affixed to the Land, whether purchased from the Reserve or with other funds of Tenant, all subject to disposal and further replacement at the end of their useful lives. "Parent" shall mean, with respect to any Person, any Person which directly, or indirectly through one or more Subsidiaries or Affiliated Persons, (i) owns more than fifty percent (50%) of the voting or beneficial interest in, or (ii) otherwise has the right or power (whether by contract, through ownership of securities or otherwise) to control, such Person. "Percentage Rent" shall have the meaning given such term in Section 3.3. "Permits" means all licenses, permits and certificates used or useful in connection with the ownership, operation, use or occupancy of the Leased Property or the Facility, including, without limitation, business licenses, state department of public health and environment licenses, licenses required by long term care facilities, licenses required by personal care boarding homes, food service licenses, licenses to conduct business, certificates of need and all such other permits, licenses and rights, obtained from any governmental, quasi-governmental or private person or entity whatsoever. "Permitted Encumbrances" shall mean all rights, restrictions, and easements of record set forth on Schedule B to the applicable owner's title insurance policy issued to Landlord for the Land, plus any other such encumbrances as may have been consented to in writing by Landlord from time to time. "Permitted Renovations" shall have the meaning given that term in Section 6.2. "Permitted Use" shall mean any use of the Leased Property permitted pursuant to Section 4.1.1. "Person" shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so admits. "Property Expenses" shall mean those expenses more particularly described on Exhibit "H" attached hereto. "Proscribed Area" shall have the meaning given such term in Section 4.3. 9 "Reimbursement Contracts" means all third party reimbursement contracts for the Facility which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including private insurance agreements, Medicare and Medicaid and any successor program or other similar reimbursement program and/or private insurance agreements. "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and Additional Rent. "Reserve" shall have the meaning given such term in Section 5.2. "Reserve Estimate" shall have the meaning given such term in Section 5.2. "Reserve Expenditures" shall have the meaning given such term in Section 5.2. "SEC" shall mean the Securities and Exchange Commission. "Security Deposit" shall have the meaning given such term in Section 3.10. "Shortfall" shall mean, for any Accounting Period, the amount, if any, by which (i) all Minimum Rent paid by Tenant (or payable pursuant to the terms of this Agreement, whichever is greater) plus all Property Expenses paid during such Accounting Period, exceeds (ii) the total amount of Total Facility Revenue derived from the Leased Property during such Accounting Period. The Shortfall for any Accounting Period shall in no event be less than zero. "Shortfall Amount Funded" shall mean, for any period, the cumulative amount of any and all Shortfalls funded by or on behalf of Tenant during such period. "Shortfall Forecast" shall mean, for each Calculation Period beginning during the Term of the Lease until such time, if ever, as the Shortfall Reserve Requirement shall no longer apply, the cumulative sum of any and all forecasted Shortfalls as estimated in good faith and certified to Landlord by Tenant and approved by Landlord for such Calculation Period in accordance with Section 3.9. "Shortfall Reserve Period" shall mean the period commencing with the Commencement Date and ending only at such time as the Shortfall Reserve Requirement is no longer applicable as provided in Section 3.9. "Shortfall Reserve Requirement" shall at any time mean the greater of (a) one hundred and twenty-five percent (125%) of the Shortfall Forecast, if any, for the then current and following three (3) Fiscal Quarters (calculated as of the commencement of the then-current Fiscal Quarter), less the amount of any Shortfall Amount Funded during the current Fiscal Quarter; or (b) three hundred percent (300%) of the Shortfall, if any, during the most recent Accounting Period. "Single Purpose Entity" shall have the meaning given such term in Exhibit "F" attached hereto. "State" shall mean the State in which the Facility is located. "Subsidiary" shall mean, with respect to any Person, any Entity in which such Person directly, or indirectly through one or more Subsidiaries or Affiliated Persons, (a) owns more than fifty percent 10 (50%) of the voting or beneficial interest or (b) which such Person otherwise has the right or power to control (whether by contract, through ownership of securities or otherwise). "Tax and Insurance Account" shall have the meaning given such term in Section 8.3. "Tax and Insurance Escrow Amount" shall have the meaning given such term in Section 8.3. "Tenant" shall be the entity identified in the preamble to this Agreement and shall include its successors and assigns expressly permitted hereunder. "Tenant Shortfall Reserve" shall have the meaning given such term in Section 3.9. "Tenant's Personal Property" shall mean any specific items of P&E listed in Exhibit "J" to this Lease, or replacements for such items or items within any specific categories of P&E listed in Exhibit "J" to this Lease which hereafter are acquired by Tenant with its own funds after the Commencement Date and located at the Leased Property (but not including any property purchased with funds from the Reserve established under Section 5.2). "Term" shall mean, collectively, the Initial Term and the Extended Terms, unless sooner terminated pursuant to the provisions of this Agreement. "Threshold" shall mean the sum of Total Facility Revenue for the twelve (12) Accounting Periods ending on the end of the thirty-sixth (36th) full Accounting Period following the Commencement Date. "Total Facility Revenue" shall mean, for the applicable period of time, but without duplication, all gross revenues and receipts of every kind derived by or for the benefit of Tenant, or its Affiliated Persons from operating or causing the operation of the Leased Property and all parts thereof, including, but not limited to: income from both cash and credit transactions (after reasonable deductions for bad debts and discounts for prompt or cash payments and refunds) from rental or subleasing of every kind; entrance fees, fees for health care and personal care services, license, lease and concession fees and rentals, off premises catering, if any, and parking (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise (other than proceeds from the sale of furnishings, fixtures and equipment no longer necessary to the operation of the Facility, which shall be deposited in the Reserve) and service charges, to the extent not distributed to employees at the Facility as gratuities; provided, however, that Total Facility Revenue shall not include the following: gratuities to Facility employees; federal, state or municipal excise, sales, occupancy, use or similar taxes collected directly from residents or included as part of the sales price of any goods or services; insurance proceeds; any proceeds from any sale of the Leased Property or from the refinancing of any debt encumbering the Leased Property; proceeds from the disposition of furnishings, fixture and equipment no longer necessary for the operation of the Facility; and interest which accrues on amounts deposited in the Reserve. "Unsuitable for Its Permitted Use" shall mean a state or condition of the Leased Property such that following any damage or destruction involving the Leased Property, the Leased Property cannot be operated in the reasonable judgement of Landlord (after conferring with Tenant) on a commercially 11 practicable basis for its Permitted Use and it cannot reasonably be expected to be restored to substantially the same condition as existed before such damage or destruction and as is otherwise required by Article 12 within (i) twelve (12) months following such damage or destruction, or (ii) eighteen (18) months following such damage or destruction in the event that Tenant has extended the term of the business income insurance to pay at least eighteen (18) months Rent for the benefit of Landlord or provides other reasonably acceptable security for any uninsured portion of the eighteen (18) months Rent. ARTICLE 2 LEASED PROPERTY AND TERM 2.1 Leased Property. Upon and subject to the terms and conditions hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord all of Landlord's right, title and interest in and to all of the following (collectively, the "Leased Property"): (a) all that certain tract, piece and parcel of land, as more particularly described in Exhibit "A", attached hereto and made a part hereof (the "Land"); (b) the Facility, all buildings, structures and other improvements of every kind, including without limitation all roofs, plumbing systems, electric systems and HVAC systems, roadways, alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility pipes, conduits and lines (on-site and off-site) appurtenant to or presently situated upon the Land (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements; (d) all P&E and Inventory; (e) all moveable machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures located on or in the Leased Improvements, and all modifications, replacements, alterations and additions to such property, but specifically excluding all items included within the category of Tenant's Personal Property; (f) all of the Leased Intangible Property; (g) any and all subleases of space in the Leased Improvements to subtenants thereof; and (h) All other property and interests in property conveyed or assigned to Landlord pursuant to the Real Estate Purchase and Sale Agreement governing the sale and conveyance of the Leased Property from Guarantor to Landlord dated as of February 11, 2002 (the "Purchase Agreement"). 12 2.2 Condition of Leased Property. Tenant acknowledges and agrees that the Leased Property is and shall be leased by Landlord to Tenant and from Landlord by Tenant in its present "as is" condition, subject to the existing state of title and all applicable legal or governmental requirements, and Landlord makes absolutely no representations or warranties whatsoever with respect to the Leased Property or the condition thereof. Tenant acknowledges that Landlord has not investigated and does not warrant or represent to Tenant that the Leased Property is fit for the purposes intended by Tenant or for any other purpose or purposes whatsoever, and Tenant acknowledges that the Leased Property is to be leased to Tenant in its existing condition, i.e., "as-is", and "where-is", without any representation or warranty as to habitability or fitness for any particular purpose, on and as of the Commencement Date. Tenant represents and acknowledges that all permits, licenses and approvals required by any governmental or quasi-governmental, body, department, commission, board, bureau, instrumentality or officer, or otherwise appropriate with respect to the construction, operation, leasing, maintenance or use of the Leased Property or any part thereof, have been issued, are past all appeals periods and are valid and in full force and effect and that no provision, condition or limitation of any of the same has been breached or violated. Tenant acknowledges that Tenant shall be solely responsible for any and all actions, repairs, permits, approvals and costs required for the rehabilitation, renovation, use, occupancy and operation of the Leased Property in accordance with applicable governmental requirements, foreseen or unforeseen, including, without limitation, all governmental charges and fees, if any, which may be due or payable to applicable authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants and represents that Tenant has examined and approved all things concerning the Leased Property which Tenant deems material to Tenant's leasing and use of the Leased Property. Tenant further acknowledges and agrees that (a) neither Landlord nor any agent of Landlord has made any representation or warranty, express or implied, concerning the Leased Property or which have induced Tenant to execute this Agreement and (b) any other representations and warranties are expressly disclaimed by Landlord. 2.3 Initial Term. The initial term of this Agreement (the "Initial Term") shall commence on the Commencement Date and shall terminate and expire at 11:59 p.m. on the last calendar day of the month on which the fifteenth (15th) annual anniversary of the Commencement Date shall occur. 2.4 Extended Term. Tenant shall have and is hereby granted two (2) option(s) to extend this Agreement for an additional five (5) years each (individually an "Extended Term"), upon the same terms, covenants, conditions and rental as set forth herein; provided there exists no continuing Event of Default hereunder, or Default which Tenant has had an opportunity but failed to cure as provided hereunder, during any applicable cure hereunder at the commencement of the respective Extended Term. Tenant may exercise each such five (5) year option successively by giving written notice to Landlord not less than twelve (12) months nor more than eighteen (18) months prior to the respective expiration of the Initial Term of this Agreement or of the then applicable Extended Term. Should Tenant fail to give Landlord such timely written notice during the required period, all remaining rights of renewal shall automatically expire. 2.5 Yield Up. Tenant shall, on or before the last day of the Term or upon the sooner termination thereof, peaceably and quietly surrender and deliver to Landlord the Leased Property, including, without limitation, all Leased Improvements and P&E and all additions thereto and replacements thereof made from time to time during the Term, together with and including without limitation the P&E Replacements, in good order, condition and repair, reasonable wear and tear 13 excepted, and free and clear of all liens and encumbrances (other than Permitted Encumbrances, liens or encumbrances in favor of or granted by Landlord, and any other encumbrances expressly permitted under the terms of this Agreement). Tenant acknowledges that both the Initial Landlord P&E described on Exhibit "I" attached hereto and consumable items of Inventory located at the Leased Property as of the Commencement Date may be completely consumed and/or otherwise disposed of in the course of operation of the Leased Property during the Term of this Agreement. Tenant agrees that, at the expiration or earlier termination of this Agreement, at Landlord's option: (i) Tenant shall fully restore the Initial Landlord P&E, inclusive with and after consideration of all P&E Replacements which will become the property of Landlord, to at least the approximate types and amounts (with reasonably equivalent value) as shown on Exhibit "I", and shall fully restore an adequate supply of Inventory consistent with the full stocking levels to be maintained by Tenant pursuant to Section 4.6 of this Lease (or a full thirty days supply, which ever is greater), or (ii) Landlord shall deduct the then-current value of amounts needed to fully restore the required P&E and Inventory, as aforesaid, to the extent that this sum exceeds the Reserve amount to be transferred to Landlord under Section 5.2.6 hereof, from the Security Deposit. ARTICLE 3 RENT 3.1 Rent. Tenant shall pay, in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset, abatement, demand or deduction (unless otherwise expressly provided in this Agreement), Rent to Landlord during the Term at the address to which notices to Landlord are to be given or to such other party or to such other address as Landlord may designate from time to time by written notice to Tenant. All payments to Landlord shall be made by wire transfer of immediately available federal funds or by other means acceptable to Landlord in its sole discretion and all such payments shall, upon receipt by Landlord, be and remain the sole and absolute property of Landlord. If Landlord shall at any time accept any such Rent or other sums after the same shall become due and payable, or any partial payment of Rent, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. 3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum Rent") to Landlord in equal installments in advance, on the first (1st) Business Day of each Accounting Period; provided, however, that the first payment of Minimum Rent shall be payable on the Commencement Date. Further, if applicable, the first payment of Minimum Rent and the last payment of Minimum Rent shall be prorated on a per diem basis provided, however, that for purposes of Minimum Rent, any prorated payment for any partial Accounting Period prior to the first full Accounting Period shall be prorated based upon the installment of Minimum Rent payable for the first full Accounting Period, and any prorated Rent at the end of the Term shall be prorated based upon the installment of Minimum Rent payable for the last full Accounting Period. 3.2.1 Calculation of Initial Term Minimum Rent. Subject to proration as set forth above, Tenant shall pay Minimum Rent during each Accounting Year of the Initial Term of this Agreement in the amounts set forth on Exhibit "B" attached hereto and made a part hereof. 14 3.2.2 Calculation of Extended Term Minimum Rent. Subject to proration as set forth above, Tenant shall pay Minimum Rent under this Agreement during the first Accounting Year of each Extended Term in an amount equal to the greater of: (a) two and five-tenths percent (2.5%) over the amount of Minimum Rent due in the immediately preceding Accounting Year; or (b) the product of the fair market value of the Leased Property on the date of Tenant's Notice of exercise pursuant to Section 2.4, times ten percent (10.00%). Minimum Rent for each Accounting Year after the first Accounting Year in an Extended Term shall increase by two percent (2%) over the amount of Minimum Rent due in the immediately preceding Accounting Year. If within ten (10) days of the date of Tenant's Notice of exercise pursuant to Section 2.4, Landlord and Tenant are unable to agree on the fair market value of the Premises for purposes of this calculation, such fair market value shall be established by the appraisal process described on Exhibit "C" attached hereto. Landlord and Tenant acknowledge and agree that this Section is designed to establish a fair market Minimum Rent for the Leased Property during each applicable Extended Term. In the event that the Minimum Rent for the applicable Extended Term is not finally determined by such appraisal process prior to the commencement of the Extended Term, then in such event until such amount is finally determined the Tenant shall pay to Landlord as "Interim Rent" for the Extended Term an amount equal to one hundred twenty-five percent (125%) of the established Minimum Rent as of the end of the Accounting Year immediately preceding the Extended Term until such appraisal process and any dispute relating thereto is finally resolved. In such an event, the amount of any differential between the Interim Rent and Minimum Rent established shall, if resulting in an underpayment, be paid by Tenant to Landlord within fifteen (15) days, or if resulting in an overpayment be credited by Landlord against the next installment(s) of Rent coming due hereunder. 3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent, Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal Year or portion thereof. Installments of Percentage Rent shall be due and payable in arrears within thirty (30) days after the end of each Fiscal Quarter of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter and an allocation of one-quarter of the Threshold amount to each such Fiscal Quarter; provided, however, that no Percentage Rent shall be payable hereunder with respect to the initial portion of the Term ending on the end of the thirty-sixth (36th) full Accounting Period following the Commencement Date. Along with each Percentage Rent payment Tenant shall submit to Landlord an unaudited (but certified by a duly authorized officer of Tenant) statement showing a detailed breakdown of the calculation of Percentage Rent for that Fiscal Quarter and Fiscal Year-to-date on a cumulative basis. Percentage Rent for any partial Fiscal Quarter in the final Fiscal Year shall be prorated proportionately. Tenant's obligation to pay Percentage Rent for the Fiscal Quarter which includes the date of termination of this Agreement shall survive the termination hereof. 3.3.1 Calculation of Percentage Rent. Subject to proration as set forth above, Tenant shall pay Percentage Rent in respect of each Fiscal Year under this Agreement equal to (a) ten percent (10%) of the Total Facility Revenue for such Fiscal Year in excess of the Threshold, 15 less (b) the amount by which annual Minimum Rent in the Fiscal Year for which Percentage Rent is being calculated exceeds the amount of annual Minimum Rent due for the first (1st) Accounting Year under this Agreement. 3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no later than ninety (90) days following the end of each Fiscal Year during the Term hereof furnish to Landlord for such Fiscal Year a complete statement (the "Annual Operations Statement") certified true and correct by the Chief Financial Officer of Tenant and the Chief Financial Officer of the Guarantor, setting forth, with respect to such Fiscal Year in reasonable detail the Total Facility Revenue derived by or for the benefit of Tenant in respect of such Fiscal Year. If the Annual Operations Statement for any Fiscal Year indicates that the aggregate of the installment payments theretofore made with respect to such Fiscal Year pursuant to Section 3.3.1 exceeds the Percentage Rent due for such Fiscal Year, Landlord shall credit such overpayment against the next installment or installments of Minimum Rent falling due (or will pay the amount of such overpayment to Tenant if this Agreement shall have terminated other than by reason of Tenant's default or if Landlord so elects to do so). If, on the other hand, the Annual Operations Statement indicates that the aggregate of the installment payments theretofore made with respect to such Fiscal Year is less than the Percentage Rent due for such Fiscal Year then Tenant shall pay the balance or excess, as the case may be, together with interest thereon determined as set forth below in this paragraph, to Landlord concurrently with the submission of the Annual Operations Statement. Interest shall accrue on payments pursuant to this paragraph at the Disbursement Rate from the date when first due and payable until the date when the adjusted amount is fully paid in the manner as set forth above, except to the extent of de minimus adjustments of not more than ten percent (10%) of the amount initially paid resulting from the calculation method used or unintentional errors which could not reasonably have been avoided by reasonable care and diligence. 3.3.3 Landlord Audit of Annual Operations Statement. Notwithstanding the foregoing, Landlord at its own expense, except as provided hereinbelow, shall have the right, exercisable by Notice to Tenant given within 270 days after receipt of the applicable Annual Operations Statement, by its accountants or representatives, to commence within such 270 day period an audit of the information set forth in such Annual Operations Statement and, in connection with such audit, to examine all of Tenant's books and records with respect thereto (including supporting data and sales and excise tax returns); provided, however, if Landlord reasonably believes Tenant has intentionally misrepresented Total Facility Revenue on any such Annual Operations Statement, the said 270 day period shall commence to run on the date Landlord obtains credible evidence that Tenant has intentionally misrepresented Total Facility Revenue on any such Annual Operations Statement. If Landlord does not commence an audit with such 270 day period, such Annual Operations Statement shall be deemed to be accepted by Landlord as correct. Landlord shall use commercially reasonable efforts to complete any such audit as soon as practicable. If such audit discloses a deficiency in the payment of Percentage Rent, Tenant shall forthwith pay to Landlord the amount of the deficiency, together with interest at the Disbursement Rate from the date such payment should have been made to the date of payment therefore. If such deficiency is more than three percent (3%) of the Total Facility Revenue reported by Tenant for such Fiscal Year, Tenant shall also pay the costs of such audit and examination. 16 3.4 Additional Charges. In addition to the Minimum Rent and Percentage Rent payable hereunder, Tenant shall pay to the appropriate parties and discharge as and when due and payable hereunder the following (collectively the "Additional Charges"): 3.4.1 Taxes and Assessments. Tenant shall pay or cause to be paid all taxes and assessments required to be paid pursuant to Article 8. 3.4.2 Utility Charges. Tenant shall be liable for and shall promptly pay directly to the utility company all deposits, charges and fees (together with any applicable taxes or assessments thereon) when due for water, gas, electricity, air conditioning, heat, septic, sewer, refuse collection, telephone and any other utility charges, impact fees, or similar items in connection with the use or occupancy of the Leased Property. Landlord shall not be responsible or liable in any way whatsoever for the quality, quantity, impairment, interruption, stoppage, or other interference with any utility service, including, without limitation, water, air conditioning, heat, gas, electric current for light and power, telephone, or any other utility service provided to or serving the Leased Property. No interruption, termination or cessation of utility services shall relieve Tenant of its duties and obligations pursuant to this Agreement, including, without limitation, its obligation to pay all Rent as and when the same shall be due hereunder. 3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid all premiums for the insurance coverage required to be maintained pursuant to Article 9. 3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid all fees, dues and charges of any kind which are necessary in order to acquire and keep in effect and good standing all licenses and permits required for operation of the Leased Property in accordance with the terms of Article 4. 3.4.5 Sales Tax. Simultaneously with each payment of Rent and Additional Charges hereunder, Tenant shall pay to Landlord the amount of any applicable sales, use, excise or similar or other tax on any such Rent and Additional Charges, whether the same be levied, imposed or assessed by the State in which the Leased Property is located or any Governmental Agencies, but specifically excluding any income taxes imposed on Landlord's net income. Landlord shall, upon written request by Tenant, provide to Tenant on an annual basis such reasonable information in Landlord's possession or control as shall be necessary to enable Tenant to pay such tax. 3.4.6 Other Charges. Tenant shall pay or cause to be paid all other amounts, liabilities and obligations arising in connection with the Leased Property except those obligations expressly stated not to be an obligation of Tenant pursuant to this Agreement. 3.4.7 Penalties and Interest. Tenant shall pay or cause to be paid every fine, penalty, interest and cost which may be added for non-payment or late payment of the items referenced in this Section 3.4. 17 Tenant shall prepare and file at its expense, to the extent required or permitted by Applicable Laws, all tax returns and other reports in respect of any Additional Charge as may be required by Governmental Agencies. 3.5 Landlord Advances. Except as specifically provided otherwise in this Agreement, if Tenant does not pay or discharge all Additional Charges, and provide proof of payment if requested by Landlord, at least fifteen (15) days prior to delinquency, Landlord shall have the right but not the obligation to pay such Additional Charges on behalf of Tenant. If Landlord shall make any such expenditure for which Tenant is responsible or liable under this Agreement, or if Tenant shall become obligated to Landlord under this Agreement for any other sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount thereof shall be deemed to constitute "Additional Rent" and shall be due and payable by Tenant to Landlord, together with interest at the Overdue Rate and all applicable sales or other taxes thereon, if any, simultaneously with the next succeeding monthly installment of Minimum Rent or at such other time as may be expressly provided in this Agreement for the payment of the same. 3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on or before the fifth business day after the date such payment is due and payable, Tenant shall pay to Landlord an administrative late charge of five percent (5%) of the amount of such payment. In addition, such past due payment shall bear interest at the Overdue Rate from the date first due until paid. Such late charge and interest shall constitute Additional Rent and shall be due and payable with the next installment of Rent due hereunder. 3.7 Net Lease. Landlord and Tenant acknowledge and agree that both parties intend that this Agreement shall be and constitute what is generally referred to in the real estate industry as a "triple net" or "absolute net" lease, such that Tenant shall be obligated hereunder to pay all costs and expenses incurred with respect to, and associated with, the Leased Property and all personal property thereon and therein and the business operated thereon and therein, including, without limitation, all taxes and assessments, utility charges, insurance costs, maintenance costs and repair, replacement and restoration expenses (all as more particularly herein provided), together with any and all other assessments, charges, costs and expenses of any kind or nature whatsoever related to, or associated with, the Leased Property and the business operated thereon and therein, other than Landlord's financing costs and expenses and related debt service; provided, however, that Landlord shall nonetheless be obligated to pay Landlord's personal income taxes with respect to the Rent and other amounts received by Landlord under this Agreement. Except as expressly hereinabove provided, Landlord shall bear no cost or expense of any type or nature with respect to, or associated with, the Leased Property. Except to the extent otherwise expressly provided in this Agreement, it is agreed and intended that Rent payable hereunder by Tenant shall be paid without notice, demand, counterclaim, set-off, deduction or defense and without abatement, suspension, deferment, diminution or reduction and that Tenant's obligation to pay Rent throughout the Term and any applicable Extended Term is absolute and unconditional and the respective obligations and liabilities of Tenant and Landlord hereunder shall in no way be released, discharged or otherwise affected for any reason, including without limitation: (a) any defect in the condition, merchantability, design, quality or fitness for use of the Leased Property or any part thereof, or the failure of the Leased Property to comply with Applicable Laws, including any inability to occupy or use the Leased Property by reason of such non-compliance; (b) any damage to, removal, abandonment, salvage, loss, condemnation, theft, scrapping or destruction of or any requisition or 18 taking of the Leased Property or any part thereof, or any environmental condition on the Leased Property or any property in the vicinity of the Leased Property; (c) any restriction, prevention or curtailment of or interference with any use of the Leased Property or any part thereof, including eviction; (d) any defect in title to or rights to the Leased Property or any lien on such title or rights to the Leased Property; (e) any change, waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by any Person; (f) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to Tenant or any other Person or any action taken with respect to this Agreement by any trustee or receiver of Tenant or any other Person or by any court, in any such proceedings; (g) any right or claim that Tenant has or might have against any Person, including, without limitation, Landlord or any vendor, manufacturer or contractor of or for the Leased Property (other than a claim resulting from any willful misconduct or gross negligence of Landlord); (h) any failure on the part of Landlord or any other Person to perform or comply with any of the terms of this Agreement, or of any other agreement; (i) any invalidity, unenforceability, rejection or disaffirmance of this Agreement by operation of law or otherwise against or by Tenant or any provision hereof; (j) the impossibility of performance by Tenant or Landlord, or both; (k) any action by any court, administrative agency or other Government Agencies; (l) any interference, interruption or cessation in the use, possession or quiet enjoyment of the Leased Property or otherwise; or (m) any other occurrence whatsoever whether similar or dissimilar to the foregoing, whether foreseeable or unforeseeable, and whether or not Tenant shall have notice or knowledge of any of the foregoing. Except as specifically set forth in this Agreement, this Agreement shall be non-cancellable by Tenant for any reason whatsoever and, except as expressly provided in this Agreement Tenant, to the extent now or hereafter permitted by Applicable Laws, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Agreement or to any diminution, abatement or reduction of Rent payable hereunder. Except as specifically set forth in this Agreement, under no circumstances or conditions shall Landlord be expected or required to make any payment of any kind hereunder or have any obligations with respect to the use, possession, control, maintenance, alteration, rebuilding, replacing, repair, restoration or operation of all or any part of the Leased Property, so long as the Leased Property or any part thereof is subject to this Agreement, and Tenant expressly waives the right to perform any such action at the expense of Landlord pursuant to any law. 3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of Rent, charges or other compensation, or (b) of Tenant's other obligations hereunder shall be allowed to Tenant or any person claiming under Tenant, under any circumstances or for any reason whatsoever and to the maximum extent permitted by law, Tenant hereby waives the application of any local or state statutes, land rules, regulations or ordinance providing to the contrary. 3.9 Tenant Shortfall Reserve Requirement. Tenant shall, commencing with the Commencement Date and at all times required by this Section 3.9, maintain a minimum liquid net worth (i.e., a net worth in cash or other available cash equivalent funds of Tenant, and not of any other Person, acceptable to and approved by Landlord and maintained in such bank accounts or other investments or accounts as are approved in advance by Landlord) at all times equal to the amount of the Shortfall Reserve Requirement (the "Tenant Shortfall Reserve"). Subject to the rights and security interests of Landlord as provided herein, the Tenant shall continue to be the owner of and shall be entitled to all interest, proceeds and profits of the Tenant Shortfall Reserve. For purposes hereof the 19 initial amount of the Tenant Shortfall Reserve has been established by the parties as One Hundred Ninety-Seven Thousand Eight Hundred Seventeen and No/100 Dollars ($197,817.00). 3.9.1 Disbursements from the Shortfall Reserve. Provided that no uncured Default shall exist and the Lease is in good standing in all respects, and Landlord has approved and verified in its reasonable discretion the most recently updated Shortfall Reserve Requirement and the existence and amount of the Tenant Shortfall Reserve: (a) Tenant may, from time to time and at its option, withdraw or disburse sums from the Shortfall Reserve to cover (or reimburse Tenant or its designee for) Shortfall Amounts Funded since the commencement of the then-current Fiscal Quarter so long as (a) contemporaneously with such withdrawal or disbursement Tenant delivers written notice thereof to Landlord, and (b) the withdrawal or disbursement of funds does not cause the amount of the Tenant Shortfall Reserve to fall below the Shortfall Reserve Requirement; and (b) any amount of the Tenant Shortfall Reserve in excess of the Shortfall Reserve Requirement, as determined hereunder, may be withdrawn by Tenant at any time so long as Tenant provides contemporaneous written notice of such withdrawal to Landlord. 3.9.2 Reporting and Calculation of the Shortfall Reserve Requirement. Throughout the Shortfall Reserve Period, in addition to other financial information to be reported to Landlord hereunder Tenant shall provide to Landlord, on or before the tenth (10th) day of each Accounting Period, updated evidence of the existence and amount of the Tenant Shortfall Reserve as herein required, as of the last day of the prior Accounting Period, in the form of bank account ledgers and statements, together with (a) a statement, certified by the Chief Financial Officer of Tenant, of the amount of the Shortfall for the immediately preceding Accounting Period and the Shortfall Reserve Requirement amount as of the first day of the current Accounting Period as calculated by Tenant; (b) evidence that the Tenant Shortfall Reserve has been increased, if necessary, to equal the full amount of the updated Shortfall Reserve Requirement; and (c) such other documentation reasonably requested by Landlord to evidence the foregoing. In addition, no more than twenty (20) and not less than ten (10) days prior to the commencement of each Fiscal Quarter during the Shortfall Reserve Period the Tenant shall provide to Landlord an updated pro forma income statement/revenue and expense budget for the following four Fiscal Quarters, prepared on a cash basis, all in a form approved in writing by Landlord as sufficient to provide a reasonable Shortfall Forecast of potential Shortfalls during such Calculation Period. 3.9.3 Term of the Shortfall Reserve Requirement. The Tenant Shortfall Reserve Requirement shall remain in full force and effect until the earlier to occur of (a) the last day of the first Calculation Period during which the Minimum Rent Coverage averages 1.10 to 1 or higher, or the last calendar day of the month on which the second (2nd) annual anniversary of the Commencement Date shall occur, whichever is later, or (b) the day on which a termination of this Agreement occurs pursuant to the terms hereof, other than a termination due to an Event of Default by Tenant; but thereafter shall terminate, and be of no further force or effect (in 20 which event the balance of the Tenant Shortfall Reserve shall be disbursed to or at the direction of Tenant). 3.10 Tenant Security Deposit. On the Commencement Date Tenant shall deposit with Landlord in cash the sum of Seven Hundred Fourteen Thousand Six Hundred Fifteen and No/100 Dollars ($714,615.00), as a security deposit (the "Security Deposit"), for Tenant's faithful performance of all of Tenant's obligations under this Agreement. If Tenant fails to pay Rent or Additional Charges due hereunder, fails to fund Reserve Expenditures which exceed available funds in the Reserve, or otherwise defaults with respect to any provision of this Agreement, then in addition to and not exclusive of any other remedies available under this Agreement, Landlord may use, apply or retain all or any portion of the Security Deposit for the payment of any Rent, the funding of Additional Charges or Reserve Expenditures or other charges in default, or for the payment of any sum to which Landlord may become obligated by reason of Tenant's default. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general accounts. If Tenant performs all of Tenant's obligations hereunder, at the expiration of the Term, and after Tenant has vacated the Leased Property, the Security Deposit, or so much thereof as has not been applied or used by Landlord as provided in this Agreement, shall be returned to Tenant, without payment of interest or other increment for its use. No trust relationship is created herein between Landlord and Tenant with respect to the Security Deposit. The Security Deposit shall be paid by Tenant to Landlord upon the Commencement Date. 3.11 Security for all ARC-Related Leases. Tenant acknowledges that the Security Deposit constitutes security for the faithful observance and performance by Tenant of all the terms, covenants and conditions of this Agreement and of all ARC-Related Leases (whether now in effect or entered into in the future) to be observed and performed. If any Event of Default shall occur and be continuing under this Agreement, Landlord may, at its option and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply, first, the amount of the Security Deposit in accordance with the terms set forth herein and, second, the amount of any other security deposits under all ARC-Related Leases (herein the "Collective Security Deposit") as may be necessary to compensate Landlord toward the payment of the Rent or other sums due Landlord under this Agreement as a result of such breach by Tenant. Additionally, Landlord may, if any Event of Default shall occur and be continuing under any other ARC-Related Lease, appropriate and apply the Security Deposit after first applying the security deposit under such other ARC-Related Lease that is in default. It is understood and agreed that neither the Security Deposit nor the Collective Security Deposit is to be considered as prepaid rent, nor shall damages be limited to the amount of the Collective Security Deposit. 3.12 Security Agreement. Tenant hereby grants to Landlord a security interest in the Security Deposit, Tenant Shortfall Reserve and the Reserve as set forth below, as security for all obligations of the Guarantor and as further security for Tenant's obligations to Landlord hereunder, and agrees to execute and deliver all such instruments as may be required by Landlord to evidence and perfect these security interests. 21 ARTICLE 4 USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS 4.1 Permitted Use. 4.1.1 Permitted Use. Tenant covenants and agrees that it shall, throughout the Term of this Agreement, continuously use and occupy the Leased Property solely and exclusively as a first class licensed skilled nursing, assisted living and dementia care facility, and for such other uses as may be necessary or incidental to such use (such as services provided directly to residents by Tenant or under Service Licenses, as such term is defined below), with appropriate amenities for the same and for no other purpose without interruption except for minimum necessary interruptions in respect to portions of the Leased Property for periods provided herein for repairs, renovations, replacements and rebuilding all of which shall be carried out pursuant to, and in accordance with the applicable provisions of this Agreement (the foregoing being referred to as the "Permitted Use"). Without the prior written consent of the Landlord, no Affiliated Person of Tenant may be a subtenant or concessionaire in the Leased Property, provided however that Landlord hereby consents and agrees that a qualified and fully-insured Affiliated Person of Tenant may provide therapy and therapy-related services at the Facility for customary and appropriate charges. No use shall be made or permitted to be made of the Leased Property and no acts shall be done thereon which will cause the cancellation of any insurance policy covering the Leased Property or any part thereof (unless another adequate policy is available), nor shall Tenant sell or otherwise provide or permit to be kept, used or sold in or about the Leased Property any article which may be prohibited by law or by the standard form of fire insurance policies, or any other insurance policies required to be carried hereunder, or fire underwriter's regulations. Tenant shall, at its sole cost, comply with all Insurance Requirements. Tenant shall not take or omit to take any action, the taking or omission of which materially impairs the value or the usefulness of the Leased Property or any part thereof for its Permitted Use, or causes the Leased Premises to no longer be considered a first class facility. 4.1.2 Necessary Approvals. Tenant shall maintain in good standing all Permits and approvals necessary to use and operate, for its Permitted Use, the Leased Property and the Facility located thereon under Applicable Law and shall provide to Landlord a copy of Tenant's federal, state and Medicare survey regarding the Facility, and such other information or documents pertaining to said approvals. Landlord shall at no cost or liability to Landlord cooperate with Tenant in this regard, limited to executing all applications and consents required to be signed by Landlord in order for Tenant to obtain and maintain such approvals. 4.1.3 Lawful Use, Etc. Tenant shall not use or suffer or permit the use of the Leased Property or Tenant's Personal Property, if any, for any unlawful purpose. Tenant shall not commit or suffer to be committed any waste on the Leased Property, or in the Facility, nor shall Tenant cause or permit any unlawful nuisance thereon or therein. Tenant shall not suffer nor permit the Leased Property, or any portion thereof, to be used in such a manner as (i) might reasonably impair Landlord's title thereto or to any portion thereof, or (ii) might reasonably 22 allow a claim or claims for adverse usage or adverse possession by the public, as such, or of implied dedication of the Leased Property or any portion thereof. 4.1.4 Compliance with Legal Requirements. Tenant shall at all times at its sole cost and expense, keep and maintain the Leased Property in compliance with all Legal Requirements. Tenant agrees to give Landlord Notice of any notices, orders or other communications relating to Legal Requirements affecting the Leased Property which is or are enacted, passed, promulgated, made, issued or adopted, a copy of which is served upon, or received by, Tenant, or a copy of which is posted on or fastened or attached to the Leased Property, within ten (10) business days after service, receipt, posting, fastening or attaching. At the same time, the Tenant will inform Landlord as to the work or steps which Tenant proposes to do or take in order to comply therewith. 4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant shall at all times during the Term keep the Leased Property free of Hazardous Substances. Neither Tenant nor any of its employees, agents, invitees, licensees, contractors, guests, or subtenants (if permitted) shall use, generate, manufacture, refine, treat, process, produce, store, deposit, handle, transport, release, or dispose of Hazardous Substances in, on or about the Leased Property or the groundwater thereof, in violation of any federal, state or municipal law, decision, statute, rule, ordinance or regulation currently in existence or hereafter enacted or rendered. Tenant shall give Landlord prompt Notice of any claim received by Tenant from any person, entity, or Governmental Agencies that a release or disposal of Hazardous Substances has occurred on the Leased Property or the groundwater thereof. Tenant shall not discharge or permit to be discharged into any septic facility or sanitary sewer system serving the Leased Property any toxic or hazardous sewage or waste other than that which is permitted by Applicable Law or which is normal domestic waste water for the type of business contemplated by this Agreement to be conducted by Tenant on, in or from the Leased Property. Any toxic or hazardous sewage or waste which is produced or generated in connection with the use or operation of the Leased Property shall be handled and disposed of as required by and in compliance with all applicable local, state and federal laws, ordinances and rules or regulations or shall be pre-treated to the level of domestic wastewater prior to discharge into any septic facility or sanitary sewer system serving the Leased Property. 4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent payable by Tenant to Landlord under this Agreement have been established at the levels specified in this Agreement upon the premise and with the expectation that the Minimum Rent and Percentage Rent may determine the market value of the Leased Property and constitute a material consideration for Landlord's willingness to execute this Agreement and thereby lease and demise the Leased Property to Tenant, and (b) that the operation, management, franchising or ownership by Tenant or an Affiliated Person of Tenant of another Facility of the Permitted Use as specified in Section 4.1.1 above (such other Facility being referred to herein as a "Conflicting Business") within a ten (10) mile radius of the Leased Property (the "Proscribed Area") will tend to result in a decrease in the amount of Total Facility Revenue which would otherwise reasonably be expected to be made upon, within and from the Leased Property and thereby result in a reduction of the market value of the Leased Property and a reduction in the Rent which would otherwise be received by Landlord pursuant to this Agreement in the absence of the operation of a 23 Conflicting Business by Tenant or any such Affiliated Person of Tenant within the Proscribed Area. Accordingly, Tenant on behalf of itself and such Affiliated Persons, agrees that during the Term of this Agreement neither Tenant, nor any Affiliated Person of Tenant shall open, develop, operate, manage, franchise, own, lease or have any other interest in a Conflicting Business within the Proscribed Area. In the event of a breach of this covenant, Landlord shall have the right to terminate this Agreement and retain the Security Deposit, and pursue any other remedy at law available to Landlord, including injunctive relief, or in lieu thereof but not in addition thereto, Landlord may, at its election, require that forty percent (40%) of all revenues (calculated in the same manner as if such revenues were Total Facility Revenue) of such Conflicting Business opened, operated, managed, leased, developed or owned by Tenant or any affiliated person of Tenant as defined in this Section within the Proscribed Area be included in the amount of Total Facility Revenue made from the Leased Property for purposes of the determination and calculation of the Percentage Rent due from Tenant to Landlord under this Agreement (i.e., as though such Total Facility Revenue of the Conflicting Business had actually been made upon, within and from the Leased Property). If Landlord so elects, all provisions of Article 17 of this Agreement relating to Tenant's maintenance and submission to Landlord of books, records and statements shall be applicable to all books, records and statements pertaining to any such Conflicting Businesses. Further, Tenant agrees that Tenant's sole business shall be to lease, and Tenant shall not incur any expenses or liability related to any business or activity other than leasing and operating, the Leased Property and other premises owned or hereinafter owned by Landlord or its Affiliated Persons pursuant to terms acceptable to Landlord and Tenant. Landlord will not unreasonably withhold its consent to a waiver of this Conflicting Business restriction for any Conflicting Business which is approximately five (5) or more miles away so long as Landlord is provided with evidence reasonably acceptable to it that the proposed Conflicting Business is not likely to draw from the demographic base otherwise available to support full occupancy of the Facility and/or a revenue protection agreement acceptable to Landlord with respect to adverse affects on Facility occupancy or residents tied to the Facility's identified demographic base served at the Conflicting Business. 4.4 Continuous Operations. Tenant shall continuously operate the Leased Property and maintain sufficient skilled staff and employees, either directly or through a qualified manager approved by Landlord, and shall maintain adequate levels and quality of Tenant's Personal Property, to operate the Leased Property as a first class skilled nursing, assisted living and dementia care facility as herein required at its sole cost and expense throughout the entire Term of this Agreement. 4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall comply with all restrictive covenants and other title exceptions affecting the Leased Property as of the date of this Lease and comply with and perform all of the obligations set forth in the same to the extent that the same are applicable to the Leased Property or to the extent that the same would, if not complied with or perform, impair or prevent the continued use, occupancy and operation of the Leased Property for the purposes set forth in this Agreement. Further, in addition to Tenant's payment obligations under this Agreement, Tenant shall pay all sums charged, levied or assessed under any restrictive covenants, declaration, reciprocal easement agreement or other title exceptions, equipment leases, leases and all other agreements affecting the Leased Property as of the date of this Lease promptly as the same become due and shall promptly furnish Landlord evidence of payment thereof. 4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant shall continuously operate the Leased Property in full compliance with the terms hereof in a manner consistent with the 24 level of operation of a national, first class skilled nursing, assisted living and dementia care facility, including without limitation, the following: (a) to maintain the standard of care for the residents/patients of the Facility at all times at a level necessary to ensure quality care for the residents/patients of the Facility in accordance with customary and prudent industry standards; (b) to operate the Facility in a prudent manner and in compliance with applicable laws and regulations relating thereto and cause all Permits, Reimbursement Contracts and any other agreements necessary for the use and operation of the Facility or as may be necessary for participation in applicable reimbursement programs; (c) to maintain sufficient P&E and Inventories, and Tenant Personal Property, of types and quantities at the Facility to enable Tenant adequately to perform operations of the Facility; and (d) to keep all Leased Improvements and P&E located on or used or useful in connection with the Facility in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needed and proper repairs, renewals, replacements, additions and improvements thereto to keep the same in good operating condition. (e) to maintain sufficient working capital to operate the Leased Premises as a first class facility (working capital shall mean assets which are reasonably necessary and used for the day to day operation of the Leased Premises, including, without limitation, amounts sufficient for the maintenance of change and petty cash funds, amounts deposited in operating bank accounts, receivables, prepaid expenses, and funds required to maintain Inventories and pay all operating expenses as they become due, less accounts payable and accrued current liabilities). (f) to operate and use the Leased Premises to a standard consistent with national chain first class skilled nursing, assisted living and dementia care facilities at least equal to or better in quality than skilled nursing, assisted living and dementia care facilities operated by Guarantor and its Affiliated Persons at the Commencement Date, and to operate the Facility only under the Guarantor's name, trademarks, logos and service marks, with all required licenses and permits for such operation, if any. (g) To follow and conform to all of the same operating, employment, marketing, insurance, risk management and management standards and practices employed at first class skilled nursing, assisted living and dementia care facilities operated by Guarantor and its Affiliated Persons. (h) Recruit, train and employ appropriate personnel, or retain management services from Guarantor or other qualified operator or service-provider approved by Landlord for same. 25 (i) Provide prompt written notice to Guarantor and to Landlord of material or extraordinary developments, lawsuits, violation of any Legal Requirements and fines relating to the use and operation of the Facility. Throughout the term of the Lease, Tenant shall continuously operate the Leased Property as a national, first-class skilled nursing, assisted living and dementia care facility in the manner set forth above, and to a standard consistent with national chain, first-class skilled nursing, assisted living and dementia care facilities at least equal to or better in quality than skilled nursing, assisted living and dementia care facilities operated currently by Guarantor under Guarantor's name, trademarks, logos and service marks. Tenant shall endeavor and use its best efforts to maximize Total Facility Revenue for the Leased Property. Tenant shall further provide, or cause to be provided, all group services, facilities and benefits generally available to a national chain, first-class skilled nursing, assisted living and dementia care facilities of a similar type operated elsewhere by Guarantor or any successor to Guarantor (or by other national operators of first class skilled nursing, assisted living and dementia care facilities, such as those operated by Marriott Senior Living Services). 4.7 Resident Agreements and Service Licenses. Tenant shall comply in all material respects with the terms and provisions of each agreement and undertaking entered into with or provided to the residents of the Facility ("Resident Agreements"), including without limitation to fulfill or cause to be fulfilled all undertakings and representations regarding the use, condition and operation of the Facility and services to provided the residents and the standards and services of and benefits to be provided by the Guarantor and its Affiliated Persons. In addition, Tenant shall comply in all material respects with the terms and conditions of any contract or license entered into with respect to the provision of services to the residents at the Facility ("Service Licenses"). 4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that Tenant is obligated to undertake such actions as are reasonably necessary to properly achieve the highest standard of operation for the Facility as set forth herein, and that although Landlord shall have the right to undertake all enforcement rights as provided herein in the event that the required standard of operation is not maintained by Tenant, the means and methods used and actions taken to operate the Facility are within the sole control and election of Tenant, and are not specified by or under the control of Landlord. Accordingly, Landlord shall have no responsibility for any action taken by Tenant in order to manage or operate the Facility. 4.9 Survival. As to conditions and uses of Tenant existing or occurring prior to the expiration or sooner termination of this Agreement, the provisions of this Section 4 shall survive the expiration or sooner termination of this Agreement to extent of any ongoing effects on Landlord or its successors with respect to the Facility (specifically including the prohibitions relating to conflicting businesses under Section 4.3. 26 ARTICLE 5 MAINTENANCE AND REPAIRS 5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense, keep the Leased Property in good order and repair, and shall promptly make all necessary and appropriate repairs and replacements thereto of every kind and nature, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the commencement of the Term and whether or not necessitated by wear, tear, obsolescence or defects, latent or otherwise, and shall use all reasonable precautions to prevent damage or injury. All repairs shall be made in a good, workmanlike manner, consistent with the industry standards for like skilled nursing, assisted living and dementia care facilities in like locales, in accordance with all applicable federal, state and local statutes, ordinances, by-laws, codes, rules and regulations relating to any such work. In addition, Tenant shall also, at its sole cost and expense, put, keep, replace and maintain Tenant's Personal Property in good repair and in good, safe and substantial order, howsoever the necessity or desirability for repairs may occur, and whether or not necessitated by wear, tear, obsolescence or defects. Tenant may at any time and from time to time remove and dispose of any of Tenant's Personal Property which has become obsolete or unfit for use or which is no longer useful in the operation of the Facility's business conducted by Tenant on the Leased Property; provided, however, that Tenant's Personal Property so disposed of shall be promptly replaced with other Tenant's Personal Property not necessarily of the same character, but of at least equal usefulness and quality as, and having a value at least equal to the value of, those disposed of, and in any event in accordance with and in compliance with the standards required by and the provisions of this Agreement. Tenant shall further at all times maintain the Leased Property, including the grounds and landscaping, in an aesthetically pleasing manner. Tenant shall be responsible for and shall pay all costs and expenses of the "Property Owner/Developer" associated with the reconfiguration of any roadways and entranceways as contemplated by the ARC Assisted Living Facilities Final Development Plan recorded in the public records of Arapahoe County, Colorado on April 22, 1998 at Reception Number A8058374. Tenant shall be responsible for and shall pay all costs and expenses associated with maintaining that certain letter of credit in the amount of Twenty One Thousand Six Hundred and No/100 Dollars ($21,600.00), or an acceptable renewal or replacement letter of credit, naming the City of Greenwood Village, Colorado as the beneficiary, securing the performance of certain landscaping obligations of American Retirement Corporation, and more particularly described in the letter from Shaw Flippen, Senior Vice President - Development/Construction, American Retirement Corporation to Heather Day of the Community Development Department, Greenwood Village Colorado dated October 25, 1999 to the extent that, and for so long as, such letter of credit is required by the City of Greenwood Village. 5.2 Reserve. 5.2.1 Tenant shall establish an interest bearing reserve account (the "Reserve") in a bank designated by Tenant and approved by Landlord. All interest earned on the Reserve shall be added to and remain a part of the Reserve. Both Tenant and Landlord shall be signatories on the Reserve, provided only one signature shall be required to withdraw funds and Landlord 27 agrees that so long as Tenant is not in default hereunder, Landlord shall not be required to sign on any checks and Landlord shall not withdraw any funds from such account. Upon the occurrence and continuation of any Default or Event of Default hereunder the Tenant signatory party shall no longer be an authorized signatory on the Reserve account. Such account shall be established in Landlord's name and control for the benefit of Tenant and shall not include or contemplate "overdraft protection" and Tenant shall not request or attempt to draw or draft any funds which are not actually on deposit in such account. The purpose of the Reserve is to cover the cost of the following, to the extent carried out in accordance with this Agreement (collectively, "Reserve Expenditures"): (a) Replacements (including P&E Replacements), renewals and additions to the P&E at the Facility; and (b) repairs, alterations, improvements, renewals, replacements and additions, whether routine, non-routine or major, to the Leased Improvements, including without limitation those which are normally capitalized under GAAP such as repairs, alterations, improvements, renewals, replacements and additions to the structure, the exterior facade, the mechanical, electrical, heating, ventilating, air conditioning, plumbing and vertical transportation elements of the Leased Improvements, which expenditures Tenant believes should be made for the Leased Property for the following Fiscal Year. 5.2.2 Commencing with the Commencement Date and continuing throughout the Term, Tenant shall on the last day of each Accounting Period during the Term, transfer into the Reserve an amount equal to the Applicable Reserve Percentage of Total Facility Revenues for such Accounting Period (based upon estimates of Total Facility Revenue if necessary, to be adjusted as soon as Tenant has had an opportunity to confirm actual Total Facility Revenue). At the time Tenant provides Landlord the documentation described in Section 3.3, Tenant shall also deliver to Landlord a statement setting forth the total amount of deposits made to and expenditures from the Reserve for the preceding Fiscal Year. 5.2.3 On or before December 1 of each Fiscal Year, Tenant shall prepare an estimate (the "Reserve Estimate") of Reserve Expenditures anticipated during the ensuing Fiscal Year and shall submit such Reserve Estimate to Landlord for its review. Such Reserve Estimate shall reflect by line item the projected budget for Reserve Expenditures for the Leased Property and assumptions on the basis of which such line items were prepared in narrative form if necessary, including separate budget items for all projected expenditures for replacements, substitutions and additions to Tenant's Personal Property. Tenant shall provide to Landlord reasonable additional detail, information and assumptions used in the preparation of the Reserve Estimate as requested by Landlord and shall also submit to Landlord with the Reserve Estimate good faith longer-range projections of planned Reserve Expenditures for an additional three (3) Fiscal Years. Tenant shall review the Reserve Estimate with Landlord, and subject to Landlord's approval, Tenant shall implement such Reserve Estimate for the successive Fiscal Year (during which it shall, if approved by Landlord, be referred to as the "Approved Reserve Estimate"). In addition, Landlord shall have the right to disapprove any expenditures to be made pursuant to the Reserve Estimate which are not in compliance with Applicable Laws. Further, Landlord's approval of any expenditure pursuant to the Reserve Estimate shall not be, 28 or be deemed to be, an assumption by Landlord of any liability in connection with the expenditures made. Pending resolution of any dispute, the specific disputed item of the Reserve Estimate shall be suspended and replaced for the Fiscal Year in question by an amount equal to the lesser of (a) that proposed by Tenant for such Fiscal Year or (b) such budget item for the Fiscal Year prior thereto. Tenant shall not make any expenditures from the Reserve, nor shall Tenant deviate from the Approved Reserve Estimate without the prior approval of Landlord, except in the case of emergency where immediate action is necessary to prevent imminent danger to person or property. 5.2.4 Tenant shall, consistent with the Approved Reserve Estimate, from time to time make Reserve Expenditures from the Reserve as it reasonably deems necessary in accordance with Section 5.2.1 and Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days after the end of each Fiscal Quarter, an itemized statement setting forth Reserve Expenditures made to date during the Fiscal Year. 5.2.5 In the event Reserve Expenditures not set forth in the Approved Reserve Estimate are required (i) as a result of Legal Requirements or are otherwise required for the continued safe and orderly operation of the Leased Property, (ii) due to an emergency threatening the Leased Property, its residents, patients, guests, invitees or employees, or (iii) because the continuation of a given condition will subject Tenant or Landlord to civil or criminal liability, Landlord agrees that it will not unreasonably withhold its approval of such expenditures. 5.2.6 All interest earned on the Reserve shall be added to and become a part thereof, and all property purchased with funds from the Reserve shall be and remain the property of Tenant until the end of the Term of the Lease or earlier expiration or termination of this Agreement (subject to Landlord's lien rights hereunder), at which time all P&E at the Leased Property, including without limitation all P&E Replacements or other items purchased with funds from the Reserve (but not including Tenant's Personal Property except as specifically provided herein) shall be and become the sole property of Landlord. All funds in the Reserve shall be and remain the property of Tenant throughout the Lease Term, subject to the control rights and liens and security interests of Landlord, but following expiration or earlier termination of this Agreement and payment in full on all contracts entered into prior to such expiration or termination for work to be done or furniture, furnishings, fixtures and equipment to be supplied in accordance with this Section 5.2 out of the Reserve, ownership of the Reserve shall be transferred from Tenant to Landlord except (provided Tenant is not in Default at the time of termination) to the extent of the amount, if any, by which Tenant's cumulative cash expenditures on P&E used solely at the Leased Property (not including any of Tenant's Personal Property which is not used at the Leased Property throughout the useful life thereof), less all amounts received upon any disposition thereof, exceeds the cumulative amount deposited by Tenant into the Reserve. It is understood and agreed that the Reserve pursuant to this Agreement shall be maintained and used solely in connection with the Leased Property. 5.2.7 If Landlord wishes to grant a security interest in or create another encumbrance on its interest in the Reserve in connection with a Facility Mortgage, all or any part of the existing or future funds therein, or any general intangible in connection therewith, the 29 instrument granting such security interest or creating such other encumbrance shall expressly provide that such security interest or encumbrance is prior in right to the rights of Tenant with respect to the Reserve as set forth herein, provided that the same is subject to a Tenant non-disturbance agreement as provided herein and the Mortgagee thereunder agrees to be responsible to Tenant and to properly disburse all amounts of the Reserve received by it for use and disposition as provided herein. 5.2.8 If, at any time, funds in the Reserve shall be insufficient or are reasonably projected by Tenant to be insufficient for necessary and permitted expenditures thereof or funding is necessary for Reserve Expenditures, Tenant shall give Landlord Notice thereof, which Notice shall set forth, in reasonable detail, the nature of the required or permitted action and the estimated cost thereof, and Tenant shall thereafter fund such additional Reserve Expenditures. ARTICLE 6 IMPROVEMENTS, ETC. 6.1 Prohibition. Except for work funded by Reserve Expenditures and Minor Alterations as hereinafter expressly provided in Section 6.2, no portion of the Leased Property shall be demolished, removed or altered by Tenant in any manner whatsoever without the prior written consent and approval of Landlord. Notwithstanding the foregoing, however, Tenant shall be entitled and obligated to undertake all alterations to the Leased Property required by any Legal Requirements and, in such event, Tenant shall comply with the provisions of Section 6.2 below. 6.2 Permitted Renovations. The activities permitted pursuant to Section 6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted Renovations". 6.2.1 Minor Alterations. Landlord acknowledges that certain minor, alterations and renovations may be undertaken by Tenant from time to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall be entitled to perform such Minor Alterations on or about the Leased Improvements; provided, however, that the cost of the same shall not exceed $20,000.00 and the same shall not weaken or impair the structural strength of the Leased Improvements, or alter their exterior design or appearance, materially impair the use of any of the service facilities located in, or fundamentally affect the character or suitability of, the Leased Improvements for the Permitted Use specified in Section 4.1.1 above or materially lessen or impair their value. 6.2.2 Additions, Expansions and Structural Alterations. Except as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing in this Article 6 or elsewhere in this Agreement shall be deemed to authorize Tenant to construct and erect any additions to or expansions of the Leased Improvements, or perform any alterations of a structural nature whatsoever (collectively referred to herein as the "Major Alterations"); it being understood that Tenant may do so only with the prior written consent and approval of Landlord, which consent and approval may be withheld by Landlord in its sole and absolute discretion and may be conditioned upon the 30 payment by Tenant to Landlord of all reasonable costs incurred by Landlord in evaluating the same. 6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations. In connection with any Reserve Expenditures, Permitted Renovations or Major Alterations of the Leased Property the following conditions shall be met, to wit: (a) Before the commencement of any such work, plans and specifications therefor or a detailed itemization thereof prepared by a licensed architect approved by Landlord or other design professional appropriate under the circumstances approved by Landlord and Tenant shall be furnished to Landlord for its review and approval. Such approval shall not constitute Landlord's agreement that the plans and specification are in compliance with Applicable Laws or an assumption by Landlord of any liability in connection with the renovation work contemplated thereby. (b) Before the commencement of any such work Tenant shall obtain the approval thereof by all Governmental Agencies having or claiming jurisdiction of or over the Leased Property, and with any public utility companies having an interest therein. In connection with any such work Tenant shall comply with all Legal Requirements and Applicable Laws, of all other Governmental Agencies having or claiming jurisdiction of or over the Leased Property and of all their respective departments, bureaus and offices, and with the requirements and regulations, if any, of such public utilities, of the insurance underwriting board or insurance inspection bureau having or claiming jurisdiction, or any other body exercising similar functions, and of all insurance companies then writing policies covering the Leased Property or any part thereof. (c) Tenant represents and warrants to Landlord that all such work will be performed in a good and workmanlike manner and in accordance with the plans and specifications therefor approved by Landlord, the terms, provisions and conditions of this Agreement and all governmental requirements. (d) Landlord shall have the right, at Tenant's expense, to inspect any such work at all times during normal working hours using such inspector(s) as it may deem necessary so long as such inspections do not unreasonably interfere with Tenant's work (but Landlord shall not thereby assume any responsibility for the proper performance of the work in accordance with the terms of this Agreement, nor any liability arising from the improper performance thereof). (e) All such work shall be performed free of any liens on Landlord's fee simple interest on or Tenant's leasehold interest in the Leased Property. (f) Upon substantial completion of any such work, Tenant shall procure a certificate of occupancy or other final approvals, if applicable, from the appropriate Governmental Agencies and provide copies of same to Landlord. 31 (g) Tenant shall, and hereby agrees to, indemnify and save and hold Landlord and its Affiliated Parties harmless from and against and reimburse Landlord for any and all loss, damage, cost, liability, fee and expense (including, without limitation, reasonable attorney's fees based upon service rendered at hourly rates) incurred by or asserted against Landlord which is occasioned by or results, directly or indirectly, from any such work conducted upon the Leased Property; whether or not the same is caused by, or is the fault of Tenant or any agent, employee, manager, contractor, subcontractor, laborer, supplier, materialman or any other third party; but Tenant shall not be obligated to indemnify Landlord from any loss as aforesaid caused by Landlord's gross negligence or willful misconduct. 6.4 Salvage. Other than Tenant's Personal Property, all materials which are scrapped or removed in connection with maintenance and repair performed pursuant to Article 5 and the making of Permitted Renovations pursuant to Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any, shall be deposited in the Reserve. ARTICLE 7 LANDLORD'S INTEREST NOT SUBJECT TO LIENS 7.1 Liens, Generally. Tenant shall not, directly or indirectly, create or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's assets, properties or income or any portion thereof, or upon the interest of Landlord therein, any Lien of any nature whatsoever. If, because of any act or omission of Tenant, any such Lien shall be imposed, claimed or filed by any party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause the same to be promptly (and in no event later than thirty (30) days following receipt of notice of such Lien) fully paid and satisfied or otherwise promptly discharged of record (by bonding or otherwise) and Tenant shall indemnify and save and hold Landlord harmless from and against any and all costs, liabilities, suits, penalties, claims and demands whatsoever, and from and against any and all reasonable attorney's fees, at both trial and all appellate levels, resulting or on account thereof and therefrom. In the event that Tenant shall fail to comply with the foregoing provisions of this Section 7, Landlord shall have the option, but not the obligation, of paying, satisfying or otherwise discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse Landlord, upon demand and as Additional Rent, for all sums so paid and for all costs and expenses incurred by Landlord in connection therewith, together with interest thereon, until paid. 7.2 Construction or Mechanics Liens. Landlord's interest in the Leased Property shall not be subjected to Liens of any nature by reason of Tenant's construction, alteration, renovation, repair, restoration, replacement or reconstruction of any improvements on or in the Leased Property, or by reason of any other act or omission of Tenant (or of any person claiming by, through or under Tenant) including, but not limited to, construction, mechanics' and materialmen's liens. All persons dealing with Tenant are hereby placed on notice that such persons shall not look to Landlord or to Landlord's credit or assets (including Landlord's interest in the Leased Property) for payment or satisfaction of any obligations incurred in connection with the construction, alteration, renovation, repair, restoration, replacement or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right or authority to subject Landlord's interest in the Leased Property to any construction, mechanic's or 32 materialmen's lien or claim of lien. If a Lien, a claim of lien or an order for the payment of money shall be imposed against the Leased Property on account of work performed, or alleged to have been performed, for or on behalf of Tenant, Tenant shall, within thirty (30) days after written notice of the imposition of such Lien, claim or order, cause the Leased Property to be released therefrom by the payment of the obligation secured thereby or by furnishing a bond or by any other method prescribed or permitted by law. If a Lien is released, Tenant shall thereupon furnish Landlord with a written instrument of release which has been recorded or filed in the appropriate office of land records of the County in which the Leased Property is located, and otherwise sufficient to establish the release as a matter of record. Before commencing any work relating to alterations, additions, or improvements affecting the Leased Property, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall then have the right at any time and from time to time to post and maintain on the Land and Improvements such notices as Landlord reasonably deems necessary to protect the Leased Property and Landlord from mechanics' liens, materialmen's liens, or any other liens. In any event, Tenant shall pay when due all claims for labor or materials furnished to or for Tenant at or for use in the Land and Improvements. Tenant shall not permit any mechanics' or materialmen's liens to be levied against the Leased Property for any labor or material furnished to Tenant or claimed to have been furnished to Tenant or to Tenant's agents or contractors in connection with work of any character performed or claimed to have been performed on the Land or the Improvements by or at the direction of Tenant, and shall immediately cause the release of any such liens as provided hereinabove. 7.3 Contest of Liens. Tenant may, at its option, contest the validity of any Lien or claim of lien if Tenant shall have first posted an appropriate and sufficient bond in favor of the claimant or paid the appropriate sum into court, if permitted by and in strict compliance with Applicable Laws, and thereby obtained the release of the Leased Property from such Lien. If judgment is obtained by the claimant under any Lien, Tenant shall pay the same immediately after such judgment shall have become final and the time for appeal therefrom has expired without appeal having been taken. Tenant shall, at its own expense, using counsel reasonably approved by Landlord, diligently defend the interests of Tenant and Landlord in any and all such suits; provided, however, that Landlord may, nonetheless, at its election and expense, engage its own counsel and assert its own defenses, in which event Tenant shall cooperate with Landlord and make available to Landlord all information and data which Landlord deems necessary or desirable for such defense. 7.4 Notices of Commencement of Construction. If required by the laws of the State in which the Leased Property is located, prior to commencement by Tenant of any work on the Leased Property which shall have been previously permitted by Landlord as provided in this Agreement, Tenant shall record or file a notice of the commencement of such work or similar notice required by Applicable Law (the "Notice of Commencement") in the land records of the County in which the Leased Property is located, identifying Tenant as the party for whom such work is being performed, stating such other matters as may be required by law and requiring the service of copies of all notices, Liens or claims of lien upon Landlord. Any such Notice of Commencement shall clearly reflect that the interest of Tenant in the Leased Property is that of a leasehold estate and shall also clearly reflect that the interest of Landlord as the fee simple owner of the Leased Property shall not be subject to construction, mechanics or materialmen's liens on account of the work which is the subject of such Notice of Commencement. A copy of any such Notice of Commencement shall be furnished to and approved by Landlord and its attorneys prior to the recording or filing thereof, as aforesaid. 33 ARTICLE 8 TAXES AND ASSESSMENTS 8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term, Tenant shall bear, pay and discharge as Additional Charges and not later than the last day on which payment may be made without penalty or interest, any and all taxes, assessments, charges, levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees) and other impositions and charges of every kind and nature whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each and every installment thereof which shall or may during or with respect to the Term hereof be charged, laid, levied, assessed, or imposed upon, or arise in connection with, the use, occupancy, operation or possession of the Leased Property or any part thereof or the business conducted thereon, including, without limitation, ad valorem real and personal property taxes, all taxes charged, laid, levied, assessed or imposed in lieu of or in addition to any of the foregoing by virtue of all present or future laws, ordinances, requirements, orders, directions, rules or regulations of Governmental Agencies, and all assessments and charges imposed pursuant to the Permitted Encumbrances or other documents of record affecting title to the Leased Property (provided however that such documents have been approved by Tenant, which approval shall not unreasonably be withheld, delayed or conditioned provided that the same are appropriate and reasonably necessary in connection with the normal and ordinary course of ownership and use of the Facility), whether or not such Additional Charges become due and payable during or after the Term. Notwithstanding the foregoing, Tenant shall not be responsible for Additional Charges due and payable after the expiration of the Term to the extent that the same relate and apply interests and benefits accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly furnish to Landlord satisfactory evidence of the payment of all such taxes, assessments, impositions or charges. Tenant shall have no right to approve, nor shall Tenant be obligated for any amounts due by virtue of, any Facility Mortgage or other documents relating to indebtedness of Landlord. 8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing, Tenant shall have the right, after prior written notice to Landlord, to contest at its own expense the amount and validity of any taxes affecting the Leased Property by appropriate proceedings under Applicable Law conducted in good faith and with due diligence and to postpone or defer payment thereof, provided and so long as: (a) Such proceedings shall operate to suspend the collection of such taxes with respect to the Leased Property; (b) Neither the Leased Property nor any part thereof would be in immediate danger of being forfeited or lost by reason of such proceedings, postponement or deferment; and (c) Tenant shall have furnished Landlord with security for payment of the contested taxes which is satisfactory to Landlord, and, in the event that the preconditions set forth in (a) and (b) above are no longer met, Landlord shall have the right to draw upon such security to pay and discharge the taxes in question and any liens against the Leased Property arising thereunder. 34 8.3 Tax and Insurance Escrow Account. In the event Tenant fails to timely pay any tax, assessment, imposition or charge required to be paid by Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice to Tenant effective as of the date of such notice, to require Tenant to pay or cause to be paid into a separate account (the "Tax and Insurance Account") to be established by Tenant with a lending institution designated by Landlord (which Tax and Insurance Account shall not be removed from such lending institution without the express prior approval of Landlord), and which Landlord may draw upon, a reserve amount sufficient to discharge the obligations of Tenant under Section 8.1 and Article 9 hereof (other than worker's compensation insurance premiums) with respect to real estate taxes and insurance premiums for the applicable Fiscal Year as and when they become due (such amounts, the "Tax and Insurance Escrow Amount"). During each month commencing with the first full calendar month following the receipt of said notice from Landlord, Tenant shall deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance Escrow Amount so that as each installment of insurance premiums and real estate taxes becomes due and payable, there are sufficient funds in the Tax and Insurance Account to pay the same. If the amount of such insurance premiums and real estate taxes has not been definitively ascertained by Tenant at the time when any such monthly deposit is to be paid, Landlord shall require payment of the Tax and Insurance Escrow Amount based upon the amount of premiums and real estate taxes paid for the preceding year, subject to adjustment as and when the amount of such premiums and real estate taxes are ascertained by Tenant. The Tax and Insurance Escrow Amount in the Tax and Insurance Account shall be and constitute additional security for the performance of Tenant's obligations hereunder and shall be subject to Landlord's security interest therein and shall, if there are sufficient funds in escrow, be used to pay taxes and insurance premiums when due. Landlord and Tenant shall execute such documentation as may be necessary to create and maintain Landlord's security interest in the Tax and Insurance Account. ARTICLE 9 INSURANCE 9.1 General Insurance Requirements. Tenant shall, at all times during the Term and at any other time Tenant shall be in possession of the Leased Property, keep the Leased Property and all property located therein or thereon, insured against the following risks in the following amounts: (a) "All-risk" property insurance (and to the extent applicable, Builder's Risk Insurance) on the Leased Improvements and all items of business personal property, including but not limited to signs, awnings, canopies, gazebos, fences and retaining walls, and all P&E, including without limitation, insurance against loss or damage from the perils under "All Risk" (Special) form, including but not limited to the following: fire, windstorm, sprinkler leakage, vandalism and malicious mischief, water damage, explosion of steam boilers, pressure vessels and other similar apparatus, and other hazards generally included under extended coverage, all in an amount equal to one hundred percent (100%) of the replacement value of the Leased Improvements (excluding excavation and foundation costs), business personal property and P&E, without a co-insurance provision, and shall include an Agreed Value endorsement; 35 (b) Ordinance or Law Coverage with limits of not less than the Leased Improvements for Coverage A (Loss to the undamaged portion of the building), limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and limits not less than $500,000.00 for Coverage C (Increased Cost of Construction Coverage); (c) Business income insurance to be written on "Special Form" (and on "Earthquake" and "Flood" forms if such insurance for those risks is required) including "Extra Expense", without a provision for co-insurance, including an amount sufficient to pay at least twelve (12) months of Rent for the benefit of Landlord, as its interest may appear, and at least twelve (12) months of "Net Operating Income" less Rent for the benefit of Tenant; (d) Occurrence form commercial general liability insurance, including bodily injury and property damage, liquor liability (if applicable), fire legal liability, contractual liability and independent contractor's hazard and completed operations coverage in an amount not less than $1,000,000.00 per occurrence and $2,000,000.00 per location, aggregate; (e) Umbrella liability coverage which shall be on a following form for the General Liability, Automobile Liability, Employers' Liability, Malpractice and Liquor Liability (if applicable), with limits in a minimum amount of not less than $15,000,000.00 per occurrence/aggregate; (f) Malpractice insurance/professional liability insurance in an amount not less than $5,000,000.00 for each person and each occurrence to cover the professional medical care providers working on the Leased Property; (g) Flood insurance (if the Leased Property is located in whole or in part within an area identified as an area having special flood hazards under the National Flood Insurance Program) for the full (100%) replacement value of the improvements and all items of business personal property or any greater amount as may be required by the National Flood Insurance Program; (h) Worker's compensation coverage for all persons employed by Tenant on the Leased Property with statutory limits, and Employers' Liability insurance in an amount of at least $1,000,000.00 per accident/disease; (i) Business auto liability insurance, including owned, non-owned and hired vehicles for combined single limit of bodily injury and property damage of not less than $1,000,000.00 per occurrence; (j) [Intentionally Omitted]; (k) "Earthquake" insurance, if the Leased Property is currently, or at any time in the future, located within a major earthquake disaster area, in amount, and in such form and substance and with such limits and deductibles as are satisfactory to Landlord; and (l) Crime insurance covering employee theft in an amount not less than $1,500,000. (m) Such additional insurance or increased insurance limits as may be reasonably required, from time to time, by Landlord (including, without limitation, any mortgage, security agreement or 36 other financing permitted hereunder and then affecting the Leased Property, as well as any declaration, ground lease or easement agreement affecting the Leased Property), or any Mortgagee, provided the same is customarily carried by a majority of comparable skilled nursing, assisted living and dementia care facilities in the area. Without limiting the generality of the foregoing Section 9.1(m), the required commercial liability insurance and umbrella liability coverage limits and deductible amounts pertaining thereto as set forth in this Article 9 shall in no event provide less coverage (lower limits or higher deductibles) than the "Comparable Insurance Coverage" carried on any of the other skilled nursing, assisted living and dementia care facilities leased or owned by Tenant and Guarantor and their Affiliated Persons, and the insurance coverage for the Leased Property shall immediately be increased by Tenant to equal any greater or increased "Comparable Insurance Coverage" carried or obtained for such other facilities. For purposes of the foregoing, "Comparable Insurance Coverage" shall mean insurance coverage levels adjusted for relevant variations in risk and insurability characteristics between the insured facilities being compared, including without limitation consideration of variations in insurance coverages carried by Guarantor and its Affiliated Persons between different insurance markets (states or other jurisdictional subdivisions) where insured risks or insurance pricing or availability varies materially. Tenant shall use all reasonable efforts to obtain increased umbrella liability coverage of not less than $50,000,000 per occurrence/aggregate, and decreased liability insurance deductibles, at such time as the same can be obtained at commercially reasonable or economically feasible rates for the Lease Property. Until such increased coverages are obtained the Tenant shall provide to Landlord a thorough annual update and review of the overall liability insurance coverage program and strategy for Tenant and Guarantor and their Affiliated Persons, which shall include an analysis of market rates for the current and desired liability insurance coverages. In addition, Tenant shall have the right to provide commercial general liability insurance coverage on a "claims made" basis, so long as the general liability insurance coverages otherwise required hereunder are maintained or continued in existence at all times throughout the Lease Term for all periods that Tenant or its Affiliates have had any ownership or use of the Leased Property, and evidence thereof has been provided to Landlord. 9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect to any property loss which is covered by insurance then being carried by Landlord or Tenant, respectively, the party carrying such insurance and suffering said loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against the other on account thereof. 9.3 General Provisions. The Facility's allocated chargeback/deductible for general liability insurance shall not exceed $1,000,000 for skilled nursing and assisted living and $1,000,000 for Memory Impaired, to the extent commercially available, and $350,000.00 for workmen's compensation insurance, to the extent commercially available, unless any greater amounts are agreeable to both Landlord and Tenant. The Facility's property insurance deductible shall not exceed $25,000.00 unless such greater amount is agreeable to both Landlord and Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is mandated by the insurance carrier. All insurance policies pursuant to this Article 9 shall be issued by insurance carriers having a general policy holder's rating of no less than A-/VII in Best's latest rating guide, and shall contain clauses or endorsements to the effect that (a) Landlord shall not be liable for any insurance premiums thereon or subject to any assessments thereunder, and (b) the coverages provided thereby will be primary and any insurance 37 carried by any additional insured shall be excess and non-contributory to the extent of the indemnification obligation pursuant to Section 9.5 below. All such policies described in Section 9.1 shall name Landlord, CRC and CNL Retirement and any Mortgagee whose name and address has been provided to Tenant as additional insureds, loss payees, or mortgagees, as their interests may appear and to the extent of their indemnity. All loss adjustments shall be payable as provided in Article 10. Tenant shall deliver certificates thereof to Landlord prior to their effective date (and, with respect to any renewal policy, no less than thirty (30) days prior to the expiration of the existing policy), which certificates shall state the nature and level of coverage reported thereby, as well as the amount of the applicable deductible. Upon Landlord's request, duplicate original copies of all insurance policies to be obtained by Tenant shall be provided to Landlord by Tenant. All such policies shall provide Landlord (and any Mortgagee whose name and address has been provided to Tenant if required by the same) thirty (30) days prior written notice of any material change or cancellation of such policy. In the event Tenant shall fail to effect such insurance as herein required, to pay the premiums therefor or to deliver such certificates to Landlord or any Mortgagee at the times required, Landlord shall have the right, but not the obligation, subject to the provisions of Section 12.4, to acquire such insurance and pay the premiums therefor, which amounts shall be payable to Landlord, upon demand, as Additional Rent, together with interest accrued thereon at the Overdue Rate from the date such payment is made until (but excluding) the date repaid. 9.4 Blanket Policy. Notwithstanding anything to the contrary contained in this Article 9, Tenant's obligation to maintain the insurance herein required may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, so long as such policies otherwise meet all requirements under this Article 9. 9.5 Indemnification of Landlord. Except as expressly provided herein, Tenant shall protect, indemnify and hold harmless Landlord for, from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and reasonable expenses (including, without limitation, reasonable attorneys' fees), to the maximum extent permitted by law, imposed upon or incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property of third parties occurring on or about the Leased Property or adjoining sidewalks or rights of way under Tenant's control, and (b) any use, misuse, condition, management, maintenance or repair by Tenant or anyone claiming under Tenant of the Leased Property or Tenant's Personal Property or any litigation, proceeding or claim by Governmental Agencies relating to such use, misuse, condition, management, maintenance, or repair thereof to which Landlord is made a party; provided, however, that Tenant's obligations hereunder shall not apply to any liability, obligation, claim, damage, penalty, cause of action, cost or expense arising from any gross negligence or willful misconduct of Landlord, its employees, agents, contractors or invitees. Any such claim, action or proceeding asserted or instituted against Landlord covered under this indemnity shall be defended by counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's expense. Notwithstanding the foregoing, indemnification with respect to Hazardous Substances is governed by Section 4.3. The obligations of Tenant under this Section 9.5 shall survive the expiration or any early termination of this Agreement. 38 ARTICLE 10 CASUALTY 10.1 Restoration and Repair. If during the Term the Leased Property shall be totally or partially destroyed and thereby rendered Unsuitable for Its Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord or Tenant may, by the giving of Notice thereof to the other party within sixty (60) days after such casualty occurs, terminate this Agreement, whereupon Landlord shall be entitled to retain the insurance proceeds payable on account of such damage and Tenant shall pay to Landlord the amount of any deductible. Tenant further expressly acknowledges, understands and agrees that in the event that the Agreement is terminated as aforesaid, Landlord may settle any insurance claims and Tenant shall, upon request of Landlord, cooperate in any such settlement. If during the Term, the Leased Property shall be destroyed or damaged in whole or in part by fire, windstorm or any other cause whatsoever, but the Leased Property either (i) is not rendered Unsuitable for Its Permitted Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord nor Tenant terminate this Agreement in the manner provided above, then, Tenant shall give Landlord immediate Notice thereof and Tenant shall, subject to the provisions of Section 10.2 below, repair, reconstruct and replace the Leased Property, or the portion thereof so destroyed or damaged, at least to the extent of the value and character thereof existing immediately prior to such occurrence and in compliance with all Legal Requirements, including any alterations to the Leased Property required to be made by any Governmental Agencies due to any changes in code or building regulations (which Tenant acknowledges may increase the replacement value of the Leased Property which Tenant will then be required to insure, due to any changes in code or building regulations). All such restoration work shall be started as promptly as practicable and diligently completed at Tenant's sole cost and expense (using available insurance proceeds). Tenant shall, however, immediately take such action as is necessary to assure that the Leased Property (or any portion thereof), does not constitute a nuisance or otherwise present or constitute a health or safety hazard. Notwithstanding the foregoing the Tenant shall have the right to elect not to repair any material casualty damage (estimated to cost greater than $250,000 to repair) occurring within twelve (12) months prior to the scheduled expiration of the then-current Term, provided and on the condition that: (i) Tenant promptly pays to Landlord the full amount of all deductibles applying to the insured loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee also receive and retain all insurance proceeds; (ii) Tenant has provided adequate assurance that applicable business interruption insurance will continue to be available through the end of the then-current Term to cover all resulting loss of income or else adequate security therefor as requested by Landlord; and (iii) Tenant, at Tenant's sole cost and expense, properly secures and protects and preserves any damaged portion of the Facility in such a fashion as to insure the safety of all Facility Residents, guest, invitees and others (to the extent that such persons are reasonably expected to continue to occupy or come upon the relevant portions of the Leased Property), and the value of the affected improvements. 10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is not otherwise terminated pursuant to Section 10.1, then in the event of a casualty resulting in a loss to the Leased Improvements and/or P&E in an amount greater than FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) (as determined by an architect or engineer selected by Landlord), the proceeds of all insurance policies maintained by Tenant shall be deposited in Landlord's name in an escrow account at 39 a bank or other financial institution designated by Landlord, and shall be used by Tenant for the repair, reconstruction or restoration of the Leased Property to its original condition. Tenant shall, at the time of establishment of such escrow account and from time to time thereafter until said work shall have been completed and paid for, furnish Landlord with adequate evidence acceptable to Landlord that at all times the undisbursed portion of the escrowed insurance proceeds, together with any funds made available by Tenant, is sufficient to pay for the repair, reconstruction or restoration in its entirety. Landlord may, at its option, require, prior to advancement of said escrowed insurance proceeds (i) approval of plans and specifications by an architect or other design professional appropriate under the circumstances and approved by Landlord and Tenant (which approval shall not be unreasonably withheld or delayed), (ii) general contractors' estimates, (iii) architect's certificates, (iv) unconditional lien waivers of general contractors, if available, (v) evidence of approval by all Governmental Agencies and other regulatory bodies whose approval is required, and (vi) such other terms as a Mortgagee or lender of Landlord may reasonably require. The escrowed insurance proceeds shall be disbursed by Landlord, not more than monthly, upon (i) certification of the architect or engineer selected by Landlord and having supervision of the work that such amounts are the amounts paid or payable for the repair, reconstruction or restoration and (ii) submittal by Tenant of a written requisition and substantiation therefor on AIA Forms G702 and G703 (or on such other form or forms as may be reasonably acceptable to Landlord). Tenant shall obtain, and make available to Landlord, receipted bills and, upon completion of said work, full and final waivers of lien. In the event of a casualty resulting in a loss payment for the Leased Improvements in an amount equal to or less than the amount stated above, the proceeds shall be paid to Tenant, and shall be applied towards repair, reconstruction and restoration. Any and all loss adjustments with respect to losses payable hereunder shall require the prior written consent of Landlord. All salvage resulting from any risk covered by insurance shall belong to Tenant, provided any rights to the same have been waived by the insurer. In addition, notwithstanding anything in this Agreement to the contrary, Tenant shall be strictly liable and solely responsible for the amount of any deductible and shall pay for all repairs, reconstruction or alterations up to the full amount of such deductible (and provide evidence of such payment to Landlord by documentation reasonably acceptable to Landlord) before any insurance proceeds are used for repairs, reconstruction or alterations. 10.3 No Abatement of Rent. Unless terminated in accordance with the provisions of Section 10.1 above, this Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all Additional Charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any casualty to the Leased Property (provided that Landlord shall credit against such payments any amounts paid to Landlord as a consequence of such damage under any business interruption insurance obtained by Tenant hereunder). The provisions of this Article 10 shall be considered an express agreement governing any event of casualty involving the Leased Property and, to the maximum extent permitted by law, Tenant hereby waives the application of any local or state statute, law, rule, regulation or ordinance in effect during the Term which provides for such abatement. 10.4 Tenant's Property and Business Interruption Insurance. All insurance proceeds payable by reason of any loss of or damage to any of Tenant's Personal Property and the business interruption insurance maintained for the benefit of Tenant shall be paid to Tenant; provided, however, no such payments shall diminish or reduce the insurance payments otherwise payable to or for the benefit of Landlord hereunder. 40 10.5 Restoration of Tenant's Property. If Tenant is required to restore the Leased Property as hereinabove provided, Tenant shall either (i) restore all alterations and improvements made by Tenant and Tenant's Personal Property, or (ii) replace such alterations and improvements and Tenant's Personal Property with improvements or items of the same or better quality and utility in the operation of the Leased Property. 10.6 Waiver. Tenant hereby waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property and agrees that its rights shall be limited to those set forth in Section 10.1. ARTICLE 11 CONDEMNATION 11.1 Total Condemnation, Etc. If the whole of the Leased Property shall be taken or condemned for any public or quasi-public use or purpose, by right of eminent domain or by purchase in lieu thereof, or if a substantial portion of the Leased Property shall be so taken or condemned that the portion or portions remaining is or are not sufficient and suitable, in the mutual reasonable judgment of Landlord and Tenant, for the continued operation thereof as required herein, so as to effectively render the Leased Property Unsuitable for its Intended Use, then this Agreement and the Term hereby granted shall cease and terminate (without prejudice to Landlord's and Tenant's respective rights to an award under Section 11.3 below), as of the date on which the Condemnor takes possession and all Rent shall be paid by Tenant to Landlord up to that date or refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond that date. 11.2 Partial Condemnation. If a portion of the Leased Property is taken, and the portion or portions remaining can, in the mutual reasonable judgment of Landlord and Tenant, be adapted and used for the conduct of Tenant's business operation in accordance with the terms of this Agreement, such that the Leased Property is not effectively rendered Unsuitable for its Intended Use, then the Tenant shall, utilizing condemnation proceeds paid to Landlord from the Condemnor, promptly restore the remaining portion or portions thereof to a condition comparable to their condition at the time of such taking or condemnation, less the portion or portions lost by the taking, and this Agreement shall continue in full force and effect except that the Rent payable hereunder shall, if necessary, be equitably adjusted to take into account the proportionate reduction in the number of licensed beds or living units located on the Leased Property as a result of the taking. 11.3 Disbursement of Award. The entire award for the Leased Property or the portion or portions thereof so taken shall be apportioned between Landlord and Tenant as follows: (a) if this Agreement terminates due to a taking or condemnation, Landlord shall be entitled to the entire award; provided, however, that any portion of the award expressly made for the taking of Tenant's leasehold interest in the Leased Property, loss of business during the remainder of the Term, and the taking of Tenant's Personal Property shall be the sole property of and payable to Tenant, and (b) if this Agreement does not terminate due to such taking or condemnation, Tenant shall be entitled to the award to the extent required for restoration of the Leased Property, and Landlord shall be entitled to the balance of the award not applied to restoration. In any condemnation proceedings, Landlord and 41 Tenant shall each seek its own award in conformity herewith, at its own expense. If this Agreement does not terminate due to a taking or condemnation, Tenant shall, with due diligence, restore the remaining portion or portions of the Leased Property in the manner hereinabove provided. In such event, the proceeds of the award to be applied to restoration shall be deposited with a bank or financial institution designated by Landlord as if such award were insurance proceeds, and the amount so deposited will thereafter be treated in the same manner as insurance proceeds are to be treated under Section 10.2 of this Agreement until the restoration has been completed and Tenant has been reimbursed for all the costs and expenses thereof. If the award is insufficient to pay for the restoration, Tenant shall be responsible for the remaining cost and expense of such restoration. 11.4 No Abatement of Rent. This Agreement shall remain in full force and effect and Tenant's obligation to make all payments of Rent and to pay all other charges as and when required under this Agreement shall remain unabated during the Term notwithstanding any Condemnation involving the Leased Property. The provisions of this Article 11 shall be considered an express agreement governing any Condemnation involving the Leased Property and, to the maximum extent permitted by law, no local or State statute, law, rule, regulation or ordinance in effect during the Term which provides for such abatement shall have any application in such case. 11.5 Disputes. If Landlord and Tenant cannot agree in respect of any matters to be determined under this Article, a determination shall be requested of the court having jurisdiction over the taking or condemnation; provided, however, that if said court will not accept such matters for determination, either party may have the matters determined by a court otherwise having jurisdiction over the parties. ARTICLE 12 DEFAULTS AND REMEDIES 12.1 Events of Default. Each of the following events shall be an Event of Default hereunder by Tenant and shall constitute a breach of this Agreement: (a) If Tenant shall fail to (i) pay, when due, any Rent or any Additional Charge due hereunder; (ii) fully fund and maintain the Tenant Shortfall Reserve as required by Section 3.10.1; (iii) fully fund and maintain the Security Deposit as required by Section 3.11; or (iv) fully fund and maintain the Reserve and fund all Reserve Expenditures as required by Section 5.2, and such failure in each such event shall continue for a period of five (5) days after such amounts become due and payable. (b) If Tenant shall violate or fail to comply with or perform any other term, provision, covenant, agreement or condition to be performed or observed by Tenant under this Agreement which is not otherwise identified in this Section 12.1, and such violation or failure shall continue for a period of thirty (30) days after written notice thereof from Landlord; provided, however, if such violation or failure is incapable of cure by Tenant within such thirty (30) days after Tenant's diligent and continuous efforts to cure the same, Tenant shall have an additional period of sixty (60) days to cure the same. 42 (c) If any assignment, transfer, sublease or encumbrance shall be made or deemed to be made that is in violation of the provisions of this Agreement. (d) If Tenant shall cease the actual and continuous operation of the business contemplated by this Agreement to be conducted by Tenant upon the Leased Property (and such cessation is not the result of casualty, condemnation or renovation and accompanying restoration or is not otherwise permitted by Landlord or is not the result of a legal requirement or during an emergency); or if Tenant shall vacate, desert or abandon the Leased Property; or if the Leased Property shall become empty and unoccupied; or if the Leased Property or Leased Improvements are used or are permitted to be used for any purpose, or for the conduct of any activity, other than the Permitted Use. (e) If, at any time during the Term of this Agreement, Tenant or Guarantor shall file in any court, pursuant to any statute of either the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization or arrangement, or for the appointment of a receiver or trustee of all or any portion of Tenant's or Guarantor's property, including, without limitation, the leasehold interest in the Leased Property, or if Tenant or Guarantor shall make an assignment for the benefit of its creditors or petitions for or enters into an arrangement with its creditors. (f) If, at any time during the Term of this Agreement, there shall be filed against Tenant or Guarantor in any court pursuant to any statute of the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization, or for the appointment of a receiver or trustee of all or a portion of Tenant's or Guarantor's property, including, without limitation, the leasehold interest in the Leased Property, and any such proceeding against Tenant or Guarantor shall not be dismissed within sixty (60) days following the commencement thereof. (g) If Tenant's leasehold interest in the Leased Property or any property therein (including without limitation Tenant's Personal Property and the P&E Replacements) shall be seized under any levy, execution, attachment or other process of court where the same shall not be vacated or stayed on appeal or otherwise within thirty (30) days thereafter, or if Tenant's leasehold interest in the Leased Property is sold by judicial sale and such sale is not vacated, set aside or stayed on appeal or otherwise within thirty (30) days thereafter. (h) If any of the Facility's Permits material to the Facility's operation for its Permitted Use are at any time suspended and the suspension is not stayed pending appeal within five (5) days, or voluntarily terminated without the prior written consent of Landlord. (i) If any Governmental Agencies having jurisdiction over the operation of the Facility removes ten percent (10%) or more of the total number of patients or residents located in the Facility at the time of such removal. (j) If Tenant voluntarily transfers ten (10) or more patients or residents located in the Facility in any one (1) year period (except as necessitated by a casualty), provided that any such transfer to a different type of care facility as a result of such patient's or resident's special needs that cannot be met at the Facility shall not be deemed a voluntary transfer. 43 (k) If Tenant fails to give notice to Landlord not later than ten (10) days after Tenant's receipt of any fine notice from any Government Agency relating to a Major Violation at the Facility. (l) If Tenant fails to notify Landlord within twenty-four (24) hours after receipt of any notice from any Governmental Agency terminating or suspending or reflecting a material risk of an imminent termination or suspension, of any material Permit relating to the Facility. (m) If Tenant fails during the Term of this Lease to cure or abate any Major Violation occurring during the Term that is claimed by any Governmental Agency of any law, order, ordinance, rule or regulation pertaining to the operation of the Facility, and within the time permitted by such authority for such cure or abatement. (n) The failure of Tenant to correct, within the time deadlines set by any Governmental Agency, any deficiency which would result in the following actions by such agency with respect to the Facility: (i) a termination of any Reimbursement Contract or any Permit material to the operation of the Facility; or (ii) the issuance of a stop placement order or ban on new admissions generally. (o) If a final unappealable determination is made by applicable state authorities of the revocation or limitation of any Permit required for the lawful operation of the Leased Property in accordance with its Permitted Use or there occurs the loss or material limitation of any Permit under any other circumstances under which Tenant is required to cease its operation of the Leased Property in accordance with its Permitted Use at the time of such loss or limitation. (p) If Tenant or the Facility should be assessed fines or penalties by any state health or licensing agency having jurisdiction over such Persons or the Facility in excess of $25,000.00 in any Fiscal Year. (q) If Tenant or Guarantor or an Affiliated Person of Tenant or Guarantor shall default under any other ARC-Related Lease (whether now in effect or entered into in the future) and shall fail to cure such default in the time period provided for in that lease. (r) If Guarantor shall default under the Guaranty and any such default shall remain uncured through any applicable notice and cure period thereunder. 12.2 Remedies on Default. If any of the Events of Default hereinabove specified shall occur, Landlord, at any time thereafter, shall have and may exercise any of the following rights and remedies: (a) Landlord may, pursuant to written notice thereof to Tenant, immediately terminate this Agreement and, peaceably or pursuant to appropriate legal proceedings, re-enter, 44 retake and resume possession of the Leased Property for Landlord's own account without liability for trespass (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and, for Tenant's breach of and default under this Agreement, recover immediately from Tenant any and all sums and damages due or in existence at the time of such termination, including, without limitation, (i) all Rent and other sums, charges, payments, costs and expenses agreed and/or required to be paid by Tenant to Landlord hereunder prior to such termination, (ii) all costs and expenses of Landlord in connection with the recovery of possession of the Leased Property, including reasonable attorney's fees based upon services rendered at hourly rates and court costs, and (iii) all costs and expenses of Landlord in connection with any reletting or attempted reletting of the Leased Property or any part or parts thereof, including, without limitation, brokerage fees, advertising costs, reasonable attorney's fees based upon services rendered at hourly rates based upon service rendered at hourly rates and the cost of any alterations or repairs or tenant improvements which may be reasonably required to so relet the Leased Property, or any part or parts thereof. (b) Landlord may, pursuant to any prior notice required by law, and without terminating this Agreement, peaceably or pursuant to appropriate legal proceedings, re-enter, retake and resume possession of the Leased Property for the account of Tenant, make such alterations of and repairs and improvements to the Leased Property as may be reasonably necessary in order to relet the same or any part or parts thereof and, directly or through a qualified management or operating company which may include an Affiliated Person of Landlord, operate and manage the Leased Property, and relet or attempt to relet the Leased Property or any part or parts thereof for such term or terms (which may be for a term or terms extending beyond the Term of this Agreement), at such rents and upon such other terms and provisions as Landlord, in its sole discretion, may deem advisable. If Landlord takes possession and control of the Leased Property and operates the same, Tenant shall, for so long as Landlord is actively operating the Leased Property, have no obligation to operate the Leased Property but agrees that Landlord, any contract manager or operator, or any new tenant or sublessee may, to the extent permitted by law, operate the Facility under Tenant's Permits, including its Medicaid and Medicare provider agreements, if any, until same are issued in the name of the Landlord or the new manager/operator or tenant or sublessee, as applicable. If Landlord relets or attempts to relet the Leased Property, or obtains a contract manager or operator for the Leased Property, Landlord shall at its sole discretion determine the terms and provisions of any new lease or sublease, or management or operating agreement, and whether or not a particular proposed manager or operator, or new tenant or sublessee, is acceptable to Landlord. Upon any such reletting, or the operation of the Leased Property by a contract manager or operator, all rents or incomes received by the Landlord from such reletting or otherwise from the operation of the Leased Property shall be applied, (i) first, to the payment of all costs and expenses of recovering possession of the Leased Property, (ii) second, to the payment of any costs and expenses of such reletting and or operation, including brokerage fees, advertising costs, reasonable attorney's fees based upon service rendered at hourly rates, a management fee of between five percent (5%) and ten percent (10%) of the gross revenues generated, and the cost of any alterations and repairs reasonably required for such reletting or operation of the Leased Property; (iii) third, to the payment of any indebtedness, other than Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the payment of all Rent and other sums due and unpaid hereunder, and (v) fifth, the residue, if any, shall be held by the 45 Landlord and applied in payment of future Rent as the same may become due and payable hereunder. If the rents received from such reletting or net income from the operation of the Leased Property during any period shall be less than the Rents and Additional Charges required to be paid during that period by the Tenant hereunder, Tenant shall promptly pay any such deficiency to the Landlord and failing the prompt payment thereof by Tenant to Landlord, Landlord shall immediately be entitled to institute legal proceedings for the recovery and collection of the same. Such deficiency shall be calculated and paid at the time each payment of Minimum Rent, Percentage Rent or any other sum shall otherwise become due under this Agreement, or, at the option of Landlord, at the end of the Term of this Agreement. Landlord shall, in addition, be immediately entitled to sue for and otherwise recover from Tenant any other damages occasioned by or resulting from any abandonment of the Leased Property or other breach of or default under this Agreement other than a default in the payment of Rent. No such re-entry, retaking or resumption of possession of the Leased Property by the Landlord for the account of Tenant shall be construed as an election on the part of Landlord to terminate this Agreement unless a written notice of such intention shall be given to the Tenant or unless the termination of this Agreement be decreed by a court of competent jurisdiction. Notwithstanding any such re-entry and reletting or attempted reletting of the Leased Property or any part or parts thereof for the account of Tenant without termination, Landlord may at any time thereafter, upon written notice to Tenant, elect to terminate this Agreement or pursue any other remedy available to Landlord for Tenant's previous breach of or default under this Agreement. (c) Landlord may, without re-entering, retaking or resuming possession of the Leased Property, sue for all Rent and all other sums, charges, payments, costs and expenses due from Tenant to Landlord hereunder (discounted to present value) either: (i) as they become due under this Agreement, taking into account that Tenant's right and option to pay the Rent hereunder on a monthly basis in any particular Fiscal Year is conditioned upon the absence of a Default on Tenant's part in the performance of its obligations under this Agreement, or (ii) at Landlord's option, accelerate the maturity and due date of the whole or any part of the Rent for the entire then-remaining unexpired balance of the Term of this Agreement, as well as all other sums, charges, payments, costs and expenses required to be paid by Tenant to Landlord hereunder, including, without limitation, damages for breach or default of Tenant's obligations hereunder in existence at the time of such acceleration, such that all sums due and payable under this Agreement shall, following such acceleration, be treated as being and, in fact, be due and payable in advance as of the date of such acceleration. Landlord may then proceed to recover and collect all such unpaid Rent and other sums so sued for from Tenant by distress, levy, execution or otherwise. Regardless of which of the foregoing alternative remedies is chosen by Landlord under this subparagraph (c), Landlord shall not be required to relet the Leased Property nor exercise any other right granted to Landlord pursuant to this Agreement, nor, except as may be required by Applicable Laws, shall Landlord be under any obligation to minimize or mitigate Landlord's damages or Tenant's loss as a result of Tenant's breach of or default under this Agreement. Notwithstanding the foregoing, following such time as Landlord may obtain possession of the Leased Property, Landlord or its successor Landlord at the time of any Lease termination, shall continue to make the Leased Property available for lease, on an "as is" basis, and shall turn over the net proceeds thereof to Tenant to the extent actually received by Landlord in respect of any time period for which Landlord shall have received the full 46 amount of Rent payable with respect thereto (albeit perhaps on a basis reasonably discounted for the time value of money or present-value basis). (d) Landlord may, in addition to any other remedies provided herein, enter upon the Leased Property or any portion thereof and take possession of (i) any and all of Tenant's Personal Property, if any, (ii) Tenant's books and records necessary to operate the Leased Property, and (iii) all the bank accounts concerning, or established for, the Leased Property, without liability for trespass or conversion (Tenant hereby waiving any right to notice or hearing prior to such taking of possession by Landlord) and sell the same by public or private sale, after giving Tenant reasonable notice of the time and place of any public or private sale, at which sale Landlord or its assigns may purchase all or any portion of Tenant's Personal Property, if any, unless otherwise prevented by law. Unless otherwise provided by law and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if such notice is given at least ten (10) days before the date of sale. The proceeds from any such disposition, less all expenses incurred in connection with the taking of possession, holding and selling of such Property (including reasonable attorneys' fees based upon services rendered at hourly rates) shall be credited against Rent which is due hereunder. (e) Tenant acknowledges that one of the rights and remedies available to Landlord under Applicable Law is to apply to a court of competent jurisdiction for the appointment of a receiver to collect the rents, issues, profits and income of the Leased Property and to manage the operation of the Leased Property. Tenant hereby further acknowledges that the revocation, suspension or material limitation of the certification of the Leased Property for provider status under Medicare or Medicaid (or successor programs) and/or the revocation, suspension or material limitation of the license of the Leased Property as an skilled nursing, assisted living and dementia care facility under the laws of the State will materially and irreparably impair the value of Landlord's investment in the Leased Property. Therefore, in any of such events, and in addition to any other right or remedy of Landlord under this Agreement, Landlord may petition any appropriate court for appointment of a receiver to manage the operation of the Leased Property (or any portion thereof as to which Tenant has suffered the revocation, suspension or material limitation of any license), to collect and disburse all rents, issues, profits and income generated thereby and to preserve or replace to the extent possible the operating license and provider certification of the Leased Property or to otherwise substitute the licensee or provider thereof. The receiver shall be entitled to a reasonable fee for his services as receiver. All such fees and other expenses of the receivership estate shall be payable as Additional Charges under this Agreement. Tenant hereby irrevocably stipulates to the appointment of a receiver under such circumstances and for such purposes and agrees not to contest such appointment. (f) In addition to the remedies hereinabove specified and enumerated, Landlord shall have and may exercise the right to invoke any other remedies allowed at law or in equity as if the remedies of re-entry, unlawful detainer proceedings and other remedies were not herein provided. Accordingly, the mention in this Agreement of any particular remedy shall not preclude Landlord from having or exercising any other remedy at law or in equity. Nothing herein contained shall be construed as precluding the Landlord from having or exercising such 47 lawful remedies as may be and become necessary in order to preserve the Landlord's right or the interest of the Landlord in the Leased Property and in this Agreement, even before the expiration of any notice periods provided for in this Agreement, if under the particular circumstances then existing the allowance of such notice periods will prejudice or will endanger the rights and estate of the Landlord in this Agreement and in the Leased Property. In addition, any provision of this Agreement to the contrary notwithstanding, no provision of this Agreement shall delay or otherwise limit Landlord's right to seek injunctive relief or Tenant's obligation to comply with any such injunctive relief. 12.3 Application of Funds. Any payments received by Landlord under any of the provisions of this Agreement during the existence or continuance of any Event of Default (and any payment made to Landlord rather than Tenant due to the existence of any Event of Default) shall be applied to Tenant's current and past due obligations under this Agreement in such order as Landlord may determine or as may be prescribed by the laws of the State. 12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default in the performance of any term, provisions, covenant or condition on its part to be performed hereunder, Landlord may, but shall have no obligation to perform the same for the account and at the expense of Tenant. If, at any time and by reason of such default, Landlord is compelled to pay, or elects to pay, any sum of money or do any act which will require the payment of any sum of money, or is compelled to incur any expense in the enforcement of its rights hereunder or otherwise, such sum or sums, together with interest thereon at the Overdue Rate shall be deemed Additional Rent hereunder and shall be repaid to Landlord by Tenant promptly when billed therefor, and Landlord shall have all the same rights and remedies in respect thereof as Landlord has in respect of the rents herein reserved. 12.5 Landlord's Lien. Landlord shall have at all times during the Term of this Agreement, a valid lien for all rents and other sums of money becoming due hereunder from Tenant, upon all goods, accounts, wares, merchandise, inventory, furniture, fixtures, equipment, vehicles and other personal property and effects of Tenant situated in or upon the Leased Property, including Tenant's Personal Property and any interest of Tenant in P&E Replacements, but specifically excluding the trade names "ARC," "American Retirement Corporation," "Heritage Club," or any derivation or replacement thereof or addition thereto applied by Affiliated Persons of Guarantor to other facilities, and such property shall not be removed therefrom except in accordance with the terms of this Agreement without the approval and consent of Landlord until all arrearages in Rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged in full. Alternatively, the lien hereby granted may be foreclosed in the manner and form provided by law for foreclosure of security interests or in any other manner and form provided by law. The statutory lien for Rent, if any, is not hereby waived and the express contractual lien herein granted is in addition thereto and supplementary thereto. Tenant agrees to execute and deliver to Landlord from time to time during the Term of this Agreement such Financing Statements as may be required by Landlord in order to perfect the Landlord's lien provided herein or granted or created by state law. Tenant further agrees that during an Event of Default, Tenant shall not make any distributions to its shareholders, partners, members or other owners and any such distributions shall be considered and deemed to be fraudulent and preferential and subordinate to Landlord's claim for Rent and other sums hereunder. 48 ARTICLE 13 HOLDING OVER If Tenant or any other person or party shall remain in possession of the Leased Property or any part thereof following the expiration of the Term or earlier termination of this Agreement without an agreement in writing between Landlord and Tenant with respect thereto, the person or party remaining in possession shall be deemed to be a tenant at sufferance, and during any such holdover, the Rent payable under this Agreement by such tenant at sufferance shall be double the rate or rates in effect immediately prior to the expiration of the Term or earlier termination of this Agreement. In no event, however, shall such holding over be deemed or construed to be or constitute a renewal or extension of this Agreement. ARTICLE 14 LIABILITY OF LANDLORD; INDEMNIFICATION 14.1 Liability of Landlord. Landlord and its affiliates shall not be liable to Tenant, its employees, agents, invitees, licensees, customers, clients, residents and their respective family members or guests for any damage, injury, loss, compensation or claim, including, but not limited to, claims for the interruption of or loss to Tenant's business, based on, arising out of or resulting from any cause whatsoever (other than Landlord's gross negligence or willful misconduct), including, but not limited to: (a) repairs to any portion of the Leased Property; (b) interruption in Tenant's use of the Leased Property; (c) any accident or damage resulting from the use or operation (by Landlord, Tenant or any other person or persons) of any equipment within the Leased Property, including without limitation, heating, cooling, electrical or plumbing equipment or apparatus; (d) the termination of this Agreement by reason of the condemnation or destruction of the Leased Property in accordance with the provisions of this Agreement; (e) any fire, robbery, theft, mysterious disappearance or other casualty; (f) the actions of any other person or persons; and (g) any leakage or seepage in or from any part or portion of the Leased Property, whether from water, rain or other precipitation that may leak into, or flow from, any part of the Leased Property, or from drains, pipes or plumbing fixtures in the Leased Improvements. Any goods, property or personal effects stored or placed by the Tenant or its employees in or about the Leased Property including Tenant's Personal Property, shall be at the sole risk of the Tenant. 14.2 Indemnification of Landlord. Tenant shall defend, indemnify and save and hold Landlord harmless from and against any and all liabilities, obligations, losses, damages, injunctions, suits, actions, fines, penalties, claims, demands, costs and expenses of every kind or nature, including reasonable attorneys' fees and court costs, incurred by Landlord, arising directly or indirectly from or out of: (a) any failure by Tenant to perform any of the terms, provisions, covenants or conditions of this Agreement, on Tenant's part to be performed including but not limited to the payment of any fee, cost or expense which Tenant is obligated to pay and discharge hereunder, (b) any accident, injury or damage which shall happen at, in or upon the Leased Property, however occurring; (c) any matter or thing growing out of the condition, occupation, maintenance, alteration, repair, use or operation by any person of the Leased Property, or any part thereof, or the operation of the business contemplated by 49 this Agreement to be conducted thereon, thereat, therein, or therefrom; (d) any failure of Tenant to comply with the Legal Requirements; (e) any contamination of the Leased Property, or the groundwaters thereof, arising on or after the date Tenant takes possession of the Leased Property and occasioned by the use, transportation, storage, spillage or discharge thereon, therein or therefrom of any toxic or hazardous chemicals, compounds, materials or substances, whether by Tenant or by any agent or invitee of Tenant; (f) any discharge of toxic or hazardous sewage or waste materials from the Leased Property into any septic facility or sanitary sewer system serving the Leased Property arising on or after the date Tenant takes possession of the Leased Property, whether by Tenant or by any agent of Tenant; (g) any fines, penalties, or refunds due and payable to Medicare or Medicaid arising out of the operation of the Leased Property by Tenant; or (h) any other act or omission of Tenant, its employees, agents, invitees, customers, licensees or contractors, provided, however, Tenant shall not be liable for or be obligated to indemnify Landlord from and against any damages resulting from Landlord's gross negligence or willful misconduct. THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE, UNLESS SPECIFICALLY OTHERWISE PROVIDED. Tenant's indemnity obligations under this Article and elsewhere in this Agreement arising prior to the termination or permitted assignment of this Agreement shall survive any such termination or assignment. 14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of any claim, action, proceeding or suit instituted or threatened against Tenant or Landlord of which Tenant receives notice or of which Tenant acquires knowledge. In the event Landlord is made a party to any action for damages or other relief against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its own expense using counsel reasonably approved by Landlord, diligently defend Landlord, pay all costs in such litigation or, at Landlord's option, and expense, Landlord may nonetheless engage its own counsel in connection with its own defense or settlement of said litigation in which event Tenant shall cooperate with Landlord and make available to Landlord all information and data which Landlord deems necessary or desirable for such defense. In the event Landlord is required to secure its own counsel due to a conflict in the interests of Tenant and Landlord in any action for damages or other relief against which Tenant has indemnified Landlord, Tenant shall pay all of Landlord's costs in such litigation. Tenant is required to approve a settlement agreement for any such claim or suit as requested by Landlord and which is consistent with applicable insurance company requirements, unless Tenant posts a bond or other security acceptable to Landlord for any potentially uninsured liability amounts. 14.4 Limitation on Liability of Landlord. In the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against the Landlord's interest in the Leased Property. In no event shall any partner, member, officer, director, stockholder or shareholder of Landlord or any partner thereof or Affiliated Person or Subsidiary thereof, be personally liable for the obligations of Landlord hereunder. 50 ARTICLE 15 REIT AND UBTI REQUIREMENTS Tenant understands that, in order for Landlord to qualify as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), the following requirements must be satisfied. The parties intend that amounts to be paid by Tenant hereunder and received or accrued, directly or indirectly, by Landlord with respect to the Leased Property (including any rents attributable to personal property that is leased with respect thereto) will qualify as "rents from real property" (within the meaning of Code Section 856(d) and Section 512(b)(3)), and that neither party will take, or permit to take, any action that would cause any amount received by the Landlord under this Agreement to fail to qualify as such under the Code. Consistent with this intent, the parties agree that: 15.1 Limitations on Rents Attributable to Personal Property. "Rents attributable to any personal property" leased to the Tenant cannot exceed fifteen percent (15%) of the total rent received or accrued by Landlord under this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the average of the adjusted tax bases of the personal property (within the meaning set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury Regulations) that is leased to Tenant with respect to the Leased Property at the beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the average of the aggregate adjusted tax bases of the real and personal property comprising such Leased Property that is leased to Tenant under such lease at the beginning and end of such Fiscal Year (the "REIT Personal Property Limitation"). If Landlord reasonably anticipates that the REIT Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good faith the purchase by Tenant of items of personal property anticipated by Landlord to be in excess of the Personal Property Limitation. Provided, however, that Tenant's responsibility to purchase such personal property will be offset by Landlord in some mutually agreeable manner, which would not result in the Landlord earning income which would constitute "unrelated business taxable income" within the meaning of Section 512 of the Code, if the Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of the Code. 15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the property that is leased to it by Landlord, or enter into any similar arrangement, on any basis such that the rental or other amounts paid by the sublessee thereunder would be based, in whole or in part, on either (a) the net income or profits derived by the business activities of the sublessee or (b) any other formula such that any portion of the rent paid by Tenant to Landlord would fail to qualify as "rent from real property" within the meaning of Section 856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder. 15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary in this Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or enter into any similar arrangement with, any person in which Landlord owns, directly or indirectly, a ten percent (10%) or more interest, with the meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed void ab initio. Anything to the contrary in this Agreement notwithstanding, Tenant shall not 51 sublease the Leased Property to, or enter into any similar arrangement with, any Person that Landlord would be deemed to control within the meaning of Section 512 (b)(13) of the Code. 15.4 Landlord Interests in Tenant Restricted. Anything to the contrary in this Agreement notwithstanding, neither party shall take, or permit to take, any action that would cause Landlord to own, directly or indirectly, a ten percent (10%) or greater interest in the Tenant within the meaning of Section 856(d)(2)(B) of the Code, and any similar or successor provision thereto, and any such action shall be deemed void ab initio. In addition, anything to the contrary in this Agreement notwithstanding, Tenant shall not take or permit to take, any action that would cause Landlord to own, directly or indirectly, such interest in Tenant such that amounts received from Tenant would represent amounts received from a controlled entity within the meaning of Section 512(b)(13) of the Code. 15.5 Rents from Personal Property Restricted. Rents attributable to personal property within the meaning of Treasury Regulation Section 1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI Personal Property Limitation will be exceeded with respect to the Leased Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good faith the purchase by Tenant of items of personal property anticipated by Landlord to be in excess of the UBTI Personal Property Limitation; provided, However, that Tenant's responsibility to purchase such personal property will be offset by Landlord in some mutually agreeable manner which will not result in the Landlord earning income which would constitute "unrelated business taxable income" within the meaning of Section 512 of the Code if the Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of the Code. 15.6 Landlord Services. Any services provided by, or on behalf of, Landlord will not prevent any amounts received or accrued from qualifying as "Rents from real property" (within the meaning of Section 856(d)(2) or Section 512(b)(3) of the Code). 15.7 Certain Subtenants Prohibited. Anything to the contrary in this Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or enter into any similar arrangement with, any Person that would be described in Section 514(c)(9)(B)(iii) or (iv) of the Code. 15.8 Future Amendment. Tenant hereby agrees to amend this Article 15 from time to time as Landlord deems necessary or desirable in order to effectuate the intent hereof. ARTICLE 16 SUBLETTING AND ASSIGNMENT 16.1 Transfers Prohibited Without Consent. Tenant shall not, without the prior written consent of Landlord in each instance which may be withheld in Landlord's sole opinion and discretion, sell, assign or otherwise transfer this Agreement, or Tenant's interest in the Leased Property together with all interests of Tenant in all property of any nature located and used at the Leased Property (including without limitation Tenant's Personal Property and the P&E Replacements), in whole or in part, or any rights or interest which Tenant may have under this Agreement, or sublet any part of the 52 Leased Property, or grant or permit any lien or encumbrance on or security interest in Tenant's interest in this Agreement; notwithstanding the foregoing, Tenant shall be permitted to grant sublease, rental or other occupancy rights in the Facility to individual residents in connection with the operation of the Leased Property in accordance with the Permitted Use. Notwithstanding the foregoing, Tenant may sell, assign or otherwise transfer this Agreement, or Tenant's interest in the Leased Property, in whole but not in part, without the consent of the Landlord, to an Affiliated Person or to Guarantor provided (i) Tenant gives Landlord prior written notice of such sale or assignment, (ii) Tenant shall remain liable under this Agreement for the remaining Term, and (iii) such assignee or purchaser shall continue to operate the Leased Premises as a first class skilled nursing, assisted living and dementia care facility consistent with other skilled nursing, assisted living and dementia care facilities being operated by Guarantor and its Affiliated Persons. Landlord shall not, without the prior written consent of Tenant in each instance which may be withheld in Tenant's sole opinion and discretion, sell, assign or otherwise transfer this Agreement, or Landlord's interest in the Leased Property, in whole or in part, or any rights or interest which Landlord may have under this Agreement, either directly or indirectly in the form of a Facility Mortgage as contemplated under Article 19 hereof, to a direct competitor of Tenant or Guarantor. In the event that a direct competitor of Tenant or Guarantor becomes a Mortgagee of the Leased Property the subordination provisions of Section 19.1 shall not apply. 16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment, pledge, transfer, exchange or other disposition of (a) the stock of Tenant or any general partner interest in Tenant or (b) any interest of a member or members of Tenant which results in a change or transfer of management or control of Tenant, or a merger, consolidation or other combination of Tenant with another entity which results in a change or transfer of management or control of Tenant, shall be deemed an assignment hereunder and shall be subject to Section 16.1 hereof. For purposes hereof, exchange or transfer of management or control or effective control, shall mean a transfer of 50% or more of the economic benefit of, or Control of, any such entity. 16.3 Adequate Assurances. Without limiting any of the foregoing provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the same may be amended from time to time, Tenant is permitted to assign or otherwise transfer its rights and obligations under this Agreement in disregard of the restrictions contained in this Article, the assignee shall be deemed to agree to provide adequate assurance to Landlord (a) that any Percentage Rent shall not decline substantially after the date of such assignment, (b) of the continued use of the Leased Property solely in accordance with the Permitted Use thereof, (c) of the continuous operation of the business in the Leased Property in strict accordance with the requirements of Article 4 hereof, and (d) of such other matters as Landlord may reasonably require at the time of such assumption or assignment. Without limiting the generality of the foregoing, adequate assurance shall include the requirement that any such assignee shall have a net worth (exclusive of good will) of not less than the aggregate of the Rent due and payable for the previous Fiscal Year and is or can be licensed to operate the Facility by the appropriate Governmental Agencies. Such assignee shall expressly assume this Agreement by an agreement in recordable form, an original counterpart of which shall be delivered to Landlord prior to an assignment of the Agreement. Any approval of such successor Tenant shall not affect or alter Landlord's approval rights of each manager of the Leased Property. 53 ARTICLE 17 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS 17.1 Estoppel Certificates. Tenant shall from time to time, within fifteen (15) days after request by Landlord and without charge, give a Tenant Estoppel Certificate in the form (or substantially the form) attached hereto as Exhibit "D" and containing such other matters as may be reasonably requested by Landlord to any person, firm or corporation specified by Landlord. 17.2 Monthly Financial Statements. Throughout the Term of this Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end of each month during the Term hereof, an income (or profit and loss) statement and operating balance sheet showing the results of the operation of the Leased Property for the immediately preceding month and for the Fiscal Year to date. This information shall be provided to Landlord under a complete financial statement for the Facility which shall be delivered prior to the end of the next following month, in the form customarily provided in the industry and approved in advance by the Landlord, and which shall: (a) be taken from the books and records maintained by Tenant, Guarantor and any manager in the form specified herein; (b) follow a consistent form as approved in advance in writing by Landlord; and (c) indicate variances from budgeted results for each line item against the Tenant's budget for the Leased Property for such Fiscal Year. The aforesaid financial statements shall be accompanied by an Officer's Certificate which, for purposes hereof shall mean a Certificate of the Chief Financial Officer of Tenant, and of Guarantor's Chief Financial Officer, in which such Officer shall certify (a) that such statements have been properly prepared in accordance with GAAP and are true, correct and complete in all material respects and fairly present the consolidated financial condition of the Tenant at and as of the dates thereof and the results of its operations for the period covered thereby, and (b) that no Event of Default has occurred and is continuing hereunder. 17.3 Annual Financial Statements. Tenant shall deliver to Landlord within ninety (90) days after the end of each Fiscal Year, a profit and loss statement, balance sheet and statement of cash flow certified by an independent certified public accountant who is actively engaged in the practice of his profession and who is acceptable to Landlord (which statement shall also be certified by an officer, partner or member in Tenant) together with copies of all reports and communications furnished to Guarantor, Tenant's other Affiliated Persons or any manager of the Leased Property, showing results from the operation of the Leased Property during such Fiscal Year, and reasons for material variations from the approved budget for such year. Tenant shall also deliver to Landlord at Landlord's expense at any time and from time to time, upon not less than twenty (20) days notice from Landlord, any financial statements or other financial reporting information required to be filed by Landlord with the SEC or any other governmental authority or required pursuant to any order issued by any Governmental Agencies or arbitrator in any litigation to which Landlord is a party for purposes of compliance therewith. The financial statements required herein are in addition to the statements required under Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's financial records are not otherwise being reviewed or audited by an independent certified public accountant then the Landlord will accept financial statements certified true and correct by the Chief Financial Officer of Tenant and by the Guarantor's Chief Financial Officer. 54 17.4 Records. Tenant shall keep and maintain at all times in accordance with GAAP (separate and apart from its other books, records and accounts) complete and accurate up-to-date books and records adequate to reflect clearly and correctly the results of operations of the Leased Property, on an accrual basis, including but not limited to, each calculation of Percentage Rent. Such books and records shall be kept and maintained at the Leased Property or Tenant's principal office in Nashville, Tennessee. Landlord or its representatives shall have, at all reasonable times during normal business hours, reasonable access, on reasonable advance notice, to examine and copy the books and records pertaining to the Leased Property and the Tenant Shortfall Reserve. Such books and records shall be available for at least four (4) years after the applicable quarterly calculation of Percentage Rent for Landlord's inspection, copying, review and audit at Landlord's expense during reasonable business hours and upon reasonable notice for the purpose of verifying the accuracy of Tenant's calculation of Percentage Rent. 17.5 General Operations Budget. In addition to the Reserve Estimate, Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year proposed annual budgets in a form satisfactory to Landlord and consistent with the then standards for the same brand of skilled nursing, assisted living and dementia care facilities as the Facility setting forth projected income and costs and expenses projected to be incurred by Tenant in managing, leasing, maintaining and operating the Facility during the following Fiscal Year. 17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the Tenant's property management team and the executive officers of Tenant available to meet with Landlord on a quarterly basis to discuss the Reserve Estimate, the annual budgets and any other items related to the operation of the Facility, which Landlord wishes to discuss. Tenant agrees to give good faith consideration to any suggestions or requests that Landlord may have. ARTICLE 18 LANDLORD'S RIGHT TO INSPECT Landlord, Mortgagee and their agents shall have the right to enter upon the Leased Property or any portion thereof at any reasonable time to inspect the same, including but not limited to, the operation, sanitation, safety, maintenance and use of the same, or any portions of the same and to assure itself that Tenant is in full compliance with its obligations under this Agreement (but Landlord and Mortgagee shall not thereby assume any responsibility for the performance of any of Tenant's obligations hereunder, nor any liability arising from the improper performance thereof). In making any such inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere with the conduct of Tenant's business. 55 ARTICLE 19 FACILITY MORTGAGES 19.1 Subordination. This Agreement, Tenant's interest hereunder and Tenant's leasehold interest in and to the Leased Property are hereby agreed by Tenant to be and are hereby made junior, inferior, subordinate and subject in right, title, interest, lien, encumbrance, priority and all other respects to any mortgage or mortgages and security interests now or hereafter in force and effect upon or encumbering Landlord's interest in the Leased Property, or any portion thereof, and to all collateral assignments by Landlord to any third party or parties of any of Landlord's rights under this Agreement or the rents, issues and profits thereof or therefrom as security for any liability or indebtedness, direct, indirect or contingent, of Landlord to such third party or parties, and to all future modifications, extensions, renewals, consolidations and replacements of, and all amendments and supplements to any such mortgage, mortgages or assignments, and upon recording of any such mortgage, mortgages or assignments, the same shall be deemed to be prior in dignity, lien and encumbrance to this Agreement, Tenant's interest hereunder and Tenant's leasehold interest in and to the Leased Property irrespective of the dates of execution, delivery or recordation of any such mortgage, mortgages or assignments (such mortgages, mortgages, security interests, assignments, modifications, extensions, renewals, amendments, supplements and replacement being a "Facility Mortgage"). The subordination of this Lease shall be upon the express condition that the validity of this Lease shall be recognized by the Mortgagee, and that, notwithstanding any default by the mortgagor, with respect to such mortgage, Tenant's possession and right of use under this Lease in and to the Leased Property (including rights to have insurance and condemnation proceeds made available for proper reconstruction of the Leased Property) shall not be disturbed by such Mortgagee unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated or shall be terminable in accordance with the provisions of this Lease. The foregoing subordination and non-disturbance provisions of this Section shall be automatic and self-operative without the necessity of the execution of any further instrument or agreement of subordination on the part of Tenant. Tenant acknowledges and agrees that notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee shall request that Tenant execute and deliver any further instrument or agreement of subordination of this Agreement or Tenant's interest hereunder or Tenant's leasehold interest in the Leased Property to any such Facility Mortgage, in confirmation or furtherance of or in addition to the foregoing subordination provisions of this Section, Tenant shall promptly execute and deliver the same to the requesting party (provided that such instrument or agreement also reflects the non-disturbance provisions set forth above). Further, Tenant agrees that it will, from time to time, execute such documentation as may be requested by Landlord and any Mortgagee (a) to assist Landlord and such Mortgagee in establishing or perfecting any security interest in Landlord's interest in the Reserve and the funds therein; and (b) to facilitate or allow Landlord to encumber the Leased Property as herein contemplated. If, within thirty (30) days following Tenant's receipt of a written request by Landlord or the holder or proposed holder of any such Facility Mortgage, Tenant shall fail or refuse or shall have not executed any such further instrument or agreement of subordination, for whatever reason, Tenant shall be in breach and default of its obligation to do so and of this Agreement and Landlord shall be entitled thereupon to exercise any and all remedies available to Landlord pursuant to this Agreement or otherwise provided by law. 56 19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound under all of the terms, provisions, covenants and conditions of this Agreement, to any successor of the interest of Landlord under this Agreement for the balance of the Term of this Agreement remaining at the time of the succession of such interest to such successor. In particular, in the event that any proceedings are brought for the foreclosure of any Facility Mortgage, Tenant shall attorn to the purchaser at any such foreclosure sale and recognize such purchaser as Landlord under this Agreement. Tenant agrees that neither the purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder of any such Facility Mortgage shall have any liability for any act or omission of Landlord, be subject to any offsets or defenses which Tenant may have as claims against Landlord, or be bound by any advance rents which may have been paid by Tenant to Landlord for more than the current period in which such rents come due. 19.3 Rights of Mortgagees and Assignees. Provided Landlord has given Tenant notice thereof, any Mortgagee shall have the right to unilateral enjoyment, exercise or control over the rights, remedies, powers and interests of Landlord hereunder, or otherwise arising under Applicable Law, as assigned or granted to such Mortgagee by Landlord or as provided in any Facility Mortgage. At the time of giving any notice of default to Landlord, Tenant shall mail or deliver to any Mortgagee of whom Tenant has notice, a copy of any such notice. No notice of default or termination of this Agreement by Tenant shall be effective until each Mortgagee shall have been furnished a copy of such notice by Tenant. In the event Landlord fails to cure any default by it under this Agreement, the Mortgagee shall have, at its option, a period of thirty (30) days after expiration of any cure period of Landlord within which to remedy such default of Landlord or to cause such default to be remedied. In the event that the Mortgagee elects to cure any such default by Landlord, then Tenant shall accept such performance on the part of such Mortgagee as though the same had been performed by Landlord, and for such purpose Tenant hereby authorizes any Mortgagee to enter upon the Leased Property to the extent necessary to exercise any of Landlord's rights, powers and duties under this Agreement. If, in the event of any default by Landlord which is reasonably capable of being cured by a Mortgagee, the Mortgagee promptly commences and diligently pursues to cure the default, then Tenant will not terminate this Agreement or cease to perform any of its obligations under this Agreement so long as the Mortgagee is, with due diligence, engaged in the curing of such default. ARTICLE 20 ADDITIONAL COVENANTS OF TENANT 20.1 Conduct of Business. Tenant shall not engage in any business other than the leasing and operation of the Leased Property for the Permitted Use and activities incidental thereto, including without limitation the delivery of services to the Facility residents under the Service Licenses or otherwise, and shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect and in good standing its corporate existence and its rights and licenses necessary to conduct such business. Promptly upon receipt of same, Tenant shall provide Landlord with copies of all licenses, licensure and certification surveys and related plans of correction, and notices of corrective action required, of loss of licensure or certification of the Facility, or of any limits imposed upon admissions to the Facility. 57 20.2 Additional Covenants of Tenant. In addition to the other covenants and representations of Tenant herein and in this Agreement, Tenant hereby covenants, acknowledges and agrees that Tenant shall: (a) Not guaranty any obligation of any Person other than the tenant under any ARC-Related Lease; (b) Pay or cause to be paid all lawful claims for labor and rents with respect to the Leased Property; (c) Pay or cause to be paid all trade payables; (d) Not declare, order, pay or make, directly or indirectly, any Distribution or any payments to any members or Affiliated Persons as to Tenant (including payments in the ordinary course of business and payments pursuant to any management agreements with any such Affiliate), or set apart any sum of property therefor, or agree to do so, if, at the time of such proposed action or immediately after giving effect thereto, any Event of Default shall exist; (e) Except as otherwise permitted by this Agreement, not sell, lease (as lessor or sublessor), transfer or otherwise dispose of or abandon, all or any material portion of its assets or business to any Person, or sell, lease, transfer or otherwise dispose of or abandon any of Tenant's Personal Property, provided, however, Tenant may dispose of portions of Tenant's Personal Property which have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary, provided substitute equipment or fixtures having equal or greater value and utility have been provided. (f) Provide and maintain throughout the Term, all Tenant's Personal Property and P&E Replacements as shall be necessary in order to operate the Leased Property in compliance with applicable legal requirements and insurance requirements and otherwise in accordance with customarily practice in the industry for the Permitted Use. If, from and after the Commencement Date, Tenant acquires an interest in any items of tangible personal property (other than motor vehicles) on, or in connection with the Leased Property which belong to anyone other than Tenant, Tenant shall require the agreement permitting such use to provide that Landlord or its designee may assume Tenant's rights and obligations under such agreement upon the termination of this Agreement and any assumption of management or operation of the Leased Property by Landlord or its designee. (g) Deliver to Landlord within thirty (30) days after receipt of or after modification thereof, copies of all licenses authorizing Tenant to operate the Leased Property for its Permitted Use. (h) Undertake a risk management analysis and report regarding the operation of the Facility annually for compliance with all Applicable Laws governing the ongoing use and operation of the Facility for the Permitted Use and provide Landlord with a copy of the report and any other results of the analysis. 58 (i) Give prompt notice to Landlord of any litigation or any administrative proceeding involving Tenant, Landlord or the Leased Property of which Tenant has notice or actual knowledge and which involves a potential uninsured liability equal to or greater than $100,000.00 or which, in Tenant's reasonable opinion, may otherwise result in any material adverse change in the business, operations, property, prospects, results of operation or conditions, financial or otherwise, of Tenant or the Facility. (j) Not, except as approved in writing by Landlord, either directly or indirectly, for itself, or through, or on behalf of, or in connection with any Person, divert or attempt to divert any business or customer of the Leased Property to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the good will associated with the Landlord or the Leased Property. (k) Except for liabilities incurred in the ordinary course of business, not create, incur, assume or guarantee, or permit to exist or become or remain liable directly or indirectly upon, any Indebtedness except Indebtedness of Tenant to Landlord (or, if unsecured and expressly subject to the terms of this Agreement and Landlord's interest hereunder, and payable solely out of excess cash flow after payment of all Rent hereunder, to Tenant's shareholders, partners or members, as applicable). Tenant further agrees that the obligee in respect of any such Indebtedness shall agree in writing, in form and substance satisfactory to Landlord that (w) the payment of such Indebtedness shall be expressly subordinated in all respects to all of Tenant's obligations under this Agreement, (x) no remedies may be exercised by the obligee with respect to enforcement or collection of such Indebtedness until such time as this Agreement shall be terminated and all of Tenant's obligations hereunder shall have been discharged in full; (y) such Indebtedness shall not be assigned by the obligee to any other party; and (z) the obligee shall not initiate or join in any bankruptcy proceedings against Tenant. As used in this Section 20.2(k) (and notwithstanding any other definition of Indebtedness herein), Indebtedness shall mean all obligations, contingent or otherwise, to pay or repay monies irrespective of whether, in accordance with GAAP, such obligations should be reflected on the obligor's balance sheet as debt. 20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and warrants that Tenant is, and throughout the Term will remain, a Single Purpose Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the foregoing, the Landlord agrees that the requirements for an Independent Director or Independent Member thereunder shall not apply so long as Tenant is an Affiliated Person of Guarantor. 20.4 Intentionally Omitted. ARTICLE 21 MISCELLANEOUS 21.1 Limitation on Payment of Rent. All agreements between Landlord and Tenant herein are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the Rent or any other amounts payable to Landlord under this 59 Agreement exceed the maximum permissible under Applicable Laws, the benefit of which may be asserted by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of any provision of this Agreement, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, or if from any circumstances Landlord should ever receive as fulfillment of such provision such an excessive amount, then, ipso facto, the amount which would be excessive shall be applied to the reduction of the installment(s) of Minimum Rent next due and not to the payment of such excessive amount. This provision shall control every other provision of this Agreement and any other agreements between Landlord and Tenant. 21.2 No Waiver. No release, discharge or waiver of any provision hereof shall be enforceable against or binding upon Landlord or Tenant unless in writing and executed by Landlord or Tenant, as the case may be. Neither the failure of Landlord or Tenant to insist upon a strict performance of any of the terms, provisions, covenants, agreements and conditions hereof, nor the acceptance of any Rent by Landlord with knowledge of a breach of this Agreement by Tenant in the performance of its obligations hereunder, or the following of any practice or custom at variance with the terms hereof, shall be deemed or constitute a waiver of any rights or remedies that Landlord or Tenant may have or a waiver of any subsequent breach or default in any of such terms, provisions, covenants, agreements and conditions or the waiver of the right to demand exact compliance with the terms hereof. 21.3 Remedies Cumulative. To the maximum extent permitted by law, each legal, equitable or contractual right, power and remedy of Landlord, now or hereafter provided either in this Agreement or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Landlord of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Landlord of any or all of such other rights, powers and remedies. 21.4 Severability. Any clause, sentence, paragraph, section or provision of this Agreement held by a court of competent jurisdiction to be invalid, illegal or ineffective shall not impair, invalidate or nullify the remainder of this Agreement, but rather the effect thereof shall be confined to the clause, sentence, paragraph, section or provision so held to be invalid, illegal or ineffective, and this Agreement shall be construed as if such invalid, illegal or ineffective provisions had never been contained therein. 21.5 Acceptance of Surrender. No surrender to Landlord of this Agreement or of the Leased Property or any part thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and no act by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, shall constitute an acceptance of any such surrender. 21.6 No Merger of Title. It is expressly acknowledged and agreed that it is the intent of the parties that there shall be no merger of this Agreement or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Agreement or the leasehold estate created hereby and the fee estate or ground landlord's interest in the Leased Property. 60 21.7 Tenant's Representations. In addition to any other representation or warranty set forth herein and as an inducement to Landlord to enter into this Agreement, Tenant hereby represents and warrants to Landlord as follows: (a) Tenant is a corporation duly organized and validly existing and in good standing under the laws of the State of Tennessee. Tenant has all requisite power and authority under the laws of the State of Tennessee and the laws of the State of Colorado and its articles of incorporation, by-laws, or other charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. Tenant is duly authorized to transact business in any jurisdiction in which the nature of the business conducted by it requires such qualification. (b) Tenant has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by Tenant, prior to the date hereof, such document shall constitute the valid and binding obligation and agreement of Tenant, enforceable against Tenant in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors and except to the extent that the availability of equitable relief may be subject to the discretion of the court before which any proceeding may be brought. (c) There are no judgments presently outstanding and unsatisfied against Tenant or any of its properties, and neither Tenant nor any of its properties are involved in any material litigation at law or in equity or any proceeding before any court, or by or before any governmental or administrative agency, which litigation or proceeding could materially adversely affect Tenant, and no such material litigation or proceeding is, to the knowledge of Tenant, threatened against Tenant and no investigation looking toward such a proceeding has begun or is contemplated. (d) To the knowledge of Tenant, neither this Agreement nor any other document, certificate or statement furnished to Landlord by or on behalf of Tenant in connection with the transaction contemplated herein contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the knowledge of Tenant there is no fact or condition which materially and adversely affects the business, operations, affairs, properties or condition of Tenant which has not been set forth in this Agreement or in other documents, certificates or statements furnished to Landlord in connection with the transaction contemplated hereby. (e) Tenant hereby represents to Landlord that, in the reasonable opinion of Tenant, the Leased Property and the Leased Improvements therein are adequately furnished and contain adequate P&E and Inventories consistent with the amount of P&E and Inventories which is customarily maintained in a skilled nursing, assisted living and dementia care facility of the type and character of the Leased Property as otherwise required to operate the Leased Property in a manner contemplated by this Agreement and in compliance with all legal requirements. 61 (f) Tenant acknowledges that Tenant's failure or repeated delays in making prompt payment in accordance with the terms of any agreement, leases, invoices or statements for purchase or lease of P&E, Inventories or other goods or services will be detrimental to the reputation of Landlord and Tenant. (g) All employees of Tenant are solely employees of Tenant and not Landlord. Tenant is not Landlord's agent for any purpose in regard to Tenant's employees or otherwise. Further, Tenant expressly acknowledges and agrees that Landlord does not exercise any direction or control over the employment policies or employment decisions of Tenant. (h) Tenant has not (i) made any contributions, payments or gifts to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution, payment or gift is illegal under the laws of the United States or the jurisdiction in which made, (ii) established or maintained any unrecorded fund or asset for any purpose or made any false or artificial entries on its books, (iii) given or received any payments or other forms of remuneration in connection with the referral of patients which would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous state statute or (iv) made any payments to any person with the intention or understanding that any part of such payment was to be used for any purpose other than that described in the documents supporting the payment. Tenant shall not take any such actions during the Term of this Agreement. (i) Tenant has not knowingly filed or failed to correct any claims for payment or cost reports with Medicare or Medicaid that are not true and correct in all material respects and, to Tenant's knowledge, no refunds or overpayments from either Medicare or Medicaid are due and owing. (j) Tenant's equity is directly and (if applicable) indirectly owned as shown on Exhibit "G". Tenant shall promptly provide to Landlord, upon the occurrence thereof but in any event not more than fifteen (15) days following a written request therefor, written notice of any change in the executive officers, directors, shareholders, partners, and/or members of Tenant, as applicable to Tenant's formation and structure, and of any change in the respective interests in Tenant held by each of such Persons. 21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as Tenant shall timely pay all rents due to Landlord from Tenant hereunder and keep, observe and perform all covenants, promises and agreements on Tenant's part to be kept, observed and performed hereunder, Tenant shall and may peacefully and quietly have, hold and occupy the Leased Property free of any interference from Landlord or any Person claiming by, through or under Landlord; subject, however, and nevertheless to the terms, provisions and conditions of this Agreement, the Permitted Encumbrances, any other documents affecting record title to or the use and occupancy of the Leased Property immediately prior to the conveyance thereof to Landlord on or about the date hereof, and documents affecting title to the Leased Property approved by Tenant. Landlord shall not, without the prior written approval of Tenant, enter into or record any document which purports to or which by its terms will materially and adversely affect the Tenant, Tenant's use and enjoyment of the Leased Property or 62 Tenant's rights under this Agreement (such approval not to be unreasonably withheld, delayed or conditioned provided that the same is appropriate and reasonably necessary in connection with the normal and ordinary course of ownership and use of the Facility). 21.9 Recordation of Memorandum of Lease. At either party's option, a short form memorandum of this Agreement, in the form attached hereto as Exhibit "E" shall be recorded or filed among the appropriate land records of the County in which the Leased Property is located, and Tenant shall pay the transfer and all recording costs associated therewith. In the event of a discrepancy between the provisions of this Agreement and such short form memorandum thereof, the provisions of this Agreement shall prevail. 21.10 Notices. (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier). (b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day. (c) All such notices shall be addressed, if to Landlord to: CNL Retirement - AM/Colorado, LP CNL Center at City Commons 450 South Orange Avenue Orlando, FL 32801 Attn: Mr. Phillip M. Anderson, Jr. or Chief Operating Officer [Telecopier No. (407) 835-3232] with a copy to: Lowndes, Drosdick, Doster, Kantor and Reed, P.A. 215 North Eola Drive P.O. Box 2809 Orlando, FL 32809 Attn: Scott C. Thompson, Esq. [Telecopier No. (407) 843-4444] 63 if to Tenant to: ARC Greenwood Village, Inc. 111 Westwood Place, Suite 402, Brentwood, Tennessee 37027 Phone: (615) 221-2250 Fax: (615) 221-2269 Attn: Mr. George Hicks, Chief Financial Officer with a copy to: Bass, Berry & Sims PLC 315 Deaderick Street, Suite 2700 Nashville, Tennessee 37238 Attn: T. Andrew Smith, Esquire Phone: (615) 742-6200 Fax: (615) 742-2766 (d) By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America. 21.11 Construction; Nonrecourse. Anything contained in this Agreement to the contrary notwithstanding, all claims against, and liabilities of, Tenant or Landlord arising prior to any date of termination or expiration of this Agreement with respect to the Leased Property shall survive such termination or expiration. Each term or provision of this Agreement to be performed by Tenant shall be construed as an independent covenant and condition. Time is of the essence with respect to the performance by Tenant of its obligations under this Agreement, including, without limitation, obligations for the payment of money. Except as otherwise set forth in this Agreement, any obligations arising prior to the expiration or sooner termination of this Agreement of Tenant (including without limitation, any monetary, repair and indemnification obligations) and Landlord shall survive the expiration or sooner termination of this Agreement. In addition, solely with respect to Landlord, nothing contained in this Agreement shall be construed to create or impose any liabilities or obligations and no such liabilities or obligations shall be imposed on any of the shareholders, beneficial owners, direct or indirect, officers, directors, trustees, employees or agents of Landlord or Tenant for the payment or performance of the obligations or liabilities of Landlord hereunder. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 21.12 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but which, when taken together, shall constitute but one instrument and shall become effective as of the date hereof when copies hereof, which, when taken together, bear the signatures of each of the parties hereto shall have been signed. Captions and 64 headings in this Agreement are for purposes of reference only and shall in no way define, limit or describe the scope or intent of, or otherwise affect, the provisions of this Agreement. 21.13 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State in which the Leased Property is located. 21.14 Right to Make Agreement. Each party warrants, with respect to itself, that neither the execution and delivery of this Agreement, nor the compliance with the terms and provisions hereof, shall violate any provision of any law, or any judgment, writ, injunction, order or decree of any court or Governmental Authority; nor result in or constitute a breach or default under or the creation of any lien, charge or encumbrance upon any of its property or assets under, any indenture, mortgage, deed of trust, contract, other commitment or restriction to which it is a party or by which it is bound; nor require any consent, vote or approval which has not been given or taken, or at the time of the transaction involved shall not have been given or taken. Each party covenants that it has and will continue to have throughout the term of this Agreement and any extensions thereof, the full right to enter into this Agreement and perform its obligations hereunder. 21.15 Brokerage. Landlord and Tenant hereby represent and warrant to each other that they have not engaged, employed or utilized the services of any business or real estate brokers, salesmen, agents or finders in the initiation, negotiation or consummation of the business and real estate transaction reflected in this Agreement. On the basis of such representation and warranty, each party shall and hereby agrees to indemnify and save and hold the other party harmless from and against the payment of any commissions or fees to or claims for commissions or fees by any real estate or business broker, salesman, agent or finder resulting from or arising out of any actions taken or agreements made by them with respect to the business and real estate transaction reflected in this Agreement. 21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of this Agreement, in any way or for any purpose, be deemed to be a partner of Tenant in the conduct of Tenant's business upon, within or from the Leased Property or otherwise, or a joint venturer or a member of a joint enterprise with Tenant. 21.17 Entire Agreement. This Agreement contains the entire agreement between the parties and, except as otherwise provided herein, can only be changed, modified, amended or terminated by an instrument in writing executed by the parties. It is mutually acknowledged and agreed by Landlord and Tenant that there are no verbal agreements, representations, warranties or other understandings affecting the same; and that Tenant hereby waives, as a material part of the consideration hereof, all claims against Landlord for rescission, damages or any other form of relief by reason of any alleged covenant, warranty, representation, agreement or understanding not contained in this Agreement. 21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under Sections 12.2 and 14.2, if either party shall bring an action to recover any sum due hereunder, or for any breach hereunder, and shall obtain a judgment or decree in its favor, the court may award to such prevailing party its reasonable costs and reasonable attorney's fees based upon service rendered at hourly rates, specifically including reasonable attorney's fees incurred in connection with any appeals (whether or not taxable as such by law). Landlord shall also be entitled to recover its reasonable attorney's fees based upon service rendered at hourly rates and costs incurred in any bankruptcy action filed by or against Tenant, including, without limitation, those incurred in seeking relief from the automatic stay, 65 in dealing with the assumption or rejection of this Agreement, in any adversary proceeding, and in the preparation and filing of any proof of claim. 21.19 Approval of Landlord. Whenever Tenant is required under this Agreement to do anything to meet the satisfaction or judgement of Landlord, the reasonable satisfaction or judgement of Landlord shall be deemed sufficient. The foregoing provision of this Section shall not apply in any instance where the provisions of this Agreement expressly state that the provisions of this Section do not apply or where the provisions of this Agreement expressly state that such consent, approval or satisfaction are subject to the sole and absolute discretion or judgement of Landlord, and in each such instance Landlord's approval or consent may be unreasonably withheld or unreasonable satisfaction or judgement may be exercised by Landlord. 21.20 Successors and Assigns. The agreements, terms, provisions, covenants and conditions contained in this Agreement shall be binding upon and inure to the benefit of Landlord and Tenant and, to the extent permitted herein, their respective successors and assigns. 21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S ACCEPTING THIS AGREEMENT. 21.22 Treatment of Lease. Landlord and Tenant each agree to treat this Agreement as a true lease for tax purposes and as an operating lease for generally accepted accounting principles. 21.23 Transfer of Licenses. Upon the expiration or sooner termination of this Agreement, Tenant shall use its best efforts to transfer and assign to Landlord or its designee or assist Landlord or its designee in obtaining transfer or assignment of all Leased Intangible Property, including without limitation and together with any contracts, licenses (including without limitation all licenses identified as part of the Initial Tenant Personal Property and any replacements thereof and additions thereto), permits, development rights, trade names (except for trade names as included within the Initial Tenant Personal Property), telephone exchange numbers identified with the Leased Property, approvals and certificates and all other intangible rights, benefits and privileges of any kind or character with respect to the Leased Property, useful or required for the then operation of the Leased Property (except for proprietary software as included within the Initial Tenant Personal Property). If requested by Landlord and to the extent permitted by law the Tenant shall provide a collateral assignment of such licenses and other intangible rights as further security for Tenant's obligations hereunder. 21.24 Tenant's Personal Property. Upon the expiration or sooner termination of the Term of this Agreement, Landlord may, in its sole and absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be required, within ten (10) Business Days after such expiration or termination, to 66 remove all of Tenant's Personal Property from the Leased Property, or (ii) pay Tenant's book value of such Tenant's Personal Property (not including, however, trade names and proprietary software listed as part of the Initial Tenant Personal Property, which shall remain the sole property of Tenant). Failure of Landlord to make such election shall be deemed an election to proceed in accordance with clause (ii) preceding. 21.25 Landlord's Representations. Landlord hereby represents and warrants to Tenant as follows: (a) Landlord is a limited partnership duly organized and validly existing and in good standing under the laws of the State of Delaware. Landlord has all requisite power and authority under the laws of the State of Delaware and its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. (b) Landlord has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery hereof, this Agreement shall constitute the valid and binding agreement of Landlord. 21.26 Guaranty of Lease. The Landlord has entered into this Lease in reliance upon the Unconditional Guaranty of Payment and Performance by the Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"), pursuant to which the Guarantor has unconditionally guaranteed all of the obligations of the Tenant under this Lease, including without limitation the covenants of Tenant in Sections 4.4 and Section 4.6 hereof, and all of the additional covenants of Tenant in Article 20 hereof. 21.27 Guaranty of ARC-Related Leases. The obligations of each tenant under each ARC-Related Lease (whether now in effect or entered into in the future) also shall be and are hereby unconditionally guaranteed by Tenant. Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a material inducement for the execution of each ARC-Related Lease, is and shall be a guaranty of payment and performance and not of collection solely, and shall be effective in accordance with the terms and conditions of the Guaranty, which are incorporated herein by this reference. Notwithstanding the foregoing, and the automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant shall upon request of the Landlord or its Affiliated Persons promptly execute and deliver a separate Unconditional Guaranty of Payment and Performance with respect to each ARC-Related Lease. IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date above first written. [SIGNATURES APPEAR ON FOLLOWING PAGE] 67 LANDLORD: CNL RETIREMENT - AM/COLORADO LP, a Delaware limited partnership By: CNL RETIREMENT - GP/COLORADO CORP., a Delaware corporation, its general partner By: /s/ Phillip M. Anderson -------------------------------------- Printed name: Phillip M. Anderson Title: Executive Vice President (CORPORATE SEAL) TENANT: ARC GREENWOOD VILLAGE, INC., a Tennessee corporation By: /s/ R. C. Roadman ----------------------------------- Printed name: Ross C. Roadman Title: SVP NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND INDEMNITIES BY THE TENANT OF THE LANDLORD'S OWN NEGLIGENCE. 68 EXHIBIT "A" The Land BLOCK A, SOUTHTECH SUBDIVISION FILING NO. 1, A SUBDIVISION SITUATED IN THE SOUTHWEST QUARTER OF SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE SIXTH P.M., COUNTY OF ARAPAHOE STATE OF COLORADO, EXCEPT THAT PORTION CONVEYED IN DEED RECORDED SEPTEMBER 8, 1983 IN BOOK 3962 AT PAGE 630; AND EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE IN DEED RECORDED FEBRUARY 14, 1994 IN BOOK 7412 AT PAGE 139; AND EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE, COLORADO BY QUIT CLAIM DEED RECORDED APRIL 17, 1998 AT RECEPTION NUMBER A8055896; BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF THE SOUTHWEST 1/4 OF SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH P.M., FROM WHICH THE NORTHWEST CORNER OF THE SOUTHWEST 1/4 OF SECTION 22 BEARS NORTH 00 degrees 00'00" EAST WITH ALL BEARINGS BEING REFERENCED THERETO: THENCE NORTH 89 degrees 45'33" EAST A DISTANCE OF 1322.65 FEET: THENCE NORTH 89 degrees 47'30" EAST A DISTANCE 40 FEET: THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 40 FEET TO THE SOUTHWEST CORNER OF BLOCK A, SOUTHTECH SUBDIVISION FILING 1; THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 621.69 FEET ALONG THE WEST LINE OF SAID BLOCK A; THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE 20 FEET, TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE 601.90 FEET; THENCE WITH THE COMMON BOUNDARY OF SAID BLOCK A AND CASTLEWOOD COURT, A SUBDIVISION RECORDED AT RECEPTION NUMBER 94106725, ARAPAHOE COUNTY RECORDS, THE FOLLOWING THREE COURSES: SOUTH 00 degrees 03'20" WEST A DISTANCE 331.03 FEET; SOUTH 89 degrees 46'30" WEST A DISTANCE 315.85 FEET; SOUTH 00 degrees 02'49" WEST A DISTANCE 201.54 FEET; THENCE DEPARTING THE EAST LINE OF SAID BLOCK A, SOUTH 89 degrees 47'30" WEST A DISTANCE 8.69 FEET ALONG THE NORTH LINE OF THAT PARCEL CONVEYED TO THE CITY OF GREENWOOD VILLAGE AT RECEPTION NUMBER A8055896; THENCE WITH THAT PARCEL CONVEYED TO THE CITY OF GREENWOOD VILLAGE AT BOOK 7412 PAGE 139 THE FOLLOWING TWO COURSES: ALONG A CURVE TO THE RIGHT WHOSE RADIUS BEARS NORTH 29 degrees 09'28" EAST A DISTANCE OF 540 FEET, WHOSE DELTA IS 60 degrees 52'25" AND WHOSE LENGTH IS 573.72 FEET TO A POINT OF TANGENCY; THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 59.44 FEET TO THE TRUE POINT OF BEGINNING. CONTAINING 5.023 ACRES, MORE OR LESS. A-1 EXHIBIT "B" Initial Term Minimum Rent The amount of Minimum Rent due during the Initial Term(1) is as follows: For Accounting Year 1 - $1,786,537.50; Commencing with the 2nd Accounting Year, and on the first day of each Accounting Year thereafter during the Initial Term, Minimum Rent shall increase by two percent (2%) over the Minimum Rent owing in the immediately preceding Accounting Year. Accordingly, the Minimum Rent owing from the 2nd Accounting Year through the end of the Initial Term of this Agreement shall be as follows: For Accounting Year 2 - $1,822,268.25; For Accounting Year 3 - $1,858,713.62; For Accounting Year 4 - $1,895,887.89; For Accounting Year 5 - $1,933,805.65; For Accounting Year 6 - $1,972,481.76; For Accounting Year 7 - $2,011,931.39; For Accounting Year 8 - $2,052,170.02; For Accounting Year 9 - $2,093,213.42; For Accounting Year 10 - $2,135,077.69; For Accounting Year 11 - $2,177,779.24; For Accounting Year 12 - $2,221,334.83; For Accounting Year 13 - $2,265,761.53; For Accounting Year 14 - $2,311,076.76; For Accounting Year 15 - $2,357,298.29. - -------- (1) Absent and assuming no increase in respect of any Earn Out Payment under the Earn Out Agreement with American Retirement Corporation B-1 EXHIBIT "C" Appraisal Process If Landlord and Tenant are unable to agree upon the fair market value of the Leased Property within any relevant period provided in this Agreement, each shall within ten (10) days after written demand by the other select one MAI Appraiser to participate in the determination of fair market value. Within ten (10) days of such selection, the MAI Appraisers so selected by Landlord and Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers shall each determine the fair market value of the Leased Property within thirty (30) days of the selection of the third appraiser. To the extent consistent with sound appraisal practices as then existing at the time of any such appraisal, and if requested by Landlord, such appraisal, shall be made on a basis consistent with the basis on which the Leased Property was appraised at the time of its acquisition by Landlord. Tenant shall pay the fees and expenses of any MAI Appraiser retained pursuant to this Exhibit. In the event either Landlord or Tenant fails to select a MAI Appraiser within the time period set forth in the foregoing paragraph, the MAI Appraiser selected by the other party shall alone determine the fair market value of the Leased Property in accordance with the provisions of this Exhibit and the fair market value so determined shall be binding upon Landlord and Tenant. In the event the MAI Appraisers selected by Landlord and Tenant are unable to agree upon a third MAI Appraiser within the time period set forth in the first paragraph of this Exhibit, either Landlord or Tenant shall have the right to apply at Tenant's expense to the presiding judge of the court of original trial jurisdiction in the county in which the Leased Property is located to name the third MAI Appraiser. Within five (5) days after completion of the third MAI Appraiser's appraisal, all three MAI Appraisers shall meet and a majority of the MAI Appraisers shall attempt to determine the fair market value of the Leased Property. If a majority are unable to determine the fair market value at such meeting, the three appraisals shall be added together and their total divided by three. The resulting quotient shall be the fair market value of the Leased Property. If, however, either or both of the low appraisal or the high appraisal are more than ten percent (10%) lower or higher than the middle appraisal, any such lower or higher appraisal shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two, and the resulting quotient shall be such fair market value. If both the lower appraisal and the higher appraisal are disregarded as provided herein, the middle appraisal shall be such fair market value. In any event, the result of the foregoing appraisal process shall be final and binding. "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified to do business in the State and who has substantial experience in performing appraisals of facilities similar to the Leased Property and is certified as a member of the American Institute of Real Estate Appraisers or certified as a SRPA by the Society of Real Estate Appraisers, or, if such organizations no longer exist or certify appraisers, such successor organization or such other organization as is approved by Landlord. C-1 EXHIBIT "D" Tenant Estoppel Certificate THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a __________, with principal office and place of business at __________________ _________ ("Beneficiary"). RECITALS: A. Pursuant to the terms and conditions of that certain Lease Agreement ("Lease") dated ________, ___________________________ ("Landlord") leased to Tenant certain real property in ______ County, _____ ("Leased Property"), which Leased Property are more particularly described in the Lease. B. Pursuant to the terms and conditions of the Lease, the Beneficiary has requested that the Tenant execute and deliver this Certificate with respect to the Lease. NOW, THEREFORE, in consideration of the above Leased Property, the Tenant hereby makes the following statements for the benefit of the Assignee: 1. The copy of the Lease attached hereto and made a part hereof as Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in full force and effect as of the date hereof, and has not been modified or amended. 2. The Lease sets forth the entire agreement between the Landlord and the Tenant relating to the leasing of the Leased Property, and there are no other agreements, written or oral, relating to the leasing of the Leased Property. 3. There exists no uncured or outstanding defaults or events of default under the Lease, or events which, with the passage of time, and the giving of notice, or both, would be a default or event of default under the Lease. 4. No notice of termination has been given by Landlord or Tenant with respect to the Lease. 5. All payments due the Landlord under the Lease through and including the date hereof have been made, including the monthly installment of Minimum Rent (as defined in the Lease) for the period of ______________ to ________________ in the amount of $___________. 6. As of the date hereof, the annual Minimum Rent under the Lease is $__________. 7. Percentage Rent (as defined in the Lease) has been paid through and including the Fiscal Year ending ______________. 8. There are no disputes between the Landlord and the Tenant with respect to any rental due under the Lease or with respect to any provision of the Lease. 9. Notwithstanding any provisions of the Lease to the contrary, the Tenant hereby consents to the collateral assignment of the Lease by the Landlord to the Beneficiary, and agrees that no terms and conditions of the Lease shall be altered, amended or changed as a result of such assignment. 10. The Tenant hereby agrees that from and after the date hereof copies of all notices which Tenant is required to deliver to the Landlord under the Lease with respect to defaults, D-1 events of default or failure to perform by the Landlord under the Lease, shall be delivered to Beneficiary at the following address: ---------------- ---------------- ---------------- ---------------- 11. The Tenant represents and warrants that (a) all improvements constructed on the Leased Property have been approved and accepted by Tenant, (b) all utility sources and utility companies which service the Leased Property have been approved and accepted by Tenant and utility service is available to the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with respect to its obligations under the Lease. 12. The Tenant understands and acknowledges that Beneficiary is relying upon the representations set forth in this Certificate, and may rely thereon in connection with the collateral assignment of the Lease to Beneficiary. IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day and year first set forth above. ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- STATE OF _______ COUNTY OF _______ The foregoing instrument was acknowledged before me this ___ day of _____, 20___ by _________________, as _________________ of ____________, a ____________, on behalf of the _________. He/she is personally known to me or has produced ________ as identification. _____________________________________ Notary Public Printed Name:________________________ expires: _______________ (NOTARY SEAL) D-2 EXHIBIT "E" Memorandum of Lease THIS MEMORANDUM OF LEASE, entered into as of this ____ day of _________, 20___, by and between __________________________________________, whose address is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord, and___________ _________, a ______________, whose address is ________________________________, as Tenant. W I T N E S E T H: ----------------- THAT, Landlord and Tenant have heretofore entered into a certain Lease Agreement dated ____________, 20___ (the "Lease") covering certain Leased Property consisting of, among other things, certain real property located in ______ County, ______, more particularly described on Exhibit "A" attached hereto upon which there is constructed and located certain improvements (together the "Leased Property"), and WHEREAS, it is the desire of both Landlord and Tenant to memorialize the Lease and set forth certain pertinent data with respect thereto. NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby acknowledge and agree as follows: 1. Demise. The Leased Property have been and are hereby demised, let and leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord, all pursuant to and in accordance with the Lease. 2. Term. The initial Term of the Lease is from __________, 2001, until __________, 2016. Tenant has the right, privilege and option to renew and extend the initial Term of the Lease for up to two (2) additional periods of five (5) years each, subject to the provisions and conditions of the Lease. 3. Possession. Landlord has delivered possession of the Leased Property to Tenant and Tenant has accepted delivery and taken possession of the Leased Property from Landlord in the "as is" condition of the Leased Property on the Commencement Date. 4. Liens on Landlord's Interest Prohibited. By the terms of the Lease, Landlord's interest in the Leased Property may not be subjected to liens of any nature by reason of Tenant's construction, alteration, repair, restoration, replacement or reconstruction of any improvements on or in the Leased Property, including those arising in connection with or as an incident to the renovation of the improvements located on the Leased Property, or by reason of any other act or omission of Tenant (or of any person claiming by, through or under Tenant) including, but not limited to, construction, mechanics' and materialmen's liens. Accordingly, all persons dealing with Tenant are hereby placed on notice that such persons shall not look to Landlord or to Landlord's credit or assets (including Landlord's interest in the Leased Property) for payment or satisfaction of any obligations incurred in connection with the construction, alteration, repair, restoration, renovation, replacement or reconstruction thereof by or on behalf of Tenant. Tenant E-1 has no power, right or authority to subject Landlord's interest in the Leased Property to any construction, mechanic's or materialmen's lien or claim of lien. 5. Subordination and Attornment. The Lease specifically provides that the Lease and Tenant's leasehold interest in and to the Leased Property are junior, inferior, subordinate and subject in all respects to any mortgage or mortgages now or hereafter in force and effect upon or encumbering the Leased Property or any portion thereof, and that Tenant shall, and has agreed to, attorn to any successor of the interest of Landlord under the Lease, including the purchaser at any foreclosure sale occasioned by the foreclosure of any such mortgage or mortgages, for the balance of the Term of the Lease remaining at the time of the succession of such interest to such successor. Such subordination shall be upon the express condition that the validity of this Lease shall be recognized by the mortgagee, and that, notwithstanding any default by the mortgagor, with respect to such mortgage, Tenant's possession and right of use under this Lease in and to the Premises (including rights to have insurance and condemnation proceeds made available for proper reconstruction of the Premises) shall not be disturbed by such mortgagee unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated in accordance with the provisions of this Lease. 6. Inconsistent Provisions. The provisions of this Memorandum constitute only a general description of the content of the Lease with respect to matters set forth herein. Accordingly, third parties are advised that the provisions of the Lease itself shall be controlling with respect to all matters set forth herein. In the event of any discrepancy between the provisions of the Lease and this Memorandum, the provisions of the Lease shall take precedence and prevail over the provisions of this Memorandum. 7. Termination of Lease. All rights of Tenant shall terminate upon the expiration or earlier termination of the Lease, which may be evidenced by a written notice of such expiration or termination recorded or filed by Landlord among the appropriate land records of the County in which the Leased Property is located. [SIGNATURES APPEAR ON FOLLOWING PAGES] E-2 IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of Lease to be duly executed on or as of the day and year first above written. Signed, sealed and delivered in the presence of: , a -------------------------------------- ----------------------------------------- ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- (CORPORATE SEAL) "LANDLORD" , a -------------------------------------- ----------------------------------------- By: ------------------------------------ Name: ---------------------------------- Its: ----------------------------------- "TENANT" STATE OF _______________ COUNTY OF _____________ The foregoing instrument was acknowledged before me this _____ day of _______________, 20___ by ____________________, as _________ of ____________________, a ______________________, on behalf of the _____________. He/she is personally known to me or has produced _______________________ as identification. ----------------------------------------- Notary Public Notary Public, State of ----------------- Commission #: ---------------------------- My commission expires: ------------------- (NOTARY SEAL) E-3 STATE OF __________ COUNTY OF __________ The foregoing instrument was acknowledged before me this _____ day of _______________, 20___, by ___________________, as ______________ of ___________________, a _______________________, on behalf of the _____________. He/she is personally known to me or has produced _______________________ as identification. ----------------------------------------- Notary Public Notary Public, State of _________________ Commission No.: ________________________ My Commission Expires: _________________ (SEAL) E-4 EXHIBIT "F" Single Purpose Entity Requirements Tenant or its assignee shall throughout the Term hereof do all things necessary to continue to be and remain a Single Purpose Entity (including without limitation, if Tenant is a partnership, insuring that each General Partner of Tenant, continues as a Single Purpose Entity and shall not amend its Articles of Organization or Operating Agreement (or if Tenant is a corporation, Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is a partnership, Tenant shall prevent any general partner from amending such general partner's Articles of Organization or Bylaws or other formation documents). For purposes hereof, Single Purpose Entity shall mean a Person, other than an individual, which (a) is formed, organized or reorganized solely for the purpose of holding, directly, the leasehold interest in the Leased Property, (b) does not engage in any business unrelated to the Leased Property and the operation and management thereof, (c) has not and will not have any assets other than those related to its interest in the Leased Property and has not and will not have any indebtedness other than incurred in the ordinary course of business and paid pursuant to the terms of financing applicable to such trade payables and indebtedness expressly authorized in Section 20.2(f) of the Agreement, (d) maintains its own separate books and records and its own accounts, in each case which are separate and apart from the books and records of any other Person, (e) holds itself out as being a Person separate and apart from any other Person, (f) does not and will not commingle its funds or assets with those of any other Person, (g) conducts its own business in its own name, (h) maintains separate financial statements, (i) pays its own liabilities out of its own funds, (j) observes all limited liability company formalities, partnership formalities or corporate formalities, as applicable, (k) maintains an arm's-length relationship with its Affiliated Persons, (l) pays the salaries of its own employees and maintains a sufficient number of employees in light of its contemplated business operation, (m) does not guarantee or otherwise obligate itself with respect to the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except as required or expressly authorized under the Agreement, (n) does not acquire obligations or securities of its partners, members or shareholders, (o) allocates fairly and reasonably shared expenses, including without limitation, any overhead for shared office space, (if any), (p) uses separate stationary, invoices and checks, (q) except as required or expressly authorized under the Agreement, does not and will not pledge its assets for the benefit of any Person other than Landlord or make any loans or advances to any other Person, (r) does and will correct any known misunderstanding regarding its separate identity, (s) maintains adequate capital in light of its contemplated business operations, and (t) has and will have an Operating Agreement, partnership agreement, certificate of incorporation or other organization document which complies with the standards and requirements for a Single Purpose Entity set by Rating Agencies (as hereinafter defined) as of the date hereof applicable to a limited liability company, partnership or corporation, as applicable. In addition, if such Person is a limited liability company, (i) the managing member shall be a corporation or limited liability company (or if a partnership, shall have as its sole general partner a corporation or limited liability company) that is a Single Purpose Entity whose organization documents shall comply with the standards and requirements for a Single Purpose Entity set by the Rating Agencies as of the date hereof applicable to such managing members, (ii) its Articles of Organization, Certificate of Formation and/or Operating Agreement, as applicable, shall provide that such entity will dissolve only upon the bankruptcy of the managing member, (iii) if such Person has F-1 more than one managing member, at least one member shall be a corporation or limited liability company that qualifies as a Single Purpose Entity and the Organization Documents shall provide that such Person shall continue (and not dissolve) for so long as a solvent managing member exists (iv) such corporate member or limited liability company shall conform to the requirements hereof for Persons that are corporations or limited liability company and (v) such Person shall have at least one Independent Member. In addition, if such Person is a partnership, (a) all general partners of such Person shall be Single Purpose Entities whose organizational documents shall comply with the standards and requirements for a Single Purpose Entity set by the Rating Agencies as of the date hereof applicable to such general partners, (b) if such Person has more than one general partner, then the organization documents shall provide that such Person shall continue (and not dissolve) for so long as a solvent general partner exists. In addition, if such Person is a corporation, then at all times, (i) such Person shall have at least one Independent Director, and (ii) Board of Directors of such Person may not take any action relating to such Person's bankruptcy, dissolution or status as a Single Purpose Entity without the unanimous affirmative vote of 100% of the members of the Board of Directors unless all of the directors, including the Independent Director shall have participated in such vote. In addition, such Person which is formed or organized solely for the purpose of holding, directly, the leasehold interest in the Leased Property (i) without the unanimous consent of all of the partners, directors or members, as applicable, has not and will not with respect to itself or any other single purpose entity that owns an interest in the Leased Property in which it has a direct or indirect legal or beneficial interest (a) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or other similar official for itself for all or any portion of its properties, or (b) take any action which might cause it to become insolvent, (ii) has held and will hold its assets in its own name, (iii) has and will maintain its financial statements, accounting records and other entity documents separate and apart form any other Person, and (iv) has not and will not identify its partners, members or shareholders or any of its affiliates of any of them as a division or part of it. For purposes hereof, "Rating Agencies" shall mean any three of the following: Standards & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co., Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any such corporation shall for any reason no longer perform the functions of a securities rating agency, any other nationally recognized statistical rating agency designated by Landlord. In addition, for purposes hereof, "Independent Director" or "Independent Member" shall mean an individual appointed by CT Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar corporate service or an individual reasonably satisfactory to Landlord, who in any case shall not have been at the time of such individual's appointment, and may not have been at any time during the preceding two years (i) a shareholder of, or an officer or employee of, or a member or manager of Tenant or any of its respective shareholders, subsidiaries or Affiliated Persons, (ii) a customer of, or supplier to Tenant or any member, manager or general partner or any of its respective shareholders, subsidiaries or Affiliated Persons, (iii) a Person or other entity controlling any such shareholder, supplier, customer, member or manager, or (iv) a member of the immediate family of any such shareholder, officer, employee, supplier, customer, member or manager or of any other director of Tenant or any general partner thereof. In addition to the foregoing, and consistent with the Single Purpose Entity requirements hereof, Tenant covenants and agrees that throughout the Term hereof, Tenant shall not voluntarily file or consent to the filing of a petition for bankruptcy, insolvency, reorganization, F-2 assignment for the benefit of creditors or similar proceedings under any federal or state bankruptcy, insolvency, reorganization or other similar law or otherwise seek any relief under any laws relating to the relief of debts or the protection of debtors generally, without the unanimous consent of its manager(s), which shall at all times include the affirmative consent of the Independent Director, and if Tenant is a partnership without the unanimous consent of its general partners (including the unanimous consent of the directors of the corporate general partners or shareholders as the case may be which shall at all times include the consent of the Independent Director). F-3 EXHIBIT "G" Tenant Equity Ownership ARC Greenwood Village, Inc. is a wholly-owned subsidiary of American Retirement Corporation G-1 EXHIBIT "H" Property Expenses The term "Property Expenses" shall mean for the requisite period the sum of the following items: 8. the cost of sales, including without limitation, compensation, fringe benefits, payroll taxes and other costs relating to employees of Tenant (the foregoing costs shall not include salaries and other employee costs of executive personnel of Tenant who do not work at the Leased Property on a regular basis; except that the foregoing costs shall include the allocable portion of the salary and other employee costs of any general manager or other supervisory personnel (not including regional vice presidents or regional sales people) assigned to a "cluster" of skilled nursing, assisted living and dementia care facilities which includes the Leased Property); 9. departmental expenses incurred at departments within the Leased Property; administrative and general expenses; the cost of marketing incurred by the Leased Property; advertising and business promotion incurred by the Leased Property; heat, light, and power; and computer line charges; 10. the cost of Inventories and P&E consumed in the operation of the Leased Property; 11. a reasonable reserve for uncollectible accounts receivable as determined by the Tenant; 12. all costs and fees of independent professionals or other third parties who are retained by Tenant to perform services required or permitted hereunder; 13. all costs and fees of technical consultants and operational experts who are retained or employed by Tenant for specialized services (including, without limitation, quality assurance inspectors) and the cost of attendance by employees of the Leased Property at training and manpower development programs sponsored by Tenant; 14. Additional Charges as referenced in Section 3.4 of the Agreement; 15. payments made into the Reserve pursuant to Section 5.2 of the Agreement; 16. management fees paid to any approved manager and such other costs and expenses incurred by an approved manager as are specifically provided for under any approved management agreement or are otherwise reasonably necessary for the proper and efficient operating of the Leased Property; 17. the term "Property Expenses" shall not include (a) debt service payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment leases or other forms of financing obtained for the Tenant's Personal Property, (c) rental payments pursuant to any ground lease of the Land, (d) any indebtedness of Tenant, or (e) any employee claim which is not covered by insurance and where the basis of such employee claim is conduct by Tenant or its manager which is (i) a substantial violation of the standards of responsible labor relations as generally practiced H-1 by prudent owners or operators of similar retirement community operations in the state in which the Facility is situated, and (ii) not the isolated act of individual employees, but rather is a direct result of corporate policies of Tenant or any manager. Neither revenues from the Facility, nor any disbursement from the Reserve or the Tenant Shortfall Reserve, shall be used by Tenant to pay the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or 9(e) above. Notwithstanding the foregoing definition of "Property Expenses," the financial and other informational reports and statements to be provided pursuant to the Lease may be provided by Tenant consistent with Tenant's standard information reporting practices, provided that any omitted or varying item under such practices is identified and separately scheduled as adjustments if necessary to determine any financial or economic amount relevant to the Lease or if otherwise requested in writing by Landlord. H-2 EXHIBIT "I" Initial Landlord P&E I-1 EXHIBIT "J" Initial Tenant Personal Property (b) The right to use the tradename "ARC," "American Retirement Corporation," and "Heritage Club," and any variations thereof; (c) Skilled Nursing, assisted living and Alzheimer's/dementia care licenses, and any liquor licenses; (d) Any vans, cars or other motor vehicles; and (e) Any proprietary software of Tenant and its Affiliated Persons not including, however, information and data relating to the Leased Property and the ownership, operation and occupancy thereof, which information and data shall remain available to Landlord at all times during and be transferred to Landlord immediately upon the expiration or any early termination of the Lease Term. K-1 EX-10.4 6 g76095ex10-4.txt FIRST AMENDMENT TO MASTER LEASE AND SECURITY EXHIBIT 10.4 FIRST AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (the "AGREEMENT") is made as of February 7, 2002 by and among NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation, NH TEXAS PROPERTIES LIMITED PARTNERSHIP, a Texas limited partnership (collectively, "LANDLORD"), the entities listed, as "Tenant" on Schedule 1 attached hereto (collectively, "TENANT"), and AMERICAN RETIREMENT CORPORATION, a Tennessee corporation ("GUARANTOR"), with reference to the following Recitals: RECITALS: A. Landlord and the Tenant entities listed as Nos. 1 through 7 on Schedule 1 attached hereto have entered into that certain Master Lease and Security Agreement dated as of July 31, 2001 (the "LEASE"), with respect to the personal care or memory enhancement assisted living facilities described therein. All initially-capitalized terms used herein shall have the same meanings given to such terms in the Lease, unless otherwise defined herein. B. Pursuant to that certain Guaranty of Lease and Letter of Credit Agreement dated as of July 31, 2001 (the "GUARANTY") executed by Guarantor, as guarantor, in favor of Landlord, Guarantor agreed to guarantee the obligations of Tenant under the Lease. C. The Tenant entities listed as Nos. 8 through 11 on Schedule 1 attached hereto have acquired, or are about to acquire, the leasehold interests in four (4) additional Facilities owned by Landlord, which additional Facilities are more particularly described in Item Nos. 8 through 11 on Schedule 2 attached hereto (the "ADDITIONAL FACILITIES"). D. Pursuant to the terms of that certain Agreement to Amend Master Lease and Termination of Leases of even date herewith by and among Landlord, Tenant and Guarantor, the parties hereto have agreed to terminate the existing leases relating to Additional Facilities and to modify the Lease to include the Additional Facilities in accordance with the terms and conditions set forth this Agreement. NOW, THEREFORE, taking into account the foregoing Recitals, and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend the Lease in the following particulars only: 1. AMENDMENTS TO LEASE. (A) Schedules 1, 2 and 3 of the Lease are hereby deleted in their entirety and substituted with Schedules 1, 2 and 3 attached to this Agreement. 1 (B) Exhibit A and Exhibit C of the Lease are hereby deleted in their entirety and substituted with Exhibit A and Exhibit C attached to this Agreement. (C) Section 2.1 of the Lease is hereby deleted in its entirety and the following substituted therefor: "2.1 INITIAL TERM MINIMUM RENT. During the Initial Term, Tenant shall pay to Landlord Minimum Rent of Twelve Million Four Hundred Eight Thousand Dollars ($12,408,000) annually. Such Minimum Rent with respect to each month shall be paid by wire transfer in advance and in equal monthly installments of One Million Thirty-Four Thousand Dollars ($1,034,000) on the first business day of each such calendar month." (D) Section 2.2.3 of the Lease is hereby deleted in its entirety and the following substituted therefor: "2.2.3 Notwithstanding the foregoing, in no event shall the Minimum Rent for the first Renewal Term exceed one hundred twenty-five percent (125%) of the difference obtained by subtracting Three Hundred Seventeen Thousand Dollars ($317,000) from the Total Rent (as such term is defined in Section 2.5.1 below) payable during the last Lease Year of the Initial Term, and in no event shall the Minimum Rent for any Renewal Term other than the first Renewal Term exceed one hundred twenty-five percent (125%) of the Total Rent in effect for the Lease Year immediately preceding the first Lease Year of such Renewal Term. Furthermore, in no event shall the Minimum Rent for the first Renewal Term be less than one hundred percent (100%) of the difference obtained by subtracting Three Hundred Seventeen Thousand Dollars ($317,000) from the Total Rent payable during the last Lease Year of the Initial Term, and in no event shall the Minimum Rent for any Renewal Term other than the first Renewal Term be less than one hundred percent (100%) of the Total Rent payable during the last Lease Year of the immediately preceding Renewal Term." (E) Section 2.2.5 of the Lease is hereby deleted in its entirety and the following substituted therefor: "2.2.5 As used herein, "LANDLORD'S ADJUSTED INVESTMENt" in the Premises shall mean shall mean Landlord's Original Investment (as hereinafter defined in this Section 2.2.5) multiplied at the end of each Lease Year by a percentage equal to one hundred percent (100%) plus one-half (1/2) of the CPI Increase (as defined in Section 2.2.6 below) for such Lease Year. As used herein, "LANDLORD'S ORIGINAL INVESTMENT" shall mean One Hundred Twenty-Five Million Eight Hundred Twenty-Four Thousand Dollars ($125,824,000) as increased by (A) any amount paid by Landlord pursuant to Section 5.7 and Section 5.9 below, and as decreased by (B) any net award paid to Landlord pursuant to Section 13.2 below, all as applicable." 2 (F) Sections 2.5.1, 2.5.2 and 2.5.5 of the Lease are hereby deleted in their entirety and the following substituted therefor: "2.5.1 Except to the extent provided to the contrary in the immediately succeeding sentence, for all purposes of calculating and paying Minimum Rent and Additional Rent under this Lease, the total of the Minimum Rent and Additional Rent ("TOTAL RENT") payable by Tenant in any quarter of any Lease Year will not be less than the Total Rent paid by Tenant for the immediately preceding quarterly period. Notwithstanding the foregoing, Total Rent payable by Tenant with respect to the first quarter of the first Lease Year of the first Renewal Term will not be less than the difference obtained by subtracting Seventy-Nine Thousand Two Hundred Fifty Dollars ($79,250) from the Total Rent paid by Tenant for the immediately preceding quarterly period. 2.5.2 Notwithstanding any of the other terms of this Section 2, but subject to Section 2.5.3 below, the Total Rent due during each Lease Year shall not increase from one Lease Year to the next by an amount in excess of (i) two and one-half percent (2.5%), multiplied by (ii) the difference obtained by subtracting Three Hundred Seventeen Thousand Dollars ($317,000) from the Total Rent due during the immediately preceding Lease Year (the "ANNUAL RENT CAP"). For purposes of applying the Annual Rent Cap to the quarterly installments of Additional Rent due under Section 2.3.1, the Total Rent due during each quarter of any Lease Year shall not increase by an amount in excess of one-fourth (1/4) of the Annual Rent Cap for the then applicable Lease Year. 2.5.5 For the purpose of comparing the Total Rent due during each quarter of any Lease Year to the Total Rent due in the immediately preceding quarterly period pursuant to this Section 2.5, the increase in Minimum Rent by reason of any disbursement by Landlord pursuant to Section 5.7 or Section 5.9 of this Lease shall be treated as follows: (i) for the purpose of comparing the Total Rent in the quarterly period in which such disbursement is made against the Total Rent due in the immediately preceding quarter, such increase in Minimum Rent shall be ignored, and (ii) for the purpose of comparing the Total Rent in the quarterly period in which such disbursement is made to the Total Rent due in the following quarter, such increase in Minimum Rent shall be deemed effective on the first day of the quarterly period in which the disbursement is made." (G) The first sentence of Section 5.2.1 of the Lease is hereby deleted in its entirety and the following substituted therefor: "Tenant and each Facility shall comply in all material respects with all federal, state and local licensing and other laws and regulations applicable to the Personal Care Facilities (including, without limitation and with respect to each Facility located in Colorado, Colorado Revised Statute ss. 25-1-101 and the core regulations found at 6 C.C.R. 1011-1, Chapter VII) as well as with the certification requirements of Medicare and Medicaid (or any successor program) 3 that are obtained by Tenant." (H) The following is hereby added as Section 5.2.4 of the Lease: "5.2.4 It is acknowledged that while this Lease refers to the Personal Care Facilities as "assisted living facilities", such use in Colorado is referred to as a "personal care boarding home." Any reference in this Lease to "assisted living facility" or "Personal Care Facility" shall be deemed to refer to a "personal care boarding home" within the meaning of the applicable Colorado statutes, rules and regulations." (I) The following is hereby added as Section 5.9 of the Lease: "5.9 CAPITAL IMPROVEMENTS TO TRINITY TOWERS. Tenant has heretofore installed, at its own expense, various items of furniture, fixtures and equipment (the "NEW FF&E") in the Trinity Towers Facility (which is identified as Facility No. 3 on Schedule 2). Landlord has agreed to reimburse (in a single funding) Tenant, at Tenant's option, for a portion of the New FF&E, the amount of such reimbursement to equal Five Hundred Thousand Dollars ($500,000), upon the following terms and conditions: 5.9.1 Such amount shall be requested by Tenant on or before December 31, 2003; 5.9.2 No Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default hereunder shall have occurred and be continuing at the time of any such request for disbursement of such amount; 5.9.3 Effective as of the date of the advance of funds by Landlord under this Section 5.9, the annual Minimum Rent payable hereunder shall be increased by reason of such capital improvements funded by Landlord as follows: The amount of such funds so disbursed by Landlord on such date multiplied by a rate equal to ten and one-half percent (10.5%) per annum; the monthly Minimum Rent shall be equal to 1/12th of such annual amount as so increased, prorated, however, for any partial year or month, as applicable. All Minimum Rent, as so increased, shall continue to be due and payable by Tenant on the first business day of each calendar month; 5.9.4 Tenant's request for disbursement shall be accompanied with (i) a schedule describing the New FF&E for which Tenant is to be reimbursed; and (ii) a bill of sale in form and substance satisfactory to Landlord pursuant to which the New FF&E shown on the schedule shall be conveyed to Landlord; and 4 5.9.5 If Landlord or Tenant requests, Landlord and Tenant shall, at Tenant's sole expense, execute an amendment or amendments to this Lease reflecting the advances made by Landlord and increase in Minimum Rent relating thereto. Upon Tenant's delivery of the bill of sale described above, the New FF&E conveyed to Landlord shall immediately become a part of the Landlord Personal Property and shall belong to Landlord subject to the terms and conditions of this Lease." (J) The first two sentences of Section 11 of the Lease are hereby deleted in their entirety and the following substituted therefor: "Tenant shall post with Landlord cash or letters of credit in the face amount of, or a combination of cash and such letters of credit, in the aggregate amount of Three Million Nine Hundred Twenty-Six Thousand Two Hundred Dollars ($3,926,200), representing a security deposit against the faithful performance of the terms and conditions contained in this Lease. If Landlord funds any additional improvements pursuant to Section 5.7 or Section 5.9 of this Lease, draws upon such cash or letters of credit pursuant to the terms hereof or if Minimum Rent is increased pursuant to the terms hereof, Tenant shall, at the time of such funding, drawing or increase, deposit with Landlord additional cash or an additional letter of credit such that the total amount of the security deposit, represented by cash and the undrawn amounts available under letters of credit, held by Landlord shall at all times be equal to thirty-one and 30/100 percent (31.30%) of the then due and payable annual Minimum Rent." 2. REAFFIRMATION OF OBLIGATIONS. (A) Notwithstanding the modifications to the Lease contained herein, Tenant and Landlord each hereby acknowledges and reaffirms its obligations under the Lease (as modified hereby) and all other documents executed by such party in connection therewith. (B) Notwithstanding the modifications to the Lease contained herein, Guarantor hereby acknowledges and reaffirms its obligations under the Guaranty and all documents executed by Guarantor in connection therewith, and further agrees that any reference made in the Guaranty to the Lease or any terms or conditions contained therein, shall mean such Lease or such terms or conditions as modified by this Agreement. 3. INTERPRETATION; GOVERNING LAW. This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California without regard to rules concerning the choice of law. 4. FURTHER INSTRUMENTS. Each party will, whenever and as often as it shall be reasonably requested so to do by another party, cause to be executed, acknowledged or delivered, 5 any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement. 5. INCORPORATION OF RECITALS. The Recitals to this Agreement are incorporated hereby by reference. 6. COUNTERPARTS. This Agreement may be executed in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document. 7. ATTORNEYS' FEES. In the event of any dispute or litigation concerning the enforcement, validity or interpretation of this Agreement, or any part thereof, the losing party shall pay all costs, charges, fees and expenses (including reasonable attorneys' fees) paid or incurred by the prevailing party, regardless of whether any action or proceeding is initiated relative to such dispute and regardless of whether any such litigation is prosecuted to judgment. 8. EFFECT OF AMENDMENT. Except as specifically amended pursuant to the terms of this Agreement, the terms and conditions of the Lease shall remain unmodified and in full force and effect. In the event of any inconsistencies between the terms of this Agreement and any terms of the Lease, the terms of this Agreement shall govern and prevail. 9. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties relating to the subject matters contained herein. Any oral representations or statements concerning the subject matters herein shall be of no force or effect. [SIGNATURES ON NEXT PAGE] 6 IN WITNESS WHEREOF, the parties have executed this First Amendment to Master Lease and Security Agreement as of the date first above written. TENANT: ARC PINEGATE, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ARC PEARLAND, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- AMERICAN RETIREMENT CORPORATION, a Tennessee corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 7 ARC NAPLES, LLC, a Tennessee limited liability company By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its managing member By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- TRINITY TOWERS LIMITED PARTNERSHIP, a Tennessee limited partnership By: ARC CORPUS CHRISTI, INC., a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ARC LAKEWAY, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 8 ARC SPRING SHADOW, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ARC AURORA, LLC, a Tennessee limited liability company By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its sole member By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ARC LAKEWOOD, LLC, a Tennessee limited liability company By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its sole member By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 9 ARC SHADOWLAKE, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- ARC WILLOWBROOK, L.P., a Tennessee limited partnership By: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, its general partner By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- GUARANTOR: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 10 LANDLORD: NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- NH TEXAS LIMITED PARTNERSHIP, a Texas limited partnership By: MLD TEXAS CORPORATION, a Texas corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 11 SCHEDULE 1-1 LANDLORD AND TENANT ENTITIES LANDLORD 1. NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation 2. NH TEXAS PROPERTIES LIMITED PARTNERSHIP, a Texas limited partnership TENANT 1. ARC PINEGATE, L.P., a Tennessee limited partnership 2. ARC PEARLAND, L.P., a Tennessee limited partnership 3. AMERICAN RETIREMENT CORPORATION, a Tennessee corporation 4. ARC NAPLES, LLC, a Tennessee limited liability company 5. TRINITY TOWERS LIMITED PARTNERSHIP, a Tennessee limited partnership 6. ARC LAKEWAY, L.P., a Tennessee limited partnership 7. ARC SPRING SHADOW, L.P., a Tennessee limited partnership 8. ARC AURORA, LLC, a Tennessee limited liability company 9. ARC LAKEWOOD, LLC, a Tennessee limited liability company 10. ARC SHADOWLAKE, L.P., a Tennessee limited partnership 11. ARC WILLOWBROOK, L.P., a Tennessee limited partnership Schedule 1-1 SCHEDULE 2 LOCATION OF FACILITIES AND FACILITY INFORMATION

- ------------------------------------------------------------------------------------------------------------------------------ FACILITY FACILITY LOCATION NO. OF BEDS/UNITS - ------------------------------------------------------------------------------------------------------------------------------ 1. Spring Shadow 9889 Kempwood Drive 52 Personal Care Beds Houston (Harris County), Texas 77080 15 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 2. Lakeway 1915 Lohmans Crossing Road 66 Personal Care Beds Lakeway (Travis County), Texas 78734 15 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 76 Nursing Facility Beds 101 North Upper Broadway 84 Personal Care Facility Unit 3. Trinity Towers Corpus Christi (Nueces County), (Type A Large) Beds Texas 78401 196 Independent Living Facility Units 15 Dementia Care Units - ------------------------------------------------------------------------------------------------------------------------------ 100 Assisted Living Facility Beds 4. Naples 770 Goodlette Road North (comprised of 76 Personal Care Beds and 24 Naples (Collier County), Florida 34202 Memory Enhancement Beds) - ------------------------------------------------------------------------------------------------------------------------------ 9797 Bay Pines Boulevard 5. Bay Pines St. Petersburg (Pinellas County), 60 Assisted Living (Carriage Inn) Florida 33708 Facility Beds - ------------------------------------------------------------------------------------------------------------------------------ 15 Independent Beds 6. Pearland 2121 Scarsdale Boulevard 52 Personal Care Beds Pearland (Harris County), Texas 77581 15 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 7. Pinegate 2121 Pinegate Drive 80 Personal Care Beds Houston (Harris County), Texas 77008 15 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------- FACILITY TYPE OF PERSONAL CARE FACILITY - ----------------------------------------------------------------------- 1. Spring Shadow Personal Care and Memory Enhancement Facilities - ----------------------------------------------------------------------- 2. Lakeway Personal Care and Memory Enhancement Facilities - ----------------------------------------------------------------------- Nursing 3. Trinity Towers Personal Care Independent Living and Dementia Care Facilities - ----------------------------------------------------------------------- Assisted Living Facility (including 4. Naples Personal Care and Memory Enhancement Facilities) - ----------------------------------------------------------------------- 5. Bay Pines Assisted Living Facility (Carriage Inn) - ----------------------------------------------------------------------- Personal Care 6. Pearland Independent Living and Memory Enhancement Facilities - ----------------------------------------------------------------------- 7. Pinegate Personal Care and Memory Enhancement Facilities - -----------------------------------------------------------------------

Schedule 2-1 8. Aurora 1820 South Potomac 80 Personal Care Beds Aurora (Arapahoe County), Colorado 80012 17 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 9. Lakewood 3151 South Wadsworth Blvd 78 Personal Care Beds Lakewood (Jefferson County), Colorado 80227 18 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 10. Shadowlake 2835 Shadow Drive 79 Personal Care Beds Houston (Harris County), Texas 77072 17 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ 11. Willowbrook 7450 Willowchase Blvd. 53 Personal Care Beds Houston (Harris County), Texas 77070 16 Memory Enhancement Beds - ------------------------------------------------------------------------------------------------------------------------------ - ----------------------------------------------------------------------- 8. Aurora Personal Care Boarding Home - ----------------------------------------------------------------------- 9. Lakewood Personal Care Boarding Home - ----------------------------------------------------------------------- 10. Shadowlake Personal Care and Memory Enhancement Facilities - ----------------------------------------------------------------------- 11. Willowbrook Personal Care and Memory Enhancement Facilities - ----------------------------------------------------------------------- Schedule 2-2 SCHEDULE 3 LANDLORD PERSONAL PROPERTY All of Landlord's right, title and interest in and to (a) all improvements located upon the real property described on Exhibit A attached hereto, and (b) all furniture, machinery, equipment, appliances, fixtures, supplies and other personal property (tangible and intangible) located upon or within, or used in connection with the such real property and/or the Facilities located thereon, including, without limitation, all such personal property acquired in connection with the development of the Facilities. Schedule 3-1 EXHIBIT A LEGAL DESCRIPTIONS OF THE FACILITIES (Attached) Exhibit A-1 LEGAL DESCRIPTION SPRING SHADOW 9889 Kempwood Drive Houston (Harris County), Texas 77080 DESCRIPTION OF A 5,000 ACRE TRACT OF LAND SITUATED IN THE A.T. MILES SURVEY, A-556 CITY OF HOUSTON, HARRIS COUNTY, TEXAS BEING a 5,000 acre tract of land situated in the A.T. Miles Survey, Abstract No. 556 City of Houston, Harris County, Texas and being part of an 8,000 acre tract of land as described under Harris County Clerk's File (H. C. C. F.) No. P514591 and same being out of Block 14 of the Spring Shadows, Section 6 subdivision as shown in Volume 155, Page 50, of the Harris County Map Records and said 5,000 acres being more particularly described by metes and bounds as follows: BEGINNING at a found 1 1/2" galvanized iron pipe for a corner in the curved south right-of-way line of Kempwood Drive (100' width), as recorded in Volume 7047, Page 187 of the Harris County Deed Records, and at the most northerly northwest corner of the said Block 14, Section 6; THENCE in a southeasterly direction 155.14 feet with the south right-of-way line of said Kempwood Drive (100' width) and the northerly line of said Block 14, Section 6 and arc of a curve to the right having a radius of 1950.00 feet, a central angle of 04(degree) 33' 30" and a chord which bears S 71(degree) 36' 47" E, 155.10 feet to a found 1 1/2" galvanized iron pipe at the point of a reverse curve to the left; THENCE in a southeasterly direction 232.40 feet with the south right-of-way line of said Kempwood Drive (100' width) and the northerly line of said Block 14, Section 6 and the arc of a curve to the left having a radius of 2050.00 feet, a central angle of 06(degree) 29' 43" and a chord which bears S 72(degree) 34' 54" E, 232.27 feet to a set 5/8" iron rod in the arc of said curve, for the northeast corner of the herein described tract; THENCE S 01(degree) 33' 20" E, 517.64 feet to a set 5/8" iron rod in the south line of said Block 14, Section 6 and in the north line of Lot 20, Block 6 of Spring Shadows Section 4, a subdivision recorded in Volume 141, Page 50 of the Harris County Map Records; THENCE S 88(degree) 26' 40" W, along the south line of said Block 14, Section 6 and the north line of said Block 6 of Spring Shadows, Section 4, at 264.51 feet pass through the northwest corner of said Spring Shadows, Section 4 and the northeast corner of Spring Shadows Section 2, recorded in Volume 128, Page 13 of the Harris County Map Records and continuing a total distance of 374.51 feet to a set 5/8" iron rod in the east right-of-way line of Rosefield Drive (60' width) as shown on the plat of Spring Shadows, Section 2 recorded in Volume 128, Page 13 of the Harris County Map Records and on the plat of Spring Shadows, Section 6, a subdivision recorded in Volume 155, Page Exhibit A-2 50, of the Harris County Map Records and at the southwest corner of said Block 14, Section 6. From said 5/8" iron rod a found 1 3/4" galvanized iron pipe bears S 88 (degree) 26' 40" W, a distance of 0.49 feet; THENCE N 01(degree) 33' 20" W, 638.91 feet along the east right-of-way line of said Rosefield Drive (60' width) and the west line of said Block 14, Section 6 to a found 1 3/4" galvanized iron pipe at the southwesterly corner of a right-of-way line cut-back; THENCE N 50 (degree) 12' 00" E, 11.54 feet with the southeasterly line of said cut-back to the POINT OF BEGINNING and containing 5,000 acres of land. Exhibit A-3 LEGAL DESCRIPTION LAKEWAY 1915 Lohmans Crossing Road Lakeway (Travis County), Texas 78734 LOT 1, OF THE TOWERS OF LAKEWAY, A SUBDIVISION IN TRAVIS COUNTY, TEXAS, ACCORDING TO THE MAP OR PLAT OF RECORD IN VOLUME 98, PAGES 297-299, OF THE PLAT RECORDS OF TRAVIS COUNTY, TEXAS. Exhibit A-4 LEGAL DESCRIPTION TRINITY TOWERS 101 North Upper Broadway Corpus Christi (Nueces County), Texas 78401 Legal Description of Premises TRACT I: Field Notes for a 2.02 acre tract of land, comprising all of Lots 1 through 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a map of which is recorded in Volume 1, Page 56 of the Map Records of Nueces County, Texas, SAVE AND EXCEPT that portion of Lot 22, Block 2 conveyed to the City of Corpus Christi by Deed recorded in Volume 263, Page 605 of the Deed Records of Nueces County, Texas, and also comprising all of Block 6 of the BLUFF PORTION OF THE CENTRAL WHARF AND WAREHOUSE COMPANY'S SUBDIVISION as shown by a map recorded in Volume A, Page 15 of the Nueces County Map Records, and being a portion of the other land lying North of said Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION and being shown as Cooper's Alley on the map of said BROADWAY ADDITION; said 2.02 acre tract being more particularly described by metes and bounds as follows: BEGINNING at a 1" iron pipe found in concrete at the intersection of the northerly Right-Of-Way line of present Cooper's Alley (formerly Telco Street, formerly Kennedy Street), and the westerly line of Carancahua Street for the most southeasterly corner of Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION; said 1" iron pipe also being the most southeasterly corner of this tract; THENCE South 88 degrees 50 minutes 15 seconds West, along and with said southerly line of Block 6, being the said northerly line of Cooper's Alley, a distance of 250.16 feet to a 5/8" iron pipe found for the most southwesterly corner of said Lot 6, Block 1, same being a southwesterly exterior corner of this tract; THENCE North 00 degrees 42 minutes 29 seconds West, a distance of 43.82 feet to drill hole set for a point in the southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION; said drill hole also being an interior corner of this tract; THENCE South 59 degrees 42 minutes 29 seconds West, along and with the southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a distance of 13.28 feet to a 5/8" iron rod found for the most southeasterly corner of said portion of Lot 22, Block 2, conveyed to the City of Corpus Christi and also being in the most easterly Right-Of-Way line of present Tancahua Street for an exterior corner of this tract; THENCE North 04 degrees 19 minutes 38 seconds West, along and with said easterly line of Tancahua Street, a distance of 109.70 feet to a 5/8" iron rod found for an angle point of this tract; Exhibit A-5 THENCE North 02 degrees 51 minutes 52 seconds West, continuing along and with said easterly line of Tancahua Street a distance of 30.06' to 5/8" iron rod found for the most northwesterly corner of said Lot 22, Block 2, BROADWAY ADDITION, also being the most southwesterly corner of said Lot 1, Block 2, BROADWAY ADDITION, also being an angle point of this tract; THENCE North 01 degrees 00 minutes 30 seconds East, continuing along and with said easterly line of Tancahua Street, a distance of 107.29 feet to 5/8" iron rod found at the intersection of said easterly line of Tancahua Street and the southerly line of Blucher Street, (formerly Chatham Street) for the most northwesterly corner of said Lot 1, Block 2, Broadway Addition, also being the most northwesterly corner of this tract; THENCE North 75 degrees 24 minutes 20 seconds East, along and with the southerly line of said Blucher Street, also being the North line of Block 2, W.E. POPE'S BROADWAY ADDITION, a distance of 298.31 feet to a drill hole found in concrete at the intersection of the said southerly line of Blucher Street and the westerly line of said Carancahua Street for the most northeasterly corner of this tract; THENCE southerly, along and with the said westerly line of Carancahua Street, the following courses; South 01 degrees 00 minutes 30 seconds West, a distance of 107.29 feet to a drill hole found in concrete for the southwesterly corner of Lot 11, Block 2, W.E. POPE'S ADDITION for an angle point of this tract; South 00 degrees 05 minutes 32 seconds West, a distance of 105.14 feet to a drill hole found in concrete for an angle point of this tract; South 86 degrees 47 minutes 35 seconds West, a distance of 7.98 feet to a drill hole found in concrete for an angle point of this tract; South 14 degrees 49 minutes 41 seconds West, a distance of 41.75 feet to a 1" iron rod found for an angle point of this tract; Thence South 01 degrees 08 minutes 51 seconds East, continuing along and with said westerly line of Carancahua Street, a distance of 100.71 feet to the POINT OF BEGINNING and containing 2.02 acres of land more or less. TRACT II: Description of 2.3638 acres of land out of Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, Block 1, of W.E. POPE'S BROADWAY ADDITION, Corpus Christi, Nueces County, Texas, as shown by map recorded in Volume 1, Page 56 of the Nueces County Map Records; a portion of the WILLIAM HOFFMAN ARROYO TRACT, as shown in Volume 1, Page 56 of the Nueces County Map Records; and a portion of Block 1, of the BLUFF PORTION OF THE CENTRAL WHARF AND WAREHOUSE COMPANY'S SUBDIVISION, as shown by map or plat of record in Volume A, Page 15, of the Nueces County Map Records; said 2.3638 acre tract being more particularly described by metes and bound as follows: Exhibit A-6 BEGINNING at a 5/8 inch iron rod found for the northwest corner of Lot 1, Block 1, of the W.E. POPE'S BROADWAY ADDITION, Corpus Christi, Nueces County, Texas, as shown by map recorded in Volume 1, Page 56 of the Nueces County Map Records, said point being the intersection of the east line of Carancahua Street (variable width R.O.W.) and the south line of Blucher (formerly Chatham Street) (60 foot R.O.W.); THENCE N 75 degrees 36 minutes 04 seconds E, with the said south line of Blucher Street, along the north line of Lots 1, 2, 3, 4, 5, 6 and 7 said Block 1, a distance of 314.44 feet to a 5/8 inch iron rod found for the northeast corner of said Lot 7, Block 1 for the northeast corner of this tract; THENCE S 01 degrees 46 minutes 04 seconds W, with the west line of Upper North Broadway Street (variable width R.O.W.), a distance of 176.77 feet to a 5/8 inch iron rod found at the point of curvature of a circular curve to the right, the west line of said Broadway Street being shown on Exhibit A of a deed from Whole Life, Inc. to the City of Corpus Christi and recorded in Volume 1868, Page 763, of the Nueces County Deed Records; THENCE continuing along the west line of said Broadway Street and along the arc of a circular curve to the right having a central angle of 32 degrees 00 minutes 00 seconds and a radius of 84.84 feet, a distance of 47.38 feet to a 5/8 inch iron rod found for the point of tangency; THENCE S 33 degrees 46 minutes 04 seconds W, continuing along the west line of said Broadway Street, a distance of 54.57 feet to a P.K. nail set in asphalt for the point of curvature of a circular curve to the left; THENCE continuing along the west line of said Broadway Street and along the arc of a circular curve to the left with a central angle of 34 degrees 34 minutes 20 seconds and a radius of 51.50 feet, a distance of 31.08 feet to a 5/8 inch iron rod set for the point of tangency; THENCE S 00 degrees 48 minutes 16 seconds E, continuing along the west line of said Broadway Street, a distance of 47.96 feet to a 5/8 inch iron rod found at the intersection of the west line of said Broadway Street and the north line of Cooper's Alley (variable width R.O.W.) as described in a deed recorded in Volume 1570, Page 956 of the Nueces County Deed Records; THENCE S 46 degrees 28 minutes 22 seconds W, along the north line of said Cooper's Alley, a distance of 36.00 feet to a point for a corner from which a 5/8 inch iron rod found bears S 81 degrees 45 minutes 43 seconds E, a distance of 0.37 feet, said point being the point of curvature of a circular curve to the right; THENCE continuing along the north line of said Cooper's Alley with the arc of a circular curve to the right having a central angle of 42 degrees 43 minutes 22 seconds and a radius of 230.00 feet, a distance of 171.50 feet to a 5/8 inch iron rod found for the point of tangency; THENCE S 89 degrees 11 minutes 44 second W, continuing along the north line of said Cooper's Alley, a distance of 10.54 feet to a 5/8 inch iron rod found for a point of curvature of a circular curve to the right; Exhibit A-7 THENCE continuing along the north line of said Cooper's Alley with the arc of a circular curve to the right having a central angle of 92 degrees 00 minutes 30 seconds and a radius of 60.00 feet, a distance of 96.35 feet to a 5/8 inch iron rod set in the east line of Carancahua Street. THENCE N 01 degrees 12 minutes 14 seconds E, with the east line of Carancahua Street, a distance of 292.67 feet to the POINT OF BEGINNING and containing 2.3638 acres of land, more or less. Legal Description of Expansion Parcel TRACT I: Field Notes for a 2.02 acre tract of land, comprising all of Lots 1 through 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a map of which is recorded in Volume 1, Page 56 of the Map Records of Nueces County, Texas, SAVE AND EXCEPT that portion of Lot 22, Block 2 conveyed to the City of Corpus Christi by Deed recorded in Volume 263, Page 605 of the Deed Records of Nueces County, Texas, and also comprising all of Block 6 of the BLUFF PORTION OF THE CENTRAL WHARF AND WAREHOUSE COMPANY'S SUBDIVISION as shown by a map recorded in Volume A, Page 15 of the Nueces County Map Records, and being a portion of the other land lying North of said Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION and being shown as Cooper's Alley on the map of said BROADWAY ADDITION; said 2.02 acre tract being more particularly described by metes and bounds as follows: BEGINNING at a 1" iron pipe found in concrete at the intersection of the northerly Right-Of-Way line of present Cooper's Alley (formerly Telco Street, formerly Kenedy Street), and the westerly line of Carancahua Street for the most southeasterly corner of Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION; said 1" iron pipe also being the most southeasterly corner of this tract; THENCE South 88 degrees 50 minutes 15 seconds West, along and with said southerly line of Block 6, being the said northerly line of Cooper's Alley, a distance of 250.16 feet to a 5/8" iron pipe found for the most southwesterly corner of said Lot 6, Block 1, same being a southwesterly exterior corner of this tract; THENCE North 00 degrees 42 minutes 29 seconds West, a distance of 43.82 feet to drill hole set for a point in the southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION; said drill hole also being an interior corner of this tract; THENCE South 59 degrees 42 minutes 29 seconds West, along and with the southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a distance of 13.28 feet to a 5/8" iron rod found for the most southeasterly corner of said portion of Lot 22, Block 2, conveyed to the City of Corpus Christi and also being in the most easterly Right-Of-Way line of present Tancahua Street for an exterior corner of this tract; THENCE North 04 degrees 19 minutes 38 seconds West, along and with said easterly line of Tancahua Street, a distance of 109.70 feet to a 5/8" iron rod found for an angle point of this tract; Exhibit A-8 THENCE North 02 degrees 51 minutes 52 seconds West, continuing along and with said easterly line of Tancahua Street a distance of 30.06' to 5/8" iron rod found for the most northwesterly corner of said Lot 22, Block 2, BROADWAY ADDITION, also being the most southwesterly corner of said Lot 1, Block 2, BROADWAY ADDITION, also being an angle point of this tract; THENCE North 01 degrees 00 minutes 30 seconds East, continuing along and with said easterly line of Tancahua Street, a distance of 107.29 feet to 5/8" iron rod found at the intersection of said easterly line of Tancahua Street and the southerly line of Blucher Street, (formerly Chatham Street) for the most northwesterly corner of said Lot 1, Block 2, Broadway Addition, also being the most northwesterly corner of this tract; THENCE North 75 degrees 24 minutes 20 seconds East, along and with the southerly line of said Blucher Street, also being the North line of Block 2, W.E. POPE'S BROADWAY ADDITION, a distance of 298.31 feet to a drill hole found in concrete at the intersection of the said southerly line of Blucher Street and the westerly line of said Carancahua Street for the most northeasterly corner of this tract; THENCE southerly, along and with the said westerly line of Carancahua Street, the following courses; South 01 degrees 00 minutes 30 seconds West, a distance of 107.29 feet to a drill hole found in concrete for the southwesterly corner of Lot 11, Block 2, W.E. POPE'S ADDITION for an angle point of this tract; South 00 degrees 05 minutes 32 seconds West, a distance of 105.14 feet to a drill hole found in concrete for an angle point of this tract; South 86 degrees 47 minutes 35 seconds West, a distance of 7.98 feet to a drill hole found in concrete for an angle point of this tract; South 14 degrees 49 minutes 41 seconds West, a distance of 41.75 feet to a 1" iron rod found for an angle point of this tract; Thence South 01 degrees 08 minutes 51 seconds East, continuing along and with said westerly line of Carancahua Street, a distance of 100.71 feet to the POINT OF BEGINNING and containing 2.02 acres of land more or less. Exhibit A-9 LEGAL DESCRIPTION NAPLES 770 Goodlette Road North Naples (Collier County), Florida LOT 6, COMMON PROFESSIONAL PARK, ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT BOOK 23, PAGE 23, OF THE PUBLIC RECORDS OF COLLIER COUNTY, FLORIDA. Exhibit A-10 LEGAL DESCRIPTION BAY PINES (CARRIAGE INN) 9797 Bay Pines Boulevard St. Petersburg (Pinellas County), Florida 33708 That certain real property located in Pinellas County, Florida, more particularly described as follows: A portion of the Northwest 1/4 of Section 2, Township 31 South, Range 15 East, Pinellas County, Florida, described as follows: From the Southwest corner of the Northwest 1/4 of said Section 2 run South 89 (Degree) 25'17" East, 991.93 feet along the South line of said Northwest 1/4; thence North 00 (Degree) 19'21" East, 50.00 feet to the point of beginning. Said point also falls in the North right-of-way line of U.S. Alternate 19; thence continue North 00 (Degree) 19'21" East, 71.50 feet along the east easement line of 98th Way North (a 60 foot ingress/egress easement); thence South 89 (Degree) 25'17" East, 20.00 feet; thence South 62 (Degree) 55'17" East, 61.63 feet; thence South 89 (Degree) 25'17" East, 84.16 feet; thence North 00 (Degree) 34'43" East, 5.01 feet; thence North 25 (Degree) 21'05" East, 71.59 feet; thence North 00 (Degree) 34'43" East, 181.88 feet; thence South 88 (Degree) 55'59" East, 185.83 feet; thence North 01 (Degree) 04'01" East, 135.01 feet; thence South 88 (Degree) 55'59" East, 233.09 feet; thence South 00 (Degree) 32'16" West, 427.32 feet to the North right-of-way of U.S. Alt. No. 19; thence North 89 (Degree) 25'17" West, 609.36 feet along said right-of-way line to the point of beginning. Containing 165,899.0997 square feet or 3.8085 acres more or less. Pinellas County, Florida. Exhibit A-11 LEGAL DESCRIPTION PEARLAND 2121 Scarsdale Boulevard Pearland (Harris County), Texas 77581 Being 4.602 acres (200,481 square feet) of land in the W.D.C. Hall Survey, A-23, Harris County, Texas and being out of a 38.360 acre tract of land conveyed to Ayrshire Corporation by deed filed under Harris County Clerk's File No(s). K436255 of the Official Public Records of Real Property of Harris County, Texas, said 4.602 acres being more particularly described by metes and bounds as follows: BEGINNING at a point marked by a 5/8" iron rod, said point being the West corner of Green Tee Terrace, Section 6 according to the plat thereof recorded at Film Code No. 378073 of the Map Records of Harris County, Texas; THENCE South 44 deg. 44 min. 59 sec. East, along the Southeast line of said Green Tee Terrace, Section 6, a distance of 637.79 feet to a point for corner marked by a 5/8" iron rod on the Southeast line of said 38.360 acre tract, same being a Northwest line of a 376.5 acre tract as described in deed recorded in Volume 3209, Page 106 of the Deed Records of Harris County, Texas, said point being the South corner of said Green Tea Terrace, Section 6; THENCE South 45 deg. 14 min. 48 sec. West, along the Southeast line of said 38.360 acre tract, same being a Northwest line of said 376.5 acre tract , a distance of 341.58 feet to a point for corner marked by a 1-1/4 iron pipe, said point being the South corner of said 38.360 acre tract, same being a re-entrant corner for said 376.5 acre tract; THENCE North 45 deg. 05 min. 43 sec. West, along the Southwest line of said 38.360 acre tract, same being a Northeast line of said 376.5 acre tract, a distance of 539.47 feet to a point for corner marked by a 5/8" iron rod; THENCE in a Northeasterly, direction with a curve to the left whose radius is 2379.18 feet, central angle is 8 deg. 38 min. 37 sec. and whose chord bears North 29 deg. 19 min. 59 sec. East, a distance, measured along the arc of said curve of 358.92 feet to the POINT OF BEGINNING and containing 4.602 acres (200,481 square feet) of land. Exhibit A-12 LEGAL DESCRIPTION PINEGATE 2121 Pinegate Drive Houston (Harris County), Texas 77008 All that certain 5.63 acres of land, being that same tract referred to as Tract 2, described in the Trustee's deed to Bangkok Bank Limited-Los Angeles Branch, recorded under County Clerk's File No(s). M310840, of the Official Public Records of Real Property of Harris County, Texas, being all of Unrestricted Reserve "D" and part of Unrestricted Reserve "C", Citadel, Section 4, according the plat thereof recorded in Volume 297, Page 15 of the Map Records of Harris County, Texas, out of the Henry Reinerman Survey, A-644, Harris County, Texas, and being more particularly described by metes and bounds as follows: (All bearings based on the record bearings of the aforesaid plat) BEGINNING at a 5/8" iron rod found for the west corner of the southwest right-of-way cutback line at the intersection of Pinegate Drive (60 foot R.O.W.) and Hackett Drive (60 foot R.O.W.); THENCE South 53 deg. 00 min. 11 sec. East - 12.92 feet along said right-of-way cutback line to a capped 5/8" iron rod set for the most easterly northeast corner of the herein described tract in the west right-of-way line of said Hackett Drive; THENCE South 03 deg. 13 min. 37 sec. East - 338.68 feet along said right-of-way line to a capped 5/8" iron rod set for the Point of Curvature of a curve to the right having a central angle of 84 deg. 49 min. 30 sec. and a radius of 225.00 feet; THENCE along said curve to the right and continuing along said west right-of-way line, in a southwest direction, an arc distance of 333.11 feet to a capped 5/8" iron rod set for the Point of Tangency; THENCE South 81 deg. 35 min. 53 sec. West - 50.00 feet to a 5/8" iron rod found for the Point of Curvature of a curve to the left having a central angle of 17 deg. 16 min. 19 sec. and a radius of 330.00 feet; THENCE along said curve to the left and continuing along said west right-of-way line, in a southwest direction, an arc distance of 99.48 feet to a capped 5/8" iron rod set for the south corner of the herein described tract, common to the east corner of the 2.6841 acre tract of land described in the deed from Houston/Chicago Jupiter Realty Partners to FRM West Loop Associates No. 6, Ltd., recorded under County Clerk's File No(s). P573658, of the Official Public Records of Real Property of Harris County, Texas; THENCE North 25 deg. 45 min. 06 sec. West - 41.42 feet along the northeast line of said 2.6841 acre tract to a 5/8" iron rod found for an angle corner; THENCE North 49 deg. 25 min. 59 sec. West - 124.67 feet continuing along said northeast line to a 5/8" iron rod found for an angle corner; Exhibit A-13 THENCE North 64 deg. 22 min. 31 sec. West - 84.31 feet continuing along said northeast line to a 5/8" iron rod found for an angle corner; THENCE South 85 deg. 37 min. 29 sec. West - 118.64 feet continuing along said northeast line to a capped 5/8" iron rod set for an angle corner; THENCE North 04 deg. 22 min. 31 sec. West - 122.05 feet continuing along said northeast line of a capped 5/8" iron rod set for a point on a curve to the right, in the southeast right-of-way line of the aforesaid Pinegate Drive, having a central angle of 24 deg. 01 min. 17 sec., and a radius of 355.16 feet, and from which point the center of the circle of said curve bears South 51 deg. 44 min. 54 sec. East; THENCE along said curve to the right and along said southeast right-of-way line, in a northeast direction, an arc distance of 148.90 feet to a 5/8" iron rod found for the Point of Tangency; THENCE North 62 deg. 16 min. 23 sec. East - 482.95 feet continuing along said southeast right-of-way line to a 5/8" iron rod found for the Point of Curvature of a curve to the right having a central angle of 14 deg. 08 min. 25 sec., and a radius of 355.00 feet; THENCE along said curve to the right and continuing along said southeast right-of-way line, in a northeast direction, an arc distance of 87.61 feet to the POINT OF BEGINNING and containing 5.63 acres of land. Exhibit A-14 LEGAL DESCRIPTION AURORA 1820 South Potomac Aurora (Arapahoe County), Colorado 80012 A parcel of land located in the SE 1/4 of Section 24, Township 4 South, Range 67 West of the 6th P.M., County of Arapahoe, State of Colorado, more particularly described as follows: Commencing at the Southeast corner of said Section 24; Thence S 89(Degree) 24' 42" W along the South line said SE 1/4 a distance of 270.00 feet to a point which is on the Westerly right-of-way line of Interstate Highway No. 225; Thence N 00(Degree) 31' 42" W along said Westerly right-of-way line a distance of 100.00 feet, to the True Point of Beginning; Thence S 84(Degree) 08' 18" W a distance of 573.76 feet to a point of curvature; Thence along the arc of a curve to the right, central angle of 95(Degree) 20' 00", radius of 40.00 feet an arc length of 66.55 feet to a point of tangency, and which point lies on the East right-of-way line of South Potomac Street, the chord of said arc bears N 48(Degree) 11' 42" W a distance of 59.14 feet; Thence N 00(Degree) 31' 42" W along said East right-of-way line a distance of 392.86 feet; Thence N 89(Degree) 24' 42" E, parallel with the South line of said SE 1/4 of Section 24 a distance of 512.17 feet to a point; Thence S 3(Degree) 45' 10" E a distance of 95.91 feet to a point; Thence S 31(Degree) 10' 11" E a distance of 110.57 feet to a point; Thence S 62(Degree) 27' 18" E a distance of 46.56 feet to a point on said West right-of-way line of Interstate Highway No. 225; Thence S 00(Degree) 31' 42" E along said Westerly right-of-way line a distance of 167.09 feet, more or less, to the True point of Beginning. Exhibit A-15 LEGAL DESCRIPTION LAKEWOOD 3151 South Wadsworth Blvd Lakewood (Jefferson County), Colorado 80227 LOT 1, BLOCK 1, SCHNELL FARM SUBDIVISION, FILING NO. 1 COUNTY OF JEFFERSON, STATE OF COLORADO. Exhibit A-16 LEGAL DESCRIPTION SHADOWLAKE 2835 Shadow Drive Houston (Harris County), Texas 77072 A 5.3215 acre tract of land, more or less, out of the William Hardin Survey Abstract No. 24, in Harris County, Texas, and being more particularly described by metes and bounds as follows: Description of a 5.3215 acre tract of land (231,804 square feet) being part of a called 457.8748 acre tract of described under Harris County Clerks' File No(s). N297727, situated in the William Hardin Survey Abstract No. 24, Harris County, Texas, said 5.3215 acre tract of land being more particularly described by metes and bounds as follows with bearings being referenced to the street dedication plat of Shadowbriar and Oxford Park Drive as recorded under Film Code No(s) 361107 of the Harris County Map Records; COMMENCING at a 5/8" iron rod found in the south right-of-way line of Westheimer Road (F.M. 1093, 120 feet wide) and at the northwest corner of Unrestricted Reserve "B" of Westheimer Plaza as recorded in Volume 307, Page 147 of the Harris County Map Records, same being the Northeast corner of said 457.8748 acre tract and the herein described tract; THENCE South 02 deg. 27 min. 22 sec. East, departing said south right-of-way line of Westheimer Road and along the common west line of said Unrestricted Reserve "B" Westheimer Plaza and the East line of said 457.8748 acre tract, a distance of 250.00 feet to an 5/8" iron rod set at the northeast corner and POINT OF BEGINNING of the herein described tract; THENCE South 02 deg. 27 min. 22 sec. East, continuing along said common line, a distance of 613.23 feet to a 5/8" iron rod found at the southwest corner of said Unrestricted Reserve "B" tract and the southeast corner of the herein described tract and in the north right-of-way line of Oxford Park Drive (60 feet wide); THENCE South 87 deg. 32 min. 38 sec. West, departing said common line and along the north right-of-way line of said Oxford Park Drive, a distance of 28.75 feet to a 5/8" iron rod set for the beginning of a curve to the right; THENCE Northwesterly, continuing along said north right-of-way line and the arc of said curve to the right having a radius of 720.00 feet, a central angle of 19 deg. 51 min. 52 sec., a chord bearing North 82 deg. 31 min. 26 sec. West, 248.38 feet, a total arc distance of 249.62 feet to a 5/8" iron rod set at a point of tangency; THENCE North 72 deg. 35 min. 30 sec. West, continuing along said North right-of-way line a distance of 140.63 feet to a 5/8" iron rod set for the beginning of a curve to the right; Exhibit A-17 THENCE Northwesterly, departing said north right-of-way line and along the arc of said curve to the right having a radius of 25.00 feet, a central angle of 86 deg. 04 min. 57 sec., a chord bearing North 29 deg. 33 min. 02 sec. West, 34.13 feet, a total arc distance of 37.56 feet to a 5/8" iron rod set at a point of reverse curve to the left and in the easterly right-of-way line of Shadowbriar Drive (60 feet wide at this point), said point being the most westerly southwest corner of the herein described tract; THENCE Northeasterly, along said Easterly right-of-way line of said Shadowbriar Drive and the arc of said curve to the left having a radius of 780.00 feet, a central angle of 16 deg. 08 min. 50 sec., a chord bearing North 05 deg. 25 min. 03 sec. East, 219.10 feet, a total arc distance of 219.82 feet to a 5/8" iron rod set at a point of tangency; THENCE North 02 deg. 39 min. 24 sec. West, continuing along said easterly right-of-way line, a distance of 240.07 feet to a 5/8" iron rod set for the beginning of a curve to the right; THENCE Northwesterly, continuing along said Easterly right-of-way line of said Shadowbriar Drive and the arc of said curve to the right having a radius of 429.36 feet, a central angle of 04 deg. 33 min. 25 sec., a chord bearing North 00 deg. 23 min. 01 sec. West, 34.14 feet, a total arc distance of 34.14 feet to a 5/8" iron rod set for the Northwest corner of the herein described tract; THENCE North 87 deg. 23 min. 44 sec. East, departing said easterly right-of-way line, a distance of 390.80 feet to the POINT OF BEGINNING and containing 5.3215 acres of land. This description is based on a ground survey and plat prepared by David J. Millard, Registered Professional Land Surveyor dated September 4, 1996. Exhibit A-18 LEGAL DESCRIPTION WILLOWBROOK 7450 Willowchase Blvd. Houston (Harris County), Texas 77070 Being a 5.000 acre tract of land situated in the Lorenzo de Zavala Survey, Abstract No. 950 and the George W. Childress Survey, Abstract No. 217, Harris County, Texas and being part of an 8.368 acre tract of land as described under Harris County Clerk's File (H.C.C.F.) No. R901214 and being more particularly described by metes and bounds as follows: BEGINNING at a found 1" galvanized iron pipe in the north right-of-way line terminus point of Willowchase Boulevard (R.O.W. Varies), as recorded in 325, Page 101, Harris County Map Records Volume and the west right-of-way line of the Fort Worth & Denver Railroad and Chicago Rock Island & Pacific Railroad (100' width), for a corner of the herein described tract; Thence with the north right-of-way line of Willowchase Boulevard (R.O.W. Varies) and the south line of said 8.368 acre tract of land the following courses and distances: S 55(Degree) 36' 24" W a distance of 53.41 feet to a found 1" galvanized iron pipe for a point of curvature in a curve to the left; Southwesterly 208.43 feet along the arc of said curve to the left having a radius of 1030.00 feet, a central angle of 11(Degree) 35' 39" and a chord which bears S 49(Degree) 48' 35" W, a distance of 208.07 feet to a found 5/8" iron rod; S 44(Degree) 00' 45" W, a distance of 77.71 feet to a found 5/8" iron rod for a point of curvature in a curve to the right; Southwesterly 146.05 feet along the arc of the curve to the right having a radius of 950.00 feet, a central angle of 08(Degree) 48' 31" and a chord which bears S 48(Degree) 25' 01" W, a distance of 145.91 feet to a 5/8" iron rod set for a southwesterly corner of the herein described tract. Said point bears N 59(Degree) 00' 45" E, a distance of 186.78 feet and northeasterly 102.66 feet along the arc of a curve to the left from a found "X" in concrete. Thence N 30(Degree) 59' 15" W, a distance of 494.46 feet to a 5/8" iron rod set in the north line of the 8.368 acre tract and in the south line of a 15.1261 acre tract of land described as "Parcel K" and recorded under Harris County Clerk's File No. R901214. Thence N 59(Degree) 00' 45" E, a distance of 496.70 feet with the north line of said 8.368 acre tract and the south line of said 15.1261 acre tract of land, to a found 1" galvanized iron pipe in the west right-of-way line of the said Fort Worth & Denver Railroad and Chicago Rock Island & Pacific Railroad (100' R.O.W.) and at the southeast corner of the said 15.1261 acre tract; Exhibit A-19 Thence S 27(Degree) 59' 32" E, a distance of 411.63 feet along the west right-of-way line of said Railroad and the east line of said 8.368 acre tract of land to the POINT OF BEGINNING and containing 5.000 acres of land. Exhibit A-20 EXHIBIT C PERMITTED EXCEPTIONS

- ----------------------------------------------------------------------------------------------------------------------------------- FACILITY PERMITTED EXCEPTIONS - ----------------------------------------------------------------------------------------------------------------------------------- 1. Spring Shadow 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exceptions 1, 2 (modified to read "Any shortages in area."), 3-6, 11, 12, 14 (with reference to "east" deleted) and 15-19, and any exceptions created pursuant to the grant deed from Metro National Corporation to American Retirement Corporation, a Tennessee corporation, on Schedule B of the Title Commitment issued by Commonwealth Land Title Insurance Company dated June 16, 1997 under Order Number 9701254885. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 2. Lakeway 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. Exception Nos. 1 through 4, 5 (modified to add the phrase ", none of which are due or payable" after the words "usage or ownership"), 6, 10 through 16, and 18 on Schedule B of the title commitment issued by Lawyers Title Insurance Corporation dated June 4, 1998 under Case Number 98 CO 186651-T. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 3. Trinity Towers 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 1, 2 (modified to state "Any discrepancies in area."), 3, 4, 5 (with the year "1996" replaced by "1997"), 9 through 11, 12, 14, 16 through 25 on the preliminary title report issued by Fidelity National Title Insurance Company dated November 11, 1996 under Order Number 96-001054. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 4. Naples 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 3, 4 and 7-16 on Schedule B, Section 2 of the title commitment issued by Lawyers Title Insurance Corporation dated June 10, 1998 under Case Number 9804209, Customer Number LOS 23690. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - -----------------------------------------------------------------------------------------------------------------------------------

Exhibit C-1

- ----------------------------------------------------------------------------------------------------------------------------------- FACILITY PERMITTED EXCEPTIONS - ----------------------------------------------------------------------------------------------------------------------------------- 5. Bay Pines 1. The standard printed exceptions, conditions and exclusions from coverage contained (Carriage Inn) in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Any matters shown as title exceptions in that certain ALTA Owner's Policy of Title Insurance (Form B-1970, Rev. 10-17-70 and 10-17-84) issued by Chicago Title Insurance Company in favor of Landlord in connection with Landlord's acquisition of the Premises. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 6. Pearland 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 1, 2 (modified to read "Any shortages in area."), 3, 4, 5 (modified to read "Standby fees, taxes and assessments by any taxing authority for the year 1997, . . . , none of which are due and payable."), 9a, 9b and 9d on Schedule B of the Title Commitment issued by Fidelity National Title Insurance Company dated May 2, 1997 under Order Number 97900375. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 7. Pinegate 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 1, 2 (modified to read "1997" and "Any shortages in area."), 3, 4, 5 (modified to read "Standby fees, taxes and assessments by any taxing authority for the year 1997, . . . , none of which are due and payable."), 9a, 9b, 9c, 9d (modified to reference a 13-foot rather than a 15-foot easement) and 9e (modified to delete the following phrase: ", the royalties, bonuses, rentals and all other rights in connection with same are excepted herefrom") on Schedule B of the Title Commitment issued by Fidelity National Title Insurance Company dated May 2, 1997 under Order Number 97900376. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 8. Aurora 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 7 through 14 on Schedule B of the Proforma Policy of Title Insurance issued by Lawyers Title Insurance Corporation dated April 10, 1998 under Case ID: LC48138. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - -----------------------------------------------------------------------------------------------------------------------------------

Exhibit C-2

- ----------------------------------------------------------------------------------------------------------------------------------- FACILITY PERMITTED EXCEPTIONS - ----------------------------------------------------------------------------------------------------------------------------------- 9. Lakewood 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 6 through 14 on Schedule B-2 of the Title Commitment issued by lawyers Title Insurance Corporation dated June 17, 1998 under Commitment No: LC48140. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 10. Shadowlake 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exception Nos. 1 (modified to read "Clerk's File No. R232312, as amended and restated in its entirety under R301643), 2 (modified to read "1997" and "Any shortages in area."), 3, 4, 5 (modified to read "Standby fees, taxes and assessments by any taxing authority for the year 1997, . . . , none of which are due and payable."), 9a (modified to read "A Harris County Flood Control District easement, as described in Volume 576, Page 178 of the Deed Records of Harris County, Texas, as amended by that certain Agreement and the plat recorded under Harris County Clerk's File No(s). S140288."), 9c, 9d, 9e and 9h (modified to read "...Clerk's File No. R232312, as amended and restated under Clerk's File No. 301643." and "...all valid first liens..."), on Schedule B of the Title Commitment issued by Fidelity National Title Insurance Company dated May 12, 1997 under Order Number 97900410. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - ----------------------------------------------------------------------------------------------------------------------------------- 11. Willowbrook 1. The standard printed exceptions, conditions and exclusions from coverage contained in the standard coverage owner's title policy then prevailing in use at the title company which consummates the sale transaction. 2. Any matters which an accurate survey of the Premises may show. 3. Exceptions 1, 2 (modified to read "Any shortages in area."), 3-6, and 11-24, and any exceptions created pursuant to the grant deed from Metro National Corporation to American Retirement Corporation, a Tennessee corporation, on Schedule B of the Title Commitment issued by Commonwealth Land Title Insurance Company dated June 17, 1997 under Order Number 9701254889. 4. Such other matters burdening the Premises which were created with the consent or knowledge of Tenant or arising out of Tenant's acts or omissions. - -----------------------------------------------------------------------------------------------------------------------------------

EX-10.5 7 g76095ex10-5.txt MASTER LEASE AGREEMENT DATED 3-29-02 EXHIBIT 10.5 [Cleveland, Ohio] [Delray, Florida] [Jacksonville, Florida] [Houston, Texas] [San Antonio, Texas] [Victoria, Texas] ================================================================================ M A S T E R L E A S E between HEALTH CARE PROPERTY INVESTORS, INC., and TEXAS HCP HOLDING, L.P. collectively, as their interests may appear, as Lessor AND ARC SHAVANO, L.P., ARC RICHMOND HEIGHTS, LLC, ARC DELRAY BEACH, LLC, ARC VICTORIA, L.P., ARC CARRIAGE CLUB OF JACKSONVILLE, INC., and ARC POST OAK, L.P., collectively and jointly and severally, as Lessee Dated as of March 29, 2002 ================================================================================ TABLE OF CONTENTS ARTICLE I .......................................................................................... 1 1.1 Leased Property; Term ...................................................................... 1 ARTICLE II ......................................................................................... 2 2.1 Definitions ................................................................................ 2 ARTICLE III ........................................................................................ 17 3.1 Rent ....................................................................................... 17 3.2 Quarterly Calculation and Payment of Victoria Additional Rent; Annual Reconciliation ....... 18 3.3 Confirmation of Victoria Additional Rent ................................................... 19 3.4 Additional Charges ......................................................................... 20 3.5 Late Payment of Rent ....................................................................... 20 3.6 Net Lease .................................................................................. 21 3.7 Separate Account ........................................................................... 21 ARTICLE IV ......................................................................................... 21 4.1 Impositions ................................................................................ 21 4.2 Utility Charges ............................................................................ 22 4.3 Insurance Premiums ......................................................................... 23 4.4 Impound Account ............................................................................ 23 4.5 Tax Service ................................................................................ 23 ARTICLE V .......................................................................................... 23 5.1 No Termination, Abatement, etc ............................................................. 23 5.2 Termination with Respect to Fewer than All of the Facilities ............................... 24 ARTICLE VI ......................................................................................... 24 6.1 Ownership of the Leased Property ........................................................... 24 6.2 Personal Property .......................................................................... 24 6.3 Transfer of Personal Property and Capital Additions to Lessor .............................. 25 ARTICLE VII ........................................................................................ 25 7.1 Condition of the Leased Property ........................................................... 25 7.2 Use of the Leased Property ................................................................. 25 7.3 Lessor to Grant Easements, etc ............................................................. 26 7.4 Preservation of Facility Value ............................................................. 27 ARTICLE VIII ....................................................................................... 28 8.1 Compliance with Legal and Insurance Requirements, Instruments, etc ......................... 28 ARTICLE IX ......................................................................................... 28 9.1 Maintenance and Repair ..................................................................... 28 9.2 Encroachments, Restrictions, Mineral Leases, etc ........................................... 29 ARTICLE X .......................................................................................... 30 10.1 Construction of Capital Additions and Other Alterations to the Leased Property ............. 30 10.2 Construction Requirements for all Alterations .............................................. 31 i ARTICLE XI ......................................................................................... 32 11.1 Liens ...................................................................................... 32 ARTICLE XII ........................................................................................ 32 12.1 Permitted Contests ......................................................................... 32 ARTICLE XIII ....................................................................................... 33 13.1 General Insurance Requirements ............................................................. 33 13.2 Replacement Cost ........................................................................... 34 13.3 Additional Insurance ....................................................................... 34 13.4 Waiver of Subrogation ...................................................................... 34 13.5 Policy Requirements ........................................................................ 35 13.6 Increase in Limits ......................................................................... 35 13.7 Blanket Policies and Policies Covering Multiple Locations .................................. 35 13.8 No Separate Insurance ...................................................................... 35 ARTICLE XIV ........................................................................................ 36 14.1 Insurance Proceeds ......................................................................... 36 14.2 Insured Casualty ........................................................................... 36 14.3 Uninsured Casualty ......................................................................... 37 14.4 No Abatement of Rent ....................................................................... 38 14.5 Waiver ..................................................................................... 38 ARTICLE XV ......................................................................................... 38 15.1 Condemnation ............................................................................... 38 ARTICLE XVI ........................................................................................ 39 16.1 Events of Default .......................................................................... 39 16.2 Certain Remedies ........................................................................... 42 16.3 Damages .................................................................................... 42 16.4 Receiver ................................................................................... 43 16.5 Lessee's Obligation to Purchase ............................................................ 44 16.6 Waiver ..................................................................................... 44 16.7 Application of Funds ....................................................................... 44 16.8 Facility Operating Deficiencies ............................................................ 44 16.9 [Intentionally Omitted] .................................................................... 45 16.10 Lessor's Security Interest ................................................................ 45 ARTICLE XVII ....................................................................................... 46 17.1 Lessor's Right to Cure Lessee's Default .................................................... 46 ARTICLE XVIII ...................................................................................... 47 18.1 Purchase of the Leased Property ............................................................ 47 ARTICLE XIX ........................................................................................ 47 19.1 Renewal Terms .............................................................................. 47 19.2 Lessor's Rights of Renewal and Early Termination ........................................... 47 ARTICLE XX ......................................................................................... 48 20.1 Holding Over ............................................................................... 48 ii ARTICLE XXI ........................................................................................ 48 21.1 Letters of Credit .......................................................................... 48 21.2 Times for Obtaining Letters of Credit ...................................................... 49 21.3 Uses of Letters of Credit .................................................................. 49 21.4 Reduction in Letter of Credit Amount ....................................................... 50 21.5 Treatment of Funds Drawn Under Letters of Credit ........................................... 50 ARTICLE XXII ....................................................................................... 50 22.1 Risk of Loss ............................................................................... 50 ARTICLE XXIII ...................................................................................... 51 23.1 General Indemnification .................................................................... 51 ARTICLE XXIV ....................................................................................... 51 24.1 Transfers .................................................................................. 51 ARTICLE XXV ........................................................................................ 56 25.1 Officer's Certificates and Financial Statements ............................................ 56 ARTICLE XXVI ....................................................................................... 58 26.1 Lessor's Right to Inspect and Show the Leased Property and Capital Additions ............... 58 ARTICLE XXVII ...................................................................................... 58 27.1 No Waiver .................................................................................. 58 ARTICLE XXVIII ..................................................................................... 58 28.1 Remedies Cumulative ........................................................................ 58 ARTICLE XXIX ....................................................................................... 58 29.1 Acceptance of Surrender .................................................................... 58 ARTICLE XXX ........................................................................................ 58 30.1 No Merger .................................................................................. 58 ARTICLE XXXI ....................................................................................... 59 31.1 Conveyance by Lessor ....................................................................... 59 31.2 New Lease .................................................................................. 59 ARTICLE XXXII ...................................................................................... 60 32.1 Quiet Enjoyment ............................................................................ 60 ARTICLE XXXIII ..................................................................................... 61 33.1 Notices .................................................................................... 61 ARTICLE XXXIV ...................................................................................... 62 34.1 Appraiser .................................................................................. 62 ARTICLE XXXV ....................................................................................... 63 35.1 Lessee's Option to Purchase the Post Oak Facility .......................................... 63 35.2 Defaults ................................................................................... 64 35.3 Escrow Provisions .......................................................................... 65 35.4 Lessor's Election of 1031 Exchange ......................................................... 66 iii ARTICLE XXXVI ...................................................................................... 66 36.1 Lessor May Grant Liens ..................................................................... 66 36.2 Attornment ................................................................................. 67 ARTICLE XXXVII ..................................................................................... 67 37.1 Hazardous Substances ....................................................................... 67 37.2 Notices .................................................................................... 67 37.3 Remediation ................................................................................ 68 37.4 Indemnity .................................................................................. 68 37.5 Environmental Inspection ................................................................... 69 ARTICLE XXXVIII .................................................................................... 69 38.1 Memorandum of Lease ........................................................................ 69 ARTICLE XXXIX ...................................................................................... 69 39.1 Sale of Assets ............................................................................. 69 ARTICLE XL ......................................................................................... 70 40.1 [Intentionally Omitted] .................................................................... 70 ARTICLE XLI ........................................................................................ 70 41.1 Authority .................................................................................. 70 ARTICLE XLII ....................................................................................... 70 42.1 Attorneys' Fees ............................................................................ 70 ARTICLE XLIII ...................................................................................... 71 43.1 Brokers .................................................................................... 71 ARTICLE XLIV ....................................................................................... 71 44.1 Submission to Arbitration .................................................................. 71 ARTICLE XLV ........................................................................................ 72 45.1 Miscellaneous .............................................................................. 72 ARTICLE XLVI ....................................................................................... 77 46.1 Provisions Relating to Master Lease ........................................................ 77 46.2 Provisions Relating to Tax Treatment of Lease .............................................. 77 ARTICLE XLVII ...................................................................................... 77 47.1 Replacement Lease and Termination of Old Victoria Lease .................................... 77 ARTICLE XLVIII ..................................................................................... 78 48.1 Covenants with Respect to Operations and Fundamental Changes of Lessee ..................... 78 iv Exhibit A-1 Legal Description of the Cleveland Facility Exhibit A-2 Legal Description of the Delray Facility Exhibit A-3 Legal Description of the Houston Facility Exhibit A-4 Legal Description of the Jacksonville Facility Exhibit A-5 Legal Description of the San Antonio Facility Exhibit A-6 Legal Description of the Victoria Facility Exhibit B List of Facilities, Facility Description and Primary Intended Use, Initial Monthly Allocated Minimum Rent, and Allocated Initial Investment Exhibit C-1 List of Lessor's Personal Property for Cleveland Facility Exhibit C-2 List of Lessor's Personal Property for Delray Facility Exhibit C-3 List of Lessor's Personal Property for Houston Facility Exhibit C-4 List of Lessor's Personal Property for Jacksonville Facility Exhibit C-5 List of Lessor's Personal Property for San Antonio Facility Exhibit C-6 List of Lessor's Personal Property for Victoria Facility Exhibit D Form of Letter of Credit Exhibit E Schedule of Insurance Deductible Limits Exhibit F List of Existing Facilities Within Ten Mile Radius Exhibit G List of Commercial Occupancy Arrangements v Exhibit 10.5 MASTER LEASE THIS MASTER LEASE ("Lease") is dated as of March 29, 2002, and is between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation and TEXAS HCP HOLDING, L.P., a Delaware limited partnership (collectively, as their interests may appear, "Lessor"), on the one hand, and ARC RICHMOND HEIGHTS, LLC, a Tennessee limited liability company, ARC SHAVANO, L.P., a Tennessee limited partnership, ARC DELRAY BEACH, LLC, a Tennessee limited liability company, ARC VICTORIA , L.P., a Tennessee limited partnership, ARC CARRIAGE CLUB OF JACKSONVILLE, INC., a Tennessee corporation, and ARC POST OAK, L.P., a Tennessee limited partnership (collectively and jointly and severally, "Lessee"), on the other hand. ARTICLE I. 1.1 Leased Property; Term. Upon and subject to the terms and conditions hereinafter set forth, Lessor leases to Lessee and Lessee leases from Lessor all of Lessor's rights and interests in and to the following (collectively the "Leased Property"): (a) the real property or properties described in Exhibit A attached hereto (collectively, the "Land"); (b) all buildings, structures, Fixtures (as hereinafter defined) and other improvements of every kind now or hereafter located on the Land, including alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and off-site to the extent Lessor has obtained any interest in the same), parking areas and roadways appurtenant to such buildings and structures and Capital Additions funded by Lessor (collectively, the "Leased Improvements"); (c) all easements, rights and appurtenances relating to the Land and the Leased Improvements (collectively, the "Related Rights"); (d) all equipment, machinery, fixtures, and other items of real and/or personal property, including all components thereof, now and hereafter located in, on or used in connection with and permanently affixed to or incorporated into the Leased Improvements, including all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems, apparatus, sprinkler systems, fire and theft protection equipment, and built-in oxygen and vacuum systems (if any), all of which, to the greatest extent permitted by law, are hereby deemed to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the "Fixtures"); (e) the machinery, equipment, furniture and other personal property described on Exhibit C attached hereto, together with all replacements, modifications, alterations and substitutes therefor (whether or not constituting an upgrade) (collectively, "Lessor's Personal Property"); and (f) all other property and interests in property conveyed or assigned to Lessor pursuant to the Contract of Acquisition (as hereinafter defined). SUBJECT, HOWEVER, to the easements, encumbrances, covenants, conditions and restrictions and other matters which affect the Leased Property as of the date hereof or the Commencement Date or which are created thereafter as permitted hereunder to have and to hold for (1) the Fixed Term (as defined below), and (2) the Extended Terms provided for in Article XIX unless this Lease is earlier terminated as hereinafter provided. Upon any change in the Minimum Rent in accordance with the provisions of Section 3.1 below or otherwise pursuant to this Lease, Landlord may prepare and request, and Tenant shall execute an amendment to this Lease confirming such matters. ARTICLE II. 2.1 Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (i) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (ii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP as at the time applicable; (iii) all references in this Lease to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease; (iv) the word "including" shall have the same meaning as the phrase "including, without limitation," and other similar phrases; and (v) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision: 1031 Exchange: As defined in Section 35.4. Accommodator: As defined in Section 35.4. Additional Charges: As defined in Article III. Affiliate: Any Person which, directly or indirectly (including through one or more intermediaries), controls or is controlled by or is under common control with any other Person, including any Subsidiary of a Person. For purposes of this definition, the definition of "Controlling Person" below, and Article XXIV below, the term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly (including through one or more intermediaries), of the power to direct or cause the direction of the management and policies of such Person, through the ownership or control of voting securities, partnership interests or other equity interests or otherwise. Without limiting the generality of the foregoing, when used with respect to any corporation, the term "Affiliate" shall also include (i) any Person which owns, directly or indirectly (including through one or more intermediaries), Fifty Percent (50%) or more of any class of voting security or equity interests of such corporation, (ii) any Subsidiary of such corporation and (iii) any Subsidiary of a Person described in clause (i). Notwithstanding the foregoing, ARC shall not be deemed to have "control" of another non-publicly traded Person, unless ARC possesses, directly or indirectly (including through one or more intermediaries), (1) at least thirty percent (30%) of the ownership or control of voting 2 securities, partnership interests or other equity interests or otherwise of such Person, and (2) the power to direct or cause the direction of the management and policies of such Person; provided, however, that ARC shall at all times be deemed to "control" (w) any limited partnership in which ARC or any other Affiliate of ARC is the general partner, (x) any limited liability company in which ARC or any other Affiliate of ARC is the managing member or has the ability to elect or appoint a majority the board of managers, (y) any business trust for which ARC or any other Affiliate of ARC is the trustee, and (z) any corporation in which ARC or any other Affiliate of ARC has the ability to elect or appoint a majority of the board of directors, in each case regardless of the percentage of ownership of such entity. Allocated Initial Investment: With respect to each Facility, as set forth on Exhibit B. Allocated Minimum Rent: The amount of Minimum Rent allocated to such Facility as determined by Section 3.1.1 and Exhibit B attached hereto, as increased, from time to time, pursuant to Section 3.1.2 and 3.1.3. Appraiser: As defined in Article XXXIV. ARC: American Retirement Corporation, a Tennessee corporation, and its permitted successors. ARCPI: ARCPI Holdings, Inc., a Tenneesee corporation. Award: All compensation, sums or anything of value awarded, paid or received on a total or partial Condemnation. Bankruptcy Code: The United Stated Bankruptcy Code (11 U.S.C. ss. 101 et seq.), and any successor statute or legislation thereto. Base Gross Revenues: For the Fixed Term of the Victoria Facility, Eight Hundred Thirty Seven Thousand Four Hundred Seventy Two Dollars ($837,472.00). For each Extended Term of the Victoria Facility, if any, the Gross Revenues for the first Lease Year of such Extended Term. Base Gross Revenues for any partial Lease Year shall be determined by multiplying the applicable Base Gross Revenues for a full Lease Year by a fraction, the numerator of which is the number of days in the partial Lease Year and the denominator of which is 365. Base Period: The period commencing on that date which is fifteen (15) months prior to the date any appraisal of any Facility is made pursuant to the provisions of Article XXXIV and ending on the date which is three (3) months prior to the date any such appraisal of such Facility is made. BLS: Bureau of Labor Statistics, U.S. Department of Labor. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which national banks in the City of New York, New York are authorized, or obligated, by law or executive order, to close. 3 Capital Additions: With respect to any Facility, one or more new buildings, or one or more additional structures annexed to any portion of any of the Leased Improvements of such Facility, or the material expansion of existing improvements, which are constructed on any parcel or portion of the Land of such Facility during the Term including the construction of a new wing or new story, or the repair, replacement, restoration, remodeling or rebuilding of the existing Leased Improvements of such Facility or any portion thereof where the purpose and effect of such work is to provide a functionally new facility in order to provide services not previously offered in such Facility. Capital Addition Costs: The costs of any Capital Addition made to the Leased Property whether paid for by Lessee or Lessor, including (i) all permit fees and other costs imposed by any governmental authority, the cost of site preparation, the cost of construction including materials and labor, the cost of supervision and related design, engineering and architectural services, the cost of any fixtures, and if and to the extent approved by Lessor, the cost of construction financing; (ii) fees paid to obtain necessary licenses and certificates; (iii) if and to the extent approved by Lessor in writing and in advance, the cost of any land contiguous to the Leased Property which is to become a part of the Leased Property purchased for the purpose of placing thereon the Capital Addition or any portion thereof or for providing means of access thereto, or parking facilities therefor, including the cost of surveying the same; (iv) the cost of insurance, real estate taxes, water and sewage charges and other carrying charges for such Capital Addition during construction; (v) the cost of title insurance; (vi) reasonable fees and expenses of legal counsel; (vii) filing, registration and recording taxes and fees; (viii) documentary stamp and similar taxes; and (ix) all reasonable costs and expenses of Lessor and any Person which has committed to finance the Capital Addition, including (a) the reasonable fees and expenses of their respective legal counsel; (b) printing expenses; (c) filing, registration and recording taxes and fees; (d) documentary stamp and similar taxes; (e) title insurance charges and appraisal fees; (f) rating agency fees; and (g) commitment fees charged by any Person advancing or offering to advance any portion of the financing for such Capital Addition. Cash Flow: With respect to each Facility, the net income from such Facility, determined on the basis of GAAP applied on a consistent basis, plus the sum of (i) interest, taxes, depreciation and amortization expense; and (ii) the Allocated Minimum Rent for such Facility and, with respect to the Victoria Facility, if applicable, the Victoria Additional Rent; less a management fee allowance of Five Percent (5%) of Gross Revenues for such Facility during the corresponding period. Cash Flow Coverage: With respect to each Facility, for any period, calculated as of the last day of the period, the ratio of Cash Flow for such Facility attributable to such period to the total Allocated Minimum Rent with respect to such Facility and, with respect to the Victoria Facility, if applicable, the Victoria Additional Rent, payable for such period under this Lease. Close of Escrow: As defined in Article XXXV. Closing Date: As defined in the Contract of Acquisition. Code: The Internal Revenue Code of 1986, as amended. 4 Collateral: As defined in Section 16.10.1. Commencement Date: The Closing Date. Commercial Occupancy Arrangement: Any commercial (as opposed to resident or patient) Occupancy Arrangement. Condemnation: The exercise of any governmental power, whether by legal proceedings or otherwise, by a Condemnor or a voluntary sale or transfer by Lessor to any Condemnor, either under threat of condemnation or while legal proceedings for condemnation are pending. Condemnor: Any public or quasi-public authority, or private corporation or individual, having the power of Condemnation. Consolidated Financials: For any fiscal year or other accounting period for any Person and its consolidated Subsidiaries, statements of earnings and retained earnings and of changes in financial position for such period and for the period from the beginning of the respective fiscal year to the end of such period and the related balance sheet as of the end of such period, together with the notes thereto, all in reasonable detail and setting forth in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, and prepared in accordance with GAAP. Consolidated Net Worth: At any time, the sum of the following for any Person and its consolidated Subsidiaries, on a consolidated basis determined in accordance with GAAP: (i) the amount of capital or stated capital (after deducting the cost of any shares, if applicable, held in its treasury), plus (ii) the amount of capital surplus and retained earnings (or, in the case of a capital surplus or retained earnings deficit, minus the amount of such deficit), minus (iii) the sum of the following (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings): (a) unamortized debt discount and expense; and (b) any write-up in book value of assets resulting from a revaluation thereof subsequent to the most recent Consolidated Financials prior to the date hereof, excluding, however, any (i) net write-up in value of foreign currency in accordance with GAAP, (ii) write-up resulting from a reversal of a reserve for bad debts or depreciation, and (iii) write-up resulting from a change in methods of accounting for inventory. Contract of Acquisition: That certain Contract of Acquisition of even date herewith by and between Lessor, on the one hand, and Lessee and ARC, on the other hand, relative to the acquisition by Lessor of the Leased Property of each Facility. Controlling Person: Any (i) Person(s) which, directly or indirectly (including through one or more intermediaries), controls Lessee and would be deemed an Affiliate of 5 Lessee, including any partners, shareholders, principals, members, trustees and/or beneficiaries of any such Person(s) to the extent the same control Lessee and would be deemed an Affiliate of Lessee, and (ii) Person(s) which controls, directly or indirectly (including through one or more intermediaries), any other Controlling Person(s) and which would be deemed an Affiliate of any such Controlling Person(s). Cost of Living Index: The Consumer Price Index for All Urban Consumers, U.S. City Average (1982-1984 = 100), published by the BLS, or such other renamed index. If the BLS changes the publication frequency of the Cost of Living Index so that a Cost of Living Index is not available to make a cost-of-living adjustment as specified herein, the cost-of-living adjustment shall be based on the percentage difference between the Cost of Living Index for the closest preceding month for which a Cost of Living Index is available and the Cost of Living Index for the comparison month as required by this Lease. If the BLS changes the base reference period for the Cost of Living Index from 1982-84 = 100, the cost-of-living adjustment shall be determined with the use of such conversion formula or table as may be published by the BLS. If the BLS otherwise substantially revises, or ceases publication of the Cost of Living Index, then a substitute index for determining cost-of-living adjustments, issued by the BLS or by a reliable governmental or other nonpartisan publication, shall be reasonably selected by Lessor. CPI Increase: The percentage increase (rounded to the nearest basis point), if any, in (i) the Cost of Living Index published for the month which is two (2) months prior to the commencement of the applicable Lease Year, over (ii) the Cost of Living Index published for the month which is two (2) months prior to the commencement of the immediately prior Lease Year. Date of Taking: The date the Condemnor has the right to possession of the property being condemned. Earn-Out Amounts: As defined in the Contract of Acquisition. Earn-Out Facilities: As defined in the Contract of Acquisition. Earn-Out Payment Date: The date of payment by Lessor to Lessee or ARC of an Earn-Out Amount for any Earn-Out Facility in accordance with the terms of the Contract of Acquisition. Earn-Out Rate: For each Earn-Out Facility, the "Earn-Out Rate" shall mean, (i) for the first Earn-Out Payment Date (regardless of whether such first Earn-Out Payment Date relates to an Earn-Out Period ending on June 30, 2003, December 31, 2003, June 30, 2004, or December 31, 2004), Eleven and One Quarter Percent (11.25%), and (ii) for each subsequent Earn-Out Payment Date, if any, (A) the Earn-Out Rate in effect for the immediately prior Earn-Out Payment Date, if the same occurs in the same Lease Year as such immediately prior Earn-Out Payment Date, or (B) the Earn-Out Rate in effect for the immediately prior Earn-Out Payment Date, as increased by the greater of (i) Two Percent (2%) of the Earn-Out Rate in effect for such prior Earn-out Payment Date, or (ii) the CPI Increase times the Earn-Out Rate in effect for such prior Earn-Out Payment Date (by way of example only, if the CPI Increase equals three percent (3%) and the Earn-Out Rate for such prior Earn-Out Payment Date equals 11.25%, then the new Earn-Out Rate would be 11.59%), if the same occurs in a different Lease Year from the 6 Lease Year in which the immediately prior Earn-Out Payment Date occurred; provided, however, that in no event shall such increase be more than Four Percent (4%) of the Earn-Out Rate in effect for the immediately prior Earn-Out Payment Date, notwithstanding the actual CPI Increase. Encumbrance: As defined in Section 36.1. Environmental Costs: As defined in Article XXXVII. Environmental Laws: Environmental Laws shall mean any and all federal, state, municipal and local laws, statutes, ordinances, rules, regulations, guidances, policies, orders, decrees, judgments, whether statutory or common law, as amended from time to time, now or hereafter in effect, or promulgated, pertaining to the environment, public health and safety and industrial hygiene, including the use, generation, manufacture, production, storage, release, discharge, disposal, handling, treatment, removal, decontamination, clean-up, transportation or regulation of any Hazardous Substance, including the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Safe Drinking Water Act and the Occupational Safety and Health Act. Escrow: As defined in Article XXXV. Escrow Holder: As defined in Article XXXV. Event of Default: As defined in Article XVI. Extended Term(s): As defined in Article XIX. Facility: Each facility being (and to be) operated or proposed to be operated on the Leased Property, together with any Capital Additions, as described on Exhibit B attached hereto and incorporated herein by this reference (collectively, the "Facilities"). Each Facility is also individually referred to herein by the name set forth on Exhibit B attached hereto and incorporated herein by this reference. Facility Mortgage: As defined in Article XIII. Facility Mortgagee: As defined in Article XIII. Facility Operating Deficiency: With respect to any Facility, (i) a deficiency in the conduct of the operation of such Facility which results in the imposition of a stop placement order or a notice of the proposed decertification of such Facility from participation in Medicare, Medicaid or other governmental reimbursement programs or of the non-renewal or termination of such Facility's Medicare, Medicaid or other governmental reimbursement provider agreement, or (ii) receipt of any notice from any governmental agency terminating or suspending or reflecting a material risk of imminent termination or suspension, of any material license or certification relating to any Facility. 7 Fair Market Rental: With respect to each Facility, the fair market rental value of the Leased Property and all Capital Additions of such Facility, or applicable portion(s) thereof, (including any appropriate periodic escalations therein) determined in accordance with the appraisal procedures set forth in Article XXXIV, assuming the same is exposed on the open market at the time of the appraisal and taking into account, among other relevant factors, the income generated from the Leased Property and all Capital Additions of such Facility, or applicable portion(s) thereof, but specifically excluding brokerage commissions and other Lessor payments that do not directly inure to the benefit of lessees. Fair Market Value: With respect to each Facility, the fair market value of the Leased Property and all Capital Additions of such Facility, or applicable portion(s) thereof, determined in accordance with the appraisal procedures set forth in Article XXXIV and this definition. Fair Market Value shall be obtained by assuming that the Leased Property and all Capital Additions of such Facility, or applicable portion(s) thereof, is unencumbered by this Lease. Fair Market Value shall also be the higher value obtained by valuing the Leased Property and all Capital Additions of such Facility, or applicable portion(s) thereof, for their highest and best use or as a fully-permitted Facility operated in accordance with the provisions of this Lease. In addition, the following specific matters shall be factored in or out, as appropriate, in determining Fair Market Value: (i) The negative value of (a) any deferred maintenance or other items of repair or replacement of the Leased Property or any Capital Additions of such Facility, (b) any then current or prior licensure or certification violations and/or admissions holds and (c) any other breach or failure of Lessee to perform or observe its obligations hereunder shall not be taken into account; rather, the Leased Property and all Capital Additions of such Facility shall be deemed to be in the condition required by this Lease (i.e., reasonably good order and repair) and Lessee shall at all times be deemed to have operated the Facility in compliance with and to have performed all obligations of the Lessee under this Lease. (ii) The occupancy level of the applicable Facility shall be deemed to be the greatest of (a) the occupancy level as of the date any appraisal of such Facility is performed in accordance with the provisions of Article XXXIV, (b) the average occupancy level during the Base Period, or (c) the average occupancy level for facilities similar to such Facility in the same general geographic area as of the date any appraisal of such Facility is performed in accordance with the provisions of Article XXXIV. (iii) If the applicable Facility's Primary Intended Use includes a mixed use, then whichever of the following produces the highest positive value shall be taken into account: (a) the resident mix, patient mix, case mix, and/or diagnostic related group or acuity mix, as applicable, as of the date any appraisal of such Facility is performed in accordance with the provisions of Article XXXIV, or (b) the average of such mix during the Base Period. Finally, in determining Fair Market Value in connection with a sale or transfer of the Leased Property and all Capital Additions of a Facility pursuant to the terms of this Lease, 8 the positive or negative effect on the value of the Leased Property and all Capital Additions or applicable portion(s) thereof attributable to such factors as the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any Encumbrance placed thereon by Lessor which will not be removed at or prior to the date of such sale or transfer shall be taken into account. Fixed Term: For all Facilities other than the Victoria Facility, the period of time commencing on the Commencement Date and ending at 11:59 p.m. Los Angeles time on the expiration of the fifteenth (15th) Lease Year. For the Victoria Facility, the period of time commencing on the Commencement Date and ending at 11:59 p.m. Los Angeles time on July 31, 2011. Fixtures: As defined in Article I, and with respect to each Facility, the Fixtures relating to such Facility. GAAP: Generally accepted accounting principles. Gross Revenues: With respect to each Facility, all revenues received or receivable from or by reason of the operation of such Facility or any other use of the Leased Property of such Facility, Lessee's Personal Property and Capital Additions including all revenues received or receivable for the use of or otherwise attributable to units, rooms, beds and other facilities provided, meals served, services performed (including ancillary services), space or facilities subleased or goods sold on or from the Leased Property and Capital Additions of such Facility; provided, however, that Gross Revenues shall not include: (i) non-operating revenues such as interest income or income from the sale of assets not sold in the ordinary course of business; (ii) contractual allowances (relating to any period during the Term) for billings not paid by or received from the appropriate governmental agencies or third party providers; (iii) all proper patient billing credits and adjustments according to GAAP relating to health care accounting; and (iv) federal, state or local excise taxes and any tax based upon or measured by such revenues which is added to or made a part of the amount billed to the patient or other recipient of such services or goods, whether included in the billing or stated separately. Gross Revenues for each Lease Year of such Facility shall include all cost report settlement amounts received in or payable during such Lease Year in accordance with GAAP relating to health care accounting, regardless of the year to which such settlement amounts are applicable; provided, however, that to the extent settlement amounts are applicable to years, or portions thereof, prior to the Commencement Date, such settlement amounts shall not be included in Gross Revenues for the Lease Year of such Facility in which such settlement amounts are received or paid. Gross Revenues shall also include (x) the Gross Revenues of any Occupant under a Commercial Occupancy Arrangement (i.e., the Gross Revenues generated from the operations conducted on or from such subleased, licensed or other used or occupied 9 portion of the Leased Property and all Capital Additions of such Facility shall be included directly in the Gross Revenues) if all or any portion of the rent received or receivable by Lessee from or under such Commercial Occupancy Arrangement is based on net income of such Occupant or would otherwise fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto (in which event the rent received or receivable by Lessee from or under such Commercial Occupancy Arrangement shall be excluded from Gross Revenues), or (y) the rent received or receivable by Lessee from or under such Commercial Occupancy Arrangement, if no portion of the rent received or receivable by Lessee from or under such Commercial Occupancy Arrangement is based on net income of such Occupant and such rent qualifies as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto (in which event the Gross Revenues of such Occupant shall be excluded from Gross Revenues herein). Guarantors: Collectively, ARC, ARCPI, and any future guarantor of Lessee's obligations pursuant to this Lease (each individually, a "Guarantor"). Guaranty: The Guaranties of even date herewith executed by ARC, as a Guarantor, and ARCPI, as a Guarantor, and any future written guaranty of Lessee's obligations hereunder executed by a Guarantor. Handling: As defined in Article XXXVII. Hazardous Substances: Collectively, any petroleum, petroleum product or byproduct or any substance, material or waste regulated or listed pursuant to any Environmental Law. HCPI: Health Care Property Investors, Inc., a Maryland corporation, and its successors and assigns. Impositions: Collectively, all taxes, including capital stock, franchise and other state taxes of Lessor (and, if Lessor is not HCPI (including Texas HCP's interest herein), of HCPI as a result of its investment in Lessor (including in Texas HCP)), ad valorem, sales, use, single business, gross receipts, transaction privilege, rent or similar taxes; assessments including assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term; ground rents; water, sewer and other utility levies and charges; excise tax levies; fees including license, permit, inspection, authorization and similar fees; and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property, any Capital Additions and/or the Rent and all interest and penalties thereon attributable to any failure in payment by Lessee which at any time prior to, during or in respect of the Term hereof may be assessed or imposed on or in respect of or be a lien upon (i) Lessor or Lessor's interest in the Leased Property or any Capital Additions, (ii) the Leased Property, any Capital Additions or any parts thereof or any rent therefrom or any estate, right, title or interest therein, or (iii) any occupancy, operation, use or possession of, or sales from or activity conducted on or in connection with the Leased Property, any Capital Additions or the leasing or use of the Leased Property, any Capital Additions or any parts thereof; provided, however, that nothing contained in this Lease shall be construed to require Lessee to 10 pay (a) any tax based on net income (whether denominated as a franchise or capital stock or other tax) imposed on Lessor or any other Person (including on HCPI, if HCPI is not the Lessor hereunder), (b) any transfer, or net revenue tax of Lessor or any other Person except Lessee and its successors, (c) any tax imposed with respect to the sale, exchange or other disposition by Lessor of any Leased Property, any Capital Additions or the proceeds thereof, or (d) except as expressly provided elsewhere in this Lease, any principal or interest on any indebtedness on the Leased Property for which Lessor is the obligor, except to the extent that any tax, assessment, tax levy or charge, of the type described in any of clauses (a), (b), (c) or (d) above is levied, assessed or imposed in lieu of or as or as a substitute for any tax, assessment, levy or charge which is otherwise included in this definition of an "Imposition." Incremental Gross Revenues: With respect to the Victoria Facility, the positive amount, if any, by which the Gross Revenues for such Facility during the then current Lease Year or partial Lease Year exceeds the Base Gross Revenues. Insurance Requirements: The terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy and of any insurance board, association, organization or company necessary for the maintenance of any such policy. Intangible Property: All accounts, proceeds of accounts, rents, profits, income or revenues derived from the use of rooms or other space within the Leased Property or the providing of services in or from the Leased Property and all Capital Additions; documents, chattel paper, instruments, contract rights, deposit accounts, general intangibles, commercial tort claims, causes of action, now owned or hereafter acquired by Lessee (including any right to any refund of any Impositions) arising from or in connection with Lessee's operation or use of the Leased Property and all Capital Additions; all licenses and permits now owned or hereinafter acquired by Lessee, which are necessary or desirable for Lessee's use of the Leased Property and all Capital Additions for the Primary Intended Use, including, if applicable, any certificate of need or similar certificate; the right to use any trade name or other name associated with the Facility; and any and all third-party provider agreements (including Medicare and Medicaid). Land: As defined in Article I, and, with respect to each Facility, the Land (as defined in Article I) relating to such Facility. Lease: As defined in the preamble. Lease Rate: With respect to each Facility, the percentage per annum as set forth on Exhibit B attached hereto and made a part hereof. Lease Year: With respect to each Facility other than the Victoria Facility, each period of twelve (12) full calendar months from and after the Commencement Date, unless the Commencement Date is a day other than the first (1st) day of a calendar month, in which case the first Lease Year shall be the period commencing on the Commencement Date and ending on the last day of the twelfth (12th) month following the month in which the Commencement Date occurs and each subsequent Lease Year shall be each period of twelve (12) full calendar months after the last day of the prior Lease Year; provided, however, that the last Lease Year during the Term may be a period of less than twelve (12) full calendar months and shall end on the last day 11 of the Term. With respect to the Victoria Facility, each period beginning August 1 and ending July 31; provided, however, that the period from the Commencement Date through July 31, 2002 shall be a partial Lease Year. Leased Improvements: As defined in Article I, and, with respect to each Facility, the Leased Improvements (as defined in Article I) of such Facility Leased Property: As defined in Article I, and, with respect to each Facility, the Leased Property (as defined in Article I) of such Facility. Leasehold FMV: With respect to each Facility, the fair market value of Lessee's leasehold interest relating to such Facility if exposed on the open market taking into account, among other relevant factors, the income generated from the Leased Property and Capital Additions for such Facility, determined by appraisal in accordance with the appraisal procedures set forth in Article XXXIV. Legal Requirements: (i) All federal, state, county, municipal and other governmental statutes, laws (including common law and Environmental Laws), rules, policies, guidance, codes, orders, regulations, ordinances, permits, licenses, covenants, conditions, restrictions, judgments, decrees and injunctions, including those affecting the Leased Property, Lessee's Personal Property and all Capital Additions or the construction, use or alteration thereof, whether now or hereafter enacted and in force, including any which may (A) require repairs, modifications or alterations in or to the Leased Property, Lessee's Personal Property and all Capital Additions, (B) in any way adversely affect the use and enjoyment thereof, or (C) regulate the transport, handling, use, storage or disposal or require the cleanup or other treatment of any Hazardous Substance, and (ii) all covenants, agreements, restrictions, and encumbrances either now or hereafter of record or known to Lessee (other than encumbrances created by Lessor without the consent of Lessee except as otherwise expressly permitted hereunder) affecting the Leased Property. Lessee: As defined in the preamble. Lessee's Personal Property: With respect to each Facility, the Personal Property other than Lessor's Personal Property relating to such Facility. Lessee's Proprietary Software: As defined in Section 6.3. Lessee's Trademarks: As defined in Section 6.3. Lessor: As defined in the preamble. Lessor's Personal Property: As defined in Article I, and, with respect to each Facility, Lessor's Personal Property (as defined in Article I) relating to such Facility. Letter of Credit Amount: Four Million Dollars ($4,000,000) plus the Victoria Letter of Credit Amount. Letter of Credit Date: As defined in Section 21.2. 12 Master Sublease: With respect to any Facility, a Master Sublease (as defined in Article XXIV) of such Facility. Minimum Rent: The sum of Allocated Minimum Rent for all Facilities payable under this Lease. Minimum Repurchase Price: With respect to each Facility other than the Post Oak Facility at any given time, the sum of (i) the Allocated Initial Investment with respect to such Facility plus (ii) any Capital Addition Costs funded by Lessor with respect to such Facility plus (iii) any Earnout Amounts paid by Lessor with respect to such Facility. With respect to the Post Oak Facility, the Post Oak Repurchase Price. New Lease: As defined in Section 31.2.1. New Lease Effective Date: As defined in Section 31.2.1. Occupancy Arrangement: Any sublease, license or other arrangement with a Person for the right to use, occupy or possess any portion of the Leased Property and/or any Capital Additions. Occupant: Any Person having rights of use, occupancy or possession under an Occupancy Arrangement. Officer's Certificate: A certificate of Lessee signed by an officer authorized to so sign by its board of directors or by-laws or by equivalent governing documents or managers. Old Victoria Lease: As defined in Article XLVII. Opening Deposit: As defined in Article XXXV. Outside Closing Date: As defined in Article XXXV. Overdue Rate: On any date, a rate equal to Two Percent (2%) above the Prime Rate, but in no event greater than the maximum rate then permitted under applicable law. Payment Date: Any due date for the payment of the installments of Minimum Rent, Victoria Additional Rent or any other sums payable under this Lease. Person: Any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other form of entity. Personal Property: With respect to each Facility, all machinery, furniture and equipment, including phone systems and computers, trade fixtures, inventory (including raw materials, work in process and finished goods), supplies and other personal property used or useful in the use of the Leased Property and Capital Additions of such Facility for their Primary Intended Use, other than Fixtures. 13 Post Oak Repurchase Price: The Allocated Initial Investment with respect to the Post Oak Facility; provided, however, that commencing upon the expiration of the first (1st) Lease Year and continuing upon the expiration of each Lease Year thereafter, the Post Oak Repurchase Price shall be increased to an amount One Hundred Two and One-Half Percent (102.5%) of the Post Oak Repurchase Price in effect immediately prior to such increase. The Post Oak Purchase Price shall be calculated as of the date of the Close of Escrow, and not as of the date Lessee exercises its option to purchase the Post Oak Facility. Primary Intended Use: With respect to each Facility, the Primary Intended Use set forth on Exhibit B attached hereto and incorporated herein by this reference with respect to such Facility and such other uses necessary or incidental to such use. Prime Rate: On any date, a rate equal to the annual rate on such date announced by the Bank of New York (or its successors) to be its prime, base or reference rate for 90-day unsecured loans to its corporate borrowers of the highest credit standing but in no event greater than the maximum rate then permitted under applicable law. If the Bank of New York (or its successors) discontinues its use of such prime, base or reference rate or ceases to exist, Lessor shall designate the prime, base or reference rate of another state or federally chartered bank based in New York to be used for the purpose of calculating the Prime Rate hereunder. Put Event: With respect to any Facility, an Event of Default hereunder (i.e., after any applicable notice and cure period provided for in Section 16.1) arising out of any of the following at any time during the Term: (i) Lessee's failure to obtain and maintain all licenses, authorizations, certifications and approvals needed to use and operate the Leased Property of such Facility and all Capital Additions thereon, for such Facility's Primary Intended Use in accordance with all Legal Requirements and all Insurance Requirements including obtaining and maintaining all applicable health care licenses, certificates of need and Medicare and/or Medicaid certifications; (ii) Lessee's failure to use and continuously operate or cause to be used and continuously operated the entirety of the Leased Property of such Facility and all improvements thereon for its Primary Intended Use; and/or (iii) Lessee's failure to cure any material violation of any Legal Requirements relating to any Hazardous Substances in, on, under or about the Leased Property of such Facility or to effect any repair, closure, detoxification, decontamination or other remediation required by any applicable Legal Requirements with respect to any Hazardous Substances in, on, under or about the Leased Property of such Facility. Notwithstanding that Lessor and Lessee have specifically defined a "Put Event" for the limited purpose of setting forth the circumstances under which Lessor shall be entitled to the remedy set forth in Section 16.5, in no event shall this definition derogate the materiality of any other Event of Default (including any Event of Default which does not constitute a Put Event) or otherwise limit Lessor's rights and remedies upon the occurrence of any such Event of Default, including those rights and remedies set forth in Sections 16.2, 16.3, 16.4, 16.8, 16.9 and/or 16.10. 14 Quarter: During each applicable Lease Year, the first three (3) calendar month period commencing on the first (1st) day of such Lease Year and each subsequent three (3) calendar month period within such Lease Year; provided, however, that the last Quarter during the Term may be a period of less than three (3) calendar months and shall end on the last day of the Term; provided, further, that if the Commencement Date is a day other than the first (1st) day of a calendar month, the first Quarter shall be the period commencing on the Commencement Date and ending on the last day of the second (2nd) month following the month in which the Commencement Date occurs. Related Rights: As defined in Article I, and, with respect to each Facility, the Related Rights of such Facility. Rent: Collectively, the Minimum Rent, Victoria Additional Rent, Additional Charges and all other amounts payable under this Lease. Sale of Business: A Transfer of the type described in any of clauses (iv), (v) or (vi) of Section 24.1.1 below, unless such Transfer involves only the stock, memberships, equity interests and/or assets of Lessee and Lessee has no substantial assets other than (a) its interest in the Leased Property and any Capital Additions pursuant to this Lease, (b) the business and operations on the Leased Property and any Capital Additions and (c) Lessee's Personal Property. SEC: Securities and Exchange Commission. Separated Property: As defined in Section 31.2. State: With respect to each Facility, the State or Commonwealth in which the Leased Property for such Facility is located. Subsidiaries: Corporations, partnerships, limited liability companies, business trusts or other legal entities with respect to which a Person owns, directly or indirectly (including through one or more intermediaries), more than fifty percent (50%) of the voting stock or partnership, membership or other equity interest, respectively. Successful Refinancing: The date that ARC has, to HCPI's reasonable satisfaction, (a) raised or received a firm, unconditional commitment(s) to raise, new funds sufficient to repay in full ARC's 2002 debt maturities, and/or (b) received a firm, unconditional commitment to extend, or extended, the maturity date of ARC's 2002 debt maturities. Target Property: As defined in Section 35.4. Term: With respect to each Facility, the Fixed Term and any Extended Terms of such Facility unless earlier terminated pursuant to the ---- provisions hereof. Texas HCP: Texas HCP Holding, L.P., a Delaware limited partnership, and its successors and assigns. Transfer: As defined in Article XXIV. 15 Transfer Consideration: With respect to any Transfer constituting a Master Sublease (other than a Master Sublease entered into in connection with a Sale of Business), "Transfer Consideration" shall mean Fifty Percent (50%) of the positive remainder, if any, obtained by subtracting (x) the Allocated Minimum Rent and, if applicable, the Victoria Additional Rent, payable by Lessee under this Lease with respect to such Facility from (y) the Fair Market Rental of such Facility, all determined on a monthly basis, prorating such Fair Market Rental, Allocated Minimum Rent and, if applicable, the Victoria Additional Rent, as appropriate, if less than all of such Facility is Master Subleased. Fifty Percent (50%) of such remainder shall be paid by Lessee to Lessor monthly when the Allocated Minimum Rent of such Facility is due; provided, however, that in no event shall the total Transfer Consideration to which Lessor is entitled in connection with any such Master Sublease exceed the total consideration given directly or indirectly (including through one or more intermediaries) to Lessee, to any Controlling Person(s) or to any other Person in exchange for, in connection with, related to or arising out of the transaction(s) as to which such Master Sublease is a part. With respect to any other Transfer (i.e., a Transfer other than pursuant to a Master Sublease, but including a Master Sublease which is part of a Sale of Business) "Transfer Consideration" shall mean Fifty Percent (50%) of the Leasehold FMV. Lessee acknowledges and agrees that the terms under which Lessor is entitled to the payment of Transfer Consideration pursuant to this Lease and the amount thereof has been freely negotiated and represents a fair and equitable division with Lessor of the consideration payable in connection with a Transfer taking into account, among other things, Lessor's investment in the Leased Property, the terms of this Lease and the inherent risks of owning and leasing real property. As used herein, the term "consideration" shall mean and include money, services, property and other things of value, including payment of costs, cancellation or forgiveness of indebtedness, discounts, rebates, barter and the like. Unsuitable for Its Primary Intended Use: With respect to each Facility, a state or condition of such Facility such that by reason of damage or destruction or Condemnation, in the good faith judgment of Lessor and Lessee, such Facility cannot be operated on a commercially practicable basis for its Primary Intended Use. Victoria Additional Rent: As defined in Section 3.1.4. Victoria Letter of Credit Amount: An amount equal to seventy-five percent (75%) of the sum of the annual Allocated Minimum Rent for the Victoria Facility plus Lessor's reasonable estimate of the Victoria Additional Rent to be payable for the applicable Lease Year; provided, however, that if for any consecutive twelve (12) month period during the applicable Term the Cash Flow Coverage for the Victoria Facility equals or exceeds 1.4 to 1, then the Victoria Letter of Credit Amount shall be reduced for the then current and each subsequent Lease Year to an amount equal to fifty percent (50%) of the sum of the annual Allocated Minimum Rent for the Victoria Facility plus Lessor's reasonable estimate of the Victoria Additional Rent payable for the applicable Lease Year; provided further, however, that if, following any such reduction, the average Cash Flow Coverage for the Victoria Facility for any four (4) consecutive month period decreases below 1.4 to 1, then the Victoria Letter of Credit Amount required immediately prior to such previous adjustment shall be reinstated and Lessee shall promptly deliver to Lessor a letter of credit in the readjusted amount. 16 ARTICLE III. 3.1 Rent. Lessee shall pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, without offset or deduction, the amounts set forth hereinafter as Minimum Rent and Victoria Additional Rent during the Term. Payments of Minimum Rent and Victoria Additional Rent shall be made by wire transfer of funds initiated by Lessee to Lessor's account or to such other Person as Lessor from time to time may designate in writing. Lessee shall pay to Lessor Minimum Rent monthly, in advance on or before the first (1st) day of each calendar month. The first monthly payment of Minimum Rent shall be payable on the Commencement Date (prorated as to any partial calendar month at the beginning of the Term). The Victoria Additional Rent shall be paid as and when required pursuant to Section 3.2 below. 3.1.1 Initial Allocated Minimum Rent. Subject to upward adjustments on each Earn-Out Payment Date for Earn-Out Amounts as provided for in Section 3.1.3 below for the Earn-Out Facilities, and to further increases for all Facilities (other than the Victoria Facility) as provided in Section 3.1.2, for the applicable Term (including the applicable Extended Terms, if any), Lessee shall pay "Allocated Minimum Rent" for all of the Facilities in the amount as set forth on Exhibit B attached hereto and incorporated herein by this reference; provided, however, that with respect to the applicable Extended Terms, if any, for the Victoria Facility, the monthly "Allocated Minimum Rent" with respect thereto shall be one-twelfth (1/12) of the greater of (a) the then current annual Fair Market Rental for the Victoria Facility, as calculated at the commencement of such Extended Term, and (b) the annual Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent payable for the last Lease Year of the immediately preceding term. 3.1.2 Minimum Rent Increases. In addition to upward adjustments on each Earn-Out Payment Date for Earn-Out Amounts as provided for in Section 3.1.3 below for the Earn-Out Facilities, commencing upon the expiration of the first (1st) Lease Year of the Fixed Term, and upon the expiration of each Lease Year thereafter during the applicable Term (including the Extended Terms, if any), the then current monthly Allocated Minimum Rent for each Facility other than the Victoria Facility for such Lease Year, shall be increased by a percentage equal to the greater of Two Percent (2%) or the CPI Increase; provided, however, that in no event shall the monthly Allocated Minimum Rent for any such Facility after any such adjustment be more than One Hundred Four Percent (104%) of the monthly Allocated Minimum Rent for any such Facility in effect immediately prior to such adjustment, notwithstanding the actual CPI Increase. 3.1.3 Earn-Out Amounts. In addition to the increases in Allocated Minimum Rent pursuant to Section 3.1.2 above, the monthly Allocated Minimum Rent with respect to each of the Earn-Out Facilities shall be increased from time to time on each Earn-Out Payment Date by an amount equal to one-twelfth (1/12) of the product of (i) the particular Earn-Out Amount paid by Lessor on such Earn-Out Date for such Earn-Out Facility times (ii) the then applicable Earn-Out Rate for such Earn-Out Facility. Monthly Allocated Minimum Rent payable for any months during which an Earn-Out Payment Date occurs shall be prorated based upon the number of days for which the different rental amounts apply. 17 3.1.4 Victoria Additional Rent. In addition to Allocated Minimum Rent for the Victoria Facility, Lessee shall, commencing with the Commencement Date and continuing throughout the Fixed Term for the Victoria Facility, pay to Lessor annual "Victoria Additional Rent" in an amount equal to Twenty Five Percent (25%) of the Incremental Gross Revenues; provided, however, that in no event shall the sum of the Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent paid or payable by any Lessee for any Lease Year for the Fixed Term be less than One Hundred One Percent (101%) or more than One Hundred Four Percent (104%) of the sum of Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent paid or payable in the immediately prior Lease Year. No Victoria Additional Rent shall be payable during the first Lease Year of any Extended Term for the Victoria Facility. During any Extended Term for the Victoria Facility however, Lessee shall, commencing with the first (1st) Quarter of the second (2nd) Lease Year of such Extended Term and continuing through the expiration of the Extended Term, pay to Lessor annual "Victoria Additional Rent" in the amount of Twenty Five Percent (25%) of Incremental Gross Revenues; provided, however, that beginning in the third (3rd) Lease Year of such Extended Term and in each Lease Year thereafter during such Extended Term, in no event shall the sum of the Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent paid or payable by any Lessee for any Lease Year for any Extended Term be less than One Hundred One Percent (101%) or more than One Hundred Four Percent (104%) of the sum of Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent paid or payable in the immediately prior Lease Year of such Extended Term. 3.2 Quarterly Calculation and Payment of Victoria Additional Rent; Annual Reconciliation. With respect to the Victoria Facility only: 3.2.1 Lessee shall calculate and pay Victoria Additional Rent quarterly, in arrears, for the portion of the entire Lease Year, on a cumulative basis, up to the end of the Quarter then most recently ended, less the Victoria Additional Rent already paid and attributable to such Lease Year. If at the time any calculation on account of Victoria Additional Rent is to be made the applicable Gross Revenues with respect to the Victoria Facility are not yet available, Lessee shall use its best estimate of the applicable Gross Revenues. Each quarterly payment of Victoria Additional Rent shall be delivered to Lessor, together with an Officer's Certificate setting forth the calculation thereof, on or before the last Business Day of the calendar month immediately following the end of the corresponding Quarter. Notwithstanding the foregoing, in no event shall the sum of (i) the Victoria Additional Rent for the partial Lease Year commencing on the Commencement Date and ending on July 31, 2002 plus (ii) the "Additional Rent" payable under the Old Victoria Lease from August 1, 2001 until the Commencement Date hereof be in an amount greater or less than what would have been the amount of "Additional Rent" payable under the Old Victoria Lease for the period commencing from August 1, 2001 through July 31, 2002 if such Old Victoria Lease had not been terminated and replaced with this Lease pursuant to Article XLVII below. 3.2.2 Within sixty (60) days after the end of each Lease Year, Lessee shall deliver to Lessor an Officer's Certificate setting forth the Gross Revenues with respect to the Victoria Facility for such Lease Year. As soon as practicable following receipt by Lessor of such Certificate, Lessor shall determine the Victoria Additional Rent for such Lease Year and give Lessee notice of the same together with the calculations upon which the Victoria Additional 18 Rent was based. If such Victoria Additional Rent exceeds the sum of the quarterly payments of Victoria Additional Rent previously paid by Lessee with respect to such Lease Year, Lessee shall forthwith pay such deficiency to Lessor. If such Victoria Additional Rent for such Lease Year is less than the amount previously paid by Lessee with respect thereto, Lessor shall, at Lessee's option, either (i) remit to Lessee its check in an amount equal to such difference, or (ii) credit such difference against the quarterly payments of Victoria Additional Rent next coming due. 3.2.3 Any difference between the annual Victoria Additional Rent for any Lease Year as shown in said Officer's Certificate and the total amount of quarterly payments for such Lease Year previously paid by Lessee, whether in favor of Lessor or Lessee, shall bear interest from the last Business Day of such Lease Year until the amount of such difference shall be paid or otherwise discharged, at a rate equal to the rate payable on 90-day U.S. Treasury Bills in effect as of the last Business Day of such Lease Year. 3.2.4 If the expiration or earlier termination of the Term is a day other than the last day of a Lease Year, then the amount of the last quarterly installment of Victoria Additional Rent shall be paid pro rata on the basis of the actual number of days in such Lease Year. 3.2.5 As soon as practicable after the expiration or earlier termination of the Term, a final reconciliation of Victoria Additional Rent shall be made taking into account, among other relevant adjustments, any unresolved contractual allowances which relate to Gross Revenues with respect to the Victoria Facility accrued prior to such expiration or termination; provided that if the final reconciliation has not been made within six (6) months of such expiration or termination, then a final reconciliation shall be made at that time based on all available relevant information, including Lessee's good faith best estimate of the amount of any unresolved contractual allowances. 3.3 Confirmation of Victoria Additional Rent. Lessee shall utilize, or cause to be utilized, an accounting system for the Leased Property and all Capital Additions in accordance with its usual and customary practices and in accordance with GAAP which will accurately record all Gross Revenues for the Victoria Facility and Lessee shall retain for at least seven (7) years after the expiration of each Lease Year reasonably adequate records conforming to such accounting system showing all Gross Revenues for such Lease Year for the Victoria Facility. Lessor, at its own expense except as provided hereinbelow, shall have the right from time to time (upon reasonable notice, and in no event more than once per year) by its accountants or representatives (so long as such accountants and representatives are not hired on a contingency basis), to review and/or audit the information set forth in the Officer's Certificate referred to in Section 3.2 and in connection with such review and/or audit to examine Lessee's records with respect thereto (including supporting data and sales tax returns) subject to any prohibitions or limitations on disclosure of any such data under applicable law or regulations including any duly enacted "Patients' Bill of Rights" or similar legislation, or as may be necessary to preserve the confidentiality of the Facility-patient relationship and the physician-patient privilege. If any such review and/or audit discloses a deficiency in the payment of Victoria Additional Rent, Lessee shall forthwith pay to Lessor the amount of the deficiency together with interest thereon at the Overdue Rate compounded monthly from the date when said payment should have been made to the date of payment thereof. If any such review 19 and/or audit discloses that the Gross Revenues actually received by Lessee for any Lease Year exceed those reported by Lessee by more than Two Percent (2%), Lessee shall pay the reasonable costs of such review and/or audit. If any review and/or audit discloses an overpayment in the payment of Victoria Additional Rent, Lessor shall credit Lessee such overpayment against payments of Victoria Additional Rent next coming due. Any proprietary information obtained by Lessor pursuant to such review and/or audit shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation or arbitration proceedings between the parties and except further that Lessor may disclose such information to prospective lenders or purchasers. 3.4 Additional Charges. In addition to the Minimum Rent and Victoria Additional Rent, (i) Lessee shall also pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions which Lessee assumes or agrees to pay under this Lease; and (ii) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (i) above, Lessee shall also promptly pay and discharge every fine, penalty, interest and cost which may be added for non-payment or late payment of such items (the items referred to in clauses (i) and (ii) above being referred to herein collectively as the "Additional Charges"), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Minimum Rent. 3.5 Late Payment of Rent. (a) LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY LESSEE TO LESSOR OF RENT WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED HEREUNDER, THE EXACT AMOUNT OF WHICH IS PRESENTLY ANTICIPATED TO BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE PROCESSING AND ACCOUNTING CHARGES AND LATE CHARGES WHICH MAY BE IMPOSED ON LESSOR BY THE TERMS OF ANY LOAN AGREEMENT AND OTHER EXPENSES OF A SIMILAR OR DISSIMILAR NATURE. ACCORDINGLY, IF ANY INSTALLMENT OF RENT OTHER THAN ADDITIONAL CHARGES PAYABLE TO A PERSON OTHER THAN LESSOR SHALL NOT BE PAID WITHIN THREE (3) BUSINESS DAYS AFTER ITS DUE DATE, LESSEE WILL PAY LESSOR ON DEMAND A LATE CHARGE EQUAL TO THE LESSER OF (I) FIVE PERCENT (5%) OF THE AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM AMOUNT PERMITTED BY LAW. THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE. THE PARTIES FURTHER AGREE THAT SUCH LATE CHARGE IS RENT AND NOT INTEREST AND SUCH ASSESSMENT DOES NOT CONSTITUTE A LENDER OR BORROWER/CREDITOR RELATIONSHIP BETWEEN LESSOR AND LESSEE. IN ADDITION, THE AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR INTEREST AT THE OVERDUE RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH INSTALLMENT TO THE DATE OF PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST TO LESSOR ON DEMAND. THE PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST SHALL NOT CONSTITUTE WAIVER OF, NOR EXCUSE OR CURE, 20 ANY DEFAULT UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING ANY OTHER RIGHTS AND REMEDIES AVAILABLE TO LESSOR. Lessor's Initials: ---------------------- Lessee's Initials: ---------------------- (b) If Lessee shall, during any six (6) month period, be more than five (5) Business Days delinquent in the payment of any Rent due and payable by Lessee to Lessor hereunder on three (3) or more occasions then, notwithstanding anything herein to the contrary, Lessor may, by written notice to Lessee, elect to require Lessee to pay all Minimum Rent payable hereunder quarterly in advance. Such right of Lessor shall be in addition to and not in lieu of any other right of remedy available to Lessor hereunder or at law on account of an Event of Default by Lessee hereunder. 3.6 Net Lease. This Lease is and is intended to be what is commonly referred to as a "net, net, net" or "triple net" lease. The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount or benefit (as applicable) of the installments of Minimum Rent, Victoria Additional Rent and Additional Charges throughout the Term. 3.7 Separate Account. Lessee shall deposit the gross receipts of each Facility into a separate, segregated bank account, and Lessee shall provide copies of all bank statements of such account to Lessor upon Lessor's request. ARTICLE IV. 4.1 Impositions. 4.1.1 Subject to Article XII relating to permitted contests, Lessee shall pay, or cause to be paid, all Impositions before any fine, penalty, interest or cost may be added for nonpayment. Lessee shall make such payments directly to the taxing authorities where feasible, and promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee's obligation to pay Impositions shall be absolutely fixed upon the date such Impositions become a lien upon the Leased Property, any Capital Additions or any part(s) thereof. If any Imposition may, at the option of the taxpayer, lawfully be paid in installments, whether or not interest shall accrue on the unpaid balance of such Imposition, Lessee may pay the same, and any accrued interest on the unpaid balance of such Imposition, in installments as the same respectively become due and before any fine, penalty, premium, further interest or cost may be added thereto. 4.1.2 Lessor shall prepare and file all tax returns and reports as may be required by Legal Requirements with respect to Lessor's net income, gross receipts, franchise taxes and taxes on its capital stock, and Lessee shall prepare and file all other tax returns and reports as may be required by Legal Requirements with respect to or relating to the Leased Property, all Capital Additions and Lessee's Personal Property. 4.1.3 Any refund due from any taxing authority in respect of any Imposition paid by Lessee shall be paid over to or retained by Lessee if no Event of Default shall 21 have occurred hereunder and be continuing. Any other refund shall be paid over to or retained by Lessor and applied to the payment of Lessee's obligations under this Lease in such order of priority as Lessor shall determine. 4.1.4 Lessor and Lessee shall, upon request of the other, provide such data as is maintained by the party to whom the request is made with respect to the Leased Property and all Capital Additions as may be necessary to prepare any required returns and reports. If any property covered by this Lease is classified as personal property for tax purposes, Lessee shall file all personal property tax returns in such jurisdictions where it must legally so file. Lessor, to the extent it possesses the same, and Lessee, to the extent it possesses the same, shall provide the other party, upon request, with cost and depreciation records necessary for filing returns for any property so classified as personal property. Where Lessor is legally required to file personal property tax returns and to the extent practicable, Lessee shall be provided with copies of assessment notices indicating a value in excess of the reported value in sufficient time for Lessee to file a protest. 4.1.5 Lessee may, upon notice to Lessor, at Lessee's option and at Lessee's sole cost and expense, protest, appeal, or institute such other proceedings as Lessee may deem appropriate to effect a reduction of real estate or personal property assessments and Lessor, at Lessee's expense as aforesaid, shall reasonably cooperate with Lessee in such protest, appeal, or other action but at no cost or expense to Lessor. Billings for reimbursement by Lessee to Lessor of personal property or real property taxes shall be accompanied by copies of a bill therefor and payments thereof which identify the personal property or real property with respect to which such payments are made. 4.1.6 Lessor shall give prompt notice to Lessee of all Impositions payable by Lessee hereunder of which Lessor has knowledge, but Lessor's failure to give any such notice shall in no way diminish Lessee's obligations hereunder to pay such Impositions. 4.1.7 Impositions imposed or assessed in respect of the tax-fiscal period during which the Term terminates with respect to any Facility shall be adjusted and prorated between Lessor and Lessee with respect to such Facility, whether or not such Imposition is imposed or assessed before or after such termination, and Lessee's obligation to pay its prorated share thereof shall survive such termination with respect to such Facility. 4.2 Utility Charges. Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water and other utilities used in the Leased Property and all Capital Additions. Lessee shall also pay or reimburse Lessor for all costs and expenses of any kind whatsoever which at any time with respect to the Term hereof may be imposed against Lessor by reason of any of the covenants, conditions and/or restrictions affecting the Leased Property, any Capital Additions and/or any part(s) thereof, or with respect to easements, licenses or other rights over, across or with respect to any adjacent or other property which benefits the Leased Property and/or any Capital Additions, including any and all costs and expenses associated with any utility, drainage and parking easements; provided, however, that Lessee shall not be responsible for any such charges arising out of any matters of record which were voluntarily created or imposed by Lessor after the Commencement Date (as opposed to being created or imposed after the Commencement Date without the consent or appeal of Lessor, whether pursuant to 22 governmental action, or other), unless created or imposed with the approval or at the written request of Lessee. 4.3 Insurance Premiums. Lessee shall pay or cause to be paid all premiums for the insurance coverage required to be maintained by Lessee hereunder. 4.4 Impound Account. If Lessee shall fail to timely pay Impositions relating to real estate taxes more than two (2) times during the Term (except by reason of a permitted contest of such Imposition pursuant to Section 12.1 hereof), Lessee shall deposit, at the time of any payment of Minimum Rent, an amount equal to one-twelfth of Lessee's estimated annual Impositions relating to real estate taxes, of every kind and nature, required pursuant to Section 4.1 into an impound account as directed by Lessor. Such amounts shall be applied to the payment of the obligations in respect of which said amounts were deposited in such order of priority as Lessor shall determine, on or before the respective dates on which the same or any of them would become delinquent. The cost of administering such impound account shall be paid by Lessee. Nothing in this Section 4.4 shall be deemed to affect any right or remedy of Lessor hereunder. 4.5 Tax Service. If Lessee shall fail to timely pay Impositions more than two (2) times during the Term, Lessee shall, at its sole cost and expense, cause to be furnished to Lessor a tax reporting service, to be designated by Lessor, covering the Leased Property and all Capital Additions. Notwithstanding the foregoing, for so long as Lessee shall be impounding taxes with or at the direction of Lessor pursuant to Section 4.4 above, the provision of this Section 4.5 shall be waived. ARTICLE V. 5.1 No Termination, Abatement, etc. Except as otherwise specifically provided in this Lease, Lessee shall remain bound by this Lease in accordance with its terms and shall not seek or be entitled to any abatement, deduction, deferment or reduction of Rent, or set-off against the Rent. Except as expressly set forth in this Lease, the respective obligations of Lessor and Lessee shall not be affected by reason of (i) any damage to or destruction of the Leased Property, any Capital Additions and/or any part(s) thereof from whatever cause and/or any Condemnation of the Leased Property, any Capital Additions and/or any part(s) thereof; (ii) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of the Leased Property, any Capital Additions and/or any part(s) thereof, or the interference with such use by any Person or by reason of eviction by paramount title; (iii) any claim that Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor hereunder or under any other agreement between Lessor and Lessee or to which Lessor and Lessee are parties; (iv) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor; or (v) for any other cause, whether similar or dissimilar to any of the foregoing, other than a discharge of Lessee from any such obligations as a matter of law. Lessee hereby specifically waives all rights arising from any occurrence whatsoever which may now or hereafter be conferred upon it by law (a) to modify, surrender or terminate this Lease or quit or surrender the Leased Property, any Capital Additions and/or any part(s) thereof; or (b) which may entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable 23 by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessor and Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default. 5.2 Termination with Respect to Fewer than All of the Facilities. Wherever in this Lease the action of terminating the Lease with respect to a Facility (or action of similar import) is discussed, such action shall mean the termination of Lessee's rights in and to the Leased Property relating to such Facility. Notwithstanding anything in this Lease to the contrary, if this Lease shall be terminated by Lessor or Lessee pursuant to rights granted hereunder with respect to any Facility, or if this Lease shall otherwise expire or terminate with respect to only one or more Facilities, such termination or expiration shall not affect the applicable Term of this Lease with respect to the balance of the Facilities not so terminated by Lessor or expired, and this Lease shall continue in full force and effect with respect to each other such Facility, except that the total Minimum Rent payable hereunder shall be reduced by the amount of Allocated Minimum Rent, and with respect to the Victoria Facility, if applicable, the Victoria Additional Rent, with respect to such Facility as to which this Lease has so terminated or expired, subject, however, to Lessor's right, in the event of a termination because of an Event of Default, to recover damages with respect to any such Facility as to which this Lease has been terminated as provided in Article XVI. ARTICLE VI. 6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased Property is the property of Lessor and that Lessee has only the right to the exclusive possession and use of the Leased Property upon the terms and conditions of this Lease. Upon the expiration or earlier termination of this Lease with respect to any Facility Lessee shall, at its expense, repair and restore the Leased Property relating to such Facility to the condition required by Section 9.1.4. 6.2 Personal Property. During the Term, Lessee shall, as necessary and at its expense, install, affix or assemble or place on any parcels of the Land or in any of the Leased Improvements, any items of Lessee's Personal Property and replacements thereof which shall be the property of and owned by Lessee. Except as provided in Sections 6.3 and 16.10, Lessor shall have no rights to Lessee's Personal Property during the Term. With respect to each Facility, Lessee shall provide and maintain during the entire Term applicable to such Facility all Personal Property necessary in order to operate such Facility in compliance with all licensure and certification requirements, all Legal Requirements and all Insurance Requirements and otherwise in accordance with customary practice in the industry for the Primary Intended Use. In addition, Lessee shall be permitted to replace, modify, alter or substitute any of Lessor's Personal Property that has become obsolete or worn out with personal property of equal or better quality. Any such replacements, modifications, alterations or substitutions (whether or not upgrades thereof) shall become Lessor's Personal Property. 24 6.3 Transfer of Personal Property and Capital Additions to Lessor. Upon the expiration or earlier termination of this Lease with respect to a Facility (unless such termination is the result of Lessee's purchase of such Facility), all Capital Additions not owned by Lessor and Lessee's Personal Property (including all motor vehicles (if any) owned by Lessee used to transport residents/patients) relating to such Facility shall become the property of Lessor, free of any encumbrance, and Lessee shall execute all documents and take any actions reasonably necessary to evidence such ownership and discharge any encumbrance. Notwithstanding anything to the contrary in this Lease, upon the expiration or earlier termination of this Lease with respect to any Facility, Lessor shall not be obligated to reimburse Lessee for any replacements, rebuildings, alterations, additions, substitutions, and/or improvements that are surrendered as part of or with the Leased Property or Capital Additions of such Facility. For purposes of this Section 6.3 only, "Lessee's Personal Property" shall not include (i) any of Lessee's rights to the trademarks in "Homewood," "Homewood Residence," "American Retirement Corporation," "ARC," or any derivative thereof (collectively, "Lessee's Trademarks"), (ii) any of Lessee's proprietary software ("Lessee's Proprietary Software") or (iii) any accounts receivable or cash held by Lessee. ARTICLE VII. 7.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery of possession of the Leased Property and confirms that Lessee has examined and otherwise has knowledge of the condition of the Leased Property prior to the execution and delivery of this Lease and has found the same to be in good order and repair, free from Hazardous Substances not in compliance with Legal Requirements, and satisfactory for its purposes hereunder. Regardless, however, of any examination or inspection made by Lessee and whether or not any patent or latent defect or condition was revealed or discovered thereby, Lessee is leasing the Leased Property "AS IS" in its present condition. Lessee waives any claim or action against Lessor in respect of the condition of the Leased Property including any defects or adverse conditions not discovered or otherwise known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE TO BE BORNE SOLELY BY LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR ANY ENVIRONMENTAL REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL LAWS. 7.2 Use of the Leased Property. 7.2.1 Lessee covenants that it will obtain and maintain all authorizations and approvals needed to use and operate the Leased Property, all Capital Additions and each Facility for such Facility's respective Primary Intended Use and any other use conducted on the Leased Property and any Capital Additions as may be permitted from time to time hereunder in accordance with Legal Requirements including applicable licenses, provider agreements, permits, and Medicare and/or Medicaid certification. 25 7.2.2 Lessee shall use or cause to be used the Leased Property, all Capital Additions and the improvements thereon of each Facility for the Primary Intended Use of such Facility. Lessee shall not use the Leased Property, any Capital Additions or any part(s) thereof for any other use without the prior written consent of Lessor, which consent Lessor may withhold in its sole discretion. 7.2.3 Lessee shall operate continuously the entire Leased Property and all Capital Additions of each Facility in accordance with the Primary Intended Use of such Facility. Lessee shall devote the entirety of each Facility and all Capital Additions to the Primary Intended Use, except for areas reasonably required for office, storage space or ancillary service uses incidental to the Primary Intended Use. Lessee shall not modify the services offered or take any other action (e.g., removing patients or residents from a Facility or directing patients or residents, or prospective patients or residents, to another facility) if such modification of services or the taking of such action would materially reduce Gross Revenues or the Fair Market Value of any Facility. Lessee shall at all times maintain an adequate staff for the service of its residents and/or patients, in each case assuming an occupancy and/or use level for each Facility which is not less than the average occupancy and/or use level for similar facilities in the State. Lessee shall employ its best judgment, efforts and abilities to operate the entirety of each Facility in such a manner so as to enhance the reputation and attractiveness of each Facility. 7.2.4 Lessee shall conduct its business at each Facility in conformity with the highest standards of patient or resident care practice provided in similar facilities in the State. 7.2.5 Lessee shall not commit or suffer to be committed any waste on the Leased Property and/or on or to any Capital Additions or cause or permit any nuisance to exist thereon or with respect thereto. 7.2.6 Lessee shall neither suffer nor permit the Leased Property, any Capital Additions, or any part(s) thereof, or Lessee's Personal Property, to be used in such a manner as (i) might reasonably tend to impair Lessor's title thereto or to any portion thereof or (ii) may make possible a claim of adverse use or possession, or an implied dedication of the Leased Property, any Capital Additions or any part(s) thereof. 7.2.7 For purposes of computing Incremental Gross Revenues for the Victoria Facility for any Lease Year or other period during which Lessee is in breach or violation of any of the covenants set forth in Sections 7.2.1 through 7.2.4, Lessee's Gross Revenues for the Victoria Facility for such Lease Year or other period shall be deemed to be the greater of Lessee's Gross Revenues for the Victoria Facility for (i) such Lease Year or other period, or (ii) the highest Gross Revenues for the Victoria Facility for any prior Lease Year or any corresponding period of any prior Lease Year, as applicable, as determined by Lessor. 7.3 Lessor to Grant Easements, etc. Lessor shall, from time to time so long as no Event of Default has occurred and is continuing, at the request of Lessee and at Lessee's cost and expense, but subject to the approval of Lessor, which approval shall not be unreasonably withheld or delayed (i) grant easements and other rights in the nature of easements; (ii) release existing easements or other rights in the nature of easements which are for the benefit of the 26 Leased Property; (iii) dedicate or transfer unimproved portions of the Leased Property for road, highway or other public purposes; (iv) execute petitions to have the Leased Property annexed to any municipal corporation or utility district; (v) execute amendments to any covenants, conditions and restrictions affecting the Leased Property; and (vi) execute and deliver to any Person any instrument appropriate to confirm or effect such grants, releases, dedications and transfers to the extent of its interest in the Leased Property, but only upon delivery to Lessor of an Officer's Certificate stating that such grant release, dedication, transfer, petition or amendment is not detrimental to the proper conduct of the business of Lessee on the Leased Property and does not materially reduce the value of the Leased Property. Except as set forth in Section 36.1 with respect to granting monetary Encumbrances, or unless otherwise requested by Lessee, Lessor shall not grant any easements or impose any covenants, conditions or restrictions on the Leased Property without Lessee's consent, which consent shall not be unreasonably withheld. 7.4 Preservation of Facility Value. Lessee acknowledges that a fair return to Lessor on its investment in the Leased Property of each Facility is dependent, in part, on the concentration on the Leased Property and all Capital Additions of such Facility during the Term of the assisted living facility and the core community business of Lessee and its Affiliates in the geographical area of such Facility. Lessee further acknowledges that diversion of residents and/or patients, as applicable, from any Facility to other facilities or institutions and/or reemployment by Lessee of management or supervisory personnel working at any Facility following the expiration or earlier termination of this Lease at other facilities or institutions owned, operated or managed, whether directly or indirectly, by Lessee or its Affiliates could have a material adverse impact on the value and utility of the Leased Property and all Capital Additions. Accordingly, Lessor and Lessee agree as follows: 7.4.1 During the Term and for a period of one (1) year thereafter, neither Lessee nor any of its Affiliates, directly or indirectly, shall operate, own, manage or have any interest in or otherwise participate in or receive revenues from any other facility or institution providing services or goods similar to those provided in connection with any Facility and its Primary Intended Use, within a ten (10) mile radius outward from the outside boundary of such Facility. All distances shall be measured on a straight line rather than on a driving distance basis. In the event that any portion of such other facility or institution is located within such restricted area the entire facility or institution shall be deemed located within such restricted area. Without limiting Lessor's remedies, if Lessee should violate the covenant contained in this Section during the Term of the Lease with respect to the Victoria Facility, Lessor may, at its option, include the Gross Revenues of such other facility or institution in such restricted area in the Gross Revenues from the Victoria Facility for the purpose of computing Incremental Gross Revenues hereunder for the Victoria Facility. If Lessor so elects, all of the provisions of Article III hereof shall be applicable to all records pertaining to such facility or institution. Notwithstanding the foregoing, this Section 7.4.1 shall not apply to any of those facilities currently owned and/or operated by Lessee or an Affiliate of Lessee located within such ten (10) mile radius and set forth on Exhibit F hereto. 7.4.2 For a period of two (2) years following the Term, neither Lessee nor any of its Affiliates shall, without the prior written consent of Lessor, which consent may be 27 given or withheld in Lessor's sole discretion, hire, engage or otherwise employ any management or supervisory personnel working solely on or solely in connection with any Facility. 7.4.3 Except as required for medically appropriate reasons and except as may be necessary in connection with a casualty, prior to and after the expiration or earlier termination of this Lease with respect to any or all of the Facilities, Lessee shall not recommend or solicit the removal or transfer of more than ten (10) residents or patients from any Facility to any other facility or institution in any Lease Year. ARTICLE VIII. 8.1 Compliance with Legal and Insurance Requirements, Instruments, etc. Subject to Article XII regarding permitted contests, Lessee, at its expense, shall promptly (i) comply with all Legal Requirements and Insurance Requirements regarding the use, operation, maintenance, repair and restoration of the Leased Property, Lessee's Personal Property and all Capital Additions whether or not compliance therewith may require structural changes in any of the Leased Improvements or any Capital Additions or interfere with the use and enjoyment of the Leased Property and (ii) procure, maintain and comply with all licenses, certificates of need, provider agreements and other authorizations required for the use of the Leased Property, Lessee's Personal Property and all Capital Additions for the applicable Primary Intended Use and any other use of the Leased Property, Lessee's Personal Property and all Capital Additions then being made, and for the proper erection, installation, operation and maintenance of the Leased Property, Lessee's Personal Property and all Capital Additions. If, after thirty (30) days of receiving notice from Lessor, Lessee fails to comply with the provisions of this Section 8.1, Lessor may, but shall not be obligated to, enter upon the Leased Property and all Capital Additions and take such actions and incur such costs and expenses to effect such compliance as it deems advisable to protect its interest in the Leased Property and all Capital Additions, and Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor in connection with such actions. Lessee covenants and agrees that the Leased Property, Lessee's Personal Property and all Capital Additions shall not be used for any unlawful purpose. ARTICLE IX. 9.1 Maintenance and Repair. 9.1.1 Lessee, at its expense, shall maintain the Leased Property, and every portion thereof, Lessee's Personal Property and all Capital Additions, and all private roadways, sidewalks and curbs appurtenant to the Leased Property, and which are under Lessee's control in good order and repair whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of the Leased Property, Lessee's Personal Property and all Capital Additions, and, with reasonable promptness, make all necessary and appropriate repairs thereto of every kind and nature, including those necessary to comply with changes in any Legal Requirements, whether interior or exterior, structural or non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by reason of a condition existing prior to the Commencement Date. All repairs shall be at least equivalent in quality to the original work. Lessee will not take or omit to take any action the taking or omission of which might materially impair the value or the usefulness of the Leased Property, any Capital 28 Additions, or any part(s) thereof for the Primary Intended Use. Lessor shall assign to Lessee the benefit of any warranties relating to the Leased Property to the extent such benefit may be assigned by Lessor without loss of the benefit of the same to Lessor, and Lessor shall use reasonable efforts to assist Lessee in enforcing any such warranties at no out-of-pocket cost to Lessor. 9.1.2 Lessor shall not under any circumstances be required to (i) build or rebuild any improvements on the Leased Property or any Capital Additions; (ii) make any repairs, replacements, alterations, restorations or renewals of any nature to the Leased Property, whether ordinary or extraordinary, structural or non-structural, foreseen or unforeseen, or to make any expenditure whatsoever with respect thereto; or (iii) maintain the Leased Property or any Capital Additions in any way. Lessee hereby waives, to the extent permitted by law, the right to make repairs at the expense of Lessor pursuant to any law in effect at the time of the execution of this Lease or hereafter enacted. 9.1.3 Nothing contained in this Lease and no action or inaction by Lessor shall be construed as (i) constituting the consent or request of Lessor, expressed or implied, to any contractor, subcontractor, laborer, materialman or vendor to or for the performance of any labor or services or the furnishing of any materials or other property for the construction, alteration, addition, repair or demolition of or to the Leased Property, any Capital Additions or any part(s) thereof; or (ii) giving Lessee any right, power or permission to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against Lessor in respect thereof or to make any agreement that may create, or in any way be the basis for, any right, title, interest, lien, claim or other encumbrance upon the estate of Lessor in the Leased Property, any Capital Additions or any part(s) thereof. 9.1.4 Unless Lessor shall convey any of the Leased Property to Lessee pursuant to the provisions of this Lease, Lessee shall, upon the expiration or earlier termination of the Term, vacate and surrender the Leased Property, Lessee's Personal Property, and all Capital Additions to Lessor in the condition in which the Leased Property was originally received from Lessor and Lessee's Personal Property and any Capital Additions were originally introduced to each Facility, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease and except for ordinary wear and tear. 9.2 Encroachments, Restrictions, Mineral Leases, etc. If any of the Leased Improvements or Capital Additions shall, at any time, encroach upon any property, street or right-of-way, or shall violate any restrictive covenant or other agreement affecting the Leased Property, any Capital Additions or any parts thereof, or shall impair the rights of others under any easement or right-of-way to which the Leased Property is subject, or the use of the Leased Property or any Capital Additions is impaired, limited or interfered with by reason of the exercise of the right of surface entry or any other provision of a lease or reservation of any oil, gas, water or other minerals, then promptly upon the request of Lessor, Lessee, at its sole cost and expense, but subject to its right to contest the existence of any such encroachment, violation or impairment, shall protect, indemnify, save harmless and defend Lessor from and against all losses, liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including reasonable attorneys', consultants' and experts' fees and expenses) based on or arising 29 by reason of any such encroachment, violation or impairment. In the event of an adverse final determination with respect to any such encroachment, violation or impairment by a court or regulatory authority having jurisdiction with respect thereto, Lessee shall either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation or impairment, whether the same shall affect Lessor or Lessee; or (ii) make such changes in the Leased Improvements and any Capital Addition, and take such other actions, as Lessee in the good faith exercise of its judgment deems reasonably practicable, to remove such encroachment or to end such violation or impairment, including, if necessary, the alteration of any of the Leased Improvements or any Capital Addition, and in any event take all such actions as may be necessary in order to be able to continue the operation of the Leased Improvements and any Capital Addition for the Primary Intended Use substantially in the manner and to the extent the Leased Improvements and Capital Additions were operated prior to the assertion of such encroachment, violation or impairment. Lessee's obligations under this Section 9.2 shall be in addition to and shall in no way discharge or diminish any obligation of any insurer under any policy of title or other insurance and, to the extent the recovery thereof is not necessary to compensate Lessor for any damages incurred by any such encroachment, violation or impairment, Lessee shall be entitled to a credit for any sums recovered by Lessor under any such policy of title or other insurance. ARTICLE X. 10.1 Construction of Capital Additions and Other Alterations to the Leased Property. Without the prior written consent of Lessor, which consent may be given or withheld in Lessor's sole and absolute discretion, Lessee shall not (a) make any Capital Additions on or structural alterations to the Leased Property, (b) enlarge or reduce the size of any Facility or otherwise materially alter or affect (other than repair and replacement thereof) any main Facility systems, including any main plumbing, electrical or heating, ventilating and air conditioning systems of any Facility and/or (c) make any Capital Additions or other alterations which would tie in or connect with any improvements on property adjacent to the Land. Lessee may, without Lessor's prior written consent, make any alterations, additions, or improvements (collectively, "alterations") to the Leased Property if such alterations are not of the type described in either clause (a), (b) or (c) above, so long as in each case: (i) the same do not (A) decrease the value of the Leased Property, (B) affect the exterior appearance of the Leased Property, or (C) adversely affect the structural components of the Leased Improvements or the main electrical, mechanical, plumbing or ventilating and air conditioning systems for any Facility, (ii) the same are consistent in terms of style, quality and workmanship to the original Leased Improvements and Fixtures, (iii) the same are constructed and performed in accordance with the provisions of Section 10.2 below and (iv) the cost thereof does not exceed, in the aggregate, $200,000.00 for any twelve (12) month period with respect to any single Facility. Any other alterations (i.e., other than alterations described in clauses (a), (b) or (c) above, and other than alterations which meet the foregoing requirements of clauses (i), (ii), (iii) and (iv) above) shall be subject to Lessor's prior written consent, which consent shall not be unreasonably withheld. To the extent Lessor's prior written consent shall be required in connection with any alterations or Capital Additions, Lessor may impose such conditions thereon in connection with its approval thereof as Lessor in its sole but reasonable judgment deems appropriate. Notwithstanding the foregoing, Lessor agrees that painting, landscaping, and replacement of floor, wall and window coverings shall be deemed 30 alterations which do not require Lessor's consent, regardless of the cost thereof, so long as the same meet the requirements of clauses (ii) and (iii) above. 10.2 Construction Requirements for all Alterations. Whether or not Lessor's review and approval is required, for all Capital Additions and other alterations of the Leased Property, the following shall apply (except to the extent Lessor reasonably determines that, because of the nature or extent of the alteration, any such requirement is not applicable): (a) Such construction shall not commence until Lessee shall have procured and paid for all municipal and other governmental permits and authorizations required therefor, and Lessor shall join in the application for such permits or authorizations whenever such action is necessary; provided, however, that (i) any such joinder shall be at no cost or expense to Lessor; and (ii) any plans required to be filed in connection with any such application which require the approval of Lessor as hereinabove provided shall have been so approved by Lessor; (b) Such construction shall not, and Lessee's licensed architect or engineer shall certify to Lessor that such construction shall not, impair the structural strength of any component of the applicable Facility or overburden the electrical, water, plumbing, HVAC or other building systems of any such component; (c) Lessee's licensed architect or engineer shall certify to Lessor that the detailed plans and specifications conform to and comply with all Insurance Requirements and all applicable building, subdivision and zoning codes, laws, ordinances, regulations and other Legal Requirements imposed by all governmental authorities having jurisdiction over the Leased Property; (d) Such construction shall, when completed, be of such a character as not to decrease the value of the Leased Property as it was immediately before such Capital Addition; (e) During and following completion of such construction, the parking which is located in the applicable Facility or on the Land relating to such Facility shall remain adequate for the operation of such Facility for its Primary Intended Use and in no event shall such parking be less than that which was or is required by law; provided, however, with Lessor's prior consent and at no additional expense to Lessor, (i) to the extent additional parking is not already a part of a Capital Addition, Lessee may construct additional parking on the Land relating to such Facility; or (ii) Lessee may acquire off-site parking to serve such Facility as long as such parking shall be dedicated to, or otherwise made available to serve, such Facility; (f) All work done in connection with such construction shall be done promptly and in a good and workmanlike manner using first-class materials and in conformity with all Legal Requirements; (g) Promptly following the completion of such construction, Lessee shall deliver to Lessor "as built" drawings of such addition, certified as accurate by the licensed architect or engineer selected by Lessee to supervise such work; and 31 (h) If by reason of the construction thereof, a new or revised Certificate of Occupancy for any component of such Facility is required, Lessee shall obtain and furnish a copy of the same to Lessor promptly upon completion thereof. ARTICLE XI. 11.1 Liens. Subject to the provisions of Article XII relating to permitted contests, Lessee will not directly or indirectly create or allow to remain and will promptly discharge at its expense any lien, encumbrance, attachment, title retention agreement or claim upon the Leased Property or any Capital Additions or any attachment, levy, claim or encumbrance in respect of the Rent, excluding, however, (i) this Lease; (ii) the matters that exist as of the Commencement Date; (iii) restrictions, liens and other encumbrances which are consented to in writing by Lessor, or any easements granted pursuant to the provisions of Section 7.3; (iv) liens for Impositions which Lessee is not required to pay hereunder; (v) subleases permitted by Article XXIV; (vi) liens for Impositions not yet delinquent; (vii) liens of mechanics, laborers, materialmen, suppliers or vendors for amounts not yet due; (viii) any liens which are the responsibility of Lessor pursuant to the provisions of Article XXXVI; (ix) any judgment liens against Lessor for amounts which are not otherwise the responsibility of Lessee; and (x) any other matters created by Lessor which are not otherwise the responsibility of Lessee. ARTICLE XII. 12.1 Permitted Contests. Lessee, upon prior written notice to Lessor, on its own or in Lessor's name, at Lessee's expense, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any licensure or certification decision, Imposition, Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim; subject, however, to the further requirement that (i) in the case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or claim, the commencement and continuation of such proceedings shall suspend the collection thereof from Lessor and from the Leased Property or any Capital Additions; (ii) neither the Leased Property nor any Capital Additions, the Rent therefrom nor any part or interest in either thereof would be in any danger of being sold, forfeited, attached or lost pending the outcome of such proceedings; (iii) in the case of a Legal Requirement, neither Lessor nor Lessee would be in any danger of civil or criminal liability for failure to comply therewith pending the outcome of such proceedings; (iv) if any such contest shall involve a sum of money or potential loss in excess of Fifty Thousand Dollars ($50,000), upon request of Lessor, Lessee shall deliver to Lessor and its counsel an opinion of legal counsel reasonably acceptable to Lessor to the effect set forth in clauses (i), (ii) and (iii) above, to the extent applicable; (v) in the case of a Legal Requirement, Imposition, lien, encumbrance or charge, Lessee shall give such reasonable security as may be required by Lessor to insure ultimate payment of the same and to prevent any sale or forfeiture of the Leased Property or any Capital Additions or the Rent by reason of such nonpayment or noncompliance; and (vi) in the case of an Insurance Requirement, the coverage required by Article XIII shall be maintained. If any such contest is finally resolved against Lessor or Lessee, Lessee shall promptly pay the amount required to be paid, together with all interest and penalties accrued thereon, or comply with the applicable Legal Requirement or Insurance Requirement. Lessor, at Lessee's expense, shall execute and deliver to Lessee such authorizations and other documents as may reasonably be 32 required in any such contest, and, if reasonably requested by Lessee or if Lessor so desires, Lessor shall join as a party therein. The provisions of this Article XII shall not be construed to permit Lessee to contest the payment of Rent or any other amount payable by Lessee to Lessor hereunder. Lessee shall indemnify, defend, protect and save Lessor harmless from and against any liability, cost or expense of any kind that may be imposed upon Lessor in connection with any such contest and any loss resulting therefrom. ARTICLE XIII. 13.1 General Insurance Requirements. During the Term, Lessee shall at all times keep the Leased Property, and all property located in or on the Leased Property, including all Capital Additions, the Fixtures and the Personal Property, insured with the kinds and amounts of insurance described below. Each element of the insurance described in this Article shall be maintained with respect to the Leased Property of each Facility and the Personal Property and operations thereon. This insurance shall be written by companies authorized to do insurance business in the State in which the Leased Property is located. All liability type policies must name Lessor as an "additional insured." All property, loss of rental and business interruption type policies shall name Lessor as "loss payee." Losses shall be payable to Lessor and/or Lessee as provided in Article XIV. In addition, the policies, as appropriate, shall name as an "additional insured" or "loss payee" the holder of any mortgage, deed of trust or other security agreement ("Facility Mortgagee") securing any indebtedness or any other Encumbrance placed on the Leased Property in accordance with the provisions of Article XXXVI ("Facility Mortgage") by way of a standard form of mortgagee's loss payable endorsement; provided, however, that Lessor delivers the name and address of any such Facility Mortgagee to Lessee. Any loss adjustment shall require the written consent of Lessor, Lessee, and each Facility Mortgagee. Evidence of insurance shall be deposited with Lessor and, if requested, with any Facility Mortgagee(s). The policies shall insure against the following risks with respect to each Facility: 13.1.1 Loss or damage by fire, vandalism and malicious mischief, extended coverage perils commonly known as special form perils, earthquake (including earth movement), sinkhole and windstorm in an amount not less than the insurable value on a replacement cost basis (as defined below in Section 13.2) and including a building ordinance coverage endorsement; 13.1.2 Loss or damage by explosion of steam boilers, pressure vessels or similar apparatus, now or hereafter installed in each Facility, in such limits with respect to any one accident as may be reasonably requested by Lessor from time to time; 13.1.3 Flood (when the Leased Property of a Facility is located in whole or in part within a designated 100-year flood plain area) and such other hazards and in such amounts as may be customary for comparable properties in the area; 13.1.4 Loss of rental value in an amount not less than twelve (12) months' Rent payable hereunder or business interruption in an amount not less than twelve (12) months of income and normal operating expenses including payroll and Rent payable hereunder with an endorsement extending the period of indemnity by at least ninety (90) days (Building Ordinance 33 - - Increased Period of Restoration Endorsement) necessitated by the occurrence of any of the hazards described in Sections 13.1.1, 13.1.2 or 13.1.3; and 13.1.5 (a) Bodily injury or property damage under a policy of commercial general liability insurance (including broad form property damage and broad form contractual liability) and (b) medical professional liability, with amounts not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence and Twenty-Five Million and No/100 Dollars ($25,000,000) in the annual aggregate. With respect to the insurance referenced in Section 13.1.5 (general liability and medical professional liability), Lessee shall be permitted to use a claims made policy form rather than an occurrence based policy form; provided, however, that any such claims made policy must include therein the right to purchase a "tail" that insures against so-called "incurred but not reported claims" for a period of not less than two (2) years (or, if available, three (3) years) following the expiration of such claims made policy. Upon the expiration of any such claims made policy, Lessee shall either (i) purchase a two (2) year "tail" policy covering any so-called "incurred but not reported claims" during the prior policy period (or, if available, a three (3) year "tail" policy covering any so-called "incurred but not reported claims") during the prior policy period, or (ii) provide other insurance covering "incurred but not reported claims" for such prior policy period for a period of not less than two (2) years (or, if available, three (3) years) thereafter in form satisfactory to Lessor. 13.2 Replacement Cost. The term "replacement cost" shall mean the actual replacement cost of the insured property from time to time with new materials and workmanship of like kind and quality. If either party believes that the replacement cost has increased or decreased at any time during the Term, it shall have the right to have such replacement cost redetermined by an impartial national insurance company reasonably acceptable to both parties (the "impartial appraiser"). The party desiring to have the replacement cost so redetermined shall forthwith, on receipt of such determination by the impartial appraiser, give written notice thereof to the other party hereto. The determination of the impartial appraiser shall be final and binding on the parties hereto, and Lessee shall forthwith increase or decrease the amount of the insurance carried pursuant to this Article to the amount so determined by the impartial appraiser. Each party shall pay one-half (1/2) of the fee, if any, of the impartial appraiser. If Lessee has made improvements to the Leased Property, including any Capital Additions, Lessor may at Lessee's expense have the replacement cost redetermined at any time after such improvements are made, regardless of when the replacement cost was last determined. 13.3 Additional Insurance. In addition to the insurance described above, Lessee shall maintain such additional insurance as may be reasonably required from time to time by any Lessor and shall further at all times maintain adequate workers' compensation coverage and any other coverage required by Legal Requirements for all Persons employed by Lessee on the Leased Property and any Capital Additions in accordance with Legal Requirements. 13.4 Waiver of Subrogation. All insurance policies carried by either party covering the Leased Property and any Capital Additions and Lessee's Personal Property including contents, fire and casualty insurance, shall expressly waive any right of subrogation on 34 the part of the insurer against the other party. Each party waives any claims it has against the other party to the extent such claim is covered by insurance. 13.5 Policy Requirements. All of the policies of insurance referred to in this Article shall be written in form satisfactory to Lessor and by insurance companies with a policyholder rating of "A" and a financial rating of "X" in the most recent version of Best's Key Rating Guide. Additionally, except as otherwise provided in this Lease, all of the insurance referred to in this Article shall be on an occurrence (rather than a claims-made) basis. Lessee shall pay all of the premiums therefor, and deliver such policies or certificates thereof to Lessor prior to their effective date (and with respect to any renewal policy, shall deliver to Lessor's reasonable satisfaction, evidence of renewal at least five (5) days prior to the expiration of the existing policy), and in the event of the failure of Lessee either to effect such insurance in the names herein called for or to pay the premiums therefor, or to deliver such policies or certificates thereof to Lessor, at the times required, Lessor shall be entitled, but shall have no obligation, to effect such insurance and pay the premiums therefor, in which event the cost thereof, together with interest thereon at the Overdue Rate, shall be repayable to Lessor upon demand therefor. Each insurer shall agree, by endorsement on the policy or policies issued by it, or by independent instrument furnished to Lessor, that it will give to Lessor thirty (30) days' written notice before the policy or policies in question shall be materially altered, allowed to expire or canceled. Each policy shall have a deductible or deductibles, if any, which are no greater than those normally maintained for similar facilities in the State of similar size, financial condition, resident mix and number; provided, however, that in no event shall the deductibles for any medical professional liability policies or general liability policies exceed the amounts set forth on Exhibit E attached hereto and made a part hereof. 13.6 Increase in Limits. If either party shall at any time believe the limits of the insurance required hereunder to be either excessive or insufficient, the parties shall endeavor to agree in writing on the proper and reasonable limits for such insurance to be carried and such insurance shall thereafter be carried with the limits thus agreed on until further change pursuant to the provisions of this Section. If the parties shall be unable to agree thereon, the proper and reasonable limits for such insurance to be carried shall be determined by an impartial third party reasonably selected by Lessor and Lessee. Nothing herein shall permit the amount of insurance to be reduced below the amount or amounts required by any of the Facility Mortgagees. 13.7 Blanket Policies and Policies Covering Multiple Locations. Notwithstanding anything to the contrary contained in this Article, Lessee's obligations to carry the casualty insurance provided for herein may be brought within the coverage of a blanket policy or policies of insurance carried and maintained by Lessee; provided, however, that the coverage afforded Lessor will not be reduced or diminished or otherwise be different from that which would exist under a separate policy for each Facility meeting all other requirements of this Lease by reason of the use of such blanket policy of insurance, and provided further that the requirements of this Article XIII are otherwise satisfied. For any liability policies covering one or more of the Facilities or any other facilities in addition to the Facilities, Lessor may require excess limits as Lessor reasonably determines. 13.8 No Separate Insurance. Lessee shall not, on Lessee's own initiative or pursuant to the request or requirement of any third party, (i) take out separate insurance 35 concurrent in form or contributing in the event of loss with that required in this Article to be furnished by, or which may reasonably be required to be furnished by, Lessee or (ii) increase the amounts of any then existing insurance by securing an additional policy or additional policies, unless all parties having an insurable interest in the subject matter of the insurance, including in all cases Lessor and all Facility Mortgagees, are included therein as additional insured and the loss is payable under such insurance in the same manner as losses are payable under this Lease. Lessee shall immediately notify Lessor of the taking out of any such separate insurance or of the increasing of any of the amounts of the then existing insurance by securing an additional policy or additional policies. ARTICLE XIV. 14.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage to the Leased Property, any Capital Additions or any part(s) or portion(s) thereof, under any policy of insurance required to be carried hereunder shall be paid to Lessor and made available by Lessor to Lessee from time to time for the reasonable costs of reconstruction or repair, as the case may be, of any damage to or destruction of the Leased Property, any Capital Additions or any part(s) or portion(s) thereof. Any excess proceeds of such insurance remaining after the completion of (and payment for) the restoration or reconstruction of the Leased Property and any Capital Additions (or in the event neither Lessor nor Lessee is required or elects to repair and restore, all such insurance proceeds) shall be retained by Lessor except as otherwise specifically provided below in this Article XIV. All salvage resulting from any risk covered by insurance shall belong to Lessor. If a Facility Mortgagee requires that any insurance proceeds be applied towards the repayment of Lessor's debt (rather than for restoration or reconstruction of the Leased Property and any Capital Additions), then Lessor shall, furnish Lessee with the amount of funds which otherwise would have been made available to Lessee but for such actions of such Facility Mortgagee and such funds shall be used by Lessee for restoration or reconstruction of the Leased Property and Capital Additions. 14.2 Insured Casualty. 14.2.1 If the Leased Property and/or any Capital Additions of a Facility are damaged or destroyed from a risk covered by insurance carried by Lessee such that such Facility thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall either (i) restore such Leased Property and such Capital Additions to substantially the same condition as existed immediately before such damage or destruction, or (ii) offer to acquire the Leased Property of such Facility from Lessor for a purchase price equal to the greater of (y) the Minimum Repurchase Price of such Facility or (z) the Fair Market Value of such Facility immediately prior to such damage or destruction. If Lessor does not accept Lessee's offer to so purchase the Leased Property of such Facility within 45 days, Lessee may either withdraw such offer and proceed to restore the Leased Property of such Facility to substantially the same condition as existed immediately before such damage or destruction or terminate the Lease with respect to such Facility in which event Lessor shall be entitled to retain the insurance proceeds payable on account of such casualty. 14.2.2 If the Leased Property and/or any Capital Additions of a Facility are damaged from a risk covered by insurance carried by Lessee, but such Facility is not thereby 36 rendered Unsuitable for its Primary Intended Use, Lessee shall restore such Leased Property and such Capital Additions to substantially the same condition as existed immediately before such damage. Such damage shall not terminate this Lease; provided, however, that if Lessee cannot within a reasonable time after diligent efforts obtain the necessary government approvals needed to restore and operate such Facility for its Primary Intended Use, Lessee may offer to purchase the Leased Property of such Facility for a purchase price equal to the greater of the Minimum Repurchase Price of such Facility or the Fair Market Value of such Facility immediately prior to such damage. If Lessee shall make such offer and Lessor does not accept the same within 45 days, Lessee may either withdraw such offer and proceed to restore the Leased Property of such Facility to substantially the same condition as existed immediately before such damage or destruction, or terminate the Lease with respect to such Facility, in which event Lessor shall be entitled to retain the insurance proceeds. 14.2.3 If the cost of the repair or restoration exceeds the amount of proceeds received by Lessor from the insurance required to be carried hereunder, Lessee shall contribute any excess amounts needed to restore such Facility. Such difference shall be paid by Lessee to Lessor together with any other insurance proceeds, for application to the cost of repair and restoration. 14.2.4 If Lessor accepts Lessee's offer to purchase the Leased Property of a Facility, this Lease shall terminate as to such Facility upon payment of the purchase price and Lessor shall remit to Lessee all insurance proceeds pertaining to the Leased Property of such Facility received by Lessor, including any amounts applied by a Facility Mortgagee to Lessor's debt. 14.3 Uninsured Casualty. If the Leased Property and/or any Capital Additions of a Facility are damaged or destroyed from a risk not covered by insurance carried by Lessee and not required to be covered by insurance by Lessee as provided herein, such that such Facility thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall either (i) restore such Leased Property and such Capital Additions to substantially the same condition as existed immediately before such damage or destruction, or (ii) offer to acquire the Leased Property of such Facility from Lessor for a purchase price equal to the greater of (y) the Minimum Repurchase Price of such Facility or (z) the Fair Market Value of such Facility immediately prior to such damage or destruction. If Lessor does not accept Lessee's offer to so purchase the Leased Property of such Facility within 45 days, Lessee may either withdraw such offer and proceed to restore the Leased Property of such Facility to substantially the same condition as existed immediately before such damage or destruction or terminate the Lease with respect to such Facility. 14.3.2 If the Leased Property and/or any Capital Additions of a Facility are damaged from a risk not covered by insurance carried by Lessee and not required to be covered by insurance by Lessee as provided herein, but such Facility is not thereby rendered Unsuitable for its Primary Intended Use, Lessee shall restore such Leased Property and such Capital Additions to substantially the same condition as existed immediately before such damage. Such damage shall not terminate this Lease; provided, however, that if Lessee cannot within a reasonable time after diligent efforts obtain the necessary government approvals needed to restore and operate such Facility for its Primary Intended Use, Lessee may offer to purchase 37 the Leased Property of such Facility for a purchase price equal to the greater of the Minimum Repurchase Price of such Facility or the Fair Market Value of such Facility immediately prior to such damage. If Lessee shall make such offer and Lessor does not accept the same within 45 days, Lessee may either withdraw such offer and proceed to restore the Leased Property of such Facility to substantially the same condition as existed immediately before such damage or destruction, or terminate the Lease with respect to such Facility. 14.3.3 If Lessor accepts Lessee's offer to purchase the Leased Property of a Facility, this Lease shall terminate as to such Facility upon payment of the purchase price. 14.4 No Abatement of Rent. This Lease shall remain in full force and effect and Lessee's obligation to pay the Rent and all other charges required by this Lease shall remain unabated during the period required for adjusting insurance, satisfying Legal Requirements, repair and restoration. 14.5 Waiver. Lessee waives any statutory rights of termination which may arise by reason of any damage or destruction of the Leased Property and/or any Capital Additions. ARTICLE XV. 15.1 Condemnation. 15.1.1 Total Taking. If the Leased Property and any Capital Additions of a Facility are totally and permanently taken by Condemnation, this Lease shall terminate with respect to such Facility as of the day before the Date of Taking. 15.1.2 Partial Taking. If a portion of the Leased Property and any Capital Additions is taken by Condemnation, this Lease shall remain in effect if such Facility is not thereby rendered Unsuitable for Its Primary Intended Use (except that this Lease shall terminate with respect to the portion of the Leased Property so taken), but if such Facility is thereby rendered Unsuitable for its Primary Intended Use, this Lease shall terminate with respect to such Facility as of the day before the Date of Taking. In the event of any such partial taking in which the Lease is not so terminated and such partial taking affects the building of such Facility (as opposed to components of the Facility such as parking, landscaping, sidewalks, etc.), Allocated Minimum Rent for such Facility shall be adjusted in a manner that is fair, just and equitable to both Lessor and Lessee, based upon, among other relevant factors, the loss of beds or units, if any, in such Facility. 15.1.3 Restoration. If there is a partial taking of the Leased Property and any Capital Additions and this Lease remains in full force and effect pursuant to Section 15.1.2, Lessor shall make available to Lessee the portion of the Award necessary and specifically identified or allocated for restoration of the Leased Property and any such Capital Additions and Lessee shall accomplish all necessary restoration whether or not the amount provided or allocated by the Condemnor for restoration is sufficient. If a Facility Mortgagee requires that the entire Award or any portion thereof be applied towards the repayment of Lessor's debt (rather than as set forth in this Section 15.1.3), then Lessor shall furnish Lessee with the amount of 38 funds which otherwise would have been made available to Lessee pursuant to this Section 15.1.3. 15.1.4 Award-Distribution. Subject to Section 15.1.3 above, the entire Award shall belong to and be paid to Lessor, except that Lessee shall be entitled to receive from the Award, if and to the extent such Award specifically includes such item, lost profits value and moving expenses, provided, that in any event (except in the case of a partial Condemnation) Lessor shall receive from the Award, subject to the rights of the Facility Mortgagees, no less than the greater of the Fair Market Value of the applicable Facility prior to the institution of the Condemnation or the Minimum Repurchase Price of the applicable Facility. For a partial Condemnation, Lessor shall receive the entire Award, subject to the rights of the Facility Mortgagees, and subject to Section 15.1.3 above, and the "Minimum Repurchase Price" of a Facility shall be reduced by the Award payable to Lessor (less any portion of such Award made available by Lessor for restoration of such Facility). 15.1.5 Temporary Taking. The taking of the Leased Property, any Capital Additions and/or any part(s) thereof, shall constitute a taking by Condemnation only when the use and occupancy by the taking authority has continued for longer than 180 consecutive days. During any shorter period, which shall be a temporary taking, all the provisions of this Lease shall remain in full force and effect and the Award allocable to the Term shall be paid to Lessee. 15.1.6 Sale Under Threat of Condemnation. A sale by Lessor to any Condemnor, either under threat of Condemnation or while Condemnation proceedings are pending, shall be deemed a Condemnation for purposes of this Lease. Subject to Lessee's consent, which shall not be unreasonably withheld, Lessor may, without any obligation to Lessee, agree to sell and/or convey to any Condemnor all or any portion of the Leased Property free from this Lease and the rights of Lessee hereunder without first requiring that any action or proceeding be instituted or pursued to judgment. ARTICLE XVI. 16.1 Events of Default. Any one or more of the following shall constitute an "Event of Default": (a) a default shall occur under any other lease or other agreement or instrument, including the Contract of Acquisition, now or hereafter with or in favor of Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate of Lessee where the default is not cured within any applicable grace period set forth therein; (b) a default shall occur under any New Lease hereafter with or in favor of Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate of Lessee where the default is not cured within any applicable grace period set forth therein; (c) Lessee shall fail to pay any installment of Rent when the same becomes due and payable and such failure is not cured by Lessee within a period of five (5) days after notice thereof from Lessor; provided, however, that such notice shall be in lieu of and not in addition to any notice required under applicable law; 39 (d) Lessee shall fail to obtain a letter of credit as required by Article XXI; (e) except as otherwise specifically provided for in this Section 16.1, if Lessee shall fail to observe or perform any other term, covenant or condition of this Lease and such failure is not cured by Lessee within thirty (30) days after notice thereof from Lessor, unless such failure cannot with due diligence be cured within a period of thirty (30) days, in which case such failure shall not be deemed to be an Event of Default if Lessee proceeds promptly and with due diligence to cure the failure and diligently completes the curing thereof; provided, however, that such notice shall be in lieu of and not in addition to any notice required under applicable law; (f) Lessee or any Guarantor shall: (i) admit in writing its inability to pay its debts generally as they become due, (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act, (iii) make an assignment for the benefit of its creditors, (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or (v) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; (g) Lessee or any Guarantor shall be adjudicated as bankrupt or a court of competent jurisdiction shall enter an order or decree appointing, without the consent of Lessee, a receiver of Lessee or of the whole or substantially all of its property, or approving a petition filed against it seeking reorganization or arrangement of Lessee under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, and such judgment, order or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of the entry thereof; (h) Lessee or any Guarantor shall be liquidated or dissolved, or shall begin proceedings toward such liquidation or dissolution, or shall, in any manner, permit the sale or divestiture of substantially all its assets (except to the extent such a sale is expressly permitted hereunder); (i) the estate or interest of Lessee in the Leased Property, any Capital Additions or any part(s) thereof shall be levied upon or attached in any proceeding and the same shall not be vacated or discharged within the later of ninety (90) days after commencement thereof or thirty (30) days after receipt by Lessee of notice thereof from Lessor; provided, however, that such notice shall be in lieu of and not in addition to any notice required under applicable law; 40 (j) any Transfer occurs in violation of the provisions of Article XXIV; (k) any of the representations or warranties made by Lessee or any Guarantor in the Contract of Acquisition, the Guaranty or otherwise proves to be untrue when made in any material respect which materially and adversely affects Lessor; (l) any Facility's applicable license or third-party provider reimbursement agreements material to such Facility's operation for its Primary Intended Use are at any time terminated or revoked or suspended for more than twenty (20) consecutive days; (m) with respect to any Facility containing skilled nursing beds, (i) any local, state or federal agency having jurisdiction over the operation of any such Facility removes Ten Percent (10%) or more of the patients or residents located in such Facility, (ii) any local, state or federal agency having jurisdiction over any such Facility reduces the number of licensed beds for such Facility by more than ten percent (10%) in the aggregate from that number set forth on Exhibit B attached hereto, (iii) Lessee voluntarily reduces the number of licensed beds for any Facility by more than five percent (5%) from that number set forth on Exhibit B attached hereto (provided that Lessee shall be permitted to voluntarily reduce the number of licensed beds for any Facility by up to ten percent (10%) from that number set forth on Exhibit B attached hereto if Lessee obtains Lessor's prior written approval, which approval shall not be unreasonably withheld), or (iv) Lessee voluntarily removes from service (so-called "bed banking") any licensed beds for any such Facility; (n) with respect to any Facility containing assisted living units, any local, state or federal agency having jurisdiction over the operation of any such Facility removes Ten Percent (10%) or more of the patients or residents located in such Facility; (o) Lessee fails to give notice to Lessor not later than ten (10) days after any notice, claim or demand from any governmental authority or any officer acting on behalf thereof, of any material violation of any Legal Requirement with respect to the operation of any Facility. For purposes of this subsection (o) hereof, a "material violation" shall mean a violation of any such Legal Requirement that is reasonably likely to (i) have a material adverse effect on Lessee's operations in such Facility or (ii) impose any liability on Lessor; (p) Lessee fails to cure or abate any material violation (except for violations being contested by Lessee pursuant to Article XII hereof) occurring during the Term that is claimed by any governmental authority, or any officer acting on behalf thereof, of any law, order, ordinance, rule or regulation pertaining to the operation of any Facility, and within the time permitted by such authority for such cure or abatement. For purposes of this subsection (p) hereof, a "material violation" shall mean a violation of any such law, order, ordinance, rule or regulation that is reasonably likely to (i) have a material adverse effect on Lessee's operations in such Facility or (ii) impose any liability on Lessor; (q) Lessee fails to notify Lessor within twenty-four (24) hours after receipt of any notice from any governmental agency terminating or suspending or reflecting a material risk of imminent termination or suspension, of any material license or certification relating to any Facility; 41 (r) any proceedings are instituted against Lessee by any governmental authority which are reasonably likely to result in (i) the revocation of any license granted to Lessee that is material to the operation of any Facility, (ii) the decertification of any Facility from participation in the Medicare or Medicaid reimbursement program if participation in such programs is material to the operation of such Facility, or (iii) the issuance of a stop placement order against Lessee; (s) any default and acceleration of any indebtedness of borrowed money in excess of $100,000.00 of Lessee, Guarantor or any Affiliate of Lessee or Guarantor has occurred; (t) any default shall occur under any Guaranty; and (u) Lessee or its Affiliates, as applicable, shall fail to comply with the provisions of Section 48.1 below. 16.2 Certain Remedies. If an Event of Default shall have occurred, Lessor may terminate this Lease with respect to any one or more (including all, if so elected by Lessor) of the Facilities, regardless of whether such Event of Default emanated primarily from a single Facility, by giving Lessee notice of such termination and the Term shall terminate and all rights of Lessee under this Lease shall cease with respect to all such Facilities as to which Lessor has elected to so terminate this Lease. Lessor shall have all rights at law and in equity available to Lessor as a result of any Event of Default. Lessee shall pay as Additional Charges all costs and expenses incurred by or on behalf of Lessor, including reasonable attorneys' fees and expenses, as a result of any Event of Default hereunder. If an Event of Default shall have occurred and be continuing, whether or not this Lease has been terminated with respect to any one or more (including all, if so elected by Lessor) of the Facilities pursuant to this Section 16.2, Lessee shall, to the extent permitted by law, if required by Lessor so to do, immediately surrender to Lessor possession of the Leased Property and any Capital Additions of the Facilities as to which Lessor has so elected to terminate this Lease and quit the same and Lessor may enter upon and repossess such Leased Property and such Capital Additions by reasonable force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other Persons and any of Lessee's Personal Property from such Leased Property and such Capital Additions. 16.3 Damages. The (i) termination of this Lease with respect to any one or more (including all, if so elected by Lessor) of the Facilities; (ii) repossession of the Leased Property of one or more (including all, if so elected by Lessor) of the Facilities and Capital Additions of any Facility; (iii) failure of Lessor, notwithstanding reasonable good faith efforts, to relet the Leased Property of any Facility; (iv) reletting of all or any portion of the Leased Property of any Facility; or (v) failure or inability of Lessor to collect or receive any rentals due upon any such reletting, shall not relieve Lessee of its liabilities and obligations hereunder, all of which shall survive any such termination, repossession or reletting. If any such termination occurs, Lessee shall forthwith pay to Lessor all Rent (including all monthly Allocated Minimum Rent) due and payable with respect to the Leased Property of each such Facility as to which this Lease has terminated to and including the date of such termination. Thereafter, following any such termination, Lessee shall forthwith pay to Lessor, at Lessor's option, as and for liquidated 42 and agreed current damages for an Event of Default by Lessee with respect to each Facility (including all, if applicable) as to which this Lease has been so terminated, the sum of: (a) the worth at the time of award of the unpaid Rent (including all monthly Allocated Minimum Rent) which had been earned at the time of termination with respect to the terminated Facility, (b) the worth at the time of award of the amount by which the unpaid Rent (including all monthly Allocated Minimum Rent) which would have been earned after termination with respect to the terminated Facility until the time of award exceeds the amount of such rental loss that Lessee proves could have been reasonably avoided, (c) the worth at the time of award of the amount by which the unpaid Rent (including all monthly Allocated Minimum Rent) for the balance of the then current Term (not including any Extended Terms that have not yet been exercised, but including any Extended Term which has been exercised but has not yet commenced) after the time of award exceeds the amount of such rental loss that Lessee proves could be reasonably avoided, plus (d) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom with respect to such Facility. As used in clauses (a) and (b) above, the "worth at the time of award" shall be computed by allowing interest at the Overdue Rate. As used in clause (c) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus One Percent (1%). For purposes of determining worth at the time of the award for the Victoria Facility, the Victoria Additional Rent that would have been payable for the remainder of the Term shall be deemed to be the greater of (y) the Victoria Additional Rent for the then current Lease Year or, if not determinable, the immediately preceding Lease Year; and (z) such other amount as Lessor shall demonstrate could reasonably have been earned. Alternatively, if Lessor does not elect to terminate this Lease with respect to any one or more (including all, if applicable) Facilities, then Lessee shall pay to Lessor, at Lessor's option, as and for agreed damages for such Event of Default without termination of Lessee's right to possession of the Leased Property and any Capital Additions or any portion thereof of such Facility(ies), each installment of said Rent (including the monthly Allocated Minimum Rent) and other sums payable by Lessee to Lessor under this Lease as the same becomes due and payable with respect to the Leased Property of each such Facility, together with interest at the Overdue Rate from the date when due until paid, and Lessor may enforce, by action or otherwise, any other term or covenant of this Lease. 16.4 Receiver. Upon the occurrence of an Event of Default, and upon commencement of proceedings to enforce the rights of Lessor hereunder, Lessor shall be entitled, as a matter of right, to the appointment of a receiver or receivers acceptable to Lessor of the Leased Property and any Capital Additions of the revenues, earnings, income, products and 43 profits thereof, pending the outcome of such proceedings, with such powers as the court making such appointment shall confer. 16.5 Lessee's Obligation to Purchase. Upon the occurrence of a Put Event with respect to any Facility, Lessor shall be entitled to require Lessee to purchase the Leased Property of such Facility on the first Minimum Rent Payment Date occurring not less than thirty (30) days after the date specified in a notice from Lessor requiring such purchase for an amount equal to the greater of (i) the Fair Market Value of such Facility, or (ii) the Minimum Repurchase Price of such Facility, plus, in either event, all Rent then due and payable (excluding the installment of monthly Allocated Minimum Rent due on the purchase date) with respect to such Facility as of the date of such purchase. If Lessor exercises such right, Lessor shall convey the Leased Property of such Facility to Lessee on the date fixed therefor in accordance with the provisions of Article XVIII upon receipt of the purchase price therefor and this Lease shall thereupon terminate with respect to such Facility. Any purchase by Lessee of the Leased Property of a Facility pursuant to this Section shall be in lieu of the damages specified in Section 16.3 with respect to such Facility. 16.6 Waiver. If Lessor initiates judicial proceedings or if this Lease is terminated by Lessor pursuant to this Article with respect to a Facility, Lessee waives, to the extent permitted by applicable law, (i) any right of redemption, re-entry or repossession; and (ii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt. 16.7 Application of Funds. Any payments received by Lessor under any of the provisions of this Lease during the existence or continuance of any Event of Default which are made to Lessor rather than Lessee due to the existence of an Event of Default (including all rentals received as a result of any reletting) shall be applied to Lessee's obligations in the order which Lessor may determine or as may be prescribed by the laws of the State in which the applicable Facility is located. 16.8 Facility Operating Deficiencies. On notice or request therefor by Lessor to Lessee, upon the occurrence of a Facility Operating Deficiency with respect to a Facility specified with particularity in Lessor's notice, and for a period equal to the greater of six (6) months or the time necessary fully to remedy the Facility Operating Deficiency, Lessee shall engage the services of a management company, unaffiliated with Lessee and approved by Lessor, to assume responsibility for management of such Facility for the purpose of taking all steps reasonably necessary to remedy the Facility Operating Deficiency(ies). Pursuant to a written agreement among the management company, Lessee and Lessor, the management company will have complete responsibility for operation of such Facility, subject to Lessee's retaining only such power and authority as shall be required by the State as the minimum level of power and authority to be possessed by the licensed operator of a facility of the type of such Facility in the State. The management company shall provide the following services: (a) furnish an on-site, full-time licensed administrator and controller approved by Lessor who shall be an employee of the management company; 44 (b) take all steps reasonably necessary to keep such Facility fully licensed by the State, certified as a provider under applicable government reimbursement programs and duly accredited by applicable agencies and bodies; (c) perform all of Lessee's obligations hereunder with respect to maintenance and repair of such Facility; (d) conduct at the onset of the management company's engagement, and monthly thereafter, reviews and/or audits of operations at such Facility in at least the following departments and services: patient and resident care, activities and therapy, dietary, medical records, drugs and medicines, supplies, housekeeping and maintenance, and report the results of such reviews and/or audits in writing to Lessor no later than five (5) days after the end of each calendar month; (e) immediately upon receipt thereof, deliver to Lessor by overnight courier copies of all communications received from any regulatory agency with respect to such Facility; and (f) with respect to the Facility Operating Deficiency(ies) which gave rise to the request to Lessee to engage the management company, prepare and deliver to Lessor within five (5) days after the commencement of the management company's responsibilities at such Facility a comprehensive written report of the nature and extent of the Facility Operating Deficiency(ies) and advise Lessor orally by telephone no later than noon local time on each Friday thereafter as to steps being taken by the management company to remedy the same and the status of any threatened or actual governmental administrative action with respect thereto. The management company shall have complete access to such Facility, its records, offices and facilities, in order that it may carry out its duties. If Lessee shall fail to designate a management company acceptable to Lessor within five (5) days after receipt of the notice of request therefor, Lessor may designate such management company by further notice to Lessee. Lessee shall be responsible for payment of all fees and expenses reasonably charged and incurred by the management company in carrying out its duties, provided that the management fee chargeable by a management company designated by Lessor, as hereinabove provided, shall not exceed Seven Percent (7%) of such Facility's Gross Revenues. 16.9 [Intentionally Omitted]. 16.10 Lessor's Security Interest. The parties intend that if an Event of Default occurs under this Lease, Lessor will control Lessee's Personal Property and the Intangible Property so that Lessor or its designee or nominee can operate or re-let each Facility intact for its Primary Intended Use. Accordingly, to implement such intention, and for the purpose of securing the payment and performance obligations of Lessee hereunder, Lessor and Lessee agree as follows: 16.10.1 Lessee, as debtor, hereby grants to Lessor, as secured party, a security interest and an express contractual lien upon all of Lessee's right, title and interest in and to Lessee's Personal Property and in and to the Intangible Property and any and all products, 45 rents, proceeds and profits thereof in which Lessee now owns or hereafter acquires an interest or right, including any leased Lessee's Personal Property (collectively, the "Collateral"); provided, however, that "Collateral" shall not include Lessee's Trademarks or Lessee's Proprietary Software. This Lease constitutes a security agreement covering all such Lessee's Personal Property and the Intangible Property. The security interest granted to Lessor with respect to Lessee's Personal Property in this Section 16.10 is intended by Lessor and Lessee to be subordinate to any security interest granted in connection with the financing or leasing of all or any portion of the Lessee's Personal Property so long as the lessor or financier of such Lessee's Personal Property agrees to give Lessor written notice of any default by Lessee under the terms of such lease or financing arrangement, to give Lessor a reasonable time following such notice to cure any such default and consents to Lessor's written assumption of such lease or financing arrangement upon Lessor's curing of any such defaults. 16.10.2 Lessee hereby authorizes Lessor to file such financing statements, continuation statements and other documents as may be necessary or desirable to perfect or continue the perfection of Lessor's security interest in the Collateral. In addition, if required by Lessor at any time during the Term, Lessee shall execute and deliver to Lessor, in form reasonably satisfactory to Lessor, additional security agreements, financing statements, fixture filings and such other documents as Lessor may reasonably require to perfect or continue the perfection of Lessor's security interest in the Collateral. In the event Lessee fails to execute any financing statement or other documents for the perfection or continuation of Lessor's security interest, Lessee hereby appoints Lessor as its true and lawful attorney-in-fact to execute any such documents on its behalf, which power of attorney shall be irrevocable and is deemed to be coupled with an interest. 16.10.3 Lessee will give Lessor at least thirty (30) days' prior written notice of any change in Lessee's name, identity, jurisdiction of organization or corporate structure. With respect to any such change, Lessee will promptly execute and deliver such instruments, documents and notices and take such actions, as Lessor deems necessary or desirable to create, perfect and protect the security interests of Lessor in the Collateral. 16.10.4 Upon the occurrence of an Event of Default, Lessor shall be entitled to exercise any and all rights or remedies available to a secured party under the Uniform Commercial Code, or available to a lessor under the laws of the State, with respect to Lessee's Personal Property and the Intangible Property, including the right to sell the same at public or private sale. ARTICLE XVII. 17.1 Lessor's Right to Cure Lessee's Default. If Lessee shall fail to make any payment or to perform any act required to be made or performed hereunder within fifteen (15) days after written demand by Lessor (except in case of emergencies), Lessor, without waiving or releasing any obligation or default, may, but shall be under no obligation to, make such payment or perform such act for the account and at the expense of Lessee, and may, to the extent permitted by law, enter upon the Leased Property and any Capital Additions for such purpose and take all such action thereon as, in Lessor's opinion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of Lessee. All sums so paid by Lessor and 46 all costs and expenses, including reasonable attorneys' fees and expenses, so incurred, together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on demand. ARTICLE XVIII. 18.1 Purchase of the Leased Property. If Lessee purchases the Leased Property of any Facility from Lessor pursuant to any provisions of this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase price, together with full payment of any unpaid Rent due and payable with respect to any period ending on or before the date of the purchase, deliver to Lessee an appropriate special or limited warranty deed conveying the entire interest of Lessor in and to such Leased Property to Lessee free and clear of all encumbrances other than (i) those that Lessee has agreed hereunder to pay or discharge; (ii) those mortgage liens, if any, which Lessee has agreed in writing to accept and to take title subject to; (iii) those liens and encumbrances which were in effect on the date of conveyance of such Leased Property to Lessor; and (iv) any other encumbrances permitted hereunder to be imposed on such Leased Property. The difference between the applicable purchase price and the total of the encumbrances assumed or taken subject to shall be paid to Lessor or as Lessor may direct in immediately available funds. All expenses of such conveyance, including the cost of title insurance, attorneys' fees incurred by Lessor in connection with such conveyance and release, transfer taxes and recording and escrow fees, shall be paid by Lessee. ARTICLE XIX. 19.1 Renewal Terms. Provided that no Event of Default has occurred and is continuing, either at the date of exercise or upon the commencement of an Extended Term (as hereunder defined), then Lessee shall have the right to renew this Lease with respect to (a) the Leased Property of all (but not less than all) of the Facilities other than the Victoria Facility, and/or (b) the Leased Property of the Victoria Facility, for two (2) ten year renewal terms (each an "Extended Term"), upon (i) giving written notice to Lessor of such renewal not less than fifteen (15) months and not more than eighteen (18) months prior to the expiration of the then applicable current Term and (ii) delivering to Lessor concurrent with such notice a reaffirmation of the Guaranty executed by Guarantor stating, in substance, that Guarantor's obligations under the Guaranty shall extend to this Lease, as extended by the applicable Extended Term. During each Extended Term, all of the terms and conditions of this Lease shall continue in full force and effect except that the annual Minimum Rent for and during such Extended Term shall be as set forth in Article III above. Notwithstanding anything to the contrary in this Section 19.1, Lessor, in its sole discretion, may waive the condition to Lessee's right to renew this Lease that no Event of Default have occurred or be continuing, and the same may not be used by Lessee as a means to negate the effectiveness of Lessee's exercise of its renewal right for such Extended Term. 19.2 Lessor's Rights of Renewal and Early Termination. In order to facilitate the transfer of the operations of the Facilities to a third party and/or to locate a replacement lessee, Lessor shall have the one time right with respect to each Facility to either (i) terminate this Lease with respect to any Facility up to four (4) months early or (ii) extend the Term of this 47 Lease with respect to such Facility for up to one (1) year. Such right of early termination shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee given not less than sixty (60) days prior to the date Lessor desires to terminate this Lease with respect to such Facility and stating the date of such termination (which date shall not be earlier than four (4) months prior to the expiration of the Term). In the event that Lessor shall exercise such right of early termination within the time and in the manner herein provided, this Lease shall terminate with respect to the specified Facility on the date of termination specified in Lessor's notice. Such right of extension shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee given not less than four (4) months prior to the expiration of the Term and stating the date through which Lessor is extending the Term of this Lease for such Facility (which date shall not be later than one (1) year after the originally scheduled expiration date). In the event that Lessor shall exercise such right of extension, all of the terms and conditions of this Lease shall continue in full force and effect with respect to each Facility as to which Lessor has elected to so extend the applicable Term pursuant to this Section 19.2, and Lessee shall continue to pay Rent applicable to such Facility for and during such extension period at the same Allocated Minimum Rent and, if applicable, Victoria Additional Rent, rates as were in effect upon the expiration of the originally scheduled Term for such Facility; provided, however, that Lessor shall have the right to terminate this Lease with respect to such Facility during any such extension period upon not less than sixty (60) days prior written notice to Lessee. In such event, this Lease, as previously extended, shall terminate with respect to such Facility upon the date specified in Lessor's notice of termination. ARTICLE XX. 20.1 Holding Over. Except as provided in Section 19.2, if Lessee shall for any reason remain in possession of the Leased Property and/or any Capital Additions of a Facility after the expiration or earlier termination of the Term, such possession shall be as a month-to-month tenant during which time Lessee shall pay as Rent for such Facility each month One Hundred Fifty Percent (150%) of the sum of (i) monthly Allocated Minimum Rent applicable to the prior Lease Year for such Facility, plus (ii) if such Facility is the Victoria Facility, one-twelfth of the aggregate Victoria Additional Rent payable applicable to the prior Lease Year with respect to such Facility, together with all Additional Charges and all other sums payable by Lessee pursuant to this Lease with respect to such Facility. During such period of month-to-month tenancy, Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to month-to-month tenancies, to continue its occupancy and use of the Leased Property and/or any Capital Additions of such Facility. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease. ARTICLE XXI. 21.1 Letters of Credit. During the entire Term and for sixty (60) days after the expiration or earlier termination of this Lease, Lessee shall obtain one or more letters of credit totaling, in the aggregate, the Letter of Credit Amount from one or more financial institution(s) reasonably satisfactory to Lessor but in any event with (a) not less than $100 Million in net current assets, (b) a financial rating of not less than 60 as rated by Sheshunoff Information 48 Services, Inc. (or any equivalent rating thereto from any successor or substitute rating service selected by Lessor) and (c) an investment grade rating from each of Standard and Poors Corporation and Moody's Investors Service, naming Lessor as beneficiary to secure Lessee's obligations hereunder and Lessee's and any Affiliate of Lessee's obligations under any other lease or other agreement or instrument with or in favor of Lessor or any Affiliate of Lessor, at the times and for the purposes set forth below. Each letter of credit shall be in substantially the form of Exhibit D hereto. Each letter of credit shall be for a term of not less than one (1) year and irrevocable during that term. Each letter of credit shall provide that it will be honored upon a signed statement by Lessor that Lessor is entitled to draw upon any letter of credit under this Lease, and shall require no signature or statement from any party other than Lessor. No notice to Lessee shall be required to enable Lessor to draw upon the letter of credit. Each letter of credit shall also provide that following the honor of any drafts in an amount less than the aggregate amount of the letter of credit, the financial institution shall return the original letter of credit to Lessor and Lessor's rights as to the remaining amount of the letter of credit will not be extinguished. In the event of a transfer of Lessor's interest in the Leased Property, Lessor shall transfer the letter of credit to the transferee and thereupon shall, without any further agreement between the parties, be released by Lessee from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the letter of credit to a new Lessor. Lessor's rights in and to such letters of credit may be assigned as security in connection with a Facility Mortgage. If the financial institution from which Lessee has obtained a letter of credit shall admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency act, make an assignment for the benefit of its creditors consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, then Lessee shall obtain a replacement letter of credit within thirty (30) days of such act from another financial institution reasonably satisfactory to Lessor, but in any event meeting the above requirements. 21.2 Times for Obtaining Letters of Credit. The initial letters of credit shall be obtained and delivered to Lessor on or prior to the Commencement Date. The letters of credit covering subsequent periods (or renewals of the then existing letters of credit) shall be obtained and delivered to Lessor not less than thirty (30) days prior to the expiration of the then existing letter of credit ("Letter of Credit Date"). The term for each such letter of credit shall begin no later than the expiration date of the previous letter of credit and shall comply with all requirements of this Article XXI. 21.3 Uses of Letters of Credit. Lessor shall have the right to draw upon a letter of credit up to its full amount whenever (a) an Event of Default hereunder has occurred, (b) an event of default beyond applicable notice and cure periods under any other lease or agreement between Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee or under any other letter of credit, guaranty, mortgage, deed of trust, or other instrument now or hereafter executed by Lessee or an Affiliate of Lessee in favor of Lessor or an Affiliate of Lessor has occurred or (c) an event or circumstance has occurred which with notice or passage of time, or both, would constitute an Event of Default hereunder or an event of default under any such other lease, agreement, letter of credit, guaranty, mortgage, deed of trust or other instrument, but for the fact that transmittal of such notice is barred by applicable debtor relief law. In addition, if Lessee 49 fails to obtain a satisfactory letter of credit (or renewal of an existing letter of credit) prior to the applicable Letter of Credit Date, Lessor may draw upon the full amount of the then existing letter of credit without giving any notice or time to cure to Lessee. No such draw shall (i) cure or constitute a waiver of an Event of Default, (ii) be deemed to fix or determine the amounts to which Lessor is entitled to recover under this Lease or otherwise, or (iii) be deemed to limit or waive Lessor's right to pursue any remedies provided for in this Lease. If all or any portion of a letter of credit is drawn against by Lessor, Lessee shall, within two (2) business days after demand by Lessor, cause the issuer of such letter of credit to issue Lessor, at Lessee's expense, a replacement or supplementary letter of credit in substantially the form attached hereto as Exhibit D such that at all times during the Term, Lessor shall have the ability to draw on one or more letters of credit totaling, in the aggregate, the amount required pursuant to Section 21.1. 21.4 Reduction in Letter of Credit Amount. If Lessee purchases any Facility, or if this Lease is terminated or expires with respect to any Facility (other than by reason of an Event of Default), the Letter of Credit Amount shall be reduced by an amount equal to the product of (a) the then existing Letter of Credit Amount, times (b) a fraction, the numerator of which is the then existing Allocated Minimum Rent for the Facility being purchased by Lessee or for which this Lease has been terminated or expired, as applicable, and if applicable, the Victoria Additional Rent, and the denominator of which is the then existing total Minimum Rent payable for all Facilities (including the Facility being purchased by Lessee, or the Facility with respect to which this Lease has been terminated or expired) and, if applicable, the Victoria Additional Rent. 21.5 Treatment of Funds Drawn Under Letters of Credit. If Lessor draws upon a letter of credit and the amount drawn exceeds the damages or losses that Lessor has suffered or reasonably expects to suffer by reason of the Event of Default or other reason, then Lessor shall remit such excess to Lessee upon the first to occur (i) the date the amount of damages to which Lessor is entitled to recover on account of such Event of Default or otherwise is determined, whether by a final, non-appealable judgment of a court or arbitrator of competent jurisdiction or by a written settlement executed Lessor and Lessee or (ii) the receipt by Lessor of the replacement or supplementary letter of credit provided for in Section 21.3 above. Upon written request from Lessee, Lessor shall certify in writing to the issuer of the replacement or supplementary letter of credit provided for in Section 21.3 to the effect that, upon receipt by Lessor of such replacement or supplementary letter of credit, Lessor shall deliver to such issuer any such excess drawing under the letter of credit(s) for which such replacement or supplementary letter of credit is being delivered. ARTICLE XXII. 22.1 Risk of Loss. The risk of loss or of decrease in the enjoyment and beneficial use of the Leased Property and any Capital Additions as a consequence of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures, attachments, levies or executions (other than by Lessor and Persons claiming from, through or under Lessor) is assumed by Lessee, and no such event shall entitle Lessee to any abatement of Rent. 50 ARTICLE XXIII. 23.1 General Indemnification. In addition to the other indemnities contained herein, and notwithstanding the existence of any insurance carried by or for the benefit of Lessor or Lessee, and without regard to the policy limits of any such insurance, Lessee shall protect, indemnify, save harmless and defend Lessor from and against all liabilities, obligations, claims, damages penalties, causes of action, costs and expenses, including reasonable attorneys', consultants' and experts' fees and expenses, imposed upon or incurred by or asserted against Lessor by reason of: (i) any accident, injury to or death of Persons or loss of or damage to property occurring on or about the Leased Property, or any Capital Additions or adjoining sidewalks thereto; (ii) any use, misuse, non-use, condition, maintenance or repair by Lessee of the Leased Property or any Capital Additions; (iii) any failure on the part of Lessee to perform or comply with any of the terms of this Lease; (iv) the non-performance of any of the terms and provisions of any and all existing and future subleases of the Leased Property or any Capital Additions to be performed by any party thereunder; (v) any claim for malpractice, negligence or misconduct committed by any Person on or working from the Leased Property or any Capital Additions; and (vi) the violation of any Legal Requirement. Any amounts which become payable by Lessee under this Article shall be paid within ten (10) days after liability therefor is determined by litigation or otherwise, and if not timely paid shall bear interest at the Overdue Rate from the date of such determination to the date of payment. Lessee, at its sole cost and expense, shall contest, resist and defend any such claim, action or proceeding asserted or instituted against Lessor or may compromise or otherwise dispose of the same as Lessee sees fit; provided, however, that any legal counsel selected by Lessee to defend Lessor shall be reasonably satisfactory to Lessor. All indemnification covenants are intended to apply to losses, damages, injuries, claims, etc. incurred directly by the indemnified parties and their property, as well as by the indemnifying party or third party, and their property. For purposes of this Article XXIII, any acts or omissions of Lessee, or by employees, agents, assignees, contractors, subcontractors or others acting for or on behalf of Lessee (whether or not they are negligent, intentional, willful or unlawful), shall be strictly attributable to Lessee. It is understood and agreed that payment shall not be a condition precedent to enforcement of the foregoing indemnification obligations. ARTICLE XXIV. 24.1 Transfers. 24.1.1 Prohibition. Lessee shall not, without Lessor's prior written consent, which may be withheld in Lessor's sole and absolute discretion, either directly or indirectly or through one or more step transactions or tiered transactions, voluntarily or by operation of law, (i) assign, convey, sell, pledge, mortgage, hypothecate or otherwise encumber, transfer or dispose of all or any part of this Lease or Lessee's leasehold estate hereunder, (ii) Master Sublease all or any part of the Leased Property and/or any Capital Additions of such Facility, (iii) engage the services of any Person for the management or operation of all or any part of the Leased Property and/or any Capital Additions of such Facility, (iv) convey, sell, assign, transfer or dispose of any stock or partnership, membership or other interests (whether equity or otherwise) in Lessee (which shall include any conveyance, sale, assignment, transfer or disposition of any stock or partnership, membership or other interests (whether equity or 51 otherwise) in any Controlling Person(s)), if such conveyance, sale, assignment, transfer or disposition results, directly or indirectly, in a change in control of Lessee (or in any Controlling Person(s)), (v) dissolve, merge or consolidate Lessee (which shall include any dissolution, merger or consolidation of any Controlling Person) with any other Person, if such dissolution, merger or consolidation, directly or indirectly, results in a change in control of Lessee or in any Controlling Person(s), (vi) sell, convey, assign, or otherwise transfer all or substantially all of the assets of Lessee (which shall include any sale, conveyance, assignment, or other transfer of all or substantially all of the assets of any Controlling Person(s)), (vii) sell, convey, assign, or otherwise transfer any of the assets of Lessee (which shall include any sale, conveyance, assignment, or other transfer of any of the assets of any Controlling Person) if the Consolidated Net Worth of Lessee (or such Controlling Person, as the case may be) immediately following such transaction is not at least equal to seventy-five percent (75%) of the Consolidated Net Worth of Lessee (or such Controlling Person) immediately prior to such transaction, or (viii) enter into or permit to be entered into any agreement or arrangement to do any of the foregoing or to grant any option or other right to any Person to do any of the foregoing (each of the aforesaid acts referred to in clauses (i) through (viii) being referred to herein as a "Transfer"). Any Commercial Occupancy Arrangement with respect to more than Ten Percent (10%) of any Facility in the aggregate to any Person and/or its Affiliates, directly or indirectly, or through one or more step transactions or tiered transactions, shall be deemed to be a "Master Sublease" hereunder. Notwithstanding anything herein to the contrary, Lessee may enter into (a) non-Commercial Occupancy Arrangements with residents or patients of any facility, and (b) any Commercial Occupancy Arrangement that does not constitute a Master Sublease with respect to any Facility (provided that all such Commercial Occupancy Arrangements comply with Sections 24.1.3 and 24.1.7 herein), all without Lessor's consent, and such actions shall not be considered a "Transfer" hereunder (but shall constitute a "Transfer" for purposes of Section 24.1.7). For any Commercial Occupancy Arrangement transaction not requiring the consent of Lessor hereunder (i.e., a Commercial Occupancy Arrangement not constituting a Master Sublease), Lessee shall, within ten (10) days of entering into any such Commercial Occupancy Arrangement, notify Lessor of the existence of such Commercial Occupancy Arrangement and the identity of the Occupant and supply Lessor with a copy of the agreement relating to such Commercial Occupancy Arrangement and any other related documentation, materials or information reasonably requested by Lessor. 24.1.2 Consent and Transfer Consideration. 24.1.2.1 Prior to any Transfer, Lessee shall first notify Lessor of its desire to do so and shall submit in writing to Lessor: (i) the name of the proposed Occupant, assignee, manager or other transferee; (ii) the terms and provisions of the Transfer, including any agreements in connection therewith; and (iii) such financial information as Lessor reasonably may request concerning the proposed Occupant, assignee, manager or other transferee. Lessor may, as a condition to granting such consent, which consent may be given or withheld in the sole and absolute discretion of Lessor, and in addition to any other conditions imposed by Lessor, require that the obligations of any Occupant, assignee, manager or other transferee which is an Affiliate of another Person be guaranteed by its parent or Controlling Person and that any Guaranty of this Lease be reaffirmed by any Guarantor notwithstanding such Transfer. 52 24.1.2.2 In connection with any Transfer, Lessor shall be entitled to receive the applicable Transfer Consideration. 24.1.2.3 The consent by Lessor to any Transfer shall not constitute a consent to any subsequent Transfer or to any subsequent or successive Transfer. Any purported or attempted Transfer contrary to the provisions of this Article shall be void and, at the option of Lessor, shall terminate this Lease. 24.1.3 Attornment and Related Matters. Any Commercial Occupancy Arrangement (whether or not the same constitutes a Master Sublease) shall be expressly subject and subordinate to all applicable terms and conditions of this Lease and provide that upon the expiration or earlier termination of this Lease Lessor, at its option and without any obligation to do so, may require any Occupant to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee, as sublessor, licensor or otherwise under such Commercial Occupancy Arrangement from the time of the exercise of such option to the termination of such Commercial Occupancy Arrangement; provided, however, that in such case Lessor shall not be liable for any prepaid rents, fees or other charges or for any prepaid security deposits paid by such Occupant to Lessee or for any other prior defaults of Lessee under such Commercial Occupancy Arrangement. In the event that Lessor shall not require such attornment with respect to any Commercial Occupancy Arrangement, then such Occupancy Arrangement shall automatically terminate upon the expiration or earlier termination of this Lease, including any early termination by mutual agreement of Lessor and Lessee. In addition, any such Commercial Occupancy Arrangement shall provide that in the event that the Occupant or other transferee receives a written notice from Lessor stating that an Event of Default has occurred, or that an event or circumstance has occurred which with notice or passage of time, or both, would constitute an Event of Default hereunder, but for the fact that the transmittal of such notice is barred by applicable debtor relief law, such Occupant or other transferee thereafter shall without further consent or instruction of Lessee pay all rentals accruing under such Commercial Occupancy Arrangement directly to Lessor or as Lessor may direct; provided however that (i) as and to the extent that the amounts so paid to Lessor, together with other amounts paid to or received by Lessor on account of this Lease, exceed the amounts then due Lessor from Lessee under this Lease, the excess shall be promptly remitted to Lessee, and (ii) at such time as the Event of Default has been cured and this Lease reinstated (if ever), Lessor shall notify and direct the Occupant(s) in writing to resume making payments of rentals under their Commercial Occupancy Arrangement(s) directly to Lessee or as Lessee may direct. Any such rentals collected from such Occupant or other transferee by Lessor shall be credited against the amounts owing by Lessee under this Lease in such order of priority as Lessor shall reasonably determine. Furthermore, any Commercial Occupancy Arrangement or other agreement regarding a Transfer shall expressly provide that the Occupant, assignee, manager or other transferee shall furnish Lessor with such financial, operational and other information about the physical condition of the applicable Facility, including the information required by Section 25.1.2 herein, as Lessor may request from time to time. Notwithstanding the foregoing, Lessor acknowledges that the Commercial Occupancy Arrangements set forth on Exhibit G currently exist and do not include the provisions required by this Section 24.1.3; provided, however, that if any such Commercial Occupancy Arrangements are modified or amended, then the provisions required by this Section 24.1.3 shall be included in such modification or amendment; and provided further that nothing herein shall be construed to relieve Lessee of its obligation under the Contract of Acquisition to 53 use best efforts to obtain a subordination agreement, in form and substance satisfactory to Lessor, for the First Union License (as defined in the Contract of Acquisition), all as more particularly set forth therein. 24.1.4 Assignment of Lessee's Rights Against Occupant Under a Master Sublease. If Lessor shall consent to a Master Sublease, then the written instrument of consent, executed and acknowledged by Lessor, Lessee and the Occupant thereunder, shall contain a provision substantially similar to the following: (i) Lessee and such Occupant hereby agree that, if such Occupant shall be in default of any of its obligations under the Master Sublease, which default also constitutes an Event of Default by Lessee under this Lease, then Lessor shall be permitted to avail itself of all of the rights and remedies available to Lessee against such Occupant in connection therewith. (ii) Without limiting the generality of the foregoing, Lessor shall be permitted (by assignment of a cause of action or otherwise) to institute an action or proceeding against such Occupant in the name of Lessee in order to enforce Lessee's rights under the Master Sublease, and also shall be permitted to take all ancillary actions (e.g., serve default notices and demands) in the name of Lessee as Lessor reasonably shall determine to be necessary. (iii) Lessee agrees to cooperate with Lessor, and to execute such documents as shall be reasonably necessary, in connection with the implementation of the foregoing rights of Lessor. (iv) Lessee expressly acknowledges and agrees that the exercise by Lessor of any of the foregoing rights and remedies shall not constitute an election of remedies, and shall not in any way impair Lessor's entitlement to pursue other rights and remedies directly against Lessee. 24.1.5 Costs. Lessee shall reimburse Lessor for Lessor's actual costs and expenses incurred in conjunction with the processing and documentation of any request to Transfer, including attorneys', architects', engineers' or other consultants' fees whether or not such Transfer is actually consummated. 24.1.6 No Release of Lessee's Obligations. No Transfer shall relieve Lessee of its obligation to pay the Rent and to perform all of the other obligations to be performed by Lessee hereunder. The liability of Lessee named herein and any immediate and remote successor in interest of Lessee (i.e., by means of any Transfer), and the due performance of the obligations of this Lease on Lessee's part to be performed or observed, shall not in any way be discharged, released or impaired by any (i) agreement which modifies any of the rights or obligations of the parties under this Lease, (ii) stipulation which extends the time within which an obligation under this Lease is to be performed, (iii) waiver of the performance of an obligation required under this Lease, or (iv) failure to enforce any of the obligations set forth in this Lease. If any Occupant, assignee, manager or other transferee defaults in any performance due hereunder, Lessor may proceed directly against the Lessee named herein and/or any 54 immediate and remote successor in interest of Lessee without exhausting its remedies against such Occupant, assignee, manager or other transferee. 24.1.7 REIT Protection. Anything contained in this Lease to the contrary notwithstanding, (i) no Transfer shall be consummated on any basis such that the rental or other amounts to be paid by the Occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by the business activities of the Occupant, assignee, manager or other transferee; (ii) Lessee shall not furnish or render any services to an Occupant, assignee, manager or other transferee with respect to whom Transfer Consideration is required to be paid or manage or operate the Leased Property and/or any Capital Additions so Transferred with respect to which Transfer Consideration is being paid; (iii) Lessee shall not consummate a Transfer with any Person in which Lessor owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Code); and (iv) Lessee shall not consummate a Transfer with any Person or in any manner which could cause any portion of the amounts received by Lessor pursuant to this Lease or any Occupancy Arrangement to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the Code, or any similar or successor provision thereto or which could cause any other income of Lessor to fail to qualify as income described in Section 856(c)(2) of the Code. 24.1.8 Transfers In Bankruptcy. In the event of a Transfer pursuant to the provisions of the Bankruptcy Code, all consideration payable or otherwise to be delivered in connection with such Transfer shall be paid or delivered to Lessor, shall be and remain the exclusive property of Lessor and shall not constitute property of Lessee or of the estate of Lessee within the meaning of the Bankruptcy Code. Any consideration constituting Lessor's property pursuant to the immediately preceding sentence and not paid or delivered to Lessor shall be held in trust for the benefit of Lessor and be promptly paid or delivered to Lessor. For purposes of this Section 24.1.8, the term "consideration" shall mean and include money, services, property and any other thing of value such as payment of costs, cancellation or forgiveness of indebtedness, discounts, rebates, barter and the like. If any such consideration is in a form other than cash (such as in kind, equity interests, indebtedness earn-outs, or other deferred payments, consulting or management fees, etc.), Lessor shall be entitled to receive in cash the then present fair market value of such consideration. 24.1.9 Public Trading of ARC Stock. So long as the common stock of ARC is listed for trading on the American Stock Exchange or the New York Stock Exchange or authorized for quotation on the NASDAQ National Market, the transfer or exchange of such stock over such exchange or market shall not be deemed a Transfer hereunder unless the same (whether in one transaction or in any step or series of transactions) results, directly or indirectly, in a change in control of Lessee or such Controlling Person(s) (including pursuant to a tender or similar offer to acquire the outstanding and issued securities of Lessee or such Controlling Person(s)). 55 ARTICLE XXV. 25.1 Officer's Certificates and Financial Statements. 25.1.1 Officer's Certificate. At any time and from time to time upon Lessee's receipt of not less than ten (10) days' prior written request by Lessor, Lessee shall furnish to Lessor an Officer's Certificate certifying (i) that this Lease is unmodified and in full force and effect, or that this Lease is in full force and effect as modified and setting forth the modifications; (ii) the dates to which the Rent has been paid; (iii) whether or not, to the best knowledge of Lessee, Lessor is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which Lessee may have knowledge; and (iv) responses to such other questions or statements of fact as Lessor, any ground or underlying lessor, any purchaser or any current or prospective Facility Mortgagee shall reasonably request. Lessee's failure to deliver such statement within such time shall constitute an acknowledgment by Lessee that (x) this Lease is unmodified and in full force and effect except as may be represented to the contrary by Lessor; (y) Lessor is not in default in the performance of any covenant, agreement or condition contained in this Lease; and (z) the other matters set forth in such request, if any, are true and correct. Any such certificate furnished pursuant to this Article may be relied upon by Lessor and any current or prospective Facility Mortgagee, ground or underlying lessor or purchaser of the Leased Property or any portion thereof. 25.1.2 Statements. Lessee shall furnish the following statements to Lessor: (a) within 120 days after the end of Lessee's and ARC's fiscal years, (i) a copy of the unaudited balance sheets of Lessee and ARCPI and audited consolidated balance sheets of ARC and its consolidated Subsidiaries as of the end of such fiscal year, (ii) related audited consolidated statements of income, changes in common stock and other stockholders' equity and changes in the financial position of ARC and its consolidated Subsidiaries for such fiscal year, and (iii) related unaudited statements of income, changes in common stock and other stock holders' equity and changes in the financial position of Lessee and ARCPI (if any), prepared in accordance with GAAP applied on a basis consistently maintained throughout the period involved (such consolidated financial statements of ARC to be certified by nationally recognized certified public accountants); (b) within 120 days after the end of each of Lessee's and Guarantor's fiscal years, and together with the annual audit report furnished in accordance with clause (a) above, an Officer's Certificate stating that to the best of the signer's knowledge and belief after making due inquiry, Lessee is not in default in the performance or observance of any of the terms of this Lease, or if Lessee shall be in default, specifying all such defaults, the nature thereof, and the steps being taken to remedy the same; (c) within thirty (30) days after the end of each of the first twelve (12) months of the Term and the last eighteen (18) months of the Term, all consolidated financial reports that Lessor may reasonably request containing, among other things, detailed statements of income and detailed operational statistics regarding occupancy rates, patient and resident mix 56 and patient and resident rates by type for each Facility; and otherwise within thirty (30) days after the end of each of Lessee's quarters, all quarterly consolidated financial reports Lessee may reasonably request containing, among other things, detailed statements of income and detailed operational statistics regarding occupancy rates, patient and resident mix and patient and resident rates by type for each Facility; (d) within thirty (30) days after filing, a copy of each cost report filed with the appropriate governmental agency for each Facility; (e) within thirty (30) days after they are required to be filed with the SEC, copies of any annual reports and of information, documents and other reports, or copies of such portions of any of the foregoing as the SEC may prescribe, which ARC is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934; (f) immediately upon Lessee's receipt thereof, copies of all written communications received by Lessee from any regulatory agency relating to (i) surveys of each Facility for purposes of licensure, Medicare and Medicaid certification and accreditation and (ii) any proceeding, formal or informal, with respect to cited deficiencies with respect to services and activities provided and performed at each Facility, including patient and resident care, patient and resident activities, patient and resident therapy, dietary, medical records, drugs and medicines, supplies, housekeeping and maintenance, or the condition of each Facility, and involving an actual or threatened warning, imposition of a fine or a penalty, or suspension, termination or revocation of any Facility's license to be operated in accordance with its Primary Intended Use; (g) [intentionally omitted]; (h) immediately upon Lessee's receipt thereof, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Leased Property or any Capital Additions or Lessee's use thereof; and (i) with reasonable promptness, such other information respecting (i) the financial and operational condition and affairs of Lessee, any Guarantor and each Facility, (ii) the physical condition of the Leased Property and any Capital Additions and (iii) any suspected Transfer, including the then equity or voting ownership in Lessee or in any Controlling Person(s), in each case as Lessor may reasonably request, in the form of a questionnaire or otherwise, from time to time. 25.1.3 Charges. Lessee acknowledges that the failure to furnish Lessor with any of the certificates or statements required by this Article XXV will cause Lessor to incur costs and expenses not contemplated hereunder, the exact amount of which is presently anticipated to be extremely difficult to ascertain. Accordingly, if Lessee fails to furnish Lessor with any of the certificates or statements required by this Article XXV more than two (2) times in any given Lease Year, Lessee shall pay to Lessor, as an Additional Charge, upon demand $1,000 for each subsequent failure to provide any of such certificates or statements occurring in such Lease Year. The parties agree that this charge represents a fair and reasonable estimate of 57 the costs that Lessor will incur by reason of Lessee's failure to furnish Lessor with such certificates and statements. ARTICLE XXVI. 26.1 Lessor's Right to Inspect and Show the Leased Property and Capital Additions. Lessee shall permit Lessor and its authorized representatives, upon reasonable prior notice, to (i) inspect the Leased Property and any Capital Additions and (ii) exhibit the same to prospective purchasers and lenders, and during the last twelve (12) months of the Term applicable to each portion of the Leased Property and Capital Additions, to prospective lessees or managers, in each instance during usual business hours and subject to any reasonable security, health, safety or confidentiality requirements of Lessee or any Legal Requirement or Insurance Requirement. Lessee shall cooperate with Lessor in exhibiting the Leased Property and any Capital Additions to prospective purchasers, lenders, lessees and managers. ARTICLE XXVII. 27.1 No Waiver. No failure by Lessor to insist upon the strict performance of any term hereof or to exercise any right, power or remedy hereunder and no acceptance of full or partial payment of Rent during the continuance of any default or Event of Default shall constitute a waiver of any such breach or of any such term. No waiver of any breach shall affect or alter this Lease, which shall continue in full force and effect with respect to any other then existing or subsequent breach. ARTICLE XXVIII. 28.1 Remedies Cumulative. Each legal, equitable or contractual right, power and remedy of Lessor now or hereafter provided either in this Lease or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power and remedy and the exercise or beginning of the exercise by Lessor of any one or more of such rights, powers and remedies shall not preclude the simultaneous or subsequent exercise by Lessor of any or all of such other rights, powers and remedies. ARTICLE XXIX. 29.1 Acceptance of Surrender. No surrender to Lessor of this Lease or of the Leased Property or any Capital Additions or any part(s) thereof or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or any representative or agent of Lessor, other than such a written acceptance by Lessor, shall constitute an acceptance of any such surrender. ARTICLE XXX. 30.1 No Merger. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, (i) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (ii) the fee estate in the Leased Property. 58 ARTICLE XXXI. 31.1 Conveyance by Lessor. Lessor may, without the consent or approval of Lessee, sell, transfer, assign, convey or otherwise dispose of any or all of the Leased Property, subject, however, to this Lease. If Lessor or any successor owner of the Leased Property shall sell, transfer, assign, convey or otherwise dispose of the Leased Property other than as security for a debt and if Lessor delivers all letters of credit to such transferee, Lessor or such successor owner, as the case may be, shall thereupon be released from all future liabilities and obligations of Lessor with respect to such Leased Property under this Lease arising or accruing from and after the date of such sale, transfer, assignment or other disposition and all such future liabilities and obligations with respect to such Leased Property shall thereupon be binding upon such purchaser, grantee, assignee or transferee. In the event of any such sale, transfer, assignment, conveyance or other disposition (other than as security for a debt) of less than all of the Leased Property then subject to this Lease, the provisions of Section 31.2 hereof shall apply. 31.2 New Lease. Lessor shall have the right, at any time and from time to time during the Term for any purpose, by written notice to Lessee, to require Lessee to execute an amendment to this Lease whereby the Leased Property of one or more Facilities (individually, a "Separated Property" or collectively, the "Separated Properties") is separated and removed from this Lease, and to simultaneously execute a substitute lease with respect to such Separated Property(ies), in which case: 31.2.1 Lessor and Lessee shall execute a new lease (the "New Lease") for such Separated Property(ies), effective as of the date specified in Section 31.2.3 below (the "New Lease Effective Date"), in the same form and substance as this Lease, but with such changes thereto as necessary to reflect the separation of the Separated Property(ies) from the balance of the Leased Property, including specifically the following: (a) The total monthly Minimum Rent payable under such New Lease shall be the total applicable monthly Allocated Minimum Rent with respect to such Separated Property(ies); (b) All Minimum Rent rental escalations under the New Lease shall be at the times and in the amounts set forth in this Lease for Minimum Rent increases; (c) If such Separated Property(ies) includes the Victoria Facility, the "Additional Rent" payable under such New Lease shall be the Victoria Additional Rent; and (d) The New Lease shall provide that the lessee thereunder shall be responsible for the payment, performance and satisfaction of all duties, obligations and liabilities arising under this Lease, insofar as they relate to the Separated Property(ies), that were not paid, performed and satisfied in full prior to the effective date of the New Lease (and Lessee under this Lease shall also be responsible for the payment, performance and satisfaction of the aforesaid duties, obligations and liabilities not paid, performed and satisfied in full prior to the effective date of such New Lease). 59 31.2.2 Lessor and Lessee shall also execute an amendment to this Lease effective as of the New Lease Effective Date reflecting the separation of the Separated Property(ies) from the balance of the Leased Property and making such modifications to this Lease as are necessitated thereby. 31.2.3 In the case of any New Lease that is entered into in accordance with this Section 31.2 such New Lease shall be effective on the date which is the earlier of (i) the date the New Lease is fully executed and delivered by the parties thereto and (ii) the date specified in the written notice from Lessor to Lessee requiring a New Lease as described above, which date shall be no sooner than ten (10) days after the date such notice is issued. 31.2.4 The amendment contemplated in Section 31.2.2 above and the New Lease shall be such that the obligations of the lessees under this Lease (as amended) and the New Lease shall not be greater or less than the obligations of Lessee under this Lease (prior to such amendment) and the rights and entitlements of such lessees under this Lease (as amended) and the New Lease shall not be less than the rights and entitlements of Lessee under this Lease (prior to such amendment). 31.2.5 Lessee's obligation to provide letters of credit in accordance with Article 21 of this Lease shall be segregated so that (a) the applicable Lessee shall be required to provide a letter of credit pursuant to the New Lease, on the same terms and conditions as set forth in this Lease, except that "Letter of Credit Amount" under the New Lease shall mean an amount equal to the then existing Letter of Credit Amount under this Lease (prior to the amendment contemplated in Section 31.2.2 above), times a fraction, the numerator of which is the then existing annual Allocated Minimum Rent for the Separated Propert(ies), and the denominator of which is the then existing total annual Minimum Rent payable for all Facilities (including the Separated Propert(ies)), and (b) the "Letter of Credit Amount" under this Lease (as amended) shall be reduced by the "Letter of Credit Amount" for the New Lease determined in accordance with subsection (a) above. 31.2.6 Lessee and Lessor shall take such actions and execute and deliver such documents, including without limitation the New Lease and an amendment to this Lease, as are reasonably necessary and appropriate to effectuate the provisions and intent of this Section 31.2. 31.2.7 Each party shall bear its own costs and expenses in connection with any New Lease entered into in accordance with this Section 31.2. ARTICLE XXXII. 32.1 Quiet Enjoyment. So long as Lessee shall pay the Rent as the same becomes due and shall fully comply with all of the terms of this Lease and fully perform its obligations hereunder, Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for the Term, free of any claim or other action by Lessor or anyone claiming by, through or under Lessor, but subject to all liens and encumbrances of record as of the date hereof, or the Commencement Date or created thereafter as permitted hereunder or thereafter consented to by Lessee. 60 ARTICLE XXXIII. 33.1 Notices. Any notice, consent, approval, demand or other communication required or permitted to be given hereunder (a "notice") must be in writing and may be served personally or by U.S. Mail. If served by U.S. Mail, it shall be addressed as follows: If to Lessor: Health Care Property Investors, Inc. 4675 MacArthur Court, Suite 900 Newport Beach, California 92660 Attn: Legal Department Fax: (949) 221-0607 with a copy to: Latham & Watkins 650 Town Center Drive, Suite 2000 Costa Mesa, California 92626 Attn: David C. Meckler, Esq. Fax: (714) 755-8290 If to Lessee: American Retirement Corporation 111 Westwood Place, Suite 200 Brentwood, Tennessee 37027 Attn: W.E. Sheriff Fax: (615) 221-2272 with a copy to: Bass, Berry & Sims PLC AmSouth Center 315 Deaderick Street, Suite 2700 Nashville, Tennessee 37238-0002 Attn: D. Mark Sheets, Esq. Fax: (615) 742-2757 Any notice which is personally served shall be effective upon the date of service; any notice given by U.S. Mail shall be deemed effectively given, if deposited in the United States Mail, registered or certified with return receipt requested, postage prepaid and addressed as provided above, on the date of receipt, refusal or non-delivery indicated on the return receipt. In lieu of notice by U.S. Mail, either party may send notices by facsimile or by a nationally recognized overnight courier service which provides written proof of delivery (such as U.P.S. or Federal Express). Any notice sent by facsimile shall be effective upon confirmation of receipt in legible form, provided that an original of such facsimile is also sent to the intended addressee by another method approved in this Section 33.1, and any notice sent by a nationally recognized overnight courier shall be effective on the date of delivery to the party at its address specified above as set forth in the courier's delivery receipt. Either party may, by notice to the other from time to time in the manner herein provided, specify a different address for notice purposes. 61 ARTICLE XXXIV. 34.1 Appraiser. If it becomes necessary to determine the Fair Market Value, or Fair Market Rental of any Facility for any purpose of this Lease or the Leasehold FMV for purposes of determining any Transfer Consideration payable to Lessor in connection with a Sale of Business pursuant to this Lease, the same shall be determined by an independent appraisal firm, in which one or more of the members, officers or principals of such firm are Members of the Appraisal Institute (or any successor organization thereto), as may be reasonably selected by Lessor and approved by Lessee (the "Appraiser"). Lessor shall cause such Appraiser to determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility as of the relevant date (giving effect to the impact, if any, of inflation from the date of the Appraiser's decision to the relevant date) and the determination of such Appraiser shall be final and binding upon the parties. A written report of such Appraiser shall be delivered and addressed to each of Lessor and Lessee. To the extent consistent with sound appraisal practice as then existing at the time of any such appraisal, an appraisal of Fair Market Value for purposes of this Lease shall take into account and shall give appropriate consideration to all three customary methods of appraisal (i.e., the cost approach, the sales comparison approach and the income approach), and no one method or approach shall be deemed conclusive simply by reason of the nature of Lessor's business or because such approach may have been used for purposes of determining the fair market value of the applicable Facility at the time of acquisition thereof by Lessor. This provision for determination by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law. Lessor and Lessee shall each pay one-half (1/2) of the fees and expenses of the Appraiser and one-half (1/2) of all other costs and expenses incurred in connection with such appraisal. If Lessor and Lessee are unable to agree upon the Appraiser within fifteen (15) days after Lessor notifies Lessee of the identity of Lessor's selected Appraiser, then the following shall apply: 34.1.1 Within fifteen (15) days after Lessee's receipt of Lessor's selected Appraiser, Lessee shall by notice to Lessor appoint a second Appraiser meeting the requirements set forth above to act on its behalf. In such event, the Appraisers thus appointed shall, within sixty (60) days after the date of Lessor's notice of its originally selected Appraiser, proceed to determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility as of the relevant date (giving effect to the impact, if any, of inflation from the date of their decision to the relevant date); provided, however, that if Lessee fails to appoint its Appraiser within the time permitted, or if two Appraisers shall have been so appointed but only one such Appraiser shall have made such determination within such sixty (60) day period, then the determination of such sole Appraiser shall be final and binding upon the parties. 34.1.2 If the two Appraisers shall have been appointed and shall have made their determinations within the respective requisite periods set forth above and if the difference between the amounts so determined shall not exceed ten percent (10%) of the lesser of such amounts then the Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility shall be an amount equal to fifty percent (50%) of the sum of the amounts so determined. If the difference between the amounts so determined shall exceed ten percent (10%) of the lesser of such amounts, then such two Appraisers shall have twenty (20) days to appoint a third Appraiser meeting the above requirements, but if such Appraisers fail to do so, then either party 62 may request the CPR or AAA (as such terms are defined in Article XLIV) or any successor organization(s) thereto to appoint an Appraiser meeting the above requirements within twenty (20) days of such request, and both parties shall be bound by any appointment so made within such twenty (20) day period. If no such Appraiser shall have been appointed within such twenty (20) days or within one hundred five (105) days of the original request for a determination of Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility, whichever is earlier, either Lessor or Lessee may apply to any court having jurisdiction to have such appointment made by such court. Any Appraiser appointed by the original Appraisers, by the CPR or AAA or by such court shall be instructed to determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility within thirty (30) days after appointment of such Appraiser. 34.1.3 The determination of the Appraiser which differs most in terms of dollar amount from the determinations of the other two Appraisers shall be excluded, and fifty percent (50%) of the sum of the remaining two determinations shall be final and binding upon Lessor and Lessee as the Fair Market Value, Fair Market Rental, or Leasehold FMV of such Facility. This provision for determination by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and any determination hereunder shall be final and binding upon the parties except as otherwise provided by applicable law. If the foregoing two (2) or three (3) Appraiser system is utilized, then Lessor and Lessee shall each pay the fees and expenses of the Appraiser appointed by it and each shall pay one-half (1/2) of the fees and expenses of any third Appraiser. ARTICLE XXXV. 35.1 Lessee's Option to Purchase the Post Oak Facility. Provided (i) no Event of Default, or event which, with notice or lapse of time or both, would constitute an Event of Default, has occurred and is continuing hereunder, (ii) ARC has completed a Successful Refinancing, and (iii) the aggregate Cash Flow Coverage for the Richmond Heights Facility, the Delray Beach Facility, and the Shavano Park Facility for the three month period immediately preceding Lessee's exercise of the option equals or exceeds 1.2., then at any time after the fourth (4th) Lease Year and prior to the expiration of the Term, Lessee shall have the option to purchase the Post Oak Facility for a purchase price equal to the Post Oak Repurchase Price. Such option shall be exercised, if at all, upon ninety (90) days written notice to Lessor and concurrently with such notice to Lessor, (i) opening an escrow (the "Escrow") with and by depositing five percent (5%) of the Post Oak Repurchase Price (the "Opening Deposit) and a copy of this Lease with a national title company reasonably acceptable to Lessor ("Escrow Holder") and (ii) delivering to Lessor a reaffirmation of any Guaranty executed by a Guarantor stating, in substance, that such Guarantor's obligations under the Guaranty shall extend to the purchase contract formed by Lessor and Lessee upon proper and timely exercise of such option. If Lessee shall not be entitled to exercise such option (e.g., by reason of an Event of Default) or shall be entitled to exercise the same but shall fail to do so within the time and in the manner herein provided, such option shall lapse and thereafter not be exercisable by Lessee. Without limiting the foregoing, if Lessee shall not be entitled to exercise such option or shall be entitled to exercise the same but shall fail to do so within the time and in the manner herein provided, such option shall automatically terminate without further action by either party. No failure by Lessor to notify Lessee of any defect in any attempted exercise of the foregoing option shall be deemed a waiver by Lessor of the right to 63 insist upon Lessee's exercise of such option in strict accordance with the provisions hereof. In the event that Lessee shall properly and timely exercise such option, then such transaction shall be consummated on or within thirty (30) days following the expiration of the foregoing ninety (90) day period (the "Outside Closing Date"). 35.2 Defaults. 35.2.1 Liquidated Damages. IF, FOLLOWING A VALID AND PROPER EXERCISE OF THE FOREGOING OPTION, LESSEE FAILS TO COMPLETE THE PURCHASE OF THE POST OAK FACILITY AND SUCH FAILURE CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT ITS OPTION, MAY TERMINATE THE PURCHASE CONTRACT FORMED BY LESSEE'S EXERCISE OF SUCH OPTION AND THE ESCROW BY GIVING WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER AND, THEREUPON, THE ESCROW SHALL BE CANCELLED, ALL DOCUMENTS SHALL BE RETURNED TO THE RESPECTIVE PARTIES WHO DEPOSITED THE SAME, AND LESSEE SHALL PAY ALL TITLE AND ESCROW CANCELLATION CHARGES AND ALL OF LESSOR'S LEGAL FEES AND COSTS. IN ADDITION, LESSOR AND LESSEE AGREE THAT, BASED ON THE CIRCUMSTANCES NOW EXISTING, KNOWN OR UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH LESSOR'S DAMAGES BY REASON OF LESSEE'S DEFAULT RESULTING IN A FAILURE OF THE ESCROW TO CLOSE, AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT WOULD BE REASONABLE TO AWARD LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE OPENING DEPOSIT PLUS ANY ACCRUED INTEREST ON THE OPENING DEPOSIT. BY THEIR RESPECTIVE INITIALS SET FORTH BELOW, LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE OPENING DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE OPENING DEPOSIT, TOGETHER WITH PAYMENT OF LESSOR'S LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED DAMAGES FOR A DEFAULT OF LESSEE UNDER THE PURCHASE CONTRACT FORMED BY LESSEE'S EXERCISE OF SUCH OPTION THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE AND SHALL BE IN LIEU OF ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH LESSOR MIGHT OTHERWISE BE ENTITLED BY REASON OF A LESSEE'S DEFAULT THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN SHALL LIMIT LESSOR'S RIGHTS AND REMEDIES FOR LESSEE'S DEFAULT OCCURRING AFTER THE CLOSE OF ESCROW OR FOR LESSEE'S DEFAULT UNDER THIS LEASE. ESCROW HOLDER IS HEREBY AUTHORIZED AND INSTRUCTED TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED INTEREST THEREON TO LESSOR UPON THE DELIVERY OF UNILATERAL WRITTEN INSTRUCTIONS THEREOF TO ESCROW HOLDER BY LESSOR, AND ESCROW HOLDER IS HEREBY RELIEVED OF ALL LIABILITY THEREFOR. IF LESSEE WRONGFULLY ATTEMPTS TO INTERFERE WITH THE RELEASE OF ANY SUCH SUMS BY ESCROW HOLDER TO LESSOR, OR WRONGFULLY COMMENCES ANY ACTION AGAINST LESSOR OR THE LEASED PROPERTY ARISING OUT OF THIS ARTICLE, THEN LESSOR SHALL NOT BE LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER FROM LESSEE. 64 Lessor's Initials: ---------------------- Lessee's Initials: ---------------------- 35.2.2 Other Defaults. A default under any other lease or other agreement or instrument, including any purchase contract formed upon exercise of any other option, with or in favor of Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate of Lessee where such default is not cured within the applicable time period, if any, shall be deemed a default under this Article XXXV and the purchase contract formed upon proper exercise by Lessee of the option herein provided, entitling Lessor, as seller, at its option, to terminate such purchase contract and the Escrow and upon any such termination the Opening Deposit plus all accrued interest thereon shall be paid over to Lessor as provided in Section 35.3.1 above. 35.3 Escrow Provisions. 35.3.1 Opening of Escrow. Escrow shall be deemed open when the Opening Deposit and a copy of this Lease are delivered to Escrow Holder. 35.3.2 General and Supplemental Instructions. Lessee and Lessor each shall execute, deliver and be bound by such further escrow instructions or other instruments as may be reasonably requested by the other party or by Escrow Holder from time to time, so long as the same are consistent with the provisions of this Lease. 35.3.3 Disposition of Opening Deposit. Escrow Holder shall hold the Opening Deposit in interest-bearing accounts. All interest earned on the Opening Deposit shall accrue to Lessee's benefit unless Lessor is entitled thereto under Section 35.3.1. With full knowledge that Escrow shall not have closed, Lessee nevertheless agrees to relieve Escrow Holder of all liabilities in making such payment and for any failure to recover said sum in the event that Escrow does not close at anytime thereafter. The Opening Deposit plus interest thereon shall be (i) applied against the purchase price (as herein determined) if Escrow closes, (ii) returned to Lessee in full if Escrow does not close for any reason other than Lessee's default, or (iii) be paid to Lessor as nonrefundable liquidated damages under Section 35.2.1, if Escrow fails to close under the provisions of hereof as a result of Lessee's default. 35.3.4 Closing Funds. At least one (1) business day before the Close of Escrow (as hereinafter defined), Escrow Holder shall calculate and Lessee shall wire cash into Escrow (using wiring instructions reasonably satisfactory to Escrow Holder) in an amount which, when added to the Opening Deposit and all accrued interest shall equal the purchase price for the Post Oak Facility plus any other sums payable by Lessee pursuant to the provisions hereof. 35.3.5 Close of Escrow. Escrow shall close on the Outside Closing Date. The term "Close of Escrow" as used in this Article shall mean the time and date that an appropriate deed or other conveyance document conveying Lessor's entire interest in the Post Oak Facility, subject to the permitted liens and encumbrances described in Article XVIII hereof, is recorded in appropriate records of the county in which the Post Oak Facility is located. The Outside Closing Date shall not be extended for any reason. 65 35.3.6 Closing Costs. The closing costs of consummating the purchase of the Post Oak Facility shall be paid by Lessee as provided in Article XVIII. 35.3.7 [Intentionally Omitted] 35.3.8 Termination of Lease with Respect to Post Oak Facility. Upon the Close of Escrow, this Lease shall be terminated with respect to the Post Oak Facility (only) in accordance with Section 5.2 above. 35.4 Lessor's Election of 1031 Exchange. 35.4.1 In the event that Lessee exercises its option to purchase as provided in this Article XXXV, Lessor may elect to sell the Post Oak Facility to Lessee in the form of a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended ("1031 Exchange"). In the event that Lessor shall so elect, Lessor shall give written notice to Lessee and Escrow Holder of such election and the following shall apply: 35.4.1.1 Simultaneous Exchange. Lessor may attempt to identify before the Close of Escrow other property which qualifies as "like-kind" property for a 1031 Exchange (the "Target Property") by giving written notice to Lessee and Escrow Holder and identifying to Escrow Holder the Target Property prior to the Close of Escrow. 35.4.1.2 Non-simultaneous Exchange. If Lessor has not so identified the Target Property before the Close of Escrow, then Lessor shall proceed with the Close of Escrow and Lessor at its option may enter into an exchange agreement with an accommodation party ("Accommodator") in order to facilitate a non-simultaneous or so-called "Starker deferred" exchange. If an Accommodator is so designated, Lessor shall cause the Accommodator (i) to acquire title to the Post Oak Facility from Lessor at or before the Close of Escrow and, (ii) to transfer title in the Post Oak Facility to Lessee on the Close of Escrow for the Post Oak Repurchase Price. 35.4.1.3 Expenses and Documents. Lessee shall fully cooperate with any such 1031 Exchange, including but not limited to executing and delivering additional documents reasonably requested or approved by Lessor; provided, that Lessee shall not be required to incur any additional costs or liabilities or financial obligation as a consequence of any of the foregoing exchange transactions. ARTICLE XXXVI. 36.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may, from time to time, directly or indirectly, create or otherwise cause to exist any ground lease, mortgage, trust deed, lien, encumbrance or title retention agreement (collectively, an "Encumbrance") upon the Leased Property and any Capital Additions or any part(s) or portion(s) thereof or interests therein. This Lease is and at all times shall be subject and subordinate to any such Encumbrance which may now or hereafter affect the Leased Property and/or any such Capital Additions and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, however, that the subjection and subordination of this Lease and Lessee's leasehold interest hereunder to any Encumbrance shall be conditioned upon the 66 execution by the holder of such Encumbrance and delivery to Lessee of a non-disturbance and attornment agreement which provides that so long as no Event of Default has occurred and is continuing, the holder of such Encumbrance shall not disturb Lessee's leasehold interest or possession of the Leased Property in accordance with the terms hereof, or any of Lessee's rights, privileges and options hereunder. This clause shall be self-operative and no further instrument of subordination shall be required; provided, however, that in confirmation of such subordination, Lessee shall execute promptly any certificate or document that Lessor or any ground or underlying lessor, mortgagee or beneficiary may reasonably request for such purposes. If, in connection with obtaining financing or refinancing for the Leased Property and/or any such Capital Additions, a Facility Mortgagee or prospective Facility Mortgagee shall request reasonable modifications to this Lease as a condition to such financing or refinancing, Lessee shall not unreasonably withhold or delay its consent thereto. 36.2 Attornment. If Lessor's interest in the Leased Property and/or any Capital Additions is sold or conveyed upon the exercise of any remedy provided for in any Facility Mortgage, or otherwise by operation of law: (i) Lessee shall attorn to and recognize the new owner as Lessee's Lessor under this Lease or enter into a new lease substantially in the form of this Lease with the new owner, and Lessee shall take such actions to confirm the foregoing within ten (10) days after request; and (ii) the new owner shall not be (a) liable for any act or omission of Lessor under this Lease occurring prior to such sale or conveyance, or (b) subject to any offset, abatement or reduction of rent because of any default of Lessor under this Lease occurring prior to such sale or conveyance. ARTICLE XXXVII. 37.1 Hazardous Substances. Lessee shall not allow any Hazardous Substance to be located, stored, disposed of, released or discharged in, on, under or about the Leased Property or incorporated in any Facility; provided, however, that Hazardous Substances may be brought, kept, used or disposed of in, on or about the Leased Property or any Capital Additions in quantities and for purposes similar to those brought, kept, used or disposed of in, on or about similar facilities used for purposes similar to the Primary Intended Use and which are brought, kept, used and disposed of in strict compliance with Legal Requirements. Lessee shall not allow the Leased Property or any Capital Additions to be used as a waste disposal site or, except as permitted in the immediately preceding sentence, for the manufacturing, handling, storage, distribution or disposal of any Hazardous Substance. 37.2 Notices. Lessee shall provide to Lessor promptly, and in any event immediately upon Lessee's receipt thereof, a copy of any notice, or notification with respect to, (i) any violation of a Legal Requirement relating to Hazardous Substances located in, on, or under the Leased Property or any Capital Additions or any adjacent property thereto; (ii) any enforcement, cleanup, removal, or other governmental or regulatory action instituted, completed or threatened with respect to the Leased Property or any Capital Additions; (iii) any claim made or threatened by any Person against Lessee or the Leased Property or any Capital Additions relating to damage, contribution, cost recovery, compensation, loss, or injury resulting from or claimed to result from any Hazardous Substance; and (iv) any reports made to any federal, state or local environmental agency arising out of or in connection with any Hazardous Substance in, 67 on, under or removed from the Leased Property or any Capital Additions, including any complaints, notices, warnings or asserted violations in connection therewith. 37.3 Remediation. If Lessee becomes aware of a violation of any Legal Requirement relating to any Hazardous Substance in, on, under or about the Leased Property or any Capital Additions or any adjacent property thereto, or if Lessee, Lessor or the Leased Property or any Capital Additions becomes subject to any order of any federal, state or local agency to repair, close, detoxify, decontaminate or otherwise remediate the Leased Property and any Capital Additions, Lessee shall immediately notify Lessor of such event and, at its sole cost and expense, cure such violation or effect such repair, closure, detoxification, decontamination or other remediation; provided, however, that Lessee shall not be required to cure any violation or effect any repair, closure, detoxification, decontamination or other remediation on any adjacent property unless such violation is caused by Lessee or the source of any such violation emanated from the Leased Property, whether prior to or during the Term. If Lessee fails to implement and diligently pursue any such cure, repair, closure, detoxification, decontamination or other remediation, Lessor shall have the right, but not the obligation, to carry out such action and to recover from Lessee all of Lessor's costs and expenses incurred in connection therewith. 37.4 Indemnity. Lessee shall indemnify, defend, protect, save, hold harmless, and reimburse Lessor for, from and against any and all costs, losses (including, losses of use or economic benefit or diminution in value), liabilities, damages, assessments, lawsuits, deficiencies, demands, claims and expenses (collectively, "Environmental Costs") (whether or not arising out of third-party claims and regardless of whether liability without fault is imposed, or sought to be imposed, on Lessor) incurred in connection with, arising out of, resulting from or incident to, directly or indirectly, before or during the Term (i) the production, use, generation, storage, treatment, transporting, disposal, discharge, release or other handling or disposition of any Hazardous Substances from, in, on or about the Leased Property or any Capital Additions (collectively, "Handling"), including the effects of such Handling of any Hazardous Substances on any Person or property within or outside the boundaries of the Leased Property or any Capital Additions, (ii) the presence of any Hazardous Substances in, on, under or about the Leased Property or any Capital Additions and (iii) the violation of any Legal Requirements (including Environmental Laws). "Environmental Costs" include interest, costs of response, removal, remedial action, containment, cleanup, investigation, design, engineering and construction, damages (including actual, consequential and punitive damages) for personal injuries and for injury to, destruction of or loss of property or natural resources, relocation or replacement costs, penalties, fines, charges or expenses, attorney's fees, expert fees, consultation fees, and court costs, and all amounts paid in investigating, defending or settling any of the foregoing. Without limiting the scope or generality of the foregoing, Lessee expressly agrees to reimburse Lessor for any and all costs and expenses incurred by Lessor: (a) In investigating any and all matters relating to the Handling of any Hazardous Substances, in, on, from, under or about the Leased Property or any Capital Additions; (b) In bringing the Leased Property or any Capital Additions into compliance with all Legal Requirements; and 68 (c) Removing, treating, storing, transporting, cleaning-up and/or disposing of any Hazardous Substances used, stored, generated, released or disposed of in, on, from, under or about the Leased Property or any Capital Additions or offsite. If any claim is made hereunder, Lessee agrees to pay such claim promptly, and in any event to pay such claim within thirty (30) calendar days after receipt by Lessee of notice thereof. If any such claim is not so paid and Lessor is ultimately found or agrees to be responsible therefore, Lessee agrees also to pay interest on the amount paid from the date of the first notice of such claim, at the Overdue Rate. 37.5 Environmental Inspection. If Lessor reasonably believes the Leased Property to be in violation of applicable Environmental Laws, then (a) Lessor shall have the right, from time to time, and upon not less than five (5) days' written notice to Lessee, except in the case of an emergency in which event no notice shall be required, to conduct an inspection of the Leased Property and all Capital Additions to determine the existence or presence of Hazardous Substances on or about the Leased Property or any such Capital Additions, (b) Lessor shall have the right to enter and inspect the Leased Property and all Capital Additions, conduct any testing, sampling and analyses it deems necessary and shall have the right to inspect materials brought into the Leased Property or any such Capital Additions, (c) Lessor may, in its discretion, retain such experts to conduct the inspection, perform the tests referred to herein, and to prepare a written report in connection therewith, and (d) all costs and expenses incurred by Lessor under this Section shall be paid on demand as Additional Charges by Lessee to Lessor. Failure to conduct an environmental inspection or to detect unfavorable conditions if such inspection is conducted shall in no fashion be intended as a release of any liability for environmental conditions subsequently determined to be associated with or to have occurred during Lessee's tenancy. Lessee shall remain liable for any environmental condition related to or having occurred during its tenancy regardless of when such conditions are discovered and regardless of whether or not Lessor conducts an environmental inspection at the termination of this Lease. The obligations set forth in this Article shall survive the expiration or earlier termination of the Lease. ARTICLE XXXVIII. 38.1 Memorandum of Lease. Lessor and Lessee shall, promptly upon the request of either, enter into one or more short form memoranda of this Lease, each in form suitable for recording under the laws of the applicable State. Lessee shall pay all costs and expenses of recording any such memoranda and shall fully cooperate with Lessor in removing from record any such memoranda upon the expiration or earlier termination of the Term with respect to the applicable Facility. ARTICLE XXXIX. 39.1 Sale of Assets. Notwithstanding any other provision of this Lease, Lessor shall not be required to (i) sell or transfer the Leased Property, or any portion thereof, which is a real estate asset as defined in Section 856(c)(5)(B), or functionally equivalent successor provision, of the Code, to Lessee if Lessor's counsel advises Lessor that such sale or transfer may not be a sale of property described in Section 857(b)(6)(C), or functionally equivalent 69 successor provision, of the Code or (ii) sell or transfer the Leased Property, or any portion thereof, to Lessee if Lessor's counsel advises Lessor that such sale or transfer could result in an unacceptable amount of gross income for purposes of the Ninety-Five percent (95%) gross income test contained in Section 856(c)(2), or functionally equivalent successor provision, of the Code. If Lessee has the right or obligation to purchase the property pursuant to the terms herein, and if Lessor determines not to sell such property pursuant to the above sentence, then Lessee shall purchase such property, upon and subject to all applicable terms and conditions set forth in this Lease, including the provisions of Article XXXV, at such time as the transaction, upon the advice of Lessor's counsel, would be a sale of property (to the extent the Leased Property is a real estate asset) described in Section 857(b)(6)(C), or functionally equivalent successor provision, of the Code, and would not result in an unacceptable amount of gross income for purposes of the Ninety-Five Percent (95%) gross income test contained in Section 856(c)(2), or functionally equivalent successor provision of the Code and until such time Lessee shall lease the Leased Property and all Capital Additions from Lessor at the lesser of (i) Fair Market Rental or (ii) the then current Allocated Minimum Rent and any Victoria Additional Rent, if applicable, for such Leased Property under this Lease. ARTICLE XL. 40.1 [Intentionally Omitted]. ARTICLE XLI. 41.1 Authority. If Lessee is a corporation, limited liability company, trust, or partnership, Lessee, and each individual executing this Lease on behalf of Lessee, represent and warrant that each is duly authorized to execute and deliver this Lease on behalf of Lessee and shall concurrently with the execution and delivery of this Lease to Lessor deliver to Lessor evidence of such authority satisfactory to Lessor. ARTICLE XLII. 42.1 Attorneys' Fees. If Lessor or Lessee brings an action or other proceeding (including an arbitration pursuant to Article XLIV) against the other to enforce any of the terms, covenants or conditions hereof or any instrument executed pursuant to this Lease, or by reason of any breach or default hereunder or thereunder, the party prevailing in any such action or proceeding and any appeal thereupon shall be paid all of its costs and reasonable attorneys' fees incurred therein. In addition to the foregoing and other provisions of this Lease that specifically require Lessee to reimburse, pay or indemnify against Lessor's attorneys' fees, Lessee shall pay, as Additional Charges, all of Lessor's reasonable attorneys' fees incurred in connection with the administration or enforcement of this Lease, including attorneys' fees incurred in connection with Lessee's exercise of its option to purchase the Leased Property or the renewal of this Lease for any Extended Term, the review of any letters of credit, the review, negotiation or documentation of any subletting, assignment, or management arrangement or any consent requested in connection therewith, and the collection of past due Rent. 70 ARTICLE XLIII. 43.1 Brokers. Lessee warrants that it has not had any contact or dealings with any Person or real estate broker which would give rise to the payment of any fee or brokerage commission in connection with this Lease, and Lessee shall indemnify, protect, hold harmless and defend Lessor from and against any liability with respect to any fee or brokerage commission arising out of any act or omission of Lessee. Lessor warrants that it has not had any contact or dealings with any Person or real estate broker which would give rise to the payment of any fee or brokerage commission in connection with this Lease, and Lessor shall indemnify, protect, hold harmless and defend Lessee from and against any liability with respect to any fee or brokerage commission arising out of any act or omission of Lessor. ARTICLE XLIV. 44.1 Submission to Arbitration. 44.1.1 Except as provided in Section 44.1.2 below, any controversy, dispute or claim of whatsoever nature arising out of, in connection with, or in relation to the interpretation, performance or breach of this Lease, including any claim based on contract, tort or statute, shall be determined by final and binding, confidential arbitration in accordance with the then current CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration of Business Disputes ("CPR"), by a sole arbitrator mutually selected by Lessor and Lessee from among the CPR Panel of Distinguished Neutrals; provided, however, that if the CPR (or any successor organization thereto) no longer exists, then such arbitration shall be administered by the American Arbitration Association ("AAA") in accordance with its then-existing Commercial Arbitration Rules, and the sole arbitrator shall be selected in accordance with such AAA rules. Any arbitration hereunder shall be governed by the United States Arbitration Act, 9 U.S.C. 1-16 (or any successor legislation thereto), and judgment upon the award rendered by the arbitrator may be entered by any state or federal court having jurisdiction thereof. If Lessor and Lessee are not able to agree on an arbitrator, then an arbitrator shall be appointed by the CPR or AAA upon application by either party. Neither Lessor, Lessee nor the arbitrator shall disclose the existence, content or results of any arbitration hereunder without the prior written consent of all parties; provided, however, that either party may disclose the existence, content or results of any such arbitration to its partners, officers, directors, employees, agents, attorneys and accountants and to any other Person to whom disclosure is required by applicable Legal Requirements, including pursuant to an order of a court of competent jurisdiction, or as may be necessary to enforce the same. Unless otherwise agreed by the parties, any arbitration hereunder shall be held at a neutral location selected by the arbitrator in the major metropolitan area in the State closest in proximity to the Leased Property. The cost of the arbitrator and the expenses relating to the arbitration (exclusive of legal fees) shall be borne equally by Lessor and Lessee unless otherwise specified in the award of the arbitrator. Such fees and costs paid or payable to the arbitrator shall be included in "costs and reasonable attorneys' fees" for purposes of Article XLII and the arbitrator shall specifically have the power to award to the prevailing party pursuant to such Article XLII such party's costs and expenses incurred in such arbitration, including fees and costs paid to the arbitrator. 71 44.1.2 The provisions of this Article XLIV shall not apply to: (a) Any unlawful detainer or other similar summary or expedited proceeding for ejectment or recovery of possession of the Leased Property and Capital Additions of any Facility instituted by Lessor in accordance with applicable Legal Requirements as the result of an Event of Default or alleged Event of Default by Lessee pursuant to this Lease, and any compulsory counterclaim of Lessee with respect thereto. In addition, if permitted by applicable Legal Requirements, Lessor shall be entitled in connection with any such proceeding to seek any damages to which it is entitled at law, including those set forth in Article XVI. (b) Any specific controversy, dispute, question or issue as to which this Lease specifically provides another method of determining such controversy, dispute, question or issue and provides that a determination pursuant to such method is final and binding, unless both Lessor and Lessee agree in writing to waive such procedure and proceed instead pursuant to this Article XLIV. (c) Any request or application for an order or decree granting any provisional or ancillary remedy (such as a temporary restraining order or injunction) with respect to any right or obligation of either party to this Lease, and any preliminary determination of the underlying controversy, dispute, question or issue as is required to determine whether or not to grant such relief. A final and binding determination of such underlying controversy, dispute, question or issue shall be made by an arbitration conducted pursuant to this Article XLIV after an appropriate transfer or reference to the arbitrator selected pursuant to this Article XLIV upon motion or application of either party hereto. Any ancillary or provisional relief which is granted pursuant to this clause (c) shall continue in effect pending an arbitration determination and entry of judgment thereon pursuant to this Article XLIV. ARTICLE XLV. 45.1 Miscellaneous. 45.1.1 Survival. Anything contained in this Lease to the contrary notwithstanding, all claims against, and liabilities and indemnities of, Lessee or Lessor arising prior to the expiration or earlier termination of the Term shall survive such expiration or termination. In addition, all claims against, and all liabilities and indemnities hereunder of Lessee shall continue in full force and effect and in favor of the Lessor named herein and its successors and assigns, notwithstanding any conveyance of the Leased Property to Lessee. 45.1.2 Severability. If any term or provision of this Lease or any application thereof shall be held invalid or unenforceable, the remainder of this Lease and any other application of such term or provision shall not be affected thereby. 45.1.3 Non-Recourse. Lessee specifically agrees to look solely to the Leased Property (and any proceeds thereof) for recovery of any judgment from Lessor. It is specifically agreed that no constituent partner in Lessor or officer, director or employee of Lessor shall ever be personally liable for any such judgment or for the payment of any monetary obligation to Lessee. The provision contained in the foregoing sentence is not intended to, and 72 shall not, limit any right that Lessee might otherwise have to obtain injunctive relief against Lessor, or any action not involving the personal liability of Lessor. Furthermore, except as otherwise expressly provided herein, in no event shall Lessor ever be liable to Lessee for any indirect or consequential damages suffered by Lessee from whatever cause. 45.1.4 Licenses and Operation Transfer Agreements. Upon the expiration or earlier termination of the Term applicable to any Facility (unless such Facility has been purchased by Lessee), Lessee shall use its best efforts to transfer to Lessor or Lessor's nominee such Facility in a fully operational condition and shall cooperate with Lessor or Lessor's designee or nominee in connection with the processing by Lessor or Lessor's designee or nominee of any applications for all licenses, operating permits and other governmental authorization, all contracts, including contracts with governmental or quasi-governmental entities, business records, data, patient and resident records, and patient and resident trust accounts, which may be necessary or useful for the operation of such Facility; provided that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor's designee or nominee. Lessee shall not commit any act or be remiss in the undertaking of any act that would jeopardize the licensure or certification of such Facility, and Lessee shall comply with all reasonable requests for an orderly transfer of the same upon the expiration or early termination of the Term applicable to such Facility. Without limiting the generality of the foregoing, if requested by Lessor or a proposed replacement operator for such Facility, Lessee hereby agrees to enter into a reasonable operations transfer agreement with such replacement operator as is customary in the transfer to a new operator of the operations of a facility similar to such Facility. Lessee shall not unreasonably withhold, condition or delay its consent to entering into any interim subleases or management agreements as may be necessary to effectuate an early transfer of the operations of such Facility prior to the time that such replacement operator holds all licenses and permits from all applicable governmental authorities with jurisdiction necessary to operate such Facility for its Primary Intended Use. In addition, upon request, Lessee shall promptly deliver copies of all books and records relating to the Leased Property and all Capital Additions of such Facility and operations thereon to Lessor or Lessor's designee or nominee. Lessee shall indemnify, defend, protect and hold harmless Lessor from and against any loss, damage, cost or expense incurred by Lessor or Lessor's designee or nominee in connection with the correction of any and all deficiencies of a physical nature identified by any governmental authority responsible for licensing the Leased Property and all Capital Additions in the course of any change of ownership inspection and audit. 45.1.5 Successors and Assigns. This Lease shall be binding upon Lessor and its successors and assigns and, subject to the provisions of Article XXIV, upon Lessee and its successors and assigns. 45.1.6 Termination Date. If this Lease is terminated by Lessor or Lessee under any provision hereof with respect to any one or more (including all, if applicable) of the Facilities, and upon the expiration of the Term applicable to a Facility (collectively, the "termination date"), the following shall pertain: (a) Lessee shall vacate and surrender the Leased Property, Lessee's Personal Property and all Capital Additions relating to the applicable Facility to Lessor in the condition required by Section 9.1.4. Prior to such vacation and surrender, Lessee shall remove 73 any items which Lessee is permitted or required to remove hereunder. Lessee shall, at Lessee's cost, repair any damage to such Leased Property, any Lessee's Personal Property, and any Capital Additions caused by such vacation and/or removal of any items which Lessee is required or permitted hereunder to remove. Any items which Lessee is permitted to remove but fails to remove prior to the surrender to Lessor of such Leased Property, Lessee's Personal Property and Capital Additions shall be deemed abandoned by Lessee, and Lessor may retain or dispose of the same as Lessor sees fit without claim by Lessee thereto or to any proceeds thereof. If Lessor elects to remove and dispose of any such items abandoned by Lessee, the cost of such removal and disposal shall be an Additional Charge payable by Lessee to Lessor upon demand. (b) Without limiting the provisions of Section 45.1.1 above, upon any such termination or expiration of this Lease with respect to a Facility, the following shall pertain: (i) Lessee agrees to defend, protect, indemnify, defend and hold harmless Lessor from and against any and all claims, costs, losses, expenses, damages, actions, and causes of action for which Lessee is responsible under this Lease (including Lessee's indemnification obligations under Articles XXIII and XXXVII) and which accrue or have accrued on or before the termination date. (ii) Lessee shall remain liable for the cost of all utilities used in or at the Leased Property and any Capital Additions relating to such Facility through the termination date and accrued and unpaid, whether or not then billed, as of the termination date until full payment thereof by Lessee. Lessee shall obtain directly from the companies providing such services closing statements for all services rendered through the termination date and shall promptly pay the same. If any utility statement with respect to such Leased Property and any Capital Additions includes charges for a period partially prior to and partially subsequent to the termination date, such charges shall be prorated as between Lessor and Lessee, with Lessee responsible for the portion thereof (based upon a fraction the numerator of which is the number of days of service on such statement through the termination date and the denominator of which is the total number of days of service on such statement) through the termination date and Lessor shall be responsible for the balance. The party receiving any such statement which requires proration hereunder shall promptly pay such statement and the other party shall, within ten (10) days after receipt of a copy of such statement, remit to the party paying the statement any amount for which such other party is responsible hereunder. (iii) Lessee shall remain responsible for any and all Impositions imposed against the Leased Property, the Personal Property and any Capital Additions with a lien date prior to the termination date (irrespective of the date of billing therefor) and for its pro rata share of any Impositions imposed in respect of the tax-fiscal period during which the Term terminates as provided in Section 4.1.7, and Lessee shall indemnify and hold Lessor harmless with respect to any claims for such Impositions or resulting from nonpayment thereof. (iv) Lessee shall (y) execute all documents and take any actions reasonably necessary to (1) cause the transfer to Lessor of all of Lessee's Personal Property and any Capital Additions not owned by Lessor, as provided in Section 6.3, in 74 each case free of any encumbrance, as provided in Section 6.3 and (2) remove this Lease and/or any memorandum hereof as a matter affecting title to the Leased Property as provided in Article XXXVIII and (z) comply with its covenants set forth in Section 45.1.4. (v) Lessee shall observe any covenant or agreement of Lessee in this Lease which is intended to or expressly provides that it shall survive the expiration or sooner termination of this Lease. 45.1.7 Governing Law. THIS LEASE WAS NEGOTIATED IN THE STATE OF CALIFORNIA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY. ACCORDINGLY, IN ALL RESPECTS THIS LEASE (AND ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD OF PRINCIPLES OR CONFLICTS OF LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT ALL PROVISIONS HEREOF RELATING TO THE CREATION OF THE LEASEHOLD ESTATE AND ALL REMEDIES SET FORTH IN ARTICLE XVI RELATING TO RECOVERY OF POSSESSION OF THE LEASED PROPERTY OF ANY FACILITY (SUCH AS AN ACTION FOR UNLAWFUL DETAINER OR OTHER SIMILAR ACTION) SHALL BE CONSTRUED AND ENFORCED ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE IN WHICH THE LEASED PROPERTY OF SUCH FACILITY IS LOCATED. 45.1.8 Waiver of Trial by Jury. EACH OF LESSOR AND LESSEE ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES, THE STATE OF CALIFORNIA AND THE STATES IN WHICH THE LEASED PROPERTY OF ANY OF THE FACILITIES IS LOCATED. EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH OF LESSOR AND LESSEE HEREBY AGREES AND CONSENTS THAT, SUBJECT TO ARTICLE XLIV, ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 75 LESSOR'S INITIALS: ------------------ LESSEE'S INITIALS: ------------------ 45.1.9 Lessee Counterclaim and Equitable Remedies. Lessee hereby waives the right to interpose counterclaim (other than compulsory counterclaims) in any summary proceeding instituted by Lessor against Lessee in any court or in any action instituted by Lessor in any court for unpaid Rent under this Lease. In the event that Lessee claims or asserts that Lessor has violated or failed to perform a covenant of Lessor not to unreasonably withhold or delay Lessor's consent or approval hereunder, or in any case where Lessor's reasonableness in exercising its judgment is in issue, Lessee's sole remedy shall be an action for specific performance, declaratory judgment or injunction, and in no event shall Lessee be entitled to any monetary damages for a breach of such covenant, and in no event shall Lessee claim or assert any claims for monetary damages in any action or by way of set-off defense or counterclaim, and Lessee hereby specifically waives the right to any monetary damages or other remedies in connection with any such claim or assertion. 45.1.10 Entire Agreement. This Lease, together with the other Transaction Documents, as defined in the Contract of Acquisition, the Exhibits hereto and thereto and such other documents as are contemplated hereunder or thereunder, constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be changed or modified except by an agreement in writing signed by the parties. Lessor and Lessee hereby agree that all prior or contemporaneous oral understandings, agreements or negotiations relative to the leasing of the Leased Property are merged into and revoked by this Lease. 45.1.11 Headings. All titles and headings to sections, subsections, paragraphs or other divisions of this Lease are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other contents of such sections, subsections, paragraphs or other divisions, such other content being controlling as to the agreement among the parties hereto. 45.1.12 Counterparts. This Lease may be executed in any number of counterparts, each of which shall be a valid and binding original, but all of which together shall constitute one and the same instrument. 45.1.13 Joint and Several. If more than one Person is the Lessee under this Lease, the liability of such Persons under this Lease shall be joint and several. 45.1.14 Interpretation. Both Lessor and Lessee have been represented by counsel and this Lease and every provision hereof has been freely and fairly negotiated. Consequently, all provisions of this Lease shall be interpreted according to their fair meaning and shall not be strictly construed against any party. 45.1.15 Time of Essence. Time is of the essence of this Lease and each provision hereof in which time of performance is established. 45.1.16 Force Majeure. In the event that either Lessor or Lessee is delayed in performing its respective obligations pursuant to this Lease by any cause beyond the 76 reasonable control of the party required to perform such obligation, the time period for performing such obligation shall be extended by a period of time equal to the period of the delay. For purposes of this Lease: (a) A cause shall be beyond the reasonable control of a party to this Lease when such cause would affect any person similarly situated (such as power outage, labor strike, Act of God or trucker's strike) but shall not be beyond the reasonable control of such party when peculiar to such party (such as financial inability or failure to order long lead time material sufficiently in advance). (b) This Section shall not apply to any obligation to pay money or otherwise perform any financial obligation hereunder. (c) In the event of any occurrence which a party believes constitutes a cause beyond the reasonable control of such party and which will delay any performance by such party, such party shall promptly in writing notify the other party of the occurrence and nature of such cause, the anticipated period of delay and the steps being taken by such party to mitigate the effects of such delay. Failure to give such notice promptly, shall deem such occurrence or event not to be a cause beyond the reasonable control of such party. 45.1.17 Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. ARTICLE XLVI. 46.1 Provisions Relating to Master Lease. Lessor and Lessee hereby acknowledge and agree that, except as otherwise expressly provided herein to the contrary, this Lease is and the parties intend the same for all purposes to be treated as a single, integrated and indivisible agreement. Lessee acknowledges that in order to induce Lessor to lease the Leased Property of each Facility to Lessee and as a condition thereto, Lessor insisted that the parties execute this Lease covering all of the Facilities in a single, integrated and indivisible agreement. 46.2 Provisions Relating to Tax Treatment of Lease. Lessor and Lessee hereby acknowledge and agree that this Lease shall be treated as an operating lease for all purposes and not as a synthetic lease, financing lease or loan, and that Lessor shall be entitled to all the benefits of ownership of the Leased Property, including depreciation for all federal, state and local tax purposes. ARTICLE XLVII. 47.1 Replacement Lease and Termination of Old Victoria Lease. In addition to covering the other Facilities, this Lease is a replacement for that certain Lease dated December 20, 1995 currently in effect between Texas HCP, as "Lessor," and American Retirement Corporation II, a Tennessee corporation, as the last and current assignee of Remmington Retirement Community - One, Ltd., a Texas limited partnership, as the original "Lessee," covering the Victoria Facility (as the same may have been amended in accordance with the terms thereof, the "Old Victoria Lease"). Lessor and Lessee acknowledge and agree that: (i) the tenancy created by the Old Victoria Lease shall terminate as of the Commencement Date, and (ii) 77 from and after such Commencement Date, Lessee shall continue to occupy the Leased Property of the Victoria Facility pursuant to this Lease. Notwithstanding the termination of the Old Victoria Lease, the following obligations of Lessee under the Old Victoria Lease shall be preserved and continue subsequent to such termination: (a) Lessee shall remain responsible for and shall protect, defend, indemnify and hold Lessor harmless from and against any and all claims, liabilities, damages, actions and causes of action, costs and expenses, including attorneys' fees, for which Lessee is responsible pursuant to the Old Victoria Lease and which accrue or have accrued on or before the date of termination of the Old Victoria Lease. (b) Lessee shall remain responsible for all obligations of the Lessee under the Old Victoria Lease which have accrued on or before the date of termination until full and complete payment and/or performance of the same. ARTICLE XLVIII. 48.1 Covenants with Respect to Operations and Fundamental Changes of Lessee. Each Lessee hereby represents, warrants and covenants as of the date hereof and until the expiration or earlier termination of this Lease, that such Lessee: (a) will not amend, modify or otherwise change its partnership certificate, partnership agreement, articles of incorporation, bylaws, certificate of formation, limited liability company agreement, operating agreement, articles of organization, or other formation agreement or document, as applicable, in any material term or manner, or in a manner which adversely affects Lessee's existence as a single purpose entity; (b) will not permit any partner, limited or general, member or shareholder of Lessee, as applicable, amend, modify or otherwise change such Lessee's partnership certificate, partnership agreement, articles of incorporation, bylaws, certificate of formation, limited liability company agreement, operating agreement, articles of organization, or other formation agreement or document, as applicable, in any material term or manner, or in a manner which adversely affects Lessee's existence as a single purpose entity; (c) to the full extent permitted by law, will not liquidate or dissolve (or suffer any liquidation or dissolution), or enter into any transaction of merger or consolidation, or acquire by purchase or otherwise all or substantially all the business or assets of, or any stock or other evidence of beneficial ownership of, any entity; (d) has not and will not guarantee, pledge its assets for the benefit of, or otherwise become liable, on or in connection with, any obligation of any other Person; (e) does not own and will not own any asset other than (i) its leasehold interest in the applicable Leased Property and (ii) incidental personal property necessary for the operation of the applicable Leased Property; 78 (f) is not engaged and will not engage, either directly or indirectly, in any business other than the ownership, management and operation of the applicable Leased Property; (g) has maintained and will maintain an arm's length relationship with its Affiliates and its shareholders and any other parties furnishing services to it; (h) has not incurred and will not incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation) (other than accounts payable incurred in the ordinary course of business and equipment and motor vehicle leases not exceeding One Hundred Thousand Dollars ($100,000) per Facility; (i) has not made and will not make any loans or advances to any third party (including any Affiliate); (j) is and will be solvent and pay its own liabilities, indebtedness and obligations of any kind, including administrative expenses, from its assets as the same shall become due; (k) has done or caused to be done and will do all things necessary to preserve its existence, and will observe all formalities applicable to it and necessary to maintain its identity as an entity separate and distinct from its Affiliates; (l) will conduct and operate its business in its own name and as presently conducted and operated; (m) will maintain financial statements, books and records and bank accounts separate from those of its Affiliates, including, without limitation, its general partners, shareholders or members, as applicable; provided, however, that Lessee may be included in consolidated financial statements of another person, provided that such consolidated financial statements contain a note indicating that Lessee is a separate legal entity and Lessee's assets and liabilities are neither available to pay the debts of the consolidated entity nor constitute obligations of the consolidated entity and that the consolidated entity is not liable for any of the liabilities of such Lessee; (n) will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including, without limitation, any Affiliate or any partner, member or shareholder of Lessee); (o) will file its own tax returns and pay any taxes so required to be paid under applicable law; provided, however, that so long as Lessee's tax liability and its income and expenses are readily determinable based on a review of Lessee's books and records, it may file consolidated tax returns (provided that Lessee shall maintain sufficient books and records to determine its separate tax obligations for any particular reporting periods); (p) will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; 79 (q) will not commingle the funds and other assets of Lessee with those of any general partner, shareholder, member, Affiliate, principal or any other Person; (r) has and will maintain its assets in such a manner that it is not costly or difficult to segregate, ascertain or identify its individual assets from those of any Affiliate or any other Person; (s) does not and will not hold itself out to be responsible for the debts or obligations of any other Person; (t) will pay any liabilities out of its own funds, including salaries of its employees, not funds of any Affiliate; (u) will use stationery, invoices, and checks separate from its Affiliates; (v) will not do any act which would make it impossible to carry on the ordinary business of Lessee; (w) will not hold title to Lessee's assets other than in Lessee's name; (x) will deposit all of its funds in checking accounts, savings accounts, time deposits or certificates of deposit in its own name or invest such funds in its own name; (y) will correct any known misunderstanding regarding its separate identity; (z) will participate in the fair and reasonable allocation of any and all overhead expenses and other common expenses for facilities, goods or services provided to multiple entities; (aa) will establish and maintain an office through which its business is conducted separate and apart from that of its Affiliates (including the other Lessees); provided, however, that nothing herein shall be construed so as to prevent Lessee from having office space at the same address as any of Affiliate, so long as the costs and expenses associated with such office space are allocated as set forth in paragraph (aa) above; (bb) will maintain a separate telephone number from that of its Affiliates or any other entity (provided, however, that any Lessee that is a limited partnership shall be permitted to have the same telephone number as its general partner); (cc) has not and will not institute proceedings to be adjudicated bankrupt or insolvent; or consent to the institution of bankruptcy or insolvency proceedings against it; or file a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy; or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Lessee or a substantial part of Lessee's property; or make any assignment for the benefit of creditors; or admit in writing 80 its inability to pay its debts generally as they become due; or take any action in furtherance of any such action; (dd) shall at all times cause there to be at least one duly appointed member of the board of directors or board of managers of Lessee reasonably satisfactory to Lessor who shall not have been at the time of such individual's appointment, and may not have been at any time during the preceding five years (i) a shareholder of, or an officer, director, other than as an independent director, or manager for other special purpose entities which may be Affiliates of Lessee, attorney, counsel, partner, employee or member of, Lessee or any of its members, shareholders, subsidiaries or Affiliates, (ii) a customer of, supplier to, Lessee or any of its shareholders, subsidiaries or Affiliates, (iii) a Person or other entity controlling or under common control with any such member, shareholder, partner, supplier or customer, or (iv) a member of the immediate family of any such member, shareholder, officer, director, partner, employee, supplier or customer of any other director of Lessee. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise; (ee) Lessee shall not cause or permit the board of directors or the members of Lessee to take any action which, under the terms of any articles of organization, operating agreement, limited liability company agreement, certificate of incorporation, bylaws or any voting trust agreement with respect to any common stock or limited liability company interest, requires a vote of the board of directors or the members of Lessee unless at the time of such action there shall be at least one member who is an independent directors. Notwithstanding anything herein to the contrary, Lessee may, from time to time, (i) make lawful distributions in accordance with applicable corporate law or loans on an arm's length basis to its affiliates subject to the provisions of paragraph (p) above, or (ii) obtain loans on an arm's length basis or lawful capital contributions in accordance with applicable corporate law from its affiliates to the extent necessary to satisfy its obligations as they become due; provided, however, that all such transactions are accurately reflected in the books and records of the corporation and each of its applicable affiliates. [Signature pages follow] 81 IN WITNESS WHEREOF, the parties have caused this Lease to be executed and attested by their respective officers thereunto duly authorized. "Lessor" HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation By: ---------------------------------------------- Edward J. Henning Senior Vice President, General Counsel and Corporate Secretary TEXAS HCP HOLDING, L.P., a Delaware limited partnership By: Texas HCP G.P., INC., a Delaware corporation, its sole General Partner By: ----------------------------------------- Edward J. Henning Senior Vice President [Signature pages continue] "Lessee" ARC RICHMOND HEIGHTS, LLC, a Tennessee limited liability company By: ----------------------------------------------- Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations ARC SHAVANO, L.P., a Tennessee limited partnership By: ARC Shavano Park, Inc., a Tennessee corporation, its general partner By: ------------------------------------------ Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations ARC DELRAY BEACH, LLC, a Tennessee limited liability company By: ------------------------------------------ Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations ARC VICTORIA, L.P., a Tennessee limited partnership By: ARC Homewood Victoria, Inc., a Tennessee corporation, its general partner By: ----------------------------------------- Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations [Signature pages continue] ARC CARRIAGE CLUB OF JACKSONVILLE, INC., a Tennessee corporation By: --------------------------------------------- Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations ARC POST OAK, L.P., a Tennessee limited partnership By: ARC Hampton Post Oak, Inc., a Tennessee corporation, its general partner By: ----------------------------------------- Ross C. Roadman, Senior Vice President-- Strategic Planning and Investor Relations STATE OF ) ------------------------ ) SS: COUNTY OF ) ----------------------- I, _____________________, a Notary Public in and for the county and state aforesaid, DO HEREBY CERTIFY that _____________________________, as ____________________ of _________________________, an ___________________ corporation who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such ________________________ appeared before me this day in person and acknowledged that he signed, sealed and delivered the said instrument as his free and voluntary act as such __________________ and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Given under my hand and notarial seal, this _____ day of March, 2002. --------------------------- Notary Public STATE OF ) ------------------------ ) SS: COUNTY OF ) ----------------------- I, _____________________, a Notary Public in and for the county and state aforesaid, DO HEREBY CERTIFY that _____________________________, as ____________________ of _________________________, an ___________________ corporation who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such ________________________ appeared before me this day in person and acknowledged that he signed, sealed and delivered the said instrument as his free and voluntary act as such __________________ and as the free and voluntary act of said corporation for the uses and purposes therein set forth. Given under my hand and notarial seal, this _____ day of March, 2002. --------------------------- Notary Public EXHIBIT A-1 LEGAL DESCRIPTION OF CLEVELAND FACILITY Situated in the City of Richmond Heights, County of Cuyahoga and State of Ohio: And know as being part of Original Euclid Township Lot No. 35, Tract No. 5 and being further bounded and described as follows: Beginning at an iron monument found on the centerline of Richmond Road, 60 feet wide, at the northeast corner of said Original Lot No. 35, Tract No. 5; Thence South 00(Degree) 18' 56" East along said centerline of Richmond Road also being the easterly line of said Original Lot No. 35, a distance of 180.18 feet to the southeasterly corner of Parcel No. 1 of land conveyed to Elmer F. Vitek and Shirley A. Vitek as Trustees in a deed dated July 23, 1992 and recorded in Volume 92-06367, Page 44, of Cuyahoga County Deed Records; Thence South 89(Degree) 55' 18" West along the said southerly line of Vitek, a distance of 30.00 feet to a point on the westerly line of said Richmond Road and the Principal Place of Beginning of the parcel of land herein intended to be described; Course No. 1: Thence South 89(Degree) 55' 18" West continuing along said southerly line of Vitek, a distance of 314.98 feet to the southwesterly corner thereof; Course No. 2: Thence North 00(Degree) 18' 56" West along the westerly line of said Vitek, a distance of 77.34 feet to the northeasterly corner of land conveyed to The Forest City Development Co. by deed recorded in Volume 12748, Page 569 of Cuyahoga county Deed Records; Course No. 3: Thence North 89(Degree) 41' 25" West along the northerly line of said Forest City Development Co., a distance of 236.70 feet to the easterly line of Block "G" in Richmond Run Subdivision recorded in Volume 215 of Maps, Pages 19 and 20 of Cuyahoga County Records; Course No. 4: Thence South 48(Degree) 41' 29" West along the southeasterly line of said Block "G" a distance of 291.91 feet to an interior corner of said Block "G"; Course No. 5.: Thence South 00(Degree) 18' 56" East along the easterly line of said Block "G" a distance of 257.55 feet to an interior corner of said Block "G"; Course No. 6: Thence North 89(Degree) 55' 18" East along the northerly line of said Block "G" a distance of 125.90 feet to an interior corner of said Block "G"; A-1 Course No. 7: Thence South 00(Degree) 18' 56" East along the easterly line of said Block "G", a distance of 60.11 feet to a point on the northerly line of Hillary Lane, 55.11 feet wide, as shown in the Dedication Plat recorded in Volume 231 of Maps, Page 66 and 67 of Cuyahoga County Records; Course No. 8: Thence North 89(Degree) 55' 18' East along the northerly line of said Hillary Lane, a distance of 626.02 feet to a point of curvature of a turnout to said Richmond Road; Course No. 9: Thence Northeasterly along said turnout, on a curve deflecting to the left and having a radius of 20.00 feet, a delta of 90(Degree) 14' 14", an arc distance of 31.50 feet, and a chord distance of 28.34 feet which bears North 44(Degree) 48' 11" East to a point of tangency on the westerly line of said Richmond Road; Course No. 10: Thence North 00(Degree) 18' 56" West along the westerly line of said Richmond Road, a distance of 411.03 feet to the Place of Beginning and containing 7.8019 acres (339,853 sq. ft.) of land according to a survey prepared by Mc Steen & Associated, Inc. in February of 1998, be the same more or less, but subject to all legal highways and easements. Permanent Parcel Number 662-27-003, 004, 010 and 011 A-2 EXHIBIT A-2 LEGAL DESCRIPTION OF DELRAY FACILITY PARCEL 1: All of Parcel "A" and all of Parcel "B", ARC AT DELRAY WEST, P.U.D. according to the plat thereof as recorded in Plat Book 84, Pages 42 through 43, inclusive of the Public Records of Palm Beach County, Florida. PARCEL 2: TOGETHER with a Non-Exclusive Easement of Ingress, Egress and Utilities for the benefit of Parcel 1 set forth in Cross Access Easement Agreement recorded in Official Records Book 5866, Page 1085, as affected by instrument recorded in Official Records Book 6544, Page 1909 and Official Records Book 6544, page 1915, as further affected by Second Amendment to Cross Access and Utility Easement Agreement recorded in Official Records Book 11469, Page 1835, of the Public Records of Palm Beach County, Florida. Said lands situate, lying and being in Palm Beach County, Florida. Tax Assessor's No. PCN 00-42-46-20-10-001-0000 A-3 EXHIBIT A-3 LEGAL DESCRIPTION OF JACKSONVILLE FACILITY Parcel "A" A portion of Section 14, Township 3 South, Range 27 East, Duval County, Florida, being more particularly described as follows: For Point of Reference, commence at the Southeast corner of Section 14, and run North 00(degree) 37' 00" West, along the East line of said Section 14, a distance of 675.00 feet to a point; run thence North 89(degree) 42' 50" West, a distance of 120.00 feet to the Point of Beginning. From the Point of Beginning thus described, run North 89(degree) 42' 50" West, a distance of 795.00 feet to a point; run thence North 00(degree) 02' 10" West a distance of 1920.24 feet to a point; run thence South 89(degree) 45' 00" East, a distance of 801.46 feet to a point; run thence South 00(degree) 02' 10" East, a distance of 1823.07 feet to the Point of Beginning. Parcel "B" Together with a non-exclusive easement for ingress and egress as described in Amended and Restated Declaration of Easement recorded in Official Records Volume 6163, page 2383, of the current public records of Duval County, Florida, over and across the following described lands: A portion of Section 13 and 14, Township 3 South, Range 27 East, Jacksonville, Duval County, Florida, being more particularly described as follows: For point of beginning, commence at the Northeast corner of that property described in Official Records Volume 5141, Page 126, Public Records of said County, said point lying on the Westerly right of way line of Southside Boulevard, State Road No. 115, U.S. Alternate No. 1 (a 200 foot right of way as now established) at a point 100 feet Northerly of the intersection of said right of way line with the line dividing Sections 13 and 24, Township and Range aforementioned, and run North 89(degree) 45' 47" West, along the Northerly boundary line of said Official Records Volume 5141, Page 126, a distance of 1,534.86 feet; run thence North 0(degree) 14' 06" East, a distance of 150.00 feet to the Northerly line of a 150 foot power line easement as recorded in Official Records Volume 3040, page 983, of said County; run thence North 89(degree) 45' 47" West, a distance of 462.85 feet to a point lying on the Westerly line of said Section 13; run thence North 37(degree) 32' 14" West, a distance of 460.31 feet to a point of tangent intersection, with a curve, concave to the Northeast and having a radius of 100.00 feet; run thence Northerly, along said curve an arc distance of 66.01 feet through a central angle of 37(degree) 49' 23", a chord bearing and distance of North 18(degree) 37' 30" West, a distance of 64.82 feet to a point of intersection with a non-tangent line, said point being on the Northerly line of a 150-foot power line easement, as recorded in Official Records Volume 3040, Page 963; run thence South 89(degree) 42' 50" East, along the Northerly line of said power line easement, a distance of 176.59 feet to the Southerly and most Westerly corner of that land described in Official Records Volume 5809, Page 1938, of said County; run thence South 37(degree) 45' 02" East, a distance of 245.40 feet to a point of tangent intersection with a curve, concave to the Northeast and having a radius of 342.30 feet; run thence A-4 along said curve, an arc distance of 310.74 feet, through a central angle of 52(degree) 00' 45", a chord bearing and distance of South 63(degree) 45' 24" East, 300.18 feet to a point of tangency, run thence South 89(degree) 45' 47" East, a distance of 1,666.86 feet; run thence North 45(degree) 06' 01" East, a distance of 49.62 feet to the Westerly right of way line of said Southside Boulevard; run thence South 0(degree) 02' 10" East; along said Westerly line, a distance of 285.17 feet to the point of beginning, excepting therefrom that portion lying within the right of way of State Road No. 115 (Southside Boulevard) as now established and as described in instrument recorded in Official Records Volume 6333, page 2257, public records of said County. Parcel "C" Together with a non-exclusive easement for ingress and egress as described in Easement recorded in Official Records Volume 6164, page 6 of the current public records of Duval County, Florida, over and across the following described lands: A parcel of land, lying in Section 14, Township 3 South, Range 27 East, Duval County, Florida, being more particularly described as follows: For point of reference, commence at the Southeast corner of Section 14, and run North 00(degree) 37' 00" West, along the East line of said Section 14, a distance of 675.00 feet to the North line of a 150 foot power line easement, as described in Official Records Volume 3040, Page 963, of the current public records of said County; run thence North 89(degree) 42' 50" West, along said easement line, a distance of 296.58 feet to the point of beginning; thence continue North 89(degree) 42' 50" West, along said easement line, a distance of 149.01 feet to the intersection of a tangent curve, and having a radius of 250.00 feet, concave to the Southwest; run thence Southeasterly, along the arc of a curve, curving to the right through a central angle of 52(degree) 10' 36", a distance of 227.66 feet, the chord bearing and distance being South 63(degree) 37' 32" East, 219.88 feet, to the point of tangency; run thence North 37(degree) 32' 14" West, a distance of 44.78 feet to the beginning of a tangent curve, with a radius of 100.00 feet, concave to the East; run thence Northerly, along the arc of said curve, curving to the right, through a central angle of 37(degree) 49' 23", a distance of 66.01 feet, the chord bearing and distance being North 18(degree) 37' 30" West, 64.82 feet, to the point of beginning. Parcel "D" Together with the rights and easement, in common with others, for sign purposes as described in Sign and Landscaping Agreement recorded in Official Records Volume 5987, page 669 of the current public records of Duval County, Florida, as partially assigned by Partial Assignment recorded in Official Records Volume 5987, page 675, of the current public records of Duval County, Florida, upon across, over and under the following described lands: A portion of Section 13, Township 3 South, Range 27 East, Jacksonville, Duval County, Florida, being more particularly described as follows: For point of beginning, commence at the Northeast corner of that property described in Official Records Volume 5141, Page 126, Public Records of said County, said point lying on the Westerly right of way line of Southside Boulevard, State Road No. 115, U.S. Alternate No. 1 (a 200 foot right of way, as now established) at a point 100 feet Northerly of the intersection of said A-5 right of way line with the line dividing Sections 13 and 24, Township and Range aforementioned. From the point of beginning thus described, run North 89(degree) 45' 47" West, along the Northerly boundary line of the aforementioned property described in Official Records Volume 5141, page 126, said point lying on the line dividing Sections 13 and 14, Township and Range aforementioned; run thence North 00(degree) 37' 00" West, along said dividing line, a distance of 150.02 feet to a point; run thence North 37(degree) 32' 14" West a distance of 460.30 feet to a point of curvature; run thence 328.99 feet along the arc of a curve, concave Southeasterly and having a radius of 100.00 feet; a chord distance of 199.45 feet to the point of tangency, the bearing of the aforementioned chord being North 56(degree) 42' 42" East, run thence South 29(degree) 02' 11" East, a distance of 228.22 feet to a point of curvature; run thence 362.80 feet, along the arc of a curve, concave Northeasterly and having a radius of 342.303 feet, a chord distance of 346.06 feet to the point of tangency, the bearing of the aforementioned chord being South 59(degree) 23' 59" East; run thence South 89(degree) 45' 47" East, a distance of 1666.86 feet to a point; run thence North 45(degree) 06' 01" East, a distance of 49.62 feet to a point; run thence South 00(degree) 02' 10" East, along the Westerly right of way line of said Southside Boulevard, a distance of 285.17 feet to the point of beginning. Said Parcel being subject to a 150-foot power line easement along the Southerly and Westerly sides, as recorded in Official Records Volume 3040, page 963, of the public records of said county. LESS AND EXCEPT the following described land: A portion of Section 14, Township 3 South, Range 27 East, Jacksonville, Duval County, Florida, being more particularly described as follows: For point of reference, commence at the Northeast corner of that property described in Official Records Volume 5141, page 126, public records of said county, said point lying on the Westerly right of way line of Southside Boulevard, State Road No. 115, U.S. Alternate No. 1 (a 200 foot right of way, as now established) at a point 100 feet Northerly of the intersection of said right of way line with the line dividing Sections 13 and 24, Township and Range aforementioned; run thence North 89(degree) 45' 47" West, along the Northerly boundary line of the aforementioned property described in Official Records Volume 5141, page 126, a distance of 1995.48 feet to the Northwest corner of the aforementioned property described in Official Records Volume 5141, page 126, said point lying on the line dividing Sections 13 and 14, Township and Range aforementioned; run thence North 00(degree) 37' 00" West, along said dividing line, a distance of 574.99 feet to a point; run thence North 89(degree) 42' 50" West, a distance of 120.00 feet to a point for point of beginning; thence continue North 89(degree) 42' 50" West, a distance of 176.59 feet to a point on a curve; run thence 243.75 feet along the arc of a curve, concave Southeasterly and having a radius of 100.00 feet, a chord distance of 187.74 feet to a point on a curve, the bearing of the aforementioned chord being North 70(degree) 06' 58" East; run thence South 00(degree) 02' 10" East, a distance of 64.73 feet to the point of beginning, also excepting therefrom that portion lying within the right of way of State Road No. 115 (Southside Boulevard) as now established and a described in instrument recorded in Official Records Volume 6333, page 2257, public records of said county. A-6 Parcel "E" Together with a non-exclusive easement for drainage purposes as described in Drainage and Storm Water Easement recorded in Official Records Volume 5987 page 677, of the current public records of Duval County, Florida, on, over, across, under and through the following described lands: A portion of that certain parcel of land lying within the power line easement recorded in Official Records Volume 1192, page 261, and also described in Official Records Volume 3040, page 963, current public records of Duval County, Florida, which lies in the Westerly six hundred thirty feet (630') of the most Easterly one thousand forty feet (1040') thereof. APN: 147983-0100 A-7 EXHIBIT A-4 LEGAL DESCRIPTION OF HOUSTON FACILITY All that certain 1.8892 acre (82,292 square foot) tract of land located in the William White League, Abstract Number 836, Harris County, Texas, being all of a called 1.8892 acre tract of land described by special warranty deed recorded under Harris County Clerk's File Number U960067, said 1.8892 acre tract being more particularly described by metes and bounds as follows: (All bearings are referenced to the deed of record of subject as described by special warranty deed recorded under Harris County Clerk's File Number U960067 and originate from monuments found along the south line of said tract): BEGINNING at a 1-inch iron pipe found at the northwest corner of a called 40,455 square feet tract of land described by deed recorded under Harris County Clerk's File Number N129530 lying in the east right-of-way line of South Post Oak Boulevard, (100-foot wide right-of-way) for the southwest corner of the herein described tract; THENCE, North 02(degree) 43' 01" West, along said east right-of-way line and along the west line of said 1.8892 acre tract, a distance of 246.96 feet to an "X" cut in concrete found at the southwest corner of a called 2.427 acre tract of land described by deed recorded under Harris County Clerk's File Number K208035 from which a PK nail In concrete found bears North 13(degree) 11' 47" West, a distance of 0.42 feet and a 60d nail In concrete found bears North 33(degree) 36' 30" East, a distance of 0.40 feet for the northwest corner of the herein described tract; THENCE, North 87(degree) 16' 55" East, along the south line of said 2.427 acre tract and the north line of said 1.8892 acre tract, a distance of 359.99 feet to an "X" cut in concrete found at the southeast corner of said 2.427 acre tract from which an "X" cut in concrete found bears North 87(degree) 16' 55" East, a distance of 0.47 feet and a 60d nail in concrete found bears South 83(degree) 38' 35" East, a distance of 0.59 feet lying in the west right-of-way line of West Loop South (Interstate Highway 610, 300-foot wide right-of-way) for the northeast corner of the herein described tract; THENCE, South 09(degree) 22' 30" West, along said west right-of-way line and along the east line of said 1.8892 acre tract, a distance of 252.04 feet to a 1-inch iron pipe found at the northeast of a called 5,963 square feet tract of land described by deed recorded under Harris County Clerk's File Number N129530 and being the southeast corner of the herein described tract; THENCE, South 87(degree) 11' 14" West, along the north line of said 5,963 square feet tract and the south line of said 1.8892 acre tract, at a distance of 284.31 feet pass an angle point in the northerly line of said 40,455 square feet tract and being the northwest corner of said 5,963 square feet tract, continuing along said course, for a total distance of 307.19 feet to the POINT OF BEGINNING and containing a computed area of 1.8892 acres (82,292 square feet) of land. APN: 0451400040269, 0451400040103, 0451400040099 A-8 EXHIBIT A-5 LEGAL DESCRIPTION OF SAN ANTONIO FACILITY Lot 1650, SHAVANO PARK, UNIT 16F, Bexar County, Texas, according to the Plat recorded in Volume 9538, Pages 66-69, Deed and Plat Records, Bexar County, Texas. APN: 04773-100-1650 A-9 EXHIBIT A-6 LEGAL DESCRIPTION OF VICTORIA FACILITY Being Lot One (1), in Block No. One (1) of VICTORIA RETIREMENT COMMUNITY, LTD. SUBDIVISION, a Subdivision to the City of Victoria, Victoria County, Texas, according to the established map and plat of said Subdivision of record in Volume 7, Page 168A of Plat Records of Victoria County, Texas, to which reference is here made for description purposes. A-10 EXHIBIT B List of Facilities, Facility Description, Allocated Minimum Rent, Allocated Initial Investment and Lease Rate

- ------------------------------------------------------------------------------------------------------------------------------- INITIAL FACILITY DESCRIPTION MONTHLY ALLOCATED FACILITY AND PRIMARY INTENDED USE MINIMUM RENT - ------------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE FACILITY Core community located at 9601 Southbrook Drive in Jacksonville, $262,500.00 Florida, consisting of 60 assisted living facility units and 238 independent living beds commonly known as "Carriage Club of Jacksonville" - ------------------------------------------------------------------------------------------------------------------------------- POST OAK FACILITY Core community located at 2929 Post Oak Boulevard in Houston, $218,750.00 Texas, consisting of 39 assisted living facility units, 149 independent living beds and 56 skilled nursing beds commonly known as "Hampton at Post Oak" - ------------------------------------------------------------------------------------------------------------------------------- RICHMOND HEIGHTS FACILITY Assisted living facility located at Richmond Road and Hillary Land $66,562.50 in Cleveland, Ohio, consisting of 78 assisted living units and 17 memory enhanced (Alzheimer's) units commonly known as "Homewood at Richmond Heights" - ------------------------------------------------------------------------------------------------------------------------------- DELRAY BEACH FACILITY Assisted living facility located at 8020 W. Atlantic Avenue in $57,187.50 Delray, Florida, consisting of 54 assisted living units and 32 memory enhanced (Alzheimer's) units commonly known as "Homewood at Delray Beach" - ------------------------------------------------------------------------------------------------------------------------------- SHAVANO PARK FACILITY Assisted living facility located at 4096 De Zavala Road in San $46,875.00 Antonio, Texas, consisting of 62 assisted living units and 17 memory enhanced (Alzheimer's) units commonly known as "Homewood at Shavano Park" - -------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------ ALLOCATED INITIAL FACILITY INVESTMENT LEASE RATE - ------------------------------------------------------------------ JACKSONVILLE FACILITY $30,000,000.00 10.5% - ------------------------------------------------------------------ POST OAK FACILITY $25,000,000.00 10.5% - ------------------------------------------------------------------ RICHMOND HEIGHTS FACILITY $7,100,000.00 11.25% - ------------------------------------------------------------------ DELRAY BEACH FACILITY $6,100,000.00 11.25% - ------------------------------------------------------------------ SHAVANO PARK FACILITY $5,000,000.00 11.25% - ------------------------------------------------------------------

B-1

INITIAL FACILITY DESCRIPTION MONTHLY ALLOCATED FACILITY AND PRIMARY INTENDED USE MINIMUM RENT - ------------------------------------------------------------------------------------------------------------------------------- VICTORIA FACILITY Mixed congregate care and assisted living facility located at 9806 $53,635.41 N.E. Zac Lentz Parkway in Victoria, Texas, of 60 and 30 units, respectively, commonly known as "Homewood Residence at Victoria" - -------------------------------------------------------------------------------------------------------------------------------

ALLOCATED INITIAL LEASE INVESTMENT RATE - ------------------------------------------------------------------ VICTORIA FACILITY $4,584,284.00 N/A - ------------------------------------------------------------------

2 EXHIBIT C List of Lessor's Personal Property All machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other tangible personal property used or useful in Lessee's business on the Leased Property and all Capital Additions, excluding items, if any, included within the definition of Fixtures, but specifically including those items described in Schedule 1 hereto. C-1 Schedule 1 Itemization of Lessor's Personal Property [To be mutually agreed upon by Lessor and Lessee prior to the Commencement Date. When agreed upon, the same shall be initialed by each of Lessor and Lessee and attached to Exhibit C as Schedule 1, and will thereafter form a part of this Lease. Failure of either Lessor or Lessee to prepare and/or initial such Schedule 1 shall not affect the definition of or what personal property constitutes Lessor's Personal Property in accordance with Exhibit C.] Schedule 1 to Exhibit C EXHIBIT D Form Of Irrevocable Standby Letter Of Credit Health Care Property Investors, Inc. Texas HCP Holdings, L.P. 4675 MacArthur Boulevard, Suite 900 Newport Beach, California 92660 Date: Letter of Credit No.: ------------------ --------------- Expiration Date: -------------------- GENTLEMEN: We hereby establish our irrevocable letter of credit in your favor for the account of __________________________ available by your draft(s) on us payable at sight not to exceed a total of__________________________________________________________________ (_____________________) when accompanied by the following documents: 1) A certificate purported to be executed by a representative of Health Care Property Investors, Inc. or Texas HCP Holdings, L.P. ("Lessor") stating the amount for which a draw under this letter of credit is made and that: (a) _____________________________ ("Lessee") has committed an Event of Default under the lease dated ________________, between Lessor and Lessee; or (b) that Lessee or an Affiliate of Lessee has committed an event of default (beyond applicable periods of notice and cure) under any other lease or agreement or other instrument now or hereafter made with or in favor of Lessor or an Affiliate of Lessor]; or (c) an event or circumstance has occurred which with notice or passage of time, or both, would constitute an Event of Default or an event of default under any such other lease or agreement or instrument, but for the fact that transmittal of any such notice is barred by applicable debtor relief law; or (d) a certificate purported to be executed by a representative of Lessor stating that a replacement letter of credit for this instrument has not been supplied prior to thirty (30) days in advance of the expiration of this instrument for the account of Lessor. 2) The original letter of credit must accompany all drafts unless a partial draw is presented, in which case the original must accompany the final draft. Partial drawings are permitted, with the letter of credit being reduced, without amendment, by the amount(s) drawn hereunder. This letter of credit shall expire at 2:00 p.m. at the office of ____________________________ ________________________________________ on the expiration date. This letter of credit may be transferred or assigned by the beneficiary hereof to any successor or assign of such beneficiary's interest in any such lease or other agreement or to any lender obtaining a lien or security interest in the property covered by any such lease. Each draft D-1 hereunder by any assignee or successor shall be accompanied by a copy of the fully executed documents or judicial orders evidencing such encumbrance, assignment or transfer. Any draft drawn hereunder must bear the legend "Drawn under ________________________ Letter of Credit Number __________ dated ____________________. Except so far as otherwise expressly stated, this letter of credit is subject to the "Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Brochure No. 500." We hereby agree with you and all persons negotiating such drafts that all drafts drawn and negotiated in compliance with the terms of this letter of credit will be duly honored upon presentment and delivery of the documents specified above by certified or registered mail to _________________________________ located at ____________________________________ ______________________________________________________________________________ if negotiated not later that 2:00 p.m. on or before the expiration date shown above. Very truly yours, By ------------------------------------------------ Its ------------------------------------------------ D-2 EXHIBIT E Schedule of Insurance Deductible Limits Independent Living (all states except Florida and Texas): $ 200,000 Independent Living (Florida and Texas): $1,000,000 Assisted Living (all states except Florida and Texas): $ 250,000 Assisted Living (Florida and Texas): $1,000,000 Memory Enhanced (Alzheimers) (all states): $1,000,000 Skilled Nursing Facility (all states except Florida and Texas): $1,000,000 Skilled Nursing Facility (Florida and Texas) $3,000,000 E-1 EXHIBIT F List of Existing Facilities Within Ten Mile Radius

Leased Property Facilities Within Ten Mile Radius - --------------- --------------------------------- 1. Jacksonville Facility None 2. Houston Facility The Hampton Assisted Living Residences at Shadowlake The Hampton Assisted Living Residences at Pinegate The Hampton Assisted Living Residences at Shadow Springs (approximately 10.88 miles from Houston Facility) 3. San Antonio Facility Homewood Residence at Castle Hills 4. Richmond Facility Homewood Residence at Rockefeller Gardens 5. Delray Facility Homewood Residence at Boynton Beach Homewood Residence at Boca Raton

F-1 EXHIBIT G List of Existing Commercial Occupancy Arrangements

- ---------------------------------------------------------------------------------------------------- FACILITY OCCUPANT TERMS - ---------------------------------------------------------------------------------------------------- JACKSONVILLE FACILITY Eckerd Occupant does not pay owner any amounts - ---------------------------------------------------------------------------------------------------- First Union Occupant pays owner National Bank $7,000/year in equal monthly payments, inclusive of all sales tax - ---------------------------------------------------------------------------------------------------- Beauty Shop Occupant pays owner weekly rent of 15% of gross receipts (plus sales tax if applicable) - ---------------------------------------------------------------------------------------------------- POST OAK FACILITY Beauty Shop Occupant pays owner $1,200/month - ---------------------------------------------------------------------------------------------------- SAN ANTONIO FACILITY Beauty Shop Occupant pays owner a station fee of $12/half day or $24/day - ---------------------------------------------------------------------------------------------------- RICHMOND HEIGHTS FACILITY Beauty Shop Pursuant to oral license - ---------------------------------------------------------------------------------------------------- DELRAY BEACH FACILITY Beauty Shop Occupant pays owner 10% of gross revenues, excluding tips - ----------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------- FACILITY RENEWAL AND TERMINATION RIGHTS - ---------------------------------------------------------------------------------------------------- JACKSONVILLE FACILITY Automatically renewed each year; may be terminated by either party upon 90 days' notice - --------------------------------------------------------------------------------------------------- Occupant has option to renew for 20 consecutive terms of one year each upon 60 days' notice - ---------------------------------------------------------------------------------------------------- Automatically renewed each year; may be terminated by either party upon 30 days' notice - ---------------------------------------------------------------------------------------------------- POST OAK FACILITY Automatically renews for one year; expires 5/31/02; may be terminated by either party upon 90 days' notice - ---------------------------------------------------------------------------------------------------- SAN ANTONIO FACILITY Automatically renews each year; may be terminated by either party upon 30 days' notice - ---------------------------------------------------------------------------------------------------- RICHMOND HEIGHTS FACILITY Pursuant to oral license - ---------------------------------------------------------------------------------------------------- DELRAY BEACH FACILITY Expires 10/1/02; may be terminated by either party upon 30 days' notice - ----------------------------------------------------------------------------------------------------

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EX-10.1

                                                                    EXHIBIT 10.1


                                 Lease Agreement

                                 by and between

                              COUNTRYSIDE ALF, LLC,

                      a New York limited liability company

                                  as "Landlord"


                                       and


                             ARCLP - CHARLOTTE, LLC

                      a Tennessee limited liability company

                                   as "Tenant"

                             Dated December 31, 2001






                                 LEASE AGREEMENT

        THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the 31st
day of December, 2001 by and between COUNTRYSIDE ALF, LLC, a New York limited
liability company ("LANDLORD") having an address of 760 Brooks Avenue,
Rochester, New York 14619, and ARCLP-CHARLOTTE, LLC, a Tennessee limited
liability company ("TENANT"), having an address of c/o American Retirement
Corporation, 111 Westwood Place, Suite 412, Brentwood, Tennessee 37027.

                              W I T N E S S E T H:

        WHEREAS, Landlord has purchased from Tenant, a subsidiary of American
Retirement Corporation, a Tennessee corporation ("ARC"), certain real property,
all improvements thereon (the "IMPROVEMENTS") and all appurtenances thereto,
comprising a continuing care retirement community known as "Carriage Club of
Charlotte", located in Charlotte, North Carolina and more specifically described
in Exhibit "A" attached hereto, together with the furniture, machinery,
equipment, appliances, fixtures, supplies and other personal property used in
connection therewith as more specifically described on Exhibit "B" attached
hereto ("LANDLORD PERSONAL Property"). The foregoing real and personal property
owned by Landlord as described in this Recital shall be collectively referred to
in this Lease as the "PREMISES";

        WHEREAS, Landlord desires to lease the Premises to Tenant, and Tenant
desires to lease the Premises from Landlord.


                                       1


        NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, Landlord hereby leases and lets unto Tenant the
Premises for the term and upon the conditions and provisions hereinafter set
forth.

        1. TERM.

                1.1 TERM. The term of this Lease shall commence at 12:01 a.m. on
        December 31, 2001 (the "COMMENCEMENT Date") and shall end at 11:59 p.m.
        on December 31, 2016 (the "INITIAL TERM") unless extended pursuant to
        Section 1.2 or earlier terminated in accordance with the provisions
        hereof. The Initial Term and all Renewal Terms are referred to
        collectively as the "TERM". (Each 12 month period commencing on January
        1st of each calendar year during the Term shall be referred to herein as
        a "LEASE YEAR".)

                1.2 RENEWAL TERMS. The Initial Term may be extended for two (2)
        separate renewal terms (each a "RENEWAL Term") of five (5) years each,
        upon the satisfaction of all of the following terms and conditions:

                        1.2.1 At least three hundred sixty (360) days prior to
                the end of the then current Term, Tenant shall have given
                Landlord written notice that Tenant desires to exercise its
                right to extend the then current Term for the succeeding Renewal
                Term.

                        1.2.2 This Lease shall be in full force and effect and
                Tenant shall not then be in material default of its obligations
                beyond any applicable periods of grace and/or notice and cure.

                        1.2.3 All other provisions of this Lease shall remain in
                full force and effect and shall continuously apply throughout
                the Renewal Term(s).




                                       2


        2. RENT. During the Initial Term and all Renewal Terms, minimum rent
("MINIMUM RENT") shall be paid by Tenant to Landlord at the address set forth in
Section 14 of this Lease (except as otherwise provided in Section 2.1 below),
without abatement, deduction or set-off, as follows:

                2.1 MINIMUM RENT. During the Initial Term and all Renewal Terms
        Minimum Rent shall be paid to Landlord by Tenant monthly in advance on
        the first business day of each month (except for the payment made upon
        the execution hereof as provided in Section 2.1.1 below), and shall be
        calculated as follows:

                        2.1.1 Upon the execution hereof, Tenant has delivered to
                Landlord Minimum Rent in the amount of $_______________,
                representing prorated Minimum Rent for December 31, 2001.

                        2.1.2 Except as provided in Section 2.1.1, the Minimum
                Rent for each month from January, 2002 through July, 2008 (the
                scheduled maturity of the Heller Loan), inclusive, shall be the
                sum of $236,374.11 (the monthly Permitted Loan Debt Service to
                Heller), plus an amount equal to the Landlord Investment
                Component.

                        2.1.3 For the month of August, 2008 and for each month
                during the Term thereafter, the Minimum Rent shall be the sum of
                the Theoretical Debt Service plus an amount equal to the
                Landlord Investment Component. The Minimum Rent shall be
                calculated every month and shall be adjusted to reflect any
                change in the interest rate of any Permitted Mortgage Loan.
                Exhibit "D-1" attached hereto demonstrates the calculation of
                Minimum Rent as set forth in this Section 2.1.3.



                                       3


                        2.1.4 As used herein:

                                "HELLER" shall mean Heller Financial, Inc., a
                        Delaware corporation, together with its successors and
                        assigns.

                                "HELLER LOAN" shall mean that certain loan from
                        Heller to Tenant, in the original principal amount of
                        $36,000,000, evidenced by that certain Fixed Rate
                        Program Promissory Note Secured by Mortgage dated July
                        9, 1998 in said principal amount, payable to Heller, and
                        any modifications, renewals or extensions thereof, as
                        assumed by Landlord pursuant to that certain Assumption
                        Agreement and Amendment to Loan Documents of even date
                        herewith. The parties hereto agree that the terms and
                        conditions of the Heller Loan as of the commencement
                        date of this Lease are commercially reasonable and
                        customary.

                                "INDEX" means the Consumer Price Index - All
                        Urban Consumers, U.S. City Average (All Items)
                        (1982=100), as published by the Department of the Bureau
                        of Labor Statistics, United States Department of Labor.
                        In the event the Index ceases to be published there
                        shall be made in the method of computation of Minimum
                        Rent herein provided such revisions as the circumstances
                        may require to carry out the intent of this Section 2.1.

                                "LANDLORD INVESTMENT COMPONENT" shall mean, for
                        any month, Landlord's Adjusted Investment Amount as
                        determined for the year in which such month occurs,
                        multiplied by ten percent (10%) and divided by twelve
                        (12).



                                       4


                                "LANDLORD'S ADJUSTED INVESTMENT AMOUNT" shall
                        mean, (a) during the first calendar year of the Term
                        (i.e., January, 2002 through December, 2002), the sum of
                        $10,567,851.72 (the sum of the purchase price for the
                        Premises paid by Landlord plus Landlord's closing
                        expenses minus the principal balance of Heller Loan as
                        of the closing) and (b) for each subsequent calendar
                        year of the Term, the Landlord's Adjusted Investment
                        Amount as in effect during the immediately preceding
                        calendar year, multiplied by a fraction, the numerator
                        of which shall be the Index number as in effect on
                        (i.e., as published immediately prior to) January 1 of
                        such subsequent calendar year and the denominator of
                        which shall be the Index number as in effect on (i.e.,
                        as published immediately prior to) January 1 of the
                        immediately preceding calendar year. In addition,
                        Landlord's Adjusted Investment Amount shall be adjusted
                        as provided in Section 4.10 hereof.

                                "PERMITTED LOAN DEBT SERVICE" shall mean, for
                        any month, the regularly scheduled installments of
                        principal and/or interest and any other payments
                        required under any Permitted Mortgage Loan first due and
                        payable during such month.

                                "PERMITTED MORTGAGE LENDER" shall mean Heller
                        and any other commercial lending institution that
                        generally engages in the business of making real estate
                        loans, but shall not include any competitor of ARC.

                                "PERMITTED MORTGAGE LOAN" shall mean any loan to
                        Landlord from a Permitted Mortgage Lender that is
                        secured by a valid mortgage or




                                       5


                        deed of trust lien on the Premises; provided that (i)
                        the terms and conditions of such loan, and all
                        instruments, documents and agreements evidencing or
                        relating to such loan (collectively, "PERMITTED MORTGAGE
                        LOAN DOCUMENTS"), shall be commercially reasonable and
                        customary, (ii) Tenant shall have consented in writing
                        to such Permitted Mortgage Loan Documents and their
                        terms and conditions in advance of the making of such
                        loan (which consent shall not be unreasonably withheld,
                        conditioned or delayed), (iii) the amount of such loan
                        shall not, when aggregated with the outstanding
                        principal amount of any other Permitted Mortgage Loans
                        then in effect, exceed eighty-five percent (85%) of the
                        Fair Market Value (as defined in attached Exhibit "C")
                        of the Premises at the time that such loan is first
                        made, and (iv) such loan is permitted by, and will not
                        constitute a default under, any other Permitted Mortgage
                        Loan.

                                "PREVAILING INTEREST RATE" shall mean the per
                        annum interest rate in effect with respect to any
                        Permitted Mortgage Loan.

                                "THEORETICAL PRINCIPAL" shall mean (i) as of
                        July 1, 2008, the sum of $31,400,131, and (ii) for each
                        month of the Term thereafter, the theoretical principal
                        balance of a loan in such amount amortized in equal
                        consecutive monthly installments of principal and
                        interest over the Theoretical Loan Term at the rate of
                        6.87% per annum, compounded monthly. Exhibit "D-2"
                        attached hereto demonstrates the amortization of
                        Theoretical Principal.



                                       6


                                "THEORETICAL DEBT SERVICE" shall mean, as of any
                        date of determination, the theoretical amount that would
                        be necessary to amortize fully a loan in the principal
                        amount of the Theoretical Principal in equal consecutive
                        monthly installments of principal and interest over the
                        Theoretical Loan Term, in each case at the Prevailing
                        Interest Rate in effect on such date.

                                "THEORETICAL LOAN TERM" shall mean, as of any
                        date of determination, 300 months less the number of
                        full months of the Term that have elapsed prior to the
                        month in which the date of determination occurs.

                        2.1.5 When so agreed by the parties, and in any event if
                Landlord has defaulted in the making of payments in respect of
                any Permitted Mortgage Loan or Tenant reasonably believes any
                such default is likely, Tenant may pay the portion of the
                Minimum Rent attributable to Permitted Loan Debt Service
                directly to the Permitted Mortgage Lender(s) entitled thereto.

                2.2 ADDITIONAL RENT. In addition to Minimum Rent, Tenant shall
        pay as additional rent hereunder all other amounts, liabilities,
        obligations and Impositions (as hereinafter defined) which Tenant
        assumes or agrees to pay under this Lease and any fine, penalty,
        interest, charge and cost which may be added for nonpayment or late
        payment of such items (collectively the "ADDITIONAL RENT"). The Minimum
        Rent and Additional Rent are referred to herein as "RENT". Landlord
        shall have all legal, equitable and contractual rights, powers and
        remedies provided either in this Lease or by statute or otherwise in the
        case of nonpayment of the Rent.



                                       7


                2.3 PAYMENT ON TERMINATION. In the event the Tenant shall fail
        to exercise any option to renew this Lease, or this Lease otherwise
        terminates for any reason prior to December 31, 2026, Tenant shall pay
        to Landlord upon termination an amount (the "SPECIAL LUMP SUM PAYMENT")
        calculated as follows:

                        (a) If the termination is effective as of a date prior
                to July 1, 2008, the Special Lump Sum Payment shall be in an
                amount equal to the difference between (i) the principal balance
                of the Heller Loan as of the date of termination and (ii) the
                principal balance, as of the date of termination, of a
                theoretical loan in the initial principal amount of $34,779,918
                as of December 31, 2001, amortized in equal consecutive monthly
                installments of principal and interest over a period of 300
                months at the rate of 6.87% per annum, compounded monthly.

                        (b) If the termination is effective as of July 1, 2008,
                the Special Lump Sum Payment shall be in the amount of $914,098.

                        (c) If the termination is effective as of a date
                subsequent to July 1, 2008, the Special Lump Sum Payment shall
                be in an amount equal to the principal balance, as of the date
                of termination, of a theoretical loan in the initial principal
                amount of $914,098 as of July 1, 2008, amortized in equal
                consecutive monthly installments of principal and interest over
                a period of 222 months at the rate of 6.87% per annum,
                compounded monthly.

                2.4 PRORATION FOR PARTIAL PERIODS. Except as otherwise provided
        herein, the Rent for any month during the Term that begins or ends on
        other than the first or last calendar day of such month shall be
        prorated based on actual days elapsed.

                2.5 ABSOLUTE NET LEASE. All rent payments shall be absolutely
        net to the Landlord free of all Impositions (as defined below), utility
        charges, operating expenses, refurnishings, insurance premiums or any
        other charge or expense in connection with the Premises. All expenses
        and charges, whether for upkeep, maintenance, repair, refurnishing,
        refurbishing, restoration, replacement, insurance premiums, real estate
        or other property taxes, utilities, and other operating or other charges
        of a like nature or otherwise, shall be paid by




                                       8


        Tenant. This provision is not in derogation of the specific provisions
        of this Lease, but in expansion thereof and as an indication of the
        general intention of the parties hereto.

                2.6 NO TERMINATION, ABATEMENT, ETC. Except as otherwise
        specifically provided in this Lease, Tenant shall remain bound by this
        Lease in accordance with its terms. Tenant shall not, without the
        consent of Landlord, modify, surrender or terminate the Lease, nor seek
        nor be entitled to any abatement, deduction, deferment or reduction of
        Rent, or set-off against the Rent. Except as expressly provided in this
        Lease, the obligations of Landlord and Tenant shall not be affected by
        reason of (i) any damage to, or destruction of, the Premises or any part
        thereof from whatever cause or any Taking (as hereinafter defined) of
        the Premises or any part thereof; or (ii) the lawful or unlawful
        prohibition of, or restriction upon, Tenant's use of the Premises, or
        any part thereof, the interference with such use by any person,
        corporation, partnership or other entity, or by reason of eviction by
        paramount title. Except as otherwise specifically provided in this
        Lease, Tenant hereby specifically waives all rights, arising from any
        occurrence whatsoever, which may now or hereafter be conferred upon it
        by law to modify, surrender or terminate this Lease or quit or surrender
        the Premises or any portion thereof.

        3. TAXES, ASSESSMENTS AND OTHER CHARGES.

                3.1 PAYMENT OF IMPOSITIONS. Tenant shall pay, as Additional
        Rent, all Impositions that may be levied or become a lien on the
        Premises or any part thereof at any time (whether prior to or during the
        Term), without regard to prior ownership of said Premises, before any
        fine, penalty, interest, or cost is incurred; provided, however, Tenant
        may contest any Imposition in accordance with Section 3.4. Tenant shall
        deliver to Landlord [i] not more than five (5) days after the due date
        of each Imposition, copies of the invoice for such Imposition and the
        check delivered for payment thereof; and [ii] not more than 30 days
        after the due date of each



                                       9


        Imposition, a copy of the original receipt evidencing such payment or
        other proof of payment satisfactory to Landlord. Tenant's obligation to
        pay such Impositions shall be deemed absolutely fixed upon the date such
        Impositions become a lien upon the Premises or any part thereof. Tenant,
        at its expense, shall prepare and file all tax returns and reports in
        respect of any Imposition as may be required by governmental
        authorities. Tenant shall be entitled to any refund due from any taxing
        authority if no Event of Default shall have occurred hereunder and be
        continuing. Landlord shall be entitled to any refund from any taxing
        authority if an Event of Default has occurred and is continuing.
        Landlord and Tenant shall, upon request of the other, provide such data
        as is maintained by the party to whom the request is made with respect
        to the Premises as may be necessary to prepare any required returns and
        reports. In the event any governmental authority having jurisdiction
        classifies any property covered by this Lease as personal property,
        Tenant shall file any required personal property tax returns in each
        jurisdiction in which the same must be filed. Landlord, to the extent it
        possesses the same, and Tenant, to the extent it possesses the same,
        will provide the other party, upon request, with cost and depreciation
        records necessary for filing returns for any property so classified as
        personal property. In the event Landlord is legally required to file
        personal property tax returns, Tenant will be provided with copies of
        assessment notices indicating a value in excess of the reported value in
        sufficient time for Tenant to file a protest. Tenant shall reimburse
        Landlord for all personal property taxes paid by Landlord within thirty
        (30) days after receipt of billings accompanied by copies of a bill
        therefor and payments thereof which identify the personal property with
        respect to which such payments are made.

                3.2 DEFINITION OF IMPOSITIONS. "IMPOSITIONS" means,
        collectively, [i] all real estate and personal property ad valorem,
        sales and use, business or occupation, single business,





                                       10


        gross receipts, transaction privilege, rent or similar taxes assessed
        against or with respect to the Premises, this Lease, the Rent payable
        hereunder or Tenant's business operation at the Premises; [ii]
        assessments (including without limitation, all assessments for public
        improvements or benefits, whether or not commenced or completed prior to
        the date hereof and whether or not to be completed with the Term); [iii]
        ground rents, water, sewer or other rents and charges, excises, tax
        levies, and fees (including without limitation, license, permit,
        inspection, authorization and similar fees); [iv] all taxes imposed on
        Tenant's operations of the Premises, including without limitation,
        employee withholding taxes, income taxes and intangible taxes; [v] all
        taxes imposed by the State of North Carolina (the "STATE") or any
        governmental entity in the State with respect to the conveyance of the
        Premises by Landlord to Tenant or Tenant's designee, including without
        limitation, conveyance taxes and capital gains taxes; and [vi] all other
        governmental charges, in each case whether general or special, ordinary
        or extraordinary, or foreseen or unforeseen, of every character in
        respect of the Premises or any part thereof and/or the Rent (including
        all interest and penalties thereon due to any failure in payment by
        Tenant), which at any time prior to, during or in respect of the Term
        hereof may be assessed or imposed on or in respect of or be in a lien
        upon [a] Landlord or Landlord's interest in the Premises or any part
        thereof; [b] the Premises or any part thereof or any rent therefrom or
        any estate, right, title or interest therein; or [c] any occupancy,
        operation, use or possession of, or sales from, or activity conducted
        on, or in connection with the Premises or the leasing or use of the
        Premises or any part thereof. Notwithstanding anything herein to the
        contrary, "Impositions" shall not include, and Tenant shall not be
        required to pay, any tax based on, or calculated with reference to,
        Landlord's income or revenues by any governmental entity.



                                       11


                3.3 PRORATION. Impositions imposed in respect of the tax-fiscal
        period during which the Term terminates shall be adjusted and prorated
        between Landlord and Tenant, regardless of whether such Imposition is
        imposed before or after such termination, and Tenant's obligation to pay
        its prorated share thereof shall survive such termination.
        Notwithstanding the foregoing to the contrary, (a) if Tenant or its
        assignee exercises the right of first refusal pursuant to the terms of
        Section 6.2 hereof, Impositions shall not be prorated and shall remain
        the obligation of Tenant after termination of this Lease, and (b) if
        this Lease is terminated because of the occurrence of an Event of
        Default, Impositions imposed in respect of the portion of the tax-fiscal
        period during which the Term terminates that are attributable to the
        period prior to termination shall remain the obligation of Tenant, shall
        not be prorated and shall be considered an element of the damages
        recoverable by the Landlord because of the occurrence of such Event of
        Default.

                3.4 RIGHT TO PROTEST. Landlord and/or Tenant shall have the
        right, but not the obligation, to protest the amount or payment of any
        Impositions; provided that in the event of any protest by Tenant,
        Landlord shall not incur any expense because of any such protest, Tenant
        shall diligently and continuously prosecute any such protest and
        notwithstanding such protest Tenant shall pay any such Imposition before
        the imposition of any penalty.

                3.5 TAX BILLS. Landlord shall promptly forward to Tenant copies
        of all tax bills and payment receipts relating to the Impositions
        received by Landlord.

                3.6 OTHER CHARGES. Tenant agrees to pay and discharge,
        punctually as and when the same shall become due and payable without
        penalty, all electricity, gas, garbage collection, cable television,
        telephone, water, sewer, and other utilities costs and all other
        charges, obligations or deposits assessed against the Premises during
        the Term.



                                       12


        4. INSURANCE.

                4.1 GENERAL INSURANCE REQUIREMENTS. All insurance provided for
        in this Lease shall be maintained under valid and enforceable policies
        issued by insurers of recognized responsibility, approved to do business
        in the State having a general policyholders rating of not less than "A"
        and a financial rating of not less than "X" in the then most current
        Best's Insurance Report. Any and all policies of liability insurance
        required under this Lease shall name the Landlord and any Permitted
        Mortgage Lender (as defined hereinafter) as an additional named insured
        and shall be on an "occurrence" or "claims made" basis (at Tenant's
        election); provided, however, the proceeds of any business interruption
        policy shall be payable to Tenant without relieving Tenant in any way of
        its obligation to pay Rent under this Lease. In addition, Landlord shall
        be shown as the loss payable beneficiary under the casualty insurance
        policy maintained by Tenant pursuant to Section 4.2. All policies of
        insurance required herein may be in the form of "blanket" or "umbrella"
        type policies which shall name the Landlord and Tenant as their
        interests may appear and allocate to the Premises the full amount of
        insurance required hereunder. All policies of insurance required herein
        shall have deductibles and/or self-insured retention limits, as
        applicable, in such amounts as are reasonably available to Tenant and as
        are then customary for businesses engaged in activities similar to the
        Retirement Care Facility (as defined in Section 5.2 below) in similar
        locales. Certificates from the insurers evidencing the existence of all
        policies of insurance required by this Lease and showing the interest of
        the Landlord shall be filed with the Landlord prior to the commencement
        of the Term and shall provide that the subject policy may not be
        canceled except upon not less than ten (10) days' prior written notice
        to Landlord. Certificates from the insurers evidencing the existence of
        any renewal policies shall be deposited with Landlord upon renewal of
        the applicable policies. Any





                                       13


        claims under any policies of property insurance described in this Lease
        shall be adjudicated by and at the expense of the Tenant or of its
        insurance carrier, and if (and to the extent that) either Landlord or
        Tenant participates in such adjudication then the parties shall
        cooperate fully with each other in such participation.

                4.2 PROPERTY INSURANCE. At Tenant's expense, Tenant shall
        maintain in full force and effect a property insurance policy or
        policies insuring the Premises against the following:

                        4.2.1 Loss or damage commonly covered by a "Special
                Form" policy (also known as an "All Risk Policy") insuring
                against physical loss or damage to the Premises, including but
                not limited to, risk of loss from fire and other hazards,
                collapse, transit coverage, vandalism, malicious mischief, and
                any other risk as is normally covered under such a policy. The
                policy shall be in the amount of the Full Replacement Value (as
                hereinafter defined) of the Premises and shall contain a
                deductible amount reasonably acceptable to Landlord and any
                Permitted Mortgage Lender (as hereinafter defined) in light of
                all applicable circumstances (including general industry
                conditions), but in no event shall Landlord require such
                deductible amount to be less than the deductible amount in
                effect immediately prior to the Commencement Date. Landlord
                shall be named as an additional insured. The policy shall
                include a stipulated value endorsement or agreed amount
                endorsement and endorsements for contingent liability for
                operations of building laws, demolition costs, and increased
                cost of construction.



                                       14


                        4.2.2 If applicable, loss or damage by explosion of
                steam boilers, pressure vessels, or similar apparatus, now or
                hereafter installed on the Premises, in commercially reasonable
                amounts acceptable to Landlord.

                        4.2.3 Consequential loss of rents and income coverage
                insuring against all "Special Form" risk of physical loss or
                damage with limits and deductible amounts acceptable to Landlord
                covering risk of loss during the first 9 months of
                reconstruction, and containing an endorsement for extended
                period of indemnity of at least 6 months, and shall be written
                with a stipulated amount of coverage if available at a
                reasonable premium.

                        4.2.4 If the Premises is located, in whole or in part,
                in a federally designated 100-year flood plain area, flood
                insurance for all Improvements of every nature whatsoever now or
                hereafter situated on the Premises in an amount equal to the
                lesser of (i) the Full Replacement Value (as defined in Section
                4.6) of the Improvements; or (ii) the maximum amount of
                insurance available for the Improvements under all federal and
                private flood insurance programs.

                        4.2.5 Loss or damage caused by the breakage of plate
                glass in commercially reasonable amounts acceptable to Landlord.

                        4.2.6 Loss or damage commonly covered by blanket crime
                insurance including employee dishonesty, loss of money orders or
                paper currency, depositor's forgery, and loss of property of
                patients accepted by Tenant for safekeeping, in commercially
                reasonable amounts acceptable to the Landlord.

                4.3 PUBLIC LIABILITY. At Tenant's expense, Tenant shall maintain
        liability insurance against the following:





                                       15


                        4.3.1 Claims for personal injury or property damage
                commonly covered by commercial general liability insurance, with
                endorsements for contractual, personal injury, products and
                completed operations, broad form property damage and extended
                bodily injury, in commercially reasonable amounts for bodily
                injury and property damage acceptable to Landlord, but with a
                combined single limit of not more than $5,000,000.00 per
                occurrence; provided, however, this amount shall be adjusted at
                the commencement of each Renewal Term according to reasonable
                and customary practices for similar businesses in similar
                locales.

                        4.3.2 Claims for personal injury and property damage
                commonly covered by comprehensive automobile liability
                insurance, covering all owned and non-owned automobiles, with
                commercially reasonable amounts for bodily injury, property
                damage, and or automobile medical payments acceptable to
                Landlord, but with a combined single limit of not less than
                $3,000,000.00 per occurrence.

                        4.3.3 Claims for personal injury commonly covered by
                medical malpractice insurance in commercially reasonable amounts
                acceptable to Landlord.

                        4.3.4 Claims commonly covered by worker's compensation
                insurance for all persons employed by Tenant on the Premises.
                Such worker's compensation insurance shall be in accordance with
                the requirements of all applicable local, state, and federal
                law.

                4.4 BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain, at
        its expense, business interruption and extra expense insurance insuring
        a period of not less than three (3) months.



                                       16


                4.5 BUILDER'S RISK INSURANCE. In connection with any
        construction, Tenant shall maintain in full force and effect a builder's
        completed value risk policy ("BUILDER'S RISK POLICY") of insurance in a
        nonreporting form insuring against all "Special Form" risk of physical
        loss or damage to the Improvements, including but not limited to, risk
        of loss from fire and other hazards, collapse, transit coverage,
        vandalism, malicious mischief, theft, earthquake (if the Premises are in
        earthquake zone 1 or 2) and sinkholes (if usually recommended in the
        area of the Premises). The Builder's Risk Policy shall include
        endorsements providing coverage for building materials and supplies and
        temporary premises. The Builder's Risk Policy shall be in the amount of
        the Full Replacement Value of the improvements on the Premises and shall
        contain a deductible amount acceptable to Landlord. Landlord shall be
        named as additional insured. The Builder's Risk Policy shall include an
        endorsement permitting initial occupancy.

                4.6 REPLACEMENT VALUE. The term "FULL REPLACEMENT VALUE" means
        the actual replacement cost thereof from time to time including
        increased cost of construction endorsement, with no reductions or
        deductions. Tenant shall, in connection with each annual policy renewal,
        deliver to Landlord a redetermination of the full replacement value by
        the insurer or an endorsement indicating that the Premises is insured
        for its full replacement value. If Tenant makes any alterations to the
        Premises, Landlord may have such full replacement value redetermined at
        any time after such alterations are made, regardless of when the full
        replacement value was last determined.

                4.7 PERMITTED MORTGAGE LENDER'S INSURANCE REQUIREMENTS.
        Notwithstanding anything to the contrary in this Lease, Tenant's
        obligations with respect to insurance as described in this Section 4
        shall at all times be subject to any Permitted Mortgage Lender's
        insurance requirements as described in any of the documents evidencing a
        Permitted




                                       17


        Mortgage Loan (the "PERMITTED MORTGAGE LOAN INSURANCE REQUIREMENTS").
        Should the Permitted Mortgage Loan Insurance Requirements exceed the
        insurance requirements set forth in this Lease in any way, including
        without limitation, scope of coverage and coverage amounts, Tenant shall
        comply with terms of the Permitted Mortgage Loan Insurance Requirements
        to the extent that such requirements exceed Tenant's obligations in this
        Section 4. Absent acquiescence, waiver or amendment by any Permitted
        Mortgage Lender, failure of Tenant to so comply with the Permitted
        Mortgage Loan Insurance Requirements shall be an Event of Default under
        this Lease, and shall entitle Landlord to all of the remedies set forth
        in Section 10.2 of this Lease.

                4.8 PERMITTED MORTGAGE LENDER'S TAX AND INSURANCE ESCROWS.
        Notwithstanding anything in this Lease to the contrary, in addition to
        all of Tenant's obligations with respect to taxes and insurance, as set
        forth in Sections 3 and 4 of this Lease, Tenant agrees to comply with
        any tax and/or insurance escrows required by any Permitted Mortgage
        Lender under any Permitted Mortgage Loan. Landlord and Tenant agree that
        Tenant's compliance with the tax and/or insurance escrows requirements
        of each Permitted Mortgage Loan shall, to the extent of any payment
        actually made into any Permitted Mortgage Loan escrow account, satisfy
        Tenant's requirements (a) with respect to the payment of Impositions,
        (b) relating to taxes, and, (c) associated with obtaining insurance
        under this Lease.

                4.9 INTENTIONALLY OMITTED.

                4.10 COST OF REFINANCING. Any reasonable costs of refinancing
        the Heller Loan that are charged by the Permitted Mortgage Lender making
        such refinancing shall, at the sole option of Tenant, (a) be paid to
        such Permitted Mortgage Lender by Tenant, or (b) be paid to such
        Permitted Mortgage Lender by Landlord; provided, however, if Tenant
        elects to have





                                       18


        Landlord pay such refinancing costs then Landlord's Adjusted Investment
        Amount shall be increased by an amount equal to such payment on the
        effective date of such refinancing and the Minimum Rent thereafter shall
        be adjusted accordingly.

        5. USE, MAINTENANCE AND ALTERATION OF THE PREMISES.

                5.1 TENANT'S MAINTENANCE OBLIGATIONS.

                        5.1.1 Except as provided in Sections 11 and 12, Tenant
                will keep and maintain the Premises in good appearance, repair
                and condition and maintain proper housekeeping. Tenant shall
                make or cause to be made all repairs, interior and exterior,
                structural and nonstructural, ordinary and extraordinary,
                foreseen and unforeseen, necessary to keep and maintain the
                overall condition and repair of the Premises substantially the
                same as at the Commencement Date and in compliance with
                applicable law and otherwise generally in accord with standards
                historically used for determining the Retirement Care Facility's
                (as defined in Section 5.2 below) quality. Tenant covenants and
                agrees that during the Term (i) it shall use, keep and operate
                the Premises in a careful, safe and proper manner; (ii) not
                commit or suffer waste thereon; (iii) not use or occupy the
                Premises for any unlawful purposes; (iv) not use or occupy the
                Premises or permit the same to be used or occupied, for any
                purpose or business deemed extrahazardous on account of fire or
                otherwise; (v) keep the Premises in such repair and condition as
                may be required by the local Board of Health or other city,
                state or federal authorities, free of all cost to Landlord; (vi)
                not permit any acts to be done which will cause the
                cancellation, invalidation, or suspension of any insurance
                policy;





                                       19


                and (vii) permit Landlord and its agents to enter upon the
                Premises at all reasonable times upon reasonable notice to
                examine the condition thereof.

                        5.1.2 As part of Tenant's obligations under this Section
                5.1, Tenant shall be responsible to maintain, repair and replace
                all Landlord Personal Property and all Tenant Personal Property
                (as defined in Section 7.1 below) as necessary to maintain the
                same in good and operable condition consistent with the standard
                set forth in Section 5.1.1 and prudent industry practice as
                applicable to the Retirement Care Facility (as defined in
                Section 5.2 below).

                5.2 REGULATORY COMPLIANCE.

                        5.2.1 Tenant and the Premises shall comply in all
                material respects with (i) all federal, state and local
                licensing and other laws and regulations applicable to the
                continuing care retirement community on the Premises (the
                "RETIREMENT CARE FACILITY"), (ii) the certification requirements
                of Medicare and Medicaid (or any successor program) as currently
                exist or as are obtained by Tenant at a later date, and (iii)
                the healthcare compliance covenants set forth on Exhibit "G"
                attached hereto. Further, Tenant shall not commit any act or
                omission that would in any way violate any certificate of
                occupancy affecting the Premises. Tenant shall deliver to
                Landlord complete copies of any material surveys, examinations,
                certification and licensure inspections, compliance
                certificates, and other similar reports issued to Tenant by any
                governmental agency within 10 days after Tenant's receipt of
                each item.

                        5.2.2 During the Term, all inspection fees, costs and
                charges associated with a change of any licensure or
                certification shall be borne solely by Tenant.




                                       20


                Tenant shall at its sole cost make any additions or alterations
                to the Premises necessitated by, or imposed in connection with,
                a change of ownership inspection survey for the transfer of
                operation of the Premises from Tenant or Tenant's assignee or
                subtenant to Landlord or Landlord's designee at the expiration
                or earlier termination of the Term in accordance herewith.

                5.3 PERMITTED USE. Tenant shall continuously use and occupy the
        Premises during the Term solely as a Retirement Care Facility or other
        senior housing, independent living, assisted living, skilled and
        intermediate nursing, subacute care, Alzheimer's care, and related uses,
        and no other use without Landlord's prior written consent.

                5.4 NO LIENS. Tenant shall have no authority to permit or create
        a lien against the Premises, and Tenant shall post notices or file such
        documents as may be required to protect Landlord's interest in the
        Premises against liens. Tenant hereby agrees to defend, indemnify, and
        hold Landlord harmless from and against any mechanic's liens against the
        Premises by reason of work, labor, services or materials supplied or
        claimed to have been supplied on or to the Premises through or under
        Tenant. Tenant shall remove, bond-off, or otherwise obtain the release
        of any mechanic's lien filed against the Premises within 10 days after
        the filing thereof. Tenant shall pay all expenses in connection
        therewith, including without limitation, damages, interest, court costs
        and reasonable attorneys' fees.

                5.5 ALTERATIONS BY TENANT. Tenant shall have the right of
        altering, improving, replacing, modifying or expanding the facilities,
        equipment or appliances in the Premises from time to time as it may
        determine is desirable for the continuing and proper use and maintenance
        of the Premises under this Lease; provided, however, that any
        alterations, improvements, replacements, expansions or modifications to
        the Premises in excess of Five





                                       21


        Hundred Thousand Dollars ($500,000) in any rolling twelve (12) month
        period shall require the prior written consent of the Landlord, which
        shall not be unreasonably withheld, conditioned, or delayed; provided,
        however, no such alterations, improvements, replacements, modifications
        or expansions shall result in a material diminution of value of the
        Premises or shall materially adversely affect the use and operation of
        the Premises upon completion. Any amounts funded by Tenant as
        necessitated by damage to the Premises by casualty or condemnation or in
        the nature of routine or ordinary course capital expenditures shall not
        be included in the foregoing calculation. The cost of all alterations,
        improvements, replacements, modifications, expansions or other
        purchases, covered by this Section 5.5 shall be borne solely and
        exclusively by Tenant and shall immediately become a part of the
        Premises and the property of the Landlord subject to the terms and
        conditions of this Lease. All work done in connection therewith shall be
        done in a good and workmanlike manner and in compliance with all
        existing codes and regulations pertaining to the Premises and shall
        comply with the requirements of insurance policies required under this
        Lease. In the event any items of the Premises have become inadequate,
        obsolete or worn out or require replacement (by direction of any
        regulatory body or otherwise), Tenant shall remove such items and
        exchange or replace the same at Tenant's sole cost and the same shall
        become part of the Premises and property of the Landlord.

                5.6 CAPITAL EXPENDITURES ACCOUNT.

                        5.6.1 Commencing on the fifteenth (15th) day of the
                second full month of the Initial Term and every fifteenth (15th)
                day of each month during the Term thereafter, Tenant shall
                deposit (the "CAPITAL EXPENDITURE DEPOSITS") in an
                interest-bearing account (the "CAPITAL EXPENDITURE ACCOUNT") an
                amount equal to three percent (3%) of the gross revenues
                generated from Tenant's ordinary



                                       22


                course of business operations at the Premises during the
                previous month; provided, however, that calculation of the
                Capital Expenditure Deposits shall not include any revenues
                attributable to therapy services or home health agency services.
                Except to the extent otherwise required by any Permitted
                Mortgage Lender, the Capital Expenditure Account shall be
                maintained with Genesee Regional Bank, a New York State
                Chartered Commercial Bank ("GENESEE") for so long as, in the
                exercise of Tenant's reasonable discretion from time to time,
                Genesee has sufficient financial strength and stability to
                assure reasonably that funds deposited with it will not be
                subject to risk of loss. The Capital Expenditure Account shall
                be used for funding repairs, replacements and capital
                improvements to be made on the Premises from time to time.
                Tenant may withdraw monies deposited in the Capital Expenditure
                Account for the purpose of making repairs, replacements and
                capital improvements on the Premises, to be applied as follows:
                first, as required to comply with the provisions of this Lease
                relating to repairs, replacements and capital improvements to be
                made on the Premises, and second, as Tenant deems necessary or
                desirable. All such repairs, replacements and capital
                improvements funded by the Capital Expenditure Account shall be
                deemed to be a part of the Premises.

                        5.6.2 If Tenant's capital expenditures at the Premises
                in any Lease Year shall exceed the Capital Expenditure Deposit
                for said Lease Year (the "CAPITAL EXPENDITURE DIFFERENCE"),
                Tenant shall fund the remaining cost of such Capital Expenditure
                Difference. Tenant shall receive a corresponding credit against


                                       23


                future Capital Expenditure Deposits for subsequent months until
                Tenant receives full credit for any Capital Expenditure
                Difference.

                        5.6.3 Any interest that accrues on the funds in the
                Capital Expenditure Account shall at all times remain the
                property of Tenant, and Tenant shall have the right to withdraw
                any interest earned from time to time.

                        5.6.4 At the expiration of the Term, any funds remaining
                in the Capital Expenditure Account shall become the property of
                Landlord, other than the interest thereon, which shall remain
                Tenant's property.

                        5.6.5 Notwithstanding anything to the contrary herein,
                in the event that any Permitted Mortgage Loan requires similar
                capital expenditure deposits, any amounts so deposited by Tenant
                shall be a credit to Tenant against the Capital Expenditure
                Account requirements set forth herein. In no event shall Tenant
                be required to make any duplicate payments to the Capital
                Expenditure Account and/or any accounts for capital expenditures
                pursuant to any Permitted Mortgage Loan.

                5.7 ANNUAL CAPITAL EXPENDITURE BUDGET. Within ninety (90) days
        after the commencement of each calendar year, Tenant shall deliver to
        Landlord, at Tenant's expense, a budget (the "ANNUAL CAPITAL EXPENDITURE
        BUDGET") setting forth Tenant's reasonable estimate of the capital
        repairs, replacements and improvements to the Premises that Tenant
        anticipates will be required to be made in such calendar year pursuant
        to the terms of this Lease; provided, however, that failure by Tenant to
        make, or to cause to be made, in any year, any capital repairs,
        replacements or improvements included in the Annual Capital Expenditure
        Budget for such year shall not, in and of itself, be a default or Event
        of Default under this Lease.


                                       24


                5.8 INITIAL CAPITAL EXPENDITURE REQUIREMENTS. At Tenant's sole
        expense, Tenant shall make the repairs and refurbishments set forth on
        Exhibit "E" attached hereto and incorporated herein (the "INITIAL R&R").
        The Initial R&R shall be completed on or before June 30, 2002. If the
        Initial R&R are not completed on or before June 30, 2002, Landlord shall
        either (a) cause completion of the Initial R&R, or (b) direct Tenant
        and/or ARC to complete the Initial R&R, and Landlord may offset any
        reasonable costs and expenses actually incurred by Landlord in
        completing the Initial R&R against principal and interest due under that
        certain 2002 Promissory Note and, to the extent the 2002 Promissory Note
        is insufficient for such offset, that certain 2003 Promissory Note (as
        defined in the Purchase Agreement) by delivery of written notice to
        Tenant sufficiently evidencing the costs and expenses to be offset.

                5.9 INITIAL ENGINEERING REPORT; REMEDIAL ACTION. Within ninety
        (90) days after the Commencement Date (or within such reasonably longer
        period as may be required, so long as Tenant pursues the same with
        reasonable diligence) Tenant shall provide to Landlord, at Tenant's
        expense, a report (the "INITIAL ENGINEERING REPORT") to be prepared by
        professional engineering firm selected by Landlord and reasonably
        acceptable to Tenant. In the event that the Initial Engineering Report
        advises any material repairs or replacements to be made to or of the
        Premises, Tenant will make such repairs or replacements with reasonable
        diligence. If Tenant does not complete such repairs and replacements on
        or before June 30, 2002, or within such reasonable time thereafter as
        may be required (provided Tenant is proceeding with reasonable diligence
        to complete such repairs and replacements), Landlord may either (a)
        cause completion of the same, or (b) direct Tenant and/or ARC to
        complete the same, and Landlord may offset any reasonable costs and
        expenses actually incurred by Landlord in completing the same against
        principal and interest due under the 2002 Promissory Note and, to the
        extent the 2002






                                       25


        Promissory Note is insufficient for such offset, the 2003 Promissory
        Note, by delivery of written notice to Tenant sufficiently evidencing
        the costs and expenses to be offset.

        6. CONDITION AND TITLE OF PREMISES; RIGHT OF FIRST REFUSAL.

                6.1 CONDITION AND TITLE OF PREMISES. Tenant previously owned the
        Premises, and Tenant has thoroughly investigated the Premises, has
        selected the Premises to its own specifications, and has concluded that
        no improvements or modifications to the Premises are required in order
        to operate the Premises for its intended use. Tenant accepts the
        Premises for use as a Retirement Care Facility under this Lease on an
        "AS IS, WHERE IS, WITH ALL FAULTS" basis and will assume all
        responsibility and cost for the correction of any observed or unobserved
        deficiencies or violations. In making its decision to enter into this
        Lease, Tenant has not relied on any representations or warranties,
        express or implied, of any kind from Landlord. Notwithstanding any other
        provision of this Lease to the contrary, Tenant accepts the Premises in
        their present condition, AS IS, WHERE IS, WITH ALL FAULTS, and without
        any representations or warranties whatsoever, express or implied,
        including, without limitation, any express or implied representations or
        warranties as to the fitness, use, suitability, or condition of the
        Premises. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
        IMPLIED, IN RESPECT OF THE PREMISES OR ANY PART THEREOF, EITHER AS TO
        ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
        PURPOSE OR OTHERWISE, OR AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP
        THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE
        BORNE BY TENANT. Tenant hereby represents and warrants to Landlord that
        Tenant is thoroughly familiar with the Premises and the condition
        thereof, that Tenant is relying on Tenant's own personal knowledge of
        the condition of the Premises, that



                                       26


        neither Landlord nor any person or entity acting or allegedly acting for
        or on behalf of Landlord or any other person or entity having or
        claiming any interest in the Premises has made any representations,
        warranties, agreements, statements, or expressions of opinions in any
        way or manner whatsoever related to, connected with, or concerning the
        Premises, the condition of the Premises, or any other fact or
        circumstance whatsoever on which Tenant is relying, and, to the maximum
        extent not prohibited by applicable law, Tenant hereby releases and
        discharges Landlord and all other persons and entities having or
        claiming any interest in the Premises from all liability, damages,
        costs, and expenses of every kind and nature whatsoever in any way or
        manner arising out of, connected with, related to, or emanating from the
        condition of the Premises at any time prior to or during the Term of
        this Lease. Tenant has examined the condition of title to the Premises
        prior to the execution and delivery of this Lease and has found the same
        to be satisfactory, including without limitation, all of the
        encumbrances and other exceptions to title set forth more fully on
        Exhibit "A-1" (the "PERMITTED EXCEPTIONS").

                6.2 RIGHT OF FIRST REFUSAL TO PURCHASE PREMISES.

                        6.2.1 Subject to and upon the terms and conditions set
                forth in this Section 6.2, Tenant shall have the right of first
                refusal to purchase (a) the Premises at any time during the
                Term, and/or (b) any equity securities or equity interests of
                Landlord ("LANDLORD'S EQUITY SECURITIES"); provided, however,
                Tenant shall not have the right to exercise its rights under
                this Section 6.2 if any Event of Default has occurred and is
                continuing as of any of the following dates: (i) the date on
                which Landlord delivers an Offering Notice to Tenant pursuant to
                Section 6.2.2(i), or (ii) the date of Tenant's delivery of an
                Exercise Notice pursuant to Section 6.2.2(ii), or (iii) the
                closing date established to consummate




                                       27


                the purchase of the Premises or equity securities, as
                applicable, pursuant to Section 6.2.2(iii). Notwithstanding the
                foregoing, the right of first refusal to purchase Landlord's
                Equity Securities as set forth in this Section 6.2 shall not
                apply to:

                        (a) any transfer by bequest or devise;

                        (b) any transfer to, or to a trust for the benefit of,
                one or more of E. Philip Saunders and/or the spouse, children
                and grandchildren of E. Philip Saunders (the "SAUNDERS FAMILY"),
                provided that the Tenant shall have the right to approve the
                identity of the trustee of any such trust that is not either E.
                Philip Saunders or an institutional trustee (such approval not
                to be unreasonably withheld or delayed); or

                        (c) any transfer following which E. Philip Saunders
                and/or the trustee of a trust described in the preceding clause
                (b) will continue to have the power and authority to manage,
                direct, regulate and govern Landlord, directly or indirectly.

                        6.2.2 Subject to Section 6.2.1 above, if during the Term
                Landlord or any owner of Landlord's Equity Securities receives a
                bona fide offer ("OFFER") to purchase the Premises, or any
                portion thereof, or all or any portion of Landlord's Equity
                Securities (the "OFFERED PROPERTY"), from any person or entity,
                Landlord and Tenant shall take the following steps prior to
                Landlord's acceptance of such offer:

                        (i) Landlord shall give written notice to Tenant of its
                intention to accept such Offer ("OFFERING NOTICE"), which notice
                shall set forth the price, terms and conditions contained in the
                Offer that Landlord intends to accept;

                        (ii) Within thirty (30) days after receipt of an
                Offering Notice, Tenant shall either (A) deliver to Landlord
                written notice that Tenant does not desire to purchase the
                Offered Property on the terms set forth in the Offering Notice,
                or (B)





                                       28


                deliver to Landlord written notice of Tenant's desire to
                exercise its right to purchase the Offered Property on the terms
                set forth in the Offering Notice pursuant to this Section 6.2
                ("EXERCISE NOTICE");

                        (iii) If Tenant delivers an Exercise Notice within such
                thirty (30) day period, and if the Offered Property consists of
                all or any portion of the Premises, Landlord as seller and
                Tenant as buyer shall immediately open an escrow to consummate
                such purchase at a national title company selected by Landlord
                in its reasonable discretion on the following terms: (A) the
                form of such instructions to be then signed by Landlord and
                Tenant shall be such title company's standard sale escrow
                instructions and, notwithstanding anything set forth in the
                Offering Notice to the contrary, shall not provide for any
                representations or warranties by Landlord as seller or for any
                due diligence in favor of Tenant as buyer, (B) the purchase
                price shall be payable in cash by Tenant or on such other terms
                as are set forth in the Offering Notice with escrow to close on
                or before the date set forth in the Offering Notice, (C)
                transaction costs shall be paid as set forth in the Offering
                Notice, (D) at close, Landlord shall deliver title to the
                Offered Property subject only to those title exceptions
                permitted by the terms of the Offer, (E) the sale escrow
                instructions shall provide for an earnest money deposit in the
                amount set forth in the Offering Notice and shall further
                provide, to the extent so provided by the terms of the Offer,
                that such deposit may be retained by Landlord as liquidated
                damages in the event of any breach by Tenant of the terms of the
                escrow instructions (provided, however, such liquidated damages
                shall relate only to Landlord's damages by reason of a breach of
                the escrow instructions and shall





                                       29


                in no way liquidate or limit Landlord's or Tenant's damages by
                reason of a breach of this Lease), and (F) the escrow
                instructions shall otherwise be in form and substance reasonably
                satisfactory to Landlord. If Tenant fails to close the escrow
                for any reason other than a breach by Landlord, then Landlord
                may elect to pursue all remedies available to Landlord against
                Tenant under the escrow instructions or under applicable law,
                and the provisions of this Section 6 shall be of no further
                force or effect.

                        (iv) If Tenant delivers an Exercise Notice within such
                thirty (30) day period, and if the Offered Property consists of
                all or any portion of Landlord's Equity Securities, Landlord as
                seller and Tenant as buyer shall consummate the sale of
                Landlord's Equity Securities according to the terms and
                conditions of the Offering Notice within sixty (60) days of
                Landlord's receipt of the Exercise Notice and (a) Landlord shall
                cause its members (partners or shareholders) to sell, transfer
                and assign to Tenant or its designee all such membership
                (partnership or shareholder) interests, equity securities and
                other ownership interest in the Landlord, all of which shall be
                free and clear of all liens and encumbrances whatsoever, (b)
                Tenant or its designee shall pay to said members (partners or
                shareholders) the purchase price set forth in the Offering
                Notice (prorated among said parties in accordance with their
                respective ownership interests), and (c) the parties hereto (and
                all members, partners or shareholders of Landlord) shall execute
                all securities purchase agreements, assignments and other
                documents that are reasonably necessary to consummate said
                transaction, which documents shall contain (x) indemnifications
                of such members (partners or shareholders) by




                                       30


                Tenant for matters occurring after the closing, and (y) other
                representations and warranties that are reasonably and customary
                for a transactions of such size and nature. By entering into
                this Lease, Landlord represents and warrants that each owner of
                its equity securities (whether now or in the future) has agreed,
                or will agree, to be bound by the provisions of this Section
                6.2.2.

                        (v) If within the thirty (30) day period following
                Landlord's delivery of an Offering Notice, Tenant either
                delivers to Landlord the notice set forth in Section
                6.2.2(ii)(A) or fails to deliver either of the notices set forth
                in Section 6.2.2(ii), then for a period of six (6) months
                following the expiration of such fifteen (15) day period
                Landlord shall be free to sell the Offered Property on the terms
                set forth in the Offering Notice or on any other revised terms
                deemed appropriate by Landlord in its sole discretion; provided,
                however, if such other revised terms include a price that is
                below the price set forth in the Offering Notice, then prior to
                completing any sale on such revised terms Landlord shall notify
                Tenant of such revised offering terms. During the fifteen (15)
                business day period after receipt by Tenant of such notice,
                Tenant shall have the right (to be exercised if at all by
                Tenant's execution of escrow instructions and deposit of earnest
                money under Section 6.2.2(iii) or by delivery of a notice of
                intent to purchase under Section 6.2.2(iv), as applicable,
                within such fifteen (15) business day period) to require that
                Landlord sell the Offered Property to Tenant on such revised
                offering terms. If Tenant fails to timely exercise its right as
                required by the preceding proviso, Landlord shall be free to
                sell the Offered Property to a third party on the revised
                offering terms.



                                       31


                        (vi) If at the end of the six (6) month period described
                in Section 6.2.1(iv), Landlord has not sold the Offered
                Property, then Landlord shall again be required to comply with
                the provisions of this Section 6.2 if Landlord desires to accept
                a third party offer to purchase the Offered Property.

                        (vii) If an escrow is opened pursuant to Section
                6.2.2(iii) and such escrow fails to close by reason of Tenant's
                default, in addition to all of the other rights and remedies of
                Landlord with respect to such breach, Landlord shall thereafter
                be free to sell the Premises or any portion thereof to any
                Person on any terms whatsoever without being required to comply
                with this Section 6.2.

                        6.2.3 If Landlord has hypothecated its interest in the
                Premises, this Section 6.2 shall not apply to any judicial or
                non-judicial sale of the Premises in connection with any
                foreclosure action or proceeding by the lender.

                6.3 FIRST REFUSAL RIGHTS SUBJECT TO PERMITTED MORTGAGE LOAN
        DOCUMENTS. Notwithstanding anything in this Lease to the contrary,
        Tenant's right of first refusal, as set forth more fully in this Section
        6, shall be subject to compliance with any applicable provisions of any
        outstanding Permitted Mortgage Loan Documents if and to the same extent
        that the terms of the corresponding Offer are so subject.

        7. LANDLORD AND TENANT PERSONAL PROPERTY.

                7.1 TENANT PERSONAL PROPERTY. Tenant shall install, place, and
        use on the Premises such fixtures, furniture, equipment, inventory and
        other personal property in addition to Landlord Personal Property as may
        be required or as Tenant may, from time to time, deem necessary or
        useful to operate the Premises for its permitted purposes. All fixtures,
        furniture, equipment, inventory, and other personal property installed,
        placed, or used on the Premises





                                       32


        which is owned by Tenant or leased by Tenant from third parties is
        hereinafter referred to as "TENANT PERSONAL PROPERTY."

                7.2 REQUIREMENTS FOR TENANT PERSONAL PROPERTY. Tenant shall
        comply with all of the following requirements in connection with Tenant
        Personal Property:

                        7.2.1 Tenant shall, at Tenant's sole cost and expense,
                maintain, repair, and replace Tenant Personal Property.

                        7.2.2 Tenant shall, at Tenant's sole cost and expense,
                keep Tenant Personal Property insured against loss or damage by
                fire, vandalism and malicious mischief, sprinkler leakage,
                earthquake, and other physical loss perils commonly covered by
                fire and extended coverage and boiler and machinery insurance,
                in an amount not less than 90% of the then full replacement cost
                thereof. Tenant shall use the proceeds from any such policy for
                the repair and replacement of Tenant Personal Property. The
                insurance shall meet the requirements of Section 4.1 to the
                extent applicable.

                        7.2.3 Tenant shall pay all taxes applicable to Tenant
                Personal Property.

                        7.2.4 Unless an Event of Default or any event which,
                with the giving of notice or lapse of time, or both, would
                constitute an Event of Default has occurred and is continuing
                beyond all applicable periods of grace and/or notice and cure,
                Tenant may remove Tenant Personal Property from the Premises
                from time to time provided that [i] the items removed are not
                required to operate the Premises for the permitted use hereunder
                (unless such items are being replaced by Tenant); and [ii]
                Tenant repairs any damage to the Premises resulting from the
                removal of Tenant Personal Property.



                                       33


                        7.2.5 Upon the expiration of the Term, Landlord shall
                have the option to purchase the Tenant Personal Property for an
                amount equal to its depreciated value determined in accordance
                with GAAP (as hereinafter defined). If Landlord desires to
                exercise its option to purchase, Landlord shall notify Tenant at
                least ninety (90) days prior to the expiration of the Term.
                Landlord's option to purchase the Tenant Personal Property shall
                not include such property as bears the tradenames, trademarks or
                patents of ARC, Tenant, or any affiliate, successor or assign
                thereof or any rights in and to such tradenames, trademarks or
                patents (the "EXCLUDED PROPERTY"). The purchase price to be paid
                by Landlord may be paid, at Landlord's election and upon notice
                to Tenant, by offsetting all or any portion of the purchase
                price against any unsatisfied obligations of Tenant under this
                Lease. If Landlord elects not to exercise Landlord's option to
                purchase Tenant Personal Property, Tenant shall remove Tenant
                Personal Property upon the termination or expiration of this
                Lease and shall repair any damage to the Premises resulting from
                the removal of the Tenant Personal Property. If Tenant fails to
                remove Tenant Personal Property within 30 days after request by
                Landlord, then Tenant shall be deemed to have abandoned the
                Tenant Personal Property, the Tenant Personal Property shall
                become the property of Landlord, and Landlord may remove, store
                and dispose of Tenant Personal Property. In such event, Tenant
                shall have no claim or right against Landlord for such property
                or the value thereof regardless of the disposition thereof by
                Landlord. Tenant shall pay Landlord, upon demand, all expenses
                incurred by Landlord in removing, storing, and disposing of
                Tenant Personal Property and repairing any damage





                                       34


                caused by such removal. Tenant's obligations hereunder shall
                survive the termination or expiration of this Lease.

                        7.2.6 In the event this Lease is terminated by reason of
                an Event of Default, any Tenant Personal Property remaining at
                the Premises shall, at Landlord's option, be deemed abandoned
                and shall be and remain property of Landlord. Notwithstanding
                the foregoing to the contrary, in no event shall Tenant be
                deemed to have abandoned any Excluded Property, which shall
                remain the sole property of Tenant, ARC or any affiliates,
                successors, or assigns thereof, as the case may be.

                7.3 COMPLIANCE WITH LAWS. Tenant shall comply with all legal
        requirements applicable to the Premises and operation of the Retirement
        Care Facility and shall keep all government authorizations in full force
        and effect. Tenant shall pay when due all taxes and governmental charges
        of every kind and nature that are assessed or imposed upon Tenant's
        operation of the Premises at any time during the term of the Lease,
        including, without limitation, all income, franchise, capital stock,
        property, sales and use, business, intangible, employee withholding, and
        other taxes and charges relating to Tenant's business and operations.
        Tenant shall be solely responsible for compliance with all Legal
        Requirements, including the Americans with Disabilities Act, and
        Landlord shall have no responsibility for such compliance.

                7.4 RESIDENT TENANT LEASES. During the Term, the lessor under
        all subleases with residents or patients of the Retirement Care Facility
        (the "RESIDENT TENANT LEASES") shall be Landlord. Tenant agrees to
        assign, or cause to be assigned, to Landlord all Resident Tenant Leases
        existing as of the Commencement Date. Throughout the Term, Tenant
        assumes and agrees to perform all of Landlord's obligations under the
        Resident Tenant Leases. Except to the





                                       35


        extent actually caused by Landlord, Tenant agrees to keep and hold
        Landlord harmless of and from any loss, cost, damage, liability or
        expense arising under the Resident Tenant Leases during the Term,
        however arising. Landlord hereby grants Tenant a power of attorney to
        (a) enter into commercially reasonable Resident Tenant Leases on
        standard lease forms in the ordinary course of business on behalf of
        Landlord, (b) collect and receive all rents and other sums due under any
        Resident Tenant Leases, and (c) perform all other activities required of
        lessor under the Resident Tenant Leases or otherwise necessary in such
        capacity. This power of attorney is coupled with an interest, and shall
        only terminate upon the expiration or earlier termination of this Lease
        or upon any Event of Default by Tenant beyond any applicable notice,
        grace or cure periods. So long as this Lease remains in effect, and no
        Event of Default shall have occurred and be continuing beyond all
        applicable periods of grace and/or notice and cure, Landlord shall take
        no action as lessor under the Resident Tenant Leases and Tenant shall be
        entitled to all rents and other sums due under any Resident Tenant
        Leases.

                        7.4.1 If Tenant or its affiliate purchases the Property
                pursuant to Section 6.2 of this Lease, Landlord shall assign all
                then existing Resident Tenant Leases to the purchaser
                simultaneous with transfer of the Property.

                7.5 TRANSFER OF LICENSE, ETC. If this Lease is terminated due to
        expiration of the Term, pursuant to an Event of Default or for any
        reason other than Tenant's purchase of the Premises, or if Tenant
        vacates the Premises without termination of this Lease, Tenant shall, at
        Landlord's request:

                        7.5.1 Execute, deliver and file all documents and
                statements reasonably requested by Landlord to effect the
                transfer of all licenses and government authorizations related
                to the Retirement Care Facility to Landlord or an entity




                                       36


                designated by Landlord, subject to any required approval of
                governmental regulatory authorities, and Tenant shall provide to
                Landlord all information and records required by Landlord in
                connection with the transfer of the license and government
                authorizations.

                        7.5.2 Use commercial best efforts to cooperate with and
                facilitate transfer of the business and operations of the
                Retirement Care Facility to Landlord or its designee, without
                unreasonable disruption in operations.

        8. REPRESENTATIONS, WARRANTIES AND COVENANTS.

                8.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Landlord and Tenant
        do hereby each for itself represent and warrant to each other as
        follows:

                8.1.1 DUE AUTHORIZATION AND EXECUTION. This Lease and all
        agreements, instruments and documents executed or to be executed in
        connection herewith by either Landlord or Tenant were duly authorized
        and shall be binding upon the party that executed and delivered the
        same.

                8.1.2 DUE ORGANIZATION. Landlord and Tenant are duly organized,
        validly existing and in good standing under the laws of the State of
        their respective formations and are duly authorized and qualified to do
        all things required of the applicable party under this Lease within the
        State of North Carolina.

                8.1.3 NO BREACH OF OTHER AGREEMENTS. Neither this Lease nor any
        agreement, document or instrument executed or to be executed in
        connection herewith, violates the terms of any other agreement to which
        either Landlord or Tenant is a party where such violation would have a
        material adverse effect.




                                       37


                8.2 MUTUAL COVENANTS. Landlord and Tenant do hereby each for
        itself make the following covenants:

                        8.2.1 NO DEFAULT UNDER PERMITTED MORTGAGE LOAN. For so
                long as this Lease is in effect and any Permitted Mortgage Loan
                is outstanding, Tenant shall comply with the terms and
                conditions of the Permitted Mortgage Loan Documents; provided,
                however, Tenant shall not be required to take any action or
                otherwise cause compliance with or be deemed responsible for
                performance of such Permitted Mortgage Loan Documents as to any
                affirmative or negative obligation of Landlord that does not
                relate to management or operation of the Premises, including,
                without limitation, accuracy and delivery of Landlord's
                financial statements, and the maintenance by Landlord of its
                good standing in any states required by such Permitted Mortgage
                Loan Documents. For so long as this Lease is in effect and any
                Permitted Mortgage Loan is outstanding, Landlord covenants and
                agrees to comply, or cause compliance, with the Permitted
                Mortgage Loan Documents with respect each affirmative or
                negative obligation of Landlord that does not relate solely to
                management or operation of the Premises, including, without
                limitation, accuracy and delivery of Landlord's financial
                statements, and the maintenance by Landlord of its good standing
                in any states required by such Permitted Mortgage Loan
                Documents.

                        8.2.2 NO AMENDMENT OF PERMITTED MORTGAGE LOAN DOCUMENTS.
                Neither Landlord nor Tenant shall amend, alter, extend, renew or
                otherwise modify any Permitted Mortgage Loan Document without
                the prior written consent of the other party hereto, which
                consent shall not be unreasonably withheld,




                                       38


                conditioned or delayed. Any amendment of the Permitted Mortgage
                Loan Documents without Tenant's reasonable consent shall not be
                binding on Tenant.

                8.3 NEGATIVE COVENANTS OF LANDLORD. Landlord hereby makes the
        following covenants:

                        8.3.1 INCURRENCE OF INDEBTEDNESS. Landlord hereby agrees
                that it will not incur any indebtedness or obligation whatsoever
                with respect to the Premises, except a Permitted Mortgage Loan.

                        8.3.2 NO REMOVAL. During the Term, Landlord shall not
                take or remove any assets or items or personal property
                comprising a portion of, associated with or related to the
                Premises without first obtaining the prior written consent of
                Tenant, which may be denied in Tenant's sole discretion.

                        8.3.3 NO OWNER ACTIONS. For so long as this Lease
                remains in effect, and Tenant shall not then be in material
                default of its obligations beyond any applicable periods of
                grace and/or notice and cure, Landlord shall take no action with
                respect to the business or operation of the Premises without
                Tenant's prior written consent, which may be denied by Tenant in
                its sole discretion.

                        8.3.4 NO OTHER ACTIVITIES; SINGLE PURPOSE ENTITY
                REQUIREMENTS. Landlord hereby agrees that it will not engage in
                any business activity other than those activities relating to
                the ownership of the Premises and performance of its obligations
                hereunder, and shall comply with the single purpose entity
                covenants and requirements set forth on Exhibit "F-1" attached
                hereto.

                8.4 NEGATIVE COVENANTS OF TENANT. Tenant hereby agrees that it
        will not engage in any business activity other than the operation of the
        Retirement Care Facility as





                                       39


        contemplated in this Lease, and shall comply with the single purpose
        entity covenants and requirements set forth on Exhibit "F-2" attached
        hereto. Notwithstanding anything to the contrary foregoing, Tenant shall
        be permitted to grant Heller Lender a security interest in Tenant's
        rights to payment under the 2002 Promissory Note and the 2003 Promissory
        Note pursuant to the terms and conditions of that certain Collateral
        Assignment of Loan Documents and Estoppel Agreement dated as of January
        25, 2002, by and between Landlord, Tenant and Heller Lender.

        9. FINANCIAL, REGULATORY AND ENGINEER'S REPORTS.

                9.1 ANNUAL FINANCIAL STATEMENT. Within one hundred twenty (120)
        days of the fiscal year end of Tenant, Tenant shall deliver to Landlord
        the annual financial statement of Tenant, with respect to Tenant's
        business operations on the Premises, prepared in accordance with
        generally accepted accounting principles consistently applied ("GAAP"),
        and, if requested by Landlord not less than thirty (30) nor more than
        sixty (60) days prior to the end of the fiscal year of Tenant, audited
        by a certified public accounting firm reasonably acceptable to Landlord.
        Within forty-five (45) days after each fiscal quarter ends, Tenant shall
        deliver to Landlord unaudited financial statements of Tenant, with
        respect to Tenant's business operations on the Premises, prepared in
        accordance with GAAP. Notwithstanding any of the other terms of this
        Section 9.1, if Tenant is subject to any reporting requirements of the
        Securities and Exchange Commission (the "SEC") during the Term, Tenant
        shall concurrently deliver to Landlord such reports as are delivered to
        the SEC pursuant to applicable securities laws.

                9.2 REGULATORY REPORTS. Tenant shall within ten (10) business
        days of receipt thereof deliver to Landlord all federal, state and local
        licensing and reimbursement certification surveys, inspection and other
        reports received by Tenant as to the Premises or any




                                       40


        portion thereof and the operation of business thereon, including,
        without limitation, state department of health licensing surveys,
        Medicare and Medicaid (and successor programs) certification surveys (if
        applicable) and life safety code reports. Within ten (10) business days
        of receipt thereof, Tenant shall give Landlord a copy of any written
        notice of any violation of any federal, state or local licensing or
        reimbursement certification statute or regulation including without
        limitation Medicare and Medicaid or successor programs (if applicable to
        the Premises or any portion thereof), any suspension, termination or
        restriction placed upon Tenant or the Premises or any portion thereof,
        the operation of business thereon or the ability to admit residents, or
        any violation of any other permit, approval or certification in
        connection with the Premises or any portion thereof or its business, by
        any federal, state or local authority including without limitation
        Medicare and Medicaid or successor programs if applicable to the
        Premises or any portion thereof.

                9.3 ENGINEER'S REPORT. Within ninety (90) days after the end of
        the fifth (5th) Lease Year, the tenth (10th) Lease Year, and, if Tenant
        exercises its option to renew as set forth in Section 1.2) the fifteenth
        (15th) Lease Year, Tenant shall provide to Landlord, at Tenant's
        expense, a report (the "ENGINEER'S REPORT") to be prepared by
        professional engineering firm selected by Landlord and reasonably
        acceptable to Tenant. The Engineer's Report shall (a) assess the general
        condition of the Improvements, (b) be reasonably sufficient to assist
        Landlord and Tenant in prioritizing repairs and refurbishments to be
        funded by the Capital Expenditure Account and as otherwise required to
        be made under this Lease, and (c) provide generalized cost estimates for
        major repair and refurbishment projects. If the Engineer's Report
        discloses any repairs that Tenant is required to make pursuant to
        Section 5.1.1 of this Lease, Tenant shall make such repairs in
        accordance with Section 5.1.1 of the Lease.




                                       41


        10. EVENTS OF DEFAULT AND LANDLORD'S REMEDIES.

                10.1 EVENTS OF DEFAULT. The occurrence of any of the following
        shall constitute an event of default on the part of Tenant hereunder
        ("EVENT OF DEFAULT"), and all notice and cure periods provided below
        shall run concurrently with any notice or cure periods provided by
        applicable law:

                        10.1.1 The failure to pay within five (5) calendar days
                of (i) the date when due, any Minimum Rent or Additional Rent,
                or (ii) the date when delinquent, any Impositions required to be
                paid by Tenant under this Lease.

                        10.1.2 A material breach by the seller thereunder of any
                of the representations, warranties or covenants in favor of
                Landlord as set forth in that certain Purchase and Sale
                Agreement of even date herewith, by and between Landlord, as
                purchaser, and Tenant, as seller, relating to the Premises (the
                "PURCHASE AGREEMENT");

                        10.1.3 The appointment of a receiver, trustee, or
                liquidator for Tenant, or any of the property of Tenant, if
                within ten (10) business days of such appointment Tenant does
                not inform Landlord in writing that Tenant intends to cause such
                appointment to be discharged or Tenant does not thereafter
                diligently prosecute such discharge to completion within sixty
                (60) days after the date of such appointment;

                        10.1.4 The filing by Tenant of a voluntary petition
                under any federal bankruptcy law or under the law of any state
                to be adjudicated as bankrupt or for any arrangement or other
                debtor's relief, or in the alternative, if any such petition is
                involuntarily filed against Tenant by any other party and Tenant
                does not within





                                       42


                ten (10) business days of any such filing inform Landlord in
                writing of the intent by Tenant to cause such petition to be
                dismissed, if Tenant does not thereafter diligently prosecute
                such dismissal, or if such filing is not dismissed within ninety
                (90) days after filing thereof;

                        10.1.5 The failure to make any monetary payment required
                by Tenant under this Lease not covered in Section 10.1.1 or the
                failure to perform or comply in any material respect with any
                other term or provision of this Lease not requiring the payment
                of money, including, without limitation, the failure to comply
                with the provisions hereof pertaining to the use, operation and
                maintenance of the Premises (or any portion thereof) or the
                breach of any representation or warranty of Tenant in this
                Lease; provided, however, if the default described in this
                Section 10.1.5 is curable it shall be deemed cured, if Tenant
                cures such default within thirty (30) days after notice from
                Landlord, unless such default cannot with due diligence be cured
                within a period of thirty (30) days because of the nature of the
                default or delays beyond the control of Tenant, in which case
                such default shall not constitute an Event of Default if Tenant
                uses its best efforts to cure such default by promptly
                commencing and diligently pursuing such cure to the completion
                thereof.

                        10.1.6 Tenant abandons or vacates the Premises or any
                material part thereof or ceases to do business or ceases to
                exist for any reason for any one or more days.

                        10.1.7 Notwithstanding anything to the contrary in this
                Section 10.1, any act or omission of Tenant that causes an Event
                of Default under and as defined in




                                       43


                the Permitted Mortgage Loan Documents evidencing the Heller Loan
                shall constitute an Event of Default hereunder.

                10.2 REMEDIES. Upon the occurrence of an Event of Default and
        during the pendency thereof, Landlord may exercise all rights and
        remedies under this Lease and the laws of the State available to a
        lessor of real and personal property in the event of a default by its
        lessee. Without limiting the foregoing, Landlord shall have the right to
        do any of the following:

                        10.2.1 re-enter and take possession of the Premises
                without terminating the Lease, and lease the Premises for the
                account of Tenant, holding Tenant liable for all costs of the
                Landlord in reletting the Premises and for the difference in the
                amount received by such reletting and the amounts payable by
                Tenant under the Lease.

                        10.2.2 terminate this Lease, exclude Tenant from
                possession of the Premises and lease the Premises to others,
                holding Tenant liable for the difference in the amounts received
                from such reletting and the amounts payable by Tenant under the
                Lease.

                        10.2.3 re-enter the Premises and have, repossess and
                enjoy the Premises as if the Lease had not been made, and in
                such event, Tenant and its successors and assigns shall remain
                liable for any contingent or unliquidated obligations or sums
                owing at the time of such repossession.

                        10.2.4 have access to and inspect, examine and make
                copies of the books and records and any and all accounts, data
                and income tax and other returns of Tenant insofar as they
                pertain to the Premises.



                                       44


                        10.2.5 to the extent consistent with and permitted by
                applicable law, accelerate all of the unpaid Rent hereunder so
                that the aggregate Rent for the unexpired term of this Lease
                becomes immediately due and payable.

                        10.2.6 take whatever action at law or in equity as may
                appear necessary or desirable to collect the Rent and other
                amounts payable under this Lease then due and thereafter to
                become due (subject to any applicable limitations on the damages
                collectible by a landlord provided by applicable law), or to
                enforce performance and observance of any obligations,
                agreements or covenants of Tenant under this Lease.

                        10.2.7 setoff against the 2002 Promissory Note
                (according to the terms set forth therein), the 2003 Promissory
                Note (according to the terms set forth therein), and any
                obligation of Landlord to Tenant under this Lease any Rent due
                and owing Landlord pursuant to this Lease.

                        10.2.8 Before or after repossession of the Premises
                pursuant to Section 10.2.1, and whether or not this Lease has
                been terminated, Landlord shall have the right (but shall be
                under no obligation except to the extent required by applicable
                law) to relet any portion of the Premises to such tenant or
                tenants, for such term or terms (which may be greater or less
                than the remaining balance of the Term), for such rent, or such
                conditions (which may include concessions or free rent) and for
                such uses, as Landlord, in its absolute discretion, may
                determine, and Landlord may collect and receive any rents
                payable by reason of such reletting. Tenant agrees to pay
                Landlord, immediately upon demand, all reasonable expenses





                                       45


                incurred by Landlord in obtaining possession and in reletting
                any of the Premises, including fees, commissions and costs of
                attorneys, architects, agents and brokers.

                10.3 RECEIVERSHIP. Tenant acknowledges that one of the rights
        and remedies available to Landlord under applicable law is to secure a
        court-appointed receiver to take possession of the Premises or any
        portion thereof, to collect the rents, issues, profits and income of the
        Premises or any portion thereof, and to manage the operation of the
        Premises or any portion thereof. Tenant further acknowledges that the
        revocation, suspension or material limitation of the certification of
        the Premises or any portion thereof for provider status under Medicare
        or Medicaid (or successor programs) as they currently exist or as are
        obtained by Tenant at a later date (if applicable to the Premises or any
        portion thereof) and/or the revocation, suspension or material
        limitation of the license of the Premises or any portion thereof as a
        Retirement Care Facility under the laws of the State will materially and
        irreparably impair the value of Landlord's investment in the Premises.
        Therefore, in the event of any such revocation, suspension or material
        limitation, and in addition to any other right or remedy of Landlord
        under this Lease, Tenant hereby consents to the appointment of such a
        receiver to enter upon and take possession of the Premises or any
        portion thereof, to manage the operation of the Premises or any portion
        thereof, to collect and disburse all rents, issues, profits and income
        generated thereby and to preserve or replace to the extent possible the
        licenses and provider certifications of the Premises required for the
        operation of the Retirement Care Facility or to otherwise substitute the
        licensee or provider thereof. The receiver shall be entitled to a
        reasonable fee for its services as a receiver. All such fees and other
        expenses of the receivership estate shall be added to the monthly rent
        due to Landlord under this Lease. Tenant hereby irrevocably stipulates
        to the



                                       46


        appointment of a receiver under such circumstances and for such purposes
        and agrees not to contest such appointment.

                10.4 REMEDIES CUMULATIVE; NO WAIVER. No right or remedy herein
        conferred upon or reserved to Landlord is intended to be exclusive of
        any other right or remedy, and each and every right and remedy shall be
        cumulative and in addition to any other right or remedy given hereunder
        or now or hereafter existing at law or in equity. No failure of Landlord
        to insist at any time upon the strict performance of any provision of
        this Lease or to exercise any option, right, power or remedy contained
        in this Lease shall be construed as a waiver, modification or
        relinquishment thereof as to any similar or different breach (future or
        otherwise) by Tenant. A receipt by Landlord of any rent or other sum due
        hereunder (including any late charge) with knowledge of the breach of
        any provision contained in this Lease shall not be deemed a waiver of
        such breach, and no waiver by Landlord of any provision of this Lease
        shall be deemed to have been made unless expressed in a writing signed
        by Landlord.

                10.5 PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD.
        Notwithstanding anything herein to the contrary, if Tenant at any time
        after applicable notice and cure periods shall fail to make any payment
        or perform any act on its part required to be made or performed under
        this Lease, then Landlord may, without waiving or releasing Tenant from
        any obligations or default of Tenant hereunder, make any such payment or
        perform any such act for the account and at the expense of Tenant, and
        may enter upon the Premises for the purpose of taking all such action
        thereon as may be reasonably necessary therefor. No such entry shall be
        deemed an eviction of Tenant. All reasonable sums so paid by Landlord
        and all necessary and incidental costs and expenses (including, without
        limitation, reasonable attorneys' fees and expenses) incurred in
        connection with the performance of any such act by Landlord, together
        with interest





                                       47


        at the rate of the Prime Rate as reported daily by the Wall Street
        Journal plus 2% (or if said interest rate is violative of any applicable
        statute or law, then the maximum interest rate allowable) from the date
        of the making of such payment or the incurring of such costs and
        expenses by Landlord, shall be payable by Tenant to Landlord on demand.

                10.6 LATE PAYMENT CHARGE. Tenant acknowledges that any default
        in the payment of any installment of Rent payable hereunder will result
        in loss and additional expense to Landlord in servicing any indebtedness
        of Landlord secured by the Premises, handling such delinquent payments,
        and meeting its other financial obligations, and because such loss and
        additional expense is extremely difficult and impractical to ascertain,
        Tenant agrees that in the event any Rent payable to Landlord hereunder
        is not paid within five (5) days after the due date, Tenant shall pay a
        late charge of 5% of the amount of the overdue payment as a reasonable
        estimate of such loss and expenses, unless applicable law requires a
        lesser charge, in which event the maximum rate permitted by such law may
        be charged by Landlord; provided that nothing herein shall extend the
        time for payment of Rent or the period for curing any default or
        constitute a waiver of such default, or limit Landlord's remedies in the
        event of any such default.

                10.7 PERMITTED MORTGAGE LENDER'S RIGHT TO CURE. Notwithstanding
        any provision in this Lease to the contrary, no default in the
        performance of any of Landlord's obligations under the Lease that is of
        such a nature as to give Tenant a right to terminate the Lease or to
        reduce the rent payable under the Lease or to any credit, reduction or
        offset against future rents shall entitle Tenant to exercise any such
        right, power or remedy unless and until notice of such default is given
        to Landlord and any Permitted Mortgage Lender and unless and until
        fifteen (15) days shall have elapsed following delivery of such notice
        by Tenant, during which period any Permitted Mortgage Lender shall have
        the right, but not the obligation, to




                                       48


        remedy or cure such default; provided, however, that if such default
        cannot be cured within fifteen (15) days, then any Permitted Mortgage
        Lender shall have such longer period of time as may be reasonably
        necessary to cure such default so long as such Permitted Mortgage Lender
        pursues the cure of same with due diligence.

        11. DAMAGE BY FIRE OR OTHER CASUALTY.

                11.1 NOTICE OF CASUALTY. If the Premises shall be destroyed, in
        whole or in part, or damaged by fire, flood, windstorm or other casualty
        (a "CASUALTY"), Tenant shall give written notice thereof to the Landlord
        within one business day after the occurrence of the Casualty. Within 15
        days after the occurrence of the Casualty or as soon thereafter as such
        information is reasonably available to Tenant, Tenant shall provide the
        following information to Landlord: [i] the date of the Casualty; [ii]
        the nature of the Casualty; [iii] a description of the damage or
        destruction caused by the Casualty including the type of Premises
        damaged and the area of the Improvements damaged; [iv] a preliminary
        estimate of the cost to repair, rebuild, restore or replace the
        Premises; [v] a preliminary estimate of the schedule to complete the
        repair, rebuilding, restoration or replacement of the Premises; [vi] a
        description of the anticipated property insurance claim including the
        name of the insurer, the insurance coverage limits, the deductible
        amount, the expected settlement amount, and the expected settlement
        date; and [vii] a description of the business interruption claim
        including the name of the insurer, the insurance coverage limits, the
        deductible amount, the expected settlement amount, and the expected
        settlement date. Within five days after request from Landlord, Tenant
        will provide Landlord with copies of all correspondence to the insurer
        and any other information reasonably requested by Landlord.



                                       49


                11.2 SUBSTANTIAL DESTRUCTION.

                        11.2.1 If the Improvements are substantially destroyed
                at any time other than during the final 18 months of the Initial
                Term or any Renewal Term, Tenant shall promptly rebuild and
                restore the Premises in accordance with Section 11.4 and
                Landlord shall make the insurance proceeds available to Tenant
                for such restoration. The term "SUBSTANTIALLY DESTROYED" means
                any casualty resulting in the loss of use of 50% or more of the
                licensed beds at the Retirement Care Facility.

                        11.2.2 If the Improvements are substantially destroyed
                during the final 18 months of the Initial Term or any Renewal
                Term, Landlord may elect to terminate the Lease at Landlord's
                option, and Landlord shall retain the insurance proceeds, except
                that Landlord shall not be entitled to so terminate this Lease
                nor to retain the insurance proceeds if Tenant (within 15 days
                after the applicable casualty) exercises its right to extend the
                term hereof for any remaining Renewal Term (if any). If Landlord
                elects to terminate, Landlord shall give notice ("TERMINATION
                NOTICE") to Tenant of its election to terminate this Lease
                within 30 days after receipt of Tenant's notice of the damage.
                If this Lease is so terminated pursuant to the foregoing (and if
                Tenant has not renewed this Lease, as described above) this
                Lease shall terminate and Rent shall be apportioned as of the
                later of the date of termination, the date Tenant surrenders
                possession of the Premises or the latest date through which
                insurance described in Section 4.2.3 fully compensates for loss
                of rent. If this Lease is so terminated, Tenant shall be liable
                to Landlord for all Rent and all other obligations accrued under
                this Lease through the effective date of termination.



                                       50


                11.3 PARTIAL DESTRUCTION. If the Premises are not substantially
        destroyed, then Tenant shall comply with the provisions of Section 11.4
        and Landlord shall make the insurance proceeds available to Tenant for
        such restoration.

                11.4 RESTORATION. Tenant shall promptly repair, rebuild, or
        restore the Premises, at Tenant's expense, so as to make the Premises at
        least equal in value to the Premises existing immediately prior to such
        occurrence and as nearly similar to it in character as is practicable
        and reasonable. Before beginning such repairs or rebuilding, or letting
        any contracts in connection with such repairs or rebuilding, Tenant will
        submit for Landlord's approval, which approval Landlord will not
        unreasonably withhold or delay, plans and specifications. Promptly after
        receiving Landlord's approval of the plans and specifications and
        receiving the proceeds of insurance, Tenant will begin such repairs or
        rebuilding and will prosecute the repairs and rebuilding to completion
        with diligence, subject, however, to strikes, lockouts, acts of God,
        embargoes, governmental restrictions, and other all causes beyond
        Tenant's reasonable control. Landlord will make available to Tenant the
        net proceeds of any fire or other casualty insurance paid to Landlord
        for such repair or rebuilding as the same progresses, after deduction of
        any costs of collection, including attorneys' fees. Payments will be
        made against properly certified vouchers of a competent architect in
        charge of the work and approved by Landlord. Prior to commencing the
        repairing or rebuilding, Tenant shall deliver to Landlord for Landlord's
        approval a schedule setting forth the estimated monthly draws for such
        work. Landlord will contribute to such payments out of the insurance
        proceeds an amount equal to the proportion that the total net amount
        received by Landlord from insurers bears to the total estimated cost of
        the rebuilding or repairing, multiplied by the payment by Tenant on
        account of such work. Landlord may, however, withhold 10% from each
        payment until the work is completed and proof has been





                                       51


        furnished to Landlord that no lien or liability has attached or will
        attach to the Premises or to Landlord in connection with such repairing
        or rebuilding. Upon the completion of rebuilding and the furnishing of
        such proof, the balance of the net proceeds of such insurance payable to
        Tenant on account of such repairing or rebuilding will be paid to
        Tenant. Tenant will obtain and deliver to Landlord a temporary or final
        certificate of occupancy before the Premises is reoccupied for any
        purpose. Tenant shall complete such repairs or rebuilding free and clear
        of mechanic's or other liens, and in accordance with the building codes
        and all applicable laws, ordinances, regulations, or orders of any
        state, municipal, or other public authority affecting the repairs or
        rebuilding, and also in accordance with all requirements of the
        insurance rating organization, or similar body. Subject to Tenant's
        compliance with this Section 11, any remaining proceeds of insurance
        after such restoration will be disbursed to Tenant.

                11.5 INSUFFICIENT PROCEEDS. So long as Landlord makes available
        to Tenant the net proceeds of any insurance as provided in Section 11.4
        for the repair, rebuilding and restoration of the Premises, Tenant shall
        repair, rebuild or restore that Premises as provided in Section 11.4
        regardless of the existence or sufficiency of any such insurance
        proceeds. If the proceeds of any insurance settlement are not sufficient
        to pay the costs of Tenant's repair, rebuilding or restoration under
        Section 11.4 in full, Tenant shall deposit with Landlord at Landlord's
        option, and within 10 days of Landlord's request, an amount sufficient
        in Landlord's reasonable judgment to complete such repair, rebuilding or
        restoration. Tenant shall not, by reason of the deposit or payment, be
        entitled to any reimbursement from Landlord or diminution in or
        postponement of the payment of the Rent.

                11.6 NOT TRUST FUNDS. Notwithstanding anything herein or at law
        or equity to the contrary, none of the insurance proceeds paid to
        Landlord as herein provided shall be deemed





                                       52


        trust funds, and Landlord shall be entitled to dispose of such proceeds
        as provided in this Section 11. Tenant expressly assumes all risk of
        loss, including a decrease in the use, enjoyment or value, of the
        Premises from any casualty whatsoever, whether or not insurable or
        insured against.

                11.7 LANDLORD'S INSPECTION. During the progress of such repairs
        or rebuilding, Landlord and its architects and engineers may, from time
        to time, inspect the Premises and will be furnished, if required by
        them, with copies of all plans, shop drawings, and specifications
        relating to such repairs or rebuilding. Tenant will keep all plans, shop
        drawings, and specifications at the Premises, and Landlord and its
        architects and engineers may examine them at al reasonable times. If,
        during such repairs or rebuilding are not being done in accordance with
        the approved plans and specifications, Landlord will give prompt notice
        in writing to Tenant, specifying in detail the particular deficiency,
        omission, or other respect in which Landlord claims such repairs or
        rebuilding do not accord with the approved plans and specification. Upon
        the receipt of any such notice, Tenant will cause corrections to be made
        to any deficiencies, omissions, or such other respect. Tenant's
        obligations to supply insurance, according to Section 4, will be
        applicable to any repairs or rebuilding under this section.

                11.8 LANDLORD'S COSTS. Tenant shall, within 30 days after
        receipt of an invoice from Landlord, pay the reasonable costs, expenses,
        and fees of any architect or engineer employed by Landlord to review any
        plans and specifications and to supervise and approve any construction,
        or for any services rendered by such architect or engineer to Landlord
        as contemplated by any of the provisions of this Lease, or for any
        services performed by Landlord's attorneys in connection therewith.

                11.9 NO RENT ABATEMENT. Rent will not abate pending the repairs
        or rebuilding of the Premises.



                                       53


                11.10 SURPLUS PROCEEDS. Subject to Tenant's compliance with this
        Section 11, if there remains any surplus of insurance proceeds after the
        completion of the repair or reconstruction of the Premises, such surplus
        shall belong to and be paid to Tenant.

                11.11 END OF TERM. Notwithstanding any other provision of this
        Section 11, if the Premises are more than 30% destroyed (measured by
        square footage) by casualty during the last nine (9) months of the
        Initial Term or any Renewal Term, Tenant may terminate this Lease by
        written notice to Landlord delivered within thirty (30) days after the
        date of such casualty, in which event (a) this Lease shall be terminated
        as of the later of the date Tenant surrenders possession of the Premises
        or the latest date through which insurance described in Section 4.2.3
        fully compensates for loss of rent, and (b) Landlord shall retain all
        insurance proceeds.

        12. CONDEMNATION.

                12.1 TOTAL TAKING. If, by exercise of the right of eminent
        domain or by conveyance made in response to the threat of the exercise
        of such right ("TAKING"), the entire Premises is taken, or so much of
        the Premises is taken that the Premises cannot be used by Tenant for the
        purposes for which it was used immediately before the Taking, then this
        Lease will end on the earlier of the vesting of title to the Premises in
        the condemning authority or the taking of possession of the Premises by
        the condemning authority. All damages awarded for such Taking under the
        power of eminent domain shall be the property of the Landlord, whether
        such damages shall be awarded as compensation for diminution in value of
        the leasehold or the fee of the Premises; provided, however, Tenant
        shall be entitled to any damages awarded for Tenant's relocation
        expenses.

                12.2 PARTIAL TAKING. If, after a Taking, so much of the Premises
        remains that the Premises can be used for substantially the same
        purposes for which it was used immediately





                                       54


        before the Taking, then [i] this Lease will end as to the part taken on
        the earlier of the vesting of title to the Premises in the condemning
        authority or the taking of possession of the Premises by the condemning
        authority; [ii] at its cost, Tenant shall restore so much of the
        Premises as remains to a sound architectural unit substantially suitable
        for the purposes for which it was used immediately before the Taking,
        using good workmanship and new materials; [iii] upon completion of the
        restoration, Landlord will pay Tenant the lesser of the net award made
        to Landlord on the account of the Taking (after deducting from the total
        award, attorneys', appraisers', and other fees and costs incurred in
        connection with the obtaining of the award and amounts paid to the
        holders of mortgages secured by the Premises), or Tenant's actual
        out-of-pocket costs of restoring the Premises; and [iv] Landlord shall
        be entitled to the balance of the net award. The restoration shall be
        completed in accordance with Section 11.4 and with such other provisions
        deemed to apply to condemnation instead of casualty.

                12.3 CONDEMNATION PROCEEDS NOT TRUST FUNDS. Notwithstanding
        anything in this Lease or at law or equity to the contrary, none of the
        condemnation award paid to Landlord shall be deemed trust funds, and
        Landlord shall be entitled to dispose of such proceeds as provided in
        this Section 12. Tenant expressly assumes all risk of loss, including a
        decrease in the use, enjoyment, or value, of the Premises from any
        Condemnation.

        13. PROVISIONS ON TERMINATION OF TERM.

                13.1 SURRENDER OF POSSESSION. Tenant shall, on or before the
        last day of the Term, or upon earlier termination of this Lease (unless
        Tenant has purchased the Premises pursuant to Section 6.2), surrender to
        Landlord the Premises (including all resident charts and records along
        with appropriate resident consents) in the condition in which the
        Premises are required to be maintained pursuant to Section 5 hereof
        except for (a) alterations made in





                                       55


        accordance with the terms of this Lease; (b) normal and reasonable wear
        and tear (subject to the obligation of Tenant to maintain the Premises
        during the Term as elsewhere provided herein); and (c) damage or
        destruction not required to be repaired by Tenant, whether caused by
        Casualty, Taking or otherwise.

                13.2 REMOVAL OF PERSONAL PROPERTY. Subject to Section 7.2.5
        above, if Tenant is not then in default hereunder Tenant shall have the
        right in connection with the surrender of the Premises to remove from
        the Premises all Tenant Personal Property but not the Landlord Personal
        Property (including the Landlord Personal Property replaced by Tenant or
        required by the State or any other governmental entity to operate the
        Premises for the purpose set forth in Section 5.3 above). Any such
        removal shall be done in a workmanlike manner leaving the Premises in
        good and presentable condition and appearance, including repair of any
        damage caused by such removal. At the end of the Term or upon the
        earlier termination of this Lease, (unless Tenant has purchased the
        Premises pursuant to Section 6.2), Tenant shall return the Premises to
        Landlord with the Landlord Personal Property (or replacements thereof)
        in the condition in which the Premises and such Landlord Personal
        Property are required to be maintained pursuant to Section 5 hereof.

                13.3 TITLE TO PERSONAL PROPERTY NOT REMOVED. Title to any of
        Tenant Personal Property which is not removed by Tenant upon the
        expiration of the Term shall, at Landlord's election, vest in Landlord;
        provided, however, that Landlord at Tenant's expense may remove and
        dispose of any or all of such Tenant Personal Property which is not so
        removed by Tenant without obligation or accounting to the Tenant.

                13.4 MANAGEMENT OF PREMISES. Upon the expiration or earlier
        termination of the Term (unless Tenant has purchased the Premises
        pursuant to Section 6.2), Landlord or its





                                       56


        designee, upon written notice to Tenant, may elect to assume the
        responsibilities and obligations for the management and operation of the
        Premises and Tenant agrees to cooperate fully with Landlord or its
        designee to accomplish the transfer of such management and operation
        without interrupting the operation of the Premises. Tenant shall not
        commit any act or be remiss in the undertaking of any act that would
        jeopardize any licensure or certification of the facility, and Tenant
        shall comply with all requests for an orderly transfer of the Retirement
        Care Facility license, Medicare and Medicaid (or any successor program)
        certifications and possession at the time of any such surrender. Upon
        the expiration or earlier termination of the Term, Tenant shall promptly
        deliver copies of all of Tenant's books and records relating to the
        Premises and its operations to Landlord.

                13.5 CORRECTION OF DEFICIENCIES. Upon termination or
        cancellation of this Lease, Tenant shall indemnify Landlord for any
        loss, damage, cost or expense incurred by Landlord to correct all
        deficiencies of a physical nature identified by the North Carolina
        Department of Human Services, local health, fire and safety agencies or
        any other government agency or Medicare or Medicaid (or any successor
        program) providers in the course of the change of ownership inspection
        and audit.

        14. NOTICES AND DEMANDS. All notices and demands, certificates,
requests, consents, approvals, and other similar instruments under this Lease
shall be in writing and shall be deemed to have been properly given upon actual
receipt thereof or within three (3) business days of being placed in the United
States certified or registered mail, return receipt requested, postage prepaid
(a) if to Tenant, addressed to ARCLP-Charlotte, LLC, c/o American Retirement
Corporation, 111 Westwood Place, Suite 412, Brentwood, Tennessee 37027, Attn:
Chief Executive Officer, Fax No. (615) 221-2269, with a copy to Bass, Berry &
Sims PLC, 315 Deaderick Street, Suite





                                       57


2700, AmSouth Center, Nashville, Tennessee 37238, Attn: T. Andrew Smith, Esq.,
Fax No. (615) 742-2766, or at such other address as Tenant from time to time may
have designated by written notice to Landlord, and (b) if to Landlord, addressed
to Countryside ALF, LLC, 760 Brooks Avenue, Rochester, New York 14619 Attn: Joe
Kuby, Fax No. 716-328-7374 with a copy to Robert J. Sant, 760 Brooks Avenue,
Rochester, NY 14619, Facsimile: (716) 328-0787, or at such address as Landlord
may from time to time have designated by written notice to Tenant. Refusal to
accept delivery shall be deemed delivery. If Tenant is not an individual, notice
may be made to any senior officer, general partner or principal thereof.

        15. RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its
representative may enter the Premises at any reasonable time after reasonable
notice to Tenant for the purpose of inspecting the Premises for any reason
including, without limitation, examination of records and/or Tenant's default
under this Lease, or to exhibit the Premises for sale, lease or mortgage
financing, or posting notices of default, or non-responsibility under any
mechanic's or materialman's lien law or to otherwise inspect the Premises for
compliance with the terms of this Lease. Any such entry shall not unreasonably
interfere with residents, resident care, or any other of Tenant's operations.

        16. QUIET ENJOYMENT. So long as there is no Event of Default which is
existing and continuing by Tenant, Landlord covenants and agrees that Tenant
shall peaceably and quietly have, hold and enjoy the Premises for the Term, free
of any claim or other action of Landlord, or anyone claiming by through or under
Landlord, not caused or created by Tenant (excepting, however, intrusion of
Tenant's quiet enjoyment occasioned by condemnation or destruction of the
property as referred to in Sections 11 and 12 hereof).



                                       58


        17. APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the internal laws of the State of North Carolina without regard
to the conflict of laws rules of such State.

        18. HAZARDOUS MATERIALS.

                18.1 HAZARDOUS MATERIAL COVENANTS. Tenant's use of the Premises
        shall comply in all material respects with all Hazardous Materials Laws.
        In the event any Environmental Activities occur or are suspected to have
        occurred in violation in any material respect of any Hazardous Materials
        Laws or if Tenant has received any Hazardous Materials Claim against the
        Premises, Tenant shall promptly obtain all permits and approvals
        necessary to remedy any such actual or suspected problem through the
        removal of Hazardous Materials or otherwise, and upon Landlord's
        approval of the remediation plan, remedy any such problem to the
        satisfaction of Landlord, in accordance with all Hazardous Materials
        Laws and good business practices.

                18.2 TENANT NOTICES TO LANDLORD. Tenant shall immediately advise
        Landlord in writing of:

                        18.2.1 any Environmental Activities in violation of any
                Hazardous Materials Laws,

                        18.2.2 any Hazardous Materials Claims against Tenant or
                the Premises,

                        18.2.3 any remedial action taken by Tenant in response
                to any Hazardous Materials Claims or any Hazardous Materials on,
                under or about the Premises in violation of any Hazardous
                Materials Laws,

                        18.2.4 Tenant's discovery of any occurrence or condition
                on or in the vicinity of the Premises that materially increase
                the risk that the Premises will be




                                       59


                exposed to Hazardous Materials in violation of any Hazardous
                Materials Laws, and

                        18.2.5 all communications to or from Tenant, any
                governmental authority or any other person relating to Hazardous
                Materials Laws or Hazardous Materials Claims with respect to the
                Premises, including copies thereof.

                18.3 PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord shall
        have the right, at Tenant's sole cost and expense and with counsel
        chosen by Landlord, to join and participate in, as a party if it so
        elects, any legal proceedings or actions initiated in connection with
        any Hazardous Materials Claims.

                18.4 ENVIRONMENTAL ACTIVITIES. Shall mean the use, generation,
        transportation, handling, discharge, production, treatment, storage,
        release or disposal of any Hazardous Materials at any time to or from
        the Premises or located on or present on or under the Premises. Nothing
        contained in the foregoing or elsewhere in this Section 18 is intended
        to, nor shall it, limit the liability of Tenant, if any, to Landlord
        with respect to any representation or warranty given by Tenant to
        Landlord with respect to Hazardous Materials or environmental matters
        generally as set forth in the Purchase Agreement.

                18.5 HAZARDOUS MATERIALS INDEMNITY. Tenant agrees to indemnify
        and hold Landlord and its officers, directors, members, agents,
        employees, affiliates and representatives harmless from and against any
        and all claims, demands, damages, losses, liens, liabilities, penalties,
        fines, lawsuits, actions, orders, judgments, investigations, regulatory
        proceedings and other proceedings, and all costs and expenses (including
        but not limited to attorney's and consultant's fees and expenses),
        incurred in connection therewith, arising directly or indirectly from or
        out of, or in any way connected with (a) the presence or alleged
        presence of any




                                       60


        Hazardous Materials or underground storage tanks in, on or under the
        Premises occurring before or during the Term of this Lease; (b) any
        cleanup, removal and/or remedial proceeding, investigation, order or
        other action undertaken or required pursuant to any Hazardous Materials
        Laws for violations or alleged violations accruing before or during the
        Term of this Lease, (c) any violation or alleged violation of any
        Hazardous Materials Laws relating to the Premises, attributable to
        events occurring before or during the Term of this Lease; (d) any
        inaccuracy of the certifications, representations and warranties
        contained herein; or (e) any Hazardous Materials Claims asserted against
        Landlord.

                18.6 HAZARDOUS MATERIALS. "HAZARDOUS MATERIALS" shall mean (i)
        any petroleum products and/or by-products (including any fraction
        thereof), flammable substances, explosives, radioactive materials,
        hazardous or toxic wastes, substances or materials, known carcinogens or
        any other materials, contaminants or pollutants which pose a hazard to
        the Premises or to persons on or about the Premises or cause the
        Premises to be in violation of any Hazardous Materials Laws; (ii)
        asbestos in any form which is friable; (iii) urea formaldehyde in foam
        insulation or any other form; (iv) transformers or other equipment which
        contain dielectric fluid containing levels of polychlorinated biphenyls
        in excess of fifty (50) parts per million or any other more restrictive
        standard then prevailing; (v) medical wastes and biohazards; (vi) radon
        gas; and (vii) any other chemical, material or substance, exposure to
        which is prohibited, limited or regulated by any governmental authority
        or may or could pose a hazard to the health and safety of the occupants
        of the Premises or the owners and/or occupants of property adjacent to
        or surrounding the Premises.

                18.7 HAZARDOUS MATERIALS CLAIMS. "HAZARDOUS MATERIALS CLAIMS"
        shall mean any and all enforcement, clean-up, removal or other
        governmental or regulatory actions or





                                       61


        orders threatened, instituted or completed pursuant to any Hazardous
        Material Laws, together with all claims made or threatened by any third
        party against the Premises, Landlord or Tenant relating to damage,
        contribution, cost recovery compensation, loss or injury resulting from
        violation of any Hazardous Materials Laws.

                18.8 HAZARDOUS MATERIALS LAWS. "HAZARDOUS MATERIALS LAWS" shall
        mean any laws, ordinances, regulations, rules, orders, guidelines or
        policies relating to the environment, health and safety, Environmental
        Activities, Hazardous Materials, air and water quality, waste disposal
        and other environmental matters, if the failure to comply with the same
        does or would have a material adverse effect on the Premises or the
        operation thereof.

                18.9 PHASE I INSPECTION AND REPORT; REMEDIAL ACTION. Within
        thirty (30) days after the Commencement Date (or within such reasonably
        longer period as may be required, so long as Tenant pursues the same
        with reasonable diligence), Tenant will provide to Lender a so-called
        "Phase I" environmental inspection report regarding the Premises
        prepared by an environmental inspector selected by Tenant and reasonably
        approved by Landlord. In the event that such report reasonably
        recommends that a so-called "Phase II" environmental inspection report
        be completed to indemnify Landlord from any material potential Hazardous
        Materials Claims or violations of Hazardous Materials Laws, within
        thirty (30) days after the completion of the so-called "Phase I"
        environmental inspection report (or within such reasonably longer period
        as may be required, so long as Tenant pursues the same with reasonable
        diligence), Tenant will provided to Lender such Phase II environmental
        inspection report prepared by an environmental inspector selected by
        Tenant and reasonably acceptable by Landlord. If either or both of such
        reports disclose any material noncompliances with Hazardous Materials
        Laws, Tenant will remedy same with reasonable diligence. If Tenant's
        remedial action is not completed



                                       62


        on or before June 30, 2002, or within such reasonable time thereafter as
        may be required (provided Tenant is proceeding with reasonable diligence
        to correct and remedy such noncompliance), Landlord may either (a) cause
        completion of the same, or (b) direct Tenant and/or ARC to complete the
        same, and Landlord may offset any reasonable costs and expenses actually
        incurred by Landlord in completing the same against principal and
        interest due under the 2002 Promissory Note and, to the extent the 2002
        Promissory Note is insufficient for such offset, the 2003 Promissory
        Note, by delivery of written notice to Tenant sufficiently evidencing
        the costs and expenses to be offset.

        19. ASSIGNMENT AND SUBLETTING.

                19.1 PROHIBITION ON ASSIGNMENT AND SUBLETTING. Tenant
        acknowledges that Landlord has entered into this Lease in reliance on
        the personal services and business expertise of Tenant. Tenant may not
        assign, sublet, mortgage, hypothecate, pledge, or transfer any interest
        in this Lease, or in the Premises, in whole or in part, without the
        prior written consent of Landlord, which Landlord may not unreasonably
        withhold, condition or delay. Tenant acknowledges that, without limiting
        the foregoing, Landlord may withhold its consent to any such assignment,
        sublease, mortgage, hypothecation, pledge or transfer if the experience,
        reputation or creditworthiness of the proposed assignee, sublessee,
        mortgagee or transferee is not reasonably satisfactory to Landlord. The
        following transactions will be deemed an assignment or sublease
        requiring Landlord's prior written consent: [i] an assignment by
        operation of law; [ii] an imposition (whether or not consensual) of a
        lien, mortgage, or encumbrance upon Tenant's interest in the Lease; and
        [iii] an arrangement (including, but not limited to, management
        agreements, concessions, licenses, and easements) which allows the use
        or occupancy or operation of all or part of the Premises by anyone other
        than Tenant. Landlord's consent to any





                                       63


        assignment or sublease will not release Tenant from its payment and
        performance obligations under this Lease, but rather Tenant and Tenant's
        assignee or sublessee will be jointly and severally liable for such
        payment and performance. An assignment or sublease without the prior
        written consent of Landlord will be void at the Landlord's option.
        Landlord's consent to one assignment or sublease will not waive the
        requirement of its consent to any subsequent assignment or sublease.

                19.2 ASSIGNMENT AND SUBLETTING WITHOUT LANDLORD'S CONSENT.
        Notwithstanding the provisions of Section 19.1, Tenant may without
        Landlord's consent, assign this Lease or sublet the Premises or any
        portion thereof to a Successor (as such term is defined below) or to a
        wholly-owned, direct or indirect, subsidiary of ARC or Tenant
        ("SUBSIDIARY"), provided that in each case such Successor or Subsidiary
        fully assumes the obligations of Tenant and ARC is not released from its
        guaranty of this Lease.

                19.3 REQUESTS FOR LANDLORD'S CONSENT TO ASSIGNMENT, SUBLEASE OR
        MANAGEMENT AGREEMENT. If Tenant requests Landlord's consent to a
        specific assignment, sublease, or management agreement, Tenant shall
        give Landlord [i] the name and address of the proposed assignee,
        subtenant or manager; [ii] a copy of the proposed assignment, sublease
        or management agreement; [iii] reasonably satisfactory information about
        the nature, business and business history of the proposed assignee,
        subtenant, or manager and its proposed use of the Premises; and [iv]
        banking, financial, and other credit information, and references about
        the proposed assignee, subtenant or manager reasonably sufficient to
        enable Landlord to determine the financial responsibility and character
        of the proposed assignee, subtenant or manager. Any assignment, sublease
        or management agreement shall contain provisions to the effect that [a]
        such assignment, sublease or management agreement is subject and
        subordinate to all of the





                                       64


        terms and provisions of this Lease and to the rights of Landlord; [b]
        such assignment, sublease or management agreement may not be modified
        without the prior written consent of Landlord not to be unreasonably
        withheld, conditioned or delayed; [c] if this Lease shall terminate
        before the expiration of such assignment, sublease or management
        agreement, the assignee, subtenant or manager hereunder will, at
        Landlord's option, attorn to Landlord and waive any right the assignee,
        subtenant or manager may have to terminate the assignment, sublease or
        management agreement or surrender possession thereunder as a result of
        the termination of this Lease; and [d] if the assignee, subtenant or
        manager receives a written notice from Landlord stating that Tenant is
        in default under this Lease, the assignee, subtenant or manager shall
        thereafter pay all rentals or payments under the assignment, sublease or
        management agreement directly to Landlord until such default has been
        cured.

                19.4 TRANSFER OR ASSIGNMENT BY LANDLORD. Landlord may not
        transfer, assign, mortgage, collaterally assign, or otherwise, directly
        or indirectly, dispose of Landlord's interest in this Lease or the
        Premises to a competitor of Tenant or ARC for so long as Tenant, ARC, or
        an affiliate of Tenant and/or ARC is tenant hereunder. The foregoing
        limitation shall not be applicable if an Event of Default has occurred
        and is continuing beyond the expiration of any applicable grace and/or
        cure periods and Landlord is proceeding to take action to exercise its
        remedies pursuant to Section 10.2.1 or 10.2.2.

                19.5 ORDINARY COURSE SUBLEASES NOT TO REQUIRE CONSENT.
        Notwithstanding anything to the contrary contained in Section 19, (i) a
        lease of a unit or bed to a resident of the Premises, (ii) a sublease of
        any space in the Premises to an entity that provides services to such
        residents, and (iii) a sublease of any space for uses ancillary to the
        Retirement Care Facility, so long as each is made in the ordinary course
        of Tenant's business, shall not be deemed to be an





                                       65


        assignment of this Lease, or an unpermitted subletting hereunder, and
        shall not require Landlord's consent.

                19.6 SUCCESSOR. As used herein, a "SUCCESSOR" is any entity,
        which succeeds to materially, all of the assets, operations and business
        of Tenant by merger or reorganization and which is controlled by the
        same person or persons as control Tenant prior to such merger or
        reorganization.

        20. INDEMNIFICATION.

                20.1 TENANT'S INDEMNIFICATION. Tenant hereby indemnifies and
        agrees to hold harmless Landlord, any successors or assigns of Landlord,
        and Landlord's and such successor's and assign's directors, officers,
        employees and agents from and against any and all demands, claims,
        causes of action, fines, penalties, damages (including consequential
        damages), losses, liabilities (including strict liability), judgments,
        and expenses (including, without limitation, reasonable attorneys' fees
        and court costs), incurred in connection with or arising from [i] the
        use or occupancy of the Premises by Tenant or any persons claiming under
        Tenant, [ii] any activity, work, or thing done, or permitted or suffered
        by Tenant in or about the Premises, [iii] any acts, omissions, or
        negligence of Tenant or any person claiming under Tenant, or the
        contractors, agents, employees, invitees, or visitors of Tenant or any
        such person, [iv] any breach, violation, or nonperformance by Tenant or
        any person claiming under Tenant or the employees, agents, contractors,
        invitees, or visitors of Tenant or of any such person, of any term,
        covenant, or provision of this Lease or any law, ordinance, or
        governmental requirement of any kind including, without limitation, any
        failure to comply with any applicable requirements under the Americans
        with Disabilities Act, [v] any injury or damage to the person, property
        or business of Tenant, its employees, agents, contractors, invitees,
        visitors, or any other person entering upon





                                       66


        the Premises, and [vi] any construction, alterations, changes or
        demolition of the Premises performed by or contracted for Tenant or its
        employees, agents or contractors. If any action or proceeding is brought
        against Landlord, its employees, or agents by reason of any such claim,
        Tenant, upon notice from Landlord, will defend the claim at Tenant's
        expense with counsel reasonably satisfactory to Landlord. All amounts
        payable to Landlord under this section shall be payable on written
        demand and any such amounts which are not paid within 20 days after
        demand therefor by Landlord shall bear interest at the maximum permitted
        interest rate under applicable law. In case any action, suit or
        proceeding is brought against Tenant by reason of any such occurrence,
        Tenant shall use its best efforts to defend such action, suit or
        proceeding. Notwithstanding anything in this Lease to the contrary,
        Tenant shall not indemnify or hold Landlord harmless, nor successors or
        assigns of Landlord, nor Landlord's and such successor's and assign's
        directors, officers, employees and agents, from and against any and all
        demands, claims, causes of action, fines, penalties, damages (including
        consequential damages), losses, liabilities (including strict
        liability), judgments, and expenses (including, without limitation,
        reasonable attorneys' fees, and court costs) to the extent resulting
        from a breach of or default under this Lease, or negligence or
        misconduct on the part of Landlord, the successors and assigns of
        Landlord, and Landlord's and such successor's and assign's directors,
        officers, employees and agents.

                20.2 NOTICE OF CLAIM. Landlord shall notify Tenant in writing of
        any claim or action brought against Landlord in which indemnity may be
        sought against Tenant pursuant to this section. Such notice shall be
        given in sufficient time to allow Tenant to defend or participate in
        such claim or action, but the failure to give such notice in sufficient
        time shall not constitute a




                                       67


        defense hereunder nor in any way impair the obligations of Tenant under
        this section unless the failure to give such notice precludes Tenant's
        defense of any such action.

                20.3 SURVIVAL OF COVENANTS. The covenants of Tenant contained in
        this section shall remain in full force and effect after the termination
        of this Agreement until the expiration of the period stated in the
        applicable statute of limitations during which a claim or cause of
        action may be brought and payment in full or the satisfaction of such
        claim or cause of action and of all expenses and charges incurred by
        Landlord relating to the enforcement of the provisions herein specified.

                20.4 REIMBURSEMENT OF EXPENSES. Unless prohibited by law, Tenant
        hereby agrees to pay to Landlord all of the reasonable fees, charges and
        reasonable out-of-pocket expenses related to the Retirement Care
        Facility, or incurred by Landlord in enforcing the provisions of this
        Agreement.

                20.5 LIMITATION OF LANDLORD'S LIABILITY. Landlord, its agents,
        and employees, will not be liable for any loss, injury, death, or damage
        (including consequential damages) to persons, property, or Tenant's
        business occasioned by theft, act of God, public enemy, injunction,
        riot, strike, insurrection, war, court order, requisition, order of
        governmental body or authority, fire, explosion, falling objects,
        stream, water, rain or snow, leak or flow of water (including water from
        the elevator system), rain or snow from the Premises or into the
        Premises or from the roof, street, subsurface or from any other place or
        by dampness or from the breakage, leakage, obstruction, or other defects
        of the pipes, sprinklers, wires, appliances, plumbing, air conditioning,
        or lighting fixtures of the Premises, or from construction, repair, or
        alteration of the Premises or from any acts or omissions of any other
        occupant or visitor of the Premises, or from any other cause beyond
        Landlord's control.



                                       68


        21. HOLDING OVER. Should Tenant, with or without the express or implied
consent of Landlord, continue to hold and occupy the Premises after the
expiration of the Term, such holding over beyond the Term and the acceptance or
collection of Rent by the Landlord shall operate and be construed as creating a
tenancy from month-to-month and not for any other term whatsoever. Said
month-to-month tenancy may be terminated by Landlord by giving Tenant 10 days'
written notice, and at any time thereafter Landlord may re-enter and take
possession of the Premises.

        22. ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less than
fifteen (15) days' prior written request by Landlord, execute, acknowledge and
deliver to Landlord or its designee a statement in writing, executed by an
officer or general partner of Tenant, certifying that this Lease is unmodified
and in full force and effect (or, if there have been any modifications, that
this Lease is in full force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Rent and additional
charges hereunder have been paid, certifying that to Tenant's knowledge, no
default by either Landlord or Tenant exists hereunder or specifying each such
default and as to other matters as Landlord may reasonably request.

        23. CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Premises shall convey the Premises in accordance with the terms hereof, Landlord
or such successor owner shall thereupon be released from all future liabilities
and obligations of Landlord under this Lease arising or accruing from and after
the date of such conveyance or other transfer as to the Premises and all such
future liabilities and obligations shall thereupon be binding upon the new
owner.



                                       69


        24. WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive any rights to
trial by jury in any action, proceedings or counterclaim brought by either of
the parties against the other in connection with any matter whatsoever arising
out of or in any way connected with this Lease, including, without limitation,
the relationship of Landlord and Tenant, Tenant's use and occupancy of the
Premises, or any claim of injury or damage relating to the foregoing or the
enforcement of any remedy hereunder.

        25. ATTORNEYS' FEES. If Landlord or Tenant brings any action to
interpret or enforce this Lease, or for damages for any alleged breach hereof,
the prevailing party in any such action shall be entitled to reasonable
attorneys' fees and costs as awarded by the court in addition to all other
recovery, damages and costs.

        26. SEVERABILITY. In the event any part or provision of the Lease shall
be determined to be invalid or enforceable, the remaining portion of this Lease
shall nevertheless continue in full force and effect.

        27. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.

        28. BINDING EFFECT. Subject to the provisions of Section 19 above, this
Lease shall be binding upon and inure to the benefit of Landlord and Tenant and
their respective heirs, personal representatives, successors in interest and
assigns.

        29. WAIVER AND SUBROGATION. Landlord and Tenant hereby waive to each
other all rights of subrogation which any insurance carrier, or either of them,
may have as to the Landlord or Tenant by reason of any provision in any policy
of insurance issued to Landlord or Tenant, provided such waiver does not thereby
invalidate the policy of insurance.



                                       70


        30. MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State, in which reference to this
Lease shall be made. The party requesting such recordation shall pay all costs
and expenses of preparing and recording such memorandum of this Lease.

        31. INCORPORATION OF RECITALS AND ATTACHMENTS. The recitals and
exhibits, schedules, addenda and other attachments to this Lease are hereby
incorporated into this Lease and made a part hereof.

        32. TITLES AND HEADINGS. The titles and headings of sections of this
Lease are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Lease.

        33. NATURE OF RELATIONSHIP; USURY SAVINGS CLAUSE. The parties intend
that their relationship shall be that of lessor and lessee only. Nothing
contained in this Lease shall be deemed or construed to constitute an extension
of credit by Landlord to Tenant, nor shall this Lease be deemed to be a
partnership or venture agreement between Landlord and Tenant. Notwithstanding
the foregoing, in the event any payment made to Landlord hereunder is deemed to
violate any applicable laws regarding usury, the portion of any payment deemed
to be usurious shall be held by Landlord to pay the future obligations of Tenant
as such obligations arise and, in the event Tenant discharges and performs all
obligations hereunder, such funds will be reimbursed to Tenant upon the
expiration of the Term. No interest shall be paid on any such funds held by
Landlord.

        34. JOINT AND SEVERAL. If more than one person or entity is the Tenant
hereunder, the liability and obligations of such persons or entities under this
Lease shall be joint and several.



                                       71


        35. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the
obligations, representations, warranties and covenants of Tenant under this
Lease shall survive the expiration or earlier termination of the Term.

        36. INTERPRETATION. Both Landlord and Tenant have been represented by
counsel and this Lease has been freely and fairly negotiated. Consequently, all
provisions of this Lease shall be interpreted according to their fair meaning
and shall not be strictly construed against any party.

        37. [INTENTIONALLY OMITTED.]

        38. SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT. Upon written notice
by Landlord to Tenant, this Lease shall be and become subject and subordinate to
any and all mortgages or deeds of trust now existing, or that hereafter may
secure Permitted Mortgage Loans, on the Premises, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon, and subject to all
the terms and provisions thereof. Notwithstanding the foregoing provisions with
respect to subordination, such provisions shall not be effective unless the
owner or holder of any such mortgage or deed of trust shall execute with Tenant
a non-disturbance and attornment agreement under which said owner or holder
shall agree to accept the attornment of Tenant and not disturb Tenant's right of
possession hereunder upon foreclosure of any such mortgage or deed of trust, if
Tenant is not in default. Tenant hereby agrees to attorn to any person, firm or
corporation purchasing or otherwise acquiring the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, power or remedies
under such mortgages or deeds of trust, as if such person, firm or corporation
had been named as Landlord herein. Upon request of Landlord, Tenant agrees to
execute and deliver an instrument suitable for recording




                                       72


subordinating Tenant's interest in the Premises to any such Permitted Mortgage
Loan, subject to the provisions of this Section 38.

        39. ENTIRE AGREEMENT. The entire understanding between the parties with
respect to the transactions contemplated herein is set out in this Lease. This
Lease supersedes and voids all prior proposals, letters and agreements, oral or
written, with respect to the subject matter hereof. No modification or
alteration of this Lease shall be effective unless evidenced by an instrument in
writing and signed by all parties.

        40. OPERATING LEASE. The parties hereto intend that this Lease be
treated as an operating lease for tax and accounting purposes.

        41. LANDLORD'S LIEN. To secure the payment of all Rent due and to become
due hereunder, and the faithful performance of all other covenants of this Lease
required by Tenant to be performed, Tenant hereby gives to Landlord a lien on,
and security interest in and to, all Tenant Personal Property (except any part
of such property as may be Excluded Property), and all proceeds therefrom. Upon
the occurrence of an Event of Default, Landlord may, in addition to any other
remedies provided herein, enter upon the Premises and take possession of any and
all such Tenant Personal Property and sell the same at public or private sale
all in accordance with the Uniform Commercial Code as enacted in the State (the
"UCC"). Tenant hereby authorizes Landlord to file any UCC financing statements
necessary to perfect the security interest of Landlord in such Personal Property
under the provisions of the UCC.

                       [Signatures on following page(s).]


                                       73



                [SIGNATURE PAGE TO LEASE AGREEMENT Doc #2246890]

        IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement of have caused this Lease Agreement to be duly executed on or as of
the day and date first above written.

                                       TENANT:

Witness:                               ARCLP-CHARLOTTE, LLC
                                       a Tennessee limited liability company
- ---------------------------            By:  ARC Charlotte, Inc., managing member

                                       By:
                                           -------------------------------------
- ---------------------------            Title:
                                              ----------------------------------


                                       LANDLORD:
Witness:

                                       COUNTRYSIDE ALF, LLC
                                       a New York limited liability company

- ---------------------------

                                       By:
                                           -------------------------------------
- ---------------------------            Title:
                                              ----------------------------------









                                       74








STATE OF __________________

COUNTY OF ________________


         BEFORE ME, a notary public in and for said County, personally appeared
E. Philip Sanders, Member of Countryside ALF, LLC, a limited liability company,
who having been duly sworn, acknowledged that he did execute the foregoing
instrument, and that the same is his free act and deed personally and as such
Member.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal at office, this _______ day of January, 2002.

                                            ------------------------------------
                                            (Print Name)
                                            Notary Public

My Commission Expires:

- ---------------------------



STATE OF TENNESSEE

COUNTY OF DAVIDSON

         BEFORE ME, a notary public, personally appeared __________________,
______________ OF ARC Charlotte, Inc., a corporation that is managing member of
ARCLP - Charlotte, LLC, a Tennessee limited liability company, who having been
duly sworn, acknowledged that he did execute the foregoing instrument, and that
the same is his free act and deed personally and as such officer.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal at office, this _________ day of January, 2002.


                                            ------------------------------------
                                            (Print Name)
                                            Notary Public

My Commission Expires:

- ---------------------------





                                   EXHIBIT "A"

                          LEGAL DESCRIPTION OF PREMISES





                                  EXHIBIT "A-1"

                              PERMITTED EXCEPTIONS





                                   EXHIBIT "B"

                           Landlord Personal Property

         All furniture, furnishings, equipment, tools, machinery, fixtures,
appliances and all other intangible and tangible personal property conveyed to
Landlord pursuant to the Purchase Agreement.





                                   EXHIBIT "C"

                                Fair Market Value

         "FAIR MARKET VALUE" shall mean the value of the Premises as agreed upon
by Landlord and Tenant; provided, however, if Landlord and Tenant are unable to
agree upon the value of the Premises within fifteen (15) days after the need to
establish Fair Market Value arises pursuant to the terms of this Lease, then
each shall within ten (10) days after written demand by either party select one
MAI Appraiser each to participate in the determination of Fair Market Value. For
all purposes under this Lease, the Fair Market Value of the Premises shall be
based on the Fair Market Value of the Premises unencumbered by this Lease. The
two appraisers shall appraise the Premises within twenty (20) days of the
written demand required above and shall certify each such appraisal to both
Landlord and Tenant. If the two appraisals do not differ by more than ten
percent (10%) the average of the two appraisals shall be used as the Fair Market
Value. If the two appraisals do differ by more than ten percent (10%), then the
two appraisers shall elect a third MAI Appraiser. The third MAI Appraiser shall
appraise the Premises within thirty (30) days of the selection of the third
appraiser. The appraisal of the third MAI Appraiser shall be the Fair Market
Value unless such amount is either greater than or less than both of the two
previous appraisals, in which event the Fair Market Value shall be the amount of
whichever of the two previous appraisals is closet to the amount of the third
appraisal. To the extent consistent with sound appraisal practices as then
existing at the time of any such appraisal, and if requested by Landlord, such
appraisal, shall be made on a basis consistent with the basis on which the
Premises was appraised at the time of its acquisition by Landlord. Each of
Tenant and Landlord shall pay the fees and expenses of any MAI Appraiser, which
such party appoints pursuant to this Exhibit plus 50% of the cost of the third
appraiser.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, and such failure is
not corrected within five (5) days of notice of such failure to the defaulting
party, the MAI Appraiser selected by the other party (the "SOLE APPRAISER")
shall alone determine the Fair Market Value of the Premises in accordance with
the provisions of this Exhibit and the Fair Market Value so determined shall be
binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at their mutual expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Premises is located to
name the third MAI Appraiser.

         Landlord, Tenant will exercise their respective best efforts to
expedite the appraisal process and will cooperate fully and with all deliberate
speed with each other and with all appraisers in order to allow the
determination of Fair Market Value to be finally completed.

         "MAI APPRAISER" shall mean an appraiser (i) licensed or otherwise
qualified to do business in the State, (ii) who has substantial experience in
performing appraisals of facilities similar to the Premises, (iii) who is
certified as a member of the American Institute of Real







Estate Appraisers or certified as a SRPA by the Society of Real Estate
Appraisers, or, if such organizations no longer exist or certify appraisers,
such successor organization or such other organization as is approved by
Landlord and Tenant, and (iv) who does not have an interest, direct or indirect,
in the Premises, Landlord or Tenant, and who will not otherwise derive a benefit
from the calculation of the Fair Market Value.





                                  EXHIBIT "D-1"

   EXAMPLES OF CALCULATION OF MINIMUM RENT AS SET FORTH IN THIS SECTION 2.1.3.

EXAMPLE 1

This example assumes that the debt to be refinanced in July of 2008
($31,400,131) is refinanced over 300 months rather than 222 months.



                                                         Amortization     Principal         Rate         Payment
                                                                                             
Theoretical Debt Service portion of Minimum Rent          222 months     31,400,131         6.87%        250,225
Actual debt service                                       300 months     31,400,131         6.87%        219,332



EXAMPLE 2

This example assumes that the debt to be refinanced in July, 2008 ($31,400,131)
is refinanced over 300 months rather than 222 months and at 8% rather than
6.87%.




                                                         Amortization     Principal         Rate         Payment
                                                                                             
Theoretical Debt Service portion of Minimum Rent          222 months     31,400,131         8.00%        271,425
Actual debt service                                       300 months     31,400,131         8.00%        242,351


EXAMPLE 3

This example assumes that the debt to be refinanced in July, 2008 ($31,400,131)
is refinanced over 300 months rather than 222 months and the amount financed is
increased from $31,400,131 to $34,400,131.




                                                         Amortization     Principal         Rate         Payment
                                                                                             
Theoretical Debt Service portion of Minimum Rent          222 months     31,400,131         6.87%        250,225
Actual debt service                                       300 months     34,400,131         6.87%        240,288


EXAMPLE 4

This example assumes that the debt to be refinanced in July, 2008 ($31,400,131)
is refinanced over 300 months rather than 222 months, with a change of interest
rate to 8% and a change in amount from $31,400,131 to $34,400,131.




                                                         Amortization     Principal         Rate         Payment
                                                                                             
Theoretical Debt Service portion of Minimum Rent          222 months     31,400,131         8.00%        271,425
Actual debt service                                       300 months     34,400,131         8.00%        265,505








                                  EXHIBIT "D-2"

                      AMORTIZATION OF THEORETICAL PRINCIPAL

  31,400,131  Principal Amount
         222  Amortization
      0.0687  Rate
     250,225  Payment Amount





                            Ending Prin    Principal  Interest

             1st of Month
                                          
           1        Aug-08   31,329,672      70,459   179,766

           2        Sep-08   31,258,809      70,863   179,362

           3        Oct-08   31,187,541      71,268   178,957

           4        Nov-08   31,115,864      71,676   178,549

           5        Dec-08   31,043,778      72,087   178,138

           6        Jan-09   30,971,278      72,499   177,726

           7        Feb-09   30,898,364      72,914   177,311

           8        Mar-09   30,825,032      73,332   176,893

           9        Apr-09   30,751,280      73,752   176,473

          10        May-09   30,677,106      74,174   176,051

          11        Jun-09   30,602,508      74,599   175,626

          12        Jul-09   30,527,482      75,026   175,199

          13        Aug-09   30,452,027      75,455   174,770

          14        Sep-09   30,376,140      75,887   174,338

          15        Oct-09   30,299,818      76,322   173,903

          16        Nov-09   30,223,059      76,759   173,466

          17        Dec-09   30,145,861      77,198   173,027

          18        Jan-10   30,068,221      77,640   172,585

          19        Feb-10   29,990,137      78,084   172,141

          20        Mar-10   29,911,606      78,531   171,694






                                          
          21        Apr-10   29,832,624      78,981   171,244

          22        May-10   29,753,191      79,433   170,792

          23        Jun-10   29,673,303      79,888   170,337

          24        Jul-10   29,592,958      80,345   169,880

          25        Aug-10   29,512,152      80,805   169,420

          26        Sep-10   29,430,885      81,268   168,957

          27        Oct-10   29,349,151      81,733   168,492

          28        Nov-10   29,266,950      82,201   168,024

          29        Dec-10   29,184,278      82,672   167,553

          30        Jan-11   29,101,133      83,145   167,080

          31        Feb-11   29,017,512      83,621   166,604

          32        Mar-11   28,933,413      84,100   166,125

          33        Apr-11   28,848,831      84,581   165,644

          34        May-11   28,763,766      85,065   165,160

          35        Jun-11   28,678,213      85,552   164,673

          36        Jul-11   28,592,171      86,042   164,183

          37        Aug-11   28,505,636      86,535   163,690

          38        Sep-11   28,418,606      87,030   163,195

          39        Oct-11   28,331,078      87,529   162,697

          40        Nov-11   28,243,048      88,030   162,195

          41        Dec-11   28,154,514      88,534   161,691

          42        Jan-12   28,065,474      89,040   161,185

          43        Feb-12   27,975,924      89,550   160,675

          44        Mar-12   27,885,861      90,063   160,162

          45        Apr-12   27,795,282      90,578   159,647

          46        May-12   27,704,185      91,097   159,128

          47        Jun-12   27,612,567      91,619   158,606

          48        Jul-12   27,520,424      92,143   158,082






                                          
          49        Aug-12   27,427,753      92,671   157,554

          50        Sep-12   27,334,552      93,201   157,024

          51        Oct-12   27,240,817      93,735   156,490

          52        Nov-12   27,146,546      94,271   155,954

          53        Dec-12   27,051,735      94,811   155,414

          54        Jan-13   26,956,381      95,354   154,871

          55        Feb-13   26,860,481      95,900   154,325

          56        Mar-13   26,764,033      96,449   153,776

          57        Apr-13   26,667,032      97,001   153,224

          58        May-13   26,569,475      97,556   152,669

          59        Jun-13   26,471,361      98,115   152,110

          60        Jul-13   26,372,684      98,676   151,549

          61        Aug-13   26,273,443      99,241   150,984

          62        Sep-13   26,173,633      99,810   150,415

          63        Oct-13   26,073,252     100,381   149,844

          64        Nov-13   25,972,297     100,956   149,269

          65        Dec-13   25,870,763     101,534   148,691

          66        Jan-14   25,768,648     102,115   148,110

          67        Feb-14   25,665,948     102,700   147,526

          68        Mar-14   25,562,661     103,287   146,938

          69        Apr-14   25,458,782     103,879   146,346

          70        May-14   25,354,309     104,473   145,752

          71        Jun-14   25,249,237     105,072   145,153

          72        Jul-14   25,143,564     105,673   144,552

          73        Aug-14   25,037,286     106,278   143,947

          74        Sep-14   24,930,399     106,887   143,338

          75        Oct-14   24,822,901     107,498   142,727

          76        Nov-14   24,714,787     108,114   142,111







                                          
          77        Dec-14   24,606,054     108,733   141,492

          78        Jan-15   24,496,699     109,355   140,870

          79        Feb-15   24,386,717     109,981   140,244

          80        Mar-15   24,276,106     110,611   139,614

          81        Apr-15   24,164,862     111,244   138,981

          82        May-15   24,052,981     111,881   138,344

          83        Jun-15   23,940,459     112,522   137,703

          84        Jul-15   23,827,293     113,166   137,059

          85        Aug-15   23,713,479     113,814   136,411

          86        Sep-15   23,599,014     114,465   135,760

          87        Oct-15   23,483,893     115,121   135,104

          88        Nov-15   23,368,113     115,780   134,445

          89        Dec-15   23,251,671     116,443   133,782

          90        Jan-16   23,134,562     117,109   133,116

          91        Feb-16   23,016,782     117,780   132,445

          92        Mar-16   22,898,328     118,454   131,771

          93        Apr-16   22,779,196     119,132   131,093

          94        May-16   22,659,382     119,814   130,411

          95        Jun-16   22,538,882     120,500   129,725

          96        Jul-16   22,417,692     121,190   129,035

          97        Aug-16   22,295,808     121,884   128,341

          98        Sep-16   22,173,227     122,582   127,644

          99        Oct-16   22,049,943     123,283   126,942

         100        Nov-16   21,925,954     123,989   126,236

         101        Dec-16   21,801,255     124,699   125,526

         102        Jan-17   21,675,842     125,413   124,812

         103        Feb-17   21,549,712     126,131   124,094

         104        Mar-17   21,422,859     126,853   123,372







                                          
         105        Apr-17   21,295,280     127,579   122,646

         106        May-17   21,166,970     128,310   121,915

         107        Jun-17   21,037,926     129,044   121,181

         108        Jul-17   20,908,143     129,783   120,442

         109        Aug-17   20,777,617     130,526   119,699

         110        Sep-17   20,646,344     131,273   118,952

         111        Oct-17   20,514,319     132,025   118,200

         112        Nov-17   20,381,539     132,781   117,444

         113        Dec-17   20,247,998     133,541   116,684

         114        Jan-18   20,113,693     134,305   115,920

         115        Feb-18   19,978,619     135,074   115,151

         116        Mar-18   19,842,771     135,847   114,378

         117        Apr-18   19,706,146     136,625   113,600

         118        May-18   19,568,739     137,407   112,818

         119        Jun-18   19,430,545     138,194   112,031

         120        Jul-18   19,291,559     138,985   111,240

         121        Aug-18   19,151,779     139,781   110,444

         122        Sep-18   19,011,198     140,581   109,644

         123        Oct-18   18,869,812     141,386   108,839

         124        Nov-18   18,727,616     142,195   108,030

         125        Dec-18   18,584,607     143,009   107,216

         126        Jan-19   18,440,779     143,828   106,397

         127        Feb-19   18,296,127     144,652   105,573

         128        Mar-19   18,150,647     145,480   104,745

         129        Apr-19   18,004,335     146,313   103,912

         130        May-19   17,857,185     147,150   103,075

         131        Jun-19   17,709,192     147,993   102,232

         132        Jul-19   17,560,352     148,840   101,385






                                          
         133        Aug-19   17,410,660     149,692   100,533

         134        Sep-19   17,260,111     150,549    99,676

         135        Oct-19   17,108,700     151,411    98,814

         136        Nov-19   16,956,422     152,278    97,947

         137        Dec-19   16,803,273     153,150    97,076

         138        Jan-20   16,649,247     154,026    96,199

         139        Feb-20   16,494,339     154,908    95,317

         140        Mar-20   16,338,544     155,795    94,430

         141        Apr-20   16,181,857     156,687    93,538

         142        May-20   16,024,273     157,584    92,641

         143        Jun-20   15,865,787     158,486    91,739

         144        Jul-20   15,706,393     159,393    90,832

         145        Aug-20   15,546,088     160,306    89,919

         146        Sep-20   15,384,864     161,224    89,001

         147        Oct-20   15,222,717     162,147    88,078

         148        Nov-20   15,059,642     163,075    87,150

         149        Dec-20   14,895,634     164,009    86,216

         150        Jan-21   14,730,686     164,948    85,278

         151        Feb-21   14,564,794     165,892    84,333

         152        Mar-21   14,397,953     166,842    83,383

         153        Apr-21   14,230,156     167,797    82,428

         154        May-21   14,061,399     168,757    81,468

         155        Jun-21   13,891,675     169,724    80,502

         156        Jul-21   13,720,980     170,695    79,530

         157        Aug-21   13,549,307     171,672    78,553

         158        Sep-21   13,376,652     172,655    77,570

         159        Oct-21   13,203,009     173,644    76,581

         160        Nov-21   13,028,371     174,638    75,587







                                          
         161        Dec-21   12,852,733     175,638    74,587

         162        Jan-22   12,676,090     176,643    73,582

         163        Feb-22   12,498,436     177,654    72,571

         164        Mar-22   12,319,764     178,671    71,554

         165        Apr-22   12,140,070     179,694    70,531

         166        May-22   11,959,347     180,723    69,502

         167        Jun-22   11,777,589     181,758    68,467

         168        Jul-22   11,594,790     182,798    67,427

         169        Aug-22   11,410,946     183,845    66,380

         170        Sep-22   11,226,048     184,897    65,328

         171        Oct-22   11,040,092     185,956    64,269

         172        Nov-22   10,853,072     187,020    63,205

         173        Dec-22   10,664,981     188,091    62,134

         174        Jan-23   10,475,813     189,168    61,057

         175        Feb-23   10,285,562     190,251    59,974

         176        Mar-23   10,094,222     191,340    58,885

         177        Apr-23    9,901,786     192,436    57,789

         178        May-23    9,708,249     193,537    56,688

         179        Jun-23    9,513,603     194,645    55,580

         180        Jul-23    9,317,844     195,760    54,465

         181        Aug-23    9,120,963     196,880    53,345

         182        Sep-23    8,922,956     198,008    52,218

         183        Oct-23    8,723,815     199,141    51,084

         184        Nov-23    8,523,533     200,281    49,944

         185        Dec-23    8,322,106     201,428    48,797

         186        Jan-24    8,119,525     202,581    47,644

         187        Feb-24    7,915,784     203,741    46,484

         188        Mar-24    7,710,877     204,907    45,318






                                          
         189        Apr-24    7,504,797     206,080    44,145

         190        May-24    7,297,536     207,260    42,965

         191        Jun-24    7,089,090     208,447    41,778

         192        Jul-24    6,879,450     209,640    40,585

         193        Aug-24    6,668,610     210,840    39,385

         194        Sep-24    6,456,562     212,047    38,178

         195        Oct-24    6,243,301     213,261    36,964

         196        Nov-24    6,028,819     214,482    35,743

         197        Dec-24    5,813,109     215,710    34,515

         198        Jan-25    5,596,164     216,945    33,280

         199        Feb-25    5,377,977     218,187    32,038

         200        Mar-25    5,158,541     219,436    30,789

         201        Apr-25    4,937,849     220,692    29,533

         202        May-25    4,715,893     221,956    28,269

         203        Jun-25    4,492,666     223,227    26,998

         204        Jul-25    4,268,162     224,505    25,721

         205        Aug-25    4,042,372     225,790    24,435

         206        Sep-25    3,815,290     227,082    23,143

         207        Oct-25    3,586,907     228,382    21,843

         208        Nov-25    3,357,217     229,690    20,535

         209        Dec-25    3,126,212     231,005    19,220

         210        Jan-26    2,893,885     232,327    17,898

         211        Feb-26    2,660,227     233,658    16,567

         212        Mar-26    2,425,232     234,995    15,230

         213        Apr-26    2,188,891     236,341    13,884

         214        May-26    1,951,198     237,694    12,531

         215        Jun-26    1,712,143     239,054    11,171

         216        Jul-26    1,471,720     240,423     9,802






                                          
         217        Aug-26    1,229,921     241,799     8,426

         218        Sep-26      986,737     243,184     7,041

         219        Oct-26      742,161     244,576     5,649

         220        Nov-26      496,185     245,976     4,249

         221        Dec-26      248,801     247,384     2,841

         222        Jan-27                  248,801     1,424













                                   EXHIBIT "E"

                    INITIAL CAPITAL EXPENDITURE REQUIREMENTS



         Repair                                                         Budget
         ------                                                         ------
                                                                  
   1     Repair of Wood Exterior/Doors                                  100,000
   2     Repaint Exterior of Buildings                                  250,000
   3     Replacement of Window Glass                                     25,000
   4     Roofing Work                                                    50,000
   5     Asphalt parking lot                                             45,000
   6     Pool Deck                                                        5,000
   7     Carbon Monoxide Detectors                                        7,500
   8     Elevator Hold Opens                                             15,000
   9     Plumbing Repairs                                                80,000
   10    Former Executive Director's Residence Repairs                   20,000
   11    Signage                                                          3,500
   12    Flooring                                                        35,000
   13    Lighting                                                        30,000
   14    Kitchen Improvements                                            30,000
   15    Awning                                                           7,500
   16    AL Entrance Walkway Cover                                       15,000
   17    Bridge Connector                                                40,000
                                                                        -------
                                                                        758,500


1.      REPAIR OF WOOD EXTERIOR/DOORS - The exterior siding and wood trim of the
        building are in need of repairs. There has been an ongoing program of
        periodic repairs to some areas of the buildings. It is now time to
        perform more in depth repairs that would include wood filling, caulking,
        and replacement. A majority of the repairs are at the ground level where
        moisture is abundant and also located around column bases and wall trim
        that may not have readily visible damage. This allowance would also
        include the replacement of several pairs of heavily worn wood exterior
        doors. Wood doors at building 3, Clubhouse dining level and pool level
        will need to be replaced. Some garage door replacement and repairs are
        covered in this allowance. A trial replacement has been completed in the
        dining room area where the wood doors were successfully replaced with
        metal storefront type units. This has been well received and is very low
        maintenance.
        PRIORITY: A                 BUDGET: 100,000

2.      REPAINT EXTERIOR OF BUILDINGS - The buildings have not been completely
        painted since 1994. There have been partial areas repainted when repairs
        were made, but not a complete paint job. We recommend that the entire
        exteriors of the buildings be repainted. This would include the EIFS
        (stucco), wood siding and trim, wood stairs and railings. Typically a
        paint job should last 7 years, so we are at the last of the effective
        life of the last application. The painting should be performed after the
        necessary exterior wood repairs are made. This new coating will protect
        the exterior materials and extend the life of them as well. Refer to the
        photos as examples of the faded paint/stain and staining





        throughout the property. The projected cost for this work is an in house
        estimate based on prior painting jobs. The scope of this work is made up
        of mostly the original buildings (IL and SC), but will include the metal
        railings on the AL building and the fiberglass site lighting poles in
        the parking lot as well.
        PRIORITY: A                BUDGET: 250,000

3.      REPLACEMENT OF WINDOW GLASS - There are several windows throughout the
        community that are fogged. The seal on the insulation glass has leaked
        and now there is condensate and staining inside the window units causing
        an opaque appearance. This is occurring in the public areas as well as
        the resident apartments. There has been an ongoing annual program to
        change out some of these windows. We are recommending that we try to
        address all of the remaining units at one time.
        PRIORITY: A                BUDGET: 25,000

4.      ROOFING - There has been an ongoing annual replacement of some of the
        flat roof areas of the campus buildings. We have identified that the
        remaining roofing (rubber membrane, two well areas per building) are due
        for replacement. Currently there are no known leaks, but the product is
        past the effective life of 10 years and is showing signs of wear. Rather
        than total replacement, we are recommending a new product that is
        applied as a coating to the flat roof sections that will reduce the cost
        from 130,000 to 50,000. This includes the clubhouse building. Although
        the singled roof area of the buildings is stained, they still have
        remaining life and there are no known leaks to date.
        PRIORITY: A                BUDGET: 50,000

5.      ASPHALT PARKING LOT - The asphalt on the campus is original to
        construction, although some patches and repairs have been made. The
        entire surface was seal coated four years ago. We are recommending
        re-striping of the faded lines and spaces with some limited crack
        filling and repairs. An allowance has been established to cover patching
        and repairs of trouble spots as well as seal coating areas. There are
        some buckled pavers that need to be reset in the courtyard of building
        1.
        PRIORITY: A                BUDGET: 45,000

6.      POOL DECK - The cool deck of the pool surround is flaking in some areas.
        We suggest patching these areas rather than total replacement. We
        suggest a repair allowance of 5,000.
        PRIORITY: A                BUDGET: 5,000

7.      CARBON MONOXIDE DETECTORS - The county Health Department will require
        our community to comply with the new ordinance to have carbon monoxide
        detectors in all of our resident apartments by 1-1-02. The detectors
        must be placed in areas where there are gas appliances (hot water
        heaters) and/or automobiles (garages). This can be a simple plug in type
        model with battery back up. The cost is approx. $25 each and can be
        installed with in house labor.
        PRIORITY: A                BUDGET: 7,500




8.      ELEVATOR HOLD OPEN DEVICES - There are 13 elevators on campus. 10 have
        the old fashion rubber bumper devices, but all will be required to have
        the motion sensor devise installed per the new elevator code. This
        sensor will keep the door from closing on slow residents as they
        enter/exit the elevator cabs.
        PRIORITY:  A               BUDGET: 15,000

9.      PLUMBING REPAIRS - There are on going upgrades to the plumbing lines in
        the resident apartments. This has been a source of many leaks. The
        original pvc tube type plumbing lines are failing. We are in the process
        of replacing these lines in buildings 6 and 7 that were funded with
        emergency cap ex funding of 38,000. We estimate an additional 80,000 to
        complete all of the replacements in buildings 1 through 5.
        PRIORITY: A                BUDGET: 80,000

10.     FORMER ED RESIDENCE - The house located on the property is currently
        being used as a meeting area, arts/crafts shop and offices. This
        structure is in need of many exterior repairs. The gutters need to be
        replaced, wood soffit areas and fascia boards are rotted, missing and
        need replacement. The exterior wood siding needs scraping, sanding and a
        new coat of paint. The main focus of these repairs will be directed to
        the exterior of the structure.
        PRIORITY:  A               BUDGET:  20,000

11.     SIGNAGE - The main directional sign at the entrance to the community is
        cracked and badly weathered. Also since we have added ME (alzhm.) to the
        campus and relocated Home Health off site, we need to revise this sign
        and a second directional sign.
        PRIORITY: A                BUDGET: 3,500

12.     FLOORING - The carpeting in the entry, living, and dining room was
        replaced 3 years ago. There is an extreme amount of high traffic in the
        dining and entryway. Another challenge we have is the failing gypcrete
        concrete topping that lies beneath the carpeted areas. The cement type
        material is original to the building and is deteriorating and crumbling.
        This causes dips, bumps, and wrinkles in the carpet that becomes trip
        hazards. This is occurring throughout the buildings but is the worst at
        the lobby/entrance area. The time to replace the gypcrete topping is
        when the carpet is to be replaced. It is our recommendation to replace
        gypcrete and carpeting in the entry lobby immediately. We can either
        keep carpeting in the lobby entrance or go to a vinyl type product that
        simulates wood for easier maintenance and slip resistance. There is some
        effective life remaining in the carpeting in the living and dining room.
        One option is to leave this product in place for a couple more years and
        place a tile insert in the high traffic/stained areas at the bar in the
        living room and the salad bar/buffet line in the dining room and the
        serving area for the main dining area.
        PRIORITY: A                BUDGET: 35,000




13.     LIGHTING - The current lighting fixtures in the hallways/corridors are
        insufficient and cause the areas to be dark. We recommend that first we
        replace the existing sconces with a different design/style that will
        throw off more light. Then if additional lighting is required, we could
        add fluorescent ceiling mount fixtures, but this will require more
        electrical work and drywall repairs. There have also been discussions to
        change out the dining room fixtures as well. Several of the lighting
        fixtures throughout the facility are discontinued and parts are no
        longer available. Several are beyond repair. We recommend an allowance
        of 30,000 to address this issue.
        PRIORITY: A                BUDGET:  30,000

14.     KITCHEN IMPROVEMENTS - At one time we were considering a major kitchen
        renovation and redesign. Our thoughts have changed as to the operation
        and extreme costs of this design, but there are several issues that will
        still need to be addressed in the kitchen area. Currently, the AC system
        in the kitchen is inadequate. Pricing has been taken on adding a
        separate cooling unit to serve the main kitchen area. This would be a
        7.5-ton unit costing approx. 12,500. There are also leaks in the kitchen
        floor at the dishwashing area and the 3-compartment sink that have
        damaged the ceiling of the auditorium below. The ceiling tiles in the
        kitchen need to be replaced with a washable tile. These repairs will
        need to be made and we have targeted 17,500 as a budget.
        PRIORITY: A                BUDGET: 30,000

15.     AWNINGS - The awning at the living/dining room deck of the clubhouse is
        in poor condition, we recommend replacing it with a more durable
        material, like a plastic coated fabric rather than standard canvas. Also
        the awning frame at the SC/IL connector has been damaged and should be
        repaired.
        PRIORITY: A                BUDGET: 7,500

16.     AL WALKWAY/ENTRANCE COVER - The original entrance roof structure has an
        open design with metal decorative metal tubing that has been difficult
        to maintain. The pipes rust and streak the paint giving a poor
        appearance at our main entrance to the AL facility. We recommend
        enclosing this soffit area with vinyl material (low maintenance) and use
        lapped vinyl siding on the ends to create a matching appearance to the
        remainder of the building. This is similar to what has already been done
        on the AL patio beneath this area.
        PRIORITY:  A               BUDGET: 15,000

17.     BRIDGE CONNECTOR - The bridge connector is used by the residents in the
        villas and other apartment buildings located across the lake from the
        main campus. This is their primary walking path to the main campus. In
        the past we have had several roof leaks that now have been repaired, but
        we have interior damage to repair now. There are expansion joints that
        are cracked in the ceiling that need drywall repair as well as water
        spots that need repainting. There is wallpaper damage (original
        wallpaper) and flooring damage.






        We suggest that we replace the faded and peeling wallpaper with a
        painted surface that will be more durable in this situation and replace
        the original carpet with new product.
        PRIORITY:  A               BUDGET: 40,000





                                  EXHIBIT "F-1"

                  LANDLORD'S SINGLE PURPOSE ENTITY REQUIREMENTS

A.      Without limiting any other provision of this Lease, the following
requirements are applicable to Landlord:

        1. Landlord's purpose shall be limited to owning the Premises.

        2. Landlord shall be prohibited from engaging in any dissolution,
liquidation, consolidation, merger, or asset sale, except as expressly permitted
by this Lease.

        3. Subject to the provisions of this Lease, the consent of all of the
members of the Landlord shall be required in order to voluntarily:

                (a) file a bankruptcy or insolvency petition or otherwise
        institute insolvency proceedings;

                (b) dissolve, liquidate, consolidate, merge, or sell all or
        substantially all of the assets of the Landlord; and

                (c) amend Landlord's Operating Agreement or Articles of
        Organization.

        4. Landlord agrees:

                (a) to maintain books and records and bank accounts separate
        from any other person or entity;

                (b) not to commingle assets or funds with those of any other
        person or entity;

                (c) to conduct its own business in its own name;

                (d) to maintain its assets in such a manner that it is not
        costly or difficult to segregate, identify or ascertain such assets;

                (e) to prepare separate tax returns and financial statements, or
        if part of a consolidated group, to be shown as a separate member of
        such group;

                (f) to pay its own liabilities out of its own funds;

                (g) to observe all limited liability company formalities;

                (h) to transact all business with affiliates on an arm's-length
        basis and pursuant to enforceable agreements;




                (i) to pay the salaries of its own employees;

                (j) not to guarantee or become obligated for the debts of any
        other person or entity or hold out its credit as being available to
        satisfy the obligations of others or pay the debts or obligations of any
        other person or entity;

                (k) to allocate and charge fairly and reasonably any common
        employee or overhead shared with affiliates;

                (l) to use separate stationery, invoices, and checks;

                (m) not to pledge its assets for the benefit of any other person
        or entity.

                (n) to hold itself out to creditors and the public as a legal
        entity separate and distinct from any other person or entity.

B.      The above requirements are applicable so long as the Landlord is a
limited liability company. If the entity structure of Landlord is different,
Tenant shall formulate requirements that are specific to Landlord's actual
entity structure, but similar in concept to the requirements set forth above.





                                  EXHIBIT "F-2"

                  TENANTS'S SINGLE PURPOSE ENTITY REQUIREMENTS

A.      Without limiting any other provision of this Lease, the following
requirements are applicable to Tenant:

        1. Tenant's purpose shall be limited to operating the Premises pursuant
to the terms and conditions of this Lease.

        2. Tenant shall be prohibited from engaging in any dissolution,
liquidation, consolidation, merger, or asset sale, except as expressly permitted
by this Lease.

        3. Subject to the provisions of this Lease, the consent of all of the
members of the Tenant shall be required in order to voluntarily:

                (a) file a bankruptcy or insolvency petition or otherwise
        institute insolvency proceedings;

                (b) dissolve, liquidate, consolidate, merge, or sell all or
        substantially all of the assets of the Tenant; and

                (c) amend Tenant's Operating Agreement or Articles of
        Organization.

        4. Except as otherwise permitted by the terms of this Lease, Tenant
agrees:

                (a) to maintain books and records and bank accounts separate
        from any other person or entity;

                (b) not to commingle assets or funds with those of any other
        person or entity;

                (c) to conduct its own business in its own name;

                (d) to maintain its assets in such a manner that it is not
        costly or difficult to segregate, identify or ascertain such assets;

                (e) to prepare separate tax returns and financial statements, or
        if part of a consolidated group, to be shown as a separate member of
        such group;

                (f) to pay its own liabilities out of its own funds;

                (g) to observe all limited liability company formalities;

                (h) to transact all business with affiliates on an arm's-length
        basis and pursuant to enforceable agreements;




                (i) to pay the salaries of its own employees;

                (j) not to guarantee or become obligated for the debts of any
        other person or entity or hold out its credit as being available to
        satisfy the obligations of others or pay the debts or obligations of any
        other person or entity;

                (k) to allocate and charge fairly and reasonably any common
        employee or overhead shared with affiliates;

                (l) to use separate stationery, invoices, and checks;

                (m) not to pledge its assets for the benefit of any other person
        or entity.

                (n) to hold itself out to creditors and the public as a legal
        entity separate and distinct from any other person or entity.

B.      The above requirements are applicable so long as the Tenant is a limited
liability company. If the entity structure of Tenant is different, Landlord
shall formulate requirements that are specific to Tenant's actual entity
structure, but similar in concept to the requirements set forth above.





                                   EXHIBIT "G"

                    TENANT'S HEALTHCARE COMPLIANCE COVENANTS

        Tenant hereby makes the following representations, warranties and
covenants as of the date hereof and throughout the term of the Lease, which
representations, warranties and covenants are in addition to those found within
the body of the Lease:

        1. Tenant is using and operating the Premises as a Retirement Care
Facility (as modified from time to time with Landlord's and any Permitted
Mortgage Lender's consent, which consent shall not be unreasonably withheld,
conditioned or delayed, the "LICENSED USE"). Tenant will comply in all material
respects, with all applicable federal, state and local laws, regulations,
quality and safety standards, accreditation standards and requirements of the
applicable state department of health (each a "DOH") and all other applicable
federal, state or local governmental authorities including those relating to the
quality and adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies, additions to facilities and
services and fee splitting. The Retirement Care Facility and any other assisted
and/or independent senior housing and/or skilled nursing facilities which is
owned, leased or operated by Tenant (a "FACILITY") shall be operated at all
times in compliance in all material respects with such laws and requirements.
Nothing in this subsection (a) or anywhere else in this Exhibit "F" to the
contrary, Landlord acknowledges that pursuant to the Lease, Tenant is
responsible for all of the covenants set forth in this Exhibit "F" (other than
those pertaining to Landlord's own acts), and that performance of such covenants
by ARC as guarantor (the "GUARANTOR") shall constitute performance by Tenant
thereof.

        2. All governmental licenses, permits, regulatory agreements or other
approvals or agreements necessary or desirable for the Licensed Use of the
Retirement Care Facility are held by Tenant, Guarantor or an affiliate of Tenant
("AFFILIATE") in the name of Lessee, Guarantor or Affiliate as required under
applicable law and are in full force and effect, including a valid certificate
of need ("CON") or similar certificate, license, or approval issued by the DOH
for the requisite number of beds and units in the Retirement Care Facility, and
a provider agreement or other required documentation of approved provider status
for each provider payment or reimbursement program effecting the Retirement Care
Facility, if applicable. All required permits, certificates, licenses and
governmental approvals necessary for operation of the Retirement Care Facility
for the Licensed Use are listed on Schedule hereto (collectively, the
"LICENSES"). So long as the Lease remains in effect, Tenant and Guarantor shall
operate the Project or cause the Project to be operated in a manner such that
the Licenses shall remain in full force and effect.

        3. The Licenses for the Retirement Care Facility, including without
limitation, if applicable, the CON:

                (a) May not be, and have not been, and will not be transferred
        to any location other than the Premises;

                (b) Are not now and will not be pledged as collateral security
        for any other loan or indebtedness; and




                (c) Are held free and will remain free from restrictions or
        known conflicts which would materially impair the use or operation of
        the Retirement Care Facility for the Licensed Use, and shall not be
        provisional, probationary or restricted in any way.

        4. None of Lessee, Guarantor or Affiliate shall:

                (a) Rescind, withdraw, revoke, amend, modify, supplement, or
        otherwise alter the nature, tenor or scope of the Licenses for the
        Retirement Care Facility;

                (b) Amend or otherwise change the Retirement Care Facility's
        authorized units/beds capacity and/or the number of units/beds approved
        by the DOH;

                (c) Replace or transfer all or any part of the Retirement Care
        Facility's units/beds to another site or location; or

                (d) Voluntarily transfer or encourage the transfer of any
        resident of the Retirement Care Facility to any other Facility, unless
        such transfer is at the request of the resident or is for reasons
        relating to the health, required level of medical care or safety of the
        resident to be transferred.

        5. If and when Tenant, Affiliate or Guarantor participates in any
Medicare or Medicaid or other third party payor program with respect to the
Retirement Care Facility, the Retirement Care Facility will remain in compliance
with all requirements for participation in Medicare and Medicaid, including the
Medicare and Medicaid Patient Protection Act of 1987, and other federal or state
third party payor programs. The Retirement Care Facility is and will remain in
conformance in all material respects with all insurance, reimbursement and cost
reporting requirements, and if applicable, has a current provider agreement,
which is in full force and effect under Medicare and Medicaid.

        6. There is no, and during the term of the Lease shall be no,
threatened, existing or pending revocation, suspension, termination, probation,
restriction, limitation, or nonrenewal affecting Tenant, Guarantor, Affiliate or
the Retirement Care Facility or any participation or provider agreement with any
third-party payor, including Medicare, Medicaid, Blue Cross and/or Blue Shield,
other and any other private commercial insurance managed care and employee
assistance program (such programs, the "THIRD-PARTY PAYOR PROGRAMS") to which
Tenant, Guarantor or Affiliate may presently be subject with respect to the
Retirement Care Facility or any other Facility, or at any time hereafter is
subject. All Medicaid, Medicare, and private insurance cost reports and
financial reports submitted by Tenant, Affiliate or Guarantor, if any, are and
will be materially accurate and complete and have not been and will not be
misleading in any material respects. No cost reports for the Retirement Care
Facility remain open or unsettled. Nothing in this subsection (f) shall be
interpreted as requiring Tenant, Affiliate or Guarantor to participate in
Medicare, Medicaid or any other federal or state health care programs; such
participation shall be solely at the option of Tenant or Guarantor.




        7. None of Tenant, Affiliate or Guarantor or the Retirement Care
Facility is or will be the subject of any proceeding by any governmental agency,
and no notice of any violation has been or will be issued by a governmental
agency that would, directly or indirectly, or with the passage of time:

                (a) Have a material adverse impact on Tenant's or Guarantor's
        ability to accept and/or retain patients or operate the Retirement Care
        Facility for the Licensed Use or result in the imposition of a fine, a
        sanction, a lower rate certification or a lower reimbursement rate for
        services rendered to eligible patients;

                (b) Modify, limit or annul or result in the transfer,
        suspension, revocation or imposition of probationary use of any of the
        Licenses; or

                (c) If applicable, affect Tenant's or Guarantor's continued
        participation in the Medicaid or Medicare programs or any other of the
        Third-Party Payor Programs, or any successor programs thereto, at
        current rate certifications.

        8. The Retirement Care Facility and the use thereof complies and will
continue to comply in all material respects with all applicable local, state and
federal building codes, fire codes, health care, senior housing and other
regulatory requirements (the "PHYSICAL PLANT STANDARDS").

        9. The Retirement Care Facility has not received a "Level A" (or
equivalent) violation, and no statement of charges or deficiencies has been made
or penalty enforcement action has been undertaken against the Retirement Care
Facility, Tenant or Guarantor or against any officer, director, partner, member,
stockholder or affiliate of Tenant or Guarantor by any governmental agency
during the last three calendar years, and there have been no violations over the
past three years which have threatened the Retirement Care Facility's, Tenant's,
Affiliate's or Guarantor's certification for participation in Medicare or
Medicaid, or the other Third-Party Payor Programs.

        10. There are no current, pending or outstanding Medicaid, Medicare, or
other Third-Party Payor Programs reimbursement audits or appeals pending at the
Retirement Care Facility, and there are no years that are subject to audit.

        11. There are no current or pending Medicaid, Medicare, or other
Third-Party Payor Programs recoupment efforts at the Retirement Care Facility.
Tenant, Affiliate and Guarantor are not participants in any federal program
whereby any governmental agency may have the right to recover funds by reason of
the advance of federal funds, including those authorized under the Hill-Burton
Act (42 U.S.C. 291, et seq.).

        12. Tenant will pledge its receivables as collateral security for any
other loan or indebtedness.

        13. All patient or resident records at the Retirement Care Facility,
including patient or resident trust fund accounts, are true and correct in all
material respects, and will remain true and






correct in all material respects.

        14. Tenant and Guarantor shall not, nor shall the Retirement Care
Facility, other than in the normal course of business, change the terms of any
of the Third-Party Payor Programs now or hereinafter in effect or their normal
billing payment or reimbursement policies and procedures with respect thereto
(including the amount and timing of finance charges, fees and write-offs).

        15. Tenant and Guarantor shall at all times comply with all obligations
under the contracts and leases with residents of the Retirement Care Facility,
and shall not commit or permit any default thereunder. Tenant hereby indemnifies
and holds harmless Landlord and agrees to defend Landlord from and against
(collectively, the "INDEMNIFIED CLAIMS") any (i) claims, proceedings or causes
of action brought by any resident of the Retirement Care Facility, and (ii)
loss, damage, cost or expense, including attorney's fees, incurred or suffered
by Landlord as a result of any (x) breach by Tenant or Guarantor of any contract
or lease with a resident of the Retirement Care Facility or (y) violation of any
license or any federal, state or local law governing the Retirement Care
Facility or the use, operation or maintenance thereof for the Licensed Use.

EX-10.2

                                                                    EXHIBIT 10.2

                                                            Holley Court Terrace
                                                 Oak Park, Cook County, Illinois


                                 LEASE AGREEMENT

                          DATED AS OF FEBRUARY 11, 2002


                                 BY AND BETWEEN


                         CNL RETIREMENT-AM/ILLINOIS LP,
                         a Delaware limited partnership,

                                  AS LANDLORD,


                                       AND


                             ARC HOLLEY COURT, LLC,
                      a Tennessee limited liability company

                                    AS TENANT



                                TABLE OF CONTENTS

                                                                                             
ARTICLE 1...........................................................................................1
   DEFINITIONS......................................................................................1

ARTICLE 2..........................................................................................11
   LEASED PROPERTY AND TERM........................................................................11
      2.1      Leased Property.....................................................................11
      2.2      Condition of Leased Property........................................................12
      2.3      Initial Term........................................................................13
      2.4      Extended Term.......................................................................13
      2.5      Yield Up............................................................................13

ARTICLE 3..........................................................................................13
   RENT............................................................................................13
      3.1      Rent................................................................................13
      3.2      Minimum Rent........................................................................14
      3.3      Percentage Rent.....................................................................15
      3.4      Additional Charges..................................................................16
      3.5      Landlord Advances...................................................................17
      3.6      Late Payment of Rent................................................................18
      3.7      Net Lease...........................................................................18
      3.8      No Abatement of Rent................................................................19
      3.9      INTENTIONALLY OMITTED...............................................................19
      3.10     Tenant Security Deposit.............................................................19
      3.11     Security for all ARC-Related Leases.................................................20
      3.12     Security Agreement..................................................................20

ARTICLE 4..........................................................................................20
   USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS................................................20
      4.1      Permitted Use.......................................................................20
      4.2      Environmental Matters...............................................................22
      4.3      Conflicting Businesses Prohibited...................................................22
      4.4      Continuous Operations...............................................................23
      4.5      Compliance With Restrictions, Etc...................................................23
      4.6      Standard of Operation...............................................................24
      4.7      Resident Agreements and Service Licenses............................................25
      4.8      Standards, Not Control..............................................................25
      4.9      Survival............................................................................25

ARTICLE 5..........................................................................................26
   MAINTENANCE AND REPAIRS.........................................................................26
      5.1      Tenant's Obligations................................................................26
      5.2      Reserve.............................................................................26

ARTICLE 6..........................................................................................29
   IMPROVEMENTS, ETC...............................................................................29
      6.1      Prohibition.........................................................................29
      6.2      Permitted Renovations...............................................................29



                                       i



                                                                                             
      6.3      Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....30
      6.4      Salvage.............................................................................31

ARTICLE 7..........................................................................................31
   LANDLORD'S INTEREST NOT SUBJECT TO LIENS........................................................31
      7.1      Liens, Generally....................................................................31
      7.2      Construction or Mechanics Liens.....................................................31
      7.3      Contest of Liens....................................................................32
      7.4      Notices of Commencement of Construction.............................................32

ARTICLE 8..........................................................................................32
   TAXES AND ASSESSMENTS...........................................................................32
      8.1      Obligation to Pay Taxes and Assessments.............................................32
      8.2      Tenant's Right to Contest Taxes.....................................................33
      8.3      Tax and Insurance Escrow Account....................................................33

ARTICLE 9..........................................................................................34
   INSURANCE.......................................................................................34
      9.1      General Insurance Requirements......................................................34
      9.2      Waiver of Subrogation...............................................................36
      9.3      General Provisions..................................................................36
      9.4      Blanket Policy......................................................................37
      9.5      Indemnification of Landlord.........................................................37

ARTICLE 10.........................................................................................38
   CASUALTY........................................................................................38
      10.1     Restoration and Repair..............................................................38
      10.2     Escrow and Disbursement of Insurance Proceeds.......................................38
      10.3     No Abatement of Rent................................................................39
      10.4     Tenant's Property and Business Interruption Insurance...............................39
      10.5     Restoration of Tenant's Property....................................................39
      10.6     Waiver..............................................................................40

ARTICLE 11.........................................................................................40
   CONDEMNATION....................................................................................40
      11.1     Total Condemnation, Etc.............................................................40
      11.2     Partial Condemnation................................................................40
      11.3     Disbursement of Award...............................................................40
      11.4     No Abatement of Rent................................................................41
      11.5     Disputes............................................................................41

ARTICLE 12.........................................................................................41
   DEFAULTS AND REMEDIES...........................................................................41
      12.1     Events of Default...................................................................41
      12.2     Remedies on Default.................................................................44
      12.3     Application of Funds................................................................47
      12.4     Landlord's Right to Cure Tenant's Default...........................................47
      12.5     Landlord's Lien.....................................................................48




                                       ii


                                                                                             
ARTICLE 13.........................................................................................48
   HOLDING OVER....................................................................................48

ARTICLE 14.........................................................................................48
   LIABILITY OF LANDLORD; INDEMNIFICATION..........................................................48
      14.1     Liability of Landlord...............................................................48
      14.2     Indemnification of Landlord.........................................................49
      14.3     Notice of Claim or Suit.............................................................50
      14.4     Limitation on Liability of Landlord.................................................50

ARTICLE 15.........................................................................................50
   REIT AND UBTI REQUIREMENTS......................................................................50
      15.1     Limitations on Rents Attributable to Personal Property..............................50
      15.2     Basis for Sublease Rent Restricted..................................................51
      15.3     Landlord Affiliate Subleases Restricted.............................................51
      15.4     Landlord Interests in Tenant Restricted.............................................51
      15.5     Rents from Personal Property Restricted.............................................51
      15.6     Landlord Services...................................................................52
      15.7     Certain Subtenants Prohibited.......................................................52
      15.8     Future Amendment....................................................................52

ARTICLE 16.........................................................................................52
   SUBLETTING AND ASSIGNMENT.......................................................................52
      16.1     Transfers Prohibited Without Consent................................................52
      16.2     Indirect Transfer Prohibited Without Consent........................................53
      16.3     Adequate Assurances.................................................................53

ARTICLE 17.........................................................................................53
   ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS..................................................53
      17.1     Estoppel Certificates...............................................................53
      17.2     Monthly Financial Statements........................................................53
      17.3     Annual Financial Statements.........................................................54
      17.4     Records.............................................................................54
      17.5     General Operations Budget...........................................................55
      17.6     Quarterly Meetings..................................................................55

ARTICLE 18.........................................................................................55
   LANDLORD'S RIGHT TO INSPECT.....................................................................55

ARTICLE 19.........................................................................................55
   FACILITY MORTGAGES..............................................................................55
      19.1     Subordination.......................................................................55
      19.2     Attornment..........................................................................56
      19.3     Rights of Mortgagees and Assignees..................................................56

ARTICLE 20.........................................................................................57
   ADDITIONAL COVENANTS OF TENANT..................................................................57
      20.1     Conduct of Business.................................................................57
      20.2     Additional Covenants of Tenant......................................................57




                                      iii


                                                                                             
      20.3     Tenant a Single Purpose Entity......................................................59
      20.4     Intentionally Omitted...............................................................59

ARTICLE 21.........................................................................................59
   MISCELLANEOUS...................................................................................59
      21.1     Limitation on Payment of Rent.......................................................59
      21.2     No Waiver...........................................................................60
      21.3     Remedies Cumulative.................................................................60
      21.4     Severability........................................................................60
      21.5     Acceptance of Surrender.............................................................60
      21.6     No Merger of Title..................................................................60
      21.7     Tenant's Representations............................................................60
      21.8     Quiet Enjoyment.....................................................................62
      21.9     Recordation of Memorandum of Lease..................................................62
      21.10    Notices.  (a).......................................................................63
      21.11    Construction; Nonrecourse...........................................................64
      21.12    Counterparts; Headings..............................................................64
      21.13    Applicable Law......................................................................64
      21.14    Right to Make Agreement.............................................................64
      21.15    Brokerage...........................................................................65
      21.16    No Partnership or Joint Venture.....................................................65
      21.17    Entire Agreement....................................................................65
      21.18    Costs and Attorneys' Fees...........................................................65
      21.19    Approval of Landlord................................................................65
      21.20    Successors and Assigns..............................................................66
      21.21    Waiver of Jury Trial................................................................66
      21.22    Treatment of Lease..................................................................66
      21.23    Transfer of Licenses................................................................66
      21.24    Tenant's Personal Property..........................................................66
      21.25    Landlord's Representations..........................................................67
      21.26    Guaranty of Lease...................................................................67
      21.27    Guaranty of ARC-Related Leases......................................................67
      21.28    Landlord's Assumed Financing........................................................67



EXHIBITS

Exhibit "A" - The Land
Exhibit "B" - Minimum Rent
Exhibit "C" - Appraisal Process
Exhibit "D" - Tenant Estoppel Certificate
Exhibit "E" - Memorandum of Lease
Exhibit "F" - Single Purpose Entity Requirements
Exhibit "G" - Tenant Equity Ownership
Exhibit "H" - Property Expenses
Exhibit "I" - Initial Landlord P&E
Exhibit "J" - Initial Tenant Personal Property
Exhibit "K" - Landlord's Financing Terms



                                       iv


                                 LEASE AGREEMENT

        THIS LEASE AGREEMENT is entered into as of February 11, 2002 by and
between CNL RETIREMENT-AM/ILLINOIS LP, a Delaware limited partnership, as
landlord ("Landlord"), and ARC HOLLEY COURT, LLC, a Tennessee limited liability
company, as tenant ("Tenant").

                               W I T N E S S E T H :
                               - - - - - - - - - -

        WHEREAS, Landlord has heretofore acquired fee simple title to the Land
and the Facility (these and other capitalized terms used and not otherwise
defined herein having the meanings ascribed to such terms in Article 1); and

        WHEREAS, Landlord wishes to lease the Leased Property to Tenant and
Tenant wishes to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;

        NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

        For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article and used in this Agreement shall have the meanings assigned to them in
this Article and include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
accordance with GAAP, (iii) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement, and (iv) the words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or other subdivision.

        "Accessibility Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to accessibility for the disabled or handicapped, including, but not limited to,
any applicable provisions of The Architectural Barriers Act of 1968, The
Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With
Disabilities Act, the accessibility code(s), if any, of the State in which the
Leased Property is located, and all regulations and guidelines promulgated under
any all of the foregoing, as the same may be amended from time to time.


                                       1


        "Accounting Period" shall mean each calendar month accounting period of
Tenant. If Tenant shall, for a bona fide business reason, change its accounting
period during the Term, appropriate adjustments, if any, shall be made with
respect to the timing of applicable accounting and reporting requirements of
this Agreement; provided, however, that in no event shall any such change or
adjustment alter the amount or frequency of payment of Minimum Rent within any
Fiscal Year, or alter the frequency of payment of Percentage Rent to less than
four (4) times within any Fiscal Year, or otherwise increase or reduce any
monetary obligation under this Agreement.

        "Accounting Year" shall mean each period of twelve (12) consecutive
Accounting Periods during the Term of this Agreement; the first Accounting Year
shall commence with the first full Accounting Period after the Commencement Date
of this Agreement.

        "Additional Charges" shall have the meaning given such term in Section
3.4.

        "Additional Rent" shall have the meaning given such term in Section 3.5.

        "Affiliated Person" shall mean, with respect to any Person, (i) any
Person directly or indirectly Controlling, Controlled by or under common Control
with any such Person, (ii) in the case of any such Person which is a
partnership, any partner in such partnership, (iii) in the case of any such
Person which is a limited liability company, any member of such company, (iv) in
the case of any such Person which is a corporation, any officer, director or
stockholder of such corporation, (v) any other Person which is a Parent, a
Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or
more of the Persons referred to in the preceding clauses (i) through (iv), (vi)
any other Person who is an officer, director, trustee or employee of, or partner
in, such Person or any Person referred to in the preceding clauses (i) through
(v) and (vii) any other Person who is a member of, or trustee of any trust for
the benefit of, the Immediate Family of such Person or of any Person referred to
in the preceding clauses (i) through (vi). Provided, however, a Person shall not
be deemed to be an Affiliated Person solely by virtue of the ownership of shares
of stock registered under the Securities Act of 1934, as amended, unless such
Person, as holder of such stock, is required to file a Schedule 13 D, pursuant
to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder.

        "Agreement" shall mean this Lease Agreement, including all Exhibits
hereto, as it and they may be amended or restated from time to time as herein
provided.

        "Annual Operations Statement" shall have the meaning given such term in
Section 3.3.2.

        "Applicable Laws" shall mean all applicable laws, statutes, regulations,
rules, ordinances, codes, licenses, permits and orders, from time to time in
existence, of all courts of competent jurisdiction and Government Agencies, and
all applicable judicial and administrative and regulatory decrees, judgments and
orders, including common law rulings and determinations of any kind, including
without limitation, those relating to (i) damage to, or the protection of real
or personal property, (ii) human health and safety (except those requirements
which, by definition, are solely the responsibility of employers), (iii) the
Environment, including, without limitation, all valid and lawful requirements of
courts and other Government Agencies pertaining to reporting, licensing,
permitting, investigation, remediation and removal of underground


                                       2


improvements (including, without limitation, treatment or storage tanks, or
water, gas or oil wells), or emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides, petroleum or
petroleum products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, (iv) Accessibility Laws, (v) independent living, assisted living and/or
dementia care facility licensure (as applicable) or (vi) participation in
Medicare or Medicaid programs (if applicable).

        "Applicable Reserve Percentage" shall mean, with respect to any
Accounting Period, or portion thereof, the greater of (x) $350.00 per year per
licensed bed (if applicable) or living unit located on the Leased Property,
prorated for such Accounting Period and divided by and expressed as a percentage
of Total Facility Revenues for such Accounting Period, or (y) with respect to
(i) the period beginning on the Commencement Date and ending on the last day of
the sixtieth (60th) full Accounting Period next following the Commencement Date,
two percent (2%) of Total Facility Revenue, and, (ii) with respect to each
Accounting Period thereafter, three percent (3%) of Total Facility Revenue.

        "Approved Reserve Estimate" shall have the meaning given such term in
Section 5.2.3.

        "ARC-Related Leases" shall mean, collectively, all present and future
property leases between Landlord or CNL Retirement, or any Affiliated Person of
Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any
Affiliated Person of Tenant or Guarantor, as tenant.

        "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the State are authorized by law or
executive action to close.

        "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland
corporation.

        "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.

        "Commencement Date" shall mean the date of this Agreement.

        "Condemnation" shall mean (a) the exercise of any governmental power
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right accruing thereto or use thereof, as the result or in
settlement of any Condemnation or other eminent domain proceeding affecting the
Leased Property, whether or not the same shall have actually been commenced.

        "Condemnor" shall mean any public or quasi-public authority, or Person
having the power of Condemnation.


                                       3


        "Conflicting Business" shall have the meaning given such term in Section
4.3.

        "Control" (including the correlative meanings of the terms
"Controlling", "Controlled by", and "under common control with") as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such Person
whether through the ownership of voting securities, by contract or otherwise.

        "CRC" shall mean CNL Retirement Corp., a Florida corporation.

        "Default" shall mean any event or condition existing which with the
giving of notice and/or lapse of time would ripen into an Event of Default.

        "Disbursement Rate" shall mean an annual rate of interest equal to the
greater of, as of the date of determination, (i) ten percent (10.00%) and (ii)
the per annum rate for ten (10) year U.S. Treasury Obligations as published in
The Wall Street Journal plus three hundred fifty (350) basis points.

        "Distribution" shall mean (a) any declaration or payment of any dividend
on or in respect of any shares of any class of capital stock of Tenant, if
Tenant is a corporation, or any cash distributions in respect of any partnership
interests or membership interests in Tenant, if Tenant is a partnership or a
limited liability company, (b) any purchase, redemption, retirement or other
acquisition of any shares of any class of capital stock of Tenant, if Tenant is
a corporation, or any purchase, redemption, retirement or other acquisition of
any partnership or membership interests in Tenant, if Tenant is a partnership or
a limited liability company, (c) any other distribution on or in respect of any
shares of any class of capital stock of Tenant, if Tenant is a corporation, or
any other distribution in respect of any partnership interests or membership
interests in Tenant, if Tenant is a partnership or a limited liability company,
or (d) any return of capital to shareholders of Tenant, if Tenant is a
corporation, or any return of capital to partners of Tenant, if Tenant is a
partnership or a limited liability company.

        "Entity" shall mean any corporation, general or limited partnership,
limited liability company, partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.

        "Environment" shall mean soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.

        "Event of Default" shall have the meaning given such term in Section
12.1.

        "Extended Terms" shall have the meaning given such term in Section 2.4.

        "Facility" shall mean the independent living, and/or assisted living and
dementia care ( if applicable), facility located and operated on the Land.

        "Facility Mortgage" shall mean any encumbrance placed upon the Leased
Property as referenced in Article 19.


                                       4


        "Fiscal Quarter" shall mean the first, second, third and fourth
three-month period (each consisting of three Accounting Periods) during each
Fiscal Year.

        "Fiscal Year" shall mean Tenant's Fiscal Year which as of the
Commencement Date begins on January 1 and ends on December 31 in each calendar
year. Any partial Fiscal Year between the Commencement Date and the commencement
of the first full Fiscal Year (except with respect to the calculation and
payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall
constitute a separate Fiscal Year. A partial Fiscal Year between the end of the
last full Fiscal Year and the termination of this Agreement shall also
constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the
future, appropriate adjustments to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement or in any way reduce the distribution of
Percentage Rent or other payments due hereunder. Each full Fiscal Year shall
consist of twelve Accounting Periods.

        "Force Majeure Event" means any circumstance which is not in the
reasonable control of either party hereto, caused by any of the following:
strikes, lockouts; acts of God; civil commotion; fire or any other casualty;
governmental action; or other similar cause or circumstance which is not in the
reasonable control of either party hereto. Neither lack of financing nor general
economic and/or market factors is a Force Majeure Event.

        "GAAP" shall mean generally accepted accounting principles consistently
applied.

        "Guarantor" shall mean American Retirement Corporation, a Tennessee
corporation ("Guarantor").

        "Government Agencies" shall mean any legislative body, court, agency,
authority, board (including, without limitation, health and long term care,
environmental protection, planning and zoning), bureau, commission, department,
office or instrumentality of any nature whatsoever of any governmental or
quasi-governmental unit of the United States or the State or any county or any
political subdivision of any of the foregoing, whether now or hereafter in
existence, having jurisdiction over Tenant or the Leased Property or any portion
thereof or the Facility operated thereon.

        "Hazardous Substances" shall mean any substance:

                (a) the presence of which requires or may hereafter require
        notification, investigation or remediation under any federal, state or
        local statute, regulation, rule, ordinance, order, action or policy; or

                (b) which is or becomes defined as a "hazardous waste",
        "hazardous material" or "hazardous substance" or "pollutant" or
        "contaminant" under any present or future federal, state or local
        statute, regulation, rule or ordinance or amendments thereto including,
        without limitation, the Comprehensive Environmental Response,
        Compensation and Liability Act (42 U.S.C. et seq.) and the Resource
        Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the
        regulations promulgated thereunder; or



                                       5


                (c) which is toxic, explosive, corrosive, flammable, infectious,
        radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
        becomes regulated by any governmental authority, agency, department,
        commission, board, agency or instrumentality of the United States, any
        state of the United States, or any political subdivision thereof; or

                (d) the presence of which on the Leased Property causes or
        materially threatens to cause an unlawful nuisance upon the Leased
        Property or to adjacent properties or poses or materially threatens to
        pose a hazard to the Leased Property or to the health or safety of
        persons on or about the Leased Property; or

                (e) without limitation, which contains gasoline, diesel fuel or
        other petroleum hydrocarbons or volatile organic compounds; or

                (f) without limitation, which contains polychlorinated biphenyls
        (PCBs) or asbestos or urea formaldehyde foam insulation; or

                (g) without limitation, which contains or emits radioactive
        particles, waves or material; or

                (h) without limitation, constitutes materials which are now or
        may hereafter be subject to regulation pursuant to the Material Waste
        Tracking Act of 1988, or any Applicable Laws promulgated by any
        Government Agencies.

        "Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.

        "Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.

        "Initial Landlord P&E" shall mean and refer to all P&E of any kind or
description which are located on or in the Leased Improvements as of the
Commencement Date, including without limitation those items enumerated on
Exhibit "I" attached hereto and made a part hereof, but specifically excluding
any specific items of Tenant's Personal Property identified on Exhibit "J"
attached hereto and made a part hereof.

        "Initial Term" shall have the meaning given such term in Section 2.3.

        "Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any such policy
and all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.

        "Inventories" shall mean all inventories, as such term is customarily
used and defined in its most broad and inclusive sense including, but not
limited to, all inventories of food, beverages and other consumables held by
Tenant for sale or use at or from the Leased Property or the Facility, and soap,
cleaning supplies, paper supplies, operating supplies, china, glassware, silver,




                                       6


linen, uniforms, building and maintenance supplies, spare parts and attic stock,
medical supplies, drugs and all other such goods, wares and merchandise held by
Tenant for sale to or for consumption by residents or patients of the Leased
Property or the Facility and all such other goods returned to or repossessed by
Tenant.

        "Land" shall have the meaning given such term in Section 2.1(a).

        "Landlord" shall have the meaning given such term in the preambles to
this Agreement and shall include its successors and assigns.

        "Landlord's Original Investment" shall mean the sum of Eighteen Million
Four Hundred Sixty-Nine Thousand Two Hundred Seventy-Five and No/100 Dollars
($18,469,275.00), which represents, for purposes of this Lease, Landlord's total
acquisition and transactional costs incurred in acquiring the Leased Property.

        "Lease" shall mean this Lease Agreement, including all Exhibits hereto,
as it and they may be amended or restated from time to time as herein provided.

        "Lease Year" shall mean any Fiscal Year during the Term and any partial
Fiscal Year at the beginning or end of the Term.

        "Leased Improvements" shall have the meaning given such term in Section
2.1(b).

        "Leased Intangible Property" shall mean all transferable or assignable
(a) governmental permits, including licenses and authorizations, required for
the construction, ownership and operation of the Leased Improvements, including
without limitation, certificates of need, certificates of authority,
certificates of occupancy, building permits, signage permits, site use
approvals, zoning certificates, environmental and land use permits and any and
all necessary approvals from state or local authorities and other approvals
granted by any public body or by any private party pursuant to a recorded
instrument relating to such Leased Improvements or the Land; (b) development
rights, trade names, telephone exchange numbers identified with the Leased
Property, if any (specifically excluding, however, any specific items of
Tenant's Personal Property identified on Exhibit "J" hereto); and (c)
certificates, licenses, warranties and guarantees and contracts other than such
permits, operating permits, certificates, licenses and approvals which are to
held by, or transferred to, the Tenant in order to permit the Tenant to operate
such Leased Improvements properly and in accordance with the terms of this
Agreement.

        "Leased Property" shall have the meaning given such term in Section 2.1.

        "Legal Requirements" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations, certificates and regulations necessary to
operate the Leased Property for its Permitted Use, (b) all covenants,
agreements, declarations, restrictions and encumbrances contained in any
instruments at any time in force affecting the Leased Property or to which
Tenant has consented or which are required to be granted pursuant to Applicable
Laws, including those which may (i) require material repairs, modifications or





                                       7


alterations in or to the Leased Property or (ii) in any way materially and
adversely affect the use and enjoyment thereof, but excluding any requirements
arising as a result of Landlord's status as a real estate investment trust, and
(c) Applicable Laws.

        "Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the payment of Indebtedness or performance of any other
obligation in priority to payment of the obligor's general creditors.

        "Major Alterations" shall have the meaning given such term in Section
6.2.2.

        "Major Violation" shall mean any violation of Applicable Laws relating
to the use, operation or maintenance of the Facility or to the care of residents
which presents an imminent danger to the residents or guests of the Facility or
a substantial probability that death or serious harm would result therefrom.

        "Minimum Rent" shall mean annual rent as set forth in Section 3.2,
subject to prorations and adjustments as set forth in Section 3.2.

        "Minor Alterations" shall have the meaning given such term in Section
6.2.1.

        "Mortgagee" shall mean the holder of any Facility Mortgage.

        "Notice" shall mean a notice given in accordance with Section 21.10.

        "Opening Date" shall mean the date on which the Facility first opened
for business to the general public.

        "Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then
permitted under applicable law.

        "P&E" shall mean all items of personal property, as defined under the
Model Uniform Commercial Code, including, but not limited to: (a) all equipment,
machinery, fixtures, and other items of property, now or hereafter permanently
affixed to or incorporated into the Leased Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, all of
which, to the maximum extent permitted by law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements, modifications,
alterations and additions thereto; (b) all furniture, furnishings, movable walls
or partitions, computers or trade fixtures or other personal property of any
kind or description used or useful in Tenant's business on or in the Leased
Improvements, and located on or in the Leased Improvements, and all
modifications, replacements, alterations and additions to such personal
property; (c) all linen, china, glassware, tableware, uniforms and similar
items, whether used in connection with public space or tenant rooms; and (d)
"Property and Equipment," "P&E," and "FF&E" (as such terms are customarily used
and defined in the most broad and inclusive sense), as well as all other items
included within the category of Inventory;




                                       8


and all including, without limitation, the Initial Landlord P&E, but not
including, however, any item of Tenant's Personal Property identified in Exhibit
"J" hereto.

        "P&E Replacements" shall mean all items purchased with funds from the
Reserve established under Article 5 of this Lease and all other items of P&E
added and used at the Leased Property during the Term of this Lease, together
with all leasehold improvements made by Tenant during the Term of this Lease to
the extent not constituting real property affixed to the Land, whether purchased
from the Reserve or with other funds of Tenant, all subject to disposal and
further replacement at the end of their useful lives.

        "Parent" shall mean, with respect to any Person, any Person which
directly, or indirectly through one or more Subsidiaries or Affiliated Persons,
(i) owns more than fifty percent (50%) of the voting or beneficial interest in,
or (ii) otherwise has the right or power (whether by contract, through ownership
of securities or otherwise) to control, such Person.

        "Percentage Rent" shall have the meaning given such term in Section 3.3.

        "Permits" means all licenses, permits and certificates used or useful in
connection with the ownership, operation, use or occupancy of the Leased
Property or the Facility, including, without limitation, business licenses,
state health department licenses, food service licenses, licenses to conduct
business, certificates of need and all such other permits, licenses and rights,
obtained from any governmental, quasi-governmental or private person or entity
whatsoever.

        "Permitted Encumbrances" shall mean all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's title
insurance policy issued to Landlord for the Land, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.

        "Permitted Renovations" shall have the meaning given that term in
Section 6.2.

        "Permitted Use" shall mean any use of the Leased Property permitted
pursuant to Section 4.1.1.

        "Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.

        "Property Expenses" shall mean those expenses more particularly
described on Exhibit "H" attached hereto.

        "Proscribed Area" shall have the meaning given such term in Section 4.3.

        "Reimbursement Contracts" means all third party reimbursement contracts
for the Facility which are now or hereafter in effect with respect to residents
or patients qualifying for coverage under the same, including private insurance
agreements, Medicare and Medicaid and any successor program or other similar
reimbursement program and/or private insurance agreements.

        "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and
Additional Rent.



                                       9


        "Reserve" shall have the meaning given such term in Section 5.2.

        "Reserve Estimate" shall have the meaning given such term in Section
5.2.

        "Reserve Expenditures" shall have the meaning given such term in Section
5.2.

        "SEC" shall mean the Securities and Exchange Commission.

        "Security Deposit" shall have the meaning given such term in Section
3.10.

        "Single Purpose Entity" shall have the meaning given such term in
Exhibit "F" attached hereto.

        "State" shall mean the State in which the Facility is located.

        "Subsidiary" shall mean, with respect to any Person, any Entity in which
such Person directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, (a) owns more than fifty percent (50%) of the voting or
beneficial interest or (b) which such Person otherwise has the right or power to
control (whether by contract, through ownership of securities or otherwise).

        "Tax and Insurance Account" shall have the meaning given such term in
Section 8.3.

        "Tax and Insurance Escrow Amount" shall have the meaning given such term
in Section 8.3.

        "Tenant" shall be the entity identified in the preamble to this
Agreement and shall include its successors and assigns expressly permitted
hereunder.

        "Tenant's Personal Property" shall mean any specific items of P&E listed
in Exhibit "J" to this Lease, or replacements for such items or items within any
specific categories of P&E listed in Exhibit "J" to this Lease which hereafter
are acquired by Tenant with its own funds after the Commencement Date and
located at the Leased Property (but not including any property purchased with
funds from the Reserve established under Section 5.2).

        "Term" shall mean, collectively, the Initial Term and the Extended
Terms, unless sooner terminated pursuant to the provisions of this Agreement.

        "Threshold" shall mean the sum of Total Facility Revenue for the twelve
(12) Accounting Periods ending on the end of the twenty-fourth (24th) full
Accounting Period following the Commencement Date.

        "Total Facility Revenue" shall mean, for the applicable period of time,
but without duplication, all gross revenues and receipts of every kind derived
by or for the benefit of Tenant, or its Affiliated Persons from operating or
causing the operation of the Leased Property and all parts thereof, including,
but not limited to: income from both cash and credit transactions (after
reasonable deductions for bad debts and discounts for prompt or cash payments
and refunds) from rental or subleasing of every kind; entrance fees, fees for
health care and personal care services, license, lease and concession fees and
rentals, off premises catering, if any, and parking



                                       10


(not including gross receipts of licensees, lessees and concessionaires); income
from vending machines; health club membership fees; food and beverage sales;
wholesale and retail sales of merchandise (other than proceeds from the sale of
furnishings, fixtures and equipment no longer necessary to the operation of the
Facility, which shall be deposited in the Reserve) and service charges, to the
extent not distributed to employees at the Facility as gratuities; provided,
however, that Total Facility Revenue shall not include the following: (a)
gratuities to Facility employees; (b) federal, state or municipal excise, sales,
occupancy, use or similar taxes collected directly from residents or included as
part of the sales price of any goods or services; (c) insurance proceeds; (d)
any proceeds from any sale of the Leased Property or from the refinancing of any
debt encumbering the Leased Property; (e) proceeds from the disposition of
furnishings, fixture and equipment no longer necessary for the operation of the
Facility; and (f) interest which accrues on amounts deposited in the Reserve.

        "Unsuitable for Its Permitted Use" shall mean a state or condition of
the Leased Property such that following any damage or destruction involving the
Leased Property, the Leased Property cannot be operated in the reasonable
judgement of Landlord (after conferring with Tenant) on a commercially
practicable basis for its Permitted Use and it cannot reasonably be expected to
be restored to substantially the same condition as existed before such damage or
destruction and as is otherwise required by Article 12 within (i) twelve (12)
months following such damage or destruction, or (ii) eighteen (18) months
following such damage or destruction in the event that Tenant has extended the
term of the business income insurance to pay at least eighteen (18) months Rent
for the benefit of Landlord or provides other reasonably acceptable security for
any uninsured portion of the eighteen (18) months Rent.

                                   ARTICLE 2

                            LEASED PROPERTY AND TERM

        2.1 Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord all of Landlord's right, title and interest in and to all of the
following (collectively, the "Leased Property"):

                (a) all that certain tract, piece and parcel of land, as more
        particularly described in Exhibit "A", attached hereto and made a part
        hereof (the "Land");

                (b) the Facility, all buildings, structures and other
        improvements of every kind, including without limitation all roofs,
        plumbing systems, electric systems and HVAC systems, roadways,
        alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility
        pipes, conduits and lines (on-site and off-site) appurtenant to or
        presently situated upon the Land (collectively, the "Leased
        Improvements");

                (c) all easements, rights and appurtenances relating to the Land
        and the Leased Improvements;





                                       11


                (d) all P&E and Inventory;

                (e) all moveable machinery, equipment, furniture, furnishings,
        moveable walls or partitions, computers or trade fixtures located on or
        in the Leased Improvements, and all modifications, replacements,
        alterations and additions to such property, but specifically excluding
        all items included within the category of Tenant's Personal Property;

                (f) all of the Leased Intangible Property;

                (g) any and all subleases of space in the Leased Improvements to
        subtenants thereof; and

                (h) all other property and interests in property conveyed or
        assigned to Landlord pursuant to the Real Estate Purchase and Sale
        Agreement governing the sale and conveyance of the Leased Property from
        Tenant to Landlord on or about the effective date hereof (the "Purchase
        Agreement").

        2.2 Condition of Leased Property. Tenant acknowledges and agrees that
the Leased Property is and shall be leased by Landlord to Tenant and from
Landlord by Tenant in its present "as is" condition, subject to the existing
state of title and all applicable legal or governmental requirements, and
Landlord makes absolutely no representations or warranties whatsoever with
respect to the Leased Property or the condition thereof. Tenant acknowledges
that Landlord has not investigated and does not warrant or represent to Tenant
that the Leased Property is fit for the purposes intended by Tenant or for any
other purpose or purposes whatsoever, and Tenant acknowledges that the Leased
Property is to be leased to Tenant in its existing condition, i.e., "as-is", and
"where-is", without any representation or warranty as to habitability or fitness
for any particular purpose, on and as of the Commencement Date. Tenant
represents and acknowledges that all permits, licenses and approvals required by
any governmental or quasi-governmental body, department, commission, board,
bureau, instrumentality or officer, or otherwise appropriate with respect to the
construction, operation, leasing, maintenance or use of the Leased Property or
any part thereof, have been issued, are past all appeals periods and are valid
and in full force and effect and that no provision, condition or limitation of
any of the same has been breached or violated. Tenant acknowledges that Tenant
shall be solely responsible for any and all actions, repairs, permits, approvals
and costs required for the rehabilitation, renovation, use, occupancy and
operation of the Leased Property in accordance with applicable governmental
requirements, foreseen or unforeseen, including, without limitation, all
governmental charges and fees, if any, which may be due or payable to applicable
authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants
and represents that Tenant has examined and approved all things concerning the
Leased Property which Tenant deems material to Tenant's leasing and use of the
Leased Property. Tenant further acknowledges and agrees that (a) neither
Landlord nor any agent of Landlord has made any representation or warranty,
express or implied, concerning the Leased Property or which have induced Tenant
to execute this Agreement and (b) any other representations and warranties are
expressly disclaimed by Landlord.



                                       12


        2.3 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence on the Commencement Date and shall terminate and expire at
11:59 p.m. on the last calendar day of the month on which the fifteenth (15th)
annual anniversary of the Commencement Date shall occur.

        2.4 Extended Term. Tenant shall have and is hereby granted two (2)
option(s) to extend this Agreement for an additional five (5) years each
(individually an "Extended Term"), upon the same terms, covenants, conditions
and rental as set forth herein; provided there exists no continuing Event of
Default hereunder, or Default which Tenant has had an opportunity but failed to
cure as provided hereunder, during any applicable cure hereunder at the
commencement of the respective Extended Term. Tenant may exercise each such five
(5) year option successively by giving written notice to Landlord not less than
twelve (12) months nor more than eighteen (18) months prior to the respective
expiration of the Initial Term of this Agreement or of the then applicable
Extended Term. Should Tenant fail to give Landlord such timely written notice
during the required period, all remaining rights of renewal shall automatically
expire.

        2.5 Yield Up. Tenant shall, on or before the last day of the Term or
upon the sooner termination thereof, peaceably and quietly surrender and deliver
to Landlord the Leased Property, including, without limitation, all Leased
Improvements and P&E and all additions thereto and replacements thereof made
from time to time during the Term, together with and including without
limitation the P&E Replacements, in good order, condition and repair, reasonable
wear and tear excepted, and free and clear of all liens and encumbrances (other
than Permitted Encumbrances, liens or encumbrances in favor of or granted by
Landlord, and any other encumbrances expressly permitted under the terms of this
Agreement). Tenant acknowledges that both the Initial Landlord P&E described on
Exhibit "I" attached hereto and consumable items of Inventory located at the
Leased Property as of the Commencement Date may be completely consumed and/or
otherwise disposed of in the course of operation of the Leased Property during
the Term of this Agreement. Tenant agrees that, at the expiration or earlier
termination of this Agreement, at Landlord's option: (i) Tenant shall fully
restore the Initial Landlord P&E, inclusive with and after consideration of all
P&E Replacements which will become the property of Landlord, to at least the
approximate types and amounts (with reasonably equivalent value) as shown on
Exhibit "I", and shall fully restore an adequate supply of Inventory consistent
with the full stocking levels to be maintained by Tenant pursuant to Section 4.6
of this Lease (or a full thirty days supply, which ever is greater), or (ii)
Landlord shall deduct the then-current value of amounts needed to fully restore
the required P&E and Inventory, as aforesaid, to the extent that this sum
exceeds the Reserve amount to be transferred to Landlord under Section 5.2.6
hereof, from the Security Deposit.

                                   ARTICLE 3

                                      RENT

        3.1 Rent. Tenant shall pay, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Rent to Landlord





                                       13


during the Term at the address to which notices to Landlord are to be given or
to such other party or to such other address as Landlord may designate from time
to time by written notice to Tenant. All payments to Landlord shall be made by
wire transfer of immediately available federal funds or by other means
acceptable to Landlord in its sole discretion and all such payments shall, upon
receipt by Landlord, be and remain the sole and absolute property of Landlord.
If Landlord shall at any time accept any such Rent or other sums after the same
shall become due and payable, or any partial payment of Rent, such acceptance
shall not excuse a delay upon subsequent occasions, or constitute or be
construed as a waiver of any of Landlord's rights hereunder.

        3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum
Rent") to Landlord in equal installments in advance, on the first (1st) Business
Day of each Accounting Period; provided, however, that the first payment of
Minimum Rent shall be payable on the Commencement Date. Further, if applicable,
the first payment of Minimum Rent and the last payment of Minimum Rent shall be
prorated on a per diem basis provided, however, that for purposes of Minimum
Rent, any prorated payment for any partial Accounting Period prior to the first
full Accounting Period shall be prorated based upon the installment of Minimum
Rent payable for the first full Accounting Period, and any prorated Rent at the
end of the Term shall be prorated based upon the installment of Minimum Rent
payable for the last full Accounting Period.

                3.2.1 Calculation of Initial Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent during each
        Accounting Year of the Initial Term of this Agreement in the amounts set
        forth on Exhibit "B" attached hereto and made a part hereof.

                3.2.2 Calculation of Extended Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent under this
        Agreement during the first Accounting Year of each Extended Term in an
        amount equal to the greater of:

                        (a) two and five-tenths percent (2.5%) over the amount
                of Minimum Rent due in the immediately preceding Accounting
                Year; or

                        (b) the product of the fair market value of the Leased
                Property on the date of Tenant's Notice of exercise pursuant to
                Section 2.4, multiplied by Ten Percent (10.00%).

        Minimum Rent for each Accounting Year after the first Accounting Year in
        an Extended Term shall increase by one percent (1%) over the amount of
        Minimum Rent due in the immediately preceding Accounting Year.

        If within ten (10) days of the date of Tenant's Notice of exercise
        pursuant to Section 2.4, Landlord and Tenant are unable to agree on the
        fair market value of the Premises for purposes of this calculation, such
        fair market value shall be established by the appraisal process
        described on Exhibit "C" attached hereto. Landlord and Tenant
        acknowledge and agree that this Section is designed to establish a fair
        market Minimum Rent for the Leased Property during each applicable
        Extended Term. In the event that the Minimum





                                       14


        Rent for the applicable Extended Term is not finally determined by such
        appraisal process prior to the commencement of the Extended Term, then
        in such event until such amount is finally determined the Tenant shall
        pay to Landlord as "Interim Rent" for the Extended Term an amount equal
        to one hundred twenty-five percent (125%) of the established Minimum
        Rent as of the end of the Accounting Year immediately preceding the
        Extended Term until such appraisal process and any dispute relating
        thereto is finally resolved. In such an event, the amount of any
        differential between the Interim Rent and Minimum Rent established
        shall, if resulting in an underpayment, be paid by Tenant to Landlord
        within fifteen (15) days, or if resulting in an overpayment be credited
        by Landlord against the next installment(s) of Rent coming due
        hereunder.

        3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent,
Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal
Year or portion thereof. Installments of Percentage Rent shall be due and
payable in arrears within thirty (30) days after the end of each Fiscal Quarter
of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter
and an allocation of one-quarter of the Threshold amount to each such Fiscal
Quarter; provided, however, that no Percentage Rent shall be payable hereunder
with respect to the initial portion of the Term ending on the end of the
twenty-fourth (24th) full Accounting Period following the Commencement Date.
Along with each Percentage Rent payment Tenant shall submit to Landlord an
unaudited (but certified by a duly authorized officer or managing member of
Tenant) statement showing a detailed breakdown of the calculation of Percentage
Rent for that Fiscal Quarter and Fiscal Year-to-date on a cumulative basis.
Percentage Rent for any partial Fiscal Quarter in the final Fiscal Year shall be
prorated proportionately. Tenant's obligation to pay Percentage Rent for the
Fiscal Quarter which includes the date of termination of this Agreement shall
survive the termination hereof.

                3.3.1 Calculation of Percentage Rent. Subject to proration as
        set forth above, Tenant shall pay Percentage Rent in respect of each
        Fiscal Year under this Agreement equal to (a) ten percent (10%) of the
        Total Facility Revenue for such Fiscal Year in excess of the Threshold,
        less (b) the amount by which annual Minimum Rent in the Fiscal Year for
        which Percentage Rent is being calculated exceeds the amount of annual
        Minimum Rent due for the first (1st) Accounting Year under this
        Agreement.

                3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no
        later than ninety (90) days following the end of each Fiscal Year during
        the Term hereof furnish to Landlord for such Fiscal Year a complete
        statement (the "Annual Operations Statement") certified true and correct
        by the Chief Financial Officer of Tenant's general partner or managing
        member and the Chief Financial Officer of the Guarantor, setting forth,
        with respect to such Fiscal Year in reasonable detail the Total Facility
        Revenue derived by or for the benefit of Tenant in respect of such
        Fiscal Year. If the Annual Operations Statement for any Fiscal Year
        indicates that the aggregate of the installment payments theretofore
        made with respect to such Fiscal Year pursuant to Section 3.3.1 exceeds
        the Percentage Rent due for such Fiscal Year, Landlord shall credit such
        overpayment against the next installment or installments of Minimum Rent
        falling due (or will pay the amount of such overpayment to Tenant if
        this Agreement shall have terminated other than by reason of Tenant's
        default or if Landlord so elects to do so). If, on the other hand, the
        Annual Operations Statement indicates that the aggregate of the
        installment payments




                                       15


        theretofore made with respect to such Fiscal Year is less than the
        Percentage Rent due for such Fiscal Year then Tenant shall pay the
        balance or excess, as the case may be, together with interest thereon
        determined as set forth below in this paragraph, to Landlord
        concurrently with the submission of the Annual Operations Statement.
        Interest shall accrue on payments pursuant to this paragraph at the
        Disbursement Rate from the date when first due and payable until the
        date when the adjusted amount is fully paid in the manner as set forth
        above, except to the extent of de minimus adjustments of not more than
        ten percent (10%) of the amount initially paid resulting from the
        calculation method used or unintentional errors which could not
        reasonably have been avoided by reasonable care and diligence.

                3.3.3 Landlord Audit of Annual Operations Statement.
        Notwithstanding the foregoing, Landlord at its own expense, except as
        provided hereinbelow, shall have the right, exercisable by Notice to
        Tenant given within 270 days after receipt of the applicable Annual
        Operations Statement, by its accountants or representatives, to commence
        within such 270 day period an audit of the information set forth in such
        Annual Operations Statement and, in connection with such audit, to
        examine all of Tenant's books and records with respect thereto
        (including supporting data and sales and excise tax returns); provided,
        however, if Landlord reasonably believes Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement, the said 270 day period shall commence to run on the date
        Landlord obtains credible evidence that Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement. If Landlord does not commence an audit with such 270 day
        period, such Annual Operations Statement shall be deemed to be accepted
        by Landlord as correct. Landlord shall use commercially reasonable
        efforts to complete any such audit as soon as practicable. If such audit
        discloses a deficiency in the payment of Percentage Rent, Tenant shall
        forthwith pay to Landlord the amount of the deficiency, together with
        interest at the Disbursement Rate from the date such payment should have
        been made to the date of payment therefore. If such deficiency is more
        than three percent (3%) of the Total Facility Revenue reported by Tenant
        for such Fiscal Year, Tenant shall also pay the costs of such audit and
        examination.

        3.4 Additional Charges. In addition to the Minimum Rent and Percentage
Rent payable hereunder, Tenant shall pay to the appropriate parties and
discharge as and when due and payable hereunder the following (collectively the
"Additional Charges"):

                3.4.1 Taxes and Assessments. Tenant shall pay or cause to be
        paid all taxes and assessments required to be paid pursuant to Article
        8.

                3.4.2 Utility Charges. Tenant shall be liable for and shall
        promptly pay directly to the utility company all deposits, charges and
        fees (together with any applicable taxes or assessments thereon) when
        due for water, gas, electricity, air conditioning, heat, septic, sewer,
        refuse collection, telephone and any other utility charges, impact fees,
        or similar items in connection with the use or occupancy of the Leased
        Property. Landlord shall not be responsible or liable in any way
        whatsoever for the quality, quantity, impairment, interruption,
        stoppage, or other interference with any utility service, including,
        without limitation, water, air conditioning, heat, gas, electric current
        for light and power,





                                       16


        telephone, or any other utility service provided to or serving the
        Leased Property. No interruption, termination or cessation of utility
        services shall relieve Tenant of its duties and obligations pursuant to
        this Agreement, including, without limitation, its obligation to pay all
        Rent as and when the same shall be due hereunder.

                3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid
        all premiums for the insurance coverage required to be maintained
        pursuant to Article 9.

                3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid
        all fees, dues and charges of any kind which are necessary in order to
        acquire and keep in effect and good standing all licenses and permits
        required for operation of the Leased Property in accordance with the
        terms of Article 4.

                3.4.5 Sales Tax. Simultaneously with each payment of Rent and
        Additional Charges hereunder, Tenant shall pay to Landlord the amount of
        any applicable sales, use, excise or similar or other tax on any such
        Rent and Additional Charges, whether the same be levied, imposed or
        assessed by the State in which the Leased Property is located or any
        Governmental Agencies, but specifically excluding any income taxes
        imposed on Landlord's net income. Landlord shall, upon written request
        by Tenant, provide to Tenant on an annual basis such reasonable
        information in Landlord's possession or control as shall be necessary to
        enable Tenant to pay such tax.

                3.4.6 Other Charges. Tenant shall pay or cause to be paid all
        other amounts, liabilities and obligations arising in connection with
        the Leased Property except those obligations expressly stated not to be
        an obligation of Tenant pursuant to this Agreement.

                3.4.7 Penalties and Interest. Tenant shall pay or cause to be
        paid every fine, penalty, interest and cost which may be added for
        non-payment or late payment of the items referenced in this Section 3.4.

        Tenant shall prepare and file at its expense, to the extent required or
permitted by Applicable Laws, all tax returns and other reports in respect of
any Additional Charge as may be required by Governmental Agencies.

        3.5 Landlord Advances. Except as specifically provided otherwise in this
Agreement, if Tenant does not pay or discharge all Additional Charges, and
provide proof of payment if requested by Landlord, at least fifteen (15) days
prior to delinquency, Landlord shall have the right but not the obligation to
pay such Additional Charges on behalf of Tenant. If Landlord shall make any such
expenditure for which Tenant is responsible or liable under this Agreement, or
if Tenant shall become obligated to Landlord under this Agreement for any other
sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount
thereof shall be deemed to constitute "Additional Rent" and shall be due and
payable by Tenant to Landlord, together with interest at the Overdue Rate and
all applicable sales or other taxes thereon, if any, simultaneously with the
next succeeding monthly installment of Minimum Rent or at such other time as may
be expressly provided in this Agreement for the payment of the same.



                                       17


        3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on
or before the fifth business day after the date such payment is due and payable,
Tenant shall pay to Landlord an administrative late charge of five percent (5%)
of the amount of such payment. In addition, such past due payment shall bear
interest at the Overdue Rate from the date first due until paid. Such late
charge and interest shall constitute Additional Rent and shall be due and
payable with the next installment of Rent due hereunder.

        3.7 Net Lease. Landlord and Tenant acknowledge and agree that both
parties intend that this Agreement shall be and constitute what is generally
referred to in the real estate industry as a "triple net" or "absolute net"
lease, such that Tenant shall be obligated hereunder to pay all costs and
expenses incurred with respect to, and associated with, the Leased Property and
all personal property thereon and therein and the business operated thereon and
therein, including, without limitation, all taxes and assessments, utility
charges, insurance costs, maintenance costs and repair, replacement and
restoration expenses (all as more particularly herein provided), together with
any and all other assessments, charges, costs and expenses of any kind or nature
whatsoever related to, or associated with, the Leased Property and the business
operated thereon and therein, other than Landlord's financing costs and expenses
and related debt service; provided, however, that Landlord shall nonetheless be
obligated to pay Landlord's personal income taxes with respect to the Rent and
other amounts received by Landlord under this Agreement. Except as expressly
hereinabove provided, Landlord shall bear no cost or expense of any type or
nature with respect to, or associated with, the Leased Property. Except to the
extent otherwise expressly provided in this Agreement, it is agreed and intended
that Rent payable hereunder by Tenant shall be paid without notice, demand,
counterclaim, set-off, deduction or defense and without abatement, suspension,
deferment, diminution or reduction and that Tenant's obligation to pay Rent
throughout the Term and any applicable Extended Term is absolute and
unconditional and the respective obligations and liabilities of Tenant and
Landlord hereunder shall in no way be released, discharged or otherwise affected
for any reason, including without limitation: (a) any defect in the condition,
merchantability, design, quality or fitness for use of the Leased Property or
any part thereof, or the failure of the Leased Property to comply with
Applicable Laws, including any inability to occupy or use the Leased Property by
reason of such non-compliance; (b) any damage to, removal, abandonment, salvage,
loss, condemnation, theft, scrapping or destruction of or any requisition or
taking of the Leased Property or any part thereof, or any environmental
condition on the Leased Property or any property in the vicinity of the Leased
Property; (c) any restriction, prevention or curtailment of or interference with
any use of the Leased Property or any part thereof, including eviction; (d) any
defect in title to or rights to the Leased Property or any lien on such title or
rights to the Leased Property; (e) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by any Person; (f) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to
Tenant or any other Person or any action taken with respect to this Agreement by
any trustee or receiver of Tenant or any other Person or by any court, in any
such proceedings; (g) any right or claim that Tenant has or might have against
any Person, including, without limitation, Landlord or any vendor, manufacturer
or contractor of or for the Leased Property (other than a claim resulting from
any willful misconduct or gross negligence of Landlord); (h) any failure on the
part of Landlord or any other Person to perform or comply with any of the terms
of this Agreement, or of any other agreement; (i) any invalidity,
unenforceability, rejection or disaffirmance of this Agreement by




                                       18


operation of law or otherwise against or by Tenant or any provision hereof; (j)
the impossibility of performance by Tenant or Landlord, or both; (k) any action
by any court, administrative agency or other Government Agencies; (l) any
interference, interruption or cessation in the use, possession or quiet
enjoyment of the Leased Property or otherwise; or (m) any other occurrence
whatsoever whether similar or dissimilar to the foregoing, whether foreseeable
or unforeseeable, and whether or not Tenant shall have notice or knowledge of
any of the foregoing. Except as specifically set forth in this Agreement, this
Agreement shall be non-cancellable by Tenant for any reason whatsoever and,
except as expressly provided in this Agreement Tenant, to the extent now or
hereafter permitted by Applicable Laws, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Agreement
or to any diminution, abatement or reduction of Rent payable hereunder. Except
as specifically set forth in this Agreement, under no circumstances or
conditions shall Landlord be expected or required to make any payment of any
kind hereunder or have any obligations with respect to the use, possession,
control, maintenance, alteration, rebuilding, replacing, repair, restoration or
operation of all or any part of the Leased Property, so long as the Leased
Property or any part thereof is subject to this Agreement, and Tenant expressly
waives the right to perform any such action at the expense of Landlord pursuant
to any law.

        3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of
Rent, charges or other compensation, or (b) of Tenant's other obligations
hereunder shall be allowed to Tenant or any person claiming under Tenant, under
any circumstances or for any reason whatsoever and to the maximum extent
permitted by law, Tenant hereby waives the application of any local or state
statutes, land rules, regulations or ordinance providing to the contrary.

        3.9 INTENTIONALLY OMITTED

        3.10 Tenant Security Deposit. On the Commencement Date Tenant shall
deposit with Landlord in cash the sum of Seven Hundred Thirty-Eight Thousand
Seven Hundred Seventy-One and No/100 Dollars ($738,771.00), as a security
deposit (the "Security Deposit"), for Tenant's faithful performance of all of
Tenant's obligations under this Agreement. If Tenant fails to pay Rent or
Additional Charges due hereunder, fails to fund Reserve Expenditures which
exceed available funds in the Reserve, or otherwise defaults with respect to any
provision of this Agreement, then in addition to and not exclusive of any other
remedies available under this Agreement, Landlord may use, apply or retain all
or any portion of the Security Deposit for the payment of any Rent, the funding
of Additional Charges or Reserve Expenditures or other charges in default, or
for the payment of any sum to which Landlord may become obligated by reason of
Tenant's default. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount of the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its general accounts. If
Tenant performs all of Tenant's obligations hereunder, at the expiration of the
Term, and after Tenant has vacated the Leased Property, the Security Deposit, or
so much thereof as has not been applied or used by Landlord as provided in this
Agreement, shall be returned to Tenant, without payment of interest or other
increment for its use. No trust relationship is created herein between Landlord
and Tenant with respect to the Security Deposit. The Security Deposit shall be
paid by Tenant to Landlord upon the Commencement Date.



                                       19


        3.11 Security for all ARC-Related Leases. Tenant acknowledges that the
Security Deposit constitutes security for the faithful observance and
performance by Tenant of all the terms, covenants and conditions of this
Agreement and of all ARC-Related Leases (whether now in effect or entered into
in the future) to be observed and performed. If any Event of Default shall occur
and be continuing under this Agreement, Landlord may, at its option and without
prejudice to any other remedy which Landlord may have on account thereof,
appropriate and apply, first, the amount of the Security Deposit in accordance
with the terms set forth herein and, second, the amount of any other security
deposits under all ARC-Related Leases (herein the "Collective Security Deposit")
as may be necessary to compensate Landlord toward the payment of the Rent or
other sums due Landlord under this Agreement as a result of such breach by
Tenant. Additionally, Landlord may, if any Event of Default shall occur and be
continuing under any other ARC-Related Lease, appropriate and apply the Security
Deposit after first applying the security deposit under such other ARC-Related
Lease that is in default. It is understood and agreed that neither the Security
Deposit nor the Collective Security Deposit is to be considered as prepaid rent,
nor shall damages be limited to the amount of the Collective Security Deposit.

        3.12 Security Agreement. Tenant hereby grants to Landlord a security
interest in the Security Deposit and the Reserve as set forth below, as security
for all obligations of the Guarantor and as further security for Tenant's
obligations to Landlord hereunder, and agrees to execute and deliver all such
instruments as may be required by Landlord to evidence and perfect these
security interests.

                                   ARTICLE 4

                USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS

        4.1 Permitted Use.

                4.1.1 Permitted Use. Tenant covenants and agrees that it shall,
        throughout the Term of this Agreement, continuously use and occupy the
        Leased Property solely and exclusively as a first class independent
        living facility (and, subject to Landlord's consent pursuant to Section
        4.1.2 below, as a first class licensed assisted living and dementia care
        facility), and for such other uses as may be necessary or incidental to
        such use (such as services provided directly to residents by Tenant or
        under Service Licenses, as such term is defined below), with appropriate
        amenities for the same and for no other purpose without interruption
        except for minimum necessary interruptions in respect to portions of the
        Leased Property for periods provided herein for repairs, renovations,
        replacements and rebuilding all of which shall be carried out pursuant
        to, and in accordance with the applicable provisions of this Agreement
        (the foregoing being referred to as the "Permitted Use"). Without the
        prior written consent of the Landlord, no Affiliated Person of Tenant
        may be a subtenant or concessionaire in the Leased Property, provided
        however that Landlord hereby consents and agrees that a qualified and
        fully-insured Affiliated Person of Tenant may provide therapy and
        therapy-related services at the Facility for customary and appropriate
        charges. No use shall be made or permitted to be made of the Leased
        Property and no acts shall be done thereon which will cause the
        cancellation of any





                                       20


        insurance policy covering the Leased Property or any part thereof
        (unless another adequate policy is available), nor shall Tenant sell or
        otherwise provide or permit to be kept, used or sold in or about the
        Leased Property any article which may be prohibited by law or by the
        standard form of fire insurance policies, or any other insurance
        policies required to be carried hereunder, or fire underwriter's
        regulations. Tenant shall, at its sole cost, comply with all Insurance
        Requirements. Tenant shall not take or omit to take any action, the
        taking or omission of which materially impairs the value or the
        usefulness of the Leased Property or any part thereof for its Permitted
        Use, or causes the Leased Property to no longer be considered a first
        class facility.

                4.1.2 Assisted Living Units Conversion. Landlord shall not
        unreasonably withhold its consent to the use of portions of the Leased
        Property for licensed assisted living residential purposes provided that
        Tenant first provides to Landlord direct written evidence that (i)
        Tenant has received all necessary government licenses and approvals
        required for such use; (ii) Tenant remains in compliance with all
        applicable terms and requirements under any Facility Mortgage and at
        Tenant's sole expense but with Landlord's good faith cooperation has
        obtained any and all consents and approvals as may be required
        thereunder in respect of any proposed change in use and related
        construction and alterations; (iii) all required alterations and
        improvements will be made in accordance with plans and specifications
        reasonably acceptable to Landlord at no cost, expense or liability to
        Landlord; (iv) Tenant has secured all necessary funds for the costs of
        such alternations and improvements (insuring completion on a lien-free
        basis) and to cover all revenue losses resulting from the construction
        and interim vacancy of the units to be converted; and (v) Tenant
        provides updated appraisal and cash flow analyses acceptable to Landlord
        reflecting that the value of the Leased Property and anticipated
        revenues and profits (cash flow) should not be diminished as a result of
        such changes and any related alterations.

                4.1.3 Necessary Approvals. Tenant shall maintain all Permits and
        approvals necessary to use and operate, for its Permitted Use, the
        Leased Property and the Facility located thereon under Applicable Law
        and shall provide to Landlord a copy of Tenant's federal, state and
        Medicare survey regarding the Facility, and such other information or
        documents pertaining to said approvals. Landlord shall at no cost or
        liability to Landlord cooperate with Tenant in this regard, limited to
        executing all applications and consents required to be signed by
        Landlord in order for Tenant to obtain and maintain such approvals.

                4.1.4 Lawful Use, Etc. Tenant shall not use or suffer or permit
        the use of the Leased Property or Tenant's Personal Property, if any,
        for any unlawful purpose. Tenant shall not commit or suffer to be
        committed any waste on the Leased Property, or in the Facility, nor
        shall Tenant cause or permit any unlawful nuisance thereon or therein.
        Tenant shall not suffer nor permit the Leased Property, or any portion
        thereof, to be used in such a manner as (i) might reasonably impair
        Landlord's title thereto or to any portion thereof, or (ii) might
        reasonably allow a claim or claims for adverse usage or adverse
        possession by the public, as such, or of implied dedication of the
        Leased Property or any portion thereof.



                                       21


                4.1.5 Compliance with Legal Requirements. Tenant shall at all
        times at its sole cost and expense, keep and maintain the Leased
        Property in compliance with all Legal Requirements. Tenant agrees to
        give Landlord Notice of any notices, orders or other communications
        relating to Legal Requirements affecting the Leased Property which is or
        are enacted, passed, promulgated, made, issued or adopted, a copy of
        which is served upon, or received by, Tenant, or a copy of which is
        posted on or fastened or attached to the Leased Property, within ten
        (10) business days after service, receipt, posting, fastening or
        attaching. At the same time, the Tenant will inform Landlord as to the
        work or steps which Tenant proposes to do or take in order to comply
        therewith.

        4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant
shall at all times during the Term keep the Leased Property free of Hazardous
Substances. Neither Tenant nor any of its employees, agents, invitees,
licensees, contractors, guests, or subtenants (if permitted) shall use,
generate, manufacture, refine, treat, process, produce, store, deposit, handle,
transport, release, or dispose of Hazardous Substances in, on or about the
Leased Property or the groundwater thereof, in violation of any federal, state
or municipal law, decision, statute, rule, ordinance or regulation currently in
existence or hereafter enacted or rendered. Tenant shall give Landlord prompt
Notice of any claim received by Tenant from any person, entity, or Governmental
Agencies that a release or disposal of Hazardous Substances has occurred on the
Leased Property or the groundwater thereof.

        Tenant shall not discharge or permit to be discharged into any septic
facility or sanitary sewer system serving the Leased Property any toxic or
hazardous sewage or waste other than that which is permitted by Applicable Law
or which is normal domestic waste water for the type of business contemplated by
this Agreement to be conducted by Tenant on, in or from the Leased Property. Any
toxic or hazardous sewage or waste which is produced or generated in connection
with the use or operation of the Leased Property shall be handled and disposed
of as required by and in compliance with all applicable local, state and federal
laws, ordinances and rules or regulations or shall be pre-treated to the level
of domestic wastewater prior to discharge into any septic facility or sanitary
sewer system serving the Leased Property.

        4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby
recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent
payable by Tenant to Landlord under this Agreement have been established at the
levels specified in this Agreement upon the premise and with the expectation
that the Minimum Rent and Percentage Rent may determine the market value of the
Leased Property and constitute a material consideration for Landlord's
willingness to execute this Agreement and thereby lease and demise the Leased
Property to Tenant, and (b) that the operation, management, franchising or
ownership by Tenant or an Affiliated Person of Tenant of another Facility of the
Permitted Use as specified in Section 4.1.1 above (such other Facility being
referred to herein as a "Conflicting Business") within a ten (10) mile radius of
the Leased Property (the "Proscribed Area") will tend to result in a decrease in
the amount of Total Facility Revenue which would otherwise reasonably be
expected to be made upon, within and from the Leased Property and thereby result
in a reduction of the market value of the Leased Property and a reduction in the
Rent which would otherwise be received by Landlord pursuant to this Agreement in
the absence of the operation of a Conflicting Business by Tenant or any such
Affiliated Person of Tenant within the Proscribed Area. Accordingly, Tenant on
behalf of itself and such Affiliated Persons, agrees that during the Term of
this Agreement



                                       22


neither Tenant, nor any Affiliated Person of Tenant shall open, develop,
operate, manage, franchise, own, lease or have any other interest in a
Conflicting Business within the Proscribed Area. In the event of a breach of
this covenant, Landlord shall have the right to terminate this Agreement and
retain the Security Deposit, and pursue any other remedy at law available to
Landlord, including injunctive relief, or in lieu thereof but not in addition
thereto, Landlord may, at its election, require that forty percent (40%) of all
revenues (calculated in the same manner as if such revenues were Total Facility
Revenue) of such Conflicting Business opened, operated, managed, leased,
developed or owned by Tenant or any affiliated person of Tenant as defined in
this Section within the Proscribed Area be included in the amount of Total
Facility Revenue made from the Leased Property for purposes of the determination
and calculation of the Percentage Rent due from Tenant to Landlord under this
Agreement (i.e., as though such Total Facility Revenue of the Conflicting
Business had actually been made upon, within and from the Leased Property). If
Landlord so elects, all provisions of Article 17 of this Agreement relating to
Tenant's maintenance and submission to Landlord of books, records and statements
shall be applicable to all books, records and statements pertaining to any such
Conflicting Businesses. Further, Tenant agrees that Tenant's sole business shall
be to lease, and Tenant shall not incur any expenses or liability related to any
business or activity other than leasing and operating, the Leased Property and
other premises owned or hereinafter owned by Landlord or its Affiliated Persons
pursuant to terms acceptable to Landlord and Tenant. Landlord will not
unreasonably withhold its consent to a waiver of this Conflicting Business
restriction for any Conflicting Business which is approximately five (5) or more
miles away so long as Landlord is provided with evidence reasonably acceptable
to it that the proposed Conflicting Business is not likely to draw from the
demographic base otherwise available to support full occupancy of the Facility
and/or a revenue protection agreement acceptable to Landlord with respect to
adverse affects on Facility occupancy or residents tied to the Facility's
identified demographic base served at the Conflicting Business.

        4.4 Continuous Operations. Tenant shall continuously operate the Leased
Property and maintain sufficient skilled staff and employees, either directly or
through a qualified manager approved by Landlord, and shall maintain adequate
levels and quality of Tenant's Personal Property, to operate the Leased Property
as a first class independent living facility (and, subject to Landlord's consent
pursuant to Section 4.1.2 above, as a first class licensed assisted living and
dementia care facility) as herein required at its sole cost and expense
throughout the entire Term of this Agreement.

        4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall
comply with all restrictive covenants and other title exceptions affecting the
Leased Property as of the date of this Lease and comply with and perform all of
the obligations set forth in the same to the extent that the same are applicable
to the Leased Property or to the extent that the same would, if not complied
with or performed, impair or prevent the continued use, occupancy and operation
of the Leased Property for the purposes set forth in this Agreement. Further, in
addition to Tenant's payment obligations under this Agreement, Tenant shall pay
all sums charged, levied or assessed under any restrictive covenants,
declaration, reciprocal easement agreement or other title exceptions (not
including obligations of Landlord only under the GMACCMC Loan Documents
identified in Exhibit "K" hereto), equipment leases, leases and all other
agreements affecting the Leased Property as of the date of this Lease promptly
as the same become due and shall promptly furnish Landlord evidence of payment
thereof.



                                       23


        4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant
shall continuously operate the Leased Property in full compliance with the terms
hereof in a manner consistent with the level of operation of a national, first
class independent living or licensed assisted living and dementia care facility,
as applicable, including without limitation, the following:

                (a) to maintain the standard of care for the residents/patients
        of the Facility at all times at a level necessary to ensure quality care
        for the residents/patients of the Facility in accordance with customary
        and prudent industry standards;

                (b) to operate the Facility in a prudent manner and in
        compliance with applicable laws and regulations relating thereto and
        cause all Permits, Reimbursement Contracts and any other agreements
        necessary for the use and operation of the Facility or as may be
        necessary for participation in applicable reimbursement programs;

                (c) to maintain sufficient P&E and Inventories, and Tenant
        Personal Property, of types and quantities at the Facility to enable
        Tenant adequately to perform operations of the Facility; and

                (d) to keep all Leased Improvements and P&E located on or used
        or useful in connection with the Facility in good repair, working order
        and condition, reasonable wear and tear excepted, and from time to time
        make all needed and proper repairs, renewals, replacements, additions
        and improvements thereto to keep the same in good operating condition.

                (e) to maintain sufficient working capital to operate the Leased
        Property as a first class facility (working capital shall mean assets
        which are reasonably necessary and used for the day to day operation of
        the Leased Property, including, without limitation, amounts sufficient
        for the maintenance of change and petty cash funds, amounts deposited in
        operating bank accounts, receivables, prepaid expenses, and funds
        required to maintain Inventories and pay all operating expenses as they
        become due, less accounts payable and accrued current liabilities).

                (f) to operate and use the Leased Property to a standard
        consistent with national chain first class independent living or
        licensed assisted living and dementia care facilities, as applicable, at
        least equal to or better in quality than independent living and licensed
        assisted living and dementia care facilities (as applicable) operated by
        Guarantor and its Affiliated Persons at the Commencement Date, and to
        operate the Facility only under the Guarantor's name, trademarks, logos
        and service marks, with all required licenses and permits for such
        operation, if any.

                (g) to follow and conform to all of the same operating,
        employment, marketing, insurance, risk management and management
        standards and practices




                                       24


        employed at first class independent living and licensed assisted living
        and dementia care facilities (as applicable) operated by Guarantor and
        its Affiliated Persons.

                (h) to recruit, train and employ appropriate personnel, or
        retain management services from Guarantor or other qualified operator or
        service-provider approved by Landlord for same.

                (i) to provide prompt written notice to Guarantor and to
        Landlord of material or extraordinary developments, lawsuits, violation
        of any Legal Requirements and fines relating to the use and operation of
        the Facility.

        Throughout the term of the Lease, Tenant shall continuously operate the
Leased Property as a national, first-class independent living and/or licensed
assisted living and dementia care facility (as applicable) in the manner set
forth above, and to a standard consistent with national chain, first-class
independent living and licensed assisted living and dementia care facilities (as
applicable) at least equal to or better in quality than independent living and
licensed assisted living and dementia care facilities (as applicable) operated
currently by Guarantor under Guarantor's name, trademarks, logos and service
marks. Tenant shall endeavor and use its best efforts to maximize Total Facility
Revenue for the Leased Property. Tenant shall further provide, or cause to be
provided, all group services, facilities and benefits generally available to a
national chain, first-class independent living and licensed assisted living and
dementia care facilities (as applicable) of a similar type operated elsewhere by
Guarantor or any successor to Guarantor (or by other national operators of
first-class independent living and licensed assisted living and dementia care
facilities, such as those operated by Marriott Senior Living Services).

        4.7 Resident Agreements and Service Licenses. Tenant shall comply in all
material respects with the terms and provisions of each agreement and
undertaking entered into with or provided to the residents of the Facility
("Resident Agreements"), including without limitation to fulfill or cause to be
fulfilled all undertakings and representations regarding the use, condition and
operation of the Facility and services to provided the residents and the
standards and services of and benefits to be provided by the Guarantor and its
Affiliated Persons. In addition, Tenant shall comply in all material respects
with the terms and conditions of any contract or license entered into with
respect to the provision of services to the residents at the Facility ("Service
Licenses").

        4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that
Tenant is obligated to undertake such actions as are reasonably necessary to
properly achieve the highest standard of operation for the Facility as set forth
herein, and that although Landlord shall have the right to undertake all
enforcement rights as provided herein in the event that the required standard of
operation is not maintained by Tenant, the means and methods used and actions
taken to operate the Facility are within the sole control and election of
Tenant, and are not specified by or under the control of Landlord. Accordingly,
Landlord shall have no responsibility for any action taken by Tenant in order to
manage or operate the Facility.

        4.9 Survival. As to conditions and uses of Tenant existing or occurring
prior to the expiration or sooner termination of this Agreement, the provisions
of this Article 4 shall survive





                                       25


the expiration or sooner termination of this Agreement to extent of any ongoing
effects on Landlord or its successors with respect to the Facility (specifically
including the prohibitions relating to conflicting businesses under Section 4.3.

                                   ARTICLE 5

                             MAINTENANCE AND REPAIRS

        5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense,
keep the Leased Property in good order and repair, and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind and
nature, whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term and whether or not necessitated
by wear, tear, obsolescence or defects, latent or otherwise, and shall use all
reasonable precautions to prevent damage or injury. All repairs shall be made in
a good, workmanlike manner, consistent with the industry standards for like
independent living and licensed assisted living and dementia care facilities, as
applicable, in like locales, in accordance with all applicable federal, state
and local statutes, ordinances, by-laws, codes, rules and regulations relating
to any such work. In addition, Tenant shall also, at its sole cost and expense,
put, keep, replace and maintain Tenant's Personal Property in good repair and in
good, safe and substantial order, howsoever the necessity or desirability for
repairs may occur, and whether or not necessitated by wear, tear, obsolescence
or defects. Tenant may at any time and from time to time remove and dispose of
any of Tenant's Personal Property which has become obsolete or unfit for use or
which is no longer useful in the operation of the Facility's business conducted
by Tenant on the Leased Property; provided, however, that Tenant's Personal
Property so disposed of shall be promptly replaced with other Tenant's Personal
Property not necessarily of the same character, but of at least equal usefulness
and quality as, and having a value at least equal to the value of, those
disposed of, and in any event in accordance with and in compliance with the
standards required by and the provisions of this Agreement. Tenant shall further
at all times maintain the Leased Property, including the grounds and
landscaping, in an aesthetically pleasing manner.

        5.2 Reserve.

                5.2.1 Tenant shall establish an interest bearing reserve account
        (the "Reserve") in a bank designated by Tenant and approved by Landlord.
        All interest earned on the Reserve shall be added to and remain a part
        of the Reserve. Both Tenant and Landlord shall be signatories on the
        Reserve, provided only one signature shall be required to withdraw funds
        and Landlord agrees that so long as Tenant is not in default hereunder,
        Landlord shall not be required to sign on any checks and Landlord shall
        not withdraw any funds from such account. Upon the occurrence and
        continuation of any Default or Event of Default hereunder the Tenant
        signatory party shall no longer be an authorized signatory on the
        Reserve account. Such account shall be established in Landlord's name
        and control for the benefit of Tenant and shall not include or
        contemplate "overdraft protection" and Tenant shall not request or
        attempt to draw or draft any funds which are not actually on deposit in
        such account. The purpose of the Reserve is to cover the cost





                                       26


        of the following, to the extent carried out in accordance with this
        Agreement (collectively, "Reserve Expenditures"):

                        (a) Replacements (including P&E Replacements), renewals
                and additions to the P&E at the Facility; and

                        (b) repairs, alterations, improvements, renewals,
                replacements and additions, whether routine, non-routine or
                major, to the Leased Improvements, including without limitation
                those which are normally capitalized under GAAP such as repairs,
                alterations, improvements, renewals, replacements and additions
                to the structure, the exterior facade, the mechanical,
                electrical, heating, ventilating, air conditioning, plumbing and
                vertical transportation elements of the Leased Improvements,
                which expenditures Tenant believes should be made for the Leased
                Property for the following Fiscal Year.

                5.2.2 Commencing with the Commencement Date and continuing
        throughout the Term, Tenant shall on the last day of each Accounting
        Period during the Term, transfer into the Reserve an amount equal to the
        Applicable Reserve Percentage of Total Facility Revenues for such
        Accounting Period (based upon estimates of Total Facility Revenue if
        necessary, to be adjusted as soon as Tenant has had an opportunity to
        confirm actual Total Facility Revenue). At the time Tenant provides
        Landlord the documentation described in Section 3.3, Tenant shall also
        deliver to Landlord a statement setting forth the total amount of
        deposits made to and expenditures from the Reserve for the preceding
        Fiscal Year.

                5.2.3 On or before December 1 of each Fiscal Year, Tenant shall
        prepare an estimate (the "Reserve Estimate") of Reserve Expenditures
        anticipated during the ensuing Fiscal Year and shall submit such Reserve
        Estimate to Landlord for its review. Such Reserve Estimate shall reflect
        by line item the projected budget for Reserve Expenditures for the
        Leased Property and assumptions on the basis of which such line items
        were prepared in narrative form if necessary, including separate budget
        items for all projected expenditures for replacements, substitutions and
        additions to Tenant's Personal Property. Tenant shall provide to
        Landlord reasonable additional detail, information and assumptions used
        in the preparation of the Reserve Estimate as requested by Landlord and
        shall also submit to Landlord with the Reserve Estimate good faith
        longer-range projections of planned Reserve Expenditures for an
        additional three (3) Fiscal Years. Tenant shall review the Reserve
        Estimate with Landlord, and subject to Landlord's approval, Tenant shall
        implement such Reserve Estimate for the successive Fiscal Year (during
        which it shall, if approved by Landlord, be referred to as the "Approved
        Reserve Estimate"). In addition, Landlord shall have the right to
        disapprove any expenditures to be made pursuant to the Reserve Estimate
        which are not in compliance with Applicable Laws. Further, Landlord's
        approval of any expenditure pursuant to the Reserve Estimate shall not
        be, or be deemed to be, an assumption by Landlord of any liability in
        connection with the expenditures made. Pending resolution of any
        dispute, the specific disputed item of the Reserve Estimate shall be
        suspended and replaced for the Fiscal Year in question by an amount
        equal to the lesser of (a) that proposed by Tenant for such Fiscal Year
        or (b) such budget item for the Fiscal Year prior thereto. Tenant shall
        not make any





                                       27


        expenditures from the Reserve, nor shall Tenant deviate from the
        Approved Reserve Estimate without the prior approval of Landlord, except
        in the case of emergency where immediate action is necessary to prevent
        imminent danger to person or property.

                5.2.4 Tenant shall, consistent with the Approved Reserve
        Estimate, from time to time make Reserve Expenditures from the Reserve
        as it reasonably deems necessary in accordance with Section 5.2.1 and
        Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days
        after the end of each Fiscal Quarter, an itemized statement setting
        forth Reserve Expenditures made to date during the Fiscal Year.

                5.2.5 In the event Reserve Expenditures not set forth in the
        Approved Reserve Estimate are required (i) as a result of Legal
        Requirements or are otherwise required for the continued safe and
        orderly operation of the Leased Property, (ii) due to an emergency
        threatening the Leased Property, its residents, patients, guests,
        invitees or employees, or (iii) because the continuation of a given
        condition will subject Tenant or Landlord to civil or criminal
        liability, Landlord agrees that it will not unreasonably withhold its
        approval of such expenditures.

                5.2.6 All interest earned on the Reserve shall be added to and
        become a part thereof, and all property purchased with funds from the
        Reserve shall be and remain the property of Tenant until the end of the
        Term of the Lease or earlier expiration or termination of this Agreement
        (subject to Landlord's lien rights hereunder), at which time all P&E at
        the Leased Property, including without limitation all P&E Replacements
        or other items purchased with funds from the Reserve (but not including
        Tenant's Personal Property except as specifically provided herein) shall
        be and become the sole property of Landlord. All funds in the Reserve
        shall be and remain the property of Tenant throughout the Lease Term,
        subject to the control rights and liens and security interests of
        Landlord, but following expiration or earlier termination of this
        Agreement and payment in full on all contracts entered into prior to
        such expiration or termination for work to be done or furniture,
        furnishings, fixtures and equipment to be supplied in accordance with
        this Section 5.2 out of the Reserve, ownership of the Reserve shall be
        transferred from Tenant to Landlord except (provided Tenant is not in
        Default at the time of termination) to the extent of the amount, if any,
        by which Tenant's cumulative cash expenditures on P&E used solely at the
        Leased Property (not including any of Tenant's Personal Property which
        is not used at the Leased Property throughout the useful life thereof),
        less all amounts received upon any disposition thereof, exceeds the
        cumulative amount deposited by Tenant into the Reserve. It is understood
        and agreed that the Reserve pursuant to this Agreement shall be
        maintained and used solely in connection with the Leased Property.

                5.2.7 If Landlord wishes to grant a security interest in or
        create another encumbrance on its interest in the Reserve in connection
        with a Facility Mortgage, all or any part of the existing or future
        funds therein, or any general intangible in connection therewith, the
        instrument granting such security interest or creating such other
        encumbrance shall expressly provide that such security interest or
        encumbrance is prior in right to the rights of Tenant with respect to
        the Reserve as set forth herein, provided that the same is subject to a
        Tenant non-disturbance agreement as provided herein and the



                                       28


        Mortgagee thereunder agrees to be responsible to Tenant and to properly
        disburse all amounts of the Reserve received by it for use and
        disposition as provided herein.

                5.2.8 If, at any time, funds in the Reserve shall be
        insufficient or are reasonably projected by Tenant to be insufficient
        for necessary and permitted expenditures thereof or funding is necessary
        for Reserve Expenditures, Tenant shall give Landlord Notice thereof,
        which Notice shall set forth, in reasonable detail, the nature of the
        required or permitted action and the estimated cost thereof, and Tenant
        shall thereafter fund such additional Reserve Expenditures.

                                   ARTICLE 6

                               IMPROVEMENTS, ETC.

        6.1 Prohibition. Except for work funded by Reserve Expenditures and
Minor Alterations as hereinafter expressly provided in Section 6.2, no portion
of the Leased Property shall be demolished, removed or altered by Tenant in any
manner whatsoever without the prior written consent and approval of Landlord.
Notwithstanding the foregoing, however, Tenant shall be entitled and obligated
to undertake all alterations to the Leased Property required by any Legal
Requirements and, in such event, Tenant shall comply with the provisions of
Section 6.2 below.

        6.2 Permitted Renovations. The activities permitted pursuant to Section
6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted
Renovations".

                6.2.1 Minor Alterations. Landlord acknowledges that certain
        minor alterations and renovations may be undertaken by Tenant from time
        to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall
        be entitled to perform such Minor Alterations on or about the Leased
        Improvements; provided, however, that the cost of the same shall not
        exceed $20,000.00 and the same shall not weaken or impair the structural
        strength of the Leased Improvements, or alter their exterior design or
        appearance, materially impair the use of any of the service facilities
        located in, or fundamentally affect the character or suitability of, the
        Leased Improvements for the Permitted Use specified in Section 4.1.1
        above or materially lessen or impair their value.

                6.2.2 Additions, Expansions and Structural Alterations. Except
        as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing
        in this Article 6 or elsewhere in this Agreement shall be deemed to
        authorize Tenant to construct and erect any additions to or expansions
        of the Leased Improvements, or perform any alterations of a structural
        nature whatsoever (collectively referred to herein as the "Major
        Alterations"); it being understood that Tenant may do so only with the
        prior written consent and approval of Landlord, which consent and
        approval may be withheld by Landlord in its sole and absolute discretion
        and may be conditioned upon the payment by Tenant to Landlord of all
        reasonable costs incurred by Landlord in evaluating the same.



                                       29


        6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major
Alterations. In connection with any Reserve Expenditures, Permitted Renovations
or Major Alterations of the Leased Property the following conditions shall be
met, to wit:

                        (a) Before the commencement of any such work, plans and
                specifications therefor or a detailed itemization thereof
                prepared by a licensed architect approved by Landlord or other
                design professional appropriate under the circumstances approved
                by Landlord and Tenant shall be furnished to Landlord for its
                review and approval. Such approval shall not constitute
                Landlord's agreement that the plans and specification are in
                compliance with Applicable Laws or an assumption by Landlord of
                any liability in connection with the renovation work
                contemplated thereby.

                        (b) Before the commencement of any such work Tenant
                shall obtain the approval thereof by all Governmental Agencies
                having or claiming jurisdiction of or over the Leased Property,
                and with any public utility companies having an interest
                therein. In connection with any such work Tenant shall comply
                with all Legal Requirements and Applicable Laws, of all other
                Governmental Agencies having or claiming jurisdiction of or over
                the Leased Property and of all their respective departments,
                bureaus and offices, and with the requirements and regulations,
                if any, of such public utilities, of the insurance underwriting
                board or insurance inspection bureau having or claiming
                jurisdiction, or any other body exercising similar functions,
                and of all insurance companies then writing policies covering
                the Leased Property or any part thereof.

                        (c) Tenant represents and warrants to Landlord that all
                such work will be performed in a good and workmanlike manner and
                in accordance with the plans and specifications therefor
                approved by Landlord, the terms, provisions and conditions of
                this Agreement and all governmental requirements.

                        (d) Landlord shall have the right, at Tenant's expense,
                to inspect any such work at all times during normal working
                hours using such inspector(s) as it may deem necessary so long
                as such inspections do not unreasonably interfere with Tenant's
                work (but Landlord shall not thereby assume any responsibility
                for the proper performance of the work in accordance with the
                terms of this Agreement, nor any liability arising from the
                improper performance thereof).

                        (e) All such work shall be performed free of any liens
                on Landlord's fee simple interest on or Tenant's leasehold
                interest in the Leased Property.

                        (f) Upon substantial completion of any such work, Tenant
                shall procure a certificate of occupancy or other final
                approvals, if applicable, from the appropriate Governmental
                Agencies and provide copies of same to Landlord.

                        (g) Tenant shall, and hereby agrees to, indemnify and
                save and hold Landlord and its Affiliated Parties harmless from
                and against and reimburse Landlord for any and all loss, damage,
                cost, liability, fee and expense (including,





                                       30


                without limitation, reasonable attorney's fees based upon
                service rendered at hourly rates) incurred by or asserted
                against Landlord which is occasioned by or results, directly or
                indirectly, from any such work conducted upon the Leased
                Property; whether or not the same is caused by, or is the fault
                of Tenant or any agent, employee, manager, contractor,
                subcontractor, laborer, supplier, materialman or any other third
                party; but Tenant shall not be obligated to indemnify Landlord
                from any loss as aforesaid caused by Landlord's gross negligence
                or willful misconduct.

        6.4 Salvage. Other than Tenant's Personal Property, all materials which
are scrapped or removed in connection with maintenance and repair performed
pursuant to Article 5 and the making of Permitted Renovations pursuant to
Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any,
shall be deposited in the Reserve.

                                   ARTICLE 7

                    LANDLORD'S INTEREST NOT SUBJECT TO LIENS

        7.1 Liens, Generally. Tenant shall not, directly or indirectly, create
or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's
assets, properties or income or any portion thereof, or upon the interest of
Landlord therein, any Lien of any nature whatsoever. If, because of any act or
omission of Tenant, any such Lien shall be imposed, claimed or filed by any
party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause
the same to be promptly (and in no event later than thirty (30) days following
receipt of notice of such Lien) fully paid and satisfied or otherwise promptly
discharged of record (by bonding or otherwise) and Tenant shall indemnify and
save and hold Landlord harmless from and against any and all costs, liabilities,
suits, penalties, claims and demands whatsoever, and from and against any and
all reasonable attorney's fees, at both trial and all appellate levels,
resulting or on account thereof and therefrom. In the event that Tenant shall
fail to comply with the foregoing provisions of this Section 7, Landlord shall
have the option, but not the obligation, of paying, satisfying or otherwise
discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse
Landlord, upon demand and as Additional Rent, for all sums so paid and for all
costs and expenses incurred by Landlord in connection therewith, together with
interest thereon, until paid.

        7.2 Construction or Mechanics Liens. Landlord's interest in the Leased
Property shall not be subjected to Liens of any nature by reason of Tenant's
construction, alteration, renovation, repair, restoration, replacement or
reconstruction of any improvements on or in the Leased Property, or by reason of
any other act or omission of Tenant (or of any person claiming by, through or
under Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. All persons dealing with Tenant are hereby placed on notice
that such persons shall not look to Landlord or to Landlord's credit or assets
(including Landlord's interest in the Leased Property) for payment or
satisfaction of any obligations incurred in connection with the construction,
alteration, renovation, repair, restoration, replacement or reconstruction
thereof by or on behalf of Tenant. Tenant has no power, right or authority to
subject Landlord's interest in the Leased Property to any construction,
mechanic's or materialmen's lien or claim of



                                       31


lien. If a Lien, a claim of lien or an order for the payment of money shall be
imposed against the Leased Property on account of work performed, or alleged to
have been performed, for or on behalf of Tenant, Tenant shall, within thirty
(30) days after written notice of the imposition of such Lien, claim or order,
cause the Leased Property to be released therefrom by the payment of the
obligation secured thereby or by furnishing a bond or by any other method
prescribed or permitted by law. If a Lien is released, Tenant shall thereupon
furnish Landlord with a written instrument of release which has been recorded or
filed in the appropriate office of land records of the County in which the
Leased Property is located, and otherwise sufficient to establish the release as
a matter of record.

        7.3 Contest of Liens. Tenant may, at its option, contest the validity of
any Lien or claim of lien if Tenant shall have first posted an appropriate and
sufficient bond in favor of the claimant or paid the appropriate sum into court,
if permitted by and in strict compliance with Applicable Laws, and thereby
obtained the release of the Leased Property from such Lien. If judgment is
obtained by the claimant under any Lien, Tenant shall pay the same immediately
after such judgment shall have become final and the time for appeal therefrom
has expired without appeal having been taken. Tenant shall, at its own expense,
using counsel reasonably approved by Landlord, diligently defend the interests
of Tenant and Landlord in any and all such suits; provided, however, that
Landlord may, nonetheless, at its election and expense, engage its own counsel
and assert its own defenses, in which event Tenant shall cooperate with Landlord
and make available to Landlord all information and data which Landlord deems
necessary or desirable for such defense.

        7.4 Notices of Commencement of Construction. If required by the laws of
the State in which the Leased Property is located, prior to commencement by
Tenant of any work on the Leased Property which shall have been previously
permitted by Landlord as provided in this Agreement, Tenant shall record or file
a notice of the commencement of such work or similar notice required by
Applicable Law (the "Notice of Commencement") in the land records of the County
in which the Leased Property is located, identifying Tenant as the party for
whom such work is being performed, stating such other matters as may be required
by law and requiring the service of copies of all notices, Liens or claims of
lien upon Landlord. Any such Notice of Commencement shall clearly reflect that
the interest of Tenant in the Leased Property is that of a leasehold estate and
shall also clearly reflect that the interest of Landlord as the fee simple owner
of the Leased Property shall not be subject to construction, mechanics or
materialmen's liens on account of the work which is the subject of such Notice
of Commencement. A copy of any such Notice of Commencement shall be furnished to
and approved by Landlord and its attorneys prior to the recording or filing
thereof, as aforesaid.

                                   ARTICLE 8

                              TAXES AND ASSESSMENTS

        8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term,
Tenant shall bear, pay and discharge as Additional Charges and not later than
the last day on which payment may be made without penalty or interest, any and
all taxes, assessments, charges, levies,





                                       32


fees (including, without limitation, license, permit, inspection, authorization
and similar fees) and other impositions and charges of every kind and nature
whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each
and every installment thereof which shall or may during or with respect to the
Term hereof be charged, laid, levied, assessed, or imposed upon, or arise in
connection with, the use, occupancy, operation or possession of the Leased
Property or any part thereof or the business conducted thereon, including,
without limitation, ad valorem real and personal property taxes, all taxes
charged, laid, levied, assessed or imposed in lieu of or in addition to any of
the foregoing by virtue of all present or future laws, ordinances, requirements,
orders, directions, rules or regulations of Governmental Agencies, and all
assessments and charges imposed pursuant to the Permitted Encumbrances (other
than obligations of Landlord only under the GMACCM Loan Documents as described
in Exhibit "K" hereto) or other documents of record affecting title to the
Leased Property (provided however that such documents have been approved by
Tenant, which approval shall not unreasonably be withheld, delayed or
conditioned provided that the same are appropriate and reasonably necessary in
connection with the normal and ordinary course of ownership and use of the
Facility), whether or not such Additional Charges become due and payable during
or after the Term. Notwithstanding the foregoing, Tenant shall not be
responsible for Additional Charges due and payable after the expiration of the
Term to the extent that the same relate and apply interests and benefits
accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of all such taxes,
assessments, impositions or charges. Tenant shall have no right to approve, nor
shall Tenant be obligated for any amounts due by virtue of, any Facility
Mortgage or other documents relating to indebtedness of Landlord.

        8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing,
Tenant shall have the right, after prior written notice to Landlord, to contest
at its own expense the amount and validity of any taxes affecting the Leased
Property by appropriate proceedings under Applicable Law conducted in good faith
and with due diligence and to postpone or defer payment thereof, provided and so
long as:

                (a) Such proceedings shall operate to suspend the collection of
        such taxes with respect to the Leased Property;

                (b) Neither the Leased Property nor any part thereof would be in
        immediate danger of being forfeited or lost by reason of such
        proceedings, postponement or deferment; and

                (c) Tenant shall have furnished Landlord with security for
        payment of the contested taxes which is satisfactory to Landlord, and,
        in the event that the preconditions set forth in (a) and (b) above are
        no longer met, Landlord shall have the right to draw upon such security
        to pay and discharge the taxes in question and any liens against the
        Leased Property arising thereunder.

        8.3 Tax and Insurance Escrow Account. In the event Tenant fails to
timely pay any tax, assessment, imposition or charge required to be paid by
Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice
to Tenant effective as of the date of such notice, to require Tenant to pay or
cause to be paid into a separate account (the "Tax and Insurance Account") to be
established by Tenant with a lending institution designated by Landlord (which




                                       33


Tax and Insurance Account shall not be removed from such lending institution
without the express prior approval of Landlord), and which Landlord may draw
upon, a reserve amount sufficient to discharge the obligations of Tenant under
Section 8.1 and Article 9 hereof (other than worker's compensation insurance
premiums) with respect to real estate taxes and insurance premiums for the
applicable Fiscal Year as and when they become due (such amounts, the "Tax and
Insurance Escrow Amount"). During each month commencing with the first full
calendar month following the receipt of said notice from Landlord, Tenant shall
deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance
Escrow Amount so that as each installment of insurance premiums and real estate
taxes becomes due and payable, there are sufficient funds in the Tax and
Insurance Account to pay the same. If the amount of such insurance premiums and
real estate taxes has not been definitively ascertained by Tenant at the time
when any such monthly deposit is to be paid, Landlord shall require payment of
the Tax and Insurance Escrow Amount based upon the amount of premiums and real
estate taxes paid for the preceding year, subject to adjustment as and when the
amount of such premiums and real estate taxes are ascertained by Tenant. The Tax
and Insurance Escrow Amount in the Tax and Insurance Account shall be and
constitute additional security for the performance of Tenant's obligations
hereunder and shall be subject to Landlord's security interest therein and
shall, if there are sufficient funds in escrow, be used to pay taxes and
insurance premiums when due. Landlord and Tenant shall execute such
documentation as may be necessary to create and maintain Landlord's security
interest in the Tax and Insurance Account.

                                   ARTICLE 9

                                    INSURANCE

        9.1 General Insurance Requirements. Tenant shall, at all times during
the Term and at any other time Tenant shall be in possession of the Leased
Property, keep the Leased Property and all property located therein or thereon,
insured against the following risks in the following amounts:

        (a) "All-risk" property insurance (and to the extent applicable,
Builder's Risk Insurance) on the Leased Improvements and all items of business
personal property, including but not limited to signs, awnings, canopies,
gazebos, fences and retaining walls, and all P&E, including without limitation,
insurance against loss or damage from the perils under "All Risk" (Special)
form, including but not limited to the following: fire, windstorm, sprinkler
leakage, vandalism and malicious mischief, water damage, explosion of steam
boilers, pressure vessels and other similar apparatus, and other hazards
generally included under extended coverage, all in an amount equal to one
hundred percent (100%) of the replacement value of the Leased Improvements
(excluding excavation and foundation costs), business personal property and P&E,
without a co-insurance provision, and shall include an Agreed Value endorsement;

        (b) Ordinance or Law Coverage with limits of not less than the Leased
Improvements for Coverage A (Loss to the undamaged portion of the building),
limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and
limits not less than $500,000.00 for Coverage C (Increased Cost of Construction
Coverage);



                                       34


        (c) Business income insurance to be written on "Special Form" (and on
"Earthquake" and "Flood" forms if such insurance for those risks is required)
including "Extra Expense", without a provision for co-insurance, including an
amount sufficient to pay at least twelve (12) months of Rent for the benefit of
Landlord, as its interest may appear, and at least twelve (12) months of "Net
Operating Income" less Rent for the benefit of Tenant;

        (d) Occurrence form commercial general liability insurance, including
bodily injury and property damage, liquor liability (if applicable), fire legal
liability, contractual liability and independent contractor's hazard and
completed operations coverage in an amount not less than $1,000,000.00 per
occurrence and $2,000,000.00 per location, aggregate;

        (e) Umbrella liability coverage which shall be on a following form for
the General Liability, Automobile Liability, Employers' Liability, Malpractice
and Liquor Liability (if applicable), with limits in a minimum amount of not
less than $20,000,000.00 per occurrence/aggregate;

        (f) Malpractice insurance/professional liability insurance in an amount
not less than $5,000,000.00 for each person and each occurrence to cover the
professional medical care providers working on the Leased Property;

        (g) Flood insurance (if the Leased Property is located in whole or in
part within an area identified as an area having special flood hazards under the
National Flood Insurance Program) for the full (100%) replacement value of the
improvements and all items of business personal property or any greater amount
as may be required by the National Flood Insurance Program;

        (h) Worker's compensation coverage for all persons employed by Tenant on
the Leased Property with statutory limits, and Employers' Liability insurance in
an amount of at least $1,000,000.00 per accident/disease;

        (i) Business auto liability insurance, including owned, non-owned and
hired vehicles for combined single limit of bodily injury and property damage of
not less than $1,000,000.00 per occurrence;

        (j) [Intentionally Omitted];

        (k) "Earthquake" insurance, if the Leased Property is currently, or at
any time in the future, located within a major earthquake disaster area, in
amount, and in such form and substance and with such limits and deductibles as
are satisfactory to Landlord; and

        (l) Crime insurance covering employee theft in an amount not less than
$1,500,000.

        (m) Such additional insurance or increased insurance limits as may be
reasonably required, from time to time, by Landlord (including, without
limitation, any mortgage, security agreement or other financing permitted
hereunder and then affecting the Leased Property, as well as any declaration,
ground lease or easement agreement affecting the Leased Property), or any
Mortgagee, provided the same is customarily carried by a majority of comparable
independent living and/or licensed assisted living and dementia care facilities
(as applicable) in the area.



                                       35


Without limiting the generality of the foregoing Section 9.1(m), the required
commercial liability insurance and umbrella liability coverage limits and
deductible amounts pertaining thereto as set forth in this Article 9 shall in no
event provide less coverage (lower limits or higher deductibles) than the
"Comparable Insurance Coverage" carried on any of the other independent living
or licensed assisted living and dementia care facilities, as applicable, leased
or owned by Tenant and Guarantor and their Affiliated Persons, and the insurance
coverage for the Leased Property shall immediately be increased by Tenant to
equal any greater or increased "Comparable Insurance Coverage" carried or
obtained for such other facilities. For purposes of the foregoing, "Comparable
Insurance Coverage" shall mean insurance coverage levels adjusted for relevant
variations in risk and insurability characteristics between the insured
facilities being compared, including without limitation consideration of
variations in insurance coverages carried by Guarantor and its Affiliated
Persons between different insurance markets (states or other jurisdictional
subdivisions) where insured risks or insurance pricing or availability varies
materially. Tenant shall use all reasonable efforts to obtain increased umbrella
liability coverage of not less than $50,000,000 per occurrence/aggregate, and
decreased liability insurance deductibles, at such time as the same can be
obtained at commercially reasonable or economically feasible rates for the
Leased Property. Until such increased coverages are obtained the Tenant shall
provide to Landlord a thorough annual update and review of the overall liability
insurance coverage program and strategy for Tenant and Guarantor and their
Affiliated Persons, which shall include an analysis of market rates for the
current and desired liability insurance coverages. In addition, Tenant shall
have the right to provide commercial general liability insurance coverage on a
"claims made" basis, so long as the general liability insurance coverages
otherwise required hereunder are maintained or continued in existence at all
times throughout the Lease Term for all periods that Tenant or its Affiliates
have had any ownership or use of the Leased Property, and evidence thereof has
been provided to Landlord.

        9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect
to any property loss which is covered by insurance then being carried by
Landlord or Tenant, respectively, the party carrying such insurance and
suffering said loss releases the other of and from any and all claims with
respect to such loss; and they further agree that their respective insurance
companies shall have no right of subrogation against the other on account
thereof.

        9.3 General Provisions. The Facility's allocated chargeback/deductible
for general liability insurance shall not exceed $1,000,000 for independent
living or assisted living and $1,000,000 for Memory Impaired, to the extent
commercially available, and $350,000.00 for workmen's compensation insurance, to
the extent commercially available, unless any greater amounts are agreeable to
both Landlord and Tenant. The Facility's property insurance deductible shall not
exceed $25,000.00 unless such greater amount is agreeable to both Landlord and
Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is
mandated by the insurance carrier. All insurance policies pursuant to this
Article 9 shall be issued by insurance carriers having a general policy holder's
rating of no less than A-/VII in Best's latest rating guide, and shall contain
clauses or endorsements to the effect that (a) Landlord shall not be liable for
any insurance premiums thereon or subject to any assessments thereunder, and (b)
the coverages provided thereby will be primary and any insurance carried by any
additional insured shall be excess and non-contributory to the extent of the
indemnification obligation pursuant to Section 9.5 below. All such policies
described in Section 9.1 shall name Landlord, CRC and CNL Retirement and any
Mortgagee whose name and address has been provided to Tenant as



                                       36


additional insureds, loss payees, or mortgagees, as their interests may appear
and to the extent of their indemnity. All loss adjustments shall be payable as
provided in Article 10. Tenant shall deliver certificates thereof to Landlord
prior to their effective date (and, with respect to any renewal policy, no less
than thirty (30) days prior to the expiration of the existing policy), which
certificates shall state the nature and level of coverage reported thereby, as
well as the amount of the applicable deductible. Upon Landlord's request,
duplicate original copies of all insurance policies to be obtained by Tenant
shall be provided to Landlord by Tenant. All such policies shall provide
Landlord (and any Mortgagee whose name and address has been provided to Tenant
if required by the same) thirty (30) days prior written notice of any material
change or cancellation of such policy.

        In the event Tenant shall fail to effect such insurance as herein
required, to pay the premiums therefor or to deliver such certificates to
Landlord or any Mortgagee at the times required, Landlord shall have the right,
but not the obligation, subject to the provisions of Section 12.4, to acquire
such insurance and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest accrued
thereon at the Overdue Rate from the date such payment is made until (but
excluding) the date repaid.

        9.4 Blanket Policy. Notwithstanding anything to the contrary contained
in this Article 9, Tenant's obligation to maintain the insurance herein required
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant, so long as such policies otherwise
meet all requirements under this Article 9.

        9.5 Indemnification of Landlord. Except as expressly provided herein,
Tenant shall protect, indemnify and hold harmless Landlord for, from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and reasonable expenses (including, without limitation, reasonable
attorneys' fees), to the maximum extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of: (a) any accident, injury
to or death of persons or loss of or damage to property of third parties
occurring on or about the Leased Property or adjoining sidewalks or rights of
way under Tenant's control, and (b) any use, misuse, condition, management,
maintenance or repair by Tenant or anyone claiming under Tenant of the Leased
Property or Tenant's Personal Property or any litigation, proceeding or claim by
Governmental Agencies relating to such use, misuse, condition, management,
maintenance, or repair thereof to which Landlord is made a party; provided,
however, that Tenant's obligations hereunder shall not apply to any liability,
obligation, claim, damage, penalty, cause of action, cost or expense arising
from any gross negligence or willful misconduct of Landlord, its employees,
agents, contractors or invitees. Any such claim, action or proceeding asserted
or instituted against Landlord covered under this indemnity shall be defended by
counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's
expense. Notwithstanding the foregoing, indemnification with respect to
Hazardous Substances is governed by Section 4.3. The obligations of Tenant under
this Section 9.5 shall survive the expiration or any early termination of this
Agreement.



                                       37


                                   ARTICLE 10

                                    CASUALTY

        10.1 Restoration and Repair. If during the Term the Leased Property
shall be totally or partially destroyed and thereby rendered Unsuitable for Its
Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord
or Tenant may, by the giving of Notice thereof to the other party within sixty
(60) days after such casualty occurs, terminate this Agreement, whereupon
Landlord shall be entitled to retain the insurance proceeds payable on account
of such damage and Tenant shall pay to Landlord the amount of any deductible.
Tenant further expressly acknowledges, understands and agrees that in the event
that the Agreement is terminated as aforesaid, Landlord may settle any insurance
claims and Tenant shall, upon request of Landlord, cooperate in any such
settlement. If during the Term, the Leased Property shall be destroyed or
damaged in whole or in part by fire, windstorm or any other cause whatsoever,
but the Leased Property either (i) is not rendered Unsuitable for Its Permitted
Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord
nor Tenant terminate this Agreement in the manner provided above, then, Tenant
shall give Landlord immediate Notice thereof and Tenant shall, subject to the
provisions of Section 10.2 below, repair, reconstruct and replace the Leased
Property, or the portion thereof so destroyed or damaged, at least to the extent
of the value and character thereof existing immediately prior to such occurrence
and in compliance with all Legal Requirements, including any alterations to the
Leased Property required to be made by any Governmental Agencies due to any
changes in code or building regulations (which Tenant acknowledges may increase
the replacement value of the Leased Property which Tenant will then be required
to insure, due to any changes in code or building regulations). All such
restoration work shall be started as promptly as practicable and diligently
completed at Tenant's sole cost and expense (using available insurance
proceeds). Tenant shall, however, immediately take such action as is necessary
to assure that the Leased Property (or any portion thereof), does not constitute
a nuisance or otherwise present or constitute a health or safety hazard.
Notwithstanding the foregoing the Tenant shall have the right to elect not to
repair any material casualty damage (estimated to cost greater than $250,000 to
repair) occurring within twelve (12) months prior to the scheduled expiration of
the then-current Term, provided and on the condition that: (i) Tenant promptly
pays to Landlord the full amount of all deductibles applying to the insured
loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee
also receive and retain all insurance proceeds; (ii) Tenant has provided
adequate assurance that applicable business interruption insurance will continue
to be available through the end of the then-current Term to cover all resulting
loss of income or else adequate security therefor as requested by Landlord; and
(iii) Tenant, at Tenant's sole cost and expense, properly secures and protects
and preserves any damaged portion of the Facility in such a fashion as to insure
the safety of all Facility Residents, guest, invitees and others (to the extent
that such persons are reasonably expected to continue to occupy or come upon the
relevant portions of the Leased Property), and the value of the affected
improvements.

        10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is
not otherwise terminated pursuant to Section 10.1, then in the event of a
casualty resulting in a loss to the Leased Improvements and/or P&E in an amount
greater than Fifty Thousand and No/100 Dollars ($50,000.00) (as determined by an
architect or engineer selected by Landlord), the



                                       38



proceeds of all insurance policies maintained by Tenant shall be deposited in
Landlord's name in an escrow account at a bank or other financial institution
designated by Landlord, and shall be used by Tenant for the repair,
reconstruction or restoration of the Leased Property to its original condition.
Tenant shall, at the time of establishment of such escrow account and from time
to time thereafter until said work shall have been completed and paid for,
furnish Landlord with adequate evidence acceptable to Landlord that at all times
the undisbursed portion of the escrowed insurance proceeds, together with any
funds made available by Tenant, is sufficient to pay for the repair,
reconstruction or restoration in its entirety. Landlord may, at its option,
require, prior to advancement of said escrowed insurance proceeds (i) approval
of plans and specifications by an architect or other design professional
appropriate under the circumstances and approved by Landlord and Tenant (which
approval shall not be unreasonably withheld or delayed), (ii) general
contractors' estimates, (iii) architect's certificates, (iv) unconditional lien
waivers of general contractors, if available, (v) evidence of approval by all
Governmental Agencies and other regulatory bodies whose approval is required,
and (vi) such other terms as a Mortgagee or lender of Landlord may reasonably
require. The escrowed insurance proceeds shall be disbursed by Landlord, not
more than monthly, upon (i) certification of the architect or engineer selected
by Landlord and having supervision of the work that such amounts are the amounts
paid or payable for the repair, reconstruction or restoration and (ii) submittal
by Tenant of a written requisition and substantiation therefor on AIA Forms G702
and G703 (or on such other form or forms as may be reasonably acceptable to
Landlord). Tenant shall obtain, and make available to Landlord, receipted bills
and, upon completion of said work, full and final waivers of lien. In the event
of a casualty resulting in a loss payment for the Leased Improvements in an
amount equal to or less than the amount stated above, the proceeds shall be paid
to Tenant, and shall be applied towards repair, reconstruction and restoration.
Any and all loss adjustments with respect to losses payable hereunder shall
require the prior written consent of Landlord. All salvage resulting from any
risk covered by insurance shall belong to Tenant, provided any rights to the
same have been waived by the insurer. In addition, notwithstanding anything in
this Agreement to the contrary, Tenant shall be strictly liable and solely
responsible for the amount of any deductible and shall pay for all repairs,
reconstruction or alterations up to the full amount of such deductible (and
provide evidence of such payment to Landlord by documentation reasonably
acceptable to Landlord) before any insurance proceeds are used for repairs,
reconstruction or alterations.

        10.3 No Abatement of Rent. Unless terminated in accordance with the
provisions of Section 10.1 above, this Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all
Additional Charges as and when required under this Agreement shall remain
unabated during the Term notwithstanding any casualty to the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any event of casualty involving the
Leased Property and, to the maximum extent permitted by law, Tenant hereby
waives the application of any local or state statute, law, rule, regulation or
ordinance in effect during the Term which provides for such abatement.

        10.4 Tenant's Property and Business Interruption Insurance. All
insurance proceeds payable by reason of any loss of or damage to any of Tenant's
Personal Property and the business interruption insurance maintained for the
benefit of Tenant shall be paid to Tenant;




                                       39


provided, however, no such payments shall diminish or reduce the insurance
payments otherwise payable to or for the benefit of Landlord hereunder.

        10.5 Restoration of Tenant's Property. If Tenant is required to restore
the Leased Property as hereinabove provided, Tenant shall either (i) restore all
alterations and improvements made by Tenant and Tenant's Personal Property, or
(ii) replace such alterations and improvements and Tenant's Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.

        10.6 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property
and agrees that its rights shall be limited to those set forth in Section 10.1.

                                   ARTICLE 11

                                  CONDEMNATION

        11.1 Total Condemnation, Etc. If the whole of the Leased Property shall
be taken or condemned for any public or quasi-public use or purpose, by right of
eminent domain or by purchase in lieu thereof, or if a substantial portion of
the Leased Property shall be so taken or condemned that the portion or portions
remaining is or are not sufficient and suitable, in the mutual reasonable
judgment of Landlord and Tenant, for the continued operation thereof as required
herein, so as to effectively render the Leased Property Unsuitable for Its
Permitted Use, then this Agreement and the Term hereby granted shall cease and
terminate (without prejudice to Landlord's and Tenant's respective rights to an
award under Section 11.3 below), as of the date on which the Condemnor takes
possession and all Rent shall be paid by Tenant to Landlord up to that date or
refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond
that date.

        11.2 Partial Condemnation. If a portion of the Leased Property is taken,
and the portion or portions remaining can, in the mutual reasonable judgment of
Landlord and Tenant, be adapted and used for the conduct of Tenant's business
operation in accordance with the terms of this Agreement, such that the Leased
Property is not effectively rendered Unsuitable for Its Permitted Use, then the
Tenant shall, utilizing condemnation proceeds paid to Landlord from the
Condemnor, promptly restore the remaining portion or portions thereof to a
condition comparable to their condition at the time of such taking or
condemnation, less the portion or portions lost by the taking, and this
Agreement shall continue in full force and effect except that the Rent payable
hereunder shall, if necessary, be equitably adjusted to take into account the
proportionate reduction in the number of licensed beds or living units located
on the Leased Property as a result of the taking.

        11.3 Disbursement of Award. The entire award for the Leased Property or
the portion or portions thereof so taken shall be apportioned between Landlord
and Tenant as follows: (a) if this Agreement terminates due to a taking or
condemnation, Landlord shall be entitled to the entire award; provided, however,
that any portion of the award expressly made for the taking of




                                       40


Tenant's leasehold interest in the Leased Property, loss of business during the
remainder of the Term, and the taking of Tenant's Personal Property shall be the
sole property of and payable to Tenant, and (b) if this Agreement does not
terminate due to such taking or condemnation, Tenant shall be entitled to the
award to the extent required for restoration of the Leased Property, and
Landlord shall be entitled to the balance of the award not applied to
restoration. In any condemnation proceedings, Landlord and Tenant shall each
seek its own award in conformity herewith, at its own expense. If this Agreement
does not terminate due to a taking or condemnation, Tenant shall, with due
diligence, restore the remaining portion or portions of the Leased Property in
the manner hereinabove provided. In such event, the proceeds of the award to be
applied to restoration shall be deposited with a bank or financial institution
designated by Landlord as if such award were insurance proceeds, and the amount
so deposited will thereafter be treated in the same manner as insurance proceeds
are to be treated under Section 10.2 of this Agreement until the restoration has
been completed and Tenant has been reimbursed for all the costs and expenses
thereof. If the award is insufficient to pay for the restoration, Tenant shall
be responsible for the remaining cost and expense of such restoration.

        11.4 No Abatement of Rent. This Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all other
charges as and when required under this Agreement shall remain unabated during
the Term notwithstanding any Condemnation involving the Leased Property. The
provisions of this Article 11 shall be considered an express agreement governing
any Condemnation involving the Leased Property and, to the maximum extent
permitted by law, no local or State statute, law, rule, regulation or ordinance
in effect during the Term which provides for such abatement shall have any
application in such case.

        11.5 Disputes. If Landlord and Tenant cannot agree in respect of any
matters to be determined under this Article, a determination shall be requested
of the court having jurisdiction over the taking or condemnation; provided,
however, that if said court will not accept such matters for determination,
either party may have the matters determined by a court otherwise having
jurisdiction over the parties.

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

        12.1 Events of Default. Each of the following events shall be an Event
of Default hereunder by Tenant and shall constitute a breach of this Agreement:

                (a) If Tenant shall fail to (i) pay, when due, any Rent or any
        Additional Charge due hereunder; (ii) fully fund and maintain the
        Security Deposit as required by Section 3.11; or (iii) fully fund and
        maintain the Reserve and fund all Reserve Expenditures as required by
        Section 5.2, and such failure in each such event shall continue for a
        period of five (5) days after such amounts become due and payable.



                                       41


                (b) If Tenant shall violate or fail to comply with or perform
        any other term, provision, covenant, agreement or condition to be
        performed or observed by Tenant under this Agreement which is not
        otherwise identified in this Section 12.1, and such violation or failure
        shall continue for a period of thirty (30) days after written notice
        thereof from Landlord; provided, however, if such violation or failure
        is incapable of cure by Tenant within such thirty (30) days after
        Tenant's diligent and continuous efforts to cure the same, Tenant shall
        have an additional period of sixty (60) days to cure the same.

                (c) If any assignment, transfer, sublease or encumbrance shall
        be made or deemed to be made that is in violation of the provisions of
        this Agreement.

                (d) If Tenant shall cease the actual and continuous operation of
        the business contemplated by this Agreement to be conducted by Tenant
        upon the Leased Property (and such cessation is not the result of
        casualty, condemnation or renovation and accompanying restoration or is
        not otherwise permitted by Landlord or is not the result of a legal
        requirement or during an emergency); or if Tenant shall vacate, desert
        or abandon the Leased Property; or if the Leased Property shall become
        empty and unoccupied; or if the Leased Property or Leased Improvements
        are used or are permitted to be used for any purpose, or for the conduct
        of any activity, other than the Permitted Use.

                (e) If, at any time during the Term of this Agreement, Tenant or
        Guarantor shall file in any court, pursuant to any statute of either the
        United States or of any State, a petition in bankruptcy or insolvency,
        or for reorganization or arrangement, or for the appointment of a
        receiver or trustee of all or any portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, or if Tenant or Guarantor shall make an assignment for
        the benefit of its creditors or petitions for or enters into an
        arrangement with its creditors.

                (f) If, at any time during the Term of this Agreement, there
        shall be filed against Tenant or Guarantor in any court pursuant to any
        statute of the United States or of any State, a petition in bankruptcy
        or insolvency, or for reorganization, or for the appointment of a
        receiver or trustee of all or a portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, and any such proceeding against Tenant or Guarantor
        shall not be dismissed within sixty (60) days following the commencement
        thereof.

                (g) If Tenant's leasehold interest in the Leased Property or any
        property therein (including without limitation Tenant's Personal
        Property and the P&E Replacements) shall be seized under any levy,
        execution, attachment or other process of court where the same shall not
        be vacated or stayed on appeal or otherwise within thirty (30) days
        thereafter, or if Tenant's leasehold interest in the Leased Property is
        sold by judicial sale and such sale is not vacated, set aside or stayed
        on appeal or otherwise within thirty (30) days thereafter.

                (h) If any of the Facility's Permits material to the Facility's
        operation for its Permitted Use are at any time suspended and the
        suspension is not stayed pending appeal




                                       42


        within five (5) days, or voluntarily terminated without the prior
        written consent of Landlord.

                (i) If any Governmental Agencies having jurisdiction over the
        operation of the Facility removes ten percent (10%) or more of the total
        number of patients or residents located in the Facility at the time of
        such removal.

                (j) If Tenant voluntarily transfers ten (10) or more patients or
        residents located in the Facility in any one (1) year period (except as
        necessitated by a casualty), provided that any such transfer to a
        different type of care facility as a result of such patient's or
        resident's special needs that cannot be met at the Facility shall not be
        deemed a voluntary transfer.

                (k) If Tenant fails to give notice to Landlord not later than
        ten (10) days after Tenant's receipt of any fine notice from any
        Government Agency relating to a Major Violation at the Facility.

                (l) If Tenant fails to notify Landlord within twenty-four (24)
        hours after receipt of any notice from any Governmental Agency
        terminating or suspending or reflecting a material risk of an imminent
        termination or suspension, of any material Permit relating to the
        Facility.

                (m) If Tenant fails during the Term of this Lease to cure or
        abate any Major Violation occurring during the Term that is claimed by
        any Governmental Agency of any law, order, ordinance, rule or regulation
        pertaining to the operation of the Facility, and within the time
        permitted by such authority for such cure or abatement.

                (n) The failure of Tenant to correct, within the time deadlines
        set by any Governmental Agency, any deficiency which would result in the
        following actions by such agency with respect to the Facility:

                        (i)     a termination of any Reimbursement Contract or
                                any Permit material to the operation of the
                                Facility; or

                        (ii)    the issuance of a stop placement order or ban on
                                new admissions generally.

                (o) If a final unappealable determination is made by applicable
        state authorities of the revocation or limitation of any Permit required
        for the lawful operation of the Leased Property in accordance with its
        Permitted Use or there occurs the loss or material limitation of any
        Permit under any other circumstances under which Tenant is required to
        cease its operation of the Leased Property in accordance with its
        Permitted Use at the time of such loss or limitation.

                (p) If Tenant or the Facility should be assessed fines or
        penalties by any state health or licensing agency having jurisdiction
        over such Persons or the Facility in excess of $25,000.00 in any Fiscal
        Year.



                                       43


                (q) If Tenant or Guarantor or an Affiliated Person of Tenant or
        Guarantor shall default under any other ARC-Related Lease (whether now
        in effect or entered into in the future) and shall fail to cure such
        default in the time period provided for in that lease.

                (r) If Guarantor shall default under the Guaranty and any such
        default shall remain uncured through any applicable notice and cure
        period thereunder.

        12.2 Remedies on Default. If any of the Events of Default hereinabove
specified shall occur, Landlord, at any time thereafter, shall have and may
exercise any of the following rights and remedies:

                (a) Landlord may, pursuant to written notice thereof to Tenant,
        immediately terminate this Agreement and, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for Landlord's own account without liability for
        trespass (Tenant hereby waiving any right to notice or hearing prior to
        such taking of possession by Landlord) and, for Tenant's breach of and
        default under this Agreement, recover immediately from Tenant any and
        all sums and damages due or in existence at the time of such
        termination, including, without limitation, (i) all Rent and other sums,
        charges, payments, costs and expenses agreed and/or required to be paid
        by Tenant to Landlord hereunder prior to such termination, (ii) all
        costs and expenses of Landlord in connection with the recovery of
        possession of the Leased Property, including reasonable attorney's fees
        based upon services rendered at hourly rates and court costs, and (iii)
        all costs and expenses of Landlord in connection with any reletting or
        attempted reletting of the Leased Property or any part or parts thereof,
        including, without limitation, brokerage fees, advertising costs,
        reasonable attorney's fees based upon services rendered at hourly rates
        based upon service rendered at hourly rates and the cost of any
        alterations or repairs or tenant improvements which may be reasonably
        required to so relet the Leased Property, or any part or parts thereof.

                (b) Landlord may, pursuant to any prior notice required by law,
        and without terminating this Agreement, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for the account of Tenant, make such alterations of
        and repairs and improvements to the Leased Property as may be reasonably
        necessary in order to relet the same or any part or parts thereof and,
        directly or through a qualified management or operating company which
        may include an Affiliated Person of Landlord, operate and manage the
        Leased Property, and relet or attempt to relet the Leased Property or
        any part or parts thereof for such term or terms (which may be for a
        term or terms extending beyond the Term of this Agreement), at such
        rents and upon such other terms and provisions as Landlord, in its sole
        discretion, may deem advisable. If Landlord takes possession and control
        of the Leased Property and operates the same, Tenant shall, for so long
        as Landlord is actively operating the Leased Property, have no
        obligation to operate the Leased Property but agrees that Landlord, any
        contract manager or operator, or any new tenant or sublessee may, to the
        extent permitted by law, operate the Facility under Tenant's Permits,
        including its Medicaid and Medicare provider agreements, if any, until
        same are issued in the name of the Landlord or the new manager/operator
        or tenant or sublessee, as applicable. If Landlord relets or attempts to



                                       44


        relet the Leased Property, or obtains a contract manager or operator for
        the Leased Property, Landlord shall at its sole discretion determine the
        terms and provisions of any new lease or sublease, or management or
        operating agreement, and whether or not a particular proposed manager or
        operator, or new tenant or sublessee, is acceptable to Landlord. Upon
        any such reletting, or the operation of the Leased Property by a
        contract manager or operator, all rents or incomes received by the
        Landlord from such reletting or otherwise from the operation of the
        Leased Property shall be applied, (i) first, to the payment of all costs
        and expenses of recovering possession of the Leased Property, (ii)
        second, to the payment of any costs and expenses of such reletting and
        or operation, including brokerage fees, advertising costs, reasonable
        attorney's fees based upon service rendered at hourly rates, a
        management fee of between five percent (5%) and ten percent (10%) of the
        gross revenues generated, and the cost of any alterations and repairs
        reasonably required for such reletting or operation of the Leased
        Property; (iii) third, to the payment of any indebtedness, other than
        Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the
        payment of all Rent and other sums due and unpaid hereunder, and (v)
        fifth, the residue, if any, shall be held by the Landlord and applied in
        payment of future Rent as the same may become due and payable hereunder.
        If the rents received from such reletting or net income from the
        operation of the Leased Property during any period shall be less than
        the Rent and Additional Charges required to be paid during that period
        by the Tenant hereunder, Tenant shall promptly pay any such deficiency
        to the Landlord and failing the prompt payment thereof by Tenant to
        Landlord, Landlord shall immediately be entitled to institute legal
        proceedings for the recovery and collection of the same. Such deficiency
        shall be calculated and paid at the time each payment of Minimum Rent,
        Percentage Rent or any other sum shall otherwise become due under this
        Agreement, or, at the option of Landlord, at the end of the Term of this
        Agreement. Landlord shall, in addition, be immediately entitled to sue
        for and otherwise recover from Tenant any other damages occasioned by or
        resulting from any abandonment of the Leased Property or other breach of
        or default under this Agreement other than a default in the payment of
        Rent. No such re-entry, retaking or resumption of possession of the
        Leased Property by the Landlord for the account of Tenant shall be
        construed as an election on the part of Landlord to terminate this
        Agreement unless a written notice of such intention shall be given to
        the Tenant or unless the termination of this Agreement be decreed by a
        court of competent jurisdiction. Notwithstanding any such re-entry and
        reletting or attempted reletting of the Leased Property or any part or
        parts thereof for the account of Tenant without termination, Landlord
        may at any time thereafter, upon written notice to Tenant, elect to
        terminate this Agreement or pursue any other remedy available to
        Landlord for Tenant's previous breach of or default under this
        Agreement.

                (c) Landlord may, without re-entering, retaking or resuming
        possession of the Leased Property, sue for all Rent and all other sums,
        charges, payments, costs and expenses due from Tenant to Landlord
        hereunder (discounted to present value) either: (i) as they become due
        under this Agreement, taking into account that Tenant's right and option
        to pay the Rent hereunder on a monthly basis in any particular Fiscal
        Year is conditioned upon the absence of a Default on Tenant's part in
        the performance of its obligations under this Agreement, or (ii) at
        Landlord's option, accelerate the maturity and




                                       45


        due date of the whole or any part of the Rent for the entire
        then-remaining unexpired balance of the Term of this Agreement, as well
        as all other sums, charges, payments, costs and expenses required to be
        paid by Tenant to Landlord hereunder, including, without limitation,
        damages for breach or default of Tenant's obligations hereunder in
        existence at the time of such acceleration, such that all sums due and
        payable under this Agreement shall, following such acceleration, be
        treated as being and, in fact, be due and payable in advance as of the
        date of such acceleration. Landlord may then proceed to recover and
        collect all such unpaid Rent and other sums so sued for from Tenant by
        distress, levy, execution or otherwise. Regardless of which of the
        foregoing alternative remedies is chosen by Landlord under this
        subparagraph (c), Landlord shall not be required to relet the Leased
        Property nor exercise any other right granted to Landlord pursuant to
        this Agreement, nor, except as may be required by Applicable Laws, shall
        Landlord be under any obligation to minimize or mitigate Landlord's
        damages or Tenant's loss as a result of Tenant's breach of or default
        under this Agreement. Notwithstanding the foregoing, following such time
        as Landlord may obtain possession of the Leased Property, Landlord or
        its successor Landlord at the time of any Lease termination, shall
        continue to make the Leased Property available for lease, on an "as is"
        basis, and shall turn over the net proceeds thereof to Tenant to the
        extent actually received by Landlord in respect of any time period for
        which Landlord shall have received the full amount of Rent payable with
        respect thereto (albeit perhaps on a basis reasonably discounted for the
        time value of money or present-value basis).

                (d) Landlord may, in addition to any other remedies provided
        herein, enter upon the Leased Property or any portion thereof and take
        possession of (i) any and all of Tenant's Personal Property, if any,
        (ii) Tenant's books and records necessary to operate the Leased
        Property, and (iii) all the bank accounts concerning, or established
        for, the Leased Property, without liability for trespass or conversion
        (Tenant hereby waiving any right to notice or hearing prior to such
        taking of possession by Landlord) and sell the same by public or private
        sale, after giving Tenant reasonable notice of the time and place of any
        public or private sale, at which sale Landlord or its assigns may
        purchase all or any portion of Tenant's Personal Property, if any,
        unless otherwise prevented by law. Unless otherwise provided by law and
        without intending to exclude any other manner of giving Tenant
        reasonable notice, the requirement of reasonable notice shall be met if
        such notice is given at least ten (10) days before the date of sale. The
        proceeds from any such disposition, less all expenses incurred in
        connection with the taking of possession, holding and selling of such
        Property (including reasonable attorneys' fees based upon services
        rendered at hourly rates) shall be credited against Rent which is due
        hereunder.

                (e) Tenant acknowledges that one of the rights and remedies
        available to Landlord under Applicable Law is to apply to a court of
        competent jurisdiction for the appointment of a receiver to collect the
        rents, issues, profits and income of the Leased Property and to manage
        the operation of the Leased Property. Tenant hereby further acknowledges
        that the revocation, suspension or material limitation of any
        certification of the Leased Property for provider status under Medicare
        or Medicaid (or successor programs), if applicable, and/or the
        revocation, suspension or material limitation of any licenses for the
        use of the Leased Property as an independent living or licensed assisted
        living and dementia care facility, as applicable, under the laws of the
        State will materially




                                       46


        and irreparably impair the value of Landlord's investment in the Leased
        Property. Therefore, in any of such events, and in addition to any other
        right or remedy of Landlord under this Agreement, Landlord may petition
        any appropriate court for appointment of a receiver to manage the
        operation of the Leased Property (or any portion thereof as to which
        Tenant has suffered the revocation, suspension or material limitation of
        any license), to collect and disburse all rents, issues, profits and
        income generated thereby and to preserve or replace to the extent
        possible the operating license and provider certification of the Leased
        Property or to otherwise substitute the licensee or provider thereof.
        The receiver shall be entitled to a reasonable fee for his services as
        receiver. All such fees and other expenses of the receivership estate
        shall be payable as Additional Charges under this Agreement. Tenant
        hereby irrevocably stipulates to the appointment of a receiver under
        such circumstances and for such purposes and agrees not to contest such
        appointment.

                (f) In addition to the remedies hereinabove specified and
        enumerated, Landlord shall have and may exercise the right to invoke any
        other remedies allowed at law or in equity as if the remedies of
        re-entry, unlawful detainer proceedings and other remedies were not
        herein provided. Accordingly, the mention in this Agreement of any
        particular remedy shall not preclude Landlord from having or exercising
        any other remedy at law or in equity. Nothing herein contained shall be
        construed as precluding the Landlord from having or exercising such
        lawful remedies as may be and become necessary in order to preserve the
        Landlord's right or the interest of the Landlord in the Leased Property
        and in this Agreement, even before the expiration of any notice periods
        provided for in this Agreement, if under the particular circumstances
        then existing the allowance of such notice periods will prejudice or
        will endanger the rights and estate of the Landlord in this Agreement
        and in the Leased Property. In addition, any provision of this Agreement
        to the contrary notwithstanding, no provision of this Agreement shall
        delay or otherwise limit Landlord's right to seek injunctive relief or
        Tenant's obligation to comply with any such injunctive relief.

        12.3 Application of Funds. Any payments received by Landlord under any
of the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.

        12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default
in the performance of any term, provisions, covenant or condition on its part to
be performed hereunder, Landlord may, but shall have no obligation to perform
the same for the account and at the expense of Tenant. If, at any time and by
reason of such default, Landlord is compelled to pay, or elects to pay, any sum
of money or do any act which will require the payment of any sum of money, or is
compelled to incur any expense in the enforcement of its rights hereunder or
otherwise, such sum or sums, together with interest thereon at the Overdue Rate
shall be deemed Additional Rent hereunder and shall be repaid to Landlord by
Tenant promptly when billed therefor, and Landlord shall have all the same
rights and remedies in respect thereof as Landlord has in respect of the rents
herein reserved.


                                       47


        12.5 Landlord's Lien. Landlord shall have at all times during the Term
of this Agreement, a valid lien for all rents and other sums of money becoming
due hereunder from Tenant, upon all goods, accounts, wares, merchandise,
inventory, furniture, fixtures, equipment, vehicles and other personal property
and effects of Tenant situated in or upon the Leased Property, including
Tenant's Personal Property and any interest of Tenant in P&E Replacements, but
specifically excluding the trade names "ARC," "American Retirement Corporation,"
or any derivation or replacement thereof or addition thereto applied by
Affiliated Persons of Guarantor to other facilities, and such property shall not
be removed therefrom except in accordance with the terms of this Agreement
without the approval and consent of Landlord until all arrearages in Rent as
well as any and all other sums of money then due to Landlord hereunder shall
first have been paid and discharged in full. Alternatively, the lien hereby
granted may be foreclosed in the manner and form provided by law for foreclosure
of security interests or in any other manner and form provided by law. The
statutory lien for Rent, if any, is not hereby waived and the express
contractual lien herein granted is in addition thereto and supplementary
thereto. Tenant agrees to execute and deliver to Landlord from time to time
during the Term of this Agreement such Financing Statements as may be required
by Landlord in order to perfect the Landlord's lien provided herein or granted
or created by state law. Tenant further agrees that during an Event of Default,
Tenant shall not make any distributions to its shareholders, partners, members
or other owners and any such distributions shall be considered and deemed to be
fraudulent and preferential and subordinate to Landlord's claim for Rent and
other sums hereunder.

                                   ARTICLE 13

                                  HOLDING OVER

        If Tenant or any other person or party shall remain in possession of the
Leased Property or any part thereof following the expiration of the Term or
earlier termination of this Agreement without an agreement in writing between
Landlord and Tenant with respect thereto, the person or party remaining in
possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Agreement by such tenant at sufferance
shall be double the rate or rates in effect immediately prior to the expiration
of the Term or earlier termination of this Agreement. In no event, however,
shall such holding over be deemed or construed to be or constitute a renewal or
extension of this Agreement.

                                   ARTICLE 14

                     LIABILITY OF LANDLORD; INDEMNIFICATION

        14.1 Liability of Landlord. Landlord and its affiliates shall not be
liable to Tenant, its employees, agents, invitees, licensees, customers,
clients, residents and their respective family members or guests for any damage,
injury, loss, compensation or claim, including, but not limited to, claims for
the interruption of or loss to Tenant's business, based on, arising out of or
resulting from any cause whatsoever (other than Landlord's gross negligence or
willful misconduct), including, but not limited to: (a) repairs to any portion
of the Leased Property; (b)




                                       48


interruption in Tenant's use of the Leased Property; (c) any accident or damage
resulting from the use or operation (by Landlord, Tenant or any other person or
persons) of any equipment within the Leased Property, including without
limitation, heating, cooling, electrical or plumbing equipment or apparatus; (d)
the termination of this Agreement by reason of the condemnation or destruction
of the Leased Property in accordance with the provisions of this Agreement; (e)
any fire, robbery, theft, mysterious disappearance or other casualty; (f) the
actions of any other person or persons; and (g) any leakage or seepage in or
from any part or portion of the Leased Property, whether from water, rain or
other precipitation that may leak into, or flow from, any part of the Leased
Property, or from drains, pipes or plumbing fixtures in the Leased Improvements.
Any goods, property or personal effects stored or placed by the Tenant or its
employees in or about the Leased Property including Tenant's Personal Property,
shall be at the sole risk of the Tenant.

        14.2 Indemnification of Landlord. Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and court costs, incurred by Landlord, arising
directly or indirectly from or out of: (a) any failure by Tenant to perform any
of the terms, provisions, covenants or conditions of this Agreement, on Tenant's
part to be performed including but not limited to the payment of any fee, cost
or expense which Tenant is obligated to pay and discharge hereunder, (b) any
accident, injury or damage which shall happen at, in or upon the Leased
Property, however occurring; (c) any matter or thing growing out of the
condition, occupation, maintenance, alteration, repair, use or operation by any
person of the Leased Property, or any part thereof, or the operation of the
business contemplated by this Agreement to be conducted thereon, thereat,
therein, or therefrom; (d) any failure of Tenant to comply with the Legal
Requirements; (e) any contamination of the Leased Property, or the groundwaters
thereof, arising on or after the date Tenant takes possession of the Leased
Property and occasioned by the use, transportation, storage, spillage or
discharge thereon, therein or therefrom of any toxic or hazardous chemicals,
compounds, materials or substances, whether by Tenant or by any agent or invitee
of Tenant; (f) any discharge of toxic or hazardous sewage or waste materials
from the Leased Property into any septic facility or sanitary sewer system
serving the Leased Property arising on or after the date Tenant takes possession
of the Leased Property, whether by Tenant or by any agent of Tenant; or (g) any
other act or omission of Tenant, its employees, agents, invitees, customers,
licensees or contractors, provided, however, Tenant shall not be liable for or
be obligated to indemnify Landlord from and against any damages resulting from
Landlord's gross negligence or willful misconduct.

        THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL
        EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE,
        UNLESS SPECIFICALLY OTHERWISE PROVIDED.

        Tenant's indemnity obligations under this Article and elsewhere in this
Agreement arising prior to the termination or permitted assignment of this
Agreement shall survive any such termination or assignment.



                                       49


        14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of
any claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord of which Tenant receives notice or of which Tenant acquires knowledge.
In the event Landlord is made a party to any action for damages or other relief
against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its
own expense using counsel reasonably approved by Landlord, diligently defend
Landlord, pay all costs in such litigation or, at Landlord's option, and
expense, Landlord may nonetheless engage its own counsel in connection with its
own defense or settlement of said litigation in which event Tenant shall
cooperate with Landlord and make available to Landlord all information and data
which Landlord deems necessary or desirable for such defense. In the event
Landlord is required to secure its own counsel due to a conflict in the
interests of Tenant and Landlord in any action for damages or other relief
against which Tenant has indemnified Landlord, Tenant shall pay all of
Landlord's costs in such litigation. Tenant is required to approve a settlement
agreement for any such claim or suit as requested by Landlord and which is
consistent with applicable insurance company requirements, unless Tenant posts a
bond or other security acceptable to Landlord for any potentially uninsured
liability amounts.

        14.4 Limitation on Liability of Landlord. In the event Tenant is awarded
a money judgment against Landlord, Tenant's sole recourse for satisfaction of
such judgment shall be limited to execution against the Landlord's interest in
the Leased Property. In no event shall any partner, member, officer, director,
stockholder or shareholder of Landlord or any partner thereof or Affiliated
Person or Subsidiary thereof, be personally liable for the obligations of
Landlord hereunder.

                                   ARTICLE 15

                           REIT AND UBTI REQUIREMENTS

        Tenant understands that, in order for Landlord to qualify as a real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), the following requirements must be satisfied. The parties
intend that amounts to be paid by Tenant hereunder and received or accrued,
directly or indirectly, by Landlord with respect to the Leased Property
(including any rents attributable to personal property that is leased with
respect thereto) will qualify as "rents from real property" (within the meaning
of Code Section 856(d) and Section 512(b)(3)), and that neither party will take,
or permit to take, any action that would cause any amount received by the
Landlord under this Agreement to fail to qualify as such under the Code.
Consistent with this intent, the parties agree that:

        15.1 Limitations on Rents Attributable to Personal Property. "Rents
attributable to any personal property" leased to the Tenant cannot exceed
fifteen percent (15%) of the total rent received or accrued by Landlord under
this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the
average of the adjusted tax bases of the personal property (within the meaning
set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury
Regulations) that is leased to Tenant with respect to the Leased Property at the
beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the real and personal property
comprising such Leased Property that is leased to Tenant under such lease



                                       50


at the beginning and end of such Fiscal Year (the "REIT Personal Property
Limitation"). If Landlord reasonably anticipates that the REIT Personal Property
Limitation will be exceeded with respect to the Leased Property for any Fiscal
Year, Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in
good faith the purchase by Tenant of items of personal property anticipated by
Landlord to be in excess of the Personal Property Limitation. Provided, however,
that Tenant's responsibility to purchase such personal property will be offset
by Landlord in some mutually agreeable manner, which would not result in the
Landlord earning income which would constitute "unrelated business taxable
income" within the meaning of Section 512 of the Code, if the Landlord was a
"qualified trust" within the meaning of Section 856(h)(3)(E) of the Code.

        15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the
property that is leased to it by Landlord, or enter into any similar
arrangement, on any basis such that the rental or other amounts paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business activities of the sublessee or (b) any
other formula such that any portion of the rent paid by Tenant to Landlord would
fail to qualify as "rent from real property" within the meaning of Section
856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder.

        15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary
in this Agreement notwithstanding, Tenant shall not sublease the Leased Property
to, or enter into any similar arrangement with, any person in which Landlord
owns, directly or indirectly, a ten percent (10%) or more interest, with the
meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed
void ab initio. Anything to the contrary in this Agreement notwithstanding,
Tenant shall not sublease the Leased Property to, or enter into any similar
arrangement with, any Person that Landlord would be deemed to control within the
meaning of Section 512 (b)(13) of the Code.

        15.4 Landlord Interests in Tenant Restricted. Anything to the contrary
in this Agreement notwithstanding, neither party shall take, or permit to take,
any action that would cause Landlord to own, directly or indirectly, a ten
percent (10%) or greater interest in the Tenant within the meaning of Section
856(d)(2)(B) of the Code, and any similar or successor provision thereto, and
any such action shall be deemed void ab initio. In addition, anything to the
contrary in this Agreement notwithstanding, Tenant shall not take or permit to
take, any action that would cause Landlord to own, directly or indirectly, such
interest in Tenant such that amounts received from Tenant would represent
amounts received from a controlled entity within the meaning of Section
512(b)(13) of the Code.

        15.5 Rents from Personal Property Restricted. Rents attributable to
personal property within the meaning of Treasury Regulation Section
1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased
Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI
Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and
Tenant shall negotiate in good faith the purchase by Tenant of items of personal
property anticipated by Landlord to be in excess of the UBTI Personal Property
Limitation; provided, However, that Tenant's responsibility to purchase such
personal property will be offset by Landlord in some mutually agreeable manner
which will



                                       51


not result in the Landlord earning income which would constitute "unrelated
business taxable income" within the meaning of Section 512 of the Code if the
Landlord was a "qualified trust" within the meaning of Section 856(h)(3)(E) of
the Code.

        15.6 Landlord Services. Any services provided by, or on behalf of,
Landlord will not prevent any amounts received or accrued from qualifying as
"Rents from real property" (within the meaning of Section 856(d)(2) or Section
512(b)(3) of the Code).

        15.7 Certain Subtenants Prohibited. Anything to the contrary in this
Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or
enter into any similar arrangement with, any Person that would be described in
Section 514(c)(9)(B)(iii) or (iv) of the Code.

        15.8 Future Amendment. Tenant hereby agrees to amend this Article 15
from time to time as Landlord deems necessary or desirable in order to
effectuate the intent hereof.

                                   ARTICLE 16

                            SUBLETTING AND ASSIGNMENT

        16.1 Transfers Prohibited Without Consent. Tenant shall not, without the
prior written consent of Landlord in each instance which may be withheld in
Landlord's sole opinion and discretion, sell, assign or otherwise transfer this
Agreement, or Tenant's interest in the Leased Property together with all
interests of Tenant in all property of any nature located and used at the Leased
Property (including without limitation Tenant's Personal Property and the P&E
Replacements), in whole or in part, or any rights or interest which Tenant may
have under this Agreement, or sublet any part of the Leased Property, or grant
or permit any lien or encumbrance on or security interest in Tenant's interest
in this Agreement; notwithstanding the foregoing, Tenant shall be permitted to
grant sublease, rental or other occupancy rights in the Facility to individual
residents in connection with the operation of the Leased Property in accordance
with the Permitted Use. Notwithstanding the foregoing, Tenant may sell, assign
or otherwise transfer this Agreement, or Tenant's interest in the Leased
Property, in whole but not in part, without the consent of the Landlord, to an
Affiliated Person or to Guarantor provided (i) Tenant gives Landlord prior
written notice of such sale or assignment, (ii) Tenant shall remain liable under
this Agreement for the remaining Term, and (iii) such assignee or purchaser
shall continue to operate the Leased Property as a first-class independent
living and/or licensed assisted living and dementia care facility, as
applicable, consistent with other independent living and licensed assisted
living and dementia care facilities (as applicable) being operated by Guarantor
and its Affiliated Persons.

        Landlord shall not, without the prior written consent of Tenant in each
instance which may be withheld in Tenant's sole opinion and discretion, sell,
assign or otherwise transfer this Agreement, or Landlord's interest in the
Leased Property, in whole or in part, or any rights or interest which Landlord
may have under this Agreement, either directly or indirectly in the form of a
Facility Mortgage as contemplated under Article 19 hereof, to a direct
competitor of Tenant




                                       52


or Guarantor. In the event that a direct competitor of Tenant or Guarantor
becomes a Mortgagee of the Leased Property the subordination provisions of
Section 19.1 shall not apply.

        16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment,
pledge, transfer, exchange or other disposition of (a) the stock of Tenant or
any general partner interest in Tenant or (b) any interest of a member or
members of Tenant which results in a change or transfer of management or control
of Tenant, or a merger, consolidation or other combination of Tenant with
another entity which results in a change or transfer of management or control of
Tenant, shall be deemed an assignment hereunder and shall be subject to Section
16.1 hereof. For purposes hereof, exchange or transfer of management or control
or effective control, shall mean a transfer of 50% or more of the economic
benefit of, or Control of, any such entity.

        16.3 Adequate Assurances. Without limiting any of the foregoing
provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the
same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Agreement in disregard
of the restrictions contained in this Article, the assignee shall be deemed to
agree to provide adequate assurance to Landlord (a) that any Percentage Rent
shall not decline substantially after the date of such assignment, (b) of the
continued use of the Leased Property solely in accordance with the Permitted Use
thereof, (c) of the continuous operation of the business in the Leased Property
in strict accordance with the requirements of Article 4 hereof, and (d) of such
other matters as Landlord may reasonably require at the time of such assumption
or assignment. Without limiting the generality of the foregoing, adequate
assurance shall include the requirement that any such assignee shall have a net
worth (exclusive of good will) of not less than the aggregate of the Rent due
and payable for the previous Fiscal Year and is or can be licensed to operate
the Facility by the appropriate Governmental Agencies. Such assignee shall
expressly assume this Agreement by an agreement in recordable form, an original
counterpart of which shall be delivered to Landlord prior to an assignment of
the Agreement.

        Any approval of such successor Tenant shall not affect or alter
Landlord's approval rights of each manager of the Leased Property.

                                   ARTICLE 17

                 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

        17.1 Estoppel Certificates. Tenant shall from time to time, within
fifteen (15) days after request by Landlord and without charge, give a Tenant
Estoppel Certificate in the form (or substantially the form) attached hereto as
Exhibit "D" and containing such other matters as may be reasonably requested by
Landlord to any person, firm or corporation specified by Landlord.

        17.2 Monthly Financial Statements. Throughout the Term of this
Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end
of each month during the Term hereof, an income (or profit and loss) statement
and operating balance sheet showing the results of the operation of the Leased
Property for the immediately preceding month and for the Fiscal Year to date.
This information shall be provided to Landlord under a complete financial
statement for




                                       53


the Facility which shall be delivered prior to the end of the next following
month, in the form customarily provided in the industry and approved in advance
by the Landlord, and which shall: (a) be taken from the books and records
maintained by Tenant, Guarantor and any manager in the form specified herein;
(b) follow a consistent form as approved in advance in writing by Landlord; and
(c) indicate variances from budgeted results for each line item against the
Tenant's budget for the Leased Property for such Fiscal Year. The aforesaid
financial statements shall be accompanied by an Officer's Certificate which, for
purposes hereof shall mean a Certificate of the Chief Financial Officer of
Tenant or Tenant's sole or Managing Member, and of Guarantor's Chief Financial
Officer, in which such Officer shall certify (a) that such statements have been
properly prepared in accordance with GAAP and are true, correct and complete in
all material respects and fairly present the consolidated financial condition of
the Tenant at and as of the dates thereof and the results of its operations for
the period covered thereby, and (b) that no Event of Default has occurred and is
continuing hereunder.

        17.3 Annual Financial Statements. Tenant shall deliver to Landlord
within ninety (90) days after the end of each Fiscal Year, a profit and loss
statement, balance sheet and statement of cash flow certified by an independent
certified public accountant who is actively engaged in the practice of his
profession and who is acceptable to Landlord (which statement shall also be
certified by an officer, partner or member in Tenant) together with copies of
all reports and communications furnished to Guarantor, Tenant's other Affiliated
Persons or any manager of the Leased Property, showing results from the
operation of the Leased Property during such Fiscal Year, and reasons for
material variations from the approved budget for such year. Tenant shall also
deliver to Landlord at Landlord's expense at any time and from time to time,
upon not less than twenty (20) days notice from Landlord, any financial
statements or other financial reporting information required to be filed by
Landlord with the SEC or any other governmental authority or required pursuant
to any order issued by any Governmental Agencies or arbitrator in any litigation
to which Landlord is a party for purposes of compliance therewith. The financial
statements required herein are in addition to the statements required under
Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's
financial records are not otherwise being reviewed or audited by an independent
certified public accountant then the Landlord will accept financial statements
certified true and correct by the Chief Financial Officer of Tenant or Tenant's
sole or Managing Member and by the Guarantor's Chief Financial Officer.

        17.4 Records. Tenant shall keep and maintain at all times in accordance
with GAAP (separate and apart from its other books, records and accounts)
complete and accurate up-to-date books and records adequate to reflect clearly
and correctly the results of operations of the Leased Property, on an accrual
basis, including but not limited to, each calculation of Percentage Rent. Such
books and records shall be kept and maintained at the Leased Property or
Tenant's principal office in Nashville, Tennessee. Landlord or its
representatives shall have, at all reasonable times during normal business
hours, reasonable access, on reasonable advance notice, to examine and copy the
books and records pertaining to the Leased Property. Such books and records
shall be available for at least four (4) years after the applicable quarterly
calculation of Percentage Rent for Landlord's inspection, copying, review and
audit at Landlord's expense during reasonable business hours and upon reasonable
notice for the purpose of verifying the accuracy of Tenant's calculation of
Percentage Rent.



                                       54


        17.5 General Operations Budget. In addition to the Reserve Estimate,
Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year
proposed annual budgets in a form satisfactory to Landlord and consistent with
the then standards for the same brand of independent living and/or licensed
assisted living and dementia care facilities (as applicable) as the Facility
setting forth projected income and costs and expenses projected to be incurred
by Tenant in managing, leasing, maintaining and operating the Facility during
the following Fiscal Year.

        17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the
Tenant's property management team and the executive officers of Tenant or its
sole or Managing Member available to meet with Landlord on a quarterly basis to
discuss the Reserve Estimate, the annual budgets and any other items related to
the operation of the Facility, which Landlord wishes to discuss. Tenant agrees
to give good faith consideration to any suggestions or requests that Landlord
may have.

                                   ARTICLE 18

                           LANDLORD'S RIGHT TO INSPECT

        Landlord, Mortgagee and their agents shall have the right to enter upon
the Leased Property or any portion thereof at any reasonable time to inspect the
same, including but not limited to, the operation, sanitation, safety,
maintenance and use of the same, or any portions of the same and to assure
itself that Tenant is in full compliance with its obligations under this
Agreement (but Landlord and Mortgagee shall not thereby assume any
responsibility for the performance of any of Tenant's obligations hereunder, nor
any liability arising from the improper performance thereof). In making any such
inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere
with the conduct of Tenant's business.

                                   ARTICLE 19

                               FACILITY MORTGAGES

        19.1 Subordination. This Agreement, Tenant's interest hereunder and
Tenant's leasehold interest in and to the Leased Property are hereby agreed by
Tenant to be and are hereby made junior, inferior, subordinate and subject in
right, title, interest, lien, encumbrance, priority and all other respects to
any mortgage or mortgages and security interests now or hereafter in force and
effect upon or encumbering Landlord's interest in the Leased Property, or any
portion thereof, and to all collateral assignments by Landlord to any third
party or parties of any of Landlord's rights under this Agreement or the rents,
issues and profits thereof or therefrom as security for any liability or
indebtedness, direct, indirect or contingent, of Landlord to such third party or
parties, and to all future modifications, extensions, renewals, consolidations
and replacements of, and all amendments and supplements to any such mortgage,
mortgages or assignments, and upon recording of any such mortgage, mortgages or
assignments, the same shall be deemed to be prior in dignity, lien and
encumbrance to this Agreement, Tenant's interest




                                       55


hereunder and Tenant's leasehold interest in and to the Leased Property
irrespective of the dates of execution, delivery or recordation of any such
mortgage, mortgages or assignments (such mortgages, mortgages, security
interests, assignments, modifications, extensions, renewals, amendments,
supplements and replacement being a "Facility Mortgage"). The subordination of
this Lease shall be upon the express condition that the validity of this Lease
shall be recognized by the Mortgagee, and that, notwithstanding any default by
the mortgagor, with respect to such mortgage, Tenant's possession and right of
use under this Lease in and to the Leased Property (including without limitation
rights to have insurance and condemnation proceeds made available for proper
reconstruction of the Leased Property and the right to convert units within the
Facility to assisted living and/or dementia care uses in accordance with Section
4.1.2 above) shall not be disturbed by such Mortgagee unless and until Tenant
shall breach any of the provisions hereof and this Lease or Tenant's right to
possession hereunder shall have been terminated or shall be terminable in
accordance with the provisions of this Lease. The foregoing subordination and
non-disturbance provisions of this Section shall be automatic and self-operative
without the necessity of the execution of any further instrument or agreement of
subordination on the part of Tenant. Tenant acknowledges and agrees that
notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee
shall request that Tenant execute and deliver any further instrument or
agreement of subordination of this Agreement or Tenant's interest hereunder or
Tenant's leasehold interest in the Leased Property to any such Facility
Mortgage, in confirmation or furtherance of or in addition to the foregoing
subordination provisions of this Section, Tenant shall promptly execute and
deliver the same to the requesting party (provided that such instrument or
agreement also reflects the non-disturbance provisions set forth above).
Further, Tenant agrees that it will, from time to time, execute such
documentation as may be requested by Landlord and any Mortgagee (a) to assist
Landlord and such Mortgagee in establishing or perfecting any security interest
in Landlord's interest in the Reserve and the funds therein; and (b) to
facilitate or allow Landlord to encumber the Leased Property as herein
contemplated. If, within thirty (30) days following Tenant's receipt of a
written request by Landlord or the holder or proposed holder of any such
Facility Mortgage, Tenant shall fail or refuse or shall have not executed any
such further instrument or agreement of subordination, for whatever reason,
Tenant shall be in breach and default of its obligation to do so and of this
Agreement and Landlord shall be entitled thereupon to exercise any and all
remedies available to Landlord pursuant to this Agreement or otherwise provided
by law.

        19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound
under all of the terms, provisions, covenants and conditions of this Agreement,
to any successor of the interest of Landlord under this Agreement for the
balance of the Term of this Agreement remaining at the time of the succession of
such interest to such successor. In particular, in the event that any
proceedings are brought for the foreclosure of any Facility Mortgage, Tenant
shall attorn to the purchaser at any such foreclosure sale and recognize such
purchaser as Landlord under this Agreement. Tenant agrees that neither the
purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder
of any such Facility Mortgage shall have any liability for any act or omission
of Landlord, be subject to any offsets or defenses which Tenant may have as
claims against Landlord, or be bound by any advance rents which may have been
paid by Tenant to Landlord for more than the current period in which such rents
come due.

        19.3 Rights of Mortgagees and Assignees. Provided Landlord has given
Tenant notice thereof, any Mortgagee shall have the right to unilateral
enjoyment, exercise or control over the




                                       56


rights, remedies, powers and interests of Landlord hereunder, or otherwise
arising under Applicable Law, as assigned or granted to such Mortgagee by
Landlord or as provided in any Facility Mortgage. At the time of giving any
notice of default to Landlord, Tenant shall mail or deliver to any Mortgagee of
whom Tenant has notice, a copy of any such notice. No notice of default or
termination of this Agreement by Tenant shall be effective until each Mortgagee
shall have been furnished a copy of such notice by Tenant. In the event Landlord
fails to cure any default by it under this Agreement, the Mortgagee shall have,
at its option, a period of thirty (30) days after expiration of any cure period
of Landlord within which to remedy such default of Landlord or to cause such
default to be remedied. In the event that the Mortgagee elects to cure any such
default by Landlord, then Tenant shall accept such performance on the part of
such Mortgagee as though the same had been performed by Landlord, and for such
purpose Tenant hereby authorizes any Mortgagee to enter upon the Leased Property
to the extent necessary to exercise any of Landlord's rights, powers and duties
under this Agreement. If, in the event of any default by Landlord which is
reasonably capable of being cured by a Mortgagee, the Mortgagee promptly
commences and diligently pursues to cure the default, then Tenant will not
terminate this Agreement or cease to perform any of its obligations under this
Agreement so long as the Mortgagee is, with due diligence, engaged in the curing
of such default.

                                   ARTICLE 20

                         ADDITIONAL COVENANTS OF TENANT

        20.1 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property for the Permitted Use and
activities incidental thereto, including without limitation the delivery of
services to the Facility residents under the Service Licenses or otherwise, and
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect and in good standing its legal entity existence and its
rights and licenses necessary to conduct such business. Promptly upon receipt of
same, Tenant shall provide Landlord with copies of all licenses, licensure and
certification surveys and related plans of correction, and notices of corrective
action required, of loss of licensure or certification of the Facility, or of
any limits imposed upon admissions to the Facility.

        20.2 Additional Covenants of Tenant. In addition to the other covenants
and representations of Tenant herein and in this Agreement, Tenant hereby
covenants, acknowledges and agrees that Tenant shall:

                        (a) Not guaranty any obligation of any Person other than
                the tenant under any ARC-Related Lease;

                        (b) Pay or cause to be paid all lawful claims for labor
                and rents with respect to the Leased Property;

                        (c) Pay or cause to be paid all trade payables;

                        (d) Not declare, order, pay or make, directly or
                indirectly, any Distribution or any payments to any members or
                Affiliated Persons as to Tenant




                                       57


                (including payments in the ordinary course of business and
                payments pursuant to any management agreements with any such
                Affiliate), or set apart any sum of property therefor, or agree
                to do so, if, at the time of such proposed action or immediately
                after giving effect thereto, any Event of Default shall exist;

                        (e) Except as otherwise permitted by this Agreement, not
                sell, lease (as lessor or sublessor), transfer or otherwise
                dispose of or abandon, all or any material portion of its assets
                or business to any Person, or sell, lease, transfer or otherwise
                dispose of or abandon any of Tenant's Personal Property,
                provided, however, Tenant may dispose of portions of Tenant's
                Personal Property which have become inadequate, obsolete,
                worn-out, unsuitable, undesirable or unnecessary, provided
                substitute equipment or fixtures having equal or greater value
                and utility have been provided.

                        (f) Provide and maintain throughout the Term, all
                Tenant's Personal Property and P&E Replacements as shall be
                necessary in order to operate the Leased Property in compliance
                with applicable legal requirements and insurance requirements
                and otherwise in accordance with customary practice in the
                industry for the Permitted Use. If, from and after the
                Commencement Date, Tenant acquires an interest in any items of
                tangible personal property (other than motor vehicles) on, or in
                connection with the Leased Property which belong to anyone other
                than Tenant, Tenant shall require the agreement permitting such
                use to provide that Landlord or its designee may assume Tenant's
                rights and obligations under such agreement upon the termination
                of this Agreement and any assumption of management or operation
                of the Leased Property by Landlord or its designee.

                        (g) Deliver to Landlord within thirty (30) days after
                receipt of or after modification thereof, copies of all licenses
                authorizing Tenant to operate the Leased Property for its
                Permitted Use.

                        (h) Undertake a risk management analysis and report
                regarding the operation of the Facility annually for compliance
                with all Applicable Laws governing the ongoing use and operation
                of the Facility for the Permitted Use and provide Landlord with
                a copy of the report and any other results of the analysis.

                        (i) Give prompt notice to Landlord of any litigation or
                any administrative proceeding involving Tenant, Landlord or the
                Leased Property of which Tenant has notice or actual knowledge
                and which involves a potential uninsured liability equal to or
                greater than $100,000.00 or which, in Tenant's reasonable
                opinion, may otherwise result in any material adverse change in
                the business, operations, property, prospects, results of
                operation or conditions, financial or otherwise, of Tenant or
                the Facility.

                        (j) Not, except as approved in writing by Landlord,
                either directly or indirectly, for itself, or through, or on
                behalf of, or in connection with any Person, divert or attempt
                to divert any business or customer of the Leased Property to any
                competitor, by direct or indirect inducement or otherwise, or do
                or perform,




                                       58


                directly or indirectly, any other act injurious or prejudicial
                to the good will associated with the Landlord or the Leased
                Property.

                        (k) Except for liabilities incurred in the ordinary
                course of business, not create, incur, assume or guarantee, or
                permit to exist or become or remain liable directly or
                indirectly upon, any Indebtedness except Indebtedness of Tenant
                to Landlord (or, if unsecured and expressly subject to the terms
                of this Agreement and Landlord's interest hereunder, and payable
                solely out of excess cash flow after payment of all Rent
                hereunder, to Tenant's shareholders, partners or members, as
                applicable). Tenant further agrees that the obligee in respect
                of any such Indebtedness shall agree in writing, in form and
                substance satisfactory to Landlord that (w) the payment of such
                Indebtedness shall be expressly subordinated in all respects to
                all of Tenant's obligations under this Agreement, (x) no
                remedies may be exercised by the obligee with respect to
                enforcement or collection of such Indebtedness until such time
                as this Agreement shall be terminated and all of Tenant's
                obligations hereunder shall have been discharged in full; (y)
                such Indebtedness shall not be assigned by the obligee to any
                other party; and (z) the obligee shall not initiate or join in
                any bankruptcy proceedings against Tenant. As used in this
                Section 20.2(k) (and notwithstanding any other definition of
                Indebtedness herein), Indebtedness shall mean all obligations,
                contingent or otherwise, to pay or repay monies irrespective of
                whether, in accordance with GAAP, such obligations should be
                reflected on the obligor's balance sheet as debt.

        20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and
warrants that Tenant is, and throughout the Term will remain, a Single Purpose
Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the
foregoing, the Landlord agrees that the requirements for an Independent Director
or Independent Member thereunder shall not apply so long as Tenant is an
Affiliated Person of Guarantor.

        20.4 Intentionally Omitted.

                                   ARTICLE 21

                                  MISCELLANEOUS

        21.1 Limitation on Payment of Rent. All agreements between Landlord and
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any other amounts payable to Landlord under this Agreement exceed the
maximum permissible under Applicable Laws, the benefit of which may be asserted
by Tenant as a defense, and if, from any circumstance whatsoever, fulfillment of
any provision of this Agreement, at the time performance of such provision shall
be due, shall involve transcending the limit of validity prescribed by law, or
if from any circumstances Landlord should ever receive as fulfillment of such
provision such an excessive amount, then, ipso facto, the amount which would be
excessive shall be applied to the reduction of the installment(s) of Minimum
Rent next due and not to the payment of such excessive amount. This provision
shall control every other provision of this Agreement and any other agreements
between Landlord and Tenant.



                                       59


        21.2 No Waiver. No release, discharge or waiver of any provision hereof
shall be enforceable against or binding upon Landlord or Tenant unless in
writing and executed by Landlord or Tenant, as the case may be. Neither the
failure of Landlord or Tenant to insist upon a strict performance of any of the
terms, provisions, covenants, agreements and conditions hereof, nor the
acceptance of any Rent by Landlord with knowledge of a breach of this Agreement
by Tenant in the performance of its obligations hereunder, or the following of
any practice or custom at variance with the terms hereof, shall be deemed or
constitute a waiver of any rights or remedies that Landlord or Tenant may have
or a waiver of any subsequent breach or default in any of such terms,
provisions, covenants, agreements and conditions or the waiver of the right to
demand exact compliance with the terms hereof.

        21.3 Remedies Cumulative. To the maximum extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord, now or
hereafter provided either in this Agreement or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Landlord of any one
or more of such rights, powers and remedies shall not preclude the simultaneous
or subsequent exercise by Landlord of any or all of such other rights, powers
and remedies.

        21.4 Severability. Any clause, sentence, paragraph, section or provision
of this Agreement held by a court of competent jurisdiction to be invalid,
illegal or ineffective shall not impair, invalidate or nullify the remainder of
this Agreement, but rather the effect thereof shall be confined to the clause,
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be construed as if such invalid, illegal
or ineffective provisions had never been contained therein.

        21.5 Acceptance of Surrender. No surrender to Landlord of this Agreement
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.

        21.6 No Merger of Title. It is expressly acknowledged and agreed that it
is the intent of the parties that there shall be no merger of this Agreement or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.

        21.7 Tenant's Representations. In addition to any other representation
or warranty set forth herein and as an inducement to Landlord to enter into this
Agreement, Tenant hereby represents and warrants to Landlord as follows:

                (a) Tenant is a limited liability company duly organized and
        validly existing and in good standing under the laws of the State of
        Tennessee. Tenant has all requisite power and authority under the laws
        of the State of Tennessee and the laws of the State of Illinois and its
        limited liability company operating agreement or other charter documents
        to enter into and perform its obligations under this Agreement and to
        consummate the




                                       60


        transactions contemplated hereby. Tenant is duly authorized to transact
        business in any jurisdiction in which the nature of the business
        conducted by it requires such qualification.

                (b) Tenant has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery of any document to be delivered by Tenant, prior
        to the date hereof, such document shall constitute the valid and binding
        obligation and agreement of Tenant, enforceable against Tenant in
        accordance with its terms, except as such enforceability may be limited
        by bankruptcy, insolvency, reorganization, moratorium or similar laws of
        general application affecting the rights and remedies of creditors and
        except to the extent that the availability of equitable relief may be
        subject to the discretion of the court before which any proceeding may
        be brought.

                (c) There are no judgments presently outstanding and unsatisfied
        against Tenant or any of its properties, and neither Tenant nor any of
        its properties are involved in any material litigation at law or in
        equity or any proceeding before any court, or by or before any
        governmental or administrative agency, which litigation or proceeding
        could materially adversely affect Tenant, and no such material
        litigation or proceeding is, to the knowledge of Tenant, threatened
        against Tenant and no investigation looking toward such a proceeding has
        begun or is contemplated.

                (d) To the knowledge of Tenant, neither this Agreement nor any
        other document, certificate or statement furnished to Landlord by or on
        behalf of Tenant in connection with the transaction contemplated herein
        contains any untrue statement of a material fact or omits to state a
        material fact necessary in order to make the statements contained herein
        or therein not misleading. To the knowledge of Tenant there is no fact
        or condition which materially and adversely affects the business,
        operations, affairs, properties or condition of Tenant which has not
        been set forth in this Agreement or in other documents, certificates or
        statements furnished to Landlord in connection with the transaction
        contemplated hereby.

                (e) Tenant hereby represents to Landlord that, in the reasonable
        opinion of Tenant, the Leased Property and the Leased Improvements
        therein are adequately furnished and contain adequate P&E and
        Inventories consistent with the amount of P&E and Inventories which is
        customarily maintained in an independent living or licensed assisted
        living and dementia care facility, as applicable, of the type and
        character of the Leased Property as otherwise required to operate the
        Leased Property in a manner contemplated by this Agreement and in
        compliance with all legal requirements.

                (f) Tenant acknowledges that Tenant's failure or repeated delays
        in making prompt payment in accordance with the terms of any agreement,
        leases, invoices or statements for purchase or lease of P&E, Inventories
        or other goods or services will be detrimental to the reputation of
        Landlord and Tenant.

                (g) All employees of Tenant are solely employees of Tenant and
        not Landlord. Tenant is not Landlord's agent for any purpose in regard
        to Tenant's employees or



                                       61


        otherwise. Further, Tenant expressly acknowledges and agrees that
        Landlord does not exercise any direction or control over the employment
        policies or employment decisions of Tenant.

                (h) Tenant has not (i) made any contributions, payments or gifts
        to or for the private use of any governmental official, employee or
        agent where either the payment or the purpose of such contribution,
        payment or gift is illegal under the laws of the United States or the
        jurisdiction in which made, (ii) established or maintained any
        unrecorded fund or asset for any purpose or made any false or artificial
        entries on its books, (iii) given or received any payments or other
        forms of remuneration in connection with the referral of patients which
        would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b)
        of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal
        physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous
        state statute or (iv) made any payments to any person with the intention
        or understanding that any part of such payment was to be used for any
        purpose other than that described in the documents supporting the
        payment. Tenant shall not take any such actions during the Term of this
        Agreement.

                (i) Tenant's equity is directly and (if applicable) indirectly
        owned as shown on Exhibit "G". Tenant shall promptly provide to
        Landlord, upon the occurrence thereof but in any event not more than
        fifteen (15) days following a written request therefor, written notice
        of any change in the executive officers, directors, shareholders,
        partners, and/or members of Tenant, as applicable to Tenant's formation
        and structure, and of any change in the respective interests in Tenant
        held by each of such Persons.

        21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as
Tenant shall timely pay all rents due to Landlord from Tenant hereunder and
keep, observe and perform all covenants, promises and agreements on Tenant's
part to be kept, observed and performed hereunder, Tenant shall and may
peacefully and quietly have, hold and occupy the Leased Property free of any
interference from Landlord or any Person claiming by, through or under Landlord;
subject, however, and nevertheless to the terms, provisions and conditions of
this Agreement, the Permitted Encumbrances, any other documents affecting record
title to or the use and occupancy of the Leased Property immediately prior to
the conveyance thereof to Landlord on or about the date hereof, and documents
affecting title to the Leased Property approved by Tenant. Landlord shall not,
without the prior written approval of Tenant, enter into or record any document
which purports to or which by its terms will materially and adversely affect the
Tenant, Tenant's use and enjoyment of the Leased Property or Tenant's rights
under this Agreement (such approval not to be unreasonably withheld, delayed or
conditioned provided that the same is appropriate and reasonably necessary in
connection with the normal and ordinary course of ownership and use of the
Facility).

        21.9 Recordation of Memorandum of Lease. At either party's option, a
short form memorandum of this Agreement, in the form attached hereto as Exhibit
"E" shall be recorded or filed among the appropriate land records of the County
in which the Leased Property is located, and Tenant shall pay the transfer and
all recording costs associated therewith. In the event of a discrepancy between
the provisions of this Agreement and such short form memorandum thereof, the
provisions of this Agreement shall prevail.



                                       62


        21.10 Notices. (a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same shall be
delivered either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier, addressed
to the recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).

        (b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, upon the date of receipt or refusal, except that whenever under this
Agreement a notice is either received on a day which is not a Business Day or is
required to be delivered on or before a specific day which is not a Business
Day, the day of receipt or required delivery shall automatically be extended to
the next Business Day.

        (c) All such notices shall be addressed,

            If to Landlord to:
            CNL Retirement-AM/Illinois LP
            CNL Center at City Commons
            450 South Orange Avenue
            Orlando, Florida 32801
            Attn:            Mr. Phillip M. Anderson, Jr.
                             Or Chief Operating Officer
            Phone:           (407) 650-1000
            Fax:             (407) 835-3232

            With a copy to:

            Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
            215 North Eola Drive
            Post Office Box 2809
            Orlando, Florida 32809
            Attn:            Scott C. Thompson, Esquire
            Phone:           (407) 843-4600
            Fax:             (407) 843-4444

            If to Tenant to:

            ARC Holley Court, LLC
            111 Westwood Place, Suite 402
            Brentwood, Tennessee 37027
            Attn:            Mr. George Hicks, Chief Financial Officer
            Phone:           (615) 221-2250
            Fax:             (615) 221-2269



                                       63


            With a copy to:

            Bass, Berry & Sims PLC
            315 Deaderick Street, Suite 2700
            Nashville, Tennessee 37238
            Attn:            T. Andrew Smith, Esquire
            Phone:           (615) 742-6200
            Fax:             (615) 742-2766

        (d) By notice given as herein provided, the parties hereto and their
respective successors and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America.

        21.11 Construction; Nonrecourse. Anything contained in this Agreement to
the contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the performance by Tenant of its obligations under this
Agreement, including, without limitation, obligations for the payment of money.
Except as otherwise set forth in this Agreement, any obligations arising prior
to the expiration or sooner termination of this Agreement of Tenant (including
without limitation, any monetary, repair and indemnification obligations) and
Landlord shall survive the expiration or sooner termination of this Agreement.
In addition, solely with respect to Landlord, nothing contained in this
Agreement shall be construed to create or impose any liabilities or obligations
and no such liabilities or obligations shall be imposed on any of the
shareholders, beneficial owners, direct or indirect, officers, directors,
trustees, employees or agents of Landlord or Tenant for the payment or
performance of the obligations or liabilities of Landlord hereunder. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

        21.12 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Captions and
headings in this Agreement are for purposes of reference only and shall in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Agreement.

        21.13 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State in which the Leased Property is
located.

        21.14 Right to Make Agreement. Each party warrants, with respect to
itself, that neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions




                                       64


hereof, shall violate any provision of any law, or any judgment, writ,
injunction, order or decree of any court or Governmental Authority; nor result
in or constitute a breach or default under or the creation of any lien, charge
or encumbrance upon any of its property or assets under, any indenture,
mortgage, deed of trust, contract, other commitment or restriction to which it
is a party or by which it is bound; nor require any consent, vote or approval
which has not been given or taken, or at the time of the transaction involved
shall not have been given or taken. Each party covenants that it has and will
continue to have throughout the term of this Agreement and any extensions
thereof, the full right to enter into this Agreement and perform its obligations
hereunder.

        21.15 Brokerage. Landlord and Tenant hereby represent and warrant to
each other that they have not engaged, employed or utilized the services of any
business or real estate brokers, salesmen, agents or finders in the initiation,
negotiation or consummation of the business and real estate transaction
reflected in this Agreement. On the basis of such representation and warranty,
each party shall and hereby agrees to indemnify and save and hold the other
party harmless from and against the payment of any commissions or fees to or
claims for commissions or fees by any real estate or business broker, salesman,
agent or finder resulting from or arising out of any actions taken or agreements
made by them with respect to the business and real estate transaction reflected
in this Agreement.

        21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of
this Agreement, in any way or for any purpose, be deemed to be a partner of
Tenant in the conduct of Tenant's business upon, within or from the Leased
Property or otherwise, or a joint venturer or a member of a joint enterprise
with Tenant.

        21.17 Entire Agreement. This Agreement contains the entire agreement
between the parties and, except as otherwise provided herein, can only be
changed, modified, amended or terminated by an instrument in writing executed by
the parties. It is mutually acknowledged and agreed by Landlord and Tenant that
there are no verbal agreements, representations, warranties or other
understandings affecting the same; and that Tenant hereby waives, as a material
part of the consideration hereof, all claims against Landlord for rescission,
damages or any other form of relief by reason of any alleged covenant, warranty,
representation, agreement or understanding not contained in this Agreement.

        21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under
Sections 12.2 and 14.2, if either party shall bring an action to recover any sum
due hereunder, or for any breach hereunder, and shall obtain a judgment or
decree in its favor, the court may award to such prevailing party its reasonable
costs and reasonable attorney's fees based upon service rendered at hourly
rates, specifically including reasonable attorney's fees incurred in connection
with any appeals (whether or not taxable as such by law). Landlord shall also be
entitled to recover its reasonable attorney's fees based upon service rendered
at hourly rates and costs incurred in any bankruptcy action filed by or against
Tenant, including, without limitation, those incurred in seeking relief from the
automatic stay, in dealing with the assumption or rejection of this Agreement,
in any adversary proceeding, and in the preparation and filing of any proof of
claim.

        21.19 Approval of Landlord. Whenever Tenant is required under this
Agreement to do anything to meet the satisfaction or judgement of Landlord, the
reasonable satisfaction or




                                       65


judgement of Landlord shall be deemed sufficient. The foregoing provision of
this Section shall not apply in any instance where the provisions of this
Agreement expressly state that the provisions of this Section do not apply or
where the provisions of this Agreement expressly state that such consent,
approval or satisfaction are subject to the sole and absolute discretion or
judgement of Landlord, and in each such instance Landlord's approval or consent
may be unreasonably withheld or unreasonable satisfaction or judgement may be
exercised by Landlord.

        21.20 Successors and Assigns. The agreements, terms, provisions,
covenants and conditions contained in this Agreement shall be binding upon and
inure to the benefit of Landlord and Tenant and, to the extent permitted herein,
their respective successors and assigns.

        21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S
ACCEPTING THIS AGREEMENT.

        21.22 Treatment of Lease. Landlord and Tenant each agree to treat this
Agreement as a true lease for tax purposes and as an operating lease for
generally accepted accounting principles.

        21.23 Transfer of Licenses. Upon the expiration or sooner termination of
this Agreement, Tenant shall use its best efforts to transfer and assign to
Landlord or its designee or assist Landlord or its designee in obtaining
transfer or assignment of all Leased Intangible Property, including without
limitation and together with any contracts, licenses (including without
limitation all licenses identified as part of the Initial Tenant Personal
Property and any replacements thereof and additions thereto), permits,
development rights, trade names (except for trade names as included within the
Initial Tenant Personal Property), telephone exchange numbers identified with
the Leased Property, approvals and certificates and all other intangible rights,
benefits and privileges of any kind or character with respect to the Leased
Property, useful or required for the then operation of the Leased Property
(except for proprietary software as included within the Initial Tenant Personal
Property). If requested by Landlord and to the extent permitted by law the
Tenant shall provide a collateral assignment of such licenses and other
intangible rights as further security for Tenant's obligations hereunder.

        21.24 Tenant's Personal Property. Upon the expiration or sooner
termination of the Term of this Agreement, Landlord may, in its sole and
absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be
required, within ten (10) Business Days after such expiration or termination, to
remove all of Tenant's Personal Property from the Leased Property, or (ii) pay
Tenant's book value of such Tenant's Personal Property (not including, however,
trade names and proprietary software listed as part of the Initial Tenant
Personal Property, which shall remain



                                       66


the sole property of Tenant). Failure of Landlord to make such election shall be
deemed an election to proceed in accordance with clause (ii) preceding.

        21.25 Landlord's Representations. Landlord hereby represents and
warrants to Tenant as follows:

                (a) Landlord is a limited partnership duly organized and validly
        existing and in good standing under the laws of the State of Delaware.
        Landlord has all requisite power and authority under the laws of the
        State of Delaware and its charter documents to enter into and perform
        its obligations under this Agreement and to consummate the transactions
        contemplated hereby.

                (b) Landlord has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery hereof, this Agreement shall constitute the valid
        and binding agreement of Landlord.

        21.26 Guaranty of Lease. The Landlord has entered into this Lease in
reliance upon the Unconditional Guaranty of Payment and Performance by the
Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"),
pursuant to which the Guarantor has unconditionally guaranteed all of the
obligations of the Tenant under this Lease, including without limitation the
covenants of Tenant in Section 4.4 and Section 4.6 hereof, and all of the
additional covenants of Tenant in Article 20 hereof.

        21.27 Guaranty of ARC-Related Leases. The obligations of each tenant
under each ARC-Related Lease (whether now in effect or entered into in the
future) also shall be and are hereby unconditionally guaranteed by Tenant.
Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a
material inducement for the execution of each ARC-Related Lease, is and shall be
a guaranty of payment and performance and not of collection solely, and shall be
effective in accordance with the terms and conditions of the Guaranty, which are
incorporated herein by this reference. Notwithstanding the foregoing, and the
automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant
shall upon request of the Landlord or its Affiliated Persons promptly execute
and deliver a separate Unconditional Guaranty of Payment and Performance with
respect to each ARC-Related Lease.

        21.28 Landlord's Assumed Financing. The obligations of Landlord and
Tenant are subject to the additional provisions set forth in Exhibit "K"
attached hereto relating to certain terms and conditions of the GMACCM Loan
Documents assumed and executed by Landlord which affect Tenant's performance and
obligations under this Lease.


                      [SIGNATURES APPEAR ON FOLLOWING PAGE]






                                       67


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

NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND INDEMNITIES BY THE TENANT OF THE
LANDLORD'S OWN NEGLIGENCE.

LANDLORD:                                 TENANT:

CNL RETIREMENT - AM/ILLINOIS LP, a        ARC HOLLEY COURT, LLC, a Tennessee
Delaware limited liability company        limited liability company

By: CNL Retirement - GP/Illinois Corp,    By: ARC Holley Court Management, Inc.,
    a Delaware corporation, as its        a Tennessee corporation, its
    General Partner                       Managing Member

    By:    /S/                            By:    /S/
           -----------------------               ------------------------

    Name:  Phillip M. Anderson            Name:  George T. Hicks
           -----------------------               ------------------------
                                          Its:   EVP-Finance, CFO,
                                                 ------------------------
    Its:   Exec. V. P.                           Secretary and Treasurer
           -----------------------               ------------------------

             (CORPORATE SEAL)





                                       68

                                   EXHIBIT "A"

                                    The Land















                                      A-1




                                   EXHIBIT "B"

                            Initial Term Minimum Rent

         The amount of Minimum Rent due during the Initial Term is as follows:

         For Accounting Year 1      -       $1,846,927.50

         Commencing with the 2nd Accounting Year, and on the first day of each
         Accounting Year thereafter during the Initial Term, Minimum Rent shall
         increase by one percent (1%) over the Minimum Rent owing in the
         immediately preceding Accounting Year. Accordingly, the Minimum Rent
         owing from the 2nd Accounting Year through the end of the Initial Term
         of this Agreement shall be as follows:

         For Accounting Year 2      -       $1,865,396.78;

         For Accounting Year 3      -       $1,884,050.74;

         For Accounting Year 4      -       $1,902,891.25;

         For Accounting Year 5      -       $1,921,920.16;

         For Accounting Year 6      -       $1,941,139.36;

         For Accounting Year 7      -       $1,960,550.76;

         For Accounting Year 8      -       $1,980,156.27;

         For Accounting Year 9      -       $1,999,957.83;

         For Accounting Year 10     -       $2,019,957.41;

         For Accounting Year 11     -       $2,040,156.98;

         For Accounting Year 12     -       $2,060,558.55;

         For Accounting Year 13     -       $2,081,164.14;

         For Accounting Year 14     -       $2,101,975.78;

         For Accounting Year 15     -       $2,122,995.53.





                                      B-1



                                   EXHIBIT "C"

                                Appraisal Process

         If Landlord and Tenant are unable to agree upon the fair market value
of the Leased Property within any relevant period provided in this Agreement,
each shall within ten (10) days after written demand by the other select one MAI
Appraiser to participate in the determination of fair market value. Within ten
(10) days of such selection, the MAI Appraisers so selected by Landlord and
Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers
shall each determine the fair market value of the Leased Property within thirty
(30) days of the selection of the third appraiser. To the extent consistent with
sound appraisal practices as then existing at the time of any such appraisal,
and if requested by Landlord, such appraisal, shall be made on a basis
consistent with the basis on which the Leased Property was appraised at the time
of its acquisition by Landlord. Tenant shall pay the fees and expenses of any
MAI Appraiser retained pursuant to this Exhibit.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Leased Property in accordance with the provisions of this Exhibit and the fair
market value so determined shall be binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at Tenant's expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Leased Property is
located to name the third MAI Appraiser.

         Within five (5) days after completion of the third MAI Appraiser's
appraisal, all three MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority is unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be such fair market
value. If both the lower appraisal and the higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.

         "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in the State and who has substantial experience in performing
appraisals of facilities similar to the Leased Property and is certified as a
member of the American Institute of Real Estate Appraisers or certified as a
SRPA by the Society of Real Estate Appraisers, or, if such organizations no
longer exist or certify appraisers, such successor organization or such other
organization as is approved by Landlord.




                                      C-1



                                   EXHIBIT "D"

                           Tenant Estoppel Certificate

        THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day
of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a
__________, with principal office and place of business at______________________
("Beneficiary").

                                    RECITALS:

A.      Pursuant to the terms and conditions of that certain Lease Agreement
("Lease") dated ________, ___________________________ ("Landlord") leased to
Tenant certain real property in ______ County, _____ ("Leased Property"), which
Leased Property are more particularly described in the Lease.

B.      Pursuant to the terms and conditions of the Lease, the Beneficiary has
requested that the Tenant execute and deliver this Certificate with respect to
the Lease.

        NOW, THEREFORE, in consideration of the above Leased Property, the
Tenant hereby makes the following statements for the benefit of the Assignee:

        1. The copy of the Lease attached hereto and made a part hereof as
Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in
full force and effect as of the date hereof, and has not been modified or
amended.

        2. The Lease sets forth the entire agreement between the Landlord and
the Tenant relating to the leasing of the Leased Property, and there are no
other agreements, written or oral, relating to the leasing of the Leased
Property.

        3. There exists no uncured or outstanding defaults or events of default
under the Lease, or events which, with the passage of time, and the giving of
notice, or both, would be a default or event of default under the Lease.

        4. No notice of termination has been given by Landlord or Tenant with
respect to the Lease.

        5. All payments due the Landlord under the Lease through and including
the date hereof have been made, including the monthly installment of Minimum
Rent (as defined in the Lease) for the period of ______________ to
________________ in the amount of $___________.

        6. As of the date hereof, the annual Minimum Rent under the Lease is
$__________.

        7. Percentage Rent (as defined in the Lease) has been paid through and
including the Fiscal Year ending ______________________.

        8. There are no disputes between the Landlord and the Tenant with
respect to any rental due under the Lease or with respect to any provision of
the Lease.

        9. Notwithstanding any provisions of the Lease to the contrary, the
Tenant hereby consents to the collateral assignment of the Lease by the Landlord
to the Beneficiary, and agrees that no terms and conditions of the Lease shall
be altered, amended or changed as a result of such assignment.



                                       D-1


        10. The Tenant hereby agrees that from and after the date hereof copies
of all notices which Tenant is required to deliver to the Landlord under the
Lease with respect to defaults, events of default or failure to perform by the
Landlord under the Lease, shall be delivered to Beneficiary at the following
address:

                             ----------------------
                             ----------------------
                             ----------------------
                             ----------------------

        11. The Tenant represents and warrants that (a) all improvements
constructed on the Leased Property have been approved and accepted by Tenant,
(b) all utility sources and utility companies which service the Leased Property
have been approved and accepted by Tenant and utility service is available to
the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant
to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with
respect to its obligations under the Lease.

        12. The Tenant understands and acknowledges that Beneficiary is relying
upon the representations set forth in this Certificate, and may rely thereon in
connection with the [COLLATERAL] assignment of the Lease to Beneficiary.

        IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day
and year first set forth above.

                                       -----------------------------------------

                                       By:
                                            ------------------------------------
                                       Name:
                                              ----------------------------------
                                       Title:
                                               ---------------------------------

STATE OF _______
COUNTY OF _______

         The foregoing instrument was acknowledged before me this ___ day of
_____, 20___ by _________________, as _________________ of ____________, a
____________, on behalf of the _________. He/she is personally known to me or
has produced ________ as identification.

                                       _________________________________________
                                       Notary Public
                                       Printed Name:____________________________

expires: __________________
                                                          (NOTARY SEAL)




                                      D-2




                                   EXHIBIT "E"

                               Memorandum of Lease

        THIS MEMORANDUM OF LEASE, entered into as of this ____ day of
_________, 20___, by and between __________________________________________,
whose address is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord,
and ____________________, a ______________, whose address is___________________
___________________, as Tenant.

                                 W I T N E S E T H:
                                 -----------------

        THAT, Landlord and Tenant have heretofore entered into a certain Lease
Agreement dated ____________, 20___ (the "Lease") covering certain Leased
Property consisting of, among other things, certain real property located in
______ County, ______, more particularly described on Exhibit "A" attached
hereto upon which there is constructed and located certain improvements
(together the "Leased Property"), and

        WHEREAS, it is the desire of both Landlord and Tenant to memorialize the
Lease and set forth certain pertinent data with respect thereto,

        NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby
acknowledge and agree as follows:

        1. Demise. The Leased Property have been and are hereby demised, let and
leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord,
all pursuant to and in accordance with the Lease.

        2. Term. The initial Term of the Lease is from February 11, 2002, until
February 10, 2017. Tenant has the right, privilege and option to renew and
extend the initial Term of the Lease for up to two (2) additional periods of
five (5) years each, subject to the provisions and conditions of the Lease.

        3. Possession. Landlord has delivered possession of the Leased Property
to Tenant and Tenant has accepted delivery and taken possession of the Leased
Property from Landlord in the "as is" condition of the Leased Property on the
Commencement Date.

        4. Liens on Landlord's Interest Prohibited. By the terms of the Lease,
Landlord's interest in the Leased Property may not be subjected to liens of any
nature by reason of Tenant's construction, alteration, repair, restoration,
replacement or reconstruction of any improvements on or in the Leased Property,
including those arising in connection with or as an incident to the renovation
of the improvements located on the Leased Property, or by reason of any other
act or omission of Tenant (or of any person claiming by, through or under
Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. Accordingly, all persons dealing with Tenant are hereby
placed on notice that such persons shall not look to Landlord or to





                                       E-1


Landlord's credit or assets (including Landlord's interest in the Leased
Property) for payment or satisfaction of any obligations incurred in connection
with the construction, alteration, repair, restoration, renovation, replacement
or reconstruction thereof by or on behalf of Tenant. Tenant has no power, right
or authority to subject Landlord's interest in the Leased Property to any
construction, mechanic's or materialmen's lien or claim of lien.

        5. Subordination and Attornment. The Lease specifically provides that
the Lease and Tenant's leasehold interest in and to the Leased Property are
junior, inferior, subordinate and subject in all respects to any mortgage or
mortgages now or hereafter in force and effect upon or encumbering the Leased
Property or any portion thereof, and that Tenant shall, and has agreed to,
attorn to any successor of the interest of Landlord under the Lease, including
the purchaser at any foreclosure sale occasioned by the foreclosure of any such
mortgage or mortgages, for the balance of the Term of the Lease remaining at the
time of the succession of such interest to such successor. Such subordination
shall be upon the express condition that the validity of this Lease shall be
recognized by the mortgagee, and that, notwithstanding any default by the
mortgagor, with respect to such mortgage, Tenant's possession and right of use
under this Lease in and to the Premises (including rights to have insurance and
condemnation proceeds made available for proper reconstruction of the Premises)
shall not be disturbed by such mortgagee unless and until Tenant shall breach
any of the provisions hereof and this Lease or Tenant's right to possession
hereunder shall have been terminated in accordance with the provisions of this
Lease.

        6. Inconsistent Provisions. The provisions of this Memorandum constitute
only a general description of the content of the Lease with respect to matters
set forth herein. Accordingly, third parties are advised that the provisions of
the Lease itself shall be controlling with respect to all matters set forth
herein. In the event of any discrepancy between the provisions of the Lease and
this Memorandum, the provisions of the Lease shall take precedence and prevail
over the provisions of this Memorandum.

        7. Termination of Lease. All rights of Tenant shall terminate upon the
expiration or earlier termination of the Lease, which may be evidenced by a
written notice of such expiration or termination recorded or filed by Landlord
among the appropriate land records of the County in which the Leased Property is
located.

                     [SIGNATURES APPEAR ON FOLLOWING PAGES]








                                      E-2




         IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of
Lease to be duly executed on or as of the day and year first above written.

Signed, sealed and delivered
in the presence of:                                                          , a
                                       --------------------------------------

                                       -----------------------------------------



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

                                                      (CORPORATE SEAL)

                                                         "LANDLORD"

                                                                             , a
                                       --------------------------------------

                                       -----------------------------------------


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

                                                         "TENANT"

STATE OF _______________
COUNTY OF _____________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___ by ____________________, as _________ of
____________________, a ______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.


                                       -----------------------------------------
                                       Notary Public

                                       Notary Public, State of
                                                               -----------------
                                       Commission #:
                                                    ----------------------------
                                       My commission expires:
                                                             -------------------

                                                     (NOTARY SEAL)


                                       E-3



STATE OF __________
COUNTY OF __________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___, by ___________________, as ______________ of
___________________, a _______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                     -------------------------------------------
                                     Notary Public
                                     Notary Public, State of ___________________
                                     Commission No.:  __________________________
                                     My Commission Expires:  ___________________

                                                       (SEAL)




                                      E-4




                                   EXHIBIT "F"

                       Single Purpose Entity Requirements

        Tenant or its assignee shall throughout the Term hereof do all things
necessary to continue to be and remain a Single Purpose Entity (including
without limitation, if Tenant is a partnership, insuring that each General
Partner of Tenant, continues as a Single Purpose Entity and shall not amend its
Articles of Organization or Operating Agreement (or if Tenant is a corporation,
Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is
a partnership, Tenant shall prevent any general partner from amending such
general partner's Articles of Organization or Bylaws or other formation
documents). For purposes hereof, Single Purpose Entity shall mean a Person,
other than an individual, which (a) is formed, organized or reorganized solely
for the purpose of holding, directly, the leasehold interest in the Leased
Property, (b) does not engage in any business unrelated to the Leased Property
and the operation and management thereof, (c) has not and will not have any
assets other than those related to its interest in the Leased Property and has
not and will not have any indebtedness other than incurred in the ordinary
course of business and paid pursuant to the terms of financing applicable to
such trade payables and indebtedness expressly authorized in Section 20.2(f) of
the Agreement, (d) maintains its own separate books and records and its own
accounts, in each case which are separate and apart from the books and records
of any other Person, (e) holds itself out as being a Person separate and apart
from any other Person, (f) does not and will not commingle its funds or assets
with those of any other Person, (g) conducts its own business in its own name,
(h) maintains separate financial statements, (i) pays its own liabilities out of
its own funds, (j) observes all limited liability company formalities,
partnership formalities or corporate formalities, as applicable, (k) maintains
an arm's-length relationship with its Affiliated Persons, (l) pays the salaries
of its own employees and maintains a sufficient number of employees in light of
its contemplated business operation, (m) does not guarantee or otherwise
obligate itself with respect to the debts of any other Person or hold out its
credit as being available to satisfy the obligations of any other Person except
as required or expressly authorized under the Agreement, (n) does not acquire
obligations or securities of its partners, members or shareholders, (o)
allocates fairly and reasonably shared expenses, including without limitation,
any overhead for shared office space, (if any), (p) uses separate stationary,
invoices and checks, (q) except as required or expressly authorized under the
Agreement, does not and will not pledge its assets for the benefit of any Person
other than Landlord or make any loans or advances to any other Person, (r) does
and will correct any known misunderstanding regarding its separate identity, (s)
maintains adequate capital in light of its contemplated business operations, and
(t) has and will have an Operating Agreement, partnership agreement, certificate
of incorporation or other organization document which complies with the
standards and requirements for a Single Purpose Entity set by Rating Agencies
(as hereinafter defined) as of the date hereof applicable to a limited liability
company, partnership or corporation, as applicable. In addition, if such Person
is a limited liability company, (i) the managing member shall be a corporation
or limited liability company (or if a partnership, shall have as its sole
general partner a corporation or limited liability company) that is a Single
Purpose Entity whose organization documents shall comply



                                       F-1


with the standards and requirements for a Single Purpose Entity set by the
Rating Agencies as of the date hereof applicable to such managing members, (ii)
its Articles of Organization, Certificate of Formation and/or Operating
Agreement, as applicable, shall provide that such entity will dissolve only upon
the bankruptcy of the managing member, (iii) if such Person has more than one
managing member, at least one member shall be a corporation or limited liability
company that qualifies as a Single Purpose Entity and the Organization Documents
shall provide that such Person shall continue (and not dissolve) for so long as
a solvent managing member exists (iv) such corporate member or limited liability
company shall conform to the requirements hereof for Persons that are
corporations or limited liability company and (v) such Person shall have at
least one Independent Member. In addition, if such Person is a partnership, (a)
all general partners of such Person shall be Single Purpose Entities whose
organizational documents shall comply with the standards and requirements for a
Single Purpose Entity set by the Rating Agencies as of the date hereof
applicable to such general partners, (b) if such Person has more than one
general partner, then the organization documents shall provide that such Person
shall continue (and not dissolve) for so long as a solvent general partner
exists. In addition, if such Person is a corporation, then at all times, (i)
such Person shall have at least one Independent Director, and (ii) Board of
Directors of such Person may not take any action relating to such Person's
bankruptcy, dissolution or status as a Single Purpose Entity without the
unanimous affirmative vote of 100% of the members of the Board of Directors
unless all of the directors, including the Independent Director shall have
participated in such vote. In addition, such Person which is formed or organized
solely for the purpose of holding, directly, the leasehold interest in the
Leased Property (i) without the unanimous consent of all of the partners,
directors or members, as applicable, has not and will not with respect to itself
or any other single purpose entity that owns an interest in the Leased Property
in which it has a direct or indirect legal or beneficial interest (a) seek or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, custodian or other similar official for itself for all or any
portion of its properties, or (b) take any action which might cause it to become
insolvent, (ii) has held and will hold its assets in its own name, (iii) has and
will maintain its financial statements, accounting records and other entity
documents separate and apart form any other Person, and (iv) has not and will
not identify its partners, members or shareholders or any of its affiliates of
any of them as a division or part of it. For purposes hereof, "Rating Agencies"
shall mean any three of the following: Standards & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co.,
Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any
such corporation shall for any reason no longer perform the functions of a
securities rating agency, any other nationally recognized statistical rating
agency designated by Landlord. In addition, for purposes hereof, "Independent
Director" or "Independent Member" shall mean an individual appointed by CT
Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar
corporate service or an individual reasonably satisfactory to Landlord, who in
any case shall not have been at the time of such individual's appointment, and
may not have been at any time during the preceding two years (i) a shareholder
of, or an officer or employee of, or a member or manager of Tenant or any of its
respective shareholders, subsidiaries or Affiliated





                                       F-2


Persons, (ii) a customer of, or supplier to Tenant or any member, manager or
general partner or any of its respective shareholders, subsidiaries or
Affiliated Persons, (iii) a Person or other entity controlling any such
shareholder, supplier, customer, member or manager, or (iv) a member of the
immediate family of any such shareholder, officer, employee, supplier, customer,
member or manager or of any other director of Tenant or any general partner
thereof.

        In addition to the foregoing, and consistent with the Single Purpose
Entity requirements hereof, Tenant covenants and agrees that throughout the Term
hereof, Tenant shall not voluntarily file or consent to the filing of a petition
for bankruptcy, insolvency, reorganization, assignment for the benefit of
creditors or similar proceedings under any federal or state bankruptcy,
insolvency, reorganization or other similar law or otherwise seek any relief
under any laws relating to the relief of debts or the protection of debtors
generally, without the unanimous consent of its manager(s), which shall at all
times include the affirmative consent of the Independent Director, and if Tenant
is a partnership without the unanimous consent of its general partners
(including the unanimous consent of the directors of the corporate general
partners or shareholders as the case may be which shall at all times include the
consent of the Independent Director).




                                      F-3



                                   EXHIBIT "G"

                             Tenant Equity Ownership

ARC Holley Court, LLC is a Tennessee limited liability company with two members:

           American Retirement Corporation, a Tennessee corporation:
                 100% economic member

           ARC Holley Court Management, Inc., a Tennessee corporation:
                 non-economic member

     ARC Holley Court Management, Inc. is a wholly-owned subsidiary of American
     Retirement Corporation











                                      G-1



                                   EXHIBIT "H"

                                Property Expenses

        The term "Property Expenses" shall mean for the requisite period the sum
of the following items:

        1. the cost of sales, including without limitation, compensation, fringe
benefits, payroll taxes and other costs relating to employees of Tenant (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of Tenant who do not work at the Leased Property on a regular basis;
except that the foregoing costs shall include the allocable portion of the
salary and other employee costs of any general manager or other supervisory
personnel (not including regional vice presidents or regional sales people)
assigned to a "cluster" of independent living or assisted living and dementia
care facilities which includes the Leased Property);

        2. departmental expenses incurred at departments within the Leased
Property; administrative and general expenses; the cost of marketing incurred by
the Leased Property; advertising and business promotion incurred by the Leased
Property; heat, light, and power; and computer line charges;

        3. the cost of Inventories and P&E consumed in the operation of the
Leased Property;

        4. a reasonable reserve for uncollectible accounts receivable as
determined by the Tenant;

        5. all costs and fees of independent professionals or other third
parties who are retained by Tenant to perform services required or permitted
hereunder;

        6. all costs and fees of technical consultants and operational experts
who are retained or employed by Tenant for specialized services (including,
without limitation, quality assurance inspectors) and the cost of attendance by
employees of the Leased Property at training and manpower development programs
sponsored by Tenant;

        7. Additional Charges as referenced in Section 3.4 of the Agreement;

        8. payments made into the Reserve pursuant to Section 5.2 of the
Agreement;

        9. management fees paid to any approved manager and such other costs and
expenses incurred by an approved manager as are specifically provided for under
any approved management agreement or are otherwise reasonably necessary for the
proper and efficient operating of the Leased Property;

        10. the term "Property Expenses" shall not include (a) debt service
payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment
leases or other forms of financing obtained for the Tenant's Personal Property,
(c) rental payments pursuant to any ground lease of the Land, (d) any
indebtedness of Tenant, or (e) any employee claim which is not covered by



                                       H-1


insurance and where the basis of such employee claim is conduct by Tenant or its
manager which is (i) a substantial violation of the standards of responsible
labor relations as generally practiced by prudent owners or operators of similar
retirement community operations in the state in which the Facility is situated,
and (ii) not the isolated act of individual employees, but rather is a direct
result of corporate policies of Tenant or any manager. Neither revenues from the
Facility, nor any disbursement from the Reserve, shall be used by Tenant to pay
the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or
9(e) above.

Notwithstanding the foregoing definition of "Property Expenses," the financial
and other informational reports and statements to be provided pursuant to the
Lease may be provided by Tenant consistent with Tenant's standard information
reporting practices, provided that any omitted or varying item under such
practices is identified and separately scheduled as adjustments if necessary to
determine any financial or economic amount relevant to the Lease or if otherwise
requested in writing by Landlord.







                                      H-2



                                   EXHIBIT "I"

                              Initial Landlord P&E




















                                      I-1



                                   EXHIBIT "J"

                        Initial Tenant Personal Property

(a)     The right to use the tradename "ARC," "American Retirement Corporation,"
        and any variations thereof;

(b)     Independent living facility licenses and Assisted living and
        Alzheimer's/dementia care licenses, if any, and any liquor licenses;

(c)     Any vans, cars or other motor vehicles; and

(d)     Any proprietary software of Tenant and its Affiliated Persons not
        including, however, information and data relating to the Leased Property
        and the ownership, operation and occupancy thereof, which information
        and data shall remain available to Landlord at all times during and be
        transferred to Landlord immediately upon the expiration or any early
        termination of the Lease Term.









                                      J-1




                                   EXHIBIT "K"

                          Landlord's Assumed Financing

1.      The Leased Property is subject to certain existing GMAC Commercial
        Mortgage Corporation ("GMACCM") Loan Documents ("Loan Documents") as
        defined under that certain Agreement of Assumption and Modification of
        Mortgage, Note and Other Loan Documents dated of even date with this
        Lease and entered into by Tenant, Landlord, GMACCM and others (the
        "Assumption Agreement") to reflect Landlord's assumption of the Loan
        Documents and the first mortgage loan thereunder (the "Loan") in
        connection with the sale of the Leased Property from Tenant to Landlord.

2.      Tenant has assigned to Landlord the tax, insurance and debt service
        reserve escrows held by GMACCM under the Loan Documents, and the current
        balance thereof has been credited (and will continue to be credited,
        regardless of whether or not the funds remain in escrow under the Loan
        Documents) by Landlord towards the Security Deposit required to be paid
        by Tenant under this Lease. In the event that any further deposits are
        required under the terms of the Loan Documents then the same shall, at
        the request of Landlord, be made and deposited by Tenant to and for the
        benefit of Landlord, as an additional Security Deposit under this Lease,
        and any such additional deposits in excess of the required amount of the
        Security Deposit as stated in this Lease which are released by GMACCM
        shall be refunded to Tenant as a release and reduction of any such
        additional Security Deposit amounts paid by Tenant hereunder.

3.      Notwithstanding any provision of the Lease to the contrary, Tenant may
        and shall enter into all Loan Documents in respect of Tenant's interests
        in the Facility as are required by GMACCM and provided for under and in
        connection with the Assumption Agreement, and agrees with and in favor
        of Landlord, as an additional covenant under this Lease, to fully and
        timely perform and satisfy all of Tenant's obligations thereunder and
        that the indemnification of Landlord by Tenant under Article 14 of this
        Lease shall include any and all liabilities and damages incurred or
        suffered by Landlord arising directly or indirectly form or out of
        Tenant's failure to fully and timely perform all such obligations.

4.      Pursuant to and consistent with the provisions of Section 3.7 of the
        Lease, and the agreement of Tenant and Landlord that this Lease shall
        constitute an absolute triple net lease, Tenant further covenants and
        agrees with Landlord to perform and undertake all obligations set forth
        in the Loan Documents relating to the use, operation, condition and
        status of the Facility and the obligations of Tenant (including any
        provisions to the effect that Landlord shall or may cause Tenant to
        undertake or refrain from some act or action) and all undertakings and
        agreements in connection therewith, not including however: (a) any
        obligation to pay scheduled payments of principal and interest or any
        sums due and payable at the scheduled maturity of the Loan; or (b) any
        obligation which by its terms or nature relates solely to Landlord, is
        susceptible to being performed solely by Landlord, or would not
        constitute a type of obligation which would reasonably be considered
        within the scope of a tenant obligation under an absolute triple net
        lease.






                                      K-1

EX-10.3

                                                                    EXHIBIT 10.3

                                              Heritage Club at Greenwood Village
                                              Denver, Arapahoe County, Colorado


                                 LEASE AGREEMENT

                           DATED AS OF MARCH 21, 2002


                                 BY AND BETWEEN


                        CNL RETIREMENT - AM/COLORADO LP,
                         a Delaware limited partnership,

                                  AS LANDLORD,


                                       AND


                          ARC GREENWOOD VILLAGE, INC.,
                            a Tennessee corporation,

                                    AS TENANT






                                TABLE OF CONTENTS
                                                                                             
ARTICLE 1........................................................................................1
   DEFINITIONS...................................................................................1

ARTICLE 2.......................................................................................12
   LEASED PROPERTY AND TERM.....................................................................12
      2.1   Leased Property.....................................................................12
      2.2   Condition of Leased Property........................................................13
      2.3   Initial Term........................................................................13
      2.4   Extended Term.......................................................................13
      2.5   Yield Up............................................................................13

ARTICLE 3.......................................................................................14
   RENT.........................................................................................14
      3.1   Rent................................................................................14
      3.2   Minimum Rent........................................................................14
      3.3   Percentage Rent.....................................................................15
      3.4   Additional Charges..................................................................17
      3.5   Landlord Advances...................................................................18
      3.6   Late Payment of Rent................................................................18
      3.7   Net Lease...........................................................................18
      3.8   No Abatement of Rent................................................................19
      3.9   Tenant Shortfall Reserve Requirement................................................19
      3.10  Tenant Security Deposit.............................................................21
      3.11  Security for all ARC-Related Leases.................................................21
      3.12  Security Agreement..................................................................21

ARTICLE 4.......................................................................................22
   USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS.............................................22
      4.1   Permitted Use.......................................................................22
      4.2   Environmental Matters...............................................................23
      4.3   Conflicting Businesses Prohibited...................................................23
      4.4   Continuous Operations...............................................................24
      4.5   Compliance With Restrictions, Etc...................................................24
      4.6   Standard of Operation...............................................................24
      4.7   Resident Agreements and Service Licenses............................................26
      4.8   Standards, Not Control..............................................................26
      4.9   Survival............................................................................26

ARTICLE 5.......................................................................................27
   MAINTENANCE AND REPAIRS......................................................................27
      5.1   Tenant's Obligations................................................................27
      5.2   Reserve.............................................................................27

ARTICLE 6.......................................................................................30
   IMPROVEMENTS, ETC............................................................................30
      6.1   Prohibition.........................................................................30




                                       i

                                                                                             
      6.2   Permitted Renovations...............................................................30
      6.3   Conditions to Reserve Expenditures, Permitted Renovations and Major Alterations.....31
      6.4   Salvage.............................................................................32

ARTICLE 7.......................................................................................32
   LANDLORD'S INTEREST NOT SUBJECT TO LIENS.....................................................32
      7.1   Liens, Generally....................................................................32
      7.2   Construction or Mechanics Liens.....................................................32
      7.3   Contest of Liens....................................................................33
      7.4   Notices of Commencement of Construction.............................................33

ARTICLE 8.......................................................................................34
   TAXES AND ASSESSMENTS........................................................................34
      8.1   Obligation to Pay Taxes and Assessments.............................................34
      8.2   Tenant's Right to Contest Taxes.....................................................34
      8.3   Tax and Insurance Escrow Account....................................................35

ARTICLE 9.......................................................................................35
   INSURANCE....................................................................................35
      9.1   General Insurance Requirements......................................................35
      9.2   Waiver of Subrogation...............................................................37
      9.3   General Provisions..................................................................37
      9.4   Blanket Policy......................................................................38
      9.5   Indemnification of Landlord.........................................................38

ARTICLE 10......................................................................................39
   CASUALTY.....................................................................................39
      10.1  Restoration and Repair..............................................................39
      10.2  Escrow and Disbursement of Insurance Proceeds.......................................39
      10.3  No Abatement of Rent................................................................40
      10.4  Tenant's Property and Business Interruption Insurance...............................40
      10.5  Restoration of Tenant's Property....................................................41
      10.6  Waiver..............................................................................41

ARTICLE 11......................................................................................41
   CONDEMNATION.................................................................................41
      11.1  Total Condemnation, Etc.............................................................41
      11.2  Partial Condemnation................................................................41
      11.3  Disbursement of Award...............................................................41
      11.4  No Abatement of Rent................................................................42
      11.5  Disputes............................................................................42

ARTICLE 12......................................................................................42
   DEFAULTS AND REMEDIES........................................................................42
      12.1  Events of Default...................................................................42
      12.2  Remedies on Default.................................................................44
      12.3  Application of Funds................................................................48
      12.4  Landlord's Right to Cure Tenant's Default...........................................48




                                       ii



                                                                                             
      12.5  Landlord's Lien.....................................................................48

ARTICLE 13......................................................................................49
   HOLDING OVER.................................................................................49

ARTICLE 14......................................................................................49
   LIABILITY OF LANDLORD; INDEMNIFICATION.......................................................49
      14.1  Liability of Landlord...............................................................49
      14.2  Indemnification of Landlord.........................................................49
      14.3  Notice of Claim or Suit.............................................................50
      14.4  Limitation on Liability of Landlord.................................................50

ARTICLE 15......................................................................................51
   REIT AND UBTI REQUIREMENTS...................................................................51
      15.1  Limitations on Rents Attributable to Personal Property..............................51
      15.2  Basis for Sublease Rent Restricted..................................................51
      15.3  Landlord Affiliate Subleases Restricted.............................................51
      15.4  Landlord Interests in Tenant Restricted.............................................52
      15.5  Rents from Personal Property Restricted.............................................52
      15.6  Landlord Services...................................................................52
      15.7  Certain Subtenants Prohibited.......................................................52
      15.8  Future Amendment....................................................................52

ARTICLE 16......................................................................................52
   SUBLETTING AND ASSIGNMENT....................................................................52
      16.1  Transfers Prohibited Without Consent................................................52
      16.2  Indirect Transfer Prohibited Without Consent........................................53
      16.3  Adequate Assurances.................................................................53

ARTICLE 17......................................................................................54
   ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS...............................................54
      17.1  Estoppel Certificates...............................................................54
      17.2  Monthly Financial Statements........................................................54
      17.3  Annual Financial Statements.........................................................54
      17.4  Records.............................................................................55
      17.5  General Operations Budget...........................................................55
      17.6  Quarterly Meetings..................................................................55

ARTICLE 18......................................................................................55
   LANDLORD'S RIGHT TO INSPECT..................................................................55

ARTICLE 19......................................................................................56
   FACILITY MORTGAGES...........................................................................56
      19.1  Subordination.......................................................................56
      19.2  Attornment..........................................................................57
      19.3  Rights of Mortgagees and Assignees..................................................57




                                      iii


                                                                                             
ARTICLE 20......................................................................................57
   ADDITIONAL COVENANTS OF TENANT...............................................................57
      20.1  Conduct of Business.................................................................57
      20.2  Additional Covenants of Tenant......................................................58
      20.3  Tenant a Single Purpose Entity......................................................59
      20.4  Intentionally Omitted...............................................................59

ARTICLE 21......................................................................................59
   MISCELLANEOUS................................................................................59
      21.1  Limitation on Payment of Rent.......................................................59
      21.2  No Waiver...........................................................................60
      21.3  Remedies Cumulative.................................................................60
      21.4  Severability........................................................................60
      21.5  Acceptance of Surrender.............................................................60
      21.6  No Merger of Title..................................................................60
      21.7  Tenant's Representations............................................................61
      21.8  Quiet Enjoyment.....................................................................62
      21.9  Recordation of Memorandum of Lease..................................................63
      21.10    Notices.   (a)...................................................................63
      21.11    Construction; Nonrecourse........................................................64
      21.12    Counterparts; Headings...........................................................64
      21.13    Applicable Law...................................................................65
      21.14    Right to Make Agreement..........................................................65
      21.15    Brokerage........................................................................65
      21.16    No Partnership or Joint Venture..................................................65
      21.17    Entire Agreement.................................................................65
      21.18    Costs and Attorneys' Fees........................................................65
      21.19    Approval of Landlord.............................................................66
      21.20    Successors and Assigns...........................................................66
      21.21    Waiver of Jury Trial.............................................................66
      21.22    Treatment of Lease...............................................................66
      21.23    Transfer of Licenses.............................................................66
      21.24    Tenant's Personal Property.......................................................66
      21.25    Landlord's Representations.......................................................67
      21.26    Guaranty of Lease................................................................67
      21.27    Guaranty of ARC-Related Leases...................................................67



EXHIBITS

Exhibit "A" - The Land
Exhibit "B" - Minimum Rent
Exhibit "C" - Appraisal Process
Exhibit "D" - Tenant Estoppel Certificate
Exhibit "E" - Memorandum of Lease
Exhibit "F" - Single Purpose Entity Requirements
Exhibit "G" - Tenant Equity Ownership
Exhibit "H" - Property Expenses
Exhibit "I" - Initial Landlord P&E
Exhibit "J" - Initial Tenant Personal Property
Exhibit "K" - Fallback Shortfall Assumption


                                       iv





                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT is entered into as of March 21, 2002, by and
between CNL RETIREMENT - AM/COLORADO LP, a Delaware limited partnership, as
landlord ("Landlord"), and ARC GREENWOOD VILLAGE, INC., a Tennessee corporation,
as tenant ("Tenant").

                               W I T N E S S E T H :
                               - - - - - - - - - -

         WHEREAS, Landlord has heretofore acquired fee simple title to the Land
and the Facility (these and other capitalized terms used and not otherwise
defined herein having the meanings ascribed to such terms in Article 1); and

         WHEREAS, Landlord wishes to lease the Leased Property to Tenant and
Tenant wishes to lease the Leased Property from Landlord, all subject to and
upon the terms and conditions herein set forth;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the mutual receipt and
legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby
agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

         For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, (i) the terms defined in this
Article and used in this Agreement shall have the meanings assigned to them in
this Article and include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
accordance with GAAP, (iii) all references in this Agreement to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement, and (iv) the words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or other subdivision.

         "Accessibility Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations, relating
to accessibility for the disabled or handicapped, including, but not limited to,
any applicable provisions of The Architectural Barriers Act of 1968, The
Rehabilitation Act of 1973, The Fair Housing Act of 1988, The Americans With
Disabilities Act, the accessibility code(s), if any, of the State in which the
Leased Property is located, and all regulations and guidelines promulgated under
any all of the foregoing, as the same may be amended from time to time.


                                       1


         "Accounting Period" shall mean each calendar month accounting period of
Tenant. If Tenant shall, for a bona fide business reason, change its accounting
period during the Term, appropriate adjustments, if any, shall be made with
respect to the timing of applicable accounting and reporting requirements of
this Agreement; provided, however, that in no event shall any such change or
adjustment alter the amount or frequency of payment of Minimum Rent within any
Fiscal Year, or alter the frequency of payment of Percentage Rent to less than
four (4) times within any Fiscal Year, or otherwise increase or reduce any
monetary obligation under this Agreement.

         "Accounting Year" shall mean each period of twelve (12) consecutive
Accounting Periods during the Term of this Agreement; the first Accounting Year
shall commence with the first full Accounting Period after the Commencement Date
of this Agreement.

         "Additional Charges" shall have the meaning given such term in Section
3.4.

         "Additional Rent" shall have the meaning given such term in Section
3.5.

         "Affiliated Person" shall mean, with respect to any Person, (i) any
Person directly or indirectly Controlling, Controlled by or under common Control
with any such Person, (ii) in the case of any such Person which is a
partnership, any partner in such partnership, (iii) in the case of any such
Person which is a limited liability company, any member of such company, (iv) in
the case of any such Person which is a corporation, any officer, director or
stockholder of such corporation, (v) any other Person which is a Parent, a
Subsidiary, or a Subsidiary of a Parent with respect to such Person or to one or
more of the Persons referred to in the preceding clauses (i) through (iv), (vi)
any other Person who is an officer, director, trustee or employee of, or partner
in, such Person or any Person referred to in the preceding clauses (i) through
(v) and (vii) any other Person who is a member of, or trustee of any trust for
the benefit of, the Immediate Family of such Person or of any Person referred to
in the preceding clauses (i) through (vi). Provided, however, a Person shall not
be deemed to be an Affiliated Person solely by virtue of the ownership of shares
of stock registered under the Securities Act of 1934, as amended, unless such
Person, as holder of such stock, is required to file a Schedule 13 D, pursuant
to Section 13(d) of such Act and Rule 13 d-1 promulgated thereunder.

         "Agreement" shall mean this Lease Agreement, including all Exhibits
hereto, as it and they may be amended or restated from time to time as herein
provided.

         "Annual Operations Statement" shall have the meaning given such term in
Section 3.3.2.

         "Applicable Laws" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits and orders, from time
to time in existence, of all courts of competent jurisdiction and Government
Agencies, and all applicable judicial and administrative and regulatory decrees,
judgments and orders, including common law rulings and determinations of any
kind, including without limitation, those relating to (i) damage to, or the
protection of real or personal property, (ii) human health and safety (except
those requirements which, by definition, are solely the responsibility of
employers), (iii) the Environment, including, without limitation, all valid and
lawful requirements of courts and other Government Agencies pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
underground improvements (including, without limitation, treatment or storage
tanks, or water, gas or oil wells), or emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pesticides,
petroleum or petroleum products,



                                       2


pollutants, contaminants or hazardous or toxic substances, materials or wastes
whether solid, liquid or gaseous in nature, into the Environment, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, underground improvements
(including, without limitation, treatment or storage tanks, or water, gas or oil
wells), or pollutants, contaminants or hazardous or toxic substances, materials
or wastes, whether solid, liquid or gaseous in nature, (iv) Accessibility Laws,
(v) dementia care/assisted facility licensure or (vi) participation in Medicare
or Medicaid programs.

         "Applicable Reserve Percentage" shall mean, with respect to any
Accounting Period, or portion thereof, the greater of $250.00 per year per
licensed bed or living unit located on the Leased Property, prorated for such
Accounting Period and divided by and expressed as a percentage of Total Facility
Revenues for such Accounting Period, or (i) with respect to the period beginning
on the later to occur of the Opening Date or the Commencement Date and ending on
the last day of the twenty-fourth (24th) full Accounting Period next following,
one percent (1%) of Total Facility Revenue; (ii) with respect to the
twenty-fifth (25th) through sixtieth (60th) full Accounting Periods next
following the Opening Date, two percent (2%) of Total Facility Revenue, and,
(iii) with respect to each Accounting Period thereafter, two and five-tenths
percent (2.5%) of Total Facility Revenue.

         "Approved Reserve Estimate" shall have the meaning given such term in
Section 5.2.3.

         "ARC-Related Leases" shall mean, collectively, all present and future
property leases between Landlord or CNL Retirement, or any Affiliated Person of
Landlord or CNL Retirement, as landlord, and Tenant or Guarantor or any
Affiliated Person of Tenant or Guarantor, as tenant.

         "Business Day" shall mean any day other than Saturday, Sunday, or any
other day on which banking institutions in the State are authorized by law or
executive action to close.

         "Calculation Period" shall mean each successive period of four (4)
consecutive Fiscal Quarters commencing with the first Fiscal Quarter following
the acquisition by Landlord of the Leased Property.

         "Cash Available for Lease Payments" shall mean for any Calculation
Period the remainder of (i) Total Facility Revenue for the Leased Property
during such Calculation Period, less (ii) Property Expenses for the Leased
Property for the same Calculation Period.

         "CNL Retirement" shall mean CNL Retirement Properties, Inc., a Maryland
corporation.

         "Code" shall mean the Internal Revenue Code of 1986 and, to the extent
applicable, the Treasury Regulations promulgated thereunder, each as amended
from time to time.

         "Commencement Date" shall mean the date of this Agreement.

         "Condemnation" shall mean (a) the exercise of any governmental power
with respect to the Leased Property, whether by legal proceedings or otherwise,
by a Condemnor of its power of condemnation, (b) a voluntary sale or transfer of
the Leased Property by Landlord to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending, or (c) a
taking or voluntary conveyance of all or part of the Leased Property, or any
interest therein, or right





                                       3


accruing thereto or use thereof, as the result or in settlement of any
Condemnation or other eminent domain proceeding affecting the Leased Property,
whether or not the same shall have actually been commenced.

         "Condemnor" shall mean any public or quasi-public authority, or Person
having the power of Condemnation.

         "Conflicting Business" shall have the meaning given such term in
Section 4.3.

         "Control" (including the correlative meanings of the terms
"Controlling", "Controlled by", and "under common control with") as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such Person
whether through the ownership of voting securities, by contract or otherwise.

         "CRC" shall mean CNL Retirement Corp., a Florida corporation.

         "Default" shall mean any event or condition existing which with the
giving of notice and/or lapse of time would ripen into an Event of Default.

         "Disbursement Rate" shall mean an annual rate of interest equal to the
greater of, as of the date of determination, (i) ten percent (10.00%) and (ii)
the per annum rate for ten (10) year U.S. Treasury Obligations as published in
The Wall Street Journal plus three hundred fifty (350) basis points.

         "Distribution" shall mean (a) any declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of Tenant,
if Tenant is a corporation, or any cash distributions in respect of any
partnership interests or membership interests in Tenant, if Tenant is a
partnership or a limited liability company, (b) any purchase, redemption,
retirement or other acquisition of any shares of any class of capital stock of
Tenant, if Tenant is a corporation, or any purchase, redemption, retirement or
other acquisition of any partnership or membership interests in Tenant, if
Tenant is a partnership or a limited liability company, (c) any other
distribution on or in respect of any shares of any class of capital stock of
Tenant, if Tenant is a corporation, or any other distribution in respect of any
partnership interests or membership interests in Tenant, if Tenant is a
partnership or a limited liability company, or (d) any return of capital to
shareholders of Tenant, if Tenant is a corporation, or any return of capital to
partners of Tenant, if Tenant is a partnership or a limited liability company.

         "Entity" shall mean any corporation, general or limited partnership,
limited liability company, partnership, stock company or association, joint
venture, association, company, trust, bank, trust company, land trust, business
trust, cooperative, any government or agency or political subdivision thereof or
any other entity.

         "Environment" shall mean soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.

         "Event of Default" shall have the meaning given such term in Section
12.1.

         "Extended Terms" shall have the meaning given such term in Section 2.4.


                                       4


        "Facility" shall mean the skilled nursing, assisted living and dementia
care facility located and operated on the Land.

        "Facility Mortgage" shall mean any encumbrance placed upon the Leased
Property as referenced in Article 19.

        "Fiscal Quarter" shall mean the first, second, third and fourth
three-month period (each consisting of three Accounting Periods) during each
Fiscal Year.

        "Fiscal Year" shall mean Tenant's Fiscal Year which as of the
Commencement Date begins on January 1 and ends on December 31 in each calendar
year. Any partial Fiscal Year between the Commencement Date and the commencement
of the first full Fiscal Year (except with respect to the calculation and
payment of Minimum Rent as referenced in Section 3.1 of this Agreement), shall
constitute a separate Fiscal Year. A partial Fiscal Year between the end of the
last full Fiscal Year and the termination of this Agreement shall also
constitute a separate Fiscal Year. If Tenant's Fiscal Year is changed in the
future, appropriate adjustments to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement or in any way reduce the distribution of
Percentage Rent or other payments due hereunder. Each full Fiscal Year shall
consist of twelve Accounting Periods.

        "Force Majeure Event" means any circumstance which is not in the
reasonable control of either party hereto, caused by any of the following:
strikes, lockouts; acts of God; civil commotion; fire or any other casualty;
governmental action; or other similar cause or circumstance which is not in the
reasonable control of either party hereto. Neither lack of financing nor general
economic and/or market factors is a Force Majeure Event.

        "GAAP" shall mean generally accepted accounting principles consistently
applied.

        "Guarantor" shall mean American Retirement Corporation, a Tennessee
corporation ("Guarantor").

        "Government Agencies" shall mean any legislative body, court, agency,
authority, board (including, without limitation, health and long term care,
environmental protection, planning and zoning), bureau, commission, department,
office or instrumentality of any nature whatsoever of any governmental or
quasi-governmental unit of the United States or the State or any county or any
political subdivision of any of the foregoing, whether now or hereafter in
existence, having jurisdiction over Tenant or the Leased Property or any portion
thereof or the skilled nursing, assisted living and dementia care facility
operated thereon.

        "Hazardous Substances" shall mean any substance:

                (a) the presence of which requires or may hereafter require
        notification, investigation or remediation under any federal, state or
        local statute, regulation, rule, ordinance, order, action or policy; or

                (b) which is or becomes defined as a "hazardous waste",
        "hazardous material" or "hazardous substance" or "pollutant" or
        "contaminant" under any present or future federal, state





                                       5


        or local statute, regulation, rule or ordinance or amendments thereto
        including, without limitation, the Comprehensive Environmental Response,
        Compensation and Liability Act (42 U.S.C. et seq.) and the Resource
        Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) and the
        regulations promulgated thereunder; or

                (c) which is toxic, explosive, corrosive, flammable, infectious,
        radioactive, carcinogenic, mutagenic or otherwise hazardous and is or
        becomes regulated by any governmental authority, agency, department,
        commission, board, agency or instrumentality of the United States, any
        state of the United States, or any political subdivision thereof; or

                (d) the presence of which on the Leased Property causes or
        materially threatens to cause an unlawful nuisance upon the Leased
        Property or to adjacent properties or poses or materially threatens to
        pose a hazard to the Leased Property or to the health or safety of
        persons on or about the Leased Property; or

                (e) without limitation, which contains gasoline, diesel fuel or
        other petroleum hydrocarbons or volatile organic compounds; or

                (f) without limitation, which contains polychlorinated biphenyls
        (PCBs) or asbestos or urea formaldehyde foam insulation; or

                (g) without limitation, which contains or emits radioactive
        particles, waves or material; or

                (h) without limitation, constitutes materials which are now or
        may hereafter be subject to regulation pursuant to the Material Waste
        Tracking Act of 1988, or any Applicable Laws promulgated by any
        Government Agencies.

        "Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren, grandchildren, grandparents, parents-in-law, brothers-in-law,
sisters-in-law, nephews and nieces.

        "Indebtedness" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP should be reflected on the obligor's balance sheet
as liabilities.

        "Initial Landlord P&E" shall mean and refer to all P&E of any kind or
description which are located on or in the Leased Improvements as of the
Commencement Date, including without limitation those items enumerated on
Exhibit "I" attached hereto and made a part hereof, but specifically excluding
any specific items of Tenant's Personal Property identified on Exhibit "J"
attached hereto and made a part hereof.

        "Initial Term" shall have the meaning given such term in Section 2.3.

        "Insurance Requirements" shall mean all terms of any insurance policy
required by this Agreement and all requirements of the issuer of any such policy
and all orders, rules and regulations and any other requirements of the National
Board of Fire Underwriters (or any other body exercising similar functions)
binding upon Landlord, Tenant or the Leased Property.


                                       6


        "Inventories" shall mean all inventories, as such term is customarily
used and defined in its most broad and inclusive sense including, but not
limited to, all inventories of food, beverages and other consumables held by
Tenant for sale or use at or from the Leased Property or the Facility, and soap,
cleaning supplies, paper supplies, operating supplies, china, glassware, silver,
linen, uniforms, building and maintenance supplies, spare parts and attic stock,
medical supplies, drugs and all other such goods, wares and merchandise held by
Tenant for sale to or for consumption by residents or patients of the Leased
Property or the Facility and all such other goods returned to or repossessed by
Tenant.

        "Land" shall have the meaning given such term in Section 2.1(a).

        "Landlord" shall have the meaning given such term in the preambles to
this Agreement and shall include its successors and assigns.

        "Landlord's Original Investment" shall mean the sum of Seventeen Million
Eight Hundred Sixty-Five Thousand Three Hundred Seventy-Five and NO/100 Dollars
($17,865,375.00), which represents, for purposes of this Lease, Landlord's total
acquisition and transactional costs incurred in acquiring the Leased Property.

        "Lease" shall mean this Lease Agreement, including all Exhibits hereto,
as it and they may be amended or restated from time to time as herein provided.

        "Lease Year" shall mean any Fiscal Year during the Term and any partial
Fiscal Year at the beginning or end of the Term.

        "Leased Improvements" shall have the meaning given such term in Section
2.1(b).

        "Leased Intangible Property" shall mean all transferable or assignable
(a) governmental permits, including licenses and authorizations, required for
the construction, ownership and operation of the Leased Improvements, including
without limitation, certificates of need, certificates of authority,
certificates of occupancy, building permits, signage permits, site use
approvals, zoning certificates, environmental and land use permits and any and
all necessary approvals from state or local authorities and other approvals
granted by any public body or by any private party pursuant to a recorded
instrument relating to such Leased Improvements or the Land; (b) development
rights, trade names, telephone exchange numbers identified with the Leased
Property, if any (specifically excluding, however, any specific items of
Tenant's Personal Property identified on Exhibit "J" hereto); and (c)
certificates, licenses, warranties and guarantees and contracts other than such
permits, operating permits, certificates, licenses and approvals which are to
held by, or transferred to, the Tenant in order to permit the Tenant to operate
such Leased Improvements properly and in accordance with the terms of this
Agreement.

        "Leased Property" shall have the meaning given such term in Section 2.1.

        "Legal Requirements" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
maintenance, construction, alteration or operation thereof, whether now or
hereafter enacted or in existence, including, without limitation, (a) all
permits, licenses, authorizations,



                                       7


certificates and regulations necessary to operate the Leased Property for its
Permitted Use, (b) all covenants, agreements, declarations, restrictions and
encumbrances contained in any instruments at any time in force affecting the
Leased Property or to which Tenant has consented or which are required to be
granted pursuant to Applicable Laws, including those which may (i) require
material repairs, modifications or alterations in or to the Leased Property or
(ii) in any way materially and adversely affect the use and enjoyment thereof,
but excluding any requirements arising as a result of Landlord's status as a
real estate investment trust, and (c) Applicable Laws.

        "Lien" shall mean any mortgage, security interest, pledge, collateral
assignment, or other encumbrance, lien or charge of any kind, or any transfer of
property or assets for the payment of Indebtedness or performance of any other
obligation in priority to payment of the obligor's general creditors.

        "Major Alterations" shall have the meaning given such term in Section
6.2.2.

        "Major Violation" shall mean any violation of Applicable Laws relating
to the use, operation or maintenance of the Facility or to the care of residents
which presents an imminent danger to the residents or guests of the Facility or
a substantial probability that death or serious harm would result therefrom.

        "Minimum Rent" shall mean annual rent as set forth in Section 3.2,
subject to prorations and adjustments as set forth in Section 3.2.

        "Minimum Rent Coverage" shall mean the quotient, expressed as a ratio,
of (i) the total Cash Available for Lease Payments during the Calculation Period
divided by the (ii) total Minimum Rent paid under this Agreement for the Leased
Property during such Calculation Period.

        "Minor Alterations" shall have the meaning given such term in Section
6.2.1.

        "Mortgagee" shall mean the holder of any Facility Mortgage.

        "Notice" shall mean a notice given in accordance with Section 21.10.

        "Opening Date" shall mean the date on which the Facility first opened
for business to the general public.

        "Overdue Rate" shall mean, on any date, a per annum rate of interest
equal to the lesser of (i) fifteen percent (15%) or (ii) the maximum rate then
permitted under applicable law.

        "P&E" shall mean all items of personal property, as defined under the
Model Uniform Commercial Code, including, but not limited to: (a) all equipment,
machinery, fixtures, and other items of property, now or hereafter permanently
affixed to or incorporated into the Leased Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, all of
which, to the maximum extent permitted by law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements, modifications,
alterations and additions




                                       8


thereto; (b) all furniture, furnishings, movable walls or partitions, computers
or trade fixtures or other personal property of any kind or description used or
useful in Tenant's business on or in the Leased Improvements, and located on or
in the Leased Improvements, and all modifications, replacements, alterations and
additions to such personal property; (c) all linen, china, glassware, tableware,
uniforms and similar items, whether used in connection with public space or
tenant rooms; and (d) "Property and Equipment," "P&E," and "FF&E" (as such terms
are customarily used and defined in the most broad and inclusive sense), as well
as all other items included within the category of Inventory; and all including,
without limitation, the Initial Landlord P&E, but not including, however, any
item of Tenant's Personal Property identified in Exhibit "J" hereto.

        "P&E Replacements" shall mean all items purchased with funds from the
Reserve established under Article 5 of this Lease and all other items of P&E
added and used at the Leased Property during the Term of this Lease, together
with all leasehold improvements made by Tenant during the Term of this Lease to
the extent not constituting real property affixed to the Land, whether purchased
from the Reserve or with other funds of Tenant, all subject to disposal and
further replacement at the end of their useful lives.

        "Parent" shall mean, with respect to any Person, any Person which
directly, or indirectly through one or more Subsidiaries or Affiliated Persons,
(i) owns more than fifty percent (50%) of the voting or beneficial interest in,
or (ii) otherwise has the right or power (whether by contract, through ownership
of securities or otherwise) to control, such Person.

        "Percentage Rent" shall have the meaning given such term in Section 3.3.

        "Permits" means all licenses, permits and certificates used or useful in
connection with the ownership, operation, use or occupancy of the Leased
Property or the Facility, including, without limitation, business licenses,
state department of public health and environment licenses, licenses required by
long term care facilities, licenses required by personal care boarding homes,
food service licenses, licenses to conduct business, certificates of need and
all such other permits, licenses and rights, obtained from any governmental,
quasi-governmental or private person or entity whatsoever.

        "Permitted Encumbrances" shall mean all rights, restrictions, and
easements of record set forth on Schedule B to the applicable owner's title
insurance policy issued to Landlord for the Land, plus any other such
encumbrances as may have been consented to in writing by Landlord from time to
time.

        "Permitted Renovations" shall have the meaning given that term in
Section 6.2.

        "Permitted Use" shall mean any use of the Leased Property permitted
pursuant to Section 4.1.1.

        "Person" shall mean any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.

        "Property Expenses" shall mean those expenses more particularly
described on Exhibit "H" attached hereto.

        "Proscribed Area" shall have the meaning given such term in Section 4.3.



                                       9


        "Reimbursement Contracts" means all third party reimbursement contracts
for the Facility which are now or hereafter in effect with respect to residents
or patients qualifying for coverage under the same, including private insurance
agreements, Medicare and Medicaid and any successor program or other similar
reimbursement program and/or private insurance agreements.

        "Rent" shall mean, collectively, Minimum Rent, Percentage Rent and
Additional Rent.

        "Reserve" shall have the meaning given such term in Section 5.2.

        "Reserve Estimate" shall have the meaning given such term in Section
5.2.

        "Reserve Expenditures" shall have the meaning given such term in Section
5.2.

        "SEC" shall mean the Securities and Exchange Commission.

        "Security Deposit" shall have the meaning given such term in Section
3.10.

        "Shortfall" shall mean, for any Accounting Period, the amount, if any,
by which (i) all Minimum Rent paid by Tenant (or payable pursuant to the terms
of this Agreement, whichever is greater) plus all Property Expenses paid during
such Accounting Period, exceeds (ii) the total amount of Total Facility Revenue
derived from the Leased Property during such Accounting Period. The Shortfall
for any Accounting Period shall in no event be less than zero.

        "Shortfall Amount Funded" shall mean, for any period, the cumulative
amount of any and all Shortfalls funded by or on behalf of Tenant during such
period.

        "Shortfall Forecast" shall mean, for each Calculation Period beginning
during the Term of the Lease until such time, if ever, as the Shortfall Reserve
Requirement shall no longer apply, the cumulative sum of any and all forecasted
Shortfalls as estimated in good faith and certified to Landlord by Tenant and
approved by Landlord for such Calculation Period in accordance with Section 3.9.

        "Shortfall Reserve Period" shall mean the period commencing with the
Commencement Date and ending only at such time as the Shortfall Reserve
Requirement is no longer applicable as provided in Section 3.9.

        "Shortfall Reserve Requirement" shall at any time mean the greater of
(a) one hundred and twenty-five percent (125%) of the Shortfall Forecast, if
any, for the then current and following three (3) Fiscal Quarters (calculated as
of the commencement of the then-current Fiscal Quarter), less the amount of any
Shortfall Amount Funded during the current Fiscal Quarter; or (b) three hundred
percent (300%) of the Shortfall, if any, during the most recent Accounting
Period.

        "Single Purpose Entity" shall have the meaning given such term in
Exhibit "F" attached hereto.

        "State" shall mean the State in which the Facility is located.

        "Subsidiary" shall mean, with respect to any Person, any Entity in which
such Person directly, or indirectly through one or more Subsidiaries or
Affiliated Persons, (a) owns more than fifty percent





                                       10


(50%) of the voting or beneficial interest or (b) which such Person otherwise
has the right or power to control (whether by contract, through ownership of
securities or otherwise).

        "Tax and Insurance Account" shall have the meaning given such term in
Section 8.3.

        "Tax and Insurance Escrow Amount" shall have the meaning given such term
in Section 8.3.

        "Tenant" shall be the entity identified in the preamble to this
Agreement and shall include its successors and assigns expressly permitted
hereunder.

        "Tenant Shortfall Reserve" shall have the meaning given such term in
Section 3.9.

        "Tenant's Personal Property" shall mean any specific items of P&E listed
in Exhibit "J" to this Lease, or replacements for such items or items within any
specific categories of P&E listed in Exhibit "J" to this Lease which hereafter
are acquired by Tenant with its own funds after the Commencement Date and
located at the Leased Property (but not including any property purchased with
funds from the Reserve established under Section 5.2).

        "Term" shall mean, collectively, the Initial Term and the Extended
Terms, unless sooner terminated pursuant to the provisions of this Agreement.

        "Threshold" shall mean the sum of Total Facility Revenue for the twelve
(12) Accounting Periods ending on the end of the thirty-sixth (36th) full
Accounting Period following the Commencement Date.

        "Total Facility Revenue" shall mean, for the applicable period of time,
but without duplication, all gross revenues and receipts of every kind derived
by or for the benefit of Tenant, or its Affiliated Persons from operating or
causing the operation of the Leased Property and all parts thereof, including,
but not limited to: income from both cash and credit transactions (after
reasonable deductions for bad debts and discounts for prompt or cash payments
and refunds) from rental or subleasing of every kind; entrance fees, fees for
health care and personal care services, license, lease and concession fees and
rentals, off premises catering, if any, and parking (not including gross
receipts of licensees, lessees and concessionaires); income from vending
machines; health club membership fees; food and beverage sales; wholesale and
retail sales of merchandise (other than proceeds from the sale of furnishings,
fixtures and equipment no longer necessary to the operation of the Facility,
which shall be deposited in the Reserve) and service charges, to the extent not
distributed to employees at the Facility as gratuities; provided, however, that
Total Facility Revenue shall not include the following: gratuities to Facility
employees; federal, state or municipal excise, sales, occupancy, use or similar
taxes collected directly from residents or included as part of the sales price
of any goods or services; insurance proceeds; any proceeds from any sale of the
Leased Property or from the refinancing of any debt encumbering the Leased
Property; proceeds from the disposition of furnishings, fixture and equipment no
longer necessary for the operation of the Facility; and interest which accrues
on amounts deposited in the Reserve.

        "Unsuitable for Its Permitted Use" shall mean a state or condition of
the Leased Property such that following any damage or destruction involving the
Leased Property, the Leased Property cannot be operated in the reasonable
judgement of Landlord (after conferring with Tenant) on a commercially




                                       11


practicable basis for its Permitted Use and it cannot reasonably be expected to
be restored to substantially the same condition as existed before such damage or
destruction and as is otherwise required by Article 12 within (i) twelve (12)
months following such damage or destruction, or (ii) eighteen (18) months
following such damage or destruction in the event that Tenant has extended the
term of the business income insurance to pay at least eighteen (18) months Rent
for the benefit of Landlord or provides other reasonably acceptable security for
any uninsured portion of the eighteen (18) months Rent.

                                   ARTICLE 2

                            LEASED PROPERTY AND TERM

        2.1 Leased Property. Upon and subject to the terms and conditions
hereinafter set forth, Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord all of Landlord's right, title and interest in and to all of the
following (collectively, the "Leased Property"):

                (a) all that certain tract, piece and parcel of land, as more
        particularly described in Exhibit "A", attached hereto and made a part
        hereof (the "Land");

                (b) the Facility, all buildings, structures and other
        improvements of every kind, including without limitation all roofs,
        plumbing systems, electric systems and HVAC systems, roadways,
        alleyways, parking areas, sidewalks, curbs, connecting tunnels, utility
        pipes, conduits and lines (on-site and off-site) appurtenant to or
        presently situated upon the Land (collectively, the "Leased
        Improvements");

                (c) all easements, rights and appurtenances relating to the Land
        and the Leased Improvements;

                (d) all P&E and Inventory;

                (e) all moveable machinery, equipment, furniture, furnishings,
        moveable walls or partitions, computers or trade fixtures located on or
        in the Leased Improvements, and all modifications, replacements,
        alterations and additions to such property, but specifically excluding
        all items included within the category of Tenant's Personal Property;

                (f) all of the Leased Intangible Property;

                (g) any and all subleases of space in the Leased Improvements to
        subtenants thereof; and

                (h) All other property and interests in property conveyed or
        assigned to Landlord pursuant to the Real Estate Purchase and Sale
        Agreement governing the sale and conveyance of the Leased Property from
        Guarantor to Landlord dated as of February 11, 2002 (the "Purchase
        Agreement").



                                       12


        2.2 Condition of Leased Property. Tenant acknowledges and agrees that
the Leased Property is and shall be leased by Landlord to Tenant and from
Landlord by Tenant in its present "as is" condition, subject to the existing
state of title and all applicable legal or governmental requirements, and
Landlord makes absolutely no representations or warranties whatsoever with
respect to the Leased Property or the condition thereof. Tenant acknowledges
that Landlord has not investigated and does not warrant or represent to Tenant
that the Leased Property is fit for the purposes intended by Tenant or for any
other purpose or purposes whatsoever, and Tenant acknowledges that the Leased
Property is to be leased to Tenant in its existing condition, i.e., "as-is", and
"where-is", without any representation or warranty as to habitability or fitness
for any particular purpose, on and as of the Commencement Date. Tenant
represents and acknowledges that all permits, licenses and approvals required by
any governmental or quasi-governmental, body, department, commission, board,
bureau, instrumentality or officer, or otherwise appropriate with respect to the
construction, operation, leasing, maintenance or use of the Leased Property or
any part thereof, have been issued, are past all appeals periods and are valid
and in full force and effect and that no provision, condition or limitation of
any of the same has been breached or violated. Tenant acknowledges that Tenant
shall be solely responsible for any and all actions, repairs, permits, approvals
and costs required for the rehabilitation, renovation, use, occupancy and
operation of the Leased Property in accordance with applicable governmental
requirements, foreseen or unforeseen, including, without limitation, all
governmental charges and fees, if any, which may be due or payable to applicable
authorities. Tenant agrees that, by leasing the Leased Property, Tenant warrants
and represents that Tenant has examined and approved all things concerning the
Leased Property which Tenant deems material to Tenant's leasing and use of the
Leased Property. Tenant further acknowledges and agrees that (a) neither
Landlord nor any agent of Landlord has made any representation or warranty,
express or implied, concerning the Leased Property or which have induced Tenant
to execute this Agreement and (b) any other representations and warranties are
expressly disclaimed by Landlord.

        2.3 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence on the Commencement Date and shall terminate and expire at
11:59 p.m. on the last calendar day of the month on which the fifteenth (15th)
annual anniversary of the Commencement Date shall occur.

        2.4 Extended Term. Tenant shall have and is hereby granted two (2)
option(s) to extend this Agreement for an additional five (5) years each
(individually an "Extended Term"), upon the same terms, covenants, conditions
and rental as set forth herein; provided there exists no continuing Event of
Default hereunder, or Default which Tenant has had an opportunity but failed to
cure as provided hereunder, during any applicable cure hereunder at the
commencement of the respective Extended Term. Tenant may exercise each such five
(5) year option successively by giving written notice to Landlord not less than
twelve (12) months nor more than eighteen (18) months prior to the respective
expiration of the Initial Term of this Agreement or of the then applicable
Extended Term. Should Tenant fail to give Landlord such timely written notice
during the required period, all remaining rights of renewal shall automatically
expire.

        2.5 Yield Up. Tenant shall, on or before the last day of the Term or
upon the sooner termination thereof, peaceably and quietly surrender and deliver
to Landlord the Leased Property, including, without limitation, all Leased
Improvements and P&E and all additions thereto and replacements thereof made
from time to time during the Term, together with and including without
limitation the P&E Replacements, in good order, condition and repair, reasonable
wear and tear



                                       13


excepted, and free and clear of all liens and encumbrances (other than Permitted
Encumbrances, liens or encumbrances in favor of or granted by Landlord, and any
other encumbrances expressly permitted under the terms of this Agreement).
Tenant acknowledges that both the Initial Landlord P&E described on Exhibit "I"
attached hereto and consumable items of Inventory located at the Leased Property
as of the Commencement Date may be completely consumed and/or otherwise disposed
of in the course of operation of the Leased Property during the Term of this
Agreement. Tenant agrees that, at the expiration or earlier termination of this
Agreement, at Landlord's option: (i) Tenant shall fully restore the Initial
Landlord P&E, inclusive with and after consideration of all P&E Replacements
which will become the property of Landlord, to at least the approximate types
and amounts (with reasonably equivalent value) as shown on Exhibit "I", and
shall fully restore an adequate supply of Inventory consistent with the full
stocking levels to be maintained by Tenant pursuant to Section 4.6 of this Lease
(or a full thirty days supply, which ever is greater), or (ii) Landlord shall
deduct the then-current value of amounts needed to fully restore the required
P&E and Inventory, as aforesaid, to the extent that this sum exceeds the Reserve
amount to be transferred to Landlord under Section 5.2.6 hereof, from the
Security Deposit.

                                   ARTICLE 3

                                      RENT

        3.1 Rent. Tenant shall pay, in lawful money of the United States of
America which shall be legal tender for the payment of public and private debts,
without offset, abatement, demand or deduction (unless otherwise expressly
provided in this Agreement), Rent to Landlord during the Term at the address to
which notices to Landlord are to be given or to such other party or to such
other address as Landlord may designate from time to time by written notice to
Tenant. All payments to Landlord shall be made by wire transfer of immediately
available federal funds or by other means acceptable to Landlord in its sole
discretion and all such payments shall, upon receipt by Landlord, be and remain
the sole and absolute property of Landlord. If Landlord shall at any time accept
any such Rent or other sums after the same shall become due and payable, or any
partial payment of Rent, such acceptance shall not excuse a delay upon
subsequent occasions, or constitute or be construed as a waiver of any of
Landlord's rights hereunder.

        3.2 Minimum Rent. Tenant shall pay annual base minimum rent ("Minimum
Rent") to Landlord in equal installments in advance, on the first (1st) Business
Day of each Accounting Period; provided, however, that the first payment of
Minimum Rent shall be payable on the Commencement Date. Further, if applicable,
the first payment of Minimum Rent and the last payment of Minimum Rent shall be
prorated on a per diem basis provided, however, that for purposes of Minimum
Rent, any prorated payment for any partial Accounting Period prior to the first
full Accounting Period shall be prorated based upon the installment of Minimum
Rent payable for the first full Accounting Period, and any prorated Rent at the
end of the Term shall be prorated based upon the installment of Minimum Rent
payable for the last full Accounting Period.

                3.2.1 Calculation of Initial Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent during each
        Accounting Year of the Initial Term of this Agreement in the amounts set
        forth on Exhibit "B" attached hereto and made a part hereof.



                                       14


                3.2.2 Calculation of Extended Term Minimum Rent. Subject to
        proration as set forth above, Tenant shall pay Minimum Rent under this
        Agreement during the first Accounting Year of each Extended Term in an
        amount equal to the greater of:

                        (a) two and five-tenths percent (2.5%) over the amount
                of Minimum Rent due in the immediately preceding Accounting
                Year; or

                        (b) the product of the fair market value of the Leased
                Property on the date of Tenant's Notice of exercise pursuant to
                Section 2.4, times ten percent (10.00%).

        Minimum Rent for each Accounting Year after the first Accounting Year in
        an Extended Term shall increase by two percent (2%) over the amount of
        Minimum Rent due in the immediately preceding Accounting Year.

        If within ten (10) days of the date of Tenant's Notice of exercise
        pursuant to Section 2.4, Landlord and Tenant are unable to agree on the
        fair market value of the Premises for purposes of this calculation, such
        fair market value shall be established by the appraisal process
        described on Exhibit "C" attached hereto. Landlord and Tenant
        acknowledge and agree that this Section is designed to establish a fair
        market Minimum Rent for the Leased Property during each applicable
        Extended Term. In the event that the Minimum Rent for the applicable
        Extended Term is not finally determined by such appraisal process prior
        to the commencement of the Extended Term, then in such event until such
        amount is finally determined the Tenant shall pay to Landlord as
        "Interim Rent" for the Extended Term an amount equal to one hundred
        twenty-five percent (125%) of the established Minimum Rent as of the end
        of the Accounting Year immediately preceding the Extended Term until
        such appraisal process and any dispute relating thereto is finally
        resolved. In such an event, the amount of any differential between the
        Interim Rent and Minimum Rent established shall, if resulting in an
        underpayment, be paid by Tenant to Landlord within fifteen (15) days, or
        if resulting in an overpayment be credited by Landlord against the next
        installment(s) of Rent coming due hereunder.

        3.3 Percentage Rent. In addition to and not in lieu of Minimum Rent,
Tenant shall pay percentage rent ("Percentage Rent") to Landlord for each Fiscal
Year or portion thereof. Installments of Percentage Rent shall be due and
payable in arrears within thirty (30) days after the end of each Fiscal Quarter
of the Term hereof, based upon Total Facility Revenue for such Fiscal Quarter
and an allocation of one-quarter of the Threshold amount to each such Fiscal
Quarter; provided, however, that no Percentage Rent shall be payable hereunder
with respect to the initial portion of the Term ending on the end of the
thirty-sixth (36th) full Accounting Period following the Commencement Date.
Along with each Percentage Rent payment Tenant shall submit to Landlord an
unaudited (but certified by a duly authorized officer of Tenant) statement
showing a detailed breakdown of the calculation of Percentage Rent for that
Fiscal Quarter and Fiscal Year-to-date on a cumulative basis. Percentage Rent
for any partial Fiscal Quarter in the final Fiscal Year shall be prorated
proportionately. Tenant's obligation to pay Percentage Rent for the Fiscal
Quarter which includes the date of termination of this Agreement shall survive
the termination hereof.

                3.3.1 Calculation of Percentage Rent. Subject to proration as
        set forth above, Tenant shall pay Percentage Rent in respect of each
        Fiscal Year under this Agreement equal to (a) ten percent (10%) of the
        Total Facility Revenue for such Fiscal Year in excess of the Threshold,



                                       15


        less (b) the amount by which annual Minimum Rent in the Fiscal Year for
        which Percentage Rent is being calculated exceeds the amount of annual
        Minimum Rent due for the first (1st) Accounting Year under this
        Agreement.

                3.3.2 Annual Reconciliation of Percentage Rent. Tenant shall, no
        later than ninety (90) days following the end of each Fiscal Year during
        the Term hereof furnish to Landlord for such Fiscal Year a complete
        statement (the "Annual Operations Statement") certified true and correct
        by the Chief Financial Officer of Tenant and the Chief Financial Officer
        of the Guarantor, setting forth, with respect to such Fiscal Year in
        reasonable detail the Total Facility Revenue derived by or for the
        benefit of Tenant in respect of such Fiscal Year. If the Annual
        Operations Statement for any Fiscal Year indicates that the aggregate of
        the installment payments theretofore made with respect to such Fiscal
        Year pursuant to Section 3.3.1 exceeds the Percentage Rent due for such
        Fiscal Year, Landlord shall credit such overpayment against the next
        installment or installments of Minimum Rent falling due (or will pay the
        amount of such overpayment to Tenant if this Agreement shall have
        terminated other than by reason of Tenant's default or if Landlord so
        elects to do so). If, on the other hand, the Annual Operations Statement
        indicates that the aggregate of the installment payments theretofore
        made with respect to such Fiscal Year is less than the Percentage Rent
        due for such Fiscal Year then Tenant shall pay the balance or excess, as
        the case may be, together with interest thereon determined as set forth
        below in this paragraph, to Landlord concurrently with the submission of
        the Annual Operations Statement. Interest shall accrue on payments
        pursuant to this paragraph at the Disbursement Rate from the date when
        first due and payable until the date when the adjusted amount is fully
        paid in the manner as set forth above, except to the extent of de
        minimus adjustments of not more than ten percent (10%) of the amount
        initially paid resulting from the calculation method used or
        unintentional errors which could not reasonably have been avoided by
        reasonable care and diligence.

                3.3.3 Landlord Audit of Annual Operations Statement.
        Notwithstanding the foregoing, Landlord at its own expense, except as
        provided hereinbelow, shall have the right, exercisable by Notice to
        Tenant given within 270 days after receipt of the applicable Annual
        Operations Statement, by its accountants or representatives, to commence
        within such 270 day period an audit of the information set forth in such
        Annual Operations Statement and, in connection with such audit, to
        examine all of Tenant's books and records with respect thereto
        (including supporting data and sales and excise tax returns); provided,
        however, if Landlord reasonably believes Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement, the said 270 day period shall commence to run on the date
        Landlord obtains credible evidence that Tenant has intentionally
        misrepresented Total Facility Revenue on any such Annual Operations
        Statement. If Landlord does not commence an audit with such 270 day
        period, such Annual Operations Statement shall be deemed to be accepted
        by Landlord as correct. Landlord shall use commercially reasonable
        efforts to complete any such audit as soon as practicable. If such audit
        discloses a deficiency in the payment of Percentage Rent, Tenant shall
        forthwith pay to Landlord the amount of the deficiency, together with
        interest at the Disbursement Rate from the date such payment should have
        been made to the date of payment therefore. If such deficiency is more
        than three percent (3%) of the Total Facility Revenue reported by Tenant
        for such Fiscal Year, Tenant shall also pay the costs of such audit and
        examination.



                                       16


        3.4 Additional Charges. In addition to the Minimum Rent and Percentage
Rent payable hereunder, Tenant shall pay to the appropriate parties and
discharge as and when due and payable hereunder the following (collectively the
"Additional Charges"):

                3.4.1 Taxes and Assessments. Tenant shall pay or cause to be
        paid all taxes and assessments required to be paid pursuant to Article
        8.

                3.4.2 Utility Charges. Tenant shall be liable for and shall
        promptly pay directly to the utility company all deposits, charges and
        fees (together with any applicable taxes or assessments thereon) when
        due for water, gas, electricity, air conditioning, heat, septic, sewer,
        refuse collection, telephone and any other utility charges, impact fees,
        or similar items in connection with the use or occupancy of the Leased
        Property. Landlord shall not be responsible or liable in any way
        whatsoever for the quality, quantity, impairment, interruption,
        stoppage, or other interference with any utility service, including,
        without limitation, water, air conditioning, heat, gas, electric current
        for light and power, telephone, or any other utility service provided to
        or serving the Leased Property. No interruption, termination or
        cessation of utility services shall relieve Tenant of its duties and
        obligations pursuant to this Agreement, including, without limitation,
        its obligation to pay all Rent as and when the same shall be due
        hereunder.

                3.4.3 Insurance Premiums. Tenant shall pay or cause to be paid
        all premiums for the insurance coverage required to be maintained
        pursuant to Article 9.

                3.4.4 Licenses and Permits. Tenant shall pay or cause to be paid
        all fees, dues and charges of any kind which are necessary in order to
        acquire and keep in effect and good standing all licenses and permits
        required for operation of the Leased Property in accordance with the
        terms of Article 4.

                3.4.5 Sales Tax. Simultaneously with each payment of Rent and
        Additional Charges hereunder, Tenant shall pay to Landlord the amount of
        any applicable sales, use, excise or similar or other tax on any such
        Rent and Additional Charges, whether the same be levied, imposed or
        assessed by the State in which the Leased Property is located or any
        Governmental Agencies, but specifically excluding any income taxes
        imposed on Landlord's net income. Landlord shall, upon written request
        by Tenant, provide to Tenant on an annual basis such reasonable
        information in Landlord's possession or control as shall be necessary to
        enable Tenant to pay such tax.

                3.4.6 Other Charges. Tenant shall pay or cause to be paid all
        other amounts, liabilities and obligations arising in connection with
        the Leased Property except those obligations expressly stated not to be
        an obligation of Tenant pursuant to this Agreement.

                3.4.7 Penalties and Interest. Tenant shall pay or cause to be
        paid every fine, penalty, interest and cost which may be added for
        non-payment or late payment of the items referenced in this Section 3.4.



                                       17


        Tenant shall prepare and file at its expense, to the extent required or
permitted by Applicable Laws, all tax returns and other reports in respect of
any Additional Charge as may be required by Governmental Agencies.

        3.5 Landlord Advances. Except as specifically provided otherwise in this
Agreement, if Tenant does not pay or discharge all Additional Charges, and
provide proof of payment if requested by Landlord, at least fifteen (15) days
prior to delinquency, Landlord shall have the right but not the obligation to
pay such Additional Charges on behalf of Tenant. If Landlord shall make any such
expenditure for which Tenant is responsible or liable under this Agreement, or
if Tenant shall become obligated to Landlord under this Agreement for any other
sum besides Minimum Rent or Percentage Rent as hereinabove provided, the amount
thereof shall be deemed to constitute "Additional Rent" and shall be due and
payable by Tenant to Landlord, together with interest at the Overdue Rate and
all applicable sales or other taxes thereon, if any, simultaneously with the
next succeeding monthly installment of Minimum Rent or at such other time as may
be expressly provided in this Agreement for the payment of the same.

        3.6 Late Payment of Rent. If Tenant fails to make any payment of Rent on
or before the fifth business day after the date such payment is due and payable,
Tenant shall pay to Landlord an administrative late charge of five percent (5%)
of the amount of such payment. In addition, such past due payment shall bear
interest at the Overdue Rate from the date first due until paid. Such late
charge and interest shall constitute Additional Rent and shall be due and
payable with the next installment of Rent due hereunder.

        3.7 Net Lease. Landlord and Tenant acknowledge and agree that both
parties intend that this Agreement shall be and constitute what is generally
referred to in the real estate industry as a "triple net" or "absolute net"
lease, such that Tenant shall be obligated hereunder to pay all costs and
expenses incurred with respect to, and associated with, the Leased Property and
all personal property thereon and therein and the business operated thereon and
therein, including, without limitation, all taxes and assessments, utility
charges, insurance costs, maintenance costs and repair, replacement and
restoration expenses (all as more particularly herein provided), together with
any and all other assessments, charges, costs and expenses of any kind or nature
whatsoever related to, or associated with, the Leased Property and the business
operated thereon and therein, other than Landlord's financing costs and expenses
and related debt service; provided, however, that Landlord shall nonetheless be
obligated to pay Landlord's personal income taxes with respect to the Rent and
other amounts received by Landlord under this Agreement. Except as expressly
hereinabove provided, Landlord shall bear no cost or expense of any type or
nature with respect to, or associated with, the Leased Property. Except to the
extent otherwise expressly provided in this Agreement, it is agreed and intended
that Rent payable hereunder by Tenant shall be paid without notice, demand,
counterclaim, set-off, deduction or defense and without abatement, suspension,
deferment, diminution or reduction and that Tenant's obligation to pay Rent
throughout the Term and any applicable Extended Term is absolute and
unconditional and the respective obligations and liabilities of Tenant and
Landlord hereunder shall in no way be released, discharged or otherwise affected
for any reason, including without limitation: (a) any defect in the condition,
merchantability, design, quality or fitness for use of the Leased Property or
any part thereof, or the failure of the Leased Property to comply with
Applicable Laws, including any inability to occupy or use the Leased Property by
reason of such non-compliance; (b) any damage to, removal, abandonment, salvage,
loss, condemnation, theft, scrapping or destruction of or any requisition or




                                       18


taking of the Leased Property or any part thereof, or any environmental
condition on the Leased Property or any property in the vicinity of the Leased
Property; (c) any restriction, prevention or curtailment of or interference with
any use of the Leased Property or any part thereof, including eviction; (d) any
defect in title to or rights to the Leased Property or any lien on such title or
rights to the Leased Property; (e) any change, waiver, extension, indulgence or
other action or omission or breach in respect of any obligation or liability of
or by any Person; (f) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceedings relating to
Tenant or any other Person or any action taken with respect to this Agreement by
any trustee or receiver of Tenant or any other Person or by any court, in any
such proceedings; (g) any right or claim that Tenant has or might have against
any Person, including, without limitation, Landlord or any vendor, manufacturer
or contractor of or for the Leased Property (other than a claim resulting from
any willful misconduct or gross negligence of Landlord); (h) any failure on the
part of Landlord or any other Person to perform or comply with any of the terms
of this Agreement, or of any other agreement; (i) any invalidity,
unenforceability, rejection or disaffirmance of this Agreement by operation of
law or otherwise against or by Tenant or any provision hereof; (j) the
impossibility of performance by Tenant or Landlord, or both; (k) any action by
any court, administrative agency or other Government Agencies; (l) any
interference, interruption or cessation in the use, possession or quiet
enjoyment of the Leased Property or otherwise; or (m) any other occurrence
whatsoever whether similar or dissimilar to the foregoing, whether foreseeable
or unforeseeable, and whether or not Tenant shall have notice or knowledge of
any of the foregoing. Except as specifically set forth in this Agreement, this
Agreement shall be non-cancellable by Tenant for any reason whatsoever and,
except as expressly provided in this Agreement Tenant, to the extent now or
hereafter permitted by Applicable Laws, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Agreement
or to any diminution, abatement or reduction of Rent payable hereunder. Except
as specifically set forth in this Agreement, under no circumstances or
conditions shall Landlord be expected or required to make any payment of any
kind hereunder or have any obligations with respect to the use, possession,
control, maintenance, alteration, rebuilding, replacing, repair, restoration or
operation of all or any part of the Leased Property, so long as the Leased
Property or any part thereof is subject to this Agreement, and Tenant expressly
waives the right to perform any such action at the expense of Landlord pursuant
to any law.

        3.8 No Abatement of Rent. No abatement, diminution or reduction (a) of
Rent, charges or other compensation, or (b) of Tenant's other obligations
hereunder shall be allowed to Tenant or any person claiming under Tenant, under
any circumstances or for any reason whatsoever and to the maximum extent
permitted by law, Tenant hereby waives the application of any local or state
statutes, land rules, regulations or ordinance providing to the contrary.

        3.9 Tenant Shortfall Reserve Requirement. Tenant shall, commencing with
the Commencement Date and at all times required by this Section 3.9, maintain a
minimum liquid net worth (i.e., a net worth in cash or other available cash
equivalent funds of Tenant, and not of any other Person, acceptable to and
approved by Landlord and maintained in such bank accounts or other investments
or accounts as are approved in advance by Landlord) at all times equal to the
amount of the Shortfall Reserve Requirement (the "Tenant Shortfall Reserve").
Subject to the rights and security interests of Landlord as provided herein, the
Tenant shall continue to be the owner of and shall be entitled to all interest,
proceeds and profits of the Tenant Shortfall Reserve. For purposes hereof the



                                       19


initial amount of the Tenant Shortfall Reserve has been established by the
parties as One Hundred Ninety-Seven Thousand Eight Hundred Seventeen and No/100
Dollars ($197,817.00).

                3.9.1 Disbursements from the Shortfall Reserve. Provided that no
        uncured Default shall exist and the Lease is in good standing in all
        respects, and Landlord has approved and verified in its reasonable
        discretion the most recently updated Shortfall Reserve Requirement and
        the existence and amount of the Tenant Shortfall Reserve:

                        (a) Tenant may, from time to time and at its option,
                withdraw or disburse sums from the Shortfall Reserve to cover
                (or reimburse Tenant or its designee for) Shortfall Amounts
                Funded since the commencement of the then-current Fiscal Quarter
                so long as (a) contemporaneously with such withdrawal or
                disbursement Tenant delivers written notice thereof to Landlord,
                and (b) the withdrawal or disbursement of funds does not cause
                the amount of the Tenant Shortfall Reserve to fall below the
                Shortfall Reserve Requirement; and

                        (b) any amount of the Tenant Shortfall Reserve in excess
                of the Shortfall Reserve Requirement, as determined hereunder,
                may be withdrawn by Tenant at any time so long as Tenant
                provides contemporaneous written notice of such withdrawal to
                Landlord.

                3.9.2 Reporting and Calculation of the Shortfall Reserve
        Requirement. Throughout the Shortfall Reserve Period, in addition to
        other financial information to be reported to Landlord hereunder Tenant
        shall provide to Landlord, on or before the tenth (10th) day of each
        Accounting Period, updated evidence of the existence and amount of the
        Tenant Shortfall Reserve as herein required, as of the last day of the
        prior Accounting Period, in the form of bank account ledgers and
        statements, together with (a) a statement, certified by the Chief
        Financial Officer of Tenant, of the amount of the Shortfall for the
        immediately preceding Accounting Period and the Shortfall Reserve
        Requirement amount as of the first day of the current Accounting Period
        as calculated by Tenant; (b) evidence that the Tenant Shortfall Reserve
        has been increased, if necessary, to equal the full amount of the
        updated Shortfall Reserve Requirement; and (c) such other documentation
        reasonably requested by Landlord to evidence the foregoing. In addition,
        no more than twenty (20) and not less than ten (10) days prior to the
        commencement of each Fiscal Quarter during the Shortfall Reserve Period
        the Tenant shall provide to Landlord an updated pro forma income
        statement/revenue and expense budget for the following four Fiscal
        Quarters, prepared on a cash basis, all in a form approved in writing by
        Landlord as sufficient to provide a reasonable Shortfall Forecast of
        potential Shortfalls during such Calculation Period.

                3.9.3 Term of the Shortfall Reserve Requirement. The Tenant
        Shortfall Reserve Requirement shall remain in full force and effect
        until the earlier to occur of (a) the last day of the first Calculation
        Period during which the Minimum Rent Coverage averages 1.10 to 1 or
        higher, or the last calendar day of the month on which the second (2nd)
        annual anniversary of the Commencement Date shall occur, whichever is
        later, or (b) the day on which a termination of this Agreement occurs
        pursuant to the terms hereof, other than a termination due to an Event
        of Default by Tenant; but thereafter shall terminate, and be of no
        further force or effect (in


                                       20


        which event the balance of the Tenant Shortfall Reserve shall be
        disbursed to or at the direction of Tenant).

        3.10 Tenant Security Deposit. On the Commencement Date Tenant shall
deposit with Landlord in cash the sum of Seven Hundred Fourteen Thousand Six
Hundred Fifteen and No/100 Dollars ($714,615.00), as a security deposit (the
"Security Deposit"), for Tenant's faithful performance of all of Tenant's
obligations under this Agreement. If Tenant fails to pay Rent or Additional
Charges due hereunder, fails to fund Reserve Expenditures which exceed available
funds in the Reserve, or otherwise defaults with respect to any provision of
this Agreement, then in addition to and not exclusive of any other remedies
available under this Agreement, Landlord may use, apply or retain all or any
portion of the Security Deposit for the payment of any Rent, the funding of
Additional Charges or Reserve Expenditures or other charges in default, or for
the payment of any sum to which Landlord may become obligated by reason of
Tenant's default. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant shall, within five (5) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount of the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its general accounts. If
Tenant performs all of Tenant's obligations hereunder, at the expiration of the
Term, and after Tenant has vacated the Leased Property, the Security Deposit, or
so much thereof as has not been applied or used by Landlord as provided in this
Agreement, shall be returned to Tenant, without payment of interest or other
increment for its use. No trust relationship is created herein between Landlord
and Tenant with respect to the Security Deposit. The Security Deposit shall be
paid by Tenant to Landlord upon the Commencement Date.

        3.11 Security for all ARC-Related Leases. Tenant acknowledges that the
Security Deposit constitutes security for the faithful observance and
performance by Tenant of all the terms, covenants and conditions of this
Agreement and of all ARC-Related Leases (whether now in effect or entered into
in the future) to be observed and performed. If any Event of Default shall occur
and be continuing under this Agreement, Landlord may, at its option and without
prejudice to any other remedy which Landlord may have on account thereof,
appropriate and apply, first, the amount of the Security Deposit in accordance
with the terms set forth herein and, second, the amount of any other security
deposits under all ARC-Related Leases (herein the "Collective Security Deposit")
as may be necessary to compensate Landlord toward the payment of the Rent or
other sums due Landlord under this Agreement as a result of such breach by
Tenant. Additionally, Landlord may, if any Event of Default shall occur and be
continuing under any other ARC-Related Lease, appropriate and apply the Security
Deposit after first applying the security deposit under such other ARC-Related
Lease that is in default. It is understood and agreed that neither the Security
Deposit nor the Collective Security Deposit is to be considered as prepaid rent,
nor shall damages be limited to the amount of the Collective Security Deposit.

        3.12 Security Agreement. Tenant hereby grants to Landlord a security
interest in the Security Deposit, Tenant Shortfall Reserve and the Reserve as
set forth below, as security for all obligations of the Guarantor and as further
security for Tenant's obligations to Landlord hereunder, and agrees to execute
and deliver all such instruments as may be required by Landlord to evidence and
perfect these security interests.



                                       21


                                   ARTICLE 4

                USE OF THE LEASED PROPERTY; CONFLICTING BUSINESS

        4.1 Permitted Use.

                4.1.1 Permitted Use. Tenant covenants and agrees that it shall,
        throughout the Term of this Agreement, continuously use and occupy the
        Leased Property solely and exclusively as a first class licensed skilled
        nursing, assisted living and dementia care facility, and for such other
        uses as may be necessary or incidental to such use (such as services
        provided directly to residents by Tenant or under Service Licenses, as
        such term is defined below), with appropriate amenities for the same and
        for no other purpose without interruption except for minimum necessary
        interruptions in respect to portions of the Leased Property for periods
        provided herein for repairs, renovations, replacements and rebuilding
        all of which shall be carried out pursuant to, and in accordance with
        the applicable provisions of this Agreement (the foregoing being
        referred to as the "Permitted Use"). Without the prior written consent
        of the Landlord, no Affiliated Person of Tenant may be a subtenant or
        concessionaire in the Leased Property, provided however that Landlord
        hereby consents and agrees that a qualified and fully-insured Affiliated
        Person of Tenant may provide therapy and therapy-related services at the
        Facility for customary and appropriate charges. No use shall be made or
        permitted to be made of the Leased Property and no acts shall be done
        thereon which will cause the cancellation of any insurance policy
        covering the Leased Property or any part thereof (unless another
        adequate policy is available), nor shall Tenant sell or otherwise
        provide or permit to be kept, used or sold in or about the Leased
        Property any article which may be prohibited by law or by the standard
        form of fire insurance policies, or any other insurance policies
        required to be carried hereunder, or fire underwriter's regulations.
        Tenant shall, at its sole cost, comply with all Insurance Requirements.
        Tenant shall not take or omit to take any action, the taking or omission
        of which materially impairs the value or the usefulness of the Leased
        Property or any part thereof for its Permitted Use, or causes the Leased
        Premises to no longer be considered a first class facility.

                4.1.2 Necessary Approvals. Tenant shall maintain in good
        standing all Permits and approvals necessary to use and operate, for its
        Permitted Use, the Leased Property and the Facility located thereon
        under Applicable Law and shall provide to Landlord a copy of Tenant's
        federal, state and Medicare survey regarding the Facility, and such
        other information or documents pertaining to said approvals. Landlord
        shall at no cost or liability to Landlord cooperate with Tenant in this
        regard, limited to executing all applications and consents required to
        be signed by Landlord in order for Tenant to obtain and maintain such
        approvals.

                4.1.3 Lawful Use, Etc. Tenant shall not use or suffer or permit
        the use of the Leased Property or Tenant's Personal Property, if any,
        for any unlawful purpose. Tenant shall not commit or suffer to be
        committed any waste on the Leased Property, or in the Facility, nor
        shall Tenant cause or permit any unlawful nuisance thereon or therein.
        Tenant shall not suffer nor permit the Leased Property, or any portion
        thereof, to be used in such a manner as (i) might reasonably impair
        Landlord's title thereto or to any portion thereof, or (ii) might
        reasonably




                                       22


        allow a claim or claims for adverse usage or adverse possession by the
        public, as such, or of implied dedication of the Leased Property or any
        portion thereof.

                4.1.4 Compliance with Legal Requirements. Tenant shall at all
        times at its sole cost and expense, keep and maintain the Leased
        Property in compliance with all Legal Requirements. Tenant agrees to
        give Landlord Notice of any notices, orders or other communications
        relating to Legal Requirements affecting the Leased Property which is or
        are enacted, passed, promulgated, made, issued or adopted, a copy of
        which is served upon, or received by, Tenant, or a copy of which is
        posted on or fastened or attached to the Leased Property, within ten
        (10) business days after service, receipt, posting, fastening or
        attaching. At the same time, the Tenant will inform Landlord as to the
        work or steps which Tenant proposes to do or take in order to comply
        therewith.

        4.2 Environmental Matters. Except as permitted by Applicable Law, Tenant
shall at all times during the Term keep the Leased Property free of Hazardous
Substances. Neither Tenant nor any of its employees, agents, invitees,
licensees, contractors, guests, or subtenants (if permitted) shall use,
generate, manufacture, refine, treat, process, produce, store, deposit, handle,
transport, release, or dispose of Hazardous Substances in, on or about the
Leased Property or the groundwater thereof, in violation of any federal, state
or municipal law, decision, statute, rule, ordinance or regulation currently in
existence or hereafter enacted or rendered. Tenant shall give Landlord prompt
Notice of any claim received by Tenant from any person, entity, or Governmental
Agencies that a release or disposal of Hazardous Substances has occurred on the
Leased Property or the groundwater thereof.

        Tenant shall not discharge or permit to be discharged into any septic
facility or sanitary sewer system serving the Leased Property any toxic or
hazardous sewage or waste other than that which is permitted by Applicable Law
or which is normal domestic waste water for the type of business contemplated by
this Agreement to be conducted by Tenant on, in or from the Leased Property. Any
toxic or hazardous sewage or waste which is produced or generated in connection
with the use or operation of the Leased Property shall be handled and disposed
of as required by and in compliance with all applicable local, state and federal
laws, ordinances and rules or regulations or shall be pre-treated to the level
of domestic wastewater prior to discharge into any septic facility or sanitary
sewer system serving the Leased Property.

        4.3 Conflicting Businesses Prohibited. Landlord and Tenant hereby
recognize and acknowledge (a) that the Minimum Rent and the Percentage Rent
payable by Tenant to Landlord under this Agreement have been established at the
levels specified in this Agreement upon the premise and with the expectation
that the Minimum Rent and Percentage Rent may determine the market value of the
Leased Property and constitute a material consideration for Landlord's
willingness to execute this Agreement and thereby lease and demise the Leased
Property to Tenant, and (b) that the operation, management, franchising or
ownership by Tenant or an Affiliated Person of Tenant of another Facility of the
Permitted Use as specified in Section 4.1.1 above (such other Facility being
referred to herein as a "Conflicting Business") within a ten (10) mile radius of
the Leased Property (the "Proscribed Area") will tend to result in a decrease in
the amount of Total Facility Revenue which would otherwise reasonably be
expected to be made upon, within and from the Leased Property and thereby result
in a reduction of the market value of the Leased Property and a reduction in the
Rent which would otherwise be received by Landlord pursuant to this Agreement in
the absence of the operation of a



                                       23


Conflicting Business by Tenant or any such Affiliated Person of Tenant within
the Proscribed Area. Accordingly, Tenant on behalf of itself and such Affiliated
Persons, agrees that during the Term of this Agreement neither Tenant, nor any
Affiliated Person of Tenant shall open, develop, operate, manage, franchise,
own, lease or have any other interest in a Conflicting Business within the
Proscribed Area. In the event of a breach of this covenant, Landlord shall have
the right to terminate this Agreement and retain the Security Deposit, and
pursue any other remedy at law available to Landlord, including injunctive
relief, or in lieu thereof but not in addition thereto, Landlord may, at its
election, require that forty percent (40%) of all revenues (calculated in the
same manner as if such revenues were Total Facility Revenue) of such Conflicting
Business opened, operated, managed, leased, developed or owned by Tenant or any
affiliated person of Tenant as defined in this Section within the Proscribed
Area be included in the amount of Total Facility Revenue made from the Leased
Property for purposes of the determination and calculation of the Percentage
Rent due from Tenant to Landlord under this Agreement (i.e., as though such
Total Facility Revenue of the Conflicting Business had actually been made upon,
within and from the Leased Property). If Landlord so elects, all provisions of
Article 17 of this Agreement relating to Tenant's maintenance and submission to
Landlord of books, records and statements shall be applicable to all books,
records and statements pertaining to any such Conflicting Businesses. Further,
Tenant agrees that Tenant's sole business shall be to lease, and Tenant shall
not incur any expenses or liability related to any business or activity other
than leasing and operating, the Leased Property and other premises owned or
hereinafter owned by Landlord or its Affiliated Persons pursuant to terms
acceptable to Landlord and Tenant. Landlord will not unreasonably withhold its
consent to a waiver of this Conflicting Business restriction for any Conflicting
Business which is approximately five (5) or more miles away so long as Landlord
is provided with evidence reasonably acceptable to it that the proposed
Conflicting Business is not likely to draw from the demographic base otherwise
available to support full occupancy of the Facility and/or a revenue protection
agreement acceptable to Landlord with respect to adverse affects on Facility
occupancy or residents tied to the Facility's identified demographic base served
at the Conflicting Business.

        4.4 Continuous Operations. Tenant shall continuously operate the Leased
Property and maintain sufficient skilled staff and employees, either directly or
through a qualified manager approved by Landlord, and shall maintain adequate
levels and quality of Tenant's Personal Property, to operate the Leased Property
as a first class skilled nursing, assisted living and dementia care facility as
herein required at its sole cost and expense throughout the entire Term of this
Agreement.

        4.5 Compliance With Restrictions, Etc. Tenant, at its expense, shall
comply with all restrictive covenants and other title exceptions affecting the
Leased Property as of the date of this Lease and comply with and perform all of
the obligations set forth in the same to the extent that the same are applicable
to the Leased Property or to the extent that the same would, if not complied
with or perform, impair or prevent the continued use, occupancy and operation of
the Leased Property for the purposes set forth in this Agreement. Further, in
addition to Tenant's payment obligations under this Agreement, Tenant shall pay
all sums charged, levied or assessed under any restrictive covenants,
declaration, reciprocal easement agreement or other title exceptions, equipment
leases, leases and all other agreements affecting the Leased Property as of the
date of this Lease promptly as the same become due and shall promptly furnish
Landlord evidence of payment thereof.

        4.6 Standard of Operation. Throughout the Term of this Agreement, Tenant
shall continuously operate the Leased Property in full compliance with the terms
hereof in a manner consistent with the





                                       24


level of operation of a national, first class skilled nursing, assisted living
and dementia care facility, including without limitation, the following:

                (a) to maintain the standard of care for the residents/patients
        of the Facility at all times at a level necessary to ensure quality care
        for the residents/patients of the Facility in accordance with customary
        and prudent industry standards;

                (b) to operate the Facility in a prudent manner and in
        compliance with applicable laws and regulations relating thereto and
        cause all Permits, Reimbursement Contracts and any other agreements
        necessary for the use and operation of the Facility or as may be
        necessary for participation in applicable reimbursement programs;

                (c) to maintain sufficient P&E and Inventories, and Tenant
        Personal Property, of types and quantities at the Facility to enable
        Tenant adequately to perform operations of the Facility; and

                (d) to keep all Leased Improvements and P&E located on or used
        or useful in connection with the Facility in good repair, working order
        and condition, reasonable wear and tear excepted, and from time to time
        make all needed and proper repairs, renewals, replacements, additions
        and improvements thereto to keep the same in good operating condition.

                (e) to maintain sufficient working capital to operate the Leased
        Premises as a first class facility (working capital shall mean assets
        which are reasonably necessary and used for the day to day operation of
        the Leased Premises, including, without limitation, amounts sufficient
        for the maintenance of change and petty cash funds, amounts deposited in
        operating bank accounts, receivables, prepaid expenses, and funds
        required to maintain Inventories and pay all operating expenses as they
        become due, less accounts payable and accrued current liabilities).

                (f) to operate and use the Leased Premises to a standard
        consistent with national chain first class skilled nursing, assisted
        living and dementia care facilities at least equal to or better in
        quality than skilled nursing, assisted living and dementia care
        facilities operated by Guarantor and its Affiliated Persons at the
        Commencement Date, and to operate the Facility only under the
        Guarantor's name, trademarks, logos and service marks, with all required
        licenses and permits for such operation, if any.

                (g) To follow and conform to all of the same operating,
        employment, marketing, insurance, risk management and management
        standards and practices employed at first class skilled nursing,
        assisted living and dementia care facilities operated by Guarantor and
        its Affiliated Persons.

                (h) Recruit, train and employ appropriate personnel, or retain
        management services from Guarantor or other qualified operator or
        service-provider approved by Landlord for same.



                                       25


                (i) Provide prompt written notice to Guarantor and to Landlord
        of material or extraordinary developments, lawsuits, violation of any
        Legal Requirements and fines relating to the use and operation of the
        Facility.

        Throughout the term of the Lease, Tenant shall continuously operate the
Leased Property as a national, first-class skilled nursing, assisted living and
dementia care facility in the manner set forth above, and to a standard
consistent with national chain, first-class skilled nursing, assisted living and
dementia care facilities at least equal to or better in quality than skilled
nursing, assisted living and dementia care facilities operated currently by
Guarantor under Guarantor's name, trademarks, logos and service marks. Tenant
shall endeavor and use its best efforts to maximize Total Facility Revenue for
the Leased Property. Tenant shall further provide, or cause to be provided, all
group services, facilities and benefits generally available to a national chain,
first-class skilled nursing, assisted living and dementia care facilities of a
similar type operated elsewhere by Guarantor or any successor to Guarantor (or
by other national operators of first class skilled nursing, assisted living and
dementia care facilities, such as those operated by Marriott Senior Living
Services).

        4.7 Resident Agreements and Service Licenses. Tenant shall comply in all
material respects with the terms and provisions of each agreement and
undertaking entered into with or provided to the residents of the Facility
("Resident Agreements"), including without limitation to fulfill or cause to be
fulfilled all undertakings and representations regarding the use, condition and
operation of the Facility and services to provided the residents and the
standards and services of and benefits to be provided by the Guarantor and its
Affiliated Persons. In addition, Tenant shall comply in all material respects
with the terms and conditions of any contract or license entered into with
respect to the provision of services to the residents at the Facility ("Service
Licenses").

        4.8 Standards, Not Control. Landlord and Tenant stipulate and agree that
Tenant is obligated to undertake such actions as are reasonably necessary to
properly achieve the highest standard of operation for the Facility as set forth
herein, and that although Landlord shall have the right to undertake all
enforcement rights as provided herein in the event that the required standard of
operation is not maintained by Tenant, the means and methods used and actions
taken to operate the Facility are within the sole control and election of
Tenant, and are not specified by or under the control of Landlord. Accordingly,
Landlord shall have no responsibility for any action taken by Tenant in order to
manage or operate the Facility.

        4.9 Survival. As to conditions and uses of Tenant existing or occurring
prior to the expiration or sooner termination of this Agreement, the provisions
of this Section 4 shall survive the expiration or sooner termination of this
Agreement to extent of any ongoing effects on Landlord or its successors with
respect to the Facility (specifically including the prohibitions relating to
conflicting businesses under Section 4.3.



                                       26


                                   ARTICLE 5

                             MAINTENANCE AND REPAIRS

        5.1 Tenant's Obligations. Tenant shall, at its sole cost and expense,
keep the Leased Property in good order and repair, and shall promptly make all
necessary and appropriate repairs and replacements thereto of every kind and
nature, whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term and whether or not necessitated
by wear, tear, obsolescence or defects, latent or otherwise, and shall use all
reasonable precautions to prevent damage or injury. All repairs shall be made in
a good, workmanlike manner, consistent with the industry standards for like
skilled nursing, assisted living and dementia care facilities in like locales,
in accordance with all applicable federal, state and local statutes, ordinances,
by-laws, codes, rules and regulations relating to any such work. In addition,
Tenant shall also, at its sole cost and expense, put, keep, replace and maintain
Tenant's Personal Property in good repair and in good, safe and substantial
order, howsoever the necessity or desirability for repairs may occur, and
whether or not necessitated by wear, tear, obsolescence or defects. Tenant may
at any time and from time to time remove and dispose of any of Tenant's Personal
Property which has become obsolete or unfit for use or which is no longer useful
in the operation of the Facility's business conducted by Tenant on the Leased
Property; provided, however, that Tenant's Personal Property so disposed of
shall be promptly replaced with other Tenant's Personal Property not necessarily
of the same character, but of at least equal usefulness and quality as, and
having a value at least equal to the value of, those disposed of, and in any
event in accordance with and in compliance with the standards required by and
the provisions of this Agreement. Tenant shall further at all times maintain the
Leased Property, including the grounds and landscaping, in an aesthetically
pleasing manner.

        Tenant shall be responsible for and shall pay all costs and expenses of
the "Property Owner/Developer" associated with the reconfiguration of any
roadways and entranceways as contemplated by the ARC Assisted Living Facilities
Final Development Plan recorded in the public records of Arapahoe County,
Colorado on April 22, 1998 at Reception Number A8058374.

        Tenant shall be responsible for and shall pay all costs and expenses
associated with maintaining that certain letter of credit in the amount of
Twenty One Thousand Six Hundred and No/100 Dollars ($21,600.00), or an
acceptable renewal or replacement letter of credit, naming the City of Greenwood
Village, Colorado as the beneficiary, securing the performance of certain
landscaping obligations of American Retirement Corporation, and more
particularly described in the letter from Shaw Flippen, Senior Vice President -
Development/Construction, American Retirement Corporation to Heather Day of the
Community Development Department, Greenwood Village Colorado dated October 25,
1999 to the extent that, and for so long as, such letter of credit is required
by the City of Greenwood Village.

        5.2 Reserve.

                5.2.1 Tenant shall establish an interest bearing reserve account
        (the "Reserve") in a bank designated by Tenant and approved by Landlord.
        All interest earned on the Reserve shall be added to and remain a part
        of the Reserve. Both Tenant and Landlord shall be signatories on the
        Reserve, provided only one signature shall be required to withdraw funds
        and Landlord



                                       27


        agrees that so long as Tenant is not in default hereunder, Landlord
        shall not be required to sign on any checks and Landlord shall not
        withdraw any funds from such account. Upon the occurrence and
        continuation of any Default or Event of Default hereunder the Tenant
        signatory party shall no longer be an authorized signatory on the
        Reserve account. Such account shall be established in Landlord's name
        and control for the benefit of Tenant and shall not include or
        contemplate "overdraft protection" and Tenant shall not request or
        attempt to draw or draft any funds which are not actually on deposit in
        such account. The purpose of the Reserve is to cover the cost of the
        following, to the extent carried out in accordance with this Agreement
        (collectively, "Reserve Expenditures"):

                        (a) Replacements (including P&E Replacements), renewals
                and additions to the P&E at the Facility; and

                        (b) repairs, alterations, improvements, renewals,
                replacements and additions, whether routine, non-routine or
                major, to the Leased Improvements, including without limitation
                those which are normally capitalized under GAAP such as repairs,
                alterations, improvements, renewals, replacements and additions
                to the structure, the exterior facade, the mechanical,
                electrical, heating, ventilating, air conditioning, plumbing and
                vertical transportation elements of the Leased Improvements,
                which expenditures Tenant believes should be made for the Leased
                Property for the following Fiscal Year.

                5.2.2 Commencing with the Commencement Date and continuing
        throughout the Term, Tenant shall on the last day of each Accounting
        Period during the Term, transfer into the Reserve an amount equal to the
        Applicable Reserve Percentage of Total Facility Revenues for such
        Accounting Period (based upon estimates of Total Facility Revenue if
        necessary, to be adjusted as soon as Tenant has had an opportunity to
        confirm actual Total Facility Revenue). At the time Tenant provides
        Landlord the documentation described in Section 3.3, Tenant shall also
        deliver to Landlord a statement setting forth the total amount of
        deposits made to and expenditures from the Reserve for the preceding
        Fiscal Year.

                5.2.3 On or before December 1 of each Fiscal Year, Tenant shall
        prepare an estimate (the "Reserve Estimate") of Reserve Expenditures
        anticipated during the ensuing Fiscal Year and shall submit such Reserve
        Estimate to Landlord for its review. Such Reserve Estimate shall reflect
        by line item the projected budget for Reserve Expenditures for the
        Leased Property and assumptions on the basis of which such line items
        were prepared in narrative form if necessary, including separate budget
        items for all projected expenditures for replacements, substitutions and
        additions to Tenant's Personal Property. Tenant shall provide to
        Landlord reasonable additional detail, information and assumptions used
        in the preparation of the Reserve Estimate as requested by Landlord and
        shall also submit to Landlord with the Reserve Estimate good faith
        longer-range projections of planned Reserve Expenditures for an
        additional three (3) Fiscal Years. Tenant shall review the Reserve
        Estimate with Landlord, and subject to Landlord's approval, Tenant shall
        implement such Reserve Estimate for the successive Fiscal Year (during
        which it shall, if approved by Landlord, be referred to as the "Approved
        Reserve Estimate"). In addition, Landlord shall have the right to
        disapprove any expenditures to be made pursuant to the Reserve Estimate
        which are not in compliance with Applicable Laws. Further, Landlord's
        approval of any expenditure pursuant to the Reserve Estimate shall not
        be,





                                       28


        or be deemed to be, an assumption by Landlord of any liability in
        connection with the expenditures made. Pending resolution of any
        dispute, the specific disputed item of the Reserve Estimate shall be
        suspended and replaced for the Fiscal Year in question by an amount
        equal to the lesser of (a) that proposed by Tenant for such Fiscal Year
        or (b) such budget item for the Fiscal Year prior thereto. Tenant shall
        not make any expenditures from the Reserve, nor shall Tenant deviate
        from the Approved Reserve Estimate without the prior approval of
        Landlord, except in the case of emergency where immediate action is
        necessary to prevent imminent danger to person or property.

                5.2.4 Tenant shall, consistent with the Approved Reserve
        Estimate, from time to time make Reserve Expenditures from the Reserve
        as it reasonably deems necessary in accordance with Section 5.2.1 and
        Section 5.2.3. Tenant shall provide to Landlord, within thirty (30) days
        after the end of each Fiscal Quarter, an itemized statement setting
        forth Reserve Expenditures made to date during the Fiscal Year.

                5.2.5 In the event Reserve Expenditures not set forth in the
        Approved Reserve Estimate are required (i) as a result of Legal
        Requirements or are otherwise required for the continued safe and
        orderly operation of the Leased Property, (ii) due to an emergency
        threatening the Leased Property, its residents, patients, guests,
        invitees or employees, or (iii) because the continuation of a given
        condition will subject Tenant or Landlord to civil or criminal
        liability, Landlord agrees that it will not unreasonably withhold its
        approval of such expenditures.

                5.2.6 All interest earned on the Reserve shall be added to and
        become a part thereof, and all property purchased with funds from the
        Reserve shall be and remain the property of Tenant until the end of the
        Term of the Lease or earlier expiration or termination of this Agreement
        (subject to Landlord's lien rights hereunder), at which time all P&E at
        the Leased Property, including without limitation all P&E Replacements
        or other items purchased with funds from the Reserve (but not including
        Tenant's Personal Property except as specifically provided herein) shall
        be and become the sole property of Landlord. All funds in the Reserve
        shall be and remain the property of Tenant throughout the Lease Term,
        subject to the control rights and liens and security interests of
        Landlord, but following expiration or earlier termination of this
        Agreement and payment in full on all contracts entered into prior to
        such expiration or termination for work to be done or furniture,
        furnishings, fixtures and equipment to be supplied in accordance with
        this Section 5.2 out of the Reserve, ownership of the Reserve shall be
        transferred from Tenant to Landlord except (provided Tenant is not in
        Default at the time of termination) to the extent of the amount, if any,
        by which Tenant's cumulative cash expenditures on P&E used solely at the
        Leased Property (not including any of Tenant's Personal Property which
        is not used at the Leased Property throughout the useful life thereof),
        less all amounts received upon any disposition thereof, exceeds the
        cumulative amount deposited by Tenant into the Reserve. It is understood
        and agreed that the Reserve pursuant to this Agreement shall be
        maintained and used solely in connection with the Leased Property.

                5.2.7 If Landlord wishes to grant a security interest in or
        create another encumbrance on its interest in the Reserve in connection
        with a Facility Mortgage, all or any part of the existing or future
        funds therein, or any general intangible in connection therewith, the



                                       29


        instrument granting such security interest or creating such other
        encumbrance shall expressly provide that such security interest or
        encumbrance is prior in right to the rights of Tenant with respect to
        the Reserve as set forth herein, provided that the same is subject to a
        Tenant non-disturbance agreement as provided herein and the Mortgagee
        thereunder agrees to be responsible to Tenant and to properly disburse
        all amounts of the Reserve received by it for use and disposition as
        provided herein.

                5.2.8 If, at any time, funds in the Reserve shall be
        insufficient or are reasonably projected by Tenant to be insufficient
        for necessary and permitted expenditures thereof or funding is necessary
        for Reserve Expenditures, Tenant shall give Landlord Notice thereof,
        which Notice shall set forth, in reasonable detail, the nature of the
        required or permitted action and the estimated cost thereof, and Tenant
        shall thereafter fund such additional Reserve Expenditures.

                                   ARTICLE 6

                               IMPROVEMENTS, ETC.

        6.1 Prohibition. Except for work funded by Reserve Expenditures and
Minor Alterations as hereinafter expressly provided in Section 6.2, no portion
of the Leased Property shall be demolished, removed or altered by Tenant in any
manner whatsoever without the prior written consent and approval of Landlord.
Notwithstanding the foregoing, however, Tenant shall be entitled and obligated
to undertake all alterations to the Leased Property required by any Legal
Requirements and, in such event, Tenant shall comply with the provisions of
Section 6.2 below.

        6.2 Permitted Renovations. The activities permitted pursuant to Section
6.2.1 and Section 6.2.2 below shall collectively constitute "Permitted
Renovations".

                6.2.1 Minor Alterations. Landlord acknowledges that certain
        minor, alterations and renovations may be undertaken by Tenant from time
        to time ("Minor Alterations"). Landlord hereby agrees that Tenant shall
        be entitled to perform such Minor Alterations on or about the Leased
        Improvements; provided, however, that the cost of the same shall not
        exceed $20,000.00 and the same shall not weaken or impair the structural
        strength of the Leased Improvements, or alter their exterior design or
        appearance, materially impair the use of any of the service facilities
        located in, or fundamentally affect the character or suitability of, the
        Leased Improvements for the Permitted Use specified in Section 4.1.1
        above or materially lessen or impair their value.

                6.2.2 Additions, Expansions and Structural Alterations. Except
        as expressly permitted in Section 6.1 and Section 6.2.1 above, nothing
        in this Article 6 or elsewhere in this Agreement shall be deemed to
        authorize Tenant to construct and erect any additions to or expansions
        of the Leased Improvements, or perform any alterations of a structural
        nature whatsoever (collectively referred to herein as the "Major
        Alterations"); it being understood that Tenant may do so only with the
        prior written consent and approval of Landlord, which consent and
        approval may be withheld by Landlord in its sole and absolute discretion
        and may be conditioned upon the



                                       30


        payment by Tenant to Landlord of all reasonable costs incurred by
        Landlord in evaluating the same.

        6.3 Conditions to Reserve Expenditures, Permitted Renovations and Major
Alterations. In connection with any Reserve Expenditures, Permitted Renovations
or Major Alterations of the Leased Property the following conditions shall be
met, to wit:

                (a) Before the commencement of any such work, plans and
        specifications therefor or a detailed itemization thereof prepared by a
        licensed architect approved by Landlord or other design professional
        appropriate under the circumstances approved by Landlord and Tenant
        shall be furnished to Landlord for its review and approval. Such
        approval shall not constitute Landlord's agreement that the plans and
        specification are in compliance with Applicable Laws or an assumption by
        Landlord of any liability in connection with the renovation work
        contemplated thereby.

                (b) Before the commencement of any such work Tenant shall obtain
        the approval thereof by all Governmental Agencies having or claiming
        jurisdiction of or over the Leased Property, and with any public utility
        companies having an interest therein. In connection with any such work
        Tenant shall comply with all Legal Requirements and Applicable Laws, of
        all other Governmental Agencies having or claiming jurisdiction of or
        over the Leased Property and of all their respective departments,
        bureaus and offices, and with the requirements and regulations, if any,
        of such public utilities, of the insurance underwriting board or
        insurance inspection bureau having or claiming jurisdiction, or any
        other body exercising similar functions, and of all insurance companies
        then writing policies covering the Leased Property or any part thereof.

                (c) Tenant represents and warrants to Landlord that all such
        work will be performed in a good and workmanlike manner and in
        accordance with the plans and specifications therefor approved by
        Landlord, the terms, provisions and conditions of this Agreement and all
        governmental requirements.

                (d) Landlord shall have the right, at Tenant's expense, to
        inspect any such work at all times during normal working hours using
        such inspector(s) as it may deem necessary so long as such inspections
        do not unreasonably interfere with Tenant's work (but Landlord shall not
        thereby assume any responsibility for the proper performance of the work
        in accordance with the terms of this Agreement, nor any liability
        arising from the improper performance thereof).

                (e) All such work shall be performed free of any liens on
        Landlord's fee simple interest on or Tenant's leasehold interest in the
        Leased Property.

                (f) Upon substantial completion of any such work, Tenant shall
        procure a certificate of occupancy or other final approvals, if
        applicable, from the appropriate Governmental Agencies and provide
        copies of same to Landlord.



                                       31


                (g) Tenant shall, and hereby agrees to, indemnify and save and
        hold Landlord and its Affiliated Parties harmless from and against and
        reimburse Landlord for any and all loss, damage, cost, liability, fee
        and expense (including, without limitation, reasonable attorney's fees
        based upon service rendered at hourly rates) incurred by or asserted
        against Landlord which is occasioned by or results, directly or
        indirectly, from any such work conducted upon the Leased Property;
        whether or not the same is caused by, or is the fault of Tenant or any
        agent, employee, manager, contractor, subcontractor, laborer, supplier,
        materialman or any other third party; but Tenant shall not be obligated
        to indemnify Landlord from any loss as aforesaid caused by Landlord's
        gross negligence or willful misconduct.

        6.4 Salvage. Other than Tenant's Personal Property, all materials which
are scrapped or removed in connection with maintenance and repair performed
pursuant to Article 5 and the making of Permitted Renovations pursuant to
Article 6 shall be disposed of by Tenant and the net proceeds thereof, if any,
shall be deposited in the Reserve.

                                   ARTICLE 7

                    LANDLORD'S INTEREST NOT SUBJECT TO LIENS

        7.1 Liens, Generally. Tenant shall not, directly or indirectly, create
or cause to be imposed, claimed or filed upon the Leased Property, or Tenant's
assets, properties or income or any portion thereof, or upon the interest of
Landlord therein, any Lien of any nature whatsoever. If, because of any act or
omission of Tenant, any such Lien shall be imposed, claimed or filed by any
party whosoever or whatsoever, Tenant shall, at its sole cost and expense, cause
the same to be promptly (and in no event later than thirty (30) days following
receipt of notice of such Lien) fully paid and satisfied or otherwise promptly
discharged of record (by bonding or otherwise) and Tenant shall indemnify and
save and hold Landlord harmless from and against any and all costs, liabilities,
suits, penalties, claims and demands whatsoever, and from and against any and
all reasonable attorney's fees, at both trial and all appellate levels,
resulting or on account thereof and therefrom. In the event that Tenant shall
fail to comply with the foregoing provisions of this Section 7, Landlord shall
have the option, but not the obligation, of paying, satisfying or otherwise
discharging (by bonding or otherwise) such Lien and Tenant agrees to reimburse
Landlord, upon demand and as Additional Rent, for all sums so paid and for all
costs and expenses incurred by Landlord in connection therewith, together with
interest thereon, until paid.

        7.2 Construction or Mechanics Liens. Landlord's interest in the Leased
Property shall not be subjected to Liens of any nature by reason of Tenant's
construction, alteration, renovation, repair, restoration, replacement or
reconstruction of any improvements on or in the Leased Property, or by reason of
any other act or omission of Tenant (or of any person claiming by, through or
under Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. All persons dealing with Tenant are hereby placed on notice
that such persons shall not look to Landlord or to Landlord's credit or assets
(including Landlord's interest in the Leased Property) for payment or
satisfaction of any obligations incurred in connection with the construction,
alteration, renovation, repair, restoration, replacement or reconstruction
thereof by or on behalf of Tenant. Tenant has no power, right or authority to
subject Landlord's interest in the Leased Property to any construction,
mechanic's or



                                       32


materialmen's lien or claim of lien. If a Lien, a claim of lien or an order for
the payment of money shall be imposed against the Leased Property on account of
work performed, or alleged to have been performed, for or on behalf of Tenant,
Tenant shall, within thirty (30) days after written notice of the imposition of
such Lien, claim or order, cause the Leased Property to be released therefrom by
the payment of the obligation secured thereby or by furnishing a bond or by any
other method prescribed or permitted by law. If a Lien is released, Tenant shall
thereupon furnish Landlord with a written instrument of release which has been
recorded or filed in the appropriate office of land records of the County in
which the Leased Property is located, and otherwise sufficient to establish the
release as a matter of record. Before commencing any work relating to
alterations, additions, or improvements affecting the Leased Property, Tenant
shall notify Landlord in writing of the expected date of commencement thereof.
Landlord shall then have the right at any time and from time to time to post and
maintain on the Land and Improvements such notices as Landlord reasonably deems
necessary to protect the Leased Property and Landlord from mechanics' liens,
materialmen's liens, or any other liens. In any event, Tenant shall pay when due
all claims for labor or materials furnished to or for Tenant at or for use in
the Land and Improvements. Tenant shall not permit any mechanics' or
materialmen's liens to be levied against the Leased Property for any labor or
material furnished to Tenant or claimed to have been furnished to Tenant or to
Tenant's agents or contractors in connection with work of any character
performed or claimed to have been performed on the Land or the Improvements by
or at the direction of Tenant, and shall immediately cause the release of any
such liens as provided hereinabove.

        7.3 Contest of Liens. Tenant may, at its option, contest the validity of
any Lien or claim of lien if Tenant shall have first posted an appropriate and
sufficient bond in favor of the claimant or paid the appropriate sum into court,
if permitted by and in strict compliance with Applicable Laws, and thereby
obtained the release of the Leased Property from such Lien. If judgment is
obtained by the claimant under any Lien, Tenant shall pay the same immediately
after such judgment shall have become final and the time for appeal therefrom
has expired without appeal having been taken. Tenant shall, at its own expense,
using counsel reasonably approved by Landlord, diligently defend the interests
of Tenant and Landlord in any and all such suits; provided, however, that
Landlord may, nonetheless, at its election and expense, engage its own counsel
and assert its own defenses, in which event Tenant shall cooperate with Landlord
and make available to Landlord all information and data which Landlord deems
necessary or desirable for such defense.

        7.4 Notices of Commencement of Construction. If required by the laws of
the State in which the Leased Property is located, prior to commencement by
Tenant of any work on the Leased Property which shall have been previously
permitted by Landlord as provided in this Agreement, Tenant shall record or file
a notice of the commencement of such work or similar notice required by
Applicable Law (the "Notice of Commencement") in the land records of the County
in which the Leased Property is located, identifying Tenant as the party for
whom such work is being performed, stating such other matters as may be required
by law and requiring the service of copies of all notices, Liens or claims of
lien upon Landlord. Any such Notice of Commencement shall clearly reflect that
the interest of Tenant in the Leased Property is that of a leasehold estate and
shall also clearly reflect that the interest of Landlord as the fee simple owner
of the Leased Property shall not be subject to construction, mechanics or
materialmen's liens on account of the work which is the subject of such Notice
of Commencement. A copy of any such Notice of Commencement shall be furnished to
and approved by Landlord and its attorneys prior to the recording or filing
thereof, as aforesaid.



                                       33


                                   ARTICLE 8

                              TAXES AND ASSESSMENTS

        8.1 Obligation to Pay Taxes and Assessments. Throughout the entire Term,
Tenant shall bear, pay and discharge as Additional Charges and not later than
the last day on which payment may be made without penalty or interest, any and
all taxes, assessments, charges, levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees) and other
impositions and charges of every kind and nature whatsoever, extraordinary as
well as ordinary, foreseen or unforeseen, and each and every installment thereof
which shall or may during or with respect to the Term hereof be charged, laid,
levied, assessed, or imposed upon, or arise in connection with, the use,
occupancy, operation or possession of the Leased Property or any part thereof or
the business conducted thereon, including, without limitation, ad valorem real
and personal property taxes, all taxes charged, laid, levied, assessed or
imposed in lieu of or in addition to any of the foregoing by virtue of all
present or future laws, ordinances, requirements, orders, directions, rules or
regulations of Governmental Agencies, and all assessments and charges imposed
pursuant to the Permitted Encumbrances or other documents of record affecting
title to the Leased Property (provided however that such documents have been
approved by Tenant, which approval shall not unreasonably be withheld, delayed
or conditioned provided that the same are appropriate and reasonably necessary
in connection with the normal and ordinary course of ownership and use of the
Facility), whether or not such Additional Charges become due and payable during
or after the Term. Notwithstanding the foregoing, Tenant shall not be
responsible for Additional Charges due and payable after the expiration of the
Term to the extent that the same relate and apply interests and benefits
accruing to Landlord after the Lease Term. Upon payment, Tenant shall promptly
furnish to Landlord satisfactory evidence of the payment of all such taxes,
assessments, impositions or charges. Tenant shall have no right to approve, nor
shall Tenant be obligated for any amounts due by virtue of, any Facility
Mortgage or other documents relating to indebtedness of Landlord.

        8.2 Tenant's Right to Contest Taxes. Notwithstanding the foregoing,
Tenant shall have the right, after prior written notice to Landlord, to contest
at its own expense the amount and validity of any taxes affecting the Leased
Property by appropriate proceedings under Applicable Law conducted in good faith
and with due diligence and to postpone or defer payment thereof, provided and so
long as:

                (a) Such proceedings shall operate to suspend the collection of
        such taxes with respect to the Leased Property;

                (b) Neither the Leased Property nor any part thereof would be in
        immediate danger of being forfeited or lost by reason of such
        proceedings, postponement or deferment; and

                (c) Tenant shall have furnished Landlord with security for
        payment of the contested taxes which is satisfactory to Landlord, and,
        in the event that the preconditions set forth in (a) and (b) above are
        no longer met, Landlord shall have the right to draw upon such security
        to pay and discharge the taxes in question and any liens against the
        Leased Property arising thereunder.





                                       34


        8.3 Tax and Insurance Escrow Account. In the event Tenant fails to
timely pay any tax, assessment, imposition or charge required to be paid by
Tenant pursuant to Section 8.1, Landlord shall have the right, by written notice
to Tenant effective as of the date of such notice, to require Tenant to pay or
cause to be paid into a separate account (the "Tax and Insurance Account") to be
established by Tenant with a lending institution designated by Landlord (which
Tax and Insurance Account shall not be removed from such lending institution
without the express prior approval of Landlord), and which Landlord may draw
upon, a reserve amount sufficient to discharge the obligations of Tenant under
Section 8.1 and Article 9 hereof (other than worker's compensation insurance
premiums) with respect to real estate taxes and insurance premiums for the
applicable Fiscal Year as and when they become due (such amounts, the "Tax and
Insurance Escrow Amount"). During each month commencing with the first full
calendar month following the receipt of said notice from Landlord, Tenant shall
deposit into the Tax and Insurance Account one twelfth of the Tax and Insurance
Escrow Amount so that as each installment of insurance premiums and real estate
taxes becomes due and payable, there are sufficient funds in the Tax and
Insurance Account to pay the same. If the amount of such insurance premiums and
real estate taxes has not been definitively ascertained by Tenant at the time
when any such monthly deposit is to be paid, Landlord shall require payment of
the Tax and Insurance Escrow Amount based upon the amount of premiums and real
estate taxes paid for the preceding year, subject to adjustment as and when the
amount of such premiums and real estate taxes are ascertained by Tenant. The Tax
and Insurance Escrow Amount in the Tax and Insurance Account shall be and
constitute additional security for the performance of Tenant's obligations
hereunder and shall be subject to Landlord's security interest therein and
shall, if there are sufficient funds in escrow, be used to pay taxes and
insurance premiums when due. Landlord and Tenant shall execute such
documentation as may be necessary to create and maintain Landlord's security
interest in the Tax and Insurance Account.

                                   ARTICLE 9

                                    INSURANCE

        9.1 General Insurance Requirements. Tenant shall, at all times during
the Term and at any other time Tenant shall be in possession of the Leased
Property, keep the Leased Property and all property located therein or thereon,
insured against the following risks in the following amounts:

        (a) "All-risk" property insurance (and to the extent applicable,
Builder's Risk Insurance) on the Leased Improvements and all items of business
personal property, including but not limited to signs, awnings, canopies,
gazebos, fences and retaining walls, and all P&E, including without limitation,
insurance against loss or damage from the perils under "All Risk" (Special)
form, including but not limited to the following: fire, windstorm, sprinkler
leakage, vandalism and malicious mischief, water damage, explosion of steam
boilers, pressure vessels and other similar apparatus, and other hazards
generally included under extended coverage, all in an amount equal to one
hundred percent (100%) of the replacement value of the Leased Improvements
(excluding excavation and foundation costs), business personal property and P&E,
without a co-insurance provision, and shall include an Agreed Value endorsement;



                                       35


        (b) Ordinance or Law Coverage with limits of not less than the Leased
Improvements for Coverage A (Loss to the undamaged portion of the building),
limits not less than $500,000.00 for Coverage B (Demolition Cost Coverage), and
limits not less than $500,000.00 for Coverage C (Increased Cost of Construction
Coverage);

        (c) Business income insurance to be written on "Special Form" (and on
"Earthquake" and "Flood" forms if such insurance for those risks is required)
including "Extra Expense", without a provision for co-insurance, including an
amount sufficient to pay at least twelve (12) months of Rent for the benefit of
Landlord, as its interest may appear, and at least twelve (12) months of "Net
Operating Income" less Rent for the benefit of Tenant;

        (d) Occurrence form commercial general liability insurance, including
bodily injury and property damage, liquor liability (if applicable), fire legal
liability, contractual liability and independent contractor's hazard and
completed operations coverage in an amount not less than $1,000,000.00 per
occurrence and $2,000,000.00 per location, aggregate;

        (e) Umbrella liability coverage which shall be on a following form for
the General Liability, Automobile Liability, Employers' Liability, Malpractice
and Liquor Liability (if applicable), with limits in a minimum amount of not
less than $15,000,000.00 per occurrence/aggregate;

        (f) Malpractice insurance/professional liability insurance in an amount
not less than $5,000,000.00 for each person and each occurrence to cover the
professional medical care providers working on the Leased Property;

        (g) Flood insurance (if the Leased Property is located in whole or in
part within an area identified as an area having special flood hazards under the
National Flood Insurance Program) for the full (100%) replacement value of the
improvements and all items of business personal property or any greater amount
as may be required by the National Flood Insurance Program;

        (h) Worker's compensation coverage for all persons employed by Tenant on
the Leased Property with statutory limits, and Employers' Liability insurance in
an amount of at least $1,000,000.00 per accident/disease;

        (i) Business auto liability insurance, including owned, non-owned and
hired vehicles for combined single limit of bodily injury and property damage of
not less than $1,000,000.00 per occurrence;

        (j) [Intentionally Omitted];

        (k) "Earthquake" insurance, if the Leased Property is currently, or at
any time in the future, located within a major earthquake disaster area, in
amount, and in such form and substance and with such limits and deductibles as
are satisfactory to Landlord; and

        (l) Crime insurance covering employee theft in an amount not less than
$1,500,000.

        (m) Such additional insurance or increased insurance limits as may be
reasonably required, from time to time, by Landlord (including, without
limitation, any mortgage, security agreement or





                                       36


other financing permitted hereunder and then affecting the Leased Property, as
well as any declaration, ground lease or easement agreement affecting the Leased
Property), or any Mortgagee, provided the same is customarily carried by a
majority of comparable skilled nursing, assisted living and dementia care
facilities in the area.

Without limiting the generality of the foregoing Section 9.1(m), the required
commercial liability insurance and umbrella liability coverage limits and
deductible amounts pertaining thereto as set forth in this Article 9 shall in no
event provide less coverage (lower limits or higher deductibles) than the
"Comparable Insurance Coverage" carried on any of the other skilled nursing,
assisted living and dementia care facilities leased or owned by Tenant and
Guarantor and their Affiliated Persons, and the insurance coverage for the
Leased Property shall immediately be increased by Tenant to equal any greater or
increased "Comparable Insurance Coverage" carried or obtained for such other
facilities. For purposes of the foregoing, "Comparable Insurance Coverage" shall
mean insurance coverage levels adjusted for relevant variations in risk and
insurability characteristics between the insured facilities being compared,
including without limitation consideration of variations in insurance coverages
carried by Guarantor and its Affiliated Persons between different insurance
markets (states or other jurisdictional subdivisions) where insured risks or
insurance pricing or availability varies materially. Tenant shall use all
reasonable efforts to obtain increased umbrella liability coverage of not less
than $50,000,000 per occurrence/aggregate, and decreased liability insurance
deductibles, at such time as the same can be obtained at commercially reasonable
or economically feasible rates for the Lease Property. Until such increased
coverages are obtained the Tenant shall provide to Landlord a thorough annual
update and review of the overall liability insurance coverage program and
strategy for Tenant and Guarantor and their Affiliated Persons, which shall
include an analysis of market rates for the current and desired liability
insurance coverages. In addition, Tenant shall have the right to provide
commercial general liability insurance coverage on a "claims made" basis, so
long as the general liability insurance coverages otherwise required hereunder
are maintained or continued in existence at all times throughout the Lease Term
for all periods that Tenant or its Affiliates have had any ownership or use of
the Leased Property, and evidence thereof has been provided to Landlord.

        9.2 Waiver of Subrogation. Landlord and Tenant agree that with respect
to any property loss which is covered by insurance then being carried by
Landlord or Tenant, respectively, the party carrying such insurance and
suffering said loss releases the other of and from any and all claims with
respect to such loss; and they further agree that their respective insurance
companies shall have no right of subrogation against the other on account
thereof.

        9.3 General Provisions. The Facility's allocated chargeback/deductible
for general liability insurance shall not exceed $1,000,000 for skilled nursing
and assisted living and $1,000,000 for Memory Impaired, to the extent
commercially available, and $350,000.00 for workmen's compensation insurance, to
the extent commercially available, unless any greater amounts are agreeable to
both Landlord and Tenant. The Facility's property insurance deductible shall not
exceed $25,000.00 unless such greater amount is agreeable to both Landlord and
Tenant, or if a higher deductible for high hazard risks (i.e., wind or flood) is
mandated by the insurance carrier. All insurance policies pursuant to this
Article 9 shall be issued by insurance carriers having a general policy holder's
rating of no less than A-/VII in Best's latest rating guide, and shall contain
clauses or endorsements to the effect that (a) Landlord shall not be liable for
any insurance premiums thereon or subject to any assessments thereunder, and (b)
the coverages provided thereby will be primary and any insurance



                                       37


carried by any additional insured shall be excess and non-contributory to the
extent of the indemnification obligation pursuant to Section 9.5 below. All such
policies described in Section 9.1 shall name Landlord, CRC and CNL Retirement
and any Mortgagee whose name and address has been provided to Tenant as
additional insureds, loss payees, or mortgagees, as their interests may appear
and to the extent of their indemnity. All loss adjustments shall be payable as
provided in Article 10. Tenant shall deliver certificates thereof to Landlord
prior to their effective date (and, with respect to any renewal policy, no less
than thirty (30) days prior to the expiration of the existing policy), which
certificates shall state the nature and level of coverage reported thereby, as
well as the amount of the applicable deductible. Upon Landlord's request,
duplicate original copies of all insurance policies to be obtained by Tenant
shall be provided to Landlord by Tenant. All such policies shall provide
Landlord (and any Mortgagee whose name and address has been provided to Tenant
if required by the same) thirty (30) days prior written notice of any material
change or cancellation of such policy.

         In the event Tenant shall fail to effect such insurance as herein
required, to pay the premiums therefor or to deliver such certificates to
Landlord or any Mortgagee at the times required, Landlord shall have the right,
but not the obligation, subject to the provisions of Section 12.4, to acquire
such insurance and pay the premiums therefor, which amounts shall be payable to
Landlord, upon demand, as Additional Rent, together with interest accrued
thereon at the Overdue Rate from the date such payment is made until (but
excluding) the date repaid.

        9.4 Blanket Policy. Notwithstanding anything to the contrary contained
in this Article 9, Tenant's obligation to maintain the insurance herein required
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant, so long as such policies otherwise
meet all requirements under this Article 9.

        9.5 Indemnification of Landlord. Except as expressly provided herein,
Tenant shall protect, indemnify and hold harmless Landlord for, from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and reasonable expenses (including, without limitation, reasonable
attorneys' fees), to the maximum extent permitted by law, imposed upon or
incurred by or asserted against Landlord by reason of: (a) any accident, injury
to or death of persons or loss of or damage to property of third parties
occurring on or about the Leased Property or adjoining sidewalks or rights of
way under Tenant's control, and (b) any use, misuse, condition, management,
maintenance or repair by Tenant or anyone claiming under Tenant of the Leased
Property or Tenant's Personal Property or any litigation, proceeding or claim by
Governmental Agencies relating to such use, misuse, condition, management,
maintenance, or repair thereof to which Landlord is made a party; provided,
however, that Tenant's obligations hereunder shall not apply to any liability,
obligation, claim, damage, penalty, cause of action, cost or expense arising
from any gross negligence or willful misconduct of Landlord, its employees,
agents, contractors or invitees. Any such claim, action or proceeding asserted
or instituted against Landlord covered under this indemnity shall be defended by
counsel selected by Tenant and reasonably acceptable to Landlord, at Tenant's
expense. Notwithstanding the foregoing, indemnification with respect to
Hazardous Substances is governed by Section 4.3. The obligations of Tenant under
this Section 9.5 shall survive the expiration or any early termination of this
Agreement.



                                       38


                                   ARTICLE 10

                                    CASUALTY

        10.1 Restoration and Repair. If during the Term the Leased Property
shall be totally or partially destroyed and thereby rendered Unsuitable for Its
Permitted Use, Tenant shall give Landlord prompt Notice thereof. Either Landlord
or Tenant may, by the giving of Notice thereof to the other party within sixty
(60) days after such casualty occurs, terminate this Agreement, whereupon
Landlord shall be entitled to retain the insurance proceeds payable on account
of such damage and Tenant shall pay to Landlord the amount of any deductible.
Tenant further expressly acknowledges, understands and agrees that in the event
that the Agreement is terminated as aforesaid, Landlord may settle any insurance
claims and Tenant shall, upon request of Landlord, cooperate in any such
settlement. If during the Term, the Leased Property shall be destroyed or
damaged in whole or in part by fire, windstorm or any other cause whatsoever,
but the Leased Property either (i) is not rendered Unsuitable for Its Permitted
Use or (ii) is rendered Unsuitable for Its Permitted Use but neither Landlord
nor Tenant terminate this Agreement in the manner provided above, then, Tenant
shall give Landlord immediate Notice thereof and Tenant shall, subject to the
provisions of Section 10.2 below, repair, reconstruct and replace the Leased
Property, or the portion thereof so destroyed or damaged, at least to the extent
of the value and character thereof existing immediately prior to such occurrence
and in compliance with all Legal Requirements, including any alterations to the
Leased Property required to be made by any Governmental Agencies due to any
changes in code or building regulations (which Tenant acknowledges may increase
the replacement value of the Leased Property which Tenant will then be required
to insure, due to any changes in code or building regulations). All such
restoration work shall be started as promptly as practicable and diligently
completed at Tenant's sole cost and expense (using available insurance
proceeds). Tenant shall, however, immediately take such action as is necessary
to assure that the Leased Property (or any portion thereof), does not constitute
a nuisance or otherwise present or constitute a health or safety hazard.
Notwithstanding the foregoing the Tenant shall have the right to elect not to
repair any material casualty damage (estimated to cost greater than $250,000 to
repair) occurring within twelve (12) months prior to the scheduled expiration of
the then-current Term, provided and on the condition that: (i) Tenant promptly
pays to Landlord the full amount of all deductibles applying to the insured
loss, as well as of all uninsured amounts thereof, and Landlord or its Mortgagee
also receive and retain all insurance proceeds; (ii) Tenant has provided
adequate assurance that applicable business interruption insurance will continue
to be available through the end of the then-current Term to cover all resulting
loss of income or else adequate security therefor as requested by Landlord; and
(iii) Tenant, at Tenant's sole cost and expense, properly secures and protects
and preserves any damaged portion of the Facility in such a fashion as to insure
the safety of all Facility Residents, guest, invitees and others (to the extent
that such persons are reasonably expected to continue to occupy or come upon the
relevant portions of the Leased Property), and the value of the affected
improvements.

        10.2 Escrow and Disbursement of Insurance Proceeds. If this Agreement is
not otherwise terminated pursuant to Section 10.1, then in the event of a
casualty resulting in a loss to the Leased Improvements and/or P&E in an amount
greater than FIFTY THOUSAND AND NO/100 DOLLARS ($50,000.00) (as determined by an
architect or engineer selected by Landlord), the proceeds of all insurance
policies maintained by Tenant shall be deposited in Landlord's name in an escrow
account at




                                       39


a bank or other financial institution designated by Landlord, and shall be used
by Tenant for the repair, reconstruction or restoration of the Leased Property
to its original condition. Tenant shall, at the time of establishment of such
escrow account and from time to time thereafter until said work shall have been
completed and paid for, furnish Landlord with adequate evidence acceptable to
Landlord that at all times the undisbursed portion of the escrowed insurance
proceeds, together with any funds made available by Tenant, is sufficient to pay
for the repair, reconstruction or restoration in its entirety. Landlord may, at
its option, require, prior to advancement of said escrowed insurance proceeds
(i) approval of plans and specifications by an architect or other design
professional appropriate under the circumstances and approved by Landlord and
Tenant (which approval shall not be unreasonably withheld or delayed), (ii)
general contractors' estimates, (iii) architect's certificates, (iv)
unconditional lien waivers of general contractors, if available, (v) evidence of
approval by all Governmental Agencies and other regulatory bodies whose approval
is required, and (vi) such other terms as a Mortgagee or lender of Landlord may
reasonably require. The escrowed insurance proceeds shall be disbursed by
Landlord, not more than monthly, upon (i) certification of the architect or
engineer selected by Landlord and having supervision of the work that such
amounts are the amounts paid or payable for the repair, reconstruction or
restoration and (ii) submittal by Tenant of a written requisition and
substantiation therefor on AIA Forms G702 and G703 (or on such other form or
forms as may be reasonably acceptable to Landlord). Tenant shall obtain, and
make available to Landlord, receipted bills and, upon completion of said work,
full and final waivers of lien. In the event of a casualty resulting in a loss
payment for the Leased Improvements in an amount equal to or less than the
amount stated above, the proceeds shall be paid to Tenant, and shall be applied
towards repair, reconstruction and restoration. Any and all loss adjustments
with respect to losses payable hereunder shall require the prior written consent
of Landlord. All salvage resulting from any risk covered by insurance shall
belong to Tenant, provided any rights to the same have been waived by the
insurer. In addition, notwithstanding anything in this Agreement to the
contrary, Tenant shall be strictly liable and solely responsible for the amount
of any deductible and shall pay for all repairs, reconstruction or alterations
up to the full amount of such deductible (and provide evidence of such payment
to Landlord by documentation reasonably acceptable to Landlord) before any
insurance proceeds are used for repairs, reconstruction or alterations.

        10.3 No Abatement of Rent. Unless terminated in accordance with the
provisions of Section 10.1 above, this Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all
Additional Charges as and when required under this Agreement shall remain
unabated during the Term notwithstanding any casualty to the Leased Property
(provided that Landlord shall credit against such payments any amounts paid to
Landlord as a consequence of such damage under any business interruption
insurance obtained by Tenant hereunder). The provisions of this Article 10 shall
be considered an express agreement governing any event of casualty involving the
Leased Property and, to the maximum extent permitted by law, Tenant hereby
waives the application of any local or state statute, law, rule, regulation or
ordinance in effect during the Term which provides for such abatement.

        10.4 Tenant's Property and Business Interruption Insurance. All
insurance proceeds payable by reason of any loss of or damage to any of Tenant's
Personal Property and the business interruption insurance maintained for the
benefit of Tenant shall be paid to Tenant; provided, however, no such payments
shall diminish or reduce the insurance payments otherwise payable to or for the
benefit of Landlord hereunder.




                                       40


        10.5 Restoration of Tenant's Property. If Tenant is required to restore
the Leased Property as hereinabove provided, Tenant shall either (i) restore all
alterations and improvements made by Tenant and Tenant's Personal Property, or
(ii) replace such alterations and improvements and Tenant's Personal Property
with improvements or items of the same or better quality and utility in the
operation of the Leased Property.

        10.6 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property
and agrees that its rights shall be limited to those set forth in Section 10.1.

                                   ARTICLE 11

                                  CONDEMNATION

        11.1 Total Condemnation, Etc. If the whole of the Leased Property shall
be taken or condemned for any public or quasi-public use or purpose, by right of
eminent domain or by purchase in lieu thereof, or if a substantial portion of
the Leased Property shall be so taken or condemned that the portion or portions
remaining is or are not sufficient and suitable, in the mutual reasonable
judgment of Landlord and Tenant, for the continued operation thereof as required
herein, so as to effectively render the Leased Property Unsuitable for its
Intended Use, then this Agreement and the Term hereby granted shall cease and
terminate (without prejudice to Landlord's and Tenant's respective rights to an
award under Section 11.3 below), as of the date on which the Condemnor takes
possession and all Rent shall be paid by Tenant to Landlord up to that date or
refunded by Landlord to Tenant if Rent has previously been paid by Tenant beyond
that date.

        11.2 Partial Condemnation. If a portion of the Leased Property is taken,
and the portion or portions remaining can, in the mutual reasonable judgment of
Landlord and Tenant, be adapted and used for the conduct of Tenant's business
operation in accordance with the terms of this Agreement, such that the Leased
Property is not effectively rendered Unsuitable for its Intended Use, then the
Tenant shall, utilizing condemnation proceeds paid to Landlord from the
Condemnor, promptly restore the remaining portion or portions thereof to a
condition comparable to their condition at the time of such taking or
condemnation, less the portion or portions lost by the taking, and this
Agreement shall continue in full force and effect except that the Rent payable
hereunder shall, if necessary, be equitably adjusted to take into account the
proportionate reduction in the number of licensed beds or living units located
on the Leased Property as a result of the taking.

        11.3 Disbursement of Award. The entire award for the Leased Property or
the portion or portions thereof so taken shall be apportioned between Landlord
and Tenant as follows: (a) if this Agreement terminates due to a taking or
condemnation, Landlord shall be entitled to the entire award; provided, however,
that any portion of the award expressly made for the taking of Tenant's
leasehold interest in the Leased Property, loss of business during the remainder
of the Term, and the taking of Tenant's Personal Property shall be the sole
property of and payable to Tenant, and (b) if this Agreement does not terminate
due to such taking or condemnation, Tenant shall be entitled to the award to the
extent required for restoration of the Leased Property, and Landlord shall be
entitled to the balance of the award not applied to restoration. In any
condemnation proceedings, Landlord and




                                       41


Tenant shall each seek its own award in conformity herewith, at its own expense.
If this Agreement does not terminate due to a taking or condemnation, Tenant
shall, with due diligence, restore the remaining portion or portions of the
Leased Property in the manner hereinabove provided. In such event, the proceeds
of the award to be applied to restoration shall be deposited with a bank or
financial institution designated by Landlord as if such award were insurance
proceeds, and the amount so deposited will thereafter be treated in the same
manner as insurance proceeds are to be treated under Section 10.2 of this
Agreement until the restoration has been completed and Tenant has been
reimbursed for all the costs and expenses thereof. If the award is insufficient
to pay for the restoration, Tenant shall be responsible for the remaining cost
and expense of such restoration.

        11.4 No Abatement of Rent. This Agreement shall remain in full force and
effect and Tenant's obligation to make all payments of Rent and to pay all other
charges as and when required under this Agreement shall remain unabated during
the Term notwithstanding any Condemnation involving the Leased Property. The
provisions of this Article 11 shall be considered an express agreement governing
any Condemnation involving the Leased Property and, to the maximum extent
permitted by law, no local or State statute, law, rule, regulation or ordinance
in effect during the Term which provides for such abatement shall have any
application in such case.

        11.5 Disputes. If Landlord and Tenant cannot agree in respect of any
matters to be determined under this Article, a determination shall be requested
of the court having jurisdiction over the taking or condemnation; provided,
however, that if said court will not accept such matters for determination,
either party may have the matters determined by a court otherwise having
jurisdiction over the parties.

                                   ARTICLE 12

                              DEFAULTS AND REMEDIES

        12.1 Events of Default. Each of the following events shall be an Event
of Default hereunder by Tenant and shall constitute a breach of this Agreement:

                (a) If Tenant shall fail to (i) pay, when due, any Rent or any
        Additional Charge due hereunder; (ii) fully fund and maintain the Tenant
        Shortfall Reserve as required by Section 3.10.1; (iii) fully fund and
        maintain the Security Deposit as required by Section 3.11; or (iv) fully
        fund and maintain the Reserve and fund all Reserve Expenditures as
        required by Section 5.2, and such failure in each such event shall
        continue for a period of five (5) days after such amounts become due and
        payable.

                (b) If Tenant shall violate or fail to comply with or perform
        any other term, provision, covenant, agreement or condition to be
        performed or observed by Tenant under this Agreement which is not
        otherwise identified in this Section 12.1, and such violation or failure
        shall continue for a period of thirty (30) days after written notice
        thereof from Landlord; provided, however, if such violation or failure
        is incapable of cure by Tenant within such thirty (30) days after
        Tenant's diligent and continuous efforts to cure the same, Tenant shall
        have an additional period of sixty (60) days to cure the same.



                                       42


                (c) If any assignment, transfer, sublease or encumbrance shall
        be made or deemed to be made that is in violation of the provisions of
        this Agreement.

                (d) If Tenant shall cease the actual and continuous operation of
        the business contemplated by this Agreement to be conducted by Tenant
        upon the Leased Property (and such cessation is not the result of
        casualty, condemnation or renovation and accompanying restoration or is
        not otherwise permitted by Landlord or is not the result of a legal
        requirement or during an emergency); or if Tenant shall vacate, desert
        or abandon the Leased Property; or if the Leased Property shall become
        empty and unoccupied; or if the Leased Property or Leased Improvements
        are used or are permitted to be used for any purpose, or for the conduct
        of any activity, other than the Permitted Use.

                (e) If, at any time during the Term of this Agreement, Tenant or
        Guarantor shall file in any court, pursuant to any statute of either the
        United States or of any State, a petition in bankruptcy or insolvency,
        or for reorganization or arrangement, or for the appointment of a
        receiver or trustee of all or any portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, or if Tenant or Guarantor shall make an assignment for
        the benefit of its creditors or petitions for or enters into an
        arrangement with its creditors.

                (f) If, at any time during the Term of this Agreement, there
        shall be filed against Tenant or Guarantor in any court pursuant to any
        statute of the United States or of any State, a petition in bankruptcy
        or insolvency, or for reorganization, or for the appointment of a
        receiver or trustee of all or a portion of Tenant's or Guarantor's
        property, including, without limitation, the leasehold interest in the
        Leased Property, and any such proceeding against Tenant or Guarantor
        shall not be dismissed within sixty (60) days following the commencement
        thereof.

                (g) If Tenant's leasehold interest in the Leased Property or any
        property therein (including without limitation Tenant's Personal
        Property and the P&E Replacements) shall be seized under any levy,
        execution, attachment or other process of court where the same shall not
        be vacated or stayed on appeal or otherwise within thirty (30) days
        thereafter, or if Tenant's leasehold interest in the Leased Property is
        sold by judicial sale and such sale is not vacated, set aside or stayed
        on appeal or otherwise within thirty (30) days thereafter.

                (h) If any of the Facility's Permits material to the Facility's
        operation for its Permitted Use are at any time suspended and the
        suspension is not stayed pending appeal within five (5) days, or
        voluntarily terminated without the prior written consent of Landlord.

                (i) If any Governmental Agencies having jurisdiction over the
        operation of the Facility removes ten percent (10%) or more of the total
        number of patients or residents located in the Facility at the time of
        such removal.

                (j) If Tenant voluntarily transfers ten (10) or more patients or
        residents located in the Facility in any one (1) year period (except as
        necessitated by a casualty), provided that any such transfer to a
        different type of care facility as a result of such patient's or
        resident's special needs that cannot be met at the Facility shall not be
        deemed a voluntary transfer.



                                       43


                (k) If Tenant fails to give notice to Landlord not later than
        ten (10) days after Tenant's receipt of any fine notice from any
        Government Agency relating to a Major Violation at the Facility.

                (l) If Tenant fails to notify Landlord within twenty-four (24)
        hours after receipt of any notice from any Governmental Agency
        terminating or suspending or reflecting a material risk of an imminent
        termination or suspension, of any material Permit relating to the
        Facility.

                (m) If Tenant fails during the Term of this Lease to cure or
        abate any Major Violation occurring during the Term that is claimed by
        any Governmental Agency of any law, order, ordinance, rule or regulation
        pertaining to the operation of the Facility, and within the time
        permitted by such authority for such cure or abatement.

                (n) The failure of Tenant to correct, within the time deadlines
        set by any Governmental Agency, any deficiency which would result in the
        following actions by such agency with respect to the Facility:

                        (i) a termination of any Reimbursement Contract or any
                Permit material to the operation of the Facility; or

                        (ii) the issuance of a stop placement order or ban on
                new admissions generally.

                (o) If a final unappealable determination is made by applicable
        state authorities of the revocation or limitation of any Permit required
        for the lawful operation of the Leased Property in accordance with its
        Permitted Use or there occurs the loss or material limitation of any
        Permit under any other circumstances under which Tenant is required to
        cease its operation of the Leased Property in accordance with its
        Permitted Use at the time of such loss or limitation.

                (p) If Tenant or the Facility should be assessed fines or
        penalties by any state health or licensing agency having jurisdiction
        over such Persons or the Facility in excess of $25,000.00 in any Fiscal
        Year.

                (q) If Tenant or Guarantor or an Affiliated Person of Tenant or
        Guarantor shall default under any other ARC-Related Lease (whether now
        in effect or entered into in the future) and shall fail to cure such
        default in the time period provided for in that lease.

                (r) If Guarantor shall default under the Guaranty and any such
        default shall remain uncured through any applicable notice and cure
        period thereunder.

        12.2 Remedies on Default. If any of the Events of Default hereinabove
specified shall occur, Landlord, at any time thereafter, shall have and may
exercise any of the following rights and remedies:

                (a) Landlord may, pursuant to written notice thereof to Tenant,
        immediately terminate this Agreement and, peaceably or pursuant to
        appropriate legal proceedings, re-enter,




                                       44


        retake and resume possession of the Leased Property for Landlord's own
        account without liability for trespass (Tenant hereby waiving any right
        to notice or hearing prior to such taking of possession by Landlord)
        and, for Tenant's breach of and default under this Agreement, recover
        immediately from Tenant any and all sums and damages due or in existence
        at the time of such termination, including, without limitation, (i) all
        Rent and other sums, charges, payments, costs and expenses agreed and/or
        required to be paid by Tenant to Landlord hereunder prior to such
        termination, (ii) all costs and expenses of Landlord in connection with
        the recovery of possession of the Leased Property, including reasonable
        attorney's fees based upon services rendered at hourly rates and court
        costs, and (iii) all costs and expenses of Landlord in connection with
        any reletting or attempted reletting of the Leased Property or any part
        or parts thereof, including, without limitation, brokerage fees,
        advertising costs, reasonable attorney's fees based upon services
        rendered at hourly rates based upon service rendered at hourly rates and
        the cost of any alterations or repairs or tenant improvements which may
        be reasonably required to so relet the Leased Property, or any part or
        parts thereof.

                (b) Landlord may, pursuant to any prior notice required by law,
        and without terminating this Agreement, peaceably or pursuant to
        appropriate legal proceedings, re-enter, retake and resume possession of
        the Leased Property for the account of Tenant, make such alterations of
        and repairs and improvements to the Leased Property as may be reasonably
        necessary in order to relet the same or any part or parts thereof and,
        directly or through a qualified management or operating company which
        may include an Affiliated Person of Landlord, operate and manage the
        Leased Property, and relet or attempt to relet the Leased Property or
        any part or parts thereof for such term or terms (which may be for a
        term or terms extending beyond the Term of this Agreement), at such
        rents and upon such other terms and provisions as Landlord, in its sole
        discretion, may deem advisable. If Landlord takes possession and control
        of the Leased Property and operates the same, Tenant shall, for so long
        as Landlord is actively operating the Leased Property, have no
        obligation to operate the Leased Property but agrees that Landlord, any
        contract manager or operator, or any new tenant or sublessee may, to the
        extent permitted by law, operate the Facility under Tenant's Permits,
        including its Medicaid and Medicare provider agreements, if any, until
        same are issued in the name of the Landlord or the new manager/operator
        or tenant or sublessee, as applicable. If Landlord relets or attempts to
        relet the Leased Property, or obtains a contract manager or operator for
        the Leased Property, Landlord shall at its sole discretion determine the
        terms and provisions of any new lease or sublease, or management or
        operating agreement, and whether or not a particular proposed manager or
        operator, or new tenant or sublessee, is acceptable to Landlord. Upon
        any such reletting, or the operation of the Leased Property by a
        contract manager or operator, all rents or incomes received by the
        Landlord from such reletting or otherwise from the operation of the
        Leased Property shall be applied, (i) first, to the payment of all costs
        and expenses of recovering possession of the Leased Property, (ii)
        second, to the payment of any costs and expenses of such reletting and
        or operation, including brokerage fees, advertising costs, reasonable
        attorney's fees based upon service rendered at hourly rates, a
        management fee of between five percent (5%) and ten percent (10%) of the
        gross revenues generated, and the cost of any alterations and repairs
        reasonably required for such reletting or operation of the Leased
        Property; (iii) third, to the payment of any indebtedness, other than
        Rent, due hereunder from Tenant to the Landlord, (iv) fourth, to the
        payment of all Rent and other sums due and unpaid hereunder, and (v)
        fifth, the residue, if any, shall be held by the




                                       45


        Landlord and applied in payment of future Rent as the same may become
        due and payable hereunder. If the rents received from such reletting or
        net income from the operation of the Leased Property during any period
        shall be less than the Rents and Additional Charges required to be paid
        during that period by the Tenant hereunder, Tenant shall promptly pay
        any such deficiency to the Landlord and failing the prompt payment
        thereof by Tenant to Landlord, Landlord shall immediately be entitled to
        institute legal proceedings for the recovery and collection of the same.
        Such deficiency shall be calculated and paid at the time each payment of
        Minimum Rent, Percentage Rent or any other sum shall otherwise become
        due under this Agreement, or, at the option of Landlord, at the end of
        the Term of this Agreement. Landlord shall, in addition, be immediately
        entitled to sue for and otherwise recover from Tenant any other damages
        occasioned by or resulting from any abandonment of the Leased Property
        or other breach of or default under this Agreement other than a default
        in the payment of Rent. No such re-entry, retaking or resumption of
        possession of the Leased Property by the Landlord for the account of
        Tenant shall be construed as an election on the part of Landlord to
        terminate this Agreement unless a written notice of such intention shall
        be given to the Tenant or unless the termination of this Agreement be
        decreed by a court of competent jurisdiction. Notwithstanding any such
        re-entry and reletting or attempted reletting of the Leased Property or
        any part or parts thereof for the account of Tenant without termination,
        Landlord may at any time thereafter, upon written notice to Tenant,
        elect to terminate this Agreement or pursue any other remedy available
        to Landlord for Tenant's previous breach of or default under this
        Agreement.

                (c) Landlord may, without re-entering, retaking or resuming
        possession of the Leased Property, sue for all Rent and all other sums,
        charges, payments, costs and expenses due from Tenant to Landlord
        hereunder (discounted to present value) either: (i) as they become due
        under this Agreement, taking into account that Tenant's right and option
        to pay the Rent hereunder on a monthly basis in any particular Fiscal
        Year is conditioned upon the absence of a Default on Tenant's part in
        the performance of its obligations under this Agreement, or (ii) at
        Landlord's option, accelerate the maturity and due date of the whole or
        any part of the Rent for the entire then-remaining unexpired balance of
        the Term of this Agreement, as well as all other sums, charges,
        payments, costs and expenses required to be paid by Tenant to Landlord
        hereunder, including, without limitation, damages for breach or default
        of Tenant's obligations hereunder in existence at the time of such
        acceleration, such that all sums due and payable under this Agreement
        shall, following such acceleration, be treated as being and, in fact, be
        due and payable in advance as of the date of such acceleration. Landlord
        may then proceed to recover and collect all such unpaid Rent and other
        sums so sued for from Tenant by distress, levy, execution or otherwise.
        Regardless of which of the foregoing alternative remedies is chosen by
        Landlord under this subparagraph (c), Landlord shall not be required to
        relet the Leased Property nor exercise any other right granted to
        Landlord pursuant to this Agreement, nor, except as may be required by
        Applicable Laws, shall Landlord be under any obligation to minimize or
        mitigate Landlord's damages or Tenant's loss as a result of Tenant's
        breach of or default under this Agreement. Notwithstanding the
        foregoing, following such time as Landlord may obtain possession of the
        Leased Property, Landlord or its successor Landlord at the time of any
        Lease termination, shall continue to make the Leased Property available
        for lease, on an "as is" basis, and shall turn over the net proceeds
        thereof to Tenant to the extent actually received by Landlord in respect
        of any time period for which Landlord shall have received the full




                                       46


        amount of Rent payable with respect thereto (albeit perhaps on a basis
        reasonably discounted for the time value of money or present-value
        basis).

                (d) Landlord may, in addition to any other remedies provided
        herein, enter upon the Leased Property or any portion thereof and take
        possession of (i) any and all of Tenant's Personal Property, if any,
        (ii) Tenant's books and records necessary to operate the Leased
        Property, and (iii) all the bank accounts concerning, or established
        for, the Leased Property, without liability for trespass or conversion
        (Tenant hereby waiving any right to notice or hearing prior to such
        taking of possession by Landlord) and sell the same by public or private
        sale, after giving Tenant reasonable notice of the time and place of any
        public or private sale, at which sale Landlord or its assigns may
        purchase all or any portion of Tenant's Personal Property, if any,
        unless otherwise prevented by law. Unless otherwise provided by law and
        without intending to exclude any other manner of giving Tenant
        reasonable notice, the requirement of reasonable notice shall be met if
        such notice is given at least ten (10) days before the date of sale. The
        proceeds from any such disposition, less all expenses incurred in
        connection with the taking of possession, holding and selling of such
        Property (including reasonable attorneys' fees based upon services
        rendered at hourly rates) shall be credited against Rent which is due
        hereunder.

                (e) Tenant acknowledges that one of the rights and remedies
        available to Landlord under Applicable Law is to apply to a court of
        competent jurisdiction for the appointment of a receiver to collect the
        rents, issues, profits and income of the Leased Property and to manage
        the operation of the Leased Property. Tenant hereby further acknowledges
        that the revocation, suspension or material limitation of the
        certification of the Leased Property for provider status under Medicare
        or Medicaid (or successor programs) and/or the revocation, suspension or
        material limitation of the license of the Leased Property as an skilled
        nursing, assisted living and dementia care facility under the laws of
        the State will materially and irreparably impair the value of Landlord's
        investment in the Leased Property. Therefore, in any of such events, and
        in addition to any other right or remedy of Landlord under this
        Agreement, Landlord may petition any appropriate court for appointment
        of a receiver to manage the operation of the Leased Property (or any
        portion thereof as to which Tenant has suffered the revocation,
        suspension or material limitation of any license), to collect and
        disburse all rents, issues, profits and income generated thereby and to
        preserve or replace to the extent possible the operating license and
        provider certification of the Leased Property or to otherwise substitute
        the licensee or provider thereof. The receiver shall be entitled to a
        reasonable fee for his services as receiver. All such fees and other
        expenses of the receivership estate shall be payable as Additional
        Charges under this Agreement. Tenant hereby irrevocably stipulates to
        the appointment of a receiver under such circumstances and for such
        purposes and agrees not to contest such appointment.

                (f) In addition to the remedies hereinabove specified and
        enumerated, Landlord shall have and may exercise the right to invoke any
        other remedies allowed at law or in equity as if the remedies of
        re-entry, unlawful detainer proceedings and other remedies were not
        herein provided. Accordingly, the mention in this Agreement of any
        particular remedy shall not preclude Landlord from having or exercising
        any other remedy at law or in equity. Nothing herein contained shall be
        construed as precluding the Landlord from having or exercising such




                                       47


        lawful remedies as may be and become necessary in order to preserve the
        Landlord's right or the interest of the Landlord in the Leased Property
        and in this Agreement, even before the expiration of any notice periods
        provided for in this Agreement, if under the particular circumstances
        then existing the allowance of such notice periods will prejudice or
        will endanger the rights and estate of the Landlord in this Agreement
        and in the Leased Property. In addition, any provision of this Agreement
        to the contrary notwithstanding, no provision of this Agreement shall
        delay or otherwise limit Landlord's right to seek injunctive relief or
        Tenant's obligation to comply with any such injunctive relief.

        12.3 Application of Funds. Any payments received by Landlord under any
of the provisions of this Agreement during the existence or continuance of any
Event of Default (and any payment made to Landlord rather than Tenant due to the
existence of any Event of Default) shall be applied to Tenant's current and past
due obligations under this Agreement in such order as Landlord may determine or
as may be prescribed by the laws of the State.

        12.4 Landlord's Right to Cure Tenant's Default. If Tenant shall default
in the performance of any term, provisions, covenant or condition on its part to
be performed hereunder, Landlord may, but shall have no obligation to perform
the same for the account and at the expense of Tenant. If, at any time and by
reason of such default, Landlord is compelled to pay, or elects to pay, any sum
of money or do any act which will require the payment of any sum of money, or is
compelled to incur any expense in the enforcement of its rights hereunder or
otherwise, such sum or sums, together with interest thereon at the Overdue Rate
shall be deemed Additional Rent hereunder and shall be repaid to Landlord by
Tenant promptly when billed therefor, and Landlord shall have all the same
rights and remedies in respect thereof as Landlord has in respect of the rents
herein reserved.

        12.5 Landlord's Lien. Landlord shall have at all times during the Term
of this Agreement, a valid lien for all rents and other sums of money becoming
due hereunder from Tenant, upon all goods, accounts, wares, merchandise,
inventory, furniture, fixtures, equipment, vehicles and other personal property
and effects of Tenant situated in or upon the Leased Property, including
Tenant's Personal Property and any interest of Tenant in P&E Replacements, but
specifically excluding the trade names "ARC," "American Retirement Corporation,"
"Heritage Club," or any derivation or replacement thereof or addition thereto
applied by Affiliated Persons of Guarantor to other facilities, and such
property shall not be removed therefrom except in accordance with the terms of
this Agreement without the approval and consent of Landlord until all arrearages
in Rent as well as any and all other sums of money then due to Landlord
hereunder shall first have been paid and discharged in full. Alternatively, the
lien hereby granted may be foreclosed in the manner and form provided by law for
foreclosure of security interests or in any other manner and form provided by
law. The statutory lien for Rent, if any, is not hereby waived and the express
contractual lien herein granted is in addition thereto and supplementary
thereto. Tenant agrees to execute and deliver to Landlord from time to time
during the Term of this Agreement such Financing Statements as may be required
by Landlord in order to perfect the Landlord's lien provided herein or granted
or created by state law. Tenant further agrees that during an Event of Default,
Tenant shall not make any distributions to its shareholders, partners, members
or other owners and any such distributions shall be considered and deemed to be
fraudulent and preferential and subordinate to Landlord's claim for Rent and
other sums hereunder.



                                       48


                                   ARTICLE 13

                                  HOLDING OVER

        If Tenant or any other person or party shall remain in possession of the
Leased Property or any part thereof following the expiration of the Term or
earlier termination of this Agreement without an agreement in writing between
Landlord and Tenant with respect thereto, the person or party remaining in
possession shall be deemed to be a tenant at sufferance, and during any such
holdover, the Rent payable under this Agreement by such tenant at sufferance
shall be double the rate or rates in effect immediately prior to the expiration
of the Term or earlier termination of this Agreement. In no event, however,
shall such holding over be deemed or construed to be or constitute a renewal or
extension of this Agreement.

                                   ARTICLE 14

                     LIABILITY OF LANDLORD; INDEMNIFICATION

        14.1 Liability of Landlord. Landlord and its affiliates shall not be
liable to Tenant, its employees, agents, invitees, licensees, customers,
clients, residents and their respective family members or guests for any damage,
injury, loss, compensation or claim, including, but not limited to, claims for
the interruption of or loss to Tenant's business, based on, arising out of or
resulting from any cause whatsoever (other than Landlord's gross negligence or
willful misconduct), including, but not limited to: (a) repairs to any portion
of the Leased Property; (b) interruption in Tenant's use of the Leased Property;
(c) any accident or damage resulting from the use or operation (by Landlord,
Tenant or any other person or persons) of any equipment within the Leased
Property, including without limitation, heating, cooling, electrical or plumbing
equipment or apparatus; (d) the termination of this Agreement by reason of the
condemnation or destruction of the Leased Property in accordance with the
provisions of this Agreement; (e) any fire, robbery, theft, mysterious
disappearance or other casualty; (f) the actions of any other person or persons;
and (g) any leakage or seepage in or from any part or portion of the Leased
Property, whether from water, rain or other precipitation that may leak into, or
flow from, any part of the Leased Property, or from drains, pipes or plumbing
fixtures in the Leased Improvements. Any goods, property or personal effects
stored or placed by the Tenant or its employees in or about the Leased Property
including Tenant's Personal Property, shall be at the sole risk of the Tenant.

        14.2 Indemnification of Landlord. Tenant shall defend, indemnify and
save and hold Landlord harmless from and against any and all liabilities,
obligations, losses, damages, injunctions, suits, actions, fines, penalties,
claims, demands, costs and expenses of every kind or nature, including
reasonable attorneys' fees and court costs, incurred by Landlord, arising
directly or indirectly from or out of: (a) any failure by Tenant to perform any
of the terms, provisions, covenants or conditions of this Agreement, on Tenant's
part to be performed including but not limited to the payment of any fee, cost
or expense which Tenant is obligated to pay and discharge hereunder, (b) any
accident, injury or damage which shall happen at, in or upon the Leased
Property, however occurring; (c) any matter or thing growing out of the
condition, occupation, maintenance, alteration, repair, use or operation by any
person of the Leased Property, or any part thereof, or the operation of the
business contemplated by



                                       49


this Agreement to be conducted thereon, thereat, therein, or therefrom; (d) any
failure of Tenant to comply with the Legal Requirements; (e) any contamination
of the Leased Property, or the groundwaters thereof, arising on or after the
date Tenant takes possession of the Leased Property and occasioned by the use,
transportation, storage, spillage or discharge thereon, therein or therefrom of
any toxic or hazardous chemicals, compounds, materials or substances, whether by
Tenant or by any agent or invitee of Tenant; (f) any discharge of toxic or
hazardous sewage or waste materials from the Leased Property into any septic
facility or sanitary sewer system serving the Leased Property arising on or
after the date Tenant takes possession of the Leased Property, whether by Tenant
or by any agent of Tenant; (g) any fines, penalties, or refunds due and payable
to Medicare or Medicaid arising out of the operation of the Leased Property by
Tenant; or (h) any other act or omission of Tenant, its employees, agents,
invitees, customers, licensees or contractors, provided, however, Tenant shall
not be liable for or be obligated to indemnify Landlord from and against any
damages resulting from Landlord's gross negligence or willful misconduct.

        THE INDEMNIFICATION OF LANDLORD HEREUNDER IS INTENDED TO AND SHALL
        EXPRESSLY INCLUDE INDEMNIFICATION AGAINST LANDLORD'S OWN NEGLIGENCE,
        UNLESS SPECIFICALLY OTHERWISE PROVIDED.

        Tenant's indemnity obligations under this Article and elsewhere in this
Agreement arising prior to the termination or permitted assignment of this
Agreement shall survive any such termination or assignment.

        14.3 Notice of Claim or Suit. Tenant shall promptly notify Landlord of
any claim, action, proceeding or suit instituted or threatened against Tenant or
Landlord of which Tenant receives notice or of which Tenant acquires knowledge.
In the event Landlord is made a party to any action for damages or other relief
against which Tenant has indemnified Landlord, as aforesaid, Tenant shall at its
own expense using counsel reasonably approved by Landlord, diligently defend
Landlord, pay all costs in such litigation or, at Landlord's option, and
expense, Landlord may nonetheless engage its own counsel in connection with its
own defense or settlement of said litigation in which event Tenant shall
cooperate with Landlord and make available to Landlord all information and data
which Landlord deems necessary or desirable for such defense. In the event
Landlord is required to secure its own counsel due to a conflict in the
interests of Tenant and Landlord in any action for damages or other relief
against which Tenant has indemnified Landlord, Tenant shall pay all of
Landlord's costs in such litigation. Tenant is required to approve a settlement
agreement for any such claim or suit as requested by Landlord and which is
consistent with applicable insurance company requirements, unless Tenant posts a
bond or other security acceptable to Landlord for any potentially uninsured
liability amounts.

        14.4 Limitation on Liability of Landlord. In the event Tenant is awarded
a money judgment against Landlord, Tenant's sole recourse for satisfaction of
such judgment shall be limited to execution against the Landlord's interest in
the Leased Property. In no event shall any partner, member, officer, director,
stockholder or shareholder of Landlord or any partner thereof or Affiliated
Person or Subsidiary thereof, be personally liable for the obligations of
Landlord hereunder.



                                       50


                                   ARTICLE 15

                           REIT AND UBTI REQUIREMENTS

        Tenant understands that, in order for Landlord to qualify as a real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"), the following requirements must be satisfied. The parties
intend that amounts to be paid by Tenant hereunder and received or accrued,
directly or indirectly, by Landlord with respect to the Leased Property
(including any rents attributable to personal property that is leased with
respect thereto) will qualify as "rents from real property" (within the meaning
of Code Section 856(d) and Section 512(b)(3)), and that neither party will take,
or permit to take, any action that would cause any amount received by the
Landlord under this Agreement to fail to qualify as such under the Code.
Consistent with this intent, the parties agree that:

        15.1 Limitations on Rents Attributable to Personal Property. "Rents
attributable to any personal property" leased to the Tenant cannot exceed
fifteen percent (15%) of the total rent received or accrued by Landlord under
this Agreement for the Fiscal Year of the Landlord. Consistent therewith, the
average of the adjusted tax bases of the personal property (within the meaning
set forth in Section 1.512(b)-1(c)(3)(ii) of the applicable Treasury
Regulations) that is leased to Tenant with respect to the Leased Property at the
beginning and end of a Fiscal Year cannot exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the real and personal property
comprising such Leased Property that is leased to Tenant under such lease at the
beginning and end of such Fiscal Year (the "REIT Personal Property Limitation").
If Landlord reasonably anticipates that the REIT Personal Property Limitation
will be exceeded with respect to the Leased Property for any Fiscal Year,
Landlord shall notify Tenant, and Landlord and Tenant shall negotiate in good
faith the purchase by Tenant of items of personal property anticipated by
Landlord to be in excess of the Personal Property Limitation. Provided, however,
that Tenant's responsibility to purchase such personal property will be offset
by Landlord in some mutually agreeable manner, which would not result in the
Landlord earning income which would constitute "unrelated business taxable
income" within the meaning of Section 512 of the Code, if the Landlord was a
"qualified trust" within the meaning of Section 856(h)(3)(E) of the Code.

        15.2 Basis for Sublease Rent Restricted. Tenant cannot sublet the
property that is leased to it by Landlord, or enter into any similar
arrangement, on any basis such that the rental or other amounts paid by the
sublessee thereunder would be based, in whole or in part, on either (a) the net
income or profits derived by the business activities of the sublessee or (b) any
other formula such that any portion of the rent paid by Tenant to Landlord would
fail to qualify as "rent from real property" within the meaning of Section
856(d) and Section 512(b)(3) of the Code and regulations promulgated thereunder.

        15.3 Landlord Affiliate Subleases Restricted. Anything to the contrary
in this Agreement notwithstanding, Tenant shall not sublease the Leased Property
to, or enter into any similar arrangement with, any person in which Landlord
owns, directly or indirectly, a ten percent (10%) or more interest, with the
meaning of Section 856(d)(2)(B) of the Code, and any such action shall be deemed
void ab initio. Anything to the contrary in this Agreement notwithstanding,
Tenant shall not



                                       51


sublease the Leased Property to, or enter into any similar arrangement with, any
Person that Landlord would be deemed to control within the meaning of Section
512 (b)(13) of the Code.

        15.4 Landlord Interests in Tenant Restricted. Anything to the contrary
in this Agreement notwithstanding, neither party shall take, or permit to take,
any action that would cause Landlord to own, directly or indirectly, a ten
percent (10%) or greater interest in the Tenant within the meaning of Section
856(d)(2)(B) of the Code, and any similar or successor provision thereto, and
any such action shall be deemed void ab initio. In addition, anything to the
contrary in this Agreement notwithstanding, Tenant shall not take or permit to
take, any action that would cause Landlord to own, directly or indirectly, such
interest in Tenant such that amounts received from Tenant would represent
amounts received from a controlled entity within the meaning of Section
512(b)(13) of the Code.

        15.5 Rents from Personal Property Restricted. Rents attributable to
personal property within the meaning of Treasury Regulation Section
1.512(b)-1(c)(3)(ii) that is leased to Tenant with respect to the Leased
Property will not exceed 10 percent (10%) of the total Rents per year (the "UBTI
Personal Property Limitation"). If Landlord reasonably anticipates that the UBTI
Personal Property Limitation will be exceeded with respect to the Leased
Property for any Fiscal Year, Landlord shall notify Tenant, and Landlord and
Tenant shall negotiate in good faith the purchase by Tenant of items of personal
property anticipated by Landlord to be in excess of the UBTI Personal Property
Limitation; provided, However, that Tenant's responsibility to purchase such
personal property will be offset by Landlord in some mutually agreeable manner
which will not result in the Landlord earning income which would constitute
"unrelated business taxable income" within the meaning of Section 512 of the
Code if the Landlord was a "qualified trust" within the meaning of Section
856(h)(3)(E) of the Code.

        15.6 Landlord Services. Any services provided by, or on behalf of,
Landlord will not prevent any amounts received or accrued from qualifying as
"Rents from real property" (within the meaning of Section 856(d)(2) or Section
512(b)(3) of the Code).

        15.7 Certain Subtenants Prohibited. Anything to the contrary in this
Agreement notwithstanding, Tenant shall not sublease the Leased Property to, or
enter into any similar arrangement with, any Person that would be described in
Section 514(c)(9)(B)(iii) or (iv) of the Code.

        15.8 Future Amendment. Tenant hereby agrees to amend this Article 15
from time to time as Landlord deems necessary or desirable in order to
effectuate the intent hereof.

                                   ARTICLE 16

                            SUBLETTING AND ASSIGNMENT

        16.1 Transfers Prohibited Without Consent. Tenant shall not, without the
prior written consent of Landlord in each instance which may be withheld in
Landlord's sole opinion and discretion, sell, assign or otherwise transfer this
Agreement, or Tenant's interest in the Leased Property together with all
interests of Tenant in all property of any nature located and used at the Leased
Property (including without limitation Tenant's Personal Property and the P&E
Replacements), in whole or in part, or any rights or interest which Tenant may
have under this Agreement, or sublet any part of the




                                       52


Leased Property, or grant or permit any lien or encumbrance on or security
interest in Tenant's interest in this Agreement; notwithstanding the foregoing,
Tenant shall be permitted to grant sublease, rental or other occupancy rights in
the Facility to individual residents in connection with the operation of the
Leased Property in accordance with the Permitted Use. Notwithstanding the
foregoing, Tenant may sell, assign or otherwise transfer this Agreement, or
Tenant's interest in the Leased Property, in whole but not in part, without the
consent of the Landlord, to an Affiliated Person or to Guarantor provided (i)
Tenant gives Landlord prior written notice of such sale or assignment, (ii)
Tenant shall remain liable under this Agreement for the remaining Term, and
(iii) such assignee or purchaser shall continue to operate the Leased Premises
as a first class skilled nursing, assisted living and dementia care facility
consistent with other skilled nursing, assisted living and dementia care
facilities being operated by Guarantor and its Affiliated Persons.

         Landlord shall not, without the prior written consent of Tenant in each
instance which may be withheld in Tenant's sole opinion and discretion, sell,
assign or otherwise transfer this Agreement, or Landlord's interest in the
Leased Property, in whole or in part, or any rights or interest which Landlord
may have under this Agreement, either directly or indirectly in the form of a
Facility Mortgage as contemplated under Article 19 hereof, to a direct
competitor of Tenant or Guarantor. In the event that a direct competitor of
Tenant or Guarantor becomes a Mortgagee of the Leased Property the subordination
provisions of Section 19.1 shall not apply.

        16.2 Indirect Transfer Prohibited Without Consent. A sale, assignment,
pledge, transfer, exchange or other disposition of (a) the stock of Tenant or
any general partner interest in Tenant or (b) any interest of a member or
members of Tenant which results in a change or transfer of management or control
of Tenant, or a merger, consolidation or other combination of Tenant with
another entity which results in a change or transfer of management or control of
Tenant, shall be deemed an assignment hereunder and shall be subject to Section
16.1 hereof. For purposes hereof, exchange or transfer of management or control
or effective control, shall mean a transfer of 50% or more of the economic
benefit of, or Control of, any such entity.

        16.3 Adequate Assurances. Without limiting any of the foregoing
provisions of this Article, if, pursuant to the U.S. Bankruptcy Code, as the
same may be amended from time to time, Tenant is permitted to assign or
otherwise transfer its rights and obligations under this Agreement in disregard
of the restrictions contained in this Article, the assignee shall be deemed to
agree to provide adequate assurance to Landlord (a) that any Percentage Rent
shall not decline substantially after the date of such assignment, (b) of the
continued use of the Leased Property solely in accordance with the Permitted Use
thereof, (c) of the continuous operation of the business in the Leased Property
in strict accordance with the requirements of Article 4 hereof, and (d) of such
other matters as Landlord may reasonably require at the time of such assumption
or assignment. Without limiting the generality of the foregoing, adequate
assurance shall include the requirement that any such assignee shall have a net
worth (exclusive of good will) of not less than the aggregate of the Rent due
and payable for the previous Fiscal Year and is or can be licensed to operate
the Facility by the appropriate Governmental Agencies. Such assignee shall
expressly assume this Agreement by an agreement in recordable form, an original
counterpart of which shall be delivered to Landlord prior to an assignment of
the Agreement.

         Any approval of such successor Tenant shall not affect or alter
Landlord's approval rights of each manager of the Leased Property.



                                       53


                                   ARTICLE 17

                 ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS

        17.1 Estoppel Certificates. Tenant shall from time to time, within
fifteen (15) days after request by Landlord and without charge, give a Tenant
Estoppel Certificate in the form (or substantially the form) attached hereto as
Exhibit "D" and containing such other matters as may be reasonably requested by
Landlord to any person, firm or corporation specified by Landlord.

        17.2 Monthly Financial Statements. Throughout the Term of this
Agreement, Tenant shall prepare and deliver to Landlord at or prior to the end
of each month during the Term hereof, an income (or profit and loss) statement
and operating balance sheet showing the results of the operation of the Leased
Property for the immediately preceding month and for the Fiscal Year to date.
This information shall be provided to Landlord under a complete financial
statement for the Facility which shall be delivered prior to the end of the next
following month, in the form customarily provided in the industry and approved
in advance by the Landlord, and which shall: (a) be taken from the books and
records maintained by Tenant, Guarantor and any manager in the form specified
herein; (b) follow a consistent form as approved in advance in writing by
Landlord; and (c) indicate variances from budgeted results for each line item
against the Tenant's budget for the Leased Property for such Fiscal Year. The
aforesaid financial statements shall be accompanied by an Officer's Certificate
which, for purposes hereof shall mean a Certificate of the Chief Financial
Officer of Tenant, and of Guarantor's Chief Financial Officer, in which such
Officer shall certify (a) that such statements have been properly prepared in
accordance with GAAP and are true, correct and complete in all material respects
and fairly present the consolidated financial condition of the Tenant at and as
of the dates thereof and the results of its operations for the period covered
thereby, and (b) that no Event of Default has occurred and is continuing
hereunder.

        17.3 Annual Financial Statements. Tenant shall deliver to Landlord
within ninety (90) days after the end of each Fiscal Year, a profit and loss
statement, balance sheet and statement of cash flow certified by an independent
certified public accountant who is actively engaged in the practice of his
profession and who is acceptable to Landlord (which statement shall also be
certified by an officer, partner or member in Tenant) together with copies of
all reports and communications furnished to Guarantor, Tenant's other Affiliated
Persons or any manager of the Leased Property, showing results from the
operation of the Leased Property during such Fiscal Year, and reasons for
material variations from the approved budget for such year. Tenant shall also
deliver to Landlord at Landlord's expense at any time and from time to time,
upon not less than twenty (20) days notice from Landlord, any financial
statements or other financial reporting information required to be filed by
Landlord with the SEC or any other governmental authority or required pursuant
to any order issued by any Governmental Agencies or arbitrator in any litigation
to which Landlord is a party for purposes of compliance therewith. The financial
statements required herein are in addition to the statements required under
Section 3.3.2 hereof. Notwithstanding the foregoing, in the event that Tenant's
financial records are not otherwise being reviewed or audited by an independent
certified public accountant then the Landlord will accept financial statements
certified true and correct by the Chief Financial Officer of Tenant and by the
Guarantor's Chief Financial Officer.



                                       54


        17.4 Records. Tenant shall keep and maintain at all times in accordance
with GAAP (separate and apart from its other books, records and accounts)
complete and accurate up-to-date books and records adequate to reflect clearly
and correctly the results of operations of the Leased Property, on an accrual
basis, including but not limited to, each calculation of Percentage Rent. Such
books and records shall be kept and maintained at the Leased Property or
Tenant's principal office in Nashville, Tennessee. Landlord or its
representatives shall have, at all reasonable times during normal business
hours, reasonable access, on reasonable advance notice, to examine and copy the
books and records pertaining to the Leased Property and the Tenant Shortfall
Reserve. Such books and records shall be available for at least four (4) years
after the applicable quarterly calculation of Percentage Rent for Landlord's
inspection, copying, review and audit at Landlord's expense during reasonable
business hours and upon reasonable notice for the purpose of verifying the
accuracy of Tenant's calculation of Percentage Rent.

        17.5 General Operations Budget. In addition to the Reserve Estimate,
Tenant shall furnish to Landlord, on or before December 1 of each Fiscal Year
proposed annual budgets in a form satisfactory to Landlord and consistent with
the then standards for the same brand of skilled nursing, assisted living and
dementia care facilities as the Facility setting forth projected income and
costs and expenses projected to be incurred by Tenant in managing, leasing,
maintaining and operating the Facility during the following Fiscal Year.

        17.6 Quarterly Meetings. At Landlord's request, Tenant shall make the
Tenant's property management team and the executive officers of Tenant available
to meet with Landlord on a quarterly basis to discuss the Reserve Estimate, the
annual budgets and any other items related to the operation of the Facility,
which Landlord wishes to discuss. Tenant agrees to give good faith consideration
to any suggestions or requests that Landlord may have.

                                   ARTICLE 18

                           LANDLORD'S RIGHT TO INSPECT

        Landlord, Mortgagee and their agents shall have the right to enter upon
the Leased Property or any portion thereof at any reasonable time to inspect the
same, including but not limited to, the operation, sanitation, safety,
maintenance and use of the same, or any portions of the same and to assure
itself that Tenant is in full compliance with its obligations under this
Agreement (but Landlord and Mortgagee shall not thereby assume any
responsibility for the performance of any of Tenant's obligations hereunder, nor
any liability arising from the improper performance thereof). In making any such
inspections, neither Landlord nor Mortgagee shall unduly interrupt or interfere
with the conduct of Tenant's business.



                                       55


                                   ARTICLE 19

                               FACILITY MORTGAGES

        19.1 Subordination. This Agreement, Tenant's interest hereunder and
Tenant's leasehold interest in and to the Leased Property are hereby agreed by
Tenant to be and are hereby made junior, inferior, subordinate and subject in
right, title, interest, lien, encumbrance, priority and all other respects to
any mortgage or mortgages and security interests now or hereafter in force and
effect upon or encumbering Landlord's interest in the Leased Property, or any
portion thereof, and to all collateral assignments by Landlord to any third
party or parties of any of Landlord's rights under this Agreement or the rents,
issues and profits thereof or therefrom as security for any liability or
indebtedness, direct, indirect or contingent, of Landlord to such third party or
parties, and to all future modifications, extensions, renewals, consolidations
and replacements of, and all amendments and supplements to any such mortgage,
mortgages or assignments, and upon recording of any such mortgage, mortgages or
assignments, the same shall be deemed to be prior in dignity, lien and
encumbrance to this Agreement, Tenant's interest hereunder and Tenant's
leasehold interest in and to the Leased Property irrespective of the dates of
execution, delivery or recordation of any such mortgage, mortgages or
assignments (such mortgages, mortgages, security interests, assignments,
modifications, extensions, renewals, amendments, supplements and replacement
being a "Facility Mortgage"). The subordination of this Lease shall be upon the
express condition that the validity of this Lease shall be recognized by the
Mortgagee, and that, notwithstanding any default by the mortgagor, with respect
to such mortgage, Tenant's possession and right of use under this Lease in and
to the Leased Property (including rights to have insurance and condemnation
proceeds made available for proper reconstruction of the Leased Property) shall
not be disturbed by such Mortgagee unless and until Tenant shall breach any of
the provisions hereof and this Lease or Tenant's right to possession hereunder
shall have been terminated or shall be terminable in accordance with the
provisions of this Lease. The foregoing subordination and non-disturbance
provisions of this Section shall be automatic and self-operative without the
necessity of the execution of any further instrument or agreement of
subordination on the part of Tenant. Tenant acknowledges and agrees that
notwithstanding the foregoing automatic subordination, if Landlord or Mortgagee
shall request that Tenant execute and deliver any further instrument or
agreement of subordination of this Agreement or Tenant's interest hereunder or
Tenant's leasehold interest in the Leased Property to any such Facility
Mortgage, in confirmation or furtherance of or in addition to the foregoing
subordination provisions of this Section, Tenant shall promptly execute and
deliver the same to the requesting party (provided that such instrument or
agreement also reflects the non-disturbance provisions set forth above).
Further, Tenant agrees that it will, from time to time, execute such
documentation as may be requested by Landlord and any Mortgagee (a) to assist
Landlord and such Mortgagee in establishing or perfecting any security interest
in Landlord's interest in the Reserve and the funds therein; and (b) to
facilitate or allow Landlord to encumber the Leased Property as herein
contemplated. If, within thirty (30) days following Tenant's receipt of a
written request by Landlord or the holder or proposed holder of any such
Facility Mortgage, Tenant shall fail or refuse or shall have not executed any
such further instrument or agreement of subordination, for whatever reason,
Tenant shall be in breach and default of its obligation to do so and of this
Agreement and Landlord shall be entitled thereupon to exercise any and all
remedies available to Landlord pursuant to this Agreement or otherwise provided
by law.



                                       56


        19.2 Attornment. Tenant shall and hereby agrees to attorn, and be bound
under all of the terms, provisions, covenants and conditions of this Agreement,
to any successor of the interest of Landlord under this Agreement for the
balance of the Term of this Agreement remaining at the time of the succession of
such interest to such successor. In particular, in the event that any
proceedings are brought for the foreclosure of any Facility Mortgage, Tenant
shall attorn to the purchaser at any such foreclosure sale and recognize such
purchaser as Landlord under this Agreement. Tenant agrees that neither the
purchaser at any such foreclosure sale nor the foreclosing Mortgagee or holder
of any such Facility Mortgage shall have any liability for any act or omission
of Landlord, be subject to any offsets or defenses which Tenant may have as
claims against Landlord, or be bound by any advance rents which may have been
paid by Tenant to Landlord for more than the current period in which such rents
come due.

        19.3 Rights of Mortgagees and Assignees. Provided Landlord has given
Tenant notice thereof, any Mortgagee shall have the right to unilateral
enjoyment, exercise or control over the rights, remedies, powers and interests
of Landlord hereunder, or otherwise arising under Applicable Law, as assigned or
granted to such Mortgagee by Landlord or as provided in any Facility Mortgage.
At the time of giving any notice of default to Landlord, Tenant shall mail or
deliver to any Mortgagee of whom Tenant has notice, a copy of any such notice.
No notice of default or termination of this Agreement by Tenant shall be
effective until each Mortgagee shall have been furnished a copy of such notice
by Tenant. In the event Landlord fails to cure any default by it under this
Agreement, the Mortgagee shall have, at its option, a period of thirty (30) days
after expiration of any cure period of Landlord within which to remedy such
default of Landlord or to cause such default to be remedied. In the event that
the Mortgagee elects to cure any such default by Landlord, then Tenant shall
accept such performance on the part of such Mortgagee as though the same had
been performed by Landlord, and for such purpose Tenant hereby authorizes any
Mortgagee to enter upon the Leased Property to the extent necessary to exercise
any of Landlord's rights, powers and duties under this Agreement. If, in the
event of any default by Landlord which is reasonably capable of being cured by a
Mortgagee, the Mortgagee promptly commences and diligently pursues to cure the
default, then Tenant will not terminate this Agreement or cease to perform any
of its obligations under this Agreement so long as the Mortgagee is, with due
diligence, engaged in the curing of such default.

                                   ARTICLE 20

                         ADDITIONAL COVENANTS OF TENANT

        20.1 Conduct of Business. Tenant shall not engage in any business other
than the leasing and operation of the Leased Property for the Permitted Use and
activities incidental thereto, including without limitation the delivery of
services to the Facility residents under the Service Licenses or otherwise, and
shall do or cause to be done all things necessary to preserve, renew and keep in
full force and effect and in good standing its corporate existence and its
rights and licenses necessary to conduct such business. Promptly upon receipt of
same, Tenant shall provide Landlord with copies of all licenses, licensure and
certification surveys and related plans of correction, and notices of corrective
action required, of loss of licensure or certification of the Facility, or of
any limits imposed upon admissions to the Facility.



                                       57


        20.2 Additional Covenants of Tenant. In addition to the other covenants
and representations of Tenant herein and in this Agreement, Tenant hereby
covenants, acknowledges and agrees that Tenant shall:

                (a) Not guaranty any obligation of any Person other than the
        tenant under any ARC-Related Lease;

                (b) Pay or cause to be paid all lawful claims for labor and
        rents with respect to the Leased Property;

                (c) Pay or cause to be paid all trade payables;

                (d) Not declare, order, pay or make, directly or indirectly, any
        Distribution or any payments to any members or Affiliated Persons as to
        Tenant (including payments in the ordinary course of business and
        payments pursuant to any management agreements with any such Affiliate),
        or set apart any sum of property therefor, or agree to do so, if, at the
        time of such proposed action or immediately after giving effect thereto,
        any Event of Default shall exist;

                (e) Except as otherwise permitted by this Agreement, not sell,
        lease (as lessor or sublessor), transfer or otherwise dispose of or
        abandon, all or any material portion of its assets or business to any
        Person, or sell, lease, transfer or otherwise dispose of or abandon any
        of Tenant's Personal Property, provided, however, Tenant may dispose of
        portions of Tenant's Personal Property which have become inadequate,
        obsolete, worn-out, unsuitable, undesirable or unnecessary, provided
        substitute equipment or fixtures having equal or greater value and
        utility have been provided.

                (f) Provide and maintain throughout the Term, all Tenant's
        Personal Property and P&E Replacements as shall be necessary in order to
        operate the Leased Property in compliance with applicable legal
        requirements and insurance requirements and otherwise in accordance with
        customarily practice in the industry for the Permitted Use. If, from and
        after the Commencement Date, Tenant acquires an interest in any items of
        tangible personal property (other than motor vehicles) on, or in
        connection with the Leased Property which belong to anyone other than
        Tenant, Tenant shall require the agreement permitting such use to
        provide that Landlord or its designee may assume Tenant's rights and
        obligations under such agreement upon the termination of this Agreement
        and any assumption of management or operation of the Leased Property by
        Landlord or its designee.

                (g) Deliver to Landlord within thirty (30) days after receipt of
        or after modification thereof, copies of all licenses authorizing Tenant
        to operate the Leased Property for its Permitted Use.

                (h) Undertake a risk management analysis and report regarding
        the operation of the Facility annually for compliance with all
        Applicable Laws governing the ongoing use and operation of the Facility
        for the Permitted Use and provide Landlord with a copy of the report and
        any other results of the analysis.



                                       58


                (i) Give prompt notice to Landlord of any litigation or any
        administrative proceeding involving Tenant, Landlord or the Leased
        Property of which Tenant has notice or actual knowledge and which
        involves a potential uninsured liability equal to or greater than
        $100,000.00 or which, in Tenant's reasonable opinion, may otherwise
        result in any material adverse change in the business, operations,
        property, prospects, results of operation or conditions, financial or
        otherwise, of Tenant or the Facility.

                (j) Not, except as approved in writing by Landlord, either
        directly or indirectly, for itself, or through, or on behalf of, or in
        connection with any Person, divert or attempt to divert any business or
        customer of the Leased Property to any competitor, by direct or indirect
        inducement or otherwise, or do or perform, directly or indirectly, any
        other act injurious or prejudicial to the good will associated with the
        Landlord or the Leased Property.

                (k) Except for liabilities incurred in the ordinary course of
        business, not create, incur, assume or guarantee, or permit to exist or
        become or remain liable directly or indirectly upon, any Indebtedness
        except Indebtedness of Tenant to Landlord (or, if unsecured and
        expressly subject to the terms of this Agreement and Landlord's interest
        hereunder, and payable solely out of excess cash flow after payment of
        all Rent hereunder, to Tenant's shareholders, partners or members, as
        applicable). Tenant further agrees that the obligee in respect of any
        such Indebtedness shall agree in writing, in form and substance
        satisfactory to Landlord that (w) the payment of such Indebtedness shall
        be expressly subordinated in all respects to all of Tenant's obligations
        under this Agreement, (x) no remedies may be exercised by the obligee
        with respect to enforcement or collection of such Indebtedness until
        such time as this Agreement shall be terminated and all of Tenant's
        obligations hereunder shall have been discharged in full; (y) such
        Indebtedness shall not be assigned by the obligee to any other party;
        and (z) the obligee shall not initiate or join in any bankruptcy
        proceedings against Tenant. As used in this Section 20.2(k) (and
        notwithstanding any other definition of Indebtedness herein),
        Indebtedness shall mean all obligations, contingent or otherwise, to pay
        or repay monies irrespective of whether, in accordance with GAAP, such
        obligations should be reflected on the obligor's balance sheet as debt.

        20.3 Tenant a Single Purpose Entity. Tenant represents, agrees and
warrants that Tenant is, and throughout the Term will remain, a Single Purpose
Entity as described and contemplated on Exhibit "F" hereof. Notwithstanding the
foregoing, the Landlord agrees that the requirements for an Independent Director
or Independent Member thereunder shall not apply so long as Tenant is an
Affiliated Person of Guarantor.

        20.4 Intentionally Omitted.

                                   ARTICLE 21

                                  MISCELLANEOUS

        21.1 Limitation on Payment of Rent. All agreements between Landlord and
Tenant herein are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of Rent, or otherwise, shall the
Rent or any other amounts payable to Landlord under this




                                       59


Agreement exceed the maximum permissible under Applicable Laws, the benefit of
which may be asserted by Tenant as a defense, and if, from any circumstance
whatsoever, fulfillment of any provision of this Agreement, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, or if from any circumstances Landlord should ever
receive as fulfillment of such provision such an excessive amount, then, ipso
facto, the amount which would be excessive shall be applied to the reduction of
the installment(s) of Minimum Rent next due and not to the payment of such
excessive amount. This provision shall control every other provision of this
Agreement and any other agreements between Landlord and Tenant.

        21.2 No Waiver. No release, discharge or waiver of any provision hereof
shall be enforceable against or binding upon Landlord or Tenant unless in
writing and executed by Landlord or Tenant, as the case may be. Neither the
failure of Landlord or Tenant to insist upon a strict performance of any of the
terms, provisions, covenants, agreements and conditions hereof, nor the
acceptance of any Rent by Landlord with knowledge of a breach of this Agreement
by Tenant in the performance of its obligations hereunder, or the following of
any practice or custom at variance with the terms hereof, shall be deemed or
constitute a waiver of any rights or remedies that Landlord or Tenant may have
or a waiver of any subsequent breach or default in any of such terms,
provisions, covenants, agreements and conditions or the waiver of the right to
demand exact compliance with the terms hereof.

        21.3 Remedies Cumulative. To the maximum extent permitted by law, each
legal, equitable or contractual right, power and remedy of Landlord, now or
hereafter provided either in this Agreement or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Landlord of any one
or more of such rights, powers and remedies shall not preclude the simultaneous
or subsequent exercise by Landlord of any or all of such other rights, powers
and remedies.

        21.4 Severability. Any clause, sentence, paragraph, section or provision
of this Agreement held by a court of competent jurisdiction to be invalid,
illegal or ineffective shall not impair, invalidate or nullify the remainder of
this Agreement, but rather the effect thereof shall be confined to the clause,
sentence, paragraph, section or provision so held to be invalid, illegal or
ineffective, and this Agreement shall be construed as if such invalid, illegal
or ineffective provisions had never been contained therein.

        21.5 Acceptance of Surrender. No surrender to Landlord of this Agreement
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Landlord and
no act by Landlord or any representative or agent of Landlord, other than such a
written acceptance by Landlord, shall constitute an acceptance of any such
surrender.

        21.6 No Merger of Title. It is expressly acknowledged and agreed that it
is the intent of the parties that there shall be no merger of this Agreement or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, this Agreement or the
leasehold estate created hereby and the fee estate or ground landlord's interest
in the Leased Property.



                                       60


        21.7 Tenant's Representations. In addition to any other representation
or warranty set forth herein and as an inducement to Landlord to enter into this
Agreement, Tenant hereby represents and warrants to Landlord as follows:

                (a) Tenant is a corporation duly organized and validly existing
        and in good standing under the laws of the State of Tennessee. Tenant
        has all requisite power and authority under the laws of the State of
        Tennessee and the laws of the State of Colorado and its articles of
        incorporation, by-laws, or other charter documents to enter into and
        perform its obligations under this Agreement and to consummate the
        transactions contemplated hereby. Tenant is duly authorized to transact
        business in any jurisdiction in which the nature of the business
        conducted by it requires such qualification.

                (b) Tenant has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery of any document to be delivered by Tenant, prior
        to the date hereof, such document shall constitute the valid and binding
        obligation and agreement of Tenant, enforceable against Tenant in
        accordance with its terms, except as such enforceability may be limited
        by bankruptcy, insolvency, reorganization, moratorium or similar laws of
        general application affecting the rights and remedies of creditors and
        except to the extent that the availability of equitable relief may be
        subject to the discretion of the court before which any proceeding may
        be brought.

                (c) There are no judgments presently outstanding and unsatisfied
        against Tenant or any of its properties, and neither Tenant nor any of
        its properties are involved in any material litigation at law or in
        equity or any proceeding before any court, or by or before any
        governmental or administrative agency, which litigation or proceeding
        could materially adversely affect Tenant, and no such material
        litigation or proceeding is, to the knowledge of Tenant, threatened
        against Tenant and no investigation looking toward such a proceeding has
        begun or is contemplated.

                (d) To the knowledge of Tenant, neither this Agreement nor any
        other document, certificate or statement furnished to Landlord by or on
        behalf of Tenant in connection with the transaction contemplated herein
        contains any untrue statement of a material fact or omits to state a
        material fact necessary in order to make the statements contained herein
        or therein not misleading. To the knowledge of Tenant there is no fact
        or condition which materially and adversely affects the business,
        operations, affairs, properties or condition of Tenant which has not
        been set forth in this Agreement or in other documents, certificates or
        statements furnished to Landlord in connection with the transaction
        contemplated hereby.

                (e) Tenant hereby represents to Landlord that, in the reasonable
        opinion of Tenant, the Leased Property and the Leased Improvements
        therein are adequately furnished and contain adequate P&E and
        Inventories consistent with the amount of P&E and Inventories which is
        customarily maintained in a skilled nursing, assisted living and
        dementia care facility of the type and character of the Leased Property
        as otherwise required to operate the Leased Property in a manner
        contemplated by this Agreement and in compliance with all legal
        requirements.



                                       61


                (f) Tenant acknowledges that Tenant's failure or repeated delays
        in making prompt payment in accordance with the terms of any agreement,
        leases, invoices or statements for purchase or lease of P&E, Inventories
        or other goods or services will be detrimental to the reputation of
        Landlord and Tenant.

                (g) All employees of Tenant are solely employees of Tenant and
        not Landlord. Tenant is not Landlord's agent for any purpose in regard
        to Tenant's employees or otherwise. Further, Tenant expressly
        acknowledges and agrees that Landlord does not exercise any direction or
        control over the employment policies or employment decisions of Tenant.

                (h) Tenant has not (i) made any contributions, payments or gifts
        to or for the private use of any governmental official, employee or
        agent where either the payment or the purpose of such contribution,
        payment or gift is illegal under the laws of the United States or the
        jurisdiction in which made, (ii) established or maintained any
        unrecorded fund or asset for any purpose or made any false or artificial
        entries on its books, (iii) given or received any payments or other
        forms of remuneration in connection with the referral of patients which
        would violate the Medicare/Medicaid Anti-kickback Law, Section 1128(b)
        of the Social Security Act, 42 U.S.C. Section 1320a-7b(b), the federal
        physician self-referral law, 42 U.S.C. Section 1395 nn, or any analogous
        state statute or (iv) made any payments to any person with the intention
        or understanding that any part of such payment was to be used for any
        purpose other than that described in the documents supporting the
        payment. Tenant shall not take any such actions during the Term of this
        Agreement.

                (i) Tenant has not knowingly filed or failed to correct any
        claims for payment or cost reports with Medicare or Medicaid that are
        not true and correct in all material respects and, to Tenant's
        knowledge, no refunds or overpayments from either Medicare or Medicaid
        are due and owing.

                (j) Tenant's equity is directly and (if applicable) indirectly
        owned as shown on Exhibit "G". Tenant shall promptly provide to
        Landlord, upon the occurrence thereof but in any event not more than
        fifteen (15) days following a written request therefor, written notice
        of any change in the executive officers, directors, shareholders,
        partners, and/or members of Tenant, as applicable to Tenant's formation
        and structure, and of any change in the respective interests in Tenant
        held by each of such Persons.

        21.8 Quiet Enjoyment. Landlord covenants and agrees that so long as
Tenant shall timely pay all rents due to Landlord from Tenant hereunder and
keep, observe and perform all covenants, promises and agreements on Tenant's
part to be kept, observed and performed hereunder, Tenant shall and may
peacefully and quietly have, hold and occupy the Leased Property free of any
interference from Landlord or any Person claiming by, through or under Landlord;
subject, however, and nevertheless to the terms, provisions and conditions of
this Agreement, the Permitted Encumbrances, any other documents affecting record
title to or the use and occupancy of the Leased Property immediately prior to
the conveyance thereof to Landlord on or about the date hereof, and documents
affecting title to the Leased Property approved by Tenant. Landlord shall not,
without the prior written approval of Tenant, enter into or record any document
which purports to or which by its terms will materially and adversely affect the
Tenant, Tenant's use and enjoyment of the Leased Property or




                                       62


Tenant's rights under this Agreement (such approval not to be unreasonably
withheld, delayed or conditioned provided that the same is appropriate and
reasonably necessary in connection with the normal and ordinary course of
ownership and use of the Facility).

        21.9 Recordation of Memorandum of Lease. At either party's option, a
short form memorandum of this Agreement, in the form attached hereto as Exhibit
"E" shall be recorded or filed among the appropriate land records of the County
in which the Leased Property is located, and Tenant shall pay the transfer and
all recording costs associated therewith. In the event of a discrepancy between
the provisions of this Agreement and such short form memorandum thereof, the
provisions of this Agreement shall prevail.

        21.10 Notices. (a) Any and all notices, demands, consents, approvals,
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing and the same shall be
delivered either in hand, by telecopier with written acknowledgment of receipt,
or by mail or Federal Express or similar expedited commercial carrier, addressed
to the recipient of the notice, postpaid and registered or certified with return
receipt requested (if by mail), or with all freight charges prepaid (if by
Federal Express or similar carrier).

                (b) All notices required or permitted to be sent hereunder shall
        be deemed to have been given for all purposes of this Agreement upon the
        date of acknowledged receipt, in the case of a notice by telecopier,
        and, in all other cases, upon the date of receipt or refusal, except
        that whenever under this Agreement a notice is either received on a day
        which is not a Business Day or is required to be delivered on or before
        a specific day which is not a Business Day, the day of receipt or
        required delivery shall automatically be extended to the next Business
        Day.

                (c) All such notices shall be addressed,

        if to Landlord to:

                    CNL Retirement - AM/Colorado, LP
                    CNL Center at City Commons
                    450 South Orange Avenue
                    Orlando, FL  32801
                    Attn: Mr. Phillip M. Anderson, Jr.
                          or Chief Operating Officer
                    [Telecopier No. (407) 835-3232]

         with a copy to:

                    Lowndes, Drosdick, Doster, Kantor and Reed, P.A.
                    215 North Eola Drive
                    P.O. Box 2809
                    Orlando, FL  32809
                    Attn: Scott C. Thompson, Esq.
                    [Telecopier No. (407) 843-4444]



                                       63


         if to Tenant to:

                    ARC Greenwood Village, Inc.
                    111 Westwood Place, Suite 402,
                    Brentwood, Tennessee 37027
                    Phone:     (615) 221-2250
                    Fax:       (615) 221-2269
                    Attn:  Mr. George Hicks, Chief Financial Officer

         with a copy to:

                    Bass, Berry & Sims PLC
                    315 Deaderick Street, Suite 2700
                    Nashville, Tennessee 37238
                    Attn: T. Andrew Smith, Esquire
                    Phone: (615) 742-6200
                    Fax: (615) 742-2766

                (d) By notice given as herein provided, the parties hereto and
        their respective successors and assigns shall have the right from time
        to time and at any time during the term of this Agreement to change
        their respective addresses effective upon receipt by the other parties
        of such notice and each shall have the right to specify as its address
        any other address within the United States of America.

        21.11 Construction; Nonrecourse. Anything contained in this Agreement to
the contrary notwithstanding, all claims against, and liabilities of, Tenant or
Landlord arising prior to any date of termination or expiration of this
Agreement with respect to the Leased Property shall survive such termination or
expiration. Each term or provision of this Agreement to be performed by Tenant
shall be construed as an independent covenant and condition. Time is of the
essence with respect to the performance by Tenant of its obligations under this
Agreement, including, without limitation, obligations for the payment of money.
Except as otherwise set forth in this Agreement, any obligations arising prior
to the expiration or sooner termination of this Agreement of Tenant (including
without limitation, any monetary, repair and indemnification obligations) and
Landlord shall survive the expiration or sooner termination of this Agreement.
In addition, solely with respect to Landlord, nothing contained in this
Agreement shall be construed to create or impose any liabilities or obligations
and no such liabilities or obligations shall be imposed on any of the
shareholders, beneficial owners, direct or indirect, officers, directors,
trustees, employees or agents of Landlord or Tenant for the payment or
performance of the obligations or liabilities of Landlord hereunder. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.

        21.12 Counterparts; Headings. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but which, when
taken together, shall constitute but one instrument and shall become effective
as of the date hereof when copies hereof, which, when taken together, bear the
signatures of each of the parties hereto shall have been signed. Captions and




                                       64


headings in this Agreement are for purposes of reference only and shall in no
way define, limit or describe the scope or intent of, or otherwise affect, the
provisions of this Agreement.

        21.13 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State in which the Leased Property is
located.

        21.14 Right to Make Agreement. Each party warrants, with respect to
itself, that neither the execution and delivery of this Agreement, nor the
compliance with the terms and provisions hereof, shall violate any provision of
any law, or any judgment, writ, injunction, order or decree of any court or
Governmental Authority; nor result in or constitute a breach or default under or
the creation of any lien, charge or encumbrance upon any of its property or
assets under, any indenture, mortgage, deed of trust, contract, other commitment
or restriction to which it is a party or by which it is bound; nor require any
consent, vote or approval which has not been given or taken, or at the time of
the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the term of this
Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.

        21.15 Brokerage. Landlord and Tenant hereby represent and warrant to
each other that they have not engaged, employed or utilized the services of any
business or real estate brokers, salesmen, agents or finders in the initiation,
negotiation or consummation of the business and real estate transaction
reflected in this Agreement. On the basis of such representation and warranty,
each party shall and hereby agrees to indemnify and save and hold the other
party harmless from and against the payment of any commissions or fees to or
claims for commissions or fees by any real estate or business broker, salesman,
agent or finder resulting from or arising out of any actions taken or agreements
made by them with respect to the business and real estate transaction reflected
in this Agreement.

        21.16 No Partnership or Joint Venture. Landlord shall not, by virtue of
this Agreement, in any way or for any purpose, be deemed to be a partner of
Tenant in the conduct of Tenant's business upon, within or from the Leased
Property or otherwise, or a joint venturer or a member of a joint enterprise
with Tenant.

        21.17 Entire Agreement. This Agreement contains the entire agreement
between the parties and, except as otherwise provided herein, can only be
changed, modified, amended or terminated by an instrument in writing executed by
the parties. It is mutually acknowledged and agreed by Landlord and Tenant that
there are no verbal agreements, representations, warranties or other
understandings affecting the same; and that Tenant hereby waives, as a material
part of the consideration hereof, all claims against Landlord for rescission,
damages or any other form of relief by reason of any alleged covenant, warranty,
representation, agreement or understanding not contained in this Agreement.

        21.18 Costs and Attorneys' Fees. In addition to Landlord's rights under
Sections 12.2 and 14.2, if either party shall bring an action to recover any sum
due hereunder, or for any breach hereunder, and shall obtain a judgment or
decree in its favor, the court may award to such prevailing party its reasonable
costs and reasonable attorney's fees based upon service rendered at hourly
rates, specifically including reasonable attorney's fees incurred in connection
with any appeals (whether or not taxable as such by law). Landlord shall also be
entitled to recover its reasonable attorney's fees based upon service rendered
at hourly rates and costs incurred in any bankruptcy action filed by or against
Tenant, including, without limitation, those incurred in seeking relief from the
automatic stay,




                                       65


in dealing with the assumption or rejection of this Agreement, in any adversary
proceeding, and in the preparation and filing of any proof of claim.

        21.19 Approval of Landlord. Whenever Tenant is required under this
Agreement to do anything to meet the satisfaction or judgement of Landlord, the
reasonable satisfaction or judgement of Landlord shall be deemed sufficient. The
foregoing provision of this Section shall not apply in any instance where the
provisions of this Agreement expressly state that the provisions of this Section
do not apply or where the provisions of this Agreement expressly state that such
consent, approval or satisfaction are subject to the sole and absolute
discretion or judgement of Landlord, and in each such instance Landlord's
approval or consent may be unreasonably withheld or unreasonable satisfaction or
judgement may be exercised by Landlord.

        21.20 Successors and Assigns. The agreements, terms, provisions,
covenants and conditions contained in this Agreement shall be binding upon and
inure to the benefit of Landlord and Tenant and, to the extent permitted herein,
their respective successors and assigns.

        21.21 Waiver of Jury Trial. TENANT AND LANDLORD HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAWS, THE RIGHT EITHER OF THEM OR THEIR HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS OR ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION PROCEEDINGS OR COUNTERCLAIM, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD'S
ACCEPTING THIS AGREEMENT.

        21.22 Treatment of Lease. Landlord and Tenant each agree to treat this
Agreement as a true lease for tax purposes and as an operating lease for
generally accepted accounting principles.

        21.23 Transfer of Licenses. Upon the expiration or sooner termination of
this Agreement, Tenant shall use its best efforts to transfer and assign to
Landlord or its designee or assist Landlord or its designee in obtaining
transfer or assignment of all Leased Intangible Property, including without
limitation and together with any contracts, licenses (including without
limitation all licenses identified as part of the Initial Tenant Personal
Property and any replacements thereof and additions thereto), permits,
development rights, trade names (except for trade names as included within the
Initial Tenant Personal Property), telephone exchange numbers identified with
the Leased Property, approvals and certificates and all other intangible rights,
benefits and privileges of any kind or character with respect to the Leased
Property, useful or required for the then operation of the Leased Property
(except for proprietary software as included within the Initial Tenant Personal
Property). If requested by Landlord and to the extent permitted by law the
Tenant shall provide a collateral assignment of such licenses and other
intangible rights as further security for Tenant's obligations hereunder.

        21.24 Tenant's Personal Property. Upon the expiration or sooner
termination of the Term of this Agreement, Landlord may, in its sole and
absolute discretion, elect to either (i) give Tenant Notice that Tenant shall be
required, within ten (10) Business Days after such expiration or termination, to





                                       66


remove all of Tenant's Personal Property from the Leased Property, or (ii) pay
Tenant's book value of such Tenant's Personal Property (not including, however,
trade names and proprietary software listed as part of the Initial Tenant
Personal Property, which shall remain the sole property of Tenant). Failure of
Landlord to make such election shall be deemed an election to proceed in
accordance with clause (ii) preceding.

        21.25 Landlord's Representations. Landlord hereby represents and
warrants to Tenant as follows:

                (a) Landlord is a limited partnership duly organized and validly
        existing and in good standing under the laws of the State of Delaware.
        Landlord has all requisite power and authority under the laws of the
        State of Delaware and its charter documents to enter into and perform
        its obligations under this Agreement and to consummate the transactions
        contemplated hereby.

                (b) Landlord has taken all necessary action to authorize the
        execution, delivery and performance of this Agreement, and upon the
        execution and delivery hereof, this Agreement shall constitute the valid
        and binding agreement of Landlord.

        21.26 Guaranty of Lease. The Landlord has entered into this Lease in
reliance upon the Unconditional Guaranty of Payment and Performance by the
Guarantor in favor of Landlord dated of even date herewith (the "Guaranty"),
pursuant to which the Guarantor has unconditionally guaranteed all of the
obligations of the Tenant under this Lease, including without limitation the
covenants of Tenant in Sections 4.4 and Section 4.6 hereof, and all of the
additional covenants of Tenant in Article 20 hereof.

        21.27 Guaranty of ARC-Related Leases. The obligations of each tenant
under each ARC-Related Lease (whether now in effect or entered into in the
future) also shall be and are hereby unconditionally guaranteed by Tenant.
Tenant agrees that its guaranty of the ARC-Related Leases hereunder shall be a
material inducement for the execution of each ARC-Related Lease, is and shall be
a guaranty of payment and performance and not of collection solely, and shall be
effective in accordance with the terms and conditions of the Guaranty, which are
incorporated herein by this reference. Notwithstanding the foregoing, and the
automatic and unconditional guaranty of all ARC-Related Leases hereunder, Tenant
shall upon request of the Landlord or its Affiliated Persons promptly execute
and deliver a separate Unconditional Guaranty of Payment and Performance with
respect to each ARC-Related Lease.

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


                      [SIGNATURES APPEAR ON FOLLOWING PAGE]


                                       67




                             LANDLORD:

                             CNL RETIREMENT - AM/COLORADO LP, a
                             Delaware limited partnership

                             By: CNL RETIREMENT - GP/COLORADO CORP.,
                                   a Delaware corporation, its general partner

                                   By:  /s/ Phillip M. Anderson
                                        --------------------------------------

                                   Printed name: Phillip M. Anderson

                                   Title: Executive Vice President

                                            (CORPORATE SEAL)






                             TENANT:

                             ARC GREENWOOD VILLAGE, INC.,
                             a Tennessee corporation

                             By:      /s/ R. C. Roadman
                                      -----------------------------------

                             Printed name: Ross C. Roadman
                             Title: SVP

                             NOTICE: THIS AGREEMENT CONTAINS WAIVERS AND
                             INDEMNITIES BY THE TENANT OF THE LANDLORD'S OWN
                             NEGLIGENCE.




                                       68


                                   EXHIBIT "A"

                                    The Land

BLOCK A, SOUTHTECH SUBDIVISION FILING NO. 1, A SUBDIVISION SITUATED IN THE
SOUTHWEST QUARTER OF SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE SIXTH
P.M.,
COUNTY OF ARAPAHOE
STATE OF COLORADO,

EXCEPT THAT PORTION CONVEYED IN DEED RECORDED SEPTEMBER 8, 1983 IN BOOK 3962 AT
PAGE 630; AND

EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE IN DEED RECORDED
FEBRUARY 14, 1994 IN BOOK 7412 AT PAGE 139; AND

EXCEPT THAT PORTION CONVEYED TO THE CITY OF GREENWOOD VILLAGE, COLORADO BY QUIT
CLAIM DEED RECORDED APRIL 17, 1998 AT RECEPTION NUMBER A8055896;


BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE SOUTHWEST CORNER OF THE NORTHWEST 1/4 OF THE SOUTHWEST 1/4 OF
SECTION 22, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH P.M., FROM WHICH THE
NORTHWEST CORNER OF THE SOUTHWEST 1/4 OF SECTION 22 BEARS NORTH
00 degrees 00'00" EAST WITH ALL BEARINGS BEING REFERENCED THERETO:
THENCE NORTH 89 degrees 45'33" EAST A DISTANCE OF 1322.65 FEET:
THENCE NORTH 89 degrees 47'30" EAST A DISTANCE 40 FEET:
THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 40 FEET TO THE SOUTHWEST CORNER
OF BLOCK A, SOUTHTECH SUBDIVISION FILING 1;
THENCE NORTH 00 degrees 01'51" EAST A DISTANCE 621.69 FEET ALONG THE WEST LINE
OF SAID BLOCK A;
THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE 20
FEET, TO THE TRUE POINT OF BEGINNING;

THENCE CONTINUING WITH SAID BLOCK A, NORTH 89 degrees 45'29" EAST A DISTANCE
601.90 FEET;
THENCE WITH THE COMMON BOUNDARY OF SAID BLOCK A AND CASTLEWOOD COURT, A
SUBDIVISION RECORDED AT RECEPTION NUMBER 94106725, ARAPAHOE COUNTY RECORDS, THE
FOLLOWING THREE COURSES:
SOUTH 00 degrees 03'20" WEST A DISTANCE 331.03 FEET;
SOUTH 89 degrees 46'30" WEST A DISTANCE 315.85 FEET;
SOUTH 00 degrees 02'49" WEST A DISTANCE 201.54 FEET;
THENCE DEPARTING THE EAST LINE OF SAID BLOCK A, SOUTH 89 degrees 47'30" WEST A
DISTANCE 8.69 FEET ALONG THE NORTH LINE OF THAT PARCEL CONVEYED TO THE CITY OF
GREENWOOD VILLAGE AT RECEPTION NUMBER A8055896;
THENCE WITH THAT PARCEL CONVEYED TO THE CITY OF GREENWOOD VILLAGE AT BOOK 7412
PAGE 139 THE FOLLOWING TWO COURSES:
ALONG A CURVE TO THE RIGHT WHOSE RADIUS BEARS NORTH 29 degrees 09'28" EAST A
DISTANCE OF 540 FEET, WHOSE DELTA IS 60 degrees 52'25" AND WHOSE LENGTH IS
573.72 FEET TO A POINT OF TANGENCY; THENCE NORTH 00 degrees 01'51" EAST A
DISTANCE 59.44 FEET TO THE TRUE POINT OF BEGINNING.

CONTAINING 5.023 ACRES, MORE OR LESS.



                                      A-1

                                   EXHIBIT "B"

                            Initial Term Minimum Rent

         The amount of Minimum Rent due during the Initial Term(1) is as
         follows:

         For Accounting Year 1      -       $1,786,537.50;

         Commencing with the 2nd Accounting Year, and on the first day of each
         Accounting Year thereafter during the Initial Term, Minimum Rent shall
         increase by two percent (2%) over the Minimum Rent owing in the
         immediately preceding Accounting Year. Accordingly, the Minimum Rent
         owing from the 2nd Accounting Year through the end of the Initial Term
         of this Agreement shall be as follows:

         For Accounting Year 2      -       $1,822,268.25;

         For Accounting Year 3      -       $1,858,713.62;

         For Accounting Year 4      -       $1,895,887.89;

         For Accounting Year 5      -       $1,933,805.65;

         For Accounting Year 6      -       $1,972,481.76;

         For Accounting Year 7      -       $2,011,931.39;

         For Accounting Year 8      -       $2,052,170.02;

         For Accounting Year 9      -       $2,093,213.42;

         For Accounting Year 10     -       $2,135,077.69;

         For Accounting Year 11     -       $2,177,779.24;

         For Accounting Year 12     -       $2,221,334.83;

         For Accounting Year 13     -       $2,265,761.53;

         For Accounting Year 14     -       $2,311,076.76;

         For Accounting Year 15     -       $2,357,298.29.




- --------
(1)  Absent and assuming no increase in respect of any Earn Out Payment under
     the Earn Out Agreement with American Retirement Corporation



                                      B-1


                                   EXHIBIT "C"

                                Appraisal Process

         If Landlord and Tenant are unable to agree upon the fair market value
of the Leased Property within any relevant period provided in this Agreement,
each shall within ten (10) days after written demand by the other select one MAI
Appraiser to participate in the determination of fair market value. Within ten
(10) days of such selection, the MAI Appraisers so selected by Landlord and
Tenant shall select a third MAI Appraiser. The three (3) selected MAI Appraisers
shall each determine the fair market value of the Leased Property within thirty
(30) days of the selection of the third appraiser. To the extent consistent with
sound appraisal practices as then existing at the time of any such appraisal,
and if requested by Landlord, such appraisal, shall be made on a basis
consistent with the basis on which the Leased Property was appraised at the time
of its acquisition by Landlord. Tenant shall pay the fees and expenses of any
MAI Appraiser retained pursuant to this Exhibit.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Leased Property in accordance with the provisions of this Exhibit and the fair
market value so determined shall be binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at Tenant's expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Leased Property is
located to name the third MAI Appraiser.

         Within five (5) days after completion of the third MAI Appraiser's
appraisal, all three MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Leased
Property. If a majority are unable to determine the fair market value at such
meeting, the three appraisals shall be added together and their total divided by
three. The resulting quotient shall be the fair market value of the Leased
Property. If, however, either or both of the low appraisal or the high appraisal
are more than ten percent (10%) lower or higher than the middle appraisal, any
such lower or higher appraisal shall be disregarded. If only one appraisal is
disregarded, the remaining two appraisals shall be added together and their
total divided by two, and the resulting quotient shall be such fair market
value. If both the lower appraisal and the higher appraisal are disregarded as
provided herein, the middle appraisal shall be such fair market value. In any
event, the result of the foregoing appraisal process shall be final and binding.

         "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in the State and who has substantial experience in performing
appraisals of facilities similar to the Leased Property and is certified as a
member of the American Institute of Real Estate Appraisers or certified as a
SRPA by the Society of Real Estate Appraisers, or, if such organizations no
longer exist or certify appraisers, such successor organization or such other
organization as is approved by Landlord.



                                      C-1



                                   EXHIBIT "D"

                           Tenant Estoppel Certificate

         THIS TENANT'S ESTOPPEL CERTIFICATE ("Certificate") is given this __ day
of ___, 20___ by ___________ ("Tenant") in favor of _____________________, a
__________, with principal office and place of business at __________________
_________ ("Beneficiary").

                                    RECITALS:

A. Pursuant to the terms and conditions of that certain Lease Agreement
("Lease") dated ________, ___________________________ ("Landlord") leased to
Tenant certain real property in ______ County, _____ ("Leased Property"), which
Leased Property are more particularly described in the Lease.

B. Pursuant to the terms and conditions of the Lease, the Beneficiary has
requested that the Tenant execute and deliver this Certificate with respect to
the Lease.

        NOW, THEREFORE, in consideration of the above Leased Property, the
Tenant hereby makes the following statements for the benefit of the Assignee:

        1. The copy of the Lease attached hereto and made a part hereof as
Exhibit "A" is a true, correct and complete copy of the Lease, which Lease is in
full force and effect as of the date hereof, and has not been modified or
amended.

        2. The Lease sets forth the entire agreement between the Landlord and
the Tenant relating to the leasing of the Leased Property, and there are no
other agreements, written or oral, relating to the leasing of the Leased
Property.

        3. There exists no uncured or outstanding defaults or events of default
under the Lease, or events which, with the passage of time, and the giving of
notice, or both, would be a default or event of default under the Lease.

        4. No notice of termination has been given by Landlord or Tenant with
respect to the Lease.

        5. All payments due the Landlord under the Lease through and including
the date hereof have been made, including the monthly installment of Minimum
Rent (as defined in the Lease) for the period of ______________ to
________________ in the amount of $___________.

        6. As of the date hereof, the annual Minimum Rent under the Lease is
$__________.

        7. Percentage Rent (as defined in the Lease) has been paid through and
including the Fiscal Year ending ______________.

        8. There are no disputes between the Landlord and the Tenant with
respect to any rental due under the Lease or with respect to any provision of
the Lease.

        9. Notwithstanding any provisions of the Lease to the contrary, the
Tenant hereby consents to the collateral assignment of the Lease by the Landlord
to the Beneficiary, and agrees that no terms and conditions of the Lease shall
be altered, amended or changed as a result of such assignment.

        10. The Tenant hereby agrees that from and after the date hereof copies
of all notices which Tenant is required to deliver to the Landlord under the
Lease with respect to defaults,





                                       D-1


events of default or failure to perform by the Landlord under the Lease, shall
be delivered to Beneficiary at the following address:

                                ----------------
                                ----------------
                                ----------------
                                ----------------

        11. The Tenant represents and warrants that (a) all improvements
constructed on the Leased Property have been approved and accepted by Tenant,
(b) all utility sources and utility companies which service the Leased Property
have been approved and accepted by Tenant and utility service is available to
the Leased Property, (c) Tenant is in occupancy of the Leased Property pursuant
to the Lease, and (d) Tenant has no offsets, counterclaims or defenses with
respect to its obligations under the Lease.

        12. The Tenant understands and acknowledges that Beneficiary is relying
upon the representations set forth in this Certificate, and may rely thereon in
connection with the collateral assignment of the Lease to Beneficiary.

        IN TESTIMONY WHEREOF, witness the signature of the Tenant as of the day
and year first set forth above.

                                       -----------------------------------------

                                       By:
                                            ------------------------------------
                                       Name:
                                              ----------------------------------
                                       Title:
                                               ---------------------------------

STATE OF _______
COUNTY OF _______

         The foregoing instrument was acknowledged before me this ___ day of
_____, 20___ by _________________, as _________________ of ____________, a
____________, on behalf of the _________. He/she is personally known to me or
has produced ________ as identification.


                                         _____________________________________
                                         Notary Public
                                         Printed Name:________________________
expires: _______________

                                                      (NOTARY SEAL)



                                      D-2




                                   EXHIBIT "E"

                               Memorandum of Lease

        THIS MEMORANDUM OF LEASE, entered into as of this ____ day of _________,
20___, by and between __________________________________________, whose address
is 450 South Orange Avenue, Orlando, Florida 32801, as Landlord, and___________
_________, a ______________, whose address is ________________________________,
as Tenant.

                                 W I T N E S E T H:
                                 -----------------

        THAT, Landlord and Tenant have heretofore entered into a certain Lease
Agreement dated ____________, 20___ (the "Lease") covering certain Leased
Property consisting of, among other things, certain real property located in
______ County, ______, more particularly described on Exhibit "A" attached
hereto upon which there is constructed and located certain improvements
(together the "Leased Property"), and

        WHEREAS, it is the desire of both Landlord and Tenant to memorialize the
Lease and set forth certain pertinent data with respect thereto.

        NOW THEREFORE, with respect to the Lease, Landlord and Tenant hereby
acknowledge and agree as follows:

        1. Demise. The Leased Property have been and are hereby demised, let and
leased by Landlord to Tenant, and taken and accepted by Tenant from Landlord,
all pursuant to and in accordance with the Lease.

        2. Term. The initial Term of the Lease is from __________, 2001, until
__________, 2016. Tenant has the right, privilege and option to renew and extend
the initial Term of the Lease for up to two (2) additional periods of five (5)
years each, subject to the provisions and conditions of the Lease.

        3. Possession. Landlord has delivered possession of the Leased Property
to Tenant and Tenant has accepted delivery and taken possession of the Leased
Property from Landlord in the "as is" condition of the Leased Property on the
Commencement Date.

        4. Liens on Landlord's Interest Prohibited. By the terms of the Lease,
Landlord's interest in the Leased Property may not be subjected to liens of any
nature by reason of Tenant's construction, alteration, repair, restoration,
replacement or reconstruction of any improvements on or in the Leased Property,
including those arising in connection with or as an incident to the renovation
of the improvements located on the Leased Property, or by reason of any other
act or omission of Tenant (or of any person claiming by, through or under
Tenant) including, but not limited to, construction, mechanics' and
materialmen's liens. Accordingly, all persons dealing with Tenant are hereby
placed on notice that such persons shall not look to Landlord or to Landlord's
credit or assets (including Landlord's interest in the Leased Property) for
payment or satisfaction of any obligations incurred in connection with the
construction, alteration, repair, restoration, renovation, replacement or
reconstruction thereof by or on behalf of Tenant. Tenant




                                       E-1


has no power, right or authority to subject Landlord's interest in the Leased
Property to any construction, mechanic's or materialmen's lien or claim of lien.

        5. Subordination and Attornment. The Lease specifically provides that
the Lease and Tenant's leasehold interest in and to the Leased Property are
junior, inferior, subordinate and subject in all respects to any mortgage or
mortgages now or hereafter in force and effect upon or encumbering the Leased
Property or any portion thereof, and that Tenant shall, and has agreed to,
attorn to any successor of the interest of Landlord under the Lease, including
the purchaser at any foreclosure sale occasioned by the foreclosure of any such
mortgage or mortgages, for the balance of the Term of the Lease remaining at the
time of the succession of such interest to such successor. Such subordination
shall be upon the express condition that the validity of this Lease shall be
recognized by the mortgagee, and that, notwithstanding any default by the
mortgagor, with respect to such mortgage, Tenant's possession and right of use
under this Lease in and to the Premises (including rights to have insurance and
condemnation proceeds made available for proper reconstruction of the Premises)
shall not be disturbed by such mortgagee unless and until Tenant shall breach
any of the provisions hereof and this Lease or Tenant's right to possession
hereunder shall have been terminated in accordance with the provisions of this
Lease.

        6. Inconsistent Provisions. The provisions of this Memorandum constitute
only a general description of the content of the Lease with respect to matters
set forth herein. Accordingly, third parties are advised that the provisions of
the Lease itself shall be controlling with respect to all matters set forth
herein. In the event of any discrepancy between the provisions of the Lease and
this Memorandum, the provisions of the Lease shall take precedence and prevail
over the provisions of this Memorandum.

        7. Termination of Lease. All rights of Tenant shall terminate upon the
expiration or earlier termination of the Lease, which may be evidenced by a
written notice of such expiration or termination recorded or filed by Landlord
among the appropriate land records of the County in which the Leased Property is
located.

                     [SIGNATURES APPEAR ON FOLLOWING PAGES]




                                      E-2




        IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum of
Lease to be duly executed on or as of the day and year first above written.

Signed, sealed and delivered
in the presence of:                                                          , a
                                       --------------------------------------

                                       -----------------------------------------


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

                                                      (CORPORATE SEAL)

                                                         "LANDLORD"

                                                                             , a
                                       --------------------------------------

                                       -----------------------------------------


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

                                                           "TENANT"

STATE OF _______________
COUNTY OF _____________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___ by ____________________, as _________ of
____________________, a ______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.



                                       -----------------------------------------
                                       Notary Public
                                       Notary Public, State of
                                                               -----------------
                                       Commission #:
                                                    ----------------------------
                                       My commission expires:
                                                             -------------------

                                                         (NOTARY SEAL)





                                       E-3


STATE OF __________
COUNTY OF __________

         The foregoing instrument was acknowledged before me this _____ day of
_______________, 20___, by ___________________, as ______________ of
___________________, a _______________________, on behalf of the _____________.
He/she is personally known to me or has produced _______________________ as
identification.

                                     -----------------------------------------
                                     Notary Public
                                     Notary Public, State of _________________
                                     Commission No.:  ________________________
                                     My Commission Expires:  _________________

                                                       (SEAL)





                                      E-4


                                   EXHIBIT "F"

                       Single Purpose Entity Requirements

        Tenant or its assignee shall throughout the Term hereof do all things
necessary to continue to be and remain a Single Purpose Entity (including
without limitation, if Tenant is a partnership, insuring that each General
Partner of Tenant, continues as a Single Purpose Entity and shall not amend its
Articles of Organization or Operating Agreement (or if Tenant is a corporation,
Tenant shall not amend its Articles of Incorporation or Bylaws, or if Tenant is
a partnership, Tenant shall prevent any general partner from amending such
general partner's Articles of Organization or Bylaws or other formation
documents). For purposes hereof, Single Purpose Entity shall mean a Person,
other than an individual, which (a) is formed, organized or reorganized solely
for the purpose of holding, directly, the leasehold interest in the Leased
Property, (b) does not engage in any business unrelated to the Leased Property
and the operation and management thereof, (c) has not and will not have any
assets other than those related to its interest in the Leased Property and has
not and will not have any indebtedness other than incurred in the ordinary
course of business and paid pursuant to the terms of financing applicable to
such trade payables and indebtedness expressly authorized in Section 20.2(f) of
the Agreement, (d) maintains its own separate books and records and its own
accounts, in each case which are separate and apart from the books and records
of any other Person, (e) holds itself out as being a Person separate and apart
from any other Person, (f) does not and will not commingle its funds or assets
with those of any other Person, (g) conducts its own business in its own name,
(h) maintains separate financial statements, (i) pays its own liabilities out of
its own funds, (j) observes all limited liability company formalities,
partnership formalities or corporate formalities, as applicable, (k) maintains
an arm's-length relationship with its Affiliated Persons, (l) pays the salaries
of its own employees and maintains a sufficient number of employees in light of
its contemplated business operation, (m) does not guarantee or otherwise
obligate itself with respect to the debts of any other Person or hold out its
credit as being available to satisfy the obligations of any other Person except
as required or expressly authorized under the Agreement, (n) does not acquire
obligations or securities of its partners, members or shareholders, (o)
allocates fairly and reasonably shared expenses, including without limitation,
any overhead for shared office space, (if any), (p) uses separate stationary,
invoices and checks, (q) except as required or expressly authorized under the
Agreement, does not and will not pledge its assets for the benefit of any Person
other than Landlord or make any loans or advances to any other Person, (r) does
and will correct any known misunderstanding regarding its separate identity, (s)
maintains adequate capital in light of its contemplated business operations, and
(t) has and will have an Operating Agreement, partnership agreement, certificate
of incorporation or other organization document which complies with the
standards and requirements for a Single Purpose Entity set by Rating Agencies
(as hereinafter defined) as of the date hereof applicable to a limited liability
company, partnership or corporation, as applicable. In addition, if such Person
is a limited liability company, (i) the managing member shall be a corporation
or limited liability company (or if a partnership, shall have as its sole
general partner a corporation or limited liability company) that is a Single
Purpose Entity whose organization documents shall comply with the standards and
requirements for a Single Purpose Entity set by the Rating Agencies as of the
date hereof applicable to such managing members, (ii) its Articles of
Organization, Certificate of Formation and/or Operating Agreement, as
applicable, shall provide that such entity will dissolve only upon the
bankruptcy of the managing member, (iii) if such Person has





                                       F-1


more than one managing member, at least one member shall be a corporation or
limited liability company that qualifies as a Single Purpose Entity and the
Organization Documents shall provide that such Person shall continue (and not
dissolve) for so long as a solvent managing member exists (iv) such corporate
member or limited liability company shall conform to the requirements hereof for
Persons that are corporations or limited liability company and (v) such Person
shall have at least one Independent Member. In addition, if such Person is a
partnership, (a) all general partners of such Person shall be Single Purpose
Entities whose organizational documents shall comply with the standards and
requirements for a Single Purpose Entity set by the Rating Agencies as of the
date hereof applicable to such general partners, (b) if such Person has more
than one general partner, then the organization documents shall provide that
such Person shall continue (and not dissolve) for so long as a solvent general
partner exists. In addition, if such Person is a corporation, then at all times,
(i) such Person shall have at least one Independent Director, and (ii) Board of
Directors of such Person may not take any action relating to such Person's
bankruptcy, dissolution or status as a Single Purpose Entity without the
unanimous affirmative vote of 100% of the members of the Board of Directors
unless all of the directors, including the Independent Director shall have
participated in such vote. In addition, such Person which is formed or organized
solely for the purpose of holding, directly, the leasehold interest in the
Leased Property (i) without the unanimous consent of all of the partners,
directors or members, as applicable, has not and will not with respect to itself
or any other single purpose entity that owns an interest in the Leased Property
in which it has a direct or indirect legal or beneficial interest (a) seek or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator, custodian or other similar official for itself for all or any
portion of its properties, or (b) take any action which might cause it to become
insolvent, (ii) has held and will hold its assets in its own name, (iii) has and
will maintain its financial statements, accounting records and other entity
documents separate and apart form any other Person, and (iv) has not and will
not identify its partners, members or shareholders or any of its affiliates of
any of them as a division or part of it. For purposes hereof, "Rating Agencies"
shall mean any three of the following: Standards & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., Duff and Phelps Credit Rating Co.,
Moody's Investors Services, Inc. and Fitch Investors Services, L.P. or if any
such corporation shall for any reason no longer perform the functions of a
securities rating agency, any other nationally recognized statistical rating
agency designated by Landlord. In addition, for purposes hereof, "Independent
Director" or "Independent Member" shall mean an individual appointed by CT
Corporation System, AMACAR Group, L.L.C., CSC Special Services or similar
corporate service or an individual reasonably satisfactory to Landlord, who in
any case shall not have been at the time of such individual's appointment, and
may not have been at any time during the preceding two years (i) a shareholder
of, or an officer or employee of, or a member or manager of Tenant or any of its
respective shareholders, subsidiaries or Affiliated Persons, (ii) a customer of,
or supplier to Tenant or any member, manager or general partner or any of its
respective shareholders, subsidiaries or Affiliated Persons, (iii) a Person or
other entity controlling any such shareholder, supplier, customer, member or
manager, or (iv) a member of the immediate family of any such shareholder,
officer, employee, supplier, customer, member or manager or of any other
director of Tenant or any general partner thereof.

        In addition to the foregoing, and consistent with the Single Purpose
Entity requirements hereof, Tenant covenants and agrees that throughout the Term
hereof, Tenant shall not voluntarily file or consent to the filing of a petition
for bankruptcy, insolvency, reorganization,





                                       F-2


assignment for the benefit of creditors or similar proceedings under any federal
or state bankruptcy, insolvency, reorganization or other similar law or
otherwise seek any relief under any laws relating to the relief of debts or the
protection of debtors generally, without the unanimous consent of its
manager(s), which shall at all times include the affirmative consent of the
Independent Director, and if Tenant is a partnership without the unanimous
consent of its general partners (including the unanimous consent of the
directors of the corporate general partners or shareholders as the case may be
which shall at all times include the consent of the Independent Director).







                                      F-3




                                   EXHIBIT "G"

                             Tenant Equity Ownership

ARC Greenwood Village, Inc. is a wholly-owned subsidiary of American Retirement
Corporation














                                      G-1


                                   EXHIBIT "H"

                                Property Expenses

        The term "Property Expenses" shall mean for the requisite period the sum
of the following items:

        8. the cost of sales, including without limitation, compensation, fringe
benefits, payroll taxes and other costs relating to employees of Tenant (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of Tenant who do not work at the Leased Property on a regular basis;
except that the foregoing costs shall include the allocable portion of the
salary and other employee costs of any general manager or other supervisory
personnel (not including regional vice presidents or regional sales people)
assigned to a "cluster" of skilled nursing, assisted living and dementia care
facilities which includes the Leased Property);

        9. departmental expenses incurred at departments within the Leased
Property; administrative and general expenses; the cost of marketing incurred by
the Leased Property; advertising and business promotion incurred by the Leased
Property; heat, light, and power; and computer line charges;

        10. the cost of Inventories and P&E consumed in the operation of the
Leased Property;

        11. a reasonable reserve for uncollectible accounts receivable as
determined by the Tenant;

        12. all costs and fees of independent professionals or other third
parties who are retained by Tenant to perform services required or permitted
hereunder;

        13. all costs and fees of technical consultants and operational experts
who are retained or employed by Tenant for specialized services (including,
without limitation, quality assurance inspectors) and the cost of attendance by
employees of the Leased Property at training and manpower development programs
sponsored by Tenant;

        14. Additional Charges as referenced in Section 3.4 of the Agreement;

        15. payments made into the Reserve pursuant to Section 5.2 of the
Agreement;

        16. management fees paid to any approved manager and such other costs
and expenses incurred by an approved manager as are specifically provided for
under any approved management agreement or are otherwise reasonably necessary
for the proper and efficient operating of the Leased Property;

        17. the term "Property Expenses" shall not include (a) debt service
payments pursuant to any Facility Mortgage, (b) payments pursuant to equipment
leases or other forms of financing obtained for the Tenant's Personal Property,
(c) rental payments pursuant to any ground lease of the Land, (d) any
indebtedness of Tenant, or (e) any employee claim which is not covered by
insurance and where the basis of such employee claim is conduct by Tenant or its
manager which is (i) a substantial violation of the standards of responsible
labor relations as generally practiced






                                      H-1


by prudent owners or operators of similar retirement community operations in the
state in which the Facility is situated, and (ii) not the isolated act of
individual employees, but rather is a direct result of corporate policies of
Tenant or any manager. Neither revenues from the Facility, nor any disbursement
from the Reserve or the Tenant Shortfall Reserve, shall be used by Tenant to pay
the amounts not constituting Property Expenses under clauses 9(b), 9(c), 9(d) or
9(e) above.

Notwithstanding the foregoing definition of "Property Expenses," the financial
and other informational reports and statements to be provided pursuant to the
Lease may be provided by Tenant consistent with Tenant's standard information
reporting practices, provided that any omitted or varying item under such
practices is identified and separately scheduled as adjustments if necessary to
determine any financial or economic amount relevant to the Lease or if otherwise
requested in writing by Landlord.








                                      H-2



                                   EXHIBIT "I"

                              Initial Landlord P&E














                                      I-1





                                   EXHIBIT "J"

                        Initial Tenant Personal Property


(b)     The right to use the tradename "ARC," "American Retirement Corporation,"
        and "Heritage Club," and any variations thereof;

(c)     Skilled Nursing, assisted living and Alzheimer's/dementia care licenses,
        and any liquor licenses;

(d)     Any vans, cars or other motor vehicles; and

(e)     Any proprietary software of Tenant and its Affiliated Persons not
        including, however, information and data relating to the Leased Property
        and the ownership, operation and occupancy thereof, which information
        and data shall remain available to Landlord at all times during and be
        transferred to Landlord immediately upon the expiration or any early
        termination of the Lease Term.





                                      K-1

EX-10.4

                                                                   EXHIBIT 10.4




                               FIRST AMENDMENT TO
                      MASTER LEASE AND SECURITY AGREEMENT

THIS FIRST AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (the "AGREEMENT")
is made as of February 7, 2002 by and among NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation, NH TEXAS PROPERTIES LIMITED PARTNERSHIP, a Texas
limited partnership (collectively, "LANDLORD"), the entities listed, as
"Tenant" on Schedule 1 attached hereto (collectively, "TENANT"), and AMERICAN
RETIREMENT CORPORATION, a Tennessee corporation ("GUARANTOR"), with reference
to the following Recitals:

                                   RECITALS:

         A. Landlord and the Tenant entities listed as Nos. 1 through 7 on
Schedule 1 attached hereto have entered into that certain Master Lease and
Security Agreement dated as of July 31, 2001 (the "LEASE"), with respect to the
personal care or memory enhancement assisted living facilities described
therein. All initially-capitalized terms used herein shall have the same
meanings given to such terms in the Lease, unless otherwise defined herein.

         B. Pursuant to that certain Guaranty of Lease and Letter of Credit
Agreement dated as of July 31, 2001 (the "GUARANTY") executed by Guarantor, as
guarantor, in favor of Landlord, Guarantor agreed to guarantee the obligations
of Tenant under the Lease.

         C. The Tenant entities listed as Nos. 8 through 11 on Schedule 1
attached hereto have acquired, or are about to acquire, the leasehold interests
in four (4) additional Facilities owned by Landlord, which additional
Facilities are more particularly described in Item Nos. 8 through 11 on
Schedule 2 attached hereto (the "ADDITIONAL FACILITIES").

         D. Pursuant to the terms of that certain Agreement to Amend Master
Lease and Termination of Leases of even date herewith by and among Landlord,
Tenant and Guarantor, the parties hereto have agreed to terminate the existing
leases relating to Additional Facilities and to modify the Lease to include the
Additional Facilities in accordance with the terms and conditions set forth
this Agreement.

         NOW, THEREFORE, taking into account the foregoing Recitals, and in
consideration of the mutual covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree to amend the Lease in the
following particulars only:

         1.       AMENDMENTS TO LEASE.

                  (A) Schedules 1, 2 and 3 of the Lease are hereby deleted in
their entirety and substituted with Schedules 1, 2 and 3 attached to this
Agreement.


                                       1


                  (B) Exhibit A and Exhibit C of the Lease are hereby deleted
in their entirety and substituted with Exhibit A and Exhibit C attached to this
Agreement.

                  (C) Section 2.1 of the Lease is hereby deleted in its
entirety and the following substituted therefor:

         "2.1     INITIAL TERM MINIMUM RENT. During the Initial Term, Tenant
         shall pay to Landlord Minimum Rent of Twelve Million Four Hundred
         Eight Thousand Dollars ($12,408,000) annually. Such Minimum Rent with
         respect to each month shall be paid by wire transfer in advance and in
         equal monthly installments of One Million Thirty-Four Thousand Dollars
         ($1,034,000) on the first business day of each such calendar month."

                  (D) Section 2.2.3 of the Lease is hereby deleted in its
entirety and the following substituted therefor:

                  "2.2.3 Notwithstanding the foregoing, in no event shall the
         Minimum Rent for the first Renewal Term exceed one hundred twenty-five
         percent (125%) of the difference obtained by subtracting Three Hundred
         Seventeen Thousand Dollars ($317,000) from the Total Rent (as such
         term is defined in Section 2.5.1 below) payable during the last Lease
         Year of the Initial Term, and in no event shall the Minimum Rent for
         any Renewal Term other than the first Renewal Term exceed one hundred
         twenty-five percent (125%) of the Total Rent in effect for the Lease
         Year immediately preceding the first Lease Year of such Renewal Term.
         Furthermore, in no event shall the Minimum Rent for the first Renewal
         Term be less than one hundred percent (100%) of the difference
         obtained by subtracting Three Hundred Seventeen Thousand Dollars
         ($317,000) from the Total Rent payable during the last Lease Year of
         the Initial Term, and in no event shall the Minimum Rent for any
         Renewal Term other than the first Renewal Term be less than one
         hundred percent (100%) of the Total Rent payable during the last Lease
         Year of the immediately preceding Renewal Term."

                  (E) Section 2.2.5 of the Lease is hereby deleted in its
entirety and the following substituted therefor:

                  "2.2.5 As used herein, "LANDLORD'S ADJUSTED INVESTMENt" in
         the Premises shall mean shall mean Landlord's Original Investment (as
         hereinafter defined in this Section 2.2.5) multiplied at the end of
         each Lease Year by a percentage equal to one hundred percent (100%)
         plus one-half (1/2) of the CPI Increase (as defined in Section 2.2.6
         below) for such Lease Year. As used herein, "LANDLORD'S ORIGINAL
         INVESTMENT" shall mean One Hundred Twenty-Five Million Eight Hundred
         Twenty-Four Thousand Dollars ($125,824,000) as increased by (A) any
         amount paid by Landlord pursuant to Section 5.7 and Section 5.9 below,
         and as decreased by (B) any net award paid to Landlord pursuant to
         Section 13.2 below, all as applicable."


                                       2


                  (F) Sections 2.5.1, 2.5.2 and 2.5.5 of the Lease are hereby
deleted in their entirety and the following substituted therefor:

                  "2.5.1 Except to the extent provided to the contrary in the
         immediately succeeding sentence, for all purposes of calculating and
         paying Minimum Rent and Additional Rent under this Lease, the total of
         the Minimum Rent and Additional Rent ("TOTAL RENT") payable by Tenant
         in any quarter of any Lease Year will not be less than the Total Rent
         paid by Tenant for the immediately preceding quarterly period.
         Notwithstanding the foregoing, Total Rent payable by Tenant with
         respect to the first quarter of the first Lease Year of the first
         Renewal Term will not be less than the difference obtained by
         subtracting Seventy-Nine Thousand Two Hundred Fifty Dollars ($79,250)
         from the Total Rent paid by Tenant for the immediately preceding
         quarterly period.

                  2.5.2 Notwithstanding any of the other terms of this Section
         2, but subject to Section 2.5.3 below, the Total Rent due during each
         Lease Year shall not increase from one Lease Year to the next by an
         amount in excess of (i) two and one-half percent (2.5%), multiplied by
         (ii) the difference obtained by subtracting Three Hundred Seventeen
         Thousand Dollars ($317,000) from the Total Rent due during the
         immediately preceding Lease Year (the "ANNUAL RENT CAP"). For purposes
         of applying the Annual Rent Cap to the quarterly installments of
         Additional Rent due under Section 2.3.1, the Total Rent due during each
         quarter of any Lease Year shall not increase by an amount in excess of
         one-fourth (1/4) of the Annual Rent Cap for the then applicable Lease
         Year.

                  2.5.5 For the purpose of comparing the Total Rent due during
         each quarter of any Lease Year to the Total Rent due in the
         immediately preceding quarterly period pursuant to this Section 2.5,
         the increase in Minimum Rent by reason of any disbursement by Landlord
         pursuant to Section 5.7 or Section 5.9 of this Lease shall be treated
         as follows: (i) for the purpose of comparing the Total Rent in the
         quarterly period in which such disbursement is made against the Total
         Rent due in the immediately preceding quarter, such increase in
         Minimum Rent shall be ignored, and (ii) for the purpose of comparing
         the Total Rent in the quarterly period in which such disbursement is
         made to the Total Rent due in the following quarter, such increase in
         Minimum Rent shall be deemed effective on the first day of the
         quarterly period in which the disbursement is made."

                  (G) The first sentence of Section 5.2.1 of the Lease is
hereby deleted in its entirety and the following substituted therefor:

         "Tenant and each Facility shall comply in all material respects with
         all federal, state and local licensing and other laws and regulations
         applicable to the Personal Care Facilities (including, without
         limitation and with respect to each Facility located in Colorado,
         Colorado Revised Statute ss. 25-1-101 and the core regulations found
         at 6 C.C.R. 1011-1, Chapter VII) as well as with the certification
         requirements of Medicare and Medicaid (or any successor program)


                                       3


         that are obtained by Tenant."

                  (H) The following is hereby added as Section 5.2.4 of the
Lease:

                  "5.2.4 It is acknowledged that while this Lease refers to the
         Personal Care Facilities as "assisted living facilities", such use in
         Colorado is referred to as a "personal care boarding home." Any
         reference in this Lease to "assisted living facility" or "Personal
         Care Facility" shall be deemed to refer to a "personal care boarding
         home" within the meaning of the applicable Colorado statutes, rules
         and regulations."

                  (I) The following is hereby added as Section 5.9 of the
Lease:

                  "5.9 CAPITAL IMPROVEMENTS TO TRINITY TOWERS. Tenant has
         heretofore installed, at its own expense, various items of furniture,
         fixtures and equipment (the "NEW FF&E") in the Trinity Towers Facility
         (which is identified as Facility No. 3 on Schedule 2). Landlord has
         agreed to reimburse (in a single funding) Tenant, at Tenant's option,
         for a portion of the New FF&E, the amount of such reimbursement to
         equal Five Hundred Thousand Dollars ($500,000), upon the following
         terms and conditions:

                           5.9.1 Such amount shall be requested by Tenant on or
                  before December 31, 2003;

                           5.9.2 No Event of Default or event which, with the
                  giving of notice or the passage of time, or both, would
                  constitute an Event of Default hereunder shall have occurred
                  and be continuing at the time of any such request for
                  disbursement of such amount;

                           5.9.3 Effective as of the date of the advance of
                  funds by Landlord under this Section 5.9, the annual Minimum
                  Rent payable hereunder shall be increased by reason of such
                  capital improvements funded by Landlord as follows: The
                  amount of such funds so disbursed by Landlord on such date
                  multiplied by a rate equal to ten and one-half percent
                  (10.5%) per annum; the monthly Minimum Rent shall be equal to
                  1/12th of such annual amount as so increased, prorated,
                  however, for any partial year or month, as applicable. All
                  Minimum Rent, as so increased, shall continue to be due and
                  payable by Tenant on the first business day of each calendar
                  month;

                           5.9.4 Tenant's request for disbursement shall be
                  accompanied with (i) a schedule describing the New FF&E for
                  which Tenant is to be reimbursed; and (ii) a bill of sale in
                  form and substance satisfactory to Landlord pursuant to which
                  the New FF&E shown on the schedule shall be conveyed to
                  Landlord; and


                                       4


                           5.9.5 If Landlord or Tenant requests, Landlord and
                  Tenant shall, at Tenant's sole expense, execute an amendment
                  or amendments to this Lease reflecting the advances made by
                  Landlord and increase in Minimum Rent relating thereto.

                  Upon Tenant's delivery of the bill of sale described above,
                  the New FF&E conveyed to Landlord shall immediately become a
                  part of the Landlord Personal Property and shall belong to
                  Landlord subject to the terms and conditions of this Lease."

                  (J) The first two sentences of Section 11 of the Lease are
hereby deleted in their entirety and the following substituted therefor:

         "Tenant shall post with Landlord cash or letters of credit in the face
         amount of, or a combination of cash and such letters of credit, in the
         aggregate amount of Three Million Nine Hundred Twenty-Six Thousand Two
         Hundred Dollars ($3,926,200), representing a security deposit against
         the faithful performance of the terms and conditions contained in this
         Lease. If Landlord funds any additional improvements pursuant to
         Section 5.7 or Section 5.9 of this Lease, draws upon such cash or
         letters of credit pursuant to the terms hereof or if Minimum Rent is
         increased pursuant to the terms hereof, Tenant shall, at the time of
         such funding, drawing or increase, deposit with Landlord additional
         cash or an additional letter of credit such that the total amount of
         the security deposit, represented by cash and the undrawn amounts
         available under letters of credit, held by Landlord shall at all times
         be equal to thirty-one and 30/100 percent (31.30%) of the then due and
         payable annual Minimum Rent."

         2.       REAFFIRMATION OF OBLIGATIONS.

                  (A) Notwithstanding the modifications to the Lease contained
         herein, Tenant and Landlord each hereby acknowledges and reaffirms its
         obligations under the Lease (as modified hereby) and all other
         documents executed by such party in connection therewith.

                  (B) Notwithstanding the modifications to the Lease contained
         herein, Guarantor hereby acknowledges and reaffirms its obligations
         under the Guaranty and all documents executed by Guarantor in
         connection therewith, and further agrees that any reference made in
         the Guaranty to the Lease or any terms or conditions contained
         therein, shall mean such Lease or such terms or conditions as modified
         by this Agreement.

         3.       INTERPRETATION; GOVERNING LAW. This Agreement shall be
construed as a whole and in accordance with its fair meaning. Headings are for
convenience only and shall not be used in construing meaning. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of California without regard to rules concerning the choice of law.

         4.       FURTHER INSTRUMENTS. Each party will, whenever and as often
as it shall be reasonably requested so to do by another party, cause to be
executed, acknowledged or delivered,


                                       5


any and all such further instruments and documents as may be necessary or
proper, in the reasonable opinion of the requesting party, in order to carry
out the intent and purpose of this Agreement.

         5.       INCORPORATION OF RECITALS. The Recitals to this Agreement are
incorporated hereby by reference.

         6.       COUNTERPARTS. This Agreement may be executed in counterparts,
all of which executed counterparts shall together constitute a single document.
Signature pages may be detached from the counterparts and attached to a single
copy of this document to physically form one document.

         7.       ATTORNEYS' FEES. In the event of any dispute or litigation
concerning the enforcement, validity or interpretation of this Agreement, or
any part thereof, the losing party shall pay all costs, charges, fees and
expenses (including reasonable attorneys' fees) paid or incurred by the
prevailing party, regardless of whether any action or proceeding is initiated
relative to such dispute and regardless of whether any such litigation is
prosecuted to judgment.

         8.       EFFECT OF AMENDMENT. Except as specifically amended pursuant
to the terms of this Agreement, the terms and conditions of the Lease shall
remain unmodified and in full force and effect. In the event of any
inconsistencies between the terms of this Agreement and any terms of the Lease,
the terms of this Agreement shall govern and prevail.

         9.       ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties relating to the subject matters contained herein.
Any oral representations or statements concerning the subject matters herein
shall be of no force or effect.

                           [SIGNATURES ON NEXT PAGE]


                                       6


         IN WITNESS WHEREOF, the parties have executed this First Amendment to
Master Lease and Security Agreement as of the date first above written.

                                    TENANT:


                                    ARC PINEGATE, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    ARC PEARLAND, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation



                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------


                                       7


                                    ARC NAPLES, LLC,
                                    a Tennessee limited liability company

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its managing member



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    TRINITY TOWERS LIMITED PARTNERSHIP, a
                                    Tennessee limited partnership

                                    By: ARC CORPUS CHRISTI, INC.,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    ARC LAKEWAY, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                       8


                                    ARC SPRING SHADOW, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    ARC AURORA, LLC,
                                    a Tennessee limited liability company

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its sole member



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    ARC LAKEWOOD, LLC,
                                    a Tennessee limited liability company

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its sole member



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                       9


                                    ARC SHADOWLAKE, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    ARC WILLOWBROOK, L.P.,
                                    a Tennessee limited partnership

                                    By: AMERICAN RETIREMENT CORPORATION,
                                        a Tennessee corporation,
                                        its general partner



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                    GUARANTOR:

                                    AMERICAN RETIREMENT CORPORATION,
                                    a Tennessee corporation



                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------


                                      10


                                    LANDLORD:

                                    NATIONWIDE HEALTH PROPERTIES, INC.,
                                    a Maryland corporation



                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------


                                    NH TEXAS LIMITED PARTNERSHIP,
                                    a Texas limited partnership

                                    By: MLD TEXAS CORPORATION,
                                        a Texas corporation



                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------


                                      11


                                  SCHEDULE 1-1

                          LANDLORD AND TENANT ENTITIES

         LANDLORD

1.       NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation

2.       NH TEXAS PROPERTIES LIMITED PARTNERSHIP,
         a Texas limited partnership


         TENANT

1.       ARC PINEGATE, L.P., a Tennessee limited partnership

2.       ARC PEARLAND, L.P., a Tennessee limited partnership

3.       AMERICAN RETIREMENT CORPORATION, a Tennessee corporation

4.       ARC NAPLES, LLC, a Tennessee limited liability company

5.       TRINITY TOWERS LIMITED PARTNERSHIP, a Tennessee limited partnership

6.       ARC LAKEWAY, L.P., a Tennessee limited partnership

7.       ARC SPRING SHADOW, L.P., a Tennessee limited partnership

8.       ARC AURORA, LLC, a Tennessee limited liability company

9.       ARC LAKEWOOD, LLC, a Tennessee limited liability company

10.      ARC SHADOWLAKE, L.P., a Tennessee limited partnership

11.      ARC WILLOWBROOK, L.P., a Tennessee limited partnership


                                 Schedule 1-1


                                   SCHEDULE 2

                LOCATION OF FACILITIES AND FACILITY INFORMATION



- ------------------------------------------------------------------------------------------------------------------------------
          FACILITY                             FACILITY LOCATION                               NO. OF BEDS/UNITS
- ------------------------------------------------------------------------------------------------------------------------------
                                                                         
  1.     Spring Shadow         9889 Kempwood Drive                                           52 Personal Care Beds
                               Houston (Harris County), Texas 77080                       15 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
  2.     Lakeway               1915 Lohmans Crossing Road                                    66 Personal Care Beds
                               Lakeway (Travis County), Texas 78734                       15 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                           76 Nursing Facility Beds
                               101 North Upper Broadway                                 84 Personal Care Facility Unit
  3.     Trinity Towers        Corpus Christi (Nueces County),                                (Type A Large) Beds
                               Texas 78401                                           196 Independent Living Facility Units
                                                                                            15 Dementia Care Units
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                       100 Assisted Living Facility Beds
  4.     Naples                770 Goodlette Road North                           (comprised of 76 Personal Care Beds and 24
                               Naples (Collier County), Florida 34202                      Memory Enhancement Beds)
- ------------------------------------------------------------------------------------------------------------------------------
                               9797 Bay Pines Boulevard
  5.     Bay Pines             St. Petersburg (Pinellas County),                              60 Assisted Living
         (Carriage Inn)        Florida 33708                                                     Facility Beds
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                              15 Independent Beds
  6.     Pearland              2121 Scarsdale Boulevard                                      52 Personal Care Beds
                               Pearland (Harris County), Texas 77581                      15 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
  7.     Pinegate              2121 Pinegate Drive                                           80 Personal Care Beds
                               Houston  (Harris County), Texas 77008                      15 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------



- -----------------------------------------------------------------------
          FACILITY                  TYPE OF PERSONAL CARE FACILITY
- -----------------------------------------------------------------------
                           
  1.     Spring Shadow                    Personal Care and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------
  2.     Lakeway                          Personal Care and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------
                                               Nursing
  3.     Trinity Towers                     Personal Care
                                        Independent Living and
                                       Dementia Care Facilities
- -----------------------------------------------------------------------
                                 Assisted Living Facility (including
  4.     Naples                  Personal Care and Memory Enhancement
                                             Facilities)
- -----------------------------------------------------------------------

  5.     Bay Pines                     Assisted Living Facility
         (Carriage Inn)
- -----------------------------------------------------------------------
                                            Personal Care
  6.     Pearland                       Independent Living and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------
  7.     Pinegate                         Personal Care and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------



                                 Schedule 2-1


                                                                               
  8.     Aurora                1820 South Potomac                                            80 Personal Care Beds
                               Aurora (Arapahoe County), Colorado 80012                   17 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
  9.     Lakewood              3151 South Wadsworth Blvd                                     78 Personal Care Beds
                               Lakewood (Jefferson County), Colorado 80227                18 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
  10.    Shadowlake            2835 Shadow Drive                                             79 Personal Care Beds
                               Houston (Harris County), Texas 77072                       17 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------
  11.    Willowbrook           7450 Willowchase Blvd.                                        53 Personal Care Beds
                               Houston (Harris County), Texas 77070                       16 Memory Enhancement Beds
- ------------------------------------------------------------------------------------------------------------------------------

  


- -----------------------------------------------------------------------
                              
  8.     Aurora                      Personal Care Boarding Home

- -----------------------------------------------------------------------
  9.     Lakewood                    Personal Care Boarding Home

- -----------------------------------------------------------------------
  10.    Shadowlake                       Personal Care and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------
  11.    Willowbrook                      Personal Care and
                                    Memory Enhancement Facilities
- -----------------------------------------------------------------------



                                 Schedule 2-2


                                   SCHEDULE 3

                           LANDLORD PERSONAL PROPERTY

All of Landlord's right, title and interest in and to (a) all improvements
located upon the real property described on Exhibit A attached hereto, and (b)
all furniture, machinery, equipment, appliances, fixtures, supplies and other
personal property (tangible and intangible) located upon or within, or used in
connection with the such real property and/or the Facilities located thereon,
including, without limitation, all such personal property acquired in
connection with the development of the Facilities.


                                 Schedule 3-1




                                   EXHIBIT A

                      LEGAL DESCRIPTIONS OF THE FACILITIES

                                   (Attached)


                                  Exhibit A-1


                               LEGAL DESCRIPTION

                                 SPRING SHADOW

                              9889 Kempwood Drive
                      Houston (Harris County), Texas 77080

                   DESCRIPTION OF A 5,000 ACRE TRACT OF LAND
                    SITUATED IN THE A.T. MILES SURVEY, A-556
                     CITY OF HOUSTON, HARRIS COUNTY, TEXAS

BEING a 5,000 acre tract of land situated in the A.T. Miles Survey, Abstract
No. 556 City of Houston, Harris County, Texas and being part of an 8,000 acre
tract of land as described under Harris County Clerk's File (H. C. C. F.) No.
P514591 and same being out of Block 14 of the Spring Shadows, Section 6
subdivision as shown in Volume 155, Page 50, of the Harris County Map Records
and said 5,000 acres being more particularly described by metes and bounds as
follows:

BEGINNING at a found 1 1/2" galvanized iron pipe for a corner in the curved
south right-of-way line of Kempwood Drive (100' width), as recorded in Volume
7047, Page 187 of the Harris County Deed Records, and at the most northerly
northwest corner of the said Block 14, Section 6;

THENCE in a southeasterly direction 155.14 feet with the south right-of-way
line of said Kempwood Drive (100' width) and the northerly line of said Block
14, Section 6 and arc of a curve to the right having a radius of 1950.00 feet,
a central angle of 04(degree) 33' 30" and a chord which bears S 71(degree) 36'
47" E, 155.10 feet to a found 1 1/2" galvanized iron pipe at the point of a
reverse curve to the left;

THENCE in a southeasterly direction 232.40 feet with the south right-of-way
line of said Kempwood Drive (100' width) and the northerly line of said Block
14, Section 6 and the arc of a curve to the left having a radius of 2050.00
feet, a central angle of 06(degree) 29' 43" and a chord which bears S
72(degree) 34' 54" E, 232.27 feet to a set 5/8" iron rod in the arc of said
curve, for the northeast corner of the herein described tract;

THENCE S 01(degree) 33' 20" E, 517.64 feet to a set 5/8" iron rod in the south
line of said Block 14, Section 6 and in the north line of Lot 20, Block 6 of
Spring Shadows Section 4, a subdivision recorded in Volume 141, Page 50 of the
Harris County Map Records;

THENCE S 88(degree) 26' 40" W, along the south line of said Block 14, Section 6
and the north line of said Block 6 of Spring Shadows, Section 4, at 264.51 feet
pass through the northwest corner of said Spring Shadows, Section 4 and the
northeast corner of Spring Shadows Section 2, recorded in Volume 128, Page 13
of the Harris County Map Records and continuing a total distance of 374.51 feet
to a set 5/8" iron rod in the east right-of-way line of Rosefield Drive (60'
width) as shown on the plat of Spring Shadows, Section 2 recorded in Volume
128, Page 13 of the Harris County Map Records and on the plat of Spring
Shadows, Section 6, a subdivision recorded in Volume 155, Page


                                  Exhibit A-2


50, of the Harris County Map Records and at the southwest corner of said Block
14, Section 6. From said 5/8" iron rod a found 1 3/4" galvanized iron pipe
bears S 88 (degree) 26' 40" W, a distance of 0.49 feet;

THENCE N 01(degree) 33' 20" W, 638.91 feet along the east right-of-way line of
said Rosefield Drive (60' width) and the west line of said Block 14, Section 6
to a found 1 3/4" galvanized iron pipe at the southwesterly corner of a
right-of-way line cut-back;

THENCE N 50 (degree) 12' 00" E, 11.54 feet with the southeasterly line of said
cut-back to the POINT OF BEGINNING and containing 5,000 acres of land.


                                  Exhibit A-3


                               LEGAL DESCRIPTION

                                    LAKEWAY

                           1915 Lohmans Crossing Road
                      Lakeway (Travis County), Texas 78734

LOT 1, OF THE TOWERS OF LAKEWAY, A SUBDIVISION IN TRAVIS COUNTY, TEXAS,
ACCORDING TO THE MAP OR PLAT OF RECORD IN VOLUME 98, PAGES 297-299, OF THE PLAT
RECORDS OF TRAVIS COUNTY, TEXAS.


                                  Exhibit A-4


                               LEGAL DESCRIPTION

                                 TRINITY TOWERS

                            101 North Upper Broadway
                  Corpus Christi (Nueces County), Texas 78401

                         Legal Description of Premises

TRACT I:

Field Notes for a 2.02 acre tract of land, comprising all of Lots 1 through 22,
Block 2, W.E. POPE'S BROADWAY ADDITION, a map of which is recorded in Volume 1,
Page 56 of the Map Records of Nueces County, Texas, SAVE AND EXCEPT that
portion of Lot 22, Block 2 conveyed to the City of Corpus Christi by Deed
recorded in Volume 263, Page 605 of the Deed Records of Nueces County, Texas,
and also comprising all of Block 6 of the BLUFF PORTION OF THE CENTRAL WHARF
AND WAREHOUSE COMPANY'S SUBDIVISION as shown by a map recorded in Volume A,
Page 15 of the Nueces County Map Records, and being a portion of the other land
lying North of said Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION and being
shown as Cooper's Alley on the map of said BROADWAY ADDITION; said 2.02 acre
tract being more particularly described by metes and bounds as follows:

BEGINNING at a 1" iron pipe found in concrete at the intersection of the
northerly Right-Of-Way line of present Cooper's Alley (formerly Telco Street,
formerly Kennedy Street), and the westerly line of Carancahua Street for the
most southeasterly corner of Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION;
said 1" iron pipe also being the most southeasterly corner of this tract;

THENCE South 88 degrees 50 minutes 15 seconds West, along and with said
southerly line of Block 6, being the said northerly line of Cooper's Alley, a
distance of 250.16 feet to a 5/8" iron pipe found for the most southwesterly
corner of said Lot 6, Block 1, same being a southwesterly exterior corner of
this tract;

THENCE North 00 degrees 42 minutes 29 seconds West, a distance of 43.82 feet to
drill hole set for a point in the southerly line of said Lot 22, Block 2, W.E.
POPE'S BROADWAY ADDITION; said drill hole also being an interior corner of this
tract;

THENCE South 59 degrees 42 minutes 29 seconds West, along and with the
southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a
distance of 13.28 feet to a 5/8" iron rod found for the most southeasterly
corner of said portion of Lot 22, Block 2, conveyed to the City of Corpus
Christi and also being in the most easterly Right-Of-Way line of present
Tancahua Street for an exterior corner of this tract;

THENCE North 04 degrees 19 minutes 38 seconds West, along and with said
easterly line of Tancahua Street, a distance of 109.70 feet to a 5/8" iron rod
found for an angle point of this tract;


                                  Exhibit A-5


THENCE North 02 degrees 51 minutes 52 seconds West, continuing along and with
said easterly line of Tancahua Street a distance of 30.06' to 5/8" iron rod
found for the most northwesterly corner of said Lot 22, Block 2, BROADWAY
ADDITION, also being the most southwesterly corner of said Lot 1, Block 2,
BROADWAY ADDITION, also being an angle point of this tract;

THENCE North 01 degrees 00 minutes 30 seconds East, continuing along and with
said easterly line of Tancahua Street, a distance of 107.29 feet to 5/8" iron
rod found at the intersection of said easterly line of Tancahua Street and the
southerly line of Blucher Street, (formerly Chatham Street) for the most
northwesterly corner of said Lot 1, Block 2, Broadway Addition, also being the
most northwesterly corner of this tract;

THENCE North 75 degrees 24 minutes 20 seconds East, along and with the
southerly line of said Blucher Street, also being the North line of Block 2,
W.E. POPE'S BROADWAY ADDITION, a distance of 298.31 feet to a drill hole found
in concrete at the intersection of the said southerly line of Blucher Street
and the westerly line of said Carancahua Street for the most northeasterly
corner of this tract;

THENCE southerly, along and with the said westerly line of Carancahua Street,
the following courses;

South 01 degrees 00 minutes 30 seconds West, a distance of 107.29 feet to a
drill hole found in concrete for the southwesterly corner of Lot 11, Block 2,
W.E. POPE'S ADDITION for an angle point of this tract;

South 00 degrees 05 minutes 32 seconds West, a distance of 105.14 feet to a
drill hole found in concrete for an angle point of this tract;

South 86 degrees 47 minutes 35 seconds West, a distance of 7.98 feet to a drill
hole found in concrete for an angle point of this tract;

South 14 degrees 49 minutes 41 seconds West, a distance of 41.75 feet to a 1"
iron rod found for an angle point of this tract;

Thence South 01 degrees 08 minutes 51 seconds East, continuing along and with
said westerly line of Carancahua Street, a distance of 100.71 feet to the POINT
OF BEGINNING and containing 2.02 acres of land more or less.

TRACT II:

Description of 2.3638 acres of land out of Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14, 15, Block 1, of W.E. POPE'S BROADWAY ADDITION, Corpus Christi,
Nueces County, Texas, as shown by map recorded in Volume 1, Page 56 of the
Nueces County Map Records; a portion of the WILLIAM HOFFMAN ARROYO TRACT, as
shown in Volume 1, Page 56 of the Nueces County Map Records; and a portion of
Block 1, of the BLUFF PORTION OF THE CENTRAL WHARF AND WAREHOUSE COMPANY'S
SUBDIVISION, as shown by map or plat of record in Volume A, Page 15, of the
Nueces County Map Records; said 2.3638 acre tract being more particularly
described by metes and bound as follows:


                                  Exhibit A-6


BEGINNING at a 5/8 inch iron rod found for the northwest corner of Lot 1, Block
1, of the W.E. POPE'S BROADWAY ADDITION, Corpus Christi, Nueces County, Texas,
as shown by map recorded in Volume 1, Page 56 of the Nueces County Map Records,
said point being the intersection of the east line of Carancahua Street
(variable width R.O.W.) and the south line of Blucher (formerly Chatham Street)
(60 foot R.O.W.);

THENCE N 75 degrees 36 minutes 04 seconds E, with the said south line of
Blucher Street, along the north line of Lots 1, 2, 3, 4, 5, 6 and 7 said Block
1, a distance of 314.44 feet to a 5/8 inch iron rod found for the northeast
corner of said Lot 7, Block 1 for the northeast corner of this tract;

THENCE S 01 degrees 46 minutes 04 seconds W, with the west line of Upper North
Broadway Street (variable width R.O.W.), a distance of 176.77 feet to a 5/8
inch iron rod found at the point of curvature of a circular curve to the right,
the west line of said Broadway Street being shown on Exhibit A of a deed from
Whole Life, Inc. to the City of Corpus Christi and recorded in Volume 1868,
Page 763, of the Nueces County Deed Records;

THENCE continuing along the west line of said Broadway Street and along the arc
of a circular curve to the right having a central angle of 32 degrees 00
minutes 00 seconds and a radius of 84.84 feet, a distance of 47.38 feet to a
5/8 inch iron rod found for the point of tangency;

THENCE S 33 degrees 46 minutes 04 seconds W, continuing along the west line of
said Broadway Street, a distance of 54.57 feet to a P.K. nail set in asphalt
for the point of curvature of a circular curve to the left;

THENCE continuing along the west line of said Broadway Street and along the arc
of a circular curve to the left with a central angle of 34 degrees 34 minutes
20 seconds and a radius of 51.50 feet, a distance of 31.08 feet to a 5/8 inch
iron rod set for the point of tangency;

THENCE S 00 degrees 48 minutes 16 seconds E, continuing along the west line of
said Broadway Street, a distance of 47.96 feet to a 5/8 inch iron rod found at
the intersection of the west line of said Broadway Street and the north line of
Cooper's Alley (variable width R.O.W.) as described in a deed recorded in
Volume 1570, Page 956 of the Nueces County Deed Records;

THENCE S 46 degrees 28 minutes 22 seconds W, along the north line of said
Cooper's Alley, a distance of 36.00 feet to a point for a corner from which a
5/8 inch iron rod found bears S 81 degrees 45 minutes 43 seconds E, a distance
of 0.37 feet, said point being the point of curvature of a circular curve to
the right;

THENCE continuing along the north line of said Cooper's Alley with the arc of a
circular curve to the right having a central angle of 42 degrees 43 minutes 22
seconds and a radius of 230.00 feet, a distance of 171.50 feet to a 5/8 inch
iron rod found for the point of tangency;

THENCE S 89 degrees 11 minutes 44 second W, continuing along the north line of
said Cooper's Alley, a distance of 10.54 feet to a 5/8 inch iron rod found for
a point of curvature of a circular curve to the right;


                                  Exhibit A-7


THENCE continuing along the north line of said Cooper's Alley with the arc of a
circular curve to the right having a central angle of 92 degrees 00 minutes 30
seconds and a radius of 60.00 feet, a distance of 96.35 feet to a 5/8 inch iron
rod set in the east line of Carancahua Street.

THENCE N 01 degrees 12 minutes 14 seconds E, with the east line of Carancahua
Street, a distance of 292.67 feet to the POINT OF BEGINNING and containing
2.3638 acres of land, more or less.

                     Legal Description of Expansion Parcel

TRACT I:

Field Notes for a 2.02 acre tract of land, comprising all of Lots 1 through 22,
Block 2, W.E. POPE'S BROADWAY ADDITION, a map of which is recorded in Volume 1,
Page 56 of the Map Records of Nueces County, Texas, SAVE AND EXCEPT that
portion of Lot 22, Block 2 conveyed to the City of Corpus Christi by Deed
recorded in Volume 263, Page 605 of the Deed Records of Nueces County, Texas,
and also comprising all of Block 6 of the BLUFF PORTION OF THE CENTRAL WHARF
AND WAREHOUSE COMPANY'S SUBDIVISION as shown by a map recorded in Volume A,
Page 15 of the Nueces County Map Records, and being a portion of the other land
lying North of said Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION and being
shown as Cooper's Alley on the map of said BROADWAY ADDITION; said 2.02 acre
tract being more particularly described by metes and bounds as follows:

BEGINNING at a 1" iron pipe found in concrete at the intersection of the
northerly Right-Of-Way line of present Cooper's Alley (formerly Telco Street,
formerly Kenedy Street), and the westerly line of Carancahua Street for the
most southeasterly corner of Block 6, CENTRAL WHARF AND WAREHOUSE SUBDIVISION;
said 1" iron pipe also being the most southeasterly corner of this tract;

THENCE South 88 degrees 50 minutes 15 seconds West, along and with said
southerly line of Block 6, being the said northerly line of Cooper's Alley, a
distance of 250.16 feet to a 5/8" iron pipe found for the most southwesterly
corner of said Lot 6, Block 1, same being a southwesterly exterior corner of
this tract;

THENCE North 00 degrees 42 minutes 29 seconds West, a distance of 43.82 feet to
drill hole set for a point in the southerly line of said Lot 22, Block 2, W.E.
POPE'S BROADWAY ADDITION; said drill hole also being an interior corner of this
tract;

THENCE South 59 degrees 42 minutes 29 seconds West, along and with the
southerly line of said Lot 22, Block 2, W.E. POPE'S BROADWAY ADDITION, a
distance of 13.28 feet to a 5/8" iron rod found for the most southeasterly
corner of said portion of Lot 22, Block 2, conveyed to the City of Corpus
Christi and also being in the most easterly Right-Of-Way line of present
Tancahua Street for an exterior corner of this tract;

THENCE North 04 degrees 19 minutes 38 seconds West, along and with said
easterly line of Tancahua Street, a distance of 109.70 feet to a 5/8" iron rod
found for an angle point of this tract;


                                  Exhibit A-8


THENCE North 02 degrees 51 minutes 52 seconds West, continuing along and with
said easterly line of Tancahua Street a distance of 30.06' to 5/8" iron rod
found for the most northwesterly corner of said Lot 22, Block 2, BROADWAY
ADDITION, also being the most southwesterly corner of said Lot 1, Block 2,
BROADWAY ADDITION, also being an angle point of this tract;

THENCE North 01 degrees 00 minutes 30 seconds East, continuing along and with
said easterly line of Tancahua Street, a distance of 107.29 feet to 5/8" iron
rod found at the intersection of said easterly line of Tancahua Street and the
southerly line of Blucher Street, (formerly Chatham Street) for the most
northwesterly corner of said Lot 1, Block 2, Broadway Addition, also being the
most northwesterly corner of this tract;

THENCE North 75 degrees 24 minutes 20 seconds East, along and with the
southerly line of said Blucher Street, also being the North line of Block 2,
W.E. POPE'S BROADWAY ADDITION, a distance of 298.31 feet to a drill hole found
in concrete at the intersection of the said southerly line of Blucher Street
and the westerly line of said Carancahua Street for the most northeasterly
corner of this tract;

THENCE southerly, along and with the said westerly line of Carancahua Street,
the following courses;

South 01 degrees 00 minutes 30 seconds West, a distance of 107.29 feet to a
drill hole found in concrete for the southwesterly corner of Lot 11, Block 2,
W.E. POPE'S ADDITION for an angle point of this tract;

South 00 degrees 05 minutes 32 seconds West, a distance of 105.14 feet to a
drill hole found in concrete for an angle point of this tract;

South 86 degrees 47 minutes 35 seconds West, a distance of 7.98 feet to a drill
hole found in concrete for an angle point of this tract;

South 14 degrees 49 minutes 41 seconds West, a distance of 41.75 feet to a 1"
iron rod found for an angle point of this tract;

Thence South 01 degrees 08 minutes 51 seconds East, continuing along and with
said westerly line of Carancahua Street, a distance of 100.71 feet to the POINT
OF BEGINNING and containing 2.02 acres of land more or less.


                                  Exhibit A-9


                               LEGAL DESCRIPTION

                                     NAPLES

                            770 Goodlette Road North
                        Naples (Collier County), Florida

LOT 6, COMMON PROFESSIONAL PARK, ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT
BOOK 23, PAGE 23, OF THE PUBLIC RECORDS OF COLLIER COUNTY, FLORIDA.


                                 Exhibit A-10


                               LEGAL DESCRIPTION

                                   BAY PINES
                                 (CARRIAGE INN)

                            9797 Bay Pines Boulevard
                St. Petersburg (Pinellas County), Florida 33708

That certain real property located in Pinellas County, Florida, more
particularly described as follows:

A portion of the Northwest 1/4 of Section 2, Township 31 South, Range 15 East,
Pinellas County, Florida, described as follows:

From the Southwest corner of the Northwest 1/4 of said Section 2 run South
89 (Degree) 25'17" East, 991.93 feet along the South line of said Northwest 1/4;
thence North 00 (Degree) 19'21" East, 50.00 feet to the point of beginning. Said
point also falls in the North right-of-way line of U.S. Alternate 19; thence
continue North 00 (Degree) 19'21" East, 71.50 feet along the east easement line
of 98th Way North (a 60 foot ingress/egress easement); thence South
89 (Degree) 25'17" East, 20.00 feet; thence South 62 (Degree) 55'17" East, 61.63
feet; thence South 89 (Degree) 25'17" East, 84.16 feet; thence North
00 (Degree) 34'43" East, 5.01 feet; thence North 25 (Degree) 21'05" East, 71.59
feet; thence North 00 (Degree) 34'43" East, 181.88 feet; thence South
88 (Degree) 55'59" East, 185.83 feet; thence North 01 (Degree) 04'01" East,
135.01 feet; thence South 88 (Degree) 55'59" East, 233.09 feet; thence South
00 (Degree) 32'16" West, 427.32 feet to the North right-of-way of U.S. Alt. No.
19; thence North 89 (Degree) 25'17" West, 609.36 feet along said right-of-way
line to the point of beginning.

Containing 165,899.0997 square feet or 3.8085 acres more or less.
Pinellas County, Florida.


                                 Exhibit A-11


                               LEGAL DESCRIPTION

                                    PEARLAND

                            2121 Scarsdale Boulevard
                     Pearland (Harris County), Texas 77581

Being 4.602 acres (200,481 square feet) of land in the W.D.C. Hall Survey,
A-23, Harris County, Texas and being out of a 38.360 acre tract of land
conveyed to Ayrshire Corporation by deed filed under Harris County Clerk's File
No(s). K436255 of the Official Public Records of Real Property of Harris
County, Texas, said 4.602 acres being more particularly described by metes and
bounds as follows:

BEGINNING at a point marked by a 5/8" iron rod, said point being the West
corner of Green Tee Terrace, Section 6 according to the plat thereof recorded
at Film Code No. 378073 of the Map Records of Harris County, Texas;

THENCE South 44 deg. 44 min. 59 sec. East, along the Southeast line of said
Green Tee Terrace, Section 6, a distance of 637.79 feet to a point for corner
marked by a 5/8" iron rod on the Southeast line of said 38.360 acre tract, same
being a Northwest line of a 376.5 acre tract as described in deed recorded in
Volume 3209, Page 106 of the Deed Records of Harris County, Texas, said point
being the South corner of said Green Tea Terrace, Section 6;

THENCE South 45 deg. 14 min. 48 sec. West, along the Southeast line of said
38.360 acre tract, same being a Northwest line of said 376.5 acre tract , a
distance of 341.58 feet to a point for corner marked by a 1-1/4 iron pipe, said
point being the South corner of said 38.360 acre tract, same being a re-entrant
corner for said 376.5 acre tract;

THENCE North 45 deg. 05 min. 43 sec. West, along the Southwest line of said
38.360 acre tract, same being a Northeast line of said 376.5 acre tract, a
distance of 539.47 feet to a point for corner marked by a 5/8" iron rod;

THENCE in a Northeasterly, direction with a curve to the left whose radius is
2379.18 feet, central angle is 8 deg. 38 min. 37 sec. and whose chord bears
North 29 deg. 19 min. 59 sec. East, a distance, measured along the arc of said
curve of 358.92 feet to the POINT OF BEGINNING and containing 4.602 acres
(200,481 square feet) of land.


                                 Exhibit A-12


                               LEGAL DESCRIPTION

                                    PINEGATE

                              2121 Pinegate Drive
                      Houston (Harris County), Texas 77008

All that certain 5.63 acres of land, being that same tract referred to as Tract
2, described in the Trustee's deed to Bangkok Bank Limited-Los Angeles Branch,
recorded under County Clerk's File No(s). M310840, of the Official Public
Records of Real Property of Harris County, Texas, being all of Unrestricted
Reserve "D" and part of Unrestricted Reserve "C", Citadel, Section 4, according
the plat thereof recorded in Volume 297, Page 15 of the Map Records of Harris
County, Texas, out of the Henry Reinerman Survey, A-644, Harris County, Texas,
and being more particularly described by metes and bounds as follows: (All
bearings based on the record bearings of the aforesaid plat)

BEGINNING at a 5/8" iron rod found for the west corner of the southwest
right-of-way cutback line at the intersection of Pinegate Drive (60 foot
R.O.W.) and Hackett Drive (60 foot R.O.W.);

THENCE South 53 deg. 00 min. 11 sec. East - 12.92 feet along said right-of-way
cutback line to a capped 5/8" iron rod set for the most easterly northeast
corner of the herein described tract in the west right-of-way line of said
Hackett Drive;

THENCE South 03 deg. 13 min. 37 sec. East - 338.68 feet along said right-of-way
line to a capped 5/8" iron rod set for the Point of Curvature of a curve to the
right having a central angle of 84 deg. 49 min. 30 sec. and a radius of 225.00
feet;

THENCE along said curve to the right and continuing along said west
right-of-way line, in a southwest direction, an arc distance of 333.11 feet to
a capped 5/8" iron rod set for the Point of Tangency;

THENCE South 81 deg. 35 min. 53 sec. West - 50.00 feet to a 5/8" iron rod found
for the Point of Curvature of a curve to the left having a central angle of 17
deg. 16 min. 19 sec. and a radius of 330.00 feet;

THENCE along said curve to the left and continuing along said west right-of-way
line, in a southwest direction, an arc distance of 99.48 feet to a capped 5/8"
iron rod set for the south corner of the herein described tract, common to the
east corner of the 2.6841 acre tract of land described in the deed from
Houston/Chicago Jupiter Realty Partners to FRM West Loop Associates No. 6,
Ltd., recorded under County Clerk's File No(s). P573658, of the Official Public
Records of Real Property of Harris County, Texas;

THENCE North 25 deg. 45 min. 06 sec. West - 41.42 feet along the northeast line
of said 2.6841 acre tract to a 5/8" iron rod found for an angle corner;

THENCE North 49 deg. 25 min. 59 sec. West - 124.67 feet continuing along said
northeast line to a 5/8" iron rod found for an angle corner;


                                 Exhibit A-13


THENCE North 64 deg. 22 min. 31 sec. West - 84.31 feet continuing along said
northeast line to a 5/8" iron rod found for an angle corner;

THENCE South 85 deg. 37 min. 29 sec. West - 118.64 feet continuing along said
northeast line to a capped 5/8" iron rod set for an angle corner;

THENCE North 04 deg. 22 min. 31 sec. West - 122.05 feet continuing along said
northeast line of a capped 5/8" iron rod set for a point on a curve to the
right, in the southeast right-of-way line of the aforesaid Pinegate Drive,
having a central angle of 24 deg. 01 min. 17 sec., and a radius of 355.16 feet,
and from which point the center of the circle of said curve bears South 51 deg.
44 min. 54 sec. East;

THENCE along said curve to the right and along said southeast right-of-way
line, in a northeast direction, an arc distance of 148.90 feet to a 5/8" iron
rod found for the Point of Tangency;

THENCE North 62 deg. 16 min. 23 sec. East - 482.95 feet continuing along said
southeast right-of-way line to a 5/8" iron rod found for the Point of Curvature
of a curve to the right having a central angle of 14 deg. 08 min. 25 sec., and
a radius of 355.00 feet;

THENCE along said curve to the right and continuing along said southeast
right-of-way line, in a northeast direction, an arc distance of 87.61 feet to
the POINT OF BEGINNING and containing 5.63 acres of land.


                                 Exhibit A-14


                               LEGAL DESCRIPTION

                                     AURORA

                               1820 South Potomac
                    Aurora (Arapahoe County), Colorado 80012

A parcel of land located in the SE 1/4 of Section 24, Township 4 South, Range
67 West of the 6th P.M., County of Arapahoe, State of Colorado, more
particularly described as follows:

Commencing at the Southeast corner of said Section 24;

Thence S 89(Degree) 24' 42" W along the South line said SE 1/4 a distance of
270.00 feet to a point which is on the Westerly right-of-way line of Interstate
Highway No. 225;

Thence N 00(Degree) 31' 42" W along said Westerly right-of-way line a distance
of 100.00 feet, to the True Point of Beginning;

Thence S 84(Degree) 08' 18" W a distance of 573.76 feet to a point of curvature;

Thence along the arc of a curve to the right, central angle of 95(Degree) 20'
00", radius of 40.00 feet an arc length of 66.55 feet to a point of tangency,
and which point lies on the East right-of-way line of South Potomac Street, the
chord of said arc bears N 48(Degree) 11' 42" W a distance of 59.14 feet;

Thence N 00(Degree) 31' 42" W along said East right-of-way line a distance of
392.86 feet;

Thence N 89(Degree) 24' 42" E, parallel with the South line of said SE 1/4 of
Section 24 a distance of 512.17 feet to a point;

Thence S 3(Degree) 45' 10" E a distance of 95.91 feet to a point;

Thence S 31(Degree) 10' 11" E a distance of 110.57 feet to a point;

Thence S 62(Degree) 27' 18" E a distance of 46.56 feet to a point on said West
right-of-way line of Interstate Highway No. 225;

Thence S 00(Degree) 31' 42" E along said Westerly right-of-way line a distance
of 167.09 feet, more or less, to the True point of Beginning.


                                 Exhibit A-15


                               LEGAL DESCRIPTION

                                    LAKEWOOD

                           3151 South Wadsworth Blvd
                  Lakewood (Jefferson County), Colorado 80227

                  LOT 1, BLOCK 1,
                  SCHNELL FARM SUBDIVISION,
                  FILING NO. 1
                  COUNTY OF JEFFERSON, STATE OF COLORADO.


                                 Exhibit A-16


                               LEGAL DESCRIPTION

                                   SHADOWLAKE

                               2835 Shadow Drive
                      Houston (Harris County), Texas 77072

A 5.3215 acre tract of land, more or less, out of the William Hardin Survey
Abstract No. 24, in Harris County, Texas, and being more particularly described
by metes and bounds as follows:

Description of a 5.3215 acre tract of land (231,804 square feet) being part of
a called 457.8748 acre tract of described under Harris County Clerks' File
No(s). N297727, situated in the William Hardin Survey Abstract No. 24, Harris
County, Texas, said 5.3215 acre tract of land being more particularly described
by metes and bounds as follows with bearings being referenced to the street
dedication plat of Shadowbriar and Oxford Park Drive as recorded under Film
Code No(s) 361107 of the Harris County Map Records;

COMMENCING at a 5/8" iron rod found in the south right-of-way line of
Westheimer Road (F.M. 1093, 120 feet wide) and at the northwest corner of
Unrestricted Reserve "B" of Westheimer Plaza as recorded in Volume 307, Page
147 of the Harris County Map Records, same being the Northeast corner of said
457.8748 acre tract and the herein described tract;

THENCE South 02 deg. 27 min. 22 sec. East, departing said south right-of-way
line of Westheimer Road and along the common west line of said Unrestricted
Reserve "B" Westheimer Plaza and the East line of said 457.8748 acre tract, a
distance of 250.00 feet to an 5/8" iron rod set at the northeast corner and
POINT OF BEGINNING of the herein described tract;

THENCE South 02 deg. 27 min. 22 sec. East, continuing along said common line, a
distance of 613.23 feet to a 5/8" iron rod found at the southwest corner of
said Unrestricted Reserve "B" tract and the southeast corner of the herein
described tract and in the north right-of-way line of Oxford Park Drive (60
feet wide);

THENCE South 87 deg. 32 min. 38 sec. West, departing said common line and along
the north right-of-way line of said Oxford Park Drive, a distance of 28.75 feet
to a 5/8" iron rod set for the beginning of a curve to the right;

THENCE Northwesterly, continuing along said north right-of-way line and the arc
of said curve to the right having a radius of 720.00 feet, a central angle of
19 deg. 51 min. 52 sec., a chord bearing North 82 deg. 31 min. 26 sec. West,
248.38 feet, a total arc distance of 249.62 feet to a 5/8" iron rod set at a
point of tangency;

THENCE North 72 deg. 35 min. 30 sec. West, continuing along said North
right-of-way line a distance of 140.63 feet to a 5/8" iron rod set for the
beginning of a curve to the right;


                                 Exhibit A-17


THENCE Northwesterly, departing said north right-of-way line and along the arc
of said curve to the right having a radius of 25.00 feet, a central angle of 86
deg. 04 min. 57 sec., a chord bearing North 29 deg. 33 min. 02 sec. West, 34.13
feet, a total arc distance of 37.56 feet to a 5/8" iron rod set at a point of
reverse curve to the left and in the easterly right-of-way line of Shadowbriar
Drive (60 feet wide at this point), said point being the most westerly
southwest corner of the herein described tract;

THENCE Northeasterly, along said Easterly right-of-way line of said Shadowbriar
Drive and the arc of said curve to the left having a radius of 780.00 feet, a
central angle of 16 deg. 08 min. 50 sec., a chord bearing North 05 deg. 25 min.
03 sec. East, 219.10 feet, a total arc distance of 219.82 feet to a 5/8" iron
rod set at a point of tangency;

THENCE North 02 deg. 39 min. 24 sec. West, continuing along said easterly
right-of-way line, a distance of 240.07 feet to a 5/8" iron rod set for the
beginning of a curve to the right;

THENCE Northwesterly, continuing along said Easterly right-of-way line of said
Shadowbriar Drive and the arc of said curve to the right having a radius of
429.36 feet, a central angle of 04 deg. 33 min. 25 sec., a chord bearing North
00 deg. 23 min. 01 sec. West, 34.14 feet, a total arc distance of 34.14 feet to
a 5/8" iron rod set for the Northwest corner of the herein described tract;

THENCE North 87 deg. 23 min. 44 sec. East, departing said easterly right-of-way
line, a distance of 390.80 feet to the POINT OF BEGINNING and containing 5.3215
acres of land. This description is based on a ground survey and plat prepared
by David J. Millard, Registered Professional Land Surveyor dated September 4,
1996.


                                 Exhibit A-18


                               LEGAL DESCRIPTION

                                  WILLOWBROOK

                             7450 Willowchase Blvd.
                      Houston (Harris County), Texas 77070

Being a 5.000 acre tract of land situated in the Lorenzo de Zavala Survey,
Abstract No. 950 and the George W. Childress Survey, Abstract No. 217, Harris
County, Texas and being part of an 8.368 acre tract of land as described under
Harris County Clerk's File (H.C.C.F.) No. R901214 and being more particularly
described by metes and bounds as follows:

BEGINNING at a found 1" galvanized iron pipe in the north right-of-way line
terminus point of Willowchase Boulevard (R.O.W. Varies), as recorded in 325,
Page 101, Harris County Map Records Volume and the west right-of-way line of
the Fort Worth & Denver Railroad and Chicago Rock Island & Pacific Railroad
(100' width), for a corner of the herein described tract;

Thence with the north right-of-way line of Willowchase Boulevard (R.O.W.
Varies) and the south line of said 8.368 acre tract of land the following
courses and distances:

S 55(Degree) 36' 24" W a distance of 53.41 feet to a found 1" galvanized iron
pipe for a point of curvature in a curve to the left;

Southwesterly 208.43 feet along the arc of said curve to the left having a
radius of 1030.00 feet, a central angle of 11(Degree) 35' 39" and a chord which
bears S 49(Degree) 48' 35" W, a distance of 208.07 feet to a found 5/8" iron
rod;

S 44(Degree) 00' 45" W, a distance of 77.71 feet to a found 5/8" iron rod for a
point of curvature in a curve to the right;

Southwesterly 146.05 feet along the arc of the curve to the right having a
radius of 950.00 feet, a central angle of 08(Degree) 48' 31" and a chord which
bears S 48(Degree) 25' 01" W, a distance of 145.91 feet to a 5/8" iron rod set
for a southwesterly corner of the herein described tract. Said point bears N
59(Degree) 00' 45" E, a distance of 186.78 feet and northeasterly 102.66 feet
along the arc of a curve to the left from a found "X" in concrete.

Thence N 30(Degree) 59' 15" W, a distance of 494.46 feet to a 5/8" iron rod set
in the north line of the 8.368 acre tract and in the south line of a 15.1261
acre tract of land described as "Parcel K" and recorded under Harris County
Clerk's File No. R901214.

Thence N 59(Degree) 00' 45" E, a distance of 496.70 feet with the north line of
said 8.368 acre tract and the south line of said 15.1261 acre tract of land, to
a found 1" galvanized iron pipe in the west right-of-way line of the said Fort
Worth & Denver Railroad and Chicago Rock Island & Pacific Railroad (100'
R.O.W.) and at the southeast corner of the said 15.1261 acre tract;


                                 Exhibit A-19


Thence S 27(Degree) 59' 32" E, a distance of 411.63 feet along the west
right-of-way line of said Railroad and the east line of said 8.368 acre tract
of land to the POINT OF BEGINNING and containing 5.000 acres of land.


                                 Exhibit A-20


                                   EXHIBIT C

                              PERMITTED EXCEPTIONS



- -----------------------------------------------------------------------------------------------------------------------------------
           FACILITY                                                PERMITTED EXCEPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
                          
1.       Spring Shadow          1.    The standard printed exceptions, conditions and exclusions from coverage contained in
                                      the standard coverage owner's title policy then prevailing in use at the title company
                                      which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exceptions 1, 2 (modified to read "Any shortages in area."), 3-6, 11, 12, 14 (with
                                      reference to "east" deleted) and 15-19, and any exceptions created pursuant to the grant
                                      deed from Metro National Corporation to American Retirement Corporation, a Tennessee
                                      corporation, on Schedule B of the Title Commitment issued by Commonwealth Land Title
                                      Insurance Company dated June 16, 1997 under Order Number 9701254885.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
2.       Lakeway
                                1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. Exception Nos. 1 through 4, 5 (modified to add the phrase ", none
                                      of which are due or payable" after the words "usage or ownership"), 6, 10 through
                                      16, and 18 on Schedule B of the title commitment issued by Lawyers Title Insurance
                                      Corporation dated June 4, 1998 under Case Number 98 CO 186651-T.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
3.       Trinity Towers         1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 1, 2 (modified to state "Any discrepancies in area."), 3, 4, 5
                                      (with the year "1996" replaced by "1997"), 9 through 11, 12, 14, 16 through 25 on
                                      the preliminary title report issued by Fidelity National Title Insurance Company
                                      dated November 11, 1996 under Order Number 96-001054.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
4.       Naples                 1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 3, 4 and 7-16 on Schedule B, Section 2 of the title commitment
                                      issued by Lawyers Title Insurance Corporation dated June 10, 1998 under Case
                                      Number 9804209, Customer Number LOS 23690.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------



                                            Exhibit C-1




- -----------------------------------------------------------------------------------------------------------------------------------
           FACILITY                                                PERMITTED EXCEPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
                          
5.       Bay Pines              1.    The standard printed exceptions, conditions and exclusions from coverage contained
         (Carriage Inn)               in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Any matters shown as title exceptions in that certain ALTA Owner's Policy of Title
                                      Insurance (Form B-1970, Rev. 10-17-70 and 10-17-84) issued by Chicago Title
                                      Insurance Company in favor of Landlord in connection with Landlord's acquisition
                                      of the Premises.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
6.       Pearland               1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 1, 2 (modified to read "Any shortages in area."), 3, 4, 5 (modified
                                      to read "Standby fees, taxes and assessments by any taxing authority for the year
                                      1997, . . . , none of which are due and payable."), 9a, 9b and 9d on Schedule B of
                                      the Title Commitment issued by Fidelity National Title Insurance Company dated May
                                      2, 1997 under Order Number 97900375.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
7.       Pinegate               1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 1, 2 (modified to read "1997" and "Any shortages in area."), 3, 4,
                                      5 (modified to read "Standby fees, taxes and assessments by any taxing authority
                                      for the year 1997, . . . , none of which are due and payable."), 9a, 9b, 9c, 9d
                                      (modified to reference a 13-foot rather than a 15-foot easement) and 9e (modified
                                      to delete the following phrase: ", the royalties, bonuses, rentals and all other
                                      rights in connection with same are excepted herefrom") on Schedule B of the Title
                                      Commitment issued by Fidelity National Title Insurance Company dated May 2, 1997
                                      under Order Number 97900376.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
8.       Aurora                 1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 7 through 14 on Schedule B of the Proforma Policy of Title
                                      Insurance issued by Lawyers Title Insurance Corporation dated April 10, 1998 under
                                      Case ID: LC48138.

                                4.    Such other matters burdening the Premises which were created with the consent or
                                      knowledge of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------



                                            Exhibit C-2




- -----------------------------------------------------------------------------------------------------------------------------------
           FACILITY                                                PERMITTED EXCEPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
                          
9.       Lakewood               1.    The standard printed exceptions, conditions and exclusions from coverage contained
                                      in the standard coverage owner's title policy then prevailing in use at the title
                                      company which consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 6 through 14 on Schedule B-2 of the Title Commitment issued by lawyers Title
                                      Insurance Corporation dated June 17, 1998 under Commitment No: LC48140.

                                4.    Such other matters burdening the Premises which were created with the consent or knowledge
                                      of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
10.      Shadowlake             1.    The standard printed exceptions, conditions and exclusions from coverage contained in the
                                      standard coverage owner's title policy then prevailing in use at the title company which
                                      consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exception Nos. 1 (modified to read "Clerk's File No. R232312, as amended and restated in its
                                      entirety under R301643), 2 (modified to read "1997" and "Any shortages in area."), 3, 4, 5
                                      (modified to read "Standby fees, taxes and assessments by any taxing authority for the year
                                      1997, . . . , none of which are due and payable."), 9a (modified to read "A Harris County
                                      Flood Control District easement, as described in Volume 576, Page 178 of the Deed Records of
                                      Harris County, Texas, as amended by that certain Agreement and the plat recorded under Harris
                                      County Clerk's File No(s). S140288."), 9c, 9d, 9e and 9h (modified to read "...Clerk's File
                                      No. R232312, as amended and restated under Clerk's File No. 301643." and "...all valid first
                                      liens..."), on Schedule B of the Title Commitment issued by Fidelity National Title Insurance
                                      Company dated May 12, 1997 under Order Number 97900410.


                                4.    Such other matters burdening the Premises which were created with the consent or knowledge
                                      of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------
11.      Willowbrook            1.    The standard printed exceptions, conditions and exclusions from coverage contained in the
                                      standard coverage owner's title policy then prevailing in use at the title company which
                                      consummates the sale transaction.

                                2.    Any matters which an accurate survey of the Premises may show.

                                3.    Exceptions 1, 2 (modified to read "Any shortages in area."), 3-6, and 11-24, and any
                                      exceptions created pursuant to the grant deed from Metro National Corporation to American
                                      Retirement Corporation, a Tennessee corporation, on Schedule B of the Title Commitment
                                      issued by Commonwealth Land Title Insurance Company dated June 17, 1997 under Order
                                      Number 9701254889.

                                4.    Such other matters burdening the Premises which were created with the consent or knowledge
                                      of Tenant or arising out of Tenant's acts or omissions.
- -----------------------------------------------------------------------------------------------------------------------------------

EX-10.5

                                                                    EXHIBIT 10.5


                                                               [Cleveland, Ohio]
                                                               [Delray, Florida]
                                                         [Jacksonville, Florida]
                                                                [Houston, Texas]
                                                            [San Antonio, Texas]
                                                               [Victoria, Texas]





================================================================================









                            M A S T E R   L E A S E

                                    between

                   HEALTH CARE PROPERTY INVESTORS, INC., and
                            TEXAS HCP HOLDING, L.P.

             collectively, as their interests may appear, as Lessor

                                      AND

                               ARC SHAVANO, L.P.,
                           ARC RICHMOND HEIGHTS, LLC,
                             ARC DELRAY BEACH, LLC,
                               ARC VICTORIA, L.P.,
                  ARC CARRIAGE CLUB OF JACKSONVILLE, INC., and
                               ARC POST OAK, L.P.,

                collectively and jointly and severally, as Lessee


                           Dated as of March 29, 2002








================================================================================





                                TABLE OF CONTENTS

                                                                                                      
ARTICLE I ..........................................................................................      1
    1.1 Leased Property; Term ......................................................................      1


ARTICLE II .........................................................................................      2
    2.1 Definitions ................................................................................      2


ARTICLE III ........................................................................................     17
    3.1 Rent .......................................................................................     17

    3.2 Quarterly Calculation and Payment of Victoria Additional Rent; Annual Reconciliation .......     18

    3.3 Confirmation of Victoria Additional Rent ...................................................     19

    3.4 Additional Charges .........................................................................     20

    3.5 Late Payment of Rent .......................................................................     20

    3.6 Net Lease ..................................................................................     21

    3.7 Separate Account ...........................................................................     21


ARTICLE IV .........................................................................................     21
    4.1 Impositions ................................................................................     21

    4.2 Utility Charges ............................................................................     22

    4.3 Insurance Premiums .........................................................................     23

    4.4 Impound Account ............................................................................     23

    4.5 Tax Service ................................................................................     23


ARTICLE V ..........................................................................................     23
    5.1 No Termination, Abatement, etc .............................................................     23

    5.2 Termination with Respect to Fewer than All of the Facilities ...............................     24


ARTICLE VI .........................................................................................     24
    6.1 Ownership of the Leased Property ...........................................................     24

    6.2 Personal Property ..........................................................................     24

    6.3 Transfer of Personal Property and Capital Additions to Lessor ..............................     25


ARTICLE VII ........................................................................................     25
    7.1 Condition of the Leased Property ...........................................................     25

    7.2 Use of the Leased Property .................................................................     25

    7.3 Lessor to Grant Easements, etc .............................................................     26

    7.4 Preservation of Facility Value .............................................................     27


ARTICLE VIII .......................................................................................     28
    8.1 Compliance with Legal and Insurance Requirements, Instruments, etc .........................     28


ARTICLE IX .........................................................................................     28
    9.1 Maintenance and Repair .....................................................................     28

    9.2 Encroachments, Restrictions, Mineral Leases, etc ...........................................     29


ARTICLE X ..........................................................................................     30
   10.1 Construction of Capital Additions and Other Alterations to the Leased Property .............     30

   10.2 Construction Requirements for all Alterations ..............................................     31





                                       i



                                                                                                      
ARTICLE XI .........................................................................................     32
   11.1 Liens ......................................................................................     32


ARTICLE XII ........................................................................................     32
   12.1 Permitted Contests .........................................................................     32


ARTICLE XIII .......................................................................................     33
   13.1 General Insurance Requirements .............................................................     33

   13.2 Replacement Cost ...........................................................................     34

   13.3 Additional Insurance .......................................................................     34

   13.4 Waiver of Subrogation ......................................................................     34

   13.5 Policy Requirements ........................................................................     35

   13.6 Increase in Limits .........................................................................     35

   13.7 Blanket Policies and Policies Covering Multiple Locations ..................................     35

   13.8 No Separate Insurance ......................................................................     35


ARTICLE XIV ........................................................................................     36
   14.1 Insurance Proceeds .........................................................................     36

   14.2 Insured Casualty ...........................................................................     36

   14.3 Uninsured Casualty .........................................................................     37

   14.4 No Abatement of Rent .......................................................................     38

   14.5 Waiver .....................................................................................     38


ARTICLE XV .........................................................................................     38
   15.1 Condemnation ...............................................................................     38


ARTICLE XVI ........................................................................................     39
   16.1 Events of Default ..........................................................................     39

   16.2 Certain Remedies ...........................................................................     42

   16.3 Damages ....................................................................................     42

   16.4 Receiver ...................................................................................     43

   16.5 Lessee's Obligation to Purchase ............................................................     44

   16.6 Waiver .....................................................................................     44

   16.7 Application of Funds .......................................................................     44

   16.8 Facility Operating Deficiencies ............................................................     44

   16.9 [Intentionally Omitted] ....................................................................     45

   16.10 Lessor's Security Interest ................................................................     45


ARTICLE XVII .......................................................................................     46
   17.1 Lessor's Right to Cure Lessee's Default ....................................................     46


ARTICLE XVIII ......................................................................................     47
   18.1 Purchase of the Leased Property ............................................................     47


ARTICLE XIX ........................................................................................     47
   19.1 Renewal Terms ..............................................................................     47

   19.2 Lessor's Rights of Renewal and Early Termination ...........................................     47


ARTICLE XX .........................................................................................     48
   20.1 Holding Over ...............................................................................     48




                                       ii



                                                                                                      
ARTICLE XXI ........................................................................................     48
   21.1 Letters of Credit ..........................................................................     48

   21.2 Times for Obtaining Letters of Credit ......................................................     49

   21.3 Uses of Letters of Credit ..................................................................     49

   21.4 Reduction in Letter of Credit Amount .......................................................     50

   21.5 Treatment of Funds Drawn Under Letters of Credit ...........................................     50


ARTICLE XXII .......................................................................................     50
   22.1 Risk of Loss ...............................................................................     50


ARTICLE XXIII ......................................................................................     51
   23.1 General Indemnification ....................................................................     51


ARTICLE XXIV .......................................................................................     51
   24.1 Transfers ..................................................................................     51


ARTICLE XXV ........................................................................................     56
   25.1 Officer's Certificates and Financial Statements ............................................     56


ARTICLE XXVI .......................................................................................     58
   26.1 Lessor's Right to Inspect and Show the Leased Property and Capital Additions ...............     58


ARTICLE XXVII ......................................................................................     58
   27.1 No Waiver ..................................................................................     58


ARTICLE XXVIII .....................................................................................     58
   28.1 Remedies Cumulative ........................................................................     58


ARTICLE XXIX .......................................................................................     58
   29.1 Acceptance of Surrender ....................................................................     58


ARTICLE XXX ........................................................................................     58
   30.1 No Merger ..................................................................................     58


ARTICLE XXXI .......................................................................................     59
   31.1 Conveyance by Lessor .......................................................................     59

   31.2 New Lease ..................................................................................     59


ARTICLE XXXII ......................................................................................     60
   32.1 Quiet Enjoyment ............................................................................     60


ARTICLE XXXIII .....................................................................................     61
   33.1 Notices ....................................................................................     61


ARTICLE XXXIV ......................................................................................     62
   34.1 Appraiser ..................................................................................     62


ARTICLE XXXV .......................................................................................     63
   35.1 Lessee's Option to Purchase the Post Oak Facility ..........................................     63

   35.2 Defaults ...................................................................................     64

   35.3 Escrow Provisions ..........................................................................     65

   35.4 Lessor's Election of 1031 Exchange .........................................................     66




                                       iii



                                                                                                      
ARTICLE XXXVI ......................................................................................     66
   36.1 Lessor May Grant Liens .....................................................................     66

   36.2 Attornment .................................................................................     67


ARTICLE XXXVII .....................................................................................     67
   37.1 Hazardous Substances .......................................................................     67

   37.2 Notices ....................................................................................     67

   37.3 Remediation ................................................................................     68

   37.4 Indemnity ..................................................................................     68

   37.5 Environmental Inspection ...................................................................     69


ARTICLE XXXVIII ....................................................................................     69
   38.1 Memorandum of Lease ........................................................................     69


ARTICLE XXXIX ......................................................................................     69
   39.1 Sale of Assets .............................................................................     69


ARTICLE XL .........................................................................................     70
   40.1 [Intentionally Omitted] ....................................................................     70

ARTICLE XLI ........................................................................................     70
   41.1 Authority ..................................................................................     70


ARTICLE XLII .......................................................................................     70
   42.1 Attorneys' Fees ............................................................................     70


ARTICLE XLIII ......................................................................................     71
   43.1 Brokers ....................................................................................     71


ARTICLE XLIV .......................................................................................     71
   44.1 Submission to Arbitration ..................................................................     71


ARTICLE XLV ........................................................................................     72
   45.1 Miscellaneous ..............................................................................     72


ARTICLE XLVI .......................................................................................     77
   46.1 Provisions Relating to Master Lease ........................................................     77

   46.2 Provisions Relating to Tax Treatment of Lease ..............................................     77


ARTICLE XLVII ......................................................................................     77
   47.1 Replacement Lease and Termination of Old Victoria Lease ....................................     77


ARTICLE XLVIII .....................................................................................     78
   48.1 Covenants with Respect to Operations and Fundamental Changes of Lessee .....................     78





                                       iv






Exhibit A-1       Legal Description of the Cleveland Facility
Exhibit A-2       Legal Description of the Delray Facility
Exhibit A-3       Legal Description of the Houston Facility
Exhibit A-4       Legal Description of the Jacksonville Facility
Exhibit A-5       Legal Description of the San Antonio Facility
Exhibit A-6       Legal Description of the Victoria Facility
Exhibit B         List of Facilities, Facility Description and Primary Intended
                  Use, Initial Monthly Allocated Minimum Rent, and Allocated
                  Initial Investment
Exhibit C-1       List of Lessor's Personal Property for Cleveland Facility
Exhibit C-2       List of Lessor's Personal Property for Delray Facility
Exhibit C-3       List of Lessor's Personal Property for Houston Facility
Exhibit C-4       List of Lessor's Personal Property for Jacksonville Facility
Exhibit C-5       List of Lessor's Personal Property for San Antonio Facility
Exhibit C-6       List of Lessor's Personal Property for Victoria Facility
Exhibit D         Form of Letter of Credit
Exhibit E         Schedule of Insurance Deductible Limits
Exhibit F         List of Existing Facilities Within Ten Mile Radius
Exhibit G         List of Commercial Occupancy Arrangements


                                       v


                                                                    Exhibit 10.5


                                  MASTER LEASE

                  THIS MASTER LEASE ("Lease") is dated as of March 29, 2002, and
is between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation and
TEXAS HCP HOLDING, L.P., a Delaware limited partnership (collectively, as their
interests may appear, "Lessor"), on the one hand, and ARC RICHMOND HEIGHTS, LLC,
a Tennessee limited liability company, ARC SHAVANO, L.P., a Tennessee limited
partnership, ARC DELRAY BEACH, LLC, a Tennessee limited liability company, ARC
VICTORIA , L.P., a Tennessee limited partnership, ARC CARRIAGE CLUB OF
JACKSONVILLE, INC., a Tennessee corporation, and ARC POST OAK, L.P., a Tennessee
limited partnership (collectively and jointly and severally, "Lessee"), on the
other hand.

                                   ARTICLE I.

                  1.1      Leased Property; Term.


                           Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and Lessee leases from Lessor all
of
Lessor's rights and interests in and to the following (collectively the "Leased
Property"):

                           (a)      the real property or properties described in
Exhibit A attached hereto (collectively, the "Land");


                           (b)      all buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind now or hereafter
located on the Land, including alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site to the extent Lessor has
obtained any interest in the same), parking areas and roadways appurtenant to
such buildings and structures and Capital Additions funded by Lessor
(collectively, the "Leased Improvements");

                           (c)      all easements, rights and appurtenances
relating to the Land and the Leased Improvements (collectively, the "Related
Rights");

                           (d)      all equipment, machinery, fixtures, and
other items of real and/or personal property, including all components thereof,
now and hereafter located in, on or used in connection with and permanently
affixed to or incorporated into the Leased Improvements, including all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems, apparatus, sprinkler
systems, fire and theft protection equipment, and built-in oxygen and vacuum
systems (if any), all of which, to the greatest extent permitted by law, are
hereby deemed to constitute real estate, together with all replacements,
modifications, alterations and additions thereto (collectively, the "Fixtures");

                           (e)      the machinery, equipment, furniture and
other personal property described on Exhibit C attached hereto, together with
all replacements, modifications, alterations and substitutes therefor (whether
or not constituting an upgrade) (collectively, "Lessor's Personal Property");
and




                           (f)      all other property and interests in property
conveyed or assigned to Lessor pursuant to the Contract of Acquisition (as
hereinafter defined).

                  SUBJECT, HOWEVER, to the easements, encumbrances, covenants,
conditions and restrictions and other matters which affect the Leased Property
as of the date hereof or the Commencement Date or which are created thereafter
as permitted hereunder to have and to hold for (1) the Fixed Term (as defined
below), and (2) the Extended Terms provided for in Article XIX unless this Lease
is earlier terminated as hereinafter provided. Upon any change in the Minimum
Rent in accordance with the provisions of Section 3.1 below or otherwise
pursuant to this Lease, Landlord may prepare and request, and Tenant shall
execute an amendment to this Lease confirming such matters.

                                  ARTICLE II.

                  2.1      Definitions. For all purposes of this Lease, except
as otherwise expressly provided or unless the context otherwise requires, (i)
the terms defined in this Article have the meanings assigned to them in this
Article and include the plural as well as the singular; (ii) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP as at the time applicable; (iii) all references in this
Lease to designated "Articles," "Sections" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this Lease; (iv) the
word "including" shall have the same meaning as the phrase "including, without
limitation," and other similar phrases; and (v) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Article, Section or other subdivision:

                  1031 Exchange:  As defined in Section 35.4.

                  Accommodator:  As defined in Section 35.4.

                  Additional Charges:  As defined in Article III.

                  Affiliate: Any Person which, directly or indirectly (including
through one or more intermediaries), controls or is controlled by or is under
common control with any other Person, including any Subsidiary of a Person. For
purposes of this definition, the definition of "Controlling Person" below, and
Article XXIV below, the term "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly (including
through one or more intermediaries), of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
or control of voting securities, partnership interests or other equity interests
or otherwise. Without limiting the generality of the foregoing, when used with
respect to any corporation, the term "Affiliate" shall also include (i) any
Person which owns, directly or indirectly (including through one or more
intermediaries), Fifty Percent (50%) or more of any class of voting security or
equity interests of such corporation, (ii) any Subsidiary of such corporation
and (iii) any Subsidiary of a Person described in clause (i). Notwithstanding
the foregoing, ARC shall not be deemed to have "control" of another non-publicly
traded Person, unless ARC possesses, directly or indirectly (including through
one or more intermediaries), (1) at least thirty percent (30%) of the ownership
or control of voting

                                       2




securities, partnership interests or other equity interests or otherwise of such
Person, and (2) the power to direct or cause the direction of the management and
policies of such Person; provided, however, that ARC shall at all times be
deemed to "control" (w) any limited partnership in which ARC or any other
Affiliate of ARC is the general partner, (x) any limited liability company in
which ARC or any other Affiliate of ARC is the managing member or has the
ability to elect or appoint a majority the board of managers, (y) any business
trust for which ARC or any other Affiliate of ARC is the trustee, and (z) any
corporation in which ARC or any other Affiliate of ARC has the ability to elect
or appoint a majority of the board of directors, in each case regardless of the
percentage of ownership of such entity.

                  Allocated Initial Investment: With respect to each Facility,
as set forth on Exhibit B.


                  Allocated Minimum Rent: The amount of Minimum Rent allocated
to such Facility as determined by Section 3.1.1 and Exhibit B attached hereto,
as increased, from time to time, pursuant to Section 3.1.2 and 3.1.3.

                  Appraiser:  As defined in Article XXXIV.

                  ARC: American Retirement Corporation, a Tennessee corporation,
and its permitted successors.


                  ARCPI:  ARCPI Holdings, Inc., a Tenneesee corporation.

                  Award: All compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation.

                  Bankruptcy Code: The United Stated Bankruptcy Code (11
U.S.C. ss. 101 et seq.), and any successor statute or legislation thereto.

                  Base Gross Revenues: For the Fixed Term of the Victoria
Facility, Eight Hundred Thirty Seven Thousand Four Hundred Seventy Two Dollars
($837,472.00). For each Extended Term of the Victoria Facility, if any, the
Gross Revenues for the first Lease Year of such Extended Term. Base Gross
Revenues for any partial Lease Year shall be determined by multiplying the
applicable Base Gross Revenues for a full Lease Year by a fraction, the
numerator of which is the number of days in the partial Lease Year and the
denominator of which is 365.

                  Base Period: The period commencing on that date which is
fifteen (15) months prior to the date any appraisal of any Facility is made
pursuant to the provisions of Article XXXIV and ending on the date which is
three (3) months prior to the date any such appraisal of such Facility is made.

                  BLS:  Bureau of Labor Statistics, U.S. Department of Labor.

                  Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.


                                       3



                  Capital Additions: With respect to any Facility, one or more
new buildings, or one or more additional structures annexed to any portion of
any of the Leased Improvements of such Facility, or the material expansion of
existing improvements, which are constructed on any parcel or portion of the
Land of such Facility during the Term including the construction of a new wing
or new story, or the repair, replacement, restoration, remodeling or rebuilding
of the existing Leased Improvements of such Facility or any portion thereof
where the purpose and effect of such work is to provide a functionally new
facility in order to provide services not previously offered in such Facility.

                  Capital Addition Costs: The costs of any Capital Addition made
to the Leased Property whether paid for by Lessee or Lessor, including (i) all
permit fees and other costs imposed by any governmental authority, the cost of
site preparation, the cost of construction including materials and labor, the
cost of supervision and related design, engineering and architectural services,
the cost of any fixtures, and if and to the extent approved by Lessor, the cost
of construction financing; (ii) fees paid to obtain necessary licenses and
certificates; (iii) if and to the extent approved by Lessor in writing and in
advance, the cost of any land contiguous to the Leased Property which is to
become a part of the Leased Property purchased for the purpose of placing
thereon the Capital Addition or any portion thereof or for providing means of
access thereto, or parking facilities therefor, including the cost of surveying
the same; (iv) the cost of insurance, real estate taxes, water and sewage
charges and other carrying charges for such Capital Addition during
construction; (v) the cost of title insurance; (vi) reasonable fees and expenses
of legal counsel; (vii) filing, registration and recording taxes and fees;
(viii) documentary stamp and similar taxes; and (ix) all reasonable costs and
expenses of Lessor and any Person which has committed to finance the Capital
Addition, including (a) the reasonable fees and expenses of their respective
legal counsel; (b) printing expenses; (c) filing, registration and recording
taxes and fees; (d) documentary stamp and similar taxes; (e) title insurance
charges and appraisal fees; (f) rating agency fees; and (g) commitment fees
charged by any Person advancing or offering to advance any portion of the
financing for such Capital Addition.

                  Cash Flow: With respect to each Facility, the net income from
such Facility, determined on the basis of GAAP applied on a consistent basis,
plus the sum of (i) interest, taxes, depreciation and amortization expense; and
(ii) the Allocated Minimum Rent for such Facility and, with respect to the
Victoria Facility, if applicable, the Victoria Additional Rent; less a
management fee allowance of Five Percent (5%) of Gross Revenues for such
Facility during the corresponding period.

                  Cash Flow Coverage: With respect to each Facility, for any
period, calculated as of the last day of the period, the ratio of Cash Flow for
such Facility attributable to such period to the total Allocated Minimum Rent
with respect to such Facility and, with respect to the Victoria Facility, if
applicable, the Victoria Additional Rent, payable for such period under this
Lease.

                  Close of Escrow:  As defined in Article XXXV.

                  Closing Date:  As defined in the Contract of Acquisition.

                  Code:  The Internal Revenue Code of 1986, as amended.


                                       4



                  Collateral:  As defined in Section 16.10.1.

                  Commencement Date:  The Closing Date.

                  Commercial Occupancy Arrangement: Any commercial (as opposed
to resident or patient) Occupancy Arrangement.

                  Condemnation: The exercise of any governmental power, whether
by legal proceedings or otherwise, by a Condemnor or a voluntary sale or
transfer by Lessor to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.

                  Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.

                  Consolidated Financials: For any fiscal year or other
accounting period for any Person and its consolidated Subsidiaries, statements
of earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as of the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year, and prepared in accordance with GAAP.

                  Consolidated Net Worth: At any time, the sum of the following
for any Person and its consolidated Subsidiaries, on a consolidated basis
determined in accordance with GAAP:

                           (i)      the amount of capital or stated capital
         (after deducting the cost of any shares, if applicable, held in its
         treasury), plus

                           (ii)     the amount of capital surplus and retained
         earnings (or, in the case of a capital surplus or retained earnings
         deficit, minus the amount of such deficit), minus

                           (iii)    the sum of the following (without
         duplication of deductions in respect of items already deducted in
         arriving at surplus and retained earnings): (a) unamortized debt
         discount and expense; and (b) any write-up in book value of assets
         resulting from a revaluation thereof subsequent to the most recent
         Consolidated Financials prior to the date hereof, excluding, however,
         any (i) net write-up in value of foreign currency in accordance with
         GAAP, (ii) write-up resulting from a reversal of a reserve for bad
         debts or depreciation, and (iii) write-up resulting from a change in
         methods of accounting for inventory.

                  Contract of Acquisition: That certain Contract of Acquisition
of even date herewith by and between Lessor, on the one hand, and Lessee and
ARC, on the other hand, relative to the acquisition by Lessor of the Leased
Property of each Facility.

                  Controlling Person: Any (i) Person(s) which, directly or
indirectly (including through one or more intermediaries), controls Lessee and
would be deemed an Affiliate of


                                       5



Lessee, including any partners, shareholders, principals, members, trustees
and/or beneficiaries of any such Person(s) to the extent the same control Lessee
and would be deemed an Affiliate of Lessee, and (ii) Person(s) which controls,
directly or indirectly (including through one or more intermediaries), any other
Controlling Person(s) and which would be deemed an Affiliate of any such
Controlling Person(s).

                  Cost of Living Index: The Consumer Price Index for All Urban
Consumers, U.S. City Average (1982-1984 = 100), published by the BLS, or such
other renamed index. If the BLS changes the publication frequency of the Cost of
Living Index so that a Cost of Living Index is not available to make a
cost-of-living adjustment as specified herein, the cost-of-living adjustment
shall be based on the percentage difference between the Cost of Living Index for
the closest preceding month for which a Cost of Living Index is available and
the Cost of Living Index for the comparison month as required by this Lease. If
the BLS changes the base reference period for the Cost of Living Index from
1982-84 = 100, the cost-of-living adjustment shall be determined with the use of
such conversion formula or table as may be published by the BLS. If the BLS
otherwise substantially revises, or ceases publication of the Cost of Living
Index, then a substitute index for determining cost-of-living adjustments,
issued by the BLS or by a reliable governmental or other nonpartisan
publication, shall be reasonably selected by Lessor.

                  CPI Increase: The percentage increase (rounded to the nearest
basis point), if any, in (i) the Cost of Living Index published for the month
which is two (2) months prior to the commencement of the applicable Lease Year,
over (ii) the Cost of Living Index published for the month which is two (2)
months prior to the commencement of the immediately prior Lease Year.

                  Date of Taking: The date the Condemnor has the right to
possession of the property being condemned.

                  Earn-Out Amounts:  As defined in the Contract of Acquisition.

                  Earn-Out Facilities: As defined in the Contract of
Acquisition.

                  Earn-Out Payment Date: The date of payment by Lessor to Lessee
or ARC of an Earn-Out Amount for any Earn-Out Facility in accordance with the
terms of the Contract of Acquisition.

                  Earn-Out Rate: For each Earn-Out Facility, the "Earn-Out Rate"
shall mean, (i) for the first Earn-Out Payment Date (regardless of whether such
first Earn-Out Payment Date relates to an Earn-Out Period ending on June 30,
2003, December 31, 2003, June 30, 2004, or December 31, 2004), Eleven and One
Quarter Percent (11.25%), and (ii) for each subsequent Earn-Out Payment Date, if
any, (A) the Earn-Out Rate in effect for the immediately prior Earn-Out Payment
Date, if the same occurs in the same Lease Year as such immediately prior
Earn-Out Payment Date, or (B) the Earn-Out Rate in effect for the immediately
prior Earn-Out Payment Date, as increased by the greater of (i) Two Percent (2%)
of the Earn-Out Rate in effect for such prior Earn-out Payment Date, or (ii) the
CPI Increase times the Earn-Out Rate in effect for such prior Earn-Out Payment
Date (by way of example only, if the CPI Increase equals three percent (3%) and
the Earn-Out Rate for such prior Earn-Out Payment Date equals 11.25%, then the
new Earn-Out Rate would be 11.59%), if the same occurs in a different Lease Year
from the


                                       6



Lease Year in which the immediately prior Earn-Out Payment Date occurred;
provided, however, that in no event shall such increase be more than Four
Percent (4%) of the Earn-Out Rate in effect for the immediately prior Earn-Out
Payment Date, notwithstanding the actual CPI Increase.

                  Encumbrance:  As defined in Section 36.1.

                  Environmental Costs:  As defined in Article XXXVII.

                  Environmental Laws: Environmental Laws shall mean any and all
federal, state, municipal and local laws, statutes, ordinances, rules,
regulations, guidances, policies, orders, decrees, judgments, whether statutory
or common law, as amended from time to time, now or hereafter in effect, or
promulgated, pertaining to the environment, public health and safety and
industrial hygiene, including the use, generation, manufacture, production,
storage, release, discharge, disposal, handling, treatment, removal,
decontamination, clean-up, transportation or regulation of any Hazardous
Substance, including the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Comprehensive Environmental Response Compensation
and Liability Act, the Resource Conservation and Recovery Act, the Federal
Insecticide, Fungicide, and Rodenticide Act, the Safe Drinking Water Act and the
Occupational Safety and Health Act.

                  Escrow:  As defined in Article XXXV.

                  Escrow Holder:  As defined in Article XXXV.

                  Event of Default:  As defined in Article XVI.

                  Extended Term(s):  As defined in Article XIX.

                  Facility: Each facility being (and to be) operated or proposed
to be operated on the Leased Property, together with any Capital Additions, as
described on Exhibit B attached hereto and incorporated herein by this reference
(collectively, the "Facilities"). Each Facility is also individually referred to
herein by the name set forth on Exhibit B attached hereto and incorporated
herein by this reference.

                  Facility Mortgage:  As defined in Article XIII.

                  Facility Mortgagee:  As defined in Article XIII.

                  Facility Operating Deficiency: With respect to any Facility,
(i) a deficiency in the conduct of the operation of such Facility which results
in the imposition of a stop placement order or a notice of the proposed
decertification of such Facility from participation in Medicare, Medicaid or
other governmental reimbursement programs or of the non-renewal or termination
of such Facility's Medicare, Medicaid or other governmental reimbursement
provider agreement, or (ii) receipt of any notice from any governmental agency
terminating or suspending or reflecting a material risk of imminent termination
or suspension, of any material license or certification relating to any
Facility.


                                       7



                  Fair Market Rental: With respect to each Facility, the fair
market rental value of the Leased Property and all Capital Additions of such
Facility, or applicable portion(s) thereof, (including any appropriate periodic
escalations therein) determined in accordance with the appraisal procedures set
forth in Article XXXIV, assuming the same is exposed on the open market at the
time of the appraisal and taking into account, among other relevant factors, the
income generated from the Leased Property and all Capital Additions of such
Facility, or applicable portion(s) thereof, but specifically excluding brokerage
commissions and other Lessor payments that do not directly inure to the benefit
of lessees.

                  Fair Market Value: With respect to each Facility, the fair
market value of the Leased Property and all Capital Additions of such Facility,
or applicable portion(s) thereof, determined in accordance with the appraisal
procedures set forth in Article XXXIV and this definition. Fair Market Value
shall be obtained by assuming that the Leased Property and all Capital Additions
of such Facility, or applicable portion(s) thereof, is unencumbered by this
Lease. Fair Market Value shall also be the higher value obtained by valuing the
Leased Property and all Capital Additions of such Facility, or applicable
portion(s) thereof, for their highest and best use or as a fully-permitted
Facility operated in accordance with the provisions of this Lease. In addition,
the following specific matters shall be factored in or out, as appropriate, in
determining Fair Market Value:

                           (i)      The negative value of (a) any deferred
         maintenance or other items of repair or replacement of the Leased
         Property or any Capital Additions of such Facility, (b) any then
         current or prior licensure or certification violations and/or
         admissions holds and (c) any other breach or failure of Lessee to
         perform or observe its obligations hereunder shall not be taken into
         account; rather, the Leased Property and all Capital Additions of such
         Facility shall be deemed to be in the condition required by this Lease
         (i.e., reasonably good order and repair) and Lessee shall at all times
         be deemed to have operated the Facility in compliance with and to have
         performed all obligations of the Lessee under this Lease.

                           (ii)     The occupancy level of the applicable
         Facility shall be deemed to be the greatest of (a) the occupancy level
         as of the date any appraisal of such Facility is performed in
         accordance with the provisions of Article XXXIV, (b) the average
         occupancy level during the Base Period, or (c) the average occupancy
         level for facilities similar to such Facility in the same general
         geographic area as of the date any appraisal of such Facility is
         performed in accordance with the provisions of Article XXXIV.

                           (iii)    If the applicable Facility's Primary
         Intended Use includes a mixed use, then whichever of the following
         produces the highest positive value shall be taken into account: (a)
         the resident mix, patient mix, case mix, and/or diagnostic related
         group or acuity mix, as applicable, as of the date any appraisal of
         such Facility is performed in accordance with the provisions of Article
         XXXIV, or (b) the average of such mix during the Base Period.

                  Finally, in determining Fair Market Value in connection with a
sale or transfer of the Leased Property and all Capital Additions of a Facility
pursuant to the terms of this Lease,


                                       8



the positive or negative effect on the value of the Leased Property and all
Capital Additions or applicable portion(s) thereof attributable to such factors
as the interest rate, amortization schedule, maturity date, prepayment penalty
and other terms and conditions of any Encumbrance placed thereon by Lessor which
will not be removed at or prior to the date of such sale or transfer shall be
taken into account.

                  Fixed Term: For all Facilities other than the Victoria
Facility, the period of time commencing on the Commencement Date and ending at
11:59 p.m. Los Angeles time on the expiration of the fifteenth (15th) Lease
Year. For the Victoria Facility, the period of time commencing on the
Commencement Date and ending at 11:59 p.m. Los Angeles time on July 31, 2011.

                  Fixtures: As defined in Article I, and with respect to each
Facility, the Fixtures relating to such Facility.

                  GAAP:  Generally accepted accounting principles.

                  Gross Revenues: With respect to each Facility, all revenues
received or receivable from or by reason of the operation of such Facility or
any other use of the Leased Property of such Facility, Lessee's Personal
Property and Capital Additions including all revenues received or receivable for
the use of or otherwise attributable to units, rooms, beds and other facilities
provided, meals served, services performed (including ancillary services), space
or facilities subleased or goods sold on or from the Leased Property and Capital
Additions of such Facility; provided, however, that Gross Revenues shall not
include:

                           (i)      non-operating revenues such as interest
         income or income from the sale of assets not sold in the ordinary
         course of business;

                           (ii)     contractual allowances (relating to any
         period during the Term) for billings not paid by or received from the
         appropriate governmental agencies or third party providers;

                           (iii)    all proper patient billing credits and
         adjustments according to GAAP relating to health care accounting; and

                           (iv)     federal, state or local excise taxes and any
         tax based upon or measured by such revenues which is added to or made a
         part of the amount billed to the patient or other recipient of such
         services or goods, whether included in the billing or stated
         separately.

                  Gross Revenues for each Lease Year of such Facility shall
include all cost report settlement amounts received in or payable during such
Lease Year in accordance with GAAP relating to health care accounting,
regardless of the year to which such settlement amounts are applicable;
provided, however, that to the extent settlement amounts are applicable to
years, or portions thereof, prior to the Commencement Date, such settlement
amounts shall not be included in Gross Revenues for the Lease Year of such
Facility in which such settlement amounts are received or paid. Gross Revenues
shall also include (x) the Gross Revenues of any Occupant under a Commercial
Occupancy Arrangement (i.e., the Gross Revenues generated from the operations
conducted on or from such subleased, licensed or other used or occupied


                                       9



portion of the Leased Property and all Capital Additions of such Facility shall
be included directly in the Gross Revenues) if all or any portion of the rent
received or receivable by Lessee from or under such Commercial Occupancy
Arrangement is based on net income of such Occupant or would otherwise fail to
qualify as "rents from real property" within the meaning of Section 856(d) of
the Code, or any similar or successor provision thereto (in which event the rent
received or receivable by Lessee from or under such Commercial Occupancy
Arrangement shall be excluded from Gross Revenues), or (y) the rent received or
receivable by Lessee from or under such Commercial Occupancy Arrangement, if no
portion of the rent received or receivable by Lessee from or under such
Commercial Occupancy Arrangement is based on net income of such Occupant and
such rent qualifies as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto (in which
event the Gross Revenues of such Occupant shall be excluded from Gross Revenues
herein).

                  Guarantors: Collectively, ARC, ARCPI, and any future guarantor
of Lessee's obligations pursuant to this Lease (each individually, a
"Guarantor").

                  Guaranty: The Guaranties of even date herewith executed by
ARC, as a Guarantor, and ARCPI, as a Guarantor, and any future written guaranty
of Lessee's obligations hereunder executed by a Guarantor.

                  Handling:  As defined in Article XXXVII.

                  Hazardous Substances: Collectively, any petroleum, petroleum
product or byproduct or any substance, material or waste regulated or listed
pursuant to any Environmental Law.

                  HCPI: Health Care Property Investors, Inc., a Maryland
corporation, and its successors and assigns.

                  Impositions: Collectively, all taxes, including capital stock,
franchise and other state taxes of Lessor (and, if Lessor is not HCPI (including
Texas HCP's interest herein), of HCPI as a result of its investment in Lessor
(including in Texas HCP)), ad valorem, sales, use, single business, gross
receipts, transaction privilege, rent or similar taxes; assessments including
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
Term; ground rents; water, sewer and other utility levies and charges; excise
tax levies; fees including license, permit, inspection, authorization and
similar fees; and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property, any Capital Additions and/or the
Rent and all interest and penalties thereon attributable to any failure in
payment by Lessee which at any time prior to, during or in respect of the Term
hereof may be assessed or imposed on or in respect of or be a lien upon (i)
Lessor or Lessor's interest in the Leased Property or any Capital Additions,
(ii) the Leased Property, any Capital Additions or any parts thereof or any rent
therefrom or any estate, right, title or interest therein, or (iii) any
occupancy, operation, use or possession of, or sales from or activity conducted
on or in connection with the Leased Property, any Capital Additions or the
leasing or use of the Leased Property, any Capital Additions or any parts
thereof; provided, however, that nothing contained in this Lease shall be
construed to require Lessee to


                                       10



pay (a) any tax based on net income (whether denominated as a franchise or
capital stock or other tax) imposed on Lessor or any other Person (including on
HCPI, if HCPI is not the Lessor hereunder), (b) any transfer, or net revenue tax
of Lessor or any other Person except Lessee and its successors, (c) any tax
imposed with respect to the sale, exchange or other disposition by Lessor of any
Leased Property, any Capital Additions or the proceeds thereof, or (d) except as
expressly provided elsewhere in this Lease, any principal or interest on any
indebtedness on the Leased Property for which Lessor is the obligor, except to
the extent that any tax, assessment, tax levy or charge, of the type described
in any of clauses (a), (b), (c) or (d) above is levied, assessed or imposed in
lieu of or as or as a substitute for any tax, assessment, levy or charge which
is otherwise included in this definition of an "Imposition."

                  Incremental Gross Revenues: With respect to the Victoria
Facility, the positive amount, if any, by which the Gross Revenues for such
Facility during the then current Lease Year or partial Lease Year exceeds the
Base Gross Revenues.

                  Insurance Requirements: The terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy and
of any insurance board, association, organization or company necessary for the
maintenance of any such policy.

                  Intangible Property: All accounts, proceeds of accounts,
rents, profits, income or revenues derived from the use of rooms or other space
within the Leased Property or the providing of services in or from the Leased
Property and all Capital Additions; documents, chattel paper, instruments,
contract rights, deposit accounts, general intangibles, commercial tort claims,
causes of action, now owned or hereafter acquired by Lessee (including any right
to any refund of any Impositions) arising from or in connection with Lessee's
operation or use of the Leased Property and all Capital Additions; all licenses
and permits now owned or hereinafter acquired by Lessee, which are necessary or
desirable for Lessee's use of the Leased Property and all Capital Additions for
the Primary Intended Use, including, if applicable, any certificate of need or
similar certificate; the right to use any trade name or other name associated
with the Facility; and any and all third-party provider agreements (including
Medicare and Medicaid).

                  Land: As defined in Article I, and, with respect to each
Facility, the Land (as defined in Article I) relating to such Facility.

                  Lease:  As defined in the preamble.

                  Lease Rate: With respect to each Facility, the percentage per
annum as set forth on Exhibit B attached hereto and made a part hereof.

                  Lease Year: With respect to each Facility other than the
Victoria Facility, each period of twelve (12) full calendar months from and
after the Commencement Date, unless the Commencement Date is a day other than
the first (1st) day of a calendar month, in which case the first Lease Year
shall be the period commencing on the Commencement Date and ending on the last
day of the twelfth (12th) month following the month in which the Commencement
Date occurs and each subsequent Lease Year shall be each period of twelve (12)
full calendar months after the last day of the prior Lease Year; provided,
however, that the last Lease Year during the Term may be a period of less than
twelve (12) full calendar months and shall end on the last day


                                       11



of the Term. With respect to the Victoria Facility, each period beginning August
1 and ending July 31; provided, however, that the period from the Commencement
Date through July 31, 2002 shall be a partial Lease Year.

                  Leased Improvements: As defined in Article I, and, with
respect to each Facility, the Leased Improvements (as defined in Article I) of
such Facility

                  Leased Property: As defined in Article I, and, with respect to
each Facility, the Leased Property (as defined in Article I) of such Facility.

                  Leasehold FMV: With respect to each Facility, the fair market
value of Lessee's leasehold interest relating to such Facility if exposed on the
open market taking into account, among other relevant factors, the income
generated from the Leased Property and Capital Additions for such Facility,
determined by appraisal in accordance with the appraisal procedures set forth in
Article XXXIV.

                  Legal Requirements: (i) All federal, state, county, municipal
and other governmental statutes, laws (including common law and Environmental
Laws), rules, policies, guidance, codes, orders, regulations, ordinances,
permits, licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions, including those affecting the Leased Property, Lessee's Personal
Property and all Capital Additions or the construction, use or alteration
thereof, whether now or hereafter enacted and in force, including any which may
(A) require repairs, modifications or alterations in or to the Leased Property,
Lessee's Personal Property and all Capital Additions, (B) in any way adversely
affect the use and enjoyment thereof, or (C) regulate the transport, handling,
use, storage or disposal or require the cleanup or other treatment of any
Hazardous Substance, and (ii) all covenants, agreements, restrictions, and
encumbrances either now or hereafter of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee except as otherwise
expressly permitted hereunder) affecting the Leased Property.

                  Lessee:  As defined in the preamble.


                  Lessee's Personal Property: With respect to each Facility, the
Personal Property other than Lessor's Personal Property relating to such
Facility.

                  Lessee's Proprietary Software:  As defined in Section 6.3.

                  Lessee's Trademarks:  As defined in Section 6.3.

                  Lessor:  As defined in the preamble.

                  Lessor's Personal Property: As defined in Article I, and, with
respect to each Facility, Lessor's Personal Property (as defined in Article I)
relating to such Facility.

                  Letter of Credit Amount: Four Million Dollars ($4,000,000)
plus the Victoria Letter of Credit Amount.

                  Letter of Credit Date:  As defined in Section 21.2.


                                       12



                  Master Sublease: With respect to any Facility, a Master
Sublease (as defined in Article XXIV) of such Facility.

                  Minimum Rent: The sum of Allocated Minimum Rent for all
Facilities payable under this Lease.

                  Minimum Repurchase Price: With respect to each Facility other
than the Post Oak Facility at any given time, the sum of (i) the Allocated
Initial Investment with respect to such Facility plus (ii) any Capital Addition
Costs funded by Lessor with respect to such Facility plus (iii) any Earnout
Amounts paid by Lessor with respect to such Facility. With respect to the Post
Oak Facility, the Post Oak Repurchase Price.

                  New Lease:  As defined in Section 31.2.1.

                  New Lease Effective Date:  As defined in Section 31.2.1.

                  Occupancy Arrangement: Any sublease, license or other
arrangement with a Person for the right to use, occupy or possess any portion of
the Leased Property and/or any Capital Additions.

                  Occupant: Any Person having rights of use, occupancy or
possession under an Occupancy Arrangement.

                  Officer's Certificate: A certificate of Lessee signed by an
officer authorized to so sign by its board of directors or by-laws or by
equivalent governing documents or managers.

                  Old Victoria Lease:  As defined in Article XLVII.

                  Opening Deposit:  As defined in Article XXXV.

                  Outside Closing Date:  As defined in Article XXXV.

                  Overdue Rate: On any date, a rate equal to Two Percent (2%)
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.

                  Payment Date: Any due date for the payment of the installments
of Minimum Rent, Victoria Additional Rent or any other sums payable under this
Lease.

                  Person: Any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other form of entity.

                  Personal Property: With respect to each Facility, all
machinery, furniture and equipment, including phone systems and computers, trade
fixtures, inventory (including raw materials, work in process and finished
goods), supplies and other personal property used or useful in the use of the
Leased Property and Capital Additions of such Facility for their Primary
Intended Use, other than Fixtures.


                                       13



                  Post Oak Repurchase Price: The Allocated Initial Investment
with respect to the Post Oak Facility; provided, however, that commencing upon
the expiration of the first (1st) Lease Year and continuing upon the expiration
of each Lease Year thereafter, the Post Oak Repurchase Price shall be increased
to an amount One Hundred Two and One-Half Percent (102.5%) of the Post Oak
Repurchase Price in effect immediately prior to such increase. The Post Oak
Purchase Price shall be calculated as of the date of the Close of Escrow, and
not as of the date Lessee exercises its option to purchase the Post Oak
Facility.

                  Primary Intended Use: With respect to each Facility, the
Primary Intended Use set forth on Exhibit B attached hereto and incorporated
herein by this reference with respect to such Facility and such other uses
necessary or incidental to such use.

                  Prime Rate: On any date, a rate equal to the annual rate on
such date announced by the Bank of New York (or its successors) to be its prime,
base or reference rate for 90-day unsecured loans to its corporate borrowers of
the highest credit standing but in no event greater than the maximum rate then
permitted under applicable law. If the Bank of New York (or its successors)
discontinues its use of such prime, base or reference rate or ceases to exist,
Lessor shall designate the prime, base or reference rate of another state or
federally chartered bank based in New York to be used for the purpose of
calculating the Prime Rate hereunder.

                  Put Event: With respect to any Facility, an Event of Default
hereunder (i.e., after any applicable notice and cure period provided for in
Section 16.1) arising out of any of the following at any time during the Term:

                  (i)      Lessee's failure to obtain and maintain all licenses,
authorizations, certifications and approvals needed to use and operate the
Leased Property of such Facility and all Capital Additions thereon, for such
Facility's Primary Intended Use in accordance with all Legal Requirements and
all Insurance Requirements including obtaining and maintaining all applicable
health care licenses, certificates of need and Medicare and/or Medicaid
certifications;

                  (ii)     Lessee's failure to use and continuously operate or
cause to be used and continuously operated the entirety of the Leased Property
of such Facility and all improvements thereon for its Primary Intended Use;
and/or

                  (iii)    Lessee's failure to cure any material violation of
any Legal Requirements relating to any Hazardous Substances in, on, under or
about the Leased Property of such Facility or to effect any repair, closure,
detoxification, decontamination or other remediation required by any applicable
Legal Requirements with respect to any Hazardous Substances in, on, under or
about the Leased Property of such Facility.

                  Notwithstanding that Lessor and Lessee have specifically
defined a "Put Event" for the limited purpose of setting forth the circumstances
under which Lessor shall be entitled to the remedy set forth in Section 16.5, in
no event shall this definition derogate the materiality of any other Event of
Default (including any Event of Default which does not constitute a Put Event)
or otherwise limit Lessor's rights and remedies upon the occurrence of any such
Event of Default, including those rights and remedies set forth in Sections
16.2, 16.3, 16.4, 16.8, 16.9 and/or 16.10.


                                       14



                  Quarter: During each applicable Lease Year, the first three
(3) calendar month period commencing on the first (1st) day of such Lease Year
and each subsequent three (3) calendar month period within such Lease Year;
provided, however, that the last Quarter during the Term may be a period of less
than three (3) calendar months and shall end on the last day of the Term;
provided, further, that if the Commencement Date is a day other than the first
(1st) day of a calendar month, the first Quarter shall be the period commencing
on the Commencement Date and ending on the last day of the second (2nd) month
following the month in which the Commencement Date occurs.

                  Related Rights: As defined in Article I, and, with respect to
each Facility, the Related Rights of such Facility.

                  Rent: Collectively, the Minimum Rent, Victoria Additional
Rent, Additional Charges and all other amounts payable under this Lease.

                  Sale of Business: A Transfer of the type described in any of
clauses (iv), (v) or (vi) of Section 24.1.1 below, unless such Transfer involves
only the stock, memberships, equity interests and/or assets of Lessee and Lessee
has no substantial assets other than (a) its interest in the Leased Property and
any Capital Additions pursuant to this Lease, (b) the business and operations on
the Leased Property and any Capital Additions and (c) Lessee's Personal
Property.

                  SEC:  Securities and Exchange Commission.

                  Separated Property:  As defined in Section 31.2.

                  State: With respect to each Facility, the State or
Commonwealth in which the Leased Property for such Facility is located.

                  Subsidiaries: Corporations, partnerships, limited liability
companies, business trusts or other legal entities with respect to which a
Person owns, directly or indirectly (including through one or more
intermediaries), more than fifty percent (50%) of the voting stock or
partnership, membership or other equity interest, respectively.

                  Successful Refinancing: The date that ARC has, to HCPI's
reasonable satisfaction, (a) raised or received a firm, unconditional
commitment(s) to raise, new funds sufficient to repay in full ARC's 2002 debt
maturities, and/or (b) received a firm, unconditional commitment to extend, or
extended, the maturity date of ARC's 2002 debt maturities.

                  Target Property:  As defined in Section 35.4.

                  Term: With respect to each Facility, the Fixed Term and any
Extended Terms of such Facility unless earlier terminated pursuant to the ----
provisions hereof.

                  Texas HCP: Texas HCP Holding, L.P., a Delaware limited
partnership, and its successors and assigns.

                  Transfer:  As defined in Article XXIV.


                                       15



                  Transfer Consideration: With respect to any Transfer
constituting a Master Sublease (other than a Master Sublease entered into in
connection with a Sale of Business), "Transfer Consideration" shall mean Fifty
Percent (50%) of the positive remainder, if any, obtained by subtracting (x) the
Allocated Minimum Rent and, if applicable, the Victoria Additional Rent, payable
by Lessee under this Lease with respect to such Facility from (y) the Fair
Market Rental of such Facility, all determined on a monthly basis, prorating
such Fair Market Rental, Allocated Minimum Rent and, if applicable, the Victoria
Additional Rent, as appropriate, if less than all of such Facility is Master
Subleased. Fifty Percent (50%) of such remainder shall be paid by Lessee to
Lessor monthly when the Allocated Minimum Rent of such Facility is due;
provided, however, that in no event shall the total Transfer Consideration to
which Lessor is entitled in connection with any such Master Sublease exceed the
total consideration given directly or indirectly (including through one or more
intermediaries) to Lessee, to any Controlling Person(s) or to any other Person
in exchange for, in connection with, related to or arising out of the
transaction(s) as to which such Master Sublease is a part. With respect to any
other Transfer (i.e., a Transfer other than pursuant to a Master Sublease, but
including a Master Sublease which is part of a Sale of Business) "Transfer
Consideration" shall mean Fifty Percent (50%) of the Leasehold FMV. Lessee
acknowledges and agrees that the terms under which Lessor is entitled to the
payment of Transfer Consideration pursuant to this Lease and the amount thereof
has been freely negotiated and represents a fair and equitable division with
Lessor of the consideration payable in connection with a Transfer taking into
account, among other things, Lessor's investment in the Leased Property, the
terms of this Lease and the inherent risks of owning and leasing real property.
As used herein, the term "consideration" shall mean and include money, services,
property and other things of value, including payment of costs, cancellation or
forgiveness of indebtedness, discounts, rebates, barter and the like.

                  Unsuitable for Its Primary Intended Use: With respect to each
Facility, a state or condition of such Facility such that by reason of damage or
destruction or Condemnation, in the good faith judgment of Lessor and Lessee,
such Facility cannot be operated on a commercially practicable basis for its
Primary Intended Use.

                  Victoria Additional Rent:  As defined in Section 3.1.4.

                  Victoria Letter of Credit Amount: An amount equal to
seventy-five percent (75%) of the sum of the annual Allocated Minimum Rent for
the Victoria Facility plus Lessor's reasonable estimate of the Victoria
Additional Rent to be payable for the applicable Lease Year; provided, however,
that if for any consecutive twelve (12) month period during the applicable Term
the Cash Flow Coverage for the Victoria Facility equals or exceeds 1.4 to 1,
then the Victoria Letter of Credit Amount shall be reduced for the then current
and each subsequent Lease Year to an amount equal to fifty percent (50%) of the
sum of the annual Allocated Minimum Rent for the Victoria Facility plus Lessor's
reasonable estimate of the Victoria Additional Rent payable for the applicable
Lease Year; provided further, however, that if, following any such reduction,
the average Cash Flow Coverage for the Victoria Facility for any four (4)
consecutive month period decreases below 1.4 to 1, then the Victoria Letter of
Credit Amount required immediately prior to such previous adjustment shall be
reinstated and Lessee shall promptly deliver to Lessor a letter of credit in the
readjusted amount.


                                       16



                                  ARTICLE III.

                  3.1      Rent. Lessee shall pay to Lessor in lawful money of
the United States of America which shall be legal tender for the payment of
public and private debts, without offset or deduction, the amounts set forth
hereinafter as Minimum Rent and Victoria Additional Rent during the Term.
Payments of Minimum Rent and Victoria Additional Rent shall be made by wire
transfer of funds initiated by Lessee to Lessor's account or to such other
Person as Lessor from time to time may designate in writing. Lessee shall pay to
Lessor Minimum Rent monthly, in advance on or before the first (1st) day of each
calendar month. The first monthly payment of Minimum Rent shall be payable on
the Commencement Date (prorated as to any partial calendar month at the
beginning of the Term). The Victoria Additional Rent shall be paid as and when
required pursuant to Section 3.2 below.

                  3.1.1    Initial Allocated Minimum Rent. Subject to upward
adjustments on each Earn-Out Payment Date for Earn-Out Amounts as provided for
in Section 3.1.3 below for the Earn-Out Facilities, and to further increases for
all Facilities (other than the Victoria Facility) as provided in Section 3.1.2,
for the applicable Term (including the applicable Extended Terms, if any),
Lessee shall pay "Allocated Minimum Rent" for all of the Facilities in the
amount as set forth on Exhibit B attached hereto and incorporated herein by this
reference; provided, however, that with respect to the applicable Extended
Terms, if any, for the Victoria Facility, the monthly "Allocated Minimum Rent"
with respect thereto shall be one-twelfth (1/12) of the greater of (a) the then
current annual Fair Market Rental for the Victoria Facility, as calculated at
the commencement of such Extended Term, and (b) the annual Allocated Minimum
Rent for the Victoria Facility and Victoria Additional Rent payable for the last
Lease Year of the immediately preceding term.

                  3.1.2    Minimum Rent Increases. In addition to upward
adjustments on each Earn-Out Payment Date for Earn-Out Amounts as provided for
in Section 3.1.3 below for the Earn-Out Facilities, commencing upon the
expiration of the first (1st) Lease Year of the Fixed Term, and upon the
expiration of each Lease Year thereafter during the applicable Term (including
the Extended Terms, if any), the then current monthly Allocated Minimum Rent for
each Facility other than the Victoria Facility for such Lease Year, shall be
increased by a percentage equal to the greater of Two Percent (2%) or the CPI
Increase; provided, however, that in no event shall the monthly Allocated
Minimum Rent for any such Facility after any such adjustment be more than One
Hundred Four Percent (104%) of the monthly Allocated Minimum Rent for any such
Facility in effect immediately prior to such adjustment, notwithstanding the
actual CPI Increase.

                  3.1.3    Earn-Out Amounts. In addition to the increases in
Allocated Minimum Rent pursuant to Section 3.1.2 above, the monthly Allocated
Minimum Rent with respect to each of the Earn-Out Facilities shall be increased
from time to time on each Earn-Out Payment Date by an amount equal to
one-twelfth (1/12) of the product of (i) the particular Earn-Out Amount paid by
Lessor on such Earn-Out Date for such Earn-Out Facility times (ii) the then
applicable Earn-Out Rate for such Earn-Out Facility. Monthly Allocated Minimum
Rent payable for any months during which an Earn-Out Payment Date occurs shall
be prorated based upon the number of days for which the different rental amounts
apply.


                                       17



                  3.1.4    Victoria Additional Rent. In addition to Allocated
Minimum Rent for the Victoria Facility, Lessee shall, commencing with the
Commencement Date and continuing throughout the Fixed Term for the Victoria
Facility, pay to Lessor annual "Victoria Additional Rent" in an amount equal to
Twenty Five Percent (25%) of the Incremental Gross Revenues; provided, however,
that in no event shall the sum of the Allocated Minimum Rent for the Victoria
Facility and Victoria Additional Rent paid or payable by any Lessee for any
Lease Year for the Fixed Term be less than One Hundred One Percent (101%) or
more than One Hundred Four Percent (104%) of the sum of Allocated Minimum Rent
for the Victoria Facility and Victoria Additional Rent paid or payable in the
immediately prior Lease Year. No Victoria Additional Rent shall be payable
during the first Lease Year of any Extended Term for the Victoria Facility.
During any Extended Term for the Victoria Facility however, Lessee shall,
commencing with the first (1st) Quarter of the second (2nd) Lease Year of such
Extended Term and continuing through the expiration of the Extended Term, pay to
Lessor annual "Victoria Additional Rent" in the amount of Twenty Five Percent
(25%) of Incremental Gross Revenues; provided, however, that beginning in the
third (3rd) Lease Year of such Extended Term and in each Lease Year thereafter
during such Extended Term, in no event shall the sum of the Allocated Minimum
Rent for the Victoria Facility and Victoria Additional Rent paid or payable by
any Lessee for any Lease Year for any Extended Term be less than One Hundred One
Percent (101%) or more than One Hundred Four Percent (104%) of the sum of
Allocated Minimum Rent for the Victoria Facility and Victoria Additional Rent
paid or payable in the immediately prior Lease Year of such Extended Term.

                  3.2      Quarterly Calculation and Payment of Victoria
Additional Rent; Annual Reconciliation. With respect to the Victoria Facility
only:

                  3.2.1    Lessee shall calculate and pay Victoria Additional
Rent quarterly, in arrears, for the portion of the entire Lease Year, on a
cumulative basis, up to the end of the Quarter then most recently ended, less
the Victoria Additional Rent already paid and attributable to such Lease Year.
If at the time any calculation on account of Victoria Additional Rent is to be
made the applicable Gross Revenues with respect to the Victoria Facility are not
yet available, Lessee shall use its best estimate of the applicable Gross
Revenues. Each quarterly payment of Victoria Additional Rent shall be delivered
to Lessor, together with an Officer's Certificate setting forth the calculation
thereof, on or before the last Business Day of the calendar month immediately
following the end of the corresponding Quarter. Notwithstanding the foregoing,
in no event shall the sum of (i) the Victoria Additional Rent for the partial
Lease Year commencing on the Commencement Date and ending on July 31, 2002 plus
(ii) the "Additional Rent" payable under the Old Victoria Lease from August 1,
2001 until the Commencement Date hereof be in an amount greater or less than
what would have been the amount of "Additional Rent" payable under the Old
Victoria Lease for the period commencing from August 1, 2001 through July 31,
2002 if such Old Victoria Lease had not been terminated and replaced with this
Lease pursuant to Article XLVII below.

                  3.2.2    Within sixty (60) days after the end of each Lease
Year, Lessee shall deliver to Lessor an Officer's Certificate setting forth the
Gross Revenues with respect to the Victoria Facility for such Lease Year. As
soon as practicable following receipt by Lessor of such Certificate, Lessor
shall determine the Victoria Additional Rent for such Lease Year and give Lessee
notice of the same together with the calculations upon which the Victoria
Additional


                                       18


Rent was based. If such Victoria Additional Rent exceeds the sum of the
quarterly payments of Victoria Additional Rent previously paid by Lessee with
respect to such Lease Year, Lessee shall forthwith pay such deficiency to
Lessor. If such Victoria Additional Rent for such Lease Year is less than the
amount previously paid by Lessee with respect thereto, Lessor shall, at Lessee's
option, either (i) remit to Lessee its check in an amount equal to such
difference, or (ii) credit such difference against the quarterly payments of
Victoria Additional Rent next coming due.

                  3.2.3    Any difference between the annual Victoria Additional
Rent for any Lease Year as shown in said Officer's Certificate and the total
amount of quarterly payments for such Lease Year previously paid by Lessee,
whether in favor of Lessor or Lessee, shall bear interest from the last Business
Day of such Lease Year until the amount of such difference shall be paid or
otherwise discharged, at a rate equal to the rate payable on 90-day U.S.
Treasury Bills in effect as of the last Business Day of such Lease Year.

                  3.2.4    If the expiration or earlier termination of the Term
is a day other than the last day of a Lease Year, then the amount of the last
quarterly installment of Victoria Additional Rent shall be paid pro rata on the
basis of the actual number of days in such Lease Year.

                  3.2.5    As soon as practicable after the expiration or
earlier termination of the Term, a final reconciliation of Victoria Additional
Rent shall be made taking into account, among other relevant adjustments, any
unresolved contractual allowances which relate to Gross Revenues with respect to
the Victoria Facility accrued prior to such expiration or termination; provided
that if the final reconciliation has not been made within six (6) months of such
expiration or termination, then a final reconciliation shall be made at that
time based on all available relevant information, including Lessee's good faith
best estimate of the amount of any unresolved contractual allowances.

                  3.3      Confirmation of Victoria Additional Rent. Lessee
shall utilize, or cause to be utilized, an accounting system for the Leased
Property and all Capital Additions in accordance with its usual and customary
practices and in accordance with GAAP which will accurately record all Gross
Revenues for the Victoria Facility and Lessee shall retain for at least seven
(7) years after the expiration of each Lease Year reasonably adequate records
conforming to such accounting system showing all Gross Revenues for such Lease
Year for the Victoria Facility. Lessor, at its own expense except as provided
hereinbelow, shall have the right from time to time (upon reasonable notice, and
in no event more than once per year) by its accountants or representatives (so
long as such accountants and representatives are not hired on a contingency
basis), to review and/or audit the information set forth in the Officer's
Certificate referred to in Section 3.2 and in connection with such review and/or
audit to examine Lessee's records with respect thereto (including supporting
data and sales tax returns) subject to any prohibitions or limitations on
disclosure of any such data under applicable law or regulations including any
duly enacted "Patients' Bill of Rights" or similar legislation, or as may be
necessary to preserve the confidentiality of the Facility-patient relationship
and the physician-patient privilege. If any such review and/or audit discloses a
deficiency in the payment of Victoria Additional Rent, Lessee shall forthwith
pay to Lessor the amount of the deficiency together with interest thereon at the
Overdue Rate compounded monthly from the date when said payment should have been
made to the date of payment thereof. If any such review


                                       19



and/or audit discloses that the Gross Revenues actually received by Lessee for
any Lease Year exceed those reported by Lessee by more than Two Percent (2%),
Lessee shall pay the reasonable costs of such review and/or audit. If any review
and/or audit discloses an overpayment in the payment of Victoria Additional
Rent, Lessor shall credit Lessee such overpayment against payments of Victoria
Additional Rent next coming due. Any proprietary information obtained by Lessor
pursuant to such review and/or audit shall be treated as confidential, except
that such information may be used, subject to appropriate confidentiality
safeguards, in any litigation or arbitration proceedings between the parties and
except further that Lessor may disclose such information to prospective lenders
or purchasers.

                  3.4      Additional Charges. In addition to the Minimum Rent
and Victoria Additional Rent, (i) Lessee shall also pay and discharge as and
when due and payable all other amounts, liabilities, obligations and Impositions
which Lessee assumes or agrees to pay under this Lease; and (ii) in the event of
any failure on the part of Lessee to pay any of those items referred to in
clause (i) above, Lessee shall also promptly pay and discharge every fine,
penalty, interest and cost which may be added for non-payment or late payment of
such items (the items referred to in clauses (i) and (ii) above being referred
to herein collectively as the "Additional Charges"), and Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Charges as in the case of non-payment of the Minimum Rent.

                  3.5      Late Payment of Rent.

                           (a)      LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT
BY LESSEE TO LESSOR OF RENT WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED
HEREUNDER, THE EXACT AMOUNT OF WHICH IS PRESENTLY ANTICIPATED TO BE EXTREMELY
DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE PROCESSING AND ACCOUNTING CHARGES
AND LATE CHARGES WHICH MAY BE IMPOSED ON LESSOR BY THE TERMS OF ANY LOAN
AGREEMENT AND OTHER EXPENSES OF A SIMILAR OR DISSIMILAR NATURE. ACCORDINGLY, IF
ANY INSTALLMENT OF RENT OTHER THAN ADDITIONAL CHARGES PAYABLE TO A PERSON OTHER
THAN LESSOR SHALL NOT BE PAID WITHIN THREE (3) BUSINESS DAYS AFTER ITS DUE DATE,
LESSEE WILL PAY LESSOR ON DEMAND A LATE CHARGE EQUAL TO THE LESSER OF (I) FIVE
PERCENT (5%) OF THE AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM AMOUNT
PERMITTED BY LAW. THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A FAIR AND
REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF LATE
PAYMENT BY LESSEE. THE PARTIES FURTHER AGREE THAT SUCH LATE CHARGE IS RENT AND
NOT INTEREST AND SUCH ASSESSMENT DOES NOT CONSTITUTE A LENDER OR
BORROWER/CREDITOR RELATIONSHIP BETWEEN LESSOR AND LESSEE. IN ADDITION, THE
AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR INTEREST AT THE OVERDUE
RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH INSTALLMENT TO THE DATE OF
PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST TO LESSOR ON DEMAND. THE
PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST SHALL NOT CONSTITUTE WAIVER OF, NOR
EXCUSE OR CURE,


                                       20



ANY DEFAULT UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING ANY OTHER
RIGHTS AND REMEDIES AVAILABLE TO LESSOR.

                               Lessor's Initials:
                                                 ----------------------

                               Lessee's Initials:
                                                 ----------------------

                           (b)      If Lessee shall, during any six (6) month
period, be more than five (5) Business Days delinquent in the payment of any
Rent due and payable by Lessee to Lessor hereunder on three (3) or more
occasions then, notwithstanding anything herein to the contrary, Lessor may, by
written notice to Lessee, elect to require Lessee to pay all Minimum Rent
payable hereunder quarterly in advance. Such right of Lessor shall be in
addition to and not in lieu of any other right of remedy available to Lessor
hereunder or at law on account of an Event of Default by Lessee hereunder.

                  3.6      Net Lease. This Lease is and is intended to be what
is commonly referred to as a "net, net, net" or "triple net" lease. The Rent
shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor
the full amount or benefit (as applicable) of the installments of Minimum Rent,
Victoria Additional Rent and Additional Charges throughout the Term.

                  3.7      Separate Account. Lessee shall deposit the gross
receipts of each Facility into a separate, segregated bank account, and Lessee
shall provide copies of all bank statements of such account to Lessor upon
Lessor's request.

                                  ARTICLE IV.

                  4.1      Impositions.


                           4.1.1    Subject to Article XII relating to permitted
contests, Lessee shall pay, or cause to be paid, all Impositions before any
fine, penalty, interest or cost may be added for nonpayment. Lessee shall make
such payments directly to the taxing authorities where feasible, and promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be
absolutely fixed upon the date such Impositions become a lien upon the Leased
Property, any Capital Additions or any part(s) thereof. If any Imposition may,
at the option of the taxpayer, lawfully be paid in installments, whether or not
interest shall accrue on the unpaid balance of such Imposition, Lessee may pay
the same, and any accrued interest on the unpaid balance of such Imposition, in
installments as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto.

                           4.1.2    Lessor shall prepare and file all tax
returns and reports as may be required by Legal Requirements with respect to
Lessor's net income, gross receipts, franchise taxes and taxes on its capital
stock, and Lessee shall prepare and file all other tax returns and reports as
may be required by Legal Requirements with respect to or relating to the Leased
Property, all Capital Additions and Lessee's Personal Property.

                           4.1.3    Any refund due from any taxing authority in
respect of any Imposition paid by Lessee shall be paid over to or retained by
Lessee if no Event of Default shall


                                       21



have occurred hereunder and be continuing. Any other refund shall be paid over
to or retained by Lessor and applied to the payment of Lessee's obligations
under this Lease in such order of priority as Lessor shall determine.

                           4.1.4    Lessor and Lessee shall, upon request of the
other, provide such data as is maintained by the party to whom the request is
made with respect to the Leased Property and all Capital Additions as may be
necessary to prepare any required returns and reports. If any property covered
by this Lease is classified as personal property for tax purposes, Lessee shall
file all personal property tax returns in such jurisdictions where it must
legally so file. Lessor, to the extent it possesses the same, and Lessee, to the
extent it possesses the same, shall provide the other party, upon request, with
cost and depreciation records necessary for filing returns for any property so
classified as personal property. Where Lessor is legally required to file
personal property tax returns and to the extent practicable, Lessee shall be
provided with copies of assessment notices indicating a value in excess of the
reported value in sufficient time for Lessee to file a protest.

                           4.1.5    Lessee may, upon notice to Lessor, at
Lessee's option and at Lessee's sole cost and expense, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to effect a
reduction of real estate or personal property assessments and Lessor, at
Lessee's expense as aforesaid, shall reasonably cooperate with Lessee in such
protest, appeal, or other action but at no cost or expense to Lessor. Billings
for reimbursement by Lessee to Lessor of personal property or real property
taxes shall be accompanied by copies of a bill therefor and payments thereof
which identify the personal property or real property with respect to which such
payments are made.

                           4.1.6    Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor has knowledge, but
Lessor's failure to give any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.

                           4.1.7    Impositions imposed or assessed in respect
of the tax-fiscal period during which the Term terminates with respect to any
Facility shall be adjusted and prorated between Lessor and Lessee with respect
to such Facility, whether or not such Imposition is imposed or assessed before
or after such termination, and Lessee's obligation to pay its prorated share
thereof shall survive such termination with respect to such Facility.

                  4.2      Utility Charges. Lessee shall pay or cause to be paid
all charges for electricity, power, gas, oil, water and other utilities used in
the Leased Property and all Capital Additions. Lessee shall also pay or
reimburse Lessor for all costs and expenses of any kind whatsoever which at any
time with respect to the Term hereof may be imposed against Lessor by reason of
any of the covenants, conditions and/or restrictions affecting the Leased
Property, any Capital Additions and/or any part(s) thereof, or with respect to
easements, licenses or other rights over, across or with respect to any adjacent
or other property which benefits the Leased Property and/or any Capital
Additions, including any and all costs and expenses associated with any utility,
drainage and parking easements; provided, however, that Lessee shall not be
responsible for any such charges arising out of any matters of record which were
voluntarily created or imposed by Lessor after the Commencement Date (as opposed
to being created or imposed after the Commencement Date without the consent or
appeal of Lessor, whether pursuant to


                                       22



governmental action, or other), unless created or imposed with the approval or
at the written request of Lessee.

                  4.3      Insurance Premiums. Lessee shall pay or cause to be
paid all premiums for the insurance coverage required to be maintained by Lessee
hereunder.

                  4.4      Impound Account. If Lessee shall fail to timely pay
Impositions relating to real estate taxes more than two (2) times during the
Term (except by reason of a permitted contest of such Imposition pursuant to
Section 12.1 hereof), Lessee shall deposit, at the time of any payment of
Minimum Rent, an amount equal to one-twelfth of Lessee's estimated annual
Impositions relating to real estate taxes, of every kind and nature, required
pursuant to Section 4.1 into an impound account as directed by Lessor. Such
amounts shall be applied to the payment of the obligations in respect of which
said amounts were deposited in such order of priority as Lessor shall determine,
on or before the respective dates on which the same or any of them would become
delinquent. The cost of administering such impound account shall be paid by
Lessee. Nothing in this Section 4.4 shall be deemed to affect any right or
remedy of Lessor hereunder.

                  4.5      Tax Service. If Lessee shall fail to timely pay
Impositions more than two (2) times during the Term, Lessee shall, at its sole
cost and expense, cause to be furnished to Lessor a tax reporting service, to be
designated by Lessor, covering the Leased Property and all Capital Additions.
Notwithstanding the foregoing, for so long as Lessee shall be impounding taxes
with or at the direction of Lessor pursuant to Section 4.4 above, the provision
of this Section 4.5 shall be waived.

                                   ARTICLE V.

                  5.1      No Termination, Abatement, etc. Except as otherwise
specifically provided in this Lease, Lessee shall remain bound by this Lease in
accordance with its terms and shall not seek or be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent. Except
as expressly set forth in this Lease, the respective obligations of Lessor and
Lessee shall not be affected by reason of (i) any damage to or destruction of
the Leased Property, any Capital Additions and/or any part(s) thereof from
whatever cause and/or any Condemnation of the Leased Property, any Capital
Additions and/or any part(s) thereof; (ii) the lawful or unlawful prohibition
of, or restriction upon, Lessee's use of the Leased Property, any Capital
Additions and/or any part(s) thereof, or the interference with such use by any
Person or by reason of eviction by paramount title; (iii) any claim that Lessee
has or might have against Lessor by reason of any default or breach of any
warranty by Lessor hereunder or under any other agreement between Lessor and
Lessee or to which Lessor and Lessee are parties; (iv) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Lessor or any assignee or transferee
of Lessor; or (v) for any other cause, whether similar or dissimilar to any of
the foregoing, other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights arising from any
occurrence whatsoever which may now or hereafter be conferred upon it by law (a)
to modify, surrender or terminate this Lease or quit or surrender the Leased
Property, any Capital Additions and/or any part(s) thereof; or (b) which may
entitle Lessee to any abatement, reduction, suspension or deferment of the Rent
or other sums payable


                                       23



by Lessee hereunder, except as otherwise specifically provided in this Lease.
The obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.

                  5.2      Termination with Respect to Fewer than All of the
Facilities. Wherever in this Lease the action of terminating the Lease with
respect to a Facility (or action of similar import) is discussed, such action
shall mean the termination of Lessee's rights in and to the Leased Property
relating to such Facility. Notwithstanding anything in this Lease to the
contrary, if this Lease shall be terminated by Lessor or Lessee pursuant to
rights granted hereunder with respect to any Facility, or if this Lease shall
otherwise expire or terminate with respect to only one or more Facilities, such
termination or expiration shall not affect the applicable Term of this Lease
with respect to the balance of the Facilities not so terminated by Lessor or
expired, and this Lease shall continue in full force and effect with respect to
each other such Facility, except that the total Minimum Rent payable hereunder
shall be reduced by the amount of Allocated Minimum Rent, and with respect to
the Victoria Facility, if applicable, the Victoria Additional Rent, with respect
to such Facility as to which this Lease has so terminated or expired, subject,
however, to Lessor's right, in the event of a termination because of an Event of
Default, to recover damages with respect to any such Facility as to which this
Lease has been terminated as provided in Article XVI.

                                  ARTICLE VI.

                  6.1      Ownership of the Leased Property. Lessee acknowledges
that the Leased Property is the property of Lessor and that Lessee has only the
right to the exclusive possession and use of the Leased Property upon the terms
and conditions of this Lease. Upon the expiration or earlier termination of this
Lease with respect to any Facility Lessee shall, at its expense, repair and
restore the Leased Property relating to such Facility to the condition required
by Section 9.1.4.

                  6.2      Personal Property. During the Term, Lessee shall, as
necessary and at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of Lessee's Personal
Property and replacements thereof which shall be the property of and owned by
Lessee. Except as provided in Sections 6.3 and 16.10, Lessor shall have no
rights to Lessee's Personal Property during the Term. With respect to each
Facility, Lessee shall provide and maintain during the entire Term applicable to
such Facility all Personal Property necessary in order to operate such Facility
in compliance with all licensure and certification requirements, all Legal
Requirements and all Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. In addition,
Lessee shall be permitted to replace, modify, alter or substitute any of
Lessor's Personal Property that has become obsolete or worn out with personal
property of equal or better quality. Any such replacements, modifications,
alterations or substitutions (whether or not upgrades thereof) shall become
Lessor's Personal Property.


                                       24



                  6.3      Transfer of Personal Property and Capital Additions
to Lessor. Upon the expiration or earlier termination of this Lease with respect
to a Facility (unless such termination is the result of Lessee's purchase of
such Facility), all Capital Additions not owned by Lessor and Lessee's Personal
Property (including all motor vehicles (if any) owned by Lessee used to
transport residents/patients) relating to such Facility shall become the
property of Lessor, free of any encumbrance, and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership
and discharge any encumbrance. Notwithstanding anything to the contrary in this
Lease, upon the expiration or earlier termination of this Lease with respect to
any Facility, Lessor shall not be obligated to reimburse Lessee for any
replacements, rebuildings, alterations, additions, substitutions, and/or
improvements that are surrendered as part of or with the Leased Property or
Capital Additions of such Facility. For purposes of this Section 6.3 only,
"Lessee's Personal Property" shall not include (i) any of Lessee's rights to the
trademarks in "Homewood," "Homewood Residence," "American Retirement
Corporation," "ARC," or any derivative thereof (collectively, "Lessee's
Trademarks"), (ii) any of Lessee's proprietary software ("Lessee's Proprietary
Software") or (iii) any accounts receivable or cash held by Lessee.

                                  ARTICLE VII.

                  7.1      Condition of the Leased Property. Lessee acknowledges
receipt and delivery of possession of the Leased Property and confirms that
Lessee has examined and otherwise has knowledge of the condition of the Leased
Property prior to the execution and delivery of this Lease and has found the
same to be in good order and repair, free from Hazardous Substances not in
compliance with Legal Requirements, and satisfactory for its purposes hereunder.
Regardless, however, of any examination or inspection made by Lessee and whether
or not any patent or latent defect or condition was revealed or discovered
thereby, Lessee is leasing the Leased Property "AS IS" in its present condition.
Lessee waives any claim or action against Lessor in respect of the condition of
the Leased Property including any defects or adverse conditions not discovered
or otherwise known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT
BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE TO BE BORNE SOLELY BY
LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR ANY ENVIRONMENTAL
REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL LAWS.

                  7.2      Use of the Leased Property.

                           7.2.1    Lessee covenants that it will obtain and
maintain all authorizations and approvals needed to use and operate the Leased
Property, all Capital Additions and each Facility for such Facility's respective
Primary Intended Use and any other use conducted on the Leased Property and any
Capital Additions as may be permitted from time to time hereunder in accordance
with Legal Requirements including applicable licenses, provider agreements,
permits, and Medicare and/or Medicaid certification.


                                       25



                           7.2.2    Lessee shall use or cause to be used the
Leased Property, all Capital Additions and the improvements thereon of each
Facility for the Primary Intended Use of such Facility. Lessee shall not use the
Leased Property, any Capital Additions or any part(s) thereof for any other use
without the prior written consent of Lessor, which consent Lessor may withhold
in its sole discretion.

                           7.2.3    Lessee shall operate continuously the entire
Leased Property and all Capital Additions of each Facility in accordance with
the Primary Intended Use of such Facility. Lessee shall devote the entirety of
each Facility and all Capital Additions to the Primary Intended Use, except for
areas reasonably required for office, storage space or ancillary service uses
incidental to the Primary Intended Use. Lessee shall not modify the services
offered or take any other action (e.g., removing patients or residents from a
Facility or directing patients or residents, or prospective patients or
residents, to another facility) if such modification of services or the taking
of such action would materially reduce Gross Revenues or the Fair Market Value
of any Facility. Lessee shall at all times maintain an adequate staff for the
service of its residents and/or patients, in each case assuming an occupancy
and/or use level for each Facility which is not less than the average occupancy
and/or use level for similar facilities in the State. Lessee shall employ its
best judgment, efforts and abilities to operate the entirety of each Facility in
such a manner so as to enhance the reputation and attractiveness of each
Facility.

                           7.2.4    Lessee shall conduct its business at each
Facility in conformity with the highest standards of patient or resident care
practice provided in similar facilities in the State.

                           7.2.5    Lessee shall not commit or suffer to be
committed any waste on the Leased Property and/or on or to any Capital Additions
or cause or permit any nuisance to exist thereon or with respect thereto.

                           7.2.6    Lessee shall neither suffer nor permit the
Leased Property, any Capital Additions, or any part(s) thereof, or Lessee's
Personal Property, to be used in such a manner as (i) might reasonably tend to
impair Lessor's title thereto or to any portion thereof or (ii) may make
possible a claim of adverse use or possession, or an implied dedication of the
Leased Property, any Capital Additions or any part(s) thereof.

                           7.2.7    For purposes of computing Incremental Gross
Revenues for the Victoria Facility for any Lease Year or other period during
which Lessee is in breach or violation of any of the covenants set forth in
Sections 7.2.1 through 7.2.4, Lessee's Gross Revenues for the Victoria Facility
for such Lease Year or other period shall be deemed to be the greater of
Lessee's Gross Revenues for the Victoria Facility for (i) such Lease Year or
other period, or (ii) the highest Gross Revenues for the Victoria Facility for
any prior Lease Year or any corresponding period of any prior Lease Year, as
applicable, as determined by Lessor.

                  7.3      Lessor to Grant Easements, etc. Lessor shall, from
time to time so long as no Event of Default has occurred and is continuing, at
the request of Lessee and at Lessee's cost and expense, but subject to the
approval of Lessor, which approval shall not be unreasonably withheld or delayed
(i) grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the


                                       26



Leased Property; (iii) dedicate or transfer unimproved portions of the Leased
Property for road, highway or other public purposes; (iv) execute petitions to
have the Leased Property annexed to any municipal corporation or utility
district; (v) execute amendments to any covenants, conditions and restrictions
affecting the Leased Property; and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers to the extent of its interest in the Leased Property, but only
upon delivery to Lessor of an Officer's Certificate stating that such grant
release, dedication, transfer, petition or amendment is not detrimental to the
proper conduct of the business of Lessee on the Leased Property and does not
materially reduce the value of the Leased Property. Except as set forth in
Section 36.1 with respect to granting monetary Encumbrances, or unless otherwise
requested by Lessee, Lessor shall not grant any easements or impose any
covenants, conditions or restrictions on the Leased Property without Lessee's
consent, which consent shall not be unreasonably withheld.

                  7.4      Preservation of Facility Value. Lessee acknowledges
that a fair return to Lessor on its investment in the Leased Property of each
Facility is dependent, in part, on the concentration on the Leased Property and
all Capital Additions of such Facility during the Term of the assisted living
facility and the core community business of Lessee and its Affiliates in the
geographical area of such Facility. Lessee further acknowledges that diversion
of residents and/or patients, as applicable, from any Facility to other
facilities or institutions and/or reemployment by Lessee of management or
supervisory personnel working at any Facility following the expiration or
earlier termination of this Lease at other facilities or institutions owned,
operated or managed, whether directly or indirectly, by Lessee or its Affiliates
could have a material adverse impact on the value and utility of the Leased
Property and all Capital Additions. Accordingly, Lessor and Lessee agree as
follows:

                           7.4.1    During the Term and for a period of one (1)
year thereafter, neither Lessee nor any of its Affiliates, directly or
indirectly, shall operate, own, manage or have any interest in or otherwise
participate in or receive revenues from any other facility or institution
providing services or goods similar to those provided in connection with any
Facility and its Primary Intended Use, within a ten (10) mile radius outward
from the outside boundary of such Facility. All distances shall be measured on a
straight line rather than on a driving distance basis. In the event that any
portion of such other facility or institution is located within such restricted
area the entire facility or institution shall be deemed located within such
restricted area. Without limiting Lessor's remedies, if Lessee should violate
the covenant contained in this Section during the Term of the Lease with respect
to the Victoria Facility, Lessor may, at its option, include the Gross Revenues
of such other facility or institution in such restricted area in the Gross
Revenues from the Victoria Facility for the purpose of computing Incremental
Gross Revenues hereunder for the Victoria Facility. If Lessor so elects, all of
the provisions of Article III hereof shall be applicable to all records
pertaining to such facility or institution. Notwithstanding the foregoing, this
Section 7.4.1 shall not apply to any of those facilities currently owned and/or
operated by Lessee or an Affiliate of Lessee located within such ten (10) mile
radius and set forth on Exhibit F hereto.

                           7.4.2    For a period of two (2) years following the
Term, neither Lessee nor any of its Affiliates shall, without the prior written
consent of Lessor, which consent may be


                                       27



given or withheld in Lessor's sole discretion, hire, engage or otherwise employ
any management or supervisory personnel working solely on or solely in
connection with any Facility.

                           7.4.3    Except as required for medically appropriate
reasons and except as may be necessary in connection with a casualty, prior to
and after the expiration or earlier termination of this Lease with respect to
any or all of the Facilities, Lessee shall not recommend or solicit the removal
or transfer of more than ten (10) residents or patients from any Facility to any
other facility or institution in any Lease Year.

                                 ARTICLE VIII.

                  8.1      Compliance with Legal and Insurance Requirements,
Instruments, etc. Subject to Article XII regarding permitted contests, Lessee,
at its expense, shall promptly (i) comply with all Legal Requirements and
Insurance Requirements regarding the use, operation, maintenance, repair and
restoration of the Leased Property, Lessee's Personal Property and all Capital
Additions whether or not compliance therewith may require structural changes in
any of the Leased Improvements or any Capital Additions or interfere with the
use and enjoyment of the Leased Property and (ii) procure, maintain and comply
with all licenses, certificates of need, provider agreements and other
authorizations required for the use of the Leased Property, Lessee's Personal
Property and all Capital Additions for the applicable Primary Intended Use and
any other use of the Leased Property, Lessee's Personal Property and all Capital
Additions then being made, and for the proper erection, installation, operation
and maintenance of the Leased Property, Lessee's Personal Property and all
Capital Additions. If, after thirty (30) days of receiving notice from Lessor,
Lessee fails to comply with the provisions of this Section 8.1, Lessor may, but
shall not be obligated to, enter upon the Leased Property and all Capital
Additions and take such actions and incur such costs and expenses to effect such
compliance as it deems advisable to protect its interest in the Leased Property
and all Capital Additions, and Lessee shall reimburse Lessor for all costs and
expenses incurred by Lessor in connection with such actions. Lessee covenants
and agrees that the Leased Property, Lessee's Personal Property and all Capital
Additions shall not be used for any unlawful purpose.

                                  ARTICLE IX.

                  9.1      Maintenance and Repair.

                           9.1.1    Lessee, at its expense, shall maintain the
Leased Property, and every portion thereof, Lessee's Personal Property and all
Capital Additions, and all private roadways, sidewalks and curbs appurtenant to
the Leased Property, and which are under Lessee's control in good order and
repair whether or not the need for such repairs occurs as a result of Lessee's
use, any prior use, the elements or the age of the Leased Property, Lessee's
Personal Property and all Capital Additions, and, with reasonable promptness,
make all necessary and appropriate repairs thereto of every kind and nature,
including those necessary to comply with changes in any Legal Requirements,
whether interior or exterior, structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the Commencement Date. All repairs shall be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action the taking or omission of which might materially impair the value or
the usefulness of the Leased Property, any Capital


                                       28



Additions, or any part(s) thereof for the Primary Intended Use. Lessor shall
assign to Lessee the benefit of any warranties relating to the Leased Property
to the extent such benefit may be assigned by Lessor without loss of the benefit
of the same to Lessor, and Lessor shall use reasonable efforts to assist Lessee
in enforcing any such warranties at no out-of-pocket cost to Lessor.

                           9.1.2    Lessor shall not under any circumstances be
required to (i) build or rebuild any improvements on the Leased Property or any
Capital Additions; (ii) make any repairs, replacements, alterations,
restorations or renewals of any nature to the Leased Property, whether ordinary
or extraordinary, structural or non-structural, foreseen or unforeseen, or to
make any expenditure whatsoever with respect thereto; or (iii) maintain the
Leased Property or any Capital Additions in any way. Lessee hereby waives, to
the extent permitted by law, the right to make repairs at the expense of Lessor
pursuant to any law in effect at the time of the execution of this Lease or
hereafter enacted.

                           9.1.3    Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as (i) constituting the consent
or request of Lessor, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property, any Capital Additions or any part(s) thereof; or (ii) giving Lessee
any right, power or permission to contract for or permit the performance of any
labor or services or the furnishing of any materials or other property in such
fashion as would permit the making of any claim against Lessor in respect
thereof or to make any agreement that may create, or in any way be the basis
for, any right, title, interest, lien, claim or other encumbrance upon the
estate of Lessor in the Leased Property, any Capital Additions or any part(s)
thereof.

                           9.1.4    Unless Lessor shall convey any of the Leased
Property to Lessee pursuant to the provisions of this Lease, Lessee shall, upon
the expiration or earlier termination of the Term, vacate and surrender the
Leased Property, Lessee's Personal Property, and all Capital Additions to Lessor
in the condition in which the Leased Property was originally received from
Lessor and Lessee's Personal Property and any Capital Additions were originally
introduced to each Facility, except as repaired, rebuilt, restored, altered or
added to as permitted or required by the provisions of this Lease and except for
ordinary wear and tear.

                  9.2      Encroachments, Restrictions, Mineral Leases, etc. If
any of the Leased Improvements or Capital Additions shall, at any time, encroach
upon any property, street or right-of-way, or shall violate any restrictive
covenant or other agreement affecting the Leased Property, any Capital Additions
or any parts thereof, or shall impair the rights of others under any easement or
right-of-way to which the Leased Property is subject, or the use of the Leased
Property or any Capital Additions is impaired, limited or interfered with by
reason of the exercise of the right of surface entry or any other provision of a
lease or reservation of any oil, gas, water or other minerals, then promptly
upon the request of Lessor, Lessee, at its sole cost and expense, but subject to
its right to contest the existence of any such encroachment, violation or
impairment, shall protect, indemnify, save harmless and defend Lessor from and
against all losses, liabilities, obligations, claims, damages, penalties, causes
of action, costs and expenses (including reasonable attorneys', consultants' and
experts' fees and expenses) based on or arising


                                       29



by reason of any such encroachment, violation or impairment. In the event of an
adverse final determination with respect to any such encroachment, violation or
impairment by a court or regulatory authority having jurisdiction with respect
thereto, Lessee shall either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee; or (ii) make such changes in the Leased Improvements and any Capital
Addition, and take such other actions, as Lessee in the good faith exercise of
its judgment deems reasonably practicable, to remove such encroachment or to end
such violation or impairment, including, if necessary, the alteration of any of
the Leased Improvements or any Capital Addition, and in any event take all such
actions as may be necessary in order to be able to continue the operation of the
Leased Improvements and any Capital Addition for the Primary Intended Use
substantially in the manner and to the extent the Leased Improvements and
Capital Additions were operated prior to the assertion of such encroachment,
violation or impairment. Lessee's obligations under this Section 9.2 shall be in
addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance and, to the extent the
recovery thereof is not necessary to compensate Lessor for any damages incurred
by any such encroachment, violation or impairment, Lessee shall be entitled to a
credit for any sums recovered by Lessor under any such policy of title or other
insurance.

                                   ARTICLE X.

                  10.1     Construction of Capital Additions and Other
Alterations to the Leased Property. Without the prior written consent of Lessor,
which consent may be given or withheld in Lessor's sole and absolute discretion,
Lessee shall not (a) make any Capital Additions on or structural alterations to
the Leased Property, (b) enlarge or reduce the size of any Facility or otherwise
materially alter or affect (other than repair and replacement thereof) any main
Facility systems, including any main plumbing, electrical or heating,
ventilating and air conditioning systems of any Facility and/or (c) make any
Capital Additions or other alterations which would tie in or connect with any
improvements on property adjacent to the Land. Lessee may, without Lessor's
prior written consent, make any alterations, additions, or improvements
(collectively, "alterations") to the Leased Property if such alterations are not
of the type described in either clause (a), (b) or (c) above, so long as in each
case: (i) the same do not (A) decrease the value of the Leased Property, (B)
affect the exterior appearance of the Leased Property, or (C) adversely affect
the structural components of the Leased Improvements or the main electrical,
mechanical, plumbing or ventilating and air conditioning systems for any
Facility, (ii) the same are consistent in terms of style, quality and
workmanship to the original Leased Improvements and Fixtures, (iii) the same are
constructed and performed in accordance with the provisions of Section 10.2
below and (iv) the cost thereof does not exceed, in the aggregate, $200,000.00
for any twelve (12) month period with respect to any single Facility. Any other
alterations (i.e., other than alterations described in clauses (a), (b) or (c)
above, and other than alterations which meet the foregoing requirements of
clauses (i), (ii), (iii) and (iv) above) shall be subject to Lessor's prior
written consent, which consent shall not be unreasonably withheld. To the extent
Lessor's prior written consent shall be required in connection with any
alterations or Capital Additions, Lessor may impose such conditions thereon in
connection with its approval thereof as Lessor in its sole but reasonable
judgment deems appropriate. Notwithstanding the foregoing, Lessor agrees that
painting, landscaping, and replacement of floor, wall and window coverings shall
be deemed


                                       30



alterations which do not require Lessor's consent, regardless of the cost
thereof, so long as the same meet the requirements of clauses (ii) and (iii)
above.

                  10.2     Construction Requirements for all Alterations.
Whether or not Lessor's review and approval is required, for all Capital
Additions and other alterations of the Leased Property, the following shall
apply (except to the extent Lessor reasonably determines that, because of the
nature or extent of the alteration, any such requirement is not applicable):

                           (a)      Such construction shall not commence until
Lessee shall have procured and paid for all municipal and other governmental
permits and authorizations required therefor, and Lessor shall join in the
application for such permits or authorizations whenever such action is
necessary; provided, however, that (i) any such joinder shall be at no cost or
expense to Lessor; and (ii) any plans required to be filed in connection with
any such application which require the approval of Lessor as hereinabove
provided shall have been so approved by Lessor;

                           (b)      Such construction shall not, and Lessee's
licensed architect or engineer shall certify to Lessor that such construction
shall not, impair the structural strength of any component of the applicable
Facility or overburden the electrical, water, plumbing, HVAC or other building
systems of any such component;

                           (c)      Lessee's licensed architect or engineer
shall certify to Lessor that the detailed plans and specifications conform to
and comply with all Insurance Requirements and all applicable building,
subdivision and zoning codes, laws, ordinances, regulations and other Legal
Requirements imposed by all governmental authorities having jurisdiction over
the Leased Property;

                           (d)      Such construction shall, when completed, be
of such a character as not to decrease the value of the Leased Property as it
was immediately before such Capital Addition;

                           (e)      During and following completion of such
construction, the parking which is located in the applicable Facility or on the
Land relating to such Facility shall remain adequate for the operation of such
Facility for its Primary Intended Use and in no event shall such parking be less
than that which was or is required by law; provided, however, with Lessor's
prior consent and at no additional expense to Lessor, (i) to the extent
additional parking is not already a part of a Capital Addition, Lessee may
construct additional parking on the Land relating to such Facility; or (ii)
Lessee may acquire off-site parking to serve such Facility as long as such
parking shall be dedicated to, or otherwise made available to serve, such
Facility;

                           (f)      All work done in connection with such
construction shall be done promptly and in a good and workmanlike manner using
first-class materials and in conformity with all Legal Requirements;

                           (g)      Promptly following the completion of such
construction, Lessee shall deliver to Lessor "as built" drawings of such
addition, certified as accurate by the licensed architect or engineer selected
by Lessee to supervise such work; and


                                       31



                           (h)      If by reason of the construction thereof, a
new or revised Certificate of Occupancy for any component of such Facility is
required, Lessee shall obtain and furnish a copy of the same to Lessor promptly
upon completion thereof.

                                  ARTICLE XI.

                  11.1     Liens. Subject to the provisions of Article XII
relating to permitted contests, Lessee will not directly or indirectly create or
allow to remain and will promptly discharge at its expense any lien,
encumbrance, attachment, title retention agreement or claim upon the Leased
Property or any Capital Additions or any attachment, levy, claim or encumbrance
in respect of the Rent, excluding, however, (i) this Lease; (ii) the matters
that exist as of the Commencement Date; (iii) restrictions, liens and other
encumbrances which are consented to in writing by Lessor, or any easements
granted pursuant to the provisions of Section 7.3; (iv) liens for Impositions
which Lessee is not required to pay hereunder; (v) subleases permitted by
Article XXIV; (vi) liens for Impositions not yet delinquent; (vii) liens of
mechanics, laborers, materialmen, suppliers or vendors for amounts not yet due;
(viii) any liens which are the responsibility of Lessor pursuant to the
provisions of Article XXXVI; (ix) any judgment liens against Lessor for amounts
which are not otherwise the responsibility of Lessee; and (x) any other matters
created by Lessor which are not otherwise the responsibility of Lessee.

                                  ARTICLE XII.

                  12.1     Permitted Contests. Lessee, upon prior written notice
to Lessor, on its own or in Lessor's name, at Lessee's expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount, validity or application, in whole or in part, of any licensure or
certification decision, Imposition, Legal Requirement, Insurance Requirement,
lien, attachment, levy, encumbrance, charge or claim; subject, however, to the
further requirement that (i) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Lessor and from the Leased Property or any Capital Additions; (ii) neither the
Leased Property nor any Capital Additions, the Rent therefrom nor any part or
interest in either thereof would be in any danger of being sold, forfeited,
attached or lost pending the outcome of such proceedings; (iii) in the case of a
Legal Requirement, neither Lessor nor Lessee would be in any danger of civil or
criminal liability for failure to comply therewith pending the outcome of such
proceedings; (iv) if any such contest shall involve a sum of money or potential
loss in excess of Fifty Thousand Dollars ($50,000), upon request of Lessor,
Lessee shall deliver to Lessor and its counsel an opinion of legal counsel
reasonably acceptable to Lessor to the effect set forth in clauses (i), (ii) and
(iii) above, to the extent applicable; (v) in the case of a Legal Requirement,
Imposition, lien, encumbrance or charge, Lessee shall give such reasonable
security as may be required by Lessor to insure ultimate payment of the same and
to prevent any sale or forfeiture of the Leased Property or any Capital
Additions or the Rent by reason of such nonpayment or noncompliance; and (vi) in
the case of an Insurance Requirement, the coverage required by Article XIII
shall be maintained. If any such contest is finally resolved against Lessor or
Lessee, Lessee shall promptly pay the amount required to be paid, together with
all interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or Insurance Requirement. Lessor, at Lessee's expense, shall execute
and deliver to Lessee such authorizations and other documents as may reasonably
be


                                       32



required in any such contest, and, if reasonably requested by Lessee or if
Lessor so desires, Lessor shall join as a party therein. The provisions of this
Article XII shall not be construed to permit Lessee to contest the payment of
Rent or any other amount payable by Lessee to Lessor hereunder. Lessee shall
indemnify, defend, protect and save Lessor harmless from and against any
liability, cost or expense of any kind that may be imposed upon Lessor in
connection with any such contest and any loss resulting therefrom.

                                 ARTICLE XIII.

                  13.1     General Insurance Requirements. During the Term,
Lessee shall at all times keep the Leased Property, and all property located in
or on the Leased Property, including all Capital Additions, the Fixtures and the
Personal Property, insured with the kinds and amounts of insurance described
below. Each element of the insurance described in this Article shall be
maintained with respect to the Leased Property of each Facility and the Personal
Property and operations thereon. This insurance shall be written by companies
authorized to do insurance business in the State in which the Leased Property is
located. All liability type policies must name Lessor as an "additional
insured." All property, loss of rental and business interruption type policies
shall name Lessor as "loss payee." Losses shall be payable to Lessor and/or
Lessee as provided in Article XIV. In addition, the policies, as appropriate,
shall name as an "additional insured" or "loss payee" the holder of any
mortgage, deed of trust or other security agreement ("Facility Mortgagee")
securing any indebtedness or any other Encumbrance placed on the Leased Property
in accordance with the provisions of Article XXXVI ("Facility Mortgage") by way
of a standard form of mortgagee's loss payable endorsement; provided, however,
that Lessor delivers the name and address of any such Facility Mortgagee to
Lessee. Any loss adjustment shall require the written consent of Lessor, Lessee,
and each Facility Mortgagee. Evidence of insurance shall be deposited with
Lessor and, if requested, with any Facility Mortgagee(s). The policies shall
insure against the following risks with respect to each Facility:

                           13.1.1   Loss or damage by fire, vandalism and
malicious mischief, extended coverage perils commonly known as special form
perils, earthquake (including earth movement), sinkhole and windstorm in an
amount not less than the insurable value on a replacement cost basis (as defined
below in Section 13.2) and including a building ordinance coverage endorsement;

                           13.1.2   Loss or damage by explosion of steam
boilers, pressure vessels or similar apparatus, now or hereafter installed in
each Facility, in such limits with respect to any one accident as may be
reasonably requested by Lessor from time to time;

                           13.1.3   Flood (when the Leased Property of a
Facility is located in whole or in part within a designated 100-year flood plain
area) and such other hazards and in such amounts as may be customary for
comparable properties in the area;

                           13.1.4   Loss of rental value in an amount not less
than twelve (12) months' Rent payable hereunder or business interruption in an
amount not less than twelve (12) months of income and normal operating expenses
including payroll and Rent payable hereunder with an endorsement extending the
period of indemnity by at least ninety (90) days (Building Ordinance


                                       33



- - Increased Period of Restoration Endorsement) necessitated by the occurrence of
any of the hazards described in Sections 13.1.1, 13.1.2 or 13.1.3; and

                           13.1.5   (a) Bodily injury or property damage under a
policy of commercial general liability insurance (including broad form property
damage and broad form contractual liability) and (b) medical professional
liability, with amounts not less than Five Million and No/100 Dollars
($5,000,000.00) per occurrence and Twenty-Five Million and No/100 Dollars
($25,000,000) in the annual aggregate.

With respect to the insurance referenced in Section 13.1.5 (general liability
and medical professional liability), Lessee shall be permitted to use a claims
made policy form rather than an occurrence based policy form; provided, however,
that any such claims made policy must include therein the right to purchase a
"tail" that insures against so-called "incurred but not reported claims" for a
period of not less than two (2) years (or, if available, three (3) years)
following the expiration of such claims made policy. Upon the expiration of any
such claims made policy, Lessee shall either (i) purchase a two (2) year "tail"
policy covering any so-called "incurred but not reported claims" during the
prior policy period (or, if available, a three (3) year "tail" policy covering
any so-called "incurred but not reported claims") during the prior policy
period, or (ii) provide other insurance covering "incurred but not reported
claims" for such prior policy period for a period of not less than two (2) years
(or, if available, three (3) years) thereafter in form satisfactory to Lessor.

                  13.2     Replacement Cost. The term "replacement cost" shall
mean the actual replacement cost of the insured property from time to time with
new materials and workmanship of like kind and quality. If either party believes
that the replacement cost has increased or decreased at any time during the
Term, it shall have the right to have such replacement cost redetermined by an
impartial national insurance company reasonably acceptable to both parties (the
"impartial appraiser"). The party desiring to have the replacement cost so
redetermined shall forthwith, on receipt of such determination by the impartial
appraiser, give written notice thereof to the other party hereto. The
determination of the impartial appraiser shall be final and binding on the
parties hereto, and Lessee shall forthwith increase or decrease the amount of
the insurance carried pursuant to this Article to the amount so determined by
the impartial appraiser. Each party shall pay one-half (1/2) of the fee, if any,
of the impartial appraiser. If Lessee has made improvements to the Leased
Property, including any Capital Additions, Lessor may at Lessee's expense have
the replacement cost redetermined at any time after such improvements are made,
regardless of when the replacement cost was last determined.

                  13.3     Additional Insurance. In addition to the insurance
described above, Lessee shall maintain such additional insurance as may be
reasonably required from time to time by any Lessor and shall further at all
times maintain adequate workers' compensation coverage and any other coverage
required by Legal Requirements for all Persons employed by Lessee on the Leased
Property and any Capital Additions in accordance with Legal Requirements.

                  13.4     Waiver of Subrogation. All insurance policies carried
by either party covering the Leased Property and any Capital Additions and
Lessee's Personal Property including contents, fire and casualty insurance,
shall expressly waive any right of subrogation on


                                       34



the part of the insurer against the other party. Each party waives any claims it
has against the other party to the extent such claim is covered by insurance.

                  13.5     Policy Requirements. All of the policies of insurance
referred to in this Article shall be written in form satisfactory to Lessor and
by insurance companies with a policyholder rating of "A" and a financial rating
of "X" in the most recent version of Best's Key Rating Guide. Additionally,
except as otherwise provided in this Lease, all of the insurance referred to in
this Article shall be on an occurrence (rather than a claims-made) basis. Lessee
shall pay all of the premiums therefor, and deliver such policies or
certificates thereof to Lessor prior to their effective date (and with respect
to any renewal policy, shall deliver to Lessor's reasonable satisfaction,
evidence of renewal at least five (5) days prior to the expiration of the
existing policy), and in the event of the failure of Lessee either to effect
such insurance in the names herein called for or to pay the premiums therefor,
or to deliver such policies or certificates thereof to Lessor, at the times
required, Lessor shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, in which event the cost thereof,
together with interest thereon at the Overdue Rate, shall be repayable to Lessor
upon demand therefor. Each insurer shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor thirty (30) days' written notice before the policy or
policies in question shall be materially altered, allowed to expire or canceled.
Each policy shall have a deductible or deductibles, if any, which are no greater
than those normally maintained for similar facilities in the State of similar
size, financial condition, resident mix and number; provided, however, that in
no event shall the deductibles for any medical professional liability policies
or general liability policies exceed the amounts set forth on Exhibit E attached
hereto and made a part hereof.

                  13.6     Increase in Limits. If either party shall at any time
believe the limits of the insurance required hereunder to be either excessive or
insufficient, the parties shall endeavor to agree in writing on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section. If the parties shall be unable to
agree thereon, the proper and reasonable limits for such insurance to be carried
shall be determined by an impartial third party reasonably selected by Lessor
and Lessee. Nothing herein shall permit the amount of insurance to be reduced
below the amount or amounts required by any of the Facility Mortgagees.

                  13.7     Blanket Policies and Policies Covering Multiple
Locations. Notwithstanding anything to the contrary contained in this Article,
Lessee's obligations to carry the casualty insurance provided for herein may be
brought within the coverage of a blanket policy or policies of insurance carried
and maintained by Lessee; provided, however, that the coverage afforded Lessor
will not be reduced or diminished or otherwise be different from that which
would exist under a separate policy for each Facility meeting all other
requirements of this Lease by reason of the use of such blanket policy of
insurance, and provided further that the requirements of this Article XIII are
otherwise satisfied. For any liability policies covering one or more of the
Facilities or any other facilities in addition to the Facilities, Lessor may
require excess limits as Lessor reasonably determines.

                  13.8     No Separate Insurance. Lessee shall not, on Lessee's
own initiative or pursuant to the request or requirement of any third party, (i)
take out separate insurance


                                       35



concurrent in form or contributing in the event of loss with that required in
this Article to be furnished by, or which may reasonably be required to be
furnished by, Lessee or (ii) increase the amounts of any then existing insurance
by securing an additional policy or additional policies, unless all parties
having an insurable interest in the subject matter of the insurance, including
in all cases Lessor and all Facility Mortgagees, are included therein as
additional insured and the loss is payable under such insurance in the same
manner as losses are payable under this Lease. Lessee shall immediately notify
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance by securing an additional
policy or additional policies.

                                  ARTICLE XIV.

                  14.1     Insurance Proceeds. All proceeds payable by reason of
any loss or damage to the Leased Property, any Capital Additions or any part(s)
or portion(s) thereof, under any policy of insurance required to be carried
hereunder shall be paid to Lessor and made available by Lessor to Lessee from
time to time for the reasonable costs of reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, any Capital
Additions or any part(s) or portion(s) thereof. Any excess proceeds of such
insurance remaining after the completion of (and payment for) the restoration or
reconstruction of the Leased Property and any Capital Additions (or in the event
neither Lessor nor Lessee is required or elects to repair and restore, all such
insurance proceeds) shall be retained by Lessor except as otherwise specifically
provided below in this Article XIV. All salvage resulting from any risk covered
by insurance shall belong to Lessor. If a Facility Mortgagee requires that any
insurance proceeds be applied towards the repayment of Lessor's debt (rather
than for restoration or reconstruction of the Leased Property and any Capital
Additions), then Lessor shall, furnish Lessee with the amount of funds which
otherwise would have been made available to Lessee but for such actions of such
Facility Mortgagee and such funds shall be used by Lessee for restoration or
reconstruction of the Leased Property and Capital Additions.

                  14.2     Insured Casualty.

                           14.2.1   If the Leased Property and/or any Capital
Additions of a Facility are damaged or destroyed from a risk covered by
insurance carried by Lessee such that such Facility thereby is rendered
Unsuitable for its Primary Intended Use, Lessee shall either (i) restore such
Leased Property and such Capital Additions to substantially the same condition
as existed immediately before such damage or destruction, or (ii) offer to
acquire the Leased Property of such Facility from Lessor for a purchase price
equal to the greater of (y) the Minimum Repurchase Price of such Facility or (z)
the Fair Market Value of such Facility immediately prior to such damage or
destruction. If Lessor does not accept Lessee's offer to so purchase the Leased
Property of such Facility within 45 days, Lessee may either withdraw such offer
and proceed to restore the Leased Property of such Facility to substantially the
same condition as existed immediately before such damage or destruction or
terminate the Lease with respect to such Facility in which event Lessor shall be
entitled to retain the insurance proceeds payable on account of such casualty.

                           14.2.2   If the Leased Property and/or any Capital
Additions of a Facility are damaged from a risk covered by insurance carried by
Lessee, but such Facility is not thereby


                                       36



rendered Unsuitable for its Primary Intended Use, Lessee shall restore such
Leased Property and such Capital Additions to substantially the same condition
as existed immediately before such damage. Such damage shall not terminate this
Lease; provided, however, that if Lessee cannot within a reasonable time after
diligent efforts obtain the necessary government approvals needed to restore and
operate such Facility for its Primary Intended Use, Lessee may offer to purchase
the Leased Property of such Facility for a purchase price equal to the greater
of the Minimum Repurchase Price of such Facility or the Fair Market Value of
such Facility immediately prior to such damage. If Lessee shall make such offer
and Lessor does not accept the same within 45 days, Lessee may either withdraw
such offer and proceed to restore the Leased Property of such Facility to
substantially the same condition as existed immediately before such damage or
destruction, or terminate the Lease with respect to such Facility, in which
event Lessor shall be entitled to retain the insurance proceeds.

                           14.2.3   If the cost of the repair or restoration
exceeds the amount of proceeds received by Lessor from the insurance required to
be carried hereunder, Lessee shall contribute any excess amounts needed to
restore such Facility. Such difference shall be paid by Lessee to Lessor
together with any other insurance proceeds, for application to the cost of
repair and restoration.

                           14.2.4   If Lessor accepts Lessee's offer to purchase
the Leased Property of a Facility, this Lease shall terminate as to such
Facility upon payment of the purchase price and Lessor shall remit to Lessee all
insurance proceeds pertaining to the Leased Property of such Facility received
by Lessor, including any amounts applied by a Facility Mortgagee to Lessor's
debt.

                  14.3     Uninsured Casualty. If the Leased Property and/or any
Capital Additions of a Facility are damaged or destroyed from a risk not covered
by insurance carried by Lessee and not required to be covered by insurance by
Lessee as provided herein, such that such Facility thereby is rendered
Unsuitable for its Primary Intended Use, Lessee shall either (i) restore such
Leased Property and such Capital Additions to substantially the same condition
as existed immediately before such damage or destruction, or (ii) offer to
acquire the Leased Property of such Facility from Lessor for a purchase price
equal to the greater of (y) the Minimum Repurchase Price of such Facility or (z)
the Fair Market Value of such Facility immediately prior to such damage or
destruction. If Lessor does not accept Lessee's offer to so purchase the Leased
Property of such Facility within 45 days, Lessee may either withdraw such offer
and proceed to restore the Leased Property of such Facility to substantially the
same condition as existed immediately before such damage or destruction or
terminate the Lease with respect to such Facility.

                           14.3.2   If the Leased Property and/or any Capital
Additions of a Facility are damaged from a risk not covered by insurance carried
by Lessee and not required to be covered by insurance by Lessee as provided
herein, but such Facility is not thereby rendered Unsuitable for its Primary
Intended Use, Lessee shall restore such Leased Property and such Capital
Additions to substantially the same condition as existed immediately before such
damage. Such damage shall not terminate this Lease; provided, however, that if
Lessee cannot within a reasonable time after diligent efforts obtain the
necessary government approvals needed to restore and operate such Facility for
its Primary Intended Use, Lessee may offer to purchase


                                       37



the Leased Property of such Facility for a purchase price equal to the greater
of the Minimum Repurchase Price of such Facility or the Fair Market Value of
such Facility immediately prior to such damage. If Lessee shall make such offer
and Lessor does not accept the same within 45 days, Lessee may either withdraw
such offer and proceed to restore the Leased Property of such Facility to
substantially the same condition as existed immediately before such damage or
destruction, or terminate the Lease with respect to such Facility.

                           14.3.3   If Lessor accepts Lessee's offer to purchase
the Leased Property of a Facility, this Lease shall terminate as to such
Facility upon payment of the purchase price.

                  14.4     No Abatement of Rent. This Lease shall remain in full
force and effect and Lessee's obligation to pay the Rent and all other charges
required by this Lease shall remain unabated during the period required for
adjusting insurance, satisfying Legal Requirements, repair and restoration.

                  14.5     Waiver. Lessee waives any statutory rights of
termination which may arise by reason of any damage or destruction of the Leased
Property and/or any Capital Additions.

                                  ARTICLE XV.

                  15.1     Condemnation.

                           15.1.1   Total Taking. If the Leased Property and any
Capital Additions of a Facility are totally and permanently taken by
Condemnation, this Lease shall terminate with respect to such Facility as of the
day before the Date of Taking.

                           15.1.2   Partial Taking. If a portion of the Leased
Property and any Capital Additions is taken by Condemnation, this Lease shall
remain in effect if such Facility is not thereby rendered Unsuitable for Its
Primary Intended Use (except that this Lease shall terminate with respect to the
portion of the Leased Property so taken), but if such Facility is thereby
rendered Unsuitable for its Primary Intended Use, this Lease shall terminate
with respect to such Facility as of the day before the Date of Taking. In the
event of any such partial taking in which the Lease is not so terminated and
such partial taking affects the building of such Facility (as opposed to
components of the Facility such as parking, landscaping, sidewalks, etc.),
Allocated Minimum Rent for such Facility shall be adjusted in a manner that is
fair, just and equitable to both Lessor and Lessee, based upon, among other
relevant factors, the loss of beds or units, if any, in such Facility.

                           15.1.3   Restoration. If there is a partial taking of
the Leased Property and any Capital Additions and this Lease remains in full
force and effect pursuant to Section 15.1.2, Lessor shall make available to
Lessee the portion of the Award necessary and specifically identified or
allocated for restoration of the Leased Property and any such Capital Additions
and Lessee shall accomplish all necessary restoration whether or not the amount
provided or allocated by the Condemnor for restoration is sufficient. If a
Facility Mortgagee requires that the entire Award or any portion thereof be
applied towards the repayment of Lessor's debt (rather than as set forth in this
Section 15.1.3), then Lessor shall furnish Lessee with the amount of


                                       38



funds which otherwise would have been made available to Lessee pursuant to this
Section 15.1.3.

                           15.1.4   Award-Distribution. Subject to Section
15.1.3 above, the entire Award shall belong to and be paid to Lessor, except
that Lessee shall be entitled to receive from the Award, if and to the extent
such Award specifically includes such item, lost profits value and moving
expenses, provided, that in any event (except in the case of a partial
Condemnation) Lessor shall receive from the Award, subject to the rights of the
Facility Mortgagees, no less than the greater of the Fair Market Value of the
applicable Facility prior to the institution of the Condemnation or the Minimum
Repurchase Price of the applicable Facility. For a partial Condemnation, Lessor
shall receive the entire Award, subject to the rights of the Facility
Mortgagees, and subject to Section 15.1.3 above, and the "Minimum Repurchase
Price" of a Facility shall be reduced by the Award payable to Lessor (less any
portion of such Award made available by Lessor for restoration of such
Facility).

                           15.1.5   Temporary Taking. The taking of the Leased
Property, any Capital Additions and/or any part(s) thereof, shall constitute a
taking by Condemnation only when the use and occupancy by the taking authority
has continued for longer than 180 consecutive days. During any shorter period,
which shall be a temporary taking, all the provisions of this Lease shall remain
in full force and effect and the Award allocable to the Term shall be paid to
Lessee.

                           15.1.6   Sale Under Threat of Condemnation. A sale by
Lessor to any Condemnor, either under threat of Condemnation or while
Condemnation proceedings are pending, shall be deemed a Condemnation for
purposes of this Lease. Subject to Lessee's consent, which shall not be
unreasonably withheld, Lessor may, without any obligation to Lessee, agree to
sell and/or convey to any Condemnor all or any portion of the Leased Property
free from this Lease and the rights of Lessee hereunder without first requiring
that any action or proceeding be instituted or pursued to judgment.

                                  ARTICLE XVI.

                  16.1     Events of Default. Any one or more of the following
shall constitute an "Event of Default":

                           (a)      a default shall occur under any other lease
or other agreement or instrument, including the Contract of Acquisition, now or
hereafter with or in favor of Lessor or any Affiliate of Lessor and made by or
with Lessee or any Affiliate of Lessee where the default is not cured within any
applicable grace period set forth therein;

                           (b)      a default shall occur under any New Lease
hereafter with or in favor of Lessor or any Affiliate of Lessor and made by or
with Lessee or any Affiliate of Lessee where the default is not cured within any
applicable grace period set forth therein;

                           (c)      Lessee shall fail to pay any installment of
Rent when the same becomes due and payable and such failure is not cured by
Lessee within a period of five (5) days after notice thereof from Lessor;
provided, however, that such notice shall be in lieu of and not in addition to
any notice required under applicable law;


                                       39



                           (d)      Lessee shall fail to obtain a letter of
credit as required by Article XXI;

                           (e)      except as otherwise specifically provided
for in this Section 16.1, if Lessee shall fail to observe or perform any other
term, covenant or condition of this Lease and such failure is not cured by
Lessee within thirty (30) days after notice thereof from Lessor, unless such
failure cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed to be an Event of Default if
Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof; provided, however, that such notice
shall be in lieu of and not in addition to any notice required under applicable
law;

                           (f)      Lessee or any Guarantor shall:

                                    (i)      admit in writing its inability to
         pay its debts generally as they become due,

                                    (ii)     file a petition in bankruptcy or a
         petition to take advantage of any insolvency act,

                                    (iii)    make an assignment for the benefit
         of its creditors,

                                    (iv)     consent to the appointment of a
         receiver of itself or of the whole or any substantial part of its
         property, or

                                    (v)      file a petition or answer seeking
         reorganization or arrangement under the Federal bankruptcy laws or any
         other applicable law or statute of the United States of America or any
         state thereof;

                           (g)      Lessee or any Guarantor shall be adjudicated
as bankrupt or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a receiver of Lessee or of the whole
or substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of Lessee under the Federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be vacated or
set aside or stayed within sixty (60) days from the date of the entry thereof;

                           (h)      Lessee or any Guarantor shall be liquidated
or dissolved, or shall begin proceedings toward such liquidation or dissolution,
or shall, in any manner, permit the sale or divestiture of substantially all its
assets (except to the extent such a sale is expressly permitted hereunder);

                           (i)      the estate or interest of Lessee in the
Leased Property, any Capital Additions or any part(s) thereof shall be levied
upon or attached in any proceeding and the same shall not be vacated or
discharged within the later of ninety (90) days after commencement thereof or
thirty (30) days after receipt by Lessee of notice thereof from Lessor;
provided, however, that such notice shall be in lieu of and not in addition to
any notice required under applicable law;


                                       40



                           (j)      any Transfer occurs in violation of the
provisions of Article XXIV;

                           (k)      any of the representations or warranties
made by Lessee or any Guarantor in the Contract of Acquisition, the Guaranty or
otherwise proves to be untrue when made in any material respect which materially
and adversely affects Lessor;

                           (l)      any Facility's applicable license or
third-party provider reimbursement agreements material to such Facility's
operation for its Primary Intended Use are at any time terminated or revoked or
suspended for more than twenty (20) consecutive days;

                           (m)      with respect to any Facility containing
skilled nursing beds, (i) any local, state or federal agency having jurisdiction
over the operation of any such Facility removes Ten Percent (10%) or more of the
patients or residents located in such Facility, (ii) any local, state or federal
agency having jurisdiction over any such Facility reduces the number of licensed
beds for such Facility by more than ten percent (10%) in the aggregate from that
number set forth on Exhibit B attached hereto, (iii) Lessee voluntarily reduces
the number of licensed beds for any Facility by more than five percent (5%) from
that number set forth on Exhibit B attached hereto (provided that Lessee shall
be permitted to voluntarily reduce the number of licensed beds for any Facility
by up to ten percent (10%) from that number set forth on Exhibit B attached
hereto if Lessee obtains Lessor's prior written approval, which approval shall
not be unreasonably withheld), or (iv) Lessee voluntarily removes from service
(so-called "bed banking") any licensed beds for any such Facility;

                           (n)      with respect to any Facility containing
assisted living units, any local, state or federal agency having jurisdiction
over the operation of any such Facility removes Ten Percent (10%) or more of the
patients or residents located in such Facility;

                           (o)      Lessee fails to give notice to Lessor not
later than ten (10) days after any notice, claim or demand from any governmental
authority or any officer acting on behalf thereof, of any material violation of
any Legal Requirement with respect to the operation of any Facility. For
purposes of this subsection (o) hereof, a "material violation" shall mean a
violation of any such Legal Requirement that is reasonably likely to (i) have a
material adverse effect on Lessee's operations in such Facility or (ii) impose
any liability on Lessor;

                           (p)      Lessee fails to cure or abate any material
violation (except for violations being contested by Lessee pursuant to Article
XII hereof) occurring during the Term that is claimed by any governmental
authority, or any officer acting on behalf thereof, of any law, order,
ordinance, rule or regulation pertaining to the operation of any Facility, and
within the time permitted by such authority for such cure or abatement. For
purposes of this subsection (p) hereof, a "material violation" shall mean a
violation of any such law, order, ordinance, rule or regulation that is
reasonably likely to (i) have a material adverse effect on Lessee's operations
in such Facility or (ii) impose any liability on Lessor;

                           (q)      Lessee fails to notify Lessor within
twenty-four (24) hours after receipt of any notice from any governmental agency
terminating or suspending or reflecting a material risk of imminent termination
or suspension, of any material license or certification relating to any
Facility;


                                       41



                           (r)      any proceedings are instituted against
Lessee by any governmental authority which are reasonably likely to result in
(i) the revocation of any license granted to Lessee that is material to the
operation of any Facility, (ii) the decertification of any Facility from
participation in the Medicare or Medicaid reimbursement program if participation
in such programs is material to the operation of such Facility, or (iii) the
issuance of a stop placement order against Lessee;

                           (s)      any default and acceleration of any
indebtedness of borrowed money in excess of $100,000.00 of Lessee, Guarantor or
any Affiliate of Lessee or Guarantor has occurred;

                           (t)      any default shall occur under any Guaranty;
and

                           (u)      Lessee or its Affiliates, as applicable,
shall fail to comply with the provisions of Section 48.1 below.

                  16.2     Certain Remedies. If an Event of Default shall have
occurred, Lessor may terminate this Lease with respect to any one or more
(including all, if so elected by Lessor) of the Facilities, regardless of
whether such Event of Default emanated primarily from a single Facility, by
giving Lessee notice of such termination and the Term shall terminate and all
rights of Lessee under this Lease shall cease with respect to all such
Facilities as to which Lessor has elected to so terminate this Lease. Lessor
shall have all rights at law and in equity available to Lessor as a result of
any Event of Default. Lessee shall pay as Additional Charges all costs and
expenses incurred by or on behalf of Lessor, including reasonable attorneys'
fees and expenses, as a result of any Event of Default hereunder. If an Event of
Default shall have occurred and be continuing, whether or not this Lease has
been terminated with respect to any one or more (including all, if so elected by
Lessor) of the Facilities pursuant to this Section 16.2, Lessee shall, to the
extent permitted by law, if required by Lessor so to do, immediately surrender
to Lessor possession of the Leased Property and any Capital Additions of the
Facilities as to which Lessor has so elected to terminate this Lease and quit
the same and Lessor may enter upon and repossess such Leased Property and such
Capital Additions by reasonable force, summary proceedings, ejectment or
otherwise, and may remove Lessee and all other Persons and any of Lessee's
Personal Property from such Leased Property and such Capital Additions.

                  16.3     Damages. The (i) termination of this Lease with
respect to any one or more (including all, if so elected by Lessor) of the
Facilities; (ii) repossession of the Leased Property of one or more (including
all, if so elected by Lessor) of the Facilities and Capital Additions of any
Facility; (iii) failure of Lessor, notwithstanding reasonable good faith
efforts, to relet the Leased Property of any Facility; (iv) reletting of all or
any portion of the Leased Property of any Facility; or (v) failure or inability
of Lessor to collect or receive any rentals due upon any such reletting, shall
not relieve Lessee of its liabilities and obligations hereunder, all of which
shall survive any such termination, repossession or reletting. If any such
termination occurs, Lessee shall forthwith pay to Lessor all Rent (including all
monthly Allocated Minimum Rent) due and payable with respect to the Leased
Property of each such Facility as to which this Lease has terminated to and
including the date of such termination. Thereafter, following any such
termination, Lessee shall forthwith pay to Lessor, at Lessor's option, as and
for liquidated


                                       42



and agreed current damages for an Event of Default by Lessee with respect to
each Facility (including all, if applicable) as to which this Lease has been so
terminated, the sum of:

                           (a)      the worth at the time of award of the unpaid
Rent (including all monthly Allocated Minimum Rent) which had been earned at the
time of termination with respect to the terminated Facility,

                           (b)      the worth at the time of award of the amount
by which the unpaid Rent (including all monthly Allocated Minimum Rent) which
would have been earned after termination with respect to the terminated Facility
until the time of award exceeds the amount of such rental loss that Lessee
proves could have been reasonably avoided,

                           (c)      the worth at the time of award of the amount
by which the unpaid Rent (including all monthly Allocated Minimum Rent) for the
balance of the then current Term (not including any Extended Terms that have not
yet been exercised, but including any Extended Term which has been exercised but
has not yet commenced) after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided, plus

                           (d)      any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom with respect to such Facility.

As used in clauses (a) and (b) above, the "worth at the time of award" shall be
computed by allowing interest at the Overdue Rate. As used in clause (c) above,
the "worth at the time of award" shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus One Percent (1%). For purposes of determining worth at the time of
the award for the Victoria Facility, the Victoria Additional Rent that would
have been payable for the remainder of the Term shall be deemed to be the
greater of (y) the Victoria Additional Rent for the then current Lease Year or,
if not determinable, the immediately preceding Lease Year; and (z) such other
amount as Lessor shall demonstrate could reasonably have been earned.

                  Alternatively, if Lessor does not elect to terminate this
Lease with respect to any one or more (including all, if applicable) Facilities,
then Lessee shall pay to Lessor, at Lessor's option, as and for agreed damages
for such Event of Default without termination of Lessee's right to possession of
the Leased Property and any Capital Additions or any portion thereof of such
Facility(ies), each installment of said Rent (including the monthly Allocated
Minimum Rent) and other sums payable by Lessee to Lessor under this Lease as the
same becomes due and payable with respect to the Leased Property of each such
Facility, together with interest at the Overdue Rate from the date when due
until paid, and Lessor may enforce, by action or otherwise, any other term or
covenant of this Lease.

                  16.4     Receiver. Upon the occurrence of an Event of Default,
and upon commencement of proceedings to enforce the rights of Lessor hereunder,
Lessor shall be entitled, as a matter of right, to the appointment of a receiver
or receivers acceptable to Lessor of the Leased Property and any Capital
Additions of the revenues, earnings, income, products and


                                       43



profits thereof, pending the outcome of such proceedings, with such powers as
the court making such appointment shall confer.

                  16.5     Lessee's Obligation to Purchase. Upon the occurrence
of a Put Event with respect to any Facility, Lessor shall be entitled to require
Lessee to purchase the Leased Property of such Facility on the first Minimum
Rent Payment Date occurring not less than thirty (30) days after the date
specified in a notice from Lessor requiring such purchase for an amount equal to
the greater of (i) the Fair Market Value of such Facility, or (ii) the Minimum
Repurchase Price of such Facility, plus, in either event, all Rent then due and
payable (excluding the installment of monthly Allocated Minimum Rent due on the
purchase date) with respect to such Facility as of the date of such purchase. If
Lessor exercises such right, Lessor shall convey the Leased Property of such
Facility to Lessee on the date fixed therefor in accordance with the provisions
of Article XVIII upon receipt of the purchase price therefor and this Lease
shall thereupon terminate with respect to such Facility. Any purchase by Lessee
of the Leased Property of a Facility pursuant to this Section shall be in lieu
of the damages specified in Section 16.3 with respect to such Facility.

                  16.6     Waiver. If Lessor initiates judicial proceedings or
if this Lease is terminated by Lessor pursuant to this Article with respect to a
Facility, Lessee waives, to the extent permitted by applicable law, (i) any
right of redemption, re-entry or repossession; and (ii) the benefit of any laws
now or hereafter in force exempting property from liability for rent or for
debt.

                  16.7     Application of Funds. Any payments received by Lessor
under any of the provisions of this Lease during the existence or continuance of
any Event of Default which are made to Lessor rather than Lessee due to the
existence of an Event of Default (including all rentals received as a result of
any reletting) shall be applied to Lessee's obligations in the order which
Lessor may determine or as may be prescribed by the laws of the State in which
the applicable Facility is located.

                  16.8     Facility Operating Deficiencies. On notice or request
therefor by Lessor to Lessee, upon the occurrence of a Facility Operating
Deficiency with respect to a Facility specified with particularity in Lessor's
notice, and for a period equal to the greater of six (6) months or the time
necessary fully to remedy the Facility Operating Deficiency, Lessee shall engage
the services of a management company, unaffiliated with Lessee and approved by
Lessor, to assume responsibility for management of such Facility for the purpose
of taking all steps reasonably necessary to remedy the Facility Operating
Deficiency(ies). Pursuant to a written agreement among the management company,
Lessee and Lessor, the management company will have complete responsibility for
operation of such Facility, subject to Lessee's retaining only such power and
authority as shall be required by the State as the minimum level of power and
authority to be possessed by the licensed operator of a facility of the type of
such Facility in the State. The management company shall provide the following
services:

                           (a)      furnish an on-site, full-time licensed
administrator and controller approved by Lessor who shall be an employee of the
management company;


                                       44



                           (b)      take all steps reasonably necessary to keep
such Facility fully licensed by the State, certified as a provider under
applicable government reimbursement programs and duly accredited by applicable
agencies and bodies;

                           (c)      perform all of Lessee's obligations
hereunder with respect to maintenance and repair of such Facility;

                           (d)      conduct at the onset of the management
company's engagement, and monthly thereafter, reviews and/or audits of
operations at such Facility in at least the following departments and services:
patient and resident care, activities and therapy, dietary, medical records,
drugs and medicines, supplies, housekeeping and maintenance, and report the
results of such reviews and/or audits in writing to Lessor no later than five
(5) days after the end of each calendar month;

                           (e)      immediately upon receipt thereof, deliver to
Lessor by overnight courier copies of all communications received from any
regulatory agency with respect to such Facility; and

                           (f)      with respect to the Facility Operating
Deficiency(ies) which gave rise to the request to Lessee to engage the
management company, prepare and deliver to Lessor within five (5) days after the
commencement of the management company's responsibilities at such Facility a
comprehensive written report of the nature and extent of the Facility Operating
Deficiency(ies) and advise Lessor orally by telephone no later than noon local
time on each Friday thereafter as to steps being taken by the management company
to remedy the same and the status of any threatened or actual governmental
administrative action with respect thereto.

                  The management company shall have complete access to such
Facility, its records, offices and facilities, in order that it may carry out
its duties. If Lessee shall fail to designate a management company acceptable to
Lessor within five (5) days after receipt of the notice of request therefor,
Lessor may designate such management company by further notice to Lessee. Lessee
shall be responsible for payment of all fees and expenses reasonably charged and
incurred by the management company in carrying out its duties, provided that the
management fee chargeable by a management company designated by Lessor, as
hereinabove provided, shall not exceed Seven Percent (7%) of such Facility's
Gross Revenues.

                  16.9     [Intentionally Omitted].

                  16.10    Lessor's Security Interest. The parties intend that
if an Event of Default occurs under this Lease, Lessor will control Lessee's
Personal Property and the Intangible Property so that Lessor or its designee or
nominee can operate or re-let each Facility intact for its Primary Intended Use.
Accordingly, to implement such intention, and for the purpose of securing the
payment and performance obligations of Lessee hereunder, Lessor and Lessee agree
as follows:

                           16.10.1  Lessee, as debtor, hereby grants to Lessor,
as secured party, a security interest and an express contractual lien upon all
of Lessee's right, title and interest in and to Lessee's Personal Property and
in and to the Intangible Property and any and all products,


                                       45

rents, proceeds and profits thereof in which Lessee now owns or hereafter
acquires an interest or right, including any leased Lessee's Personal Property
(collectively, the "Collateral"); provided, however, that "Collateral" shall
not include Lessee's Trademarks or Lessee's Proprietary Software. This Lease
constitutes a security agreement covering all such Lessee's Personal Property
and the Intangible Property. The security interest granted to Lessor with
respect to Lessee's Personal Property in this Section 16.10 is intended by
Lessor and Lessee to be subordinate to any security interest granted in
connection with the financing or leasing of all or any portion of the Lessee's
Personal Property so long as the lessor or financier of such Lessee's Personal
Property agrees to give Lessor written notice of any default by Lessee under
the terms of such lease or financing arrangement, to give Lessor a reasonable
time following such notice to cure any such default and consents to Lessor's
written assumption of such lease or financing arrangement upon Lessor's curing
of any such defaults.

                  16.10.2  Lessee hereby authorizes Lessor to file such
financing statements, continuation statements and other documents as may be
necessary or desirable to perfect or continue the perfection of Lessor's
security interest in the Collateral. In addition, if required by Lessor at any
time during the Term, Lessee shall execute and deliver to Lessor, in form
reasonably satisfactory to Lessor, additional security agreements, financing
statements, fixture filings and such other documents as Lessor may reasonably
require to perfect or continue the perfection of Lessor's security interest in
the Collateral. In the event Lessee fails to execute any financing statement or
other documents for the perfection or continuation of Lessor's security
interest, Lessee hereby appoints Lessor as its true and lawful attorney-in-fact
to execute any such documents on its behalf, which power of attorney shall be
irrevocable and is deemed to be coupled with an interest.

                  16.10.3  Lessee will give Lessor at least thirty (30) days'
prior written notice of any change in Lessee's name, identity, jurisdiction of
organization or corporate structure. With respect to any such change, Lessee
will promptly execute and deliver such instruments, documents and notices and
take such actions, as Lessor deems necessary or desirable to create, perfect
and protect the security interests of Lessor in the Collateral.

                  16.10.4  Upon the occurrence of an Event of Default, Lessor
shall be entitled to exercise any and all rights or remedies available to a
secured party under the Uniform Commercial Code, or available to a lessor under
the laws of the State, with respect to Lessee's Personal Property and the
Intangible Property, including the right to sell the same at public or private
sale.

                                 ARTICLE XVII.

                  17.1     Lessor's Right to Cure Lessee's Default. If Lessee
shall fail to make any payment or to perform any act required to be made or
performed hereunder within fifteen (15) days after written demand by Lessor
(except in case of emergencies), Lessor, without waiving or releasing any
obligation or default, may, but shall be under no obligation to, make such
payment or perform such act for the account and at the expense of Lessee, and
may, to the extent permitted by law, enter upon the Leased Property and any
Capital Additions for such purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of Lessee. All sums so paid by Lessor and


                                      46


all costs and expenses, including reasonable attorneys' fees and expenses, so
incurred, together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor, shall be paid by
Lessee to Lessor on demand.

                                ARTICLE XVIII.

                  18.1     Purchase of the Leased Property. If Lessee purchases
the Leased Property of any Facility from Lessor pursuant to any provisions of
this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate special or limited warranty deed conveying the entire
interest of Lessor in and to such Leased Property to Lessee free and clear of
all encumbrances other than (i) those that Lessee has agreed hereunder to pay
or discharge; (ii) those mortgage liens, if any, which Lessee has agreed in
writing to accept and to take title subject to; (iii) those liens and
encumbrances which were in effect on the date of conveyance of such Leased
Property to Lessor; and (iv) any other encumbrances permitted hereunder to be
imposed on such Leased Property. The difference between the applicable purchase
price and the total of the encumbrances assumed or taken subject to shall be
paid to Lessor or as Lessor may direct in immediately available funds. All
expenses of such conveyance, including the cost of title insurance, attorneys'
fees incurred by Lessor in connection with such conveyance and release,
transfer taxes and recording and escrow fees, shall be paid by Lessee.

                                 ARTICLE XIX.

                  19.1     Renewal Terms. Provided that no Event of Default has
occurred and is continuing, either at the date of exercise or upon the
commencement of an Extended Term (as hereunder defined), then Lessee shall have
the right to renew this Lease with respect to (a) the Leased Property of all
(but not less than all) of the Facilities other than the Victoria Facility,
and/or (b) the Leased Property of the Victoria Facility, for two (2) ten year
renewal terms (each an "Extended Term"), upon (i) giving written notice to
Lessor of such renewal not less than fifteen (15) months and not more than
eighteen (18) months prior to the expiration of the then applicable current
Term and (ii) delivering to Lessor concurrent with such notice a reaffirmation
of the Guaranty executed by Guarantor stating, in substance, that Guarantor's
obligations under the Guaranty shall extend to this Lease, as extended by the
applicable Extended Term. During each Extended Term, all of the terms and
conditions of this Lease shall continue in full force and effect except that
the annual Minimum Rent for and during such Extended Term shall be as set forth
in Article III above.

                  Notwithstanding anything to the contrary in this Section
19.1, Lessor, in its sole discretion, may waive the condition to Lessee's right
to renew this Lease that no Event of Default have occurred or be continuing,
and the same may not be used by Lessee as a means to negate the effectiveness
of Lessee's exercise of its renewal right for such Extended Term.

                  19.2     Lessor's Rights of Renewal and Early Termination. In
order to facilitate the transfer of the operations of the Facilities to a third
party and/or to locate a replacement lessee, Lessor shall have the one time
right with respect to each Facility to either (i) terminate this Lease with
respect to any Facility up to four (4) months early or (ii) extend the Term of
this


                                      47


Lease with respect to such Facility for up to one (1) year. Such right of early
termination shall be exercised by Lessor, if at all, by written notice from
Lessor to Lessee given not less than sixty (60) days prior to the date Lessor
desires to terminate this Lease with respect to such Facility and stating the
date of such termination (which date shall not be earlier than four (4) months
prior to the expiration of the Term). In the event that Lessor shall exercise
such right of early termination within the time and in the manner herein
provided, this Lease shall terminate with respect to the specified Facility on
the date of termination specified in Lessor's notice. Such right of extension
shall be exercised by Lessor, if at all, by written notice from Lessor to
Lessee given not less than four (4) months prior to the expiration of the Term
and stating the date through which Lessor is extending the Term of this Lease
for such Facility (which date shall not be later than one (1) year after the
originally scheduled expiration date). In the event that Lessor shall exercise
such right of extension, all of the terms and conditions of this Lease shall
continue in full force and effect with respect to each Facility as to which
Lessor has elected to so extend the applicable Term pursuant to this Section
19.2, and Lessee shall continue to pay Rent applicable to such Facility for and
during such extension period at the same Allocated Minimum Rent and, if
applicable, Victoria Additional Rent, rates as were in effect upon the
expiration of the originally scheduled Term for such Facility; provided,
however, that Lessor shall have the right to terminate this Lease with respect
to such Facility during any such extension period upon not less than sixty (60)
days prior written notice to Lessee. In such event, this Lease, as previously
extended, shall terminate with respect to such Facility upon the date specified
in Lessor's notice of termination.

                                  ARTICLE XX.

                  20.1     Holding Over. Except as provided in Section 19.2, if
Lessee shall for any reason remain in possession of the Leased Property and/or
any Capital Additions of a Facility after the expiration or earlier termination
of the Term, such possession shall be as a month-to-month tenant during which
time Lessee shall pay as Rent for such Facility each month One Hundred Fifty
Percent (150%) of the sum of (i) monthly Allocated Minimum Rent applicable to
the prior Lease Year for such Facility, plus (ii) if such Facility is the
Victoria Facility, one-twelfth of the aggregate Victoria Additional Rent
payable applicable to the prior Lease Year with respect to such Facility,
together with all Additional Charges and all other sums payable by Lessee
pursuant to this Lease with respect to such Facility. During such period of
month-to-month tenancy, Lessee shall be obligated to perform and observe all of
the terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Leased Property and/or any
Capital Additions of such Facility. Nothing contained herein shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease.

                                 ARTICLE XXI.

                  21.1     Letters of Credit. During the entire Term and for
sixty (60) days after the expiration or earlier termination of this Lease,
Lessee shall obtain one or more letters of credit totaling, in the aggregate,
the Letter of Credit Amount from one or more financial institution(s)
reasonably satisfactory to Lessor but in any event with (a) not less than $100
Million in net current assets, (b) a financial rating of not less than 60 as
rated by Sheshunoff Information


                                      48


Services, Inc. (or any equivalent rating thereto from any successor or
substitute rating service selected by Lessor) and (c) an investment grade
rating from each of Standard and Poors Corporation and Moody's Investors
Service, naming Lessor as beneficiary to secure Lessee's obligations hereunder
and Lessee's and any Affiliate of Lessee's obligations under any other lease or
other agreement or instrument with or in favor of Lessor or any Affiliate of
Lessor, at the times and for the purposes set forth below. Each letter of
credit shall be in substantially the form of Exhibit D hereto. Each letter of
credit shall be for a term of not less than one (1) year and irrevocable during
that term. Each letter of credit shall provide that it will be honored upon a
signed statement by Lessor that Lessor is entitled to draw upon any letter of
credit under this Lease, and shall require no signature or statement from any
party other than Lessor. No notice to Lessee shall be required to enable Lessor
to draw upon the letter of credit. Each letter of credit shall also provide
that following the honor of any drafts in an amount less than the aggregate
amount of the letter of credit, the financial institution shall return the
original letter of credit to Lessor and Lessor's rights as to the remaining
amount of the letter of credit will not be extinguished. In the event of a
transfer of Lessor's interest in the Leased Property, Lessor shall transfer the
letter of credit to the transferee and thereupon shall, without any further
agreement between the parties, be released by Lessee from all liability
therefor, and it is agreed that the provisions hereof shall apply to every
transfer or assignment of the letter of credit to a new Lessor. Lessor's rights
in and to such letters of credit may be assigned as security in connection with
a Facility Mortgage. If the financial institution from which Lessee has
obtained a letter of credit shall admit in writing its inability to pay its
debts generally as they become due, file a petition in bankruptcy or a petition
to take advantage of any insolvency act, make an assignment for the benefit of
its creditors consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or file a petition or answer
seeking reorganization or arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any state
thereof, then Lessee shall obtain a replacement letter of credit within thirty
(30) days of such act from another financial institution reasonably
satisfactory to Lessor, but in any event meeting the above requirements.

                  21.2     Times for Obtaining Letters of Credit. The initial
letters of credit shall be obtained and delivered to Lessor on or prior to the
Commencement Date. The letters of credit covering subsequent periods (or
renewals of the then existing letters of credit) shall be obtained and
delivered to Lessor not less than thirty (30) days prior to the expiration of
the then existing letter of credit ("Letter of Credit Date"). The term for each
such letter of credit shall begin no later than the expiration date of the
previous letter of credit and shall comply with all requirements of this
Article XXI.

                  21.3     Uses of Letters of Credit. Lessor shall have the
right to draw upon a letter of credit up to its full amount whenever (a) an
Event of Default hereunder has occurred, (b) an event of default beyond
applicable notice and cure periods under any other lease or agreement between
Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee or under
any other letter of credit, guaranty, mortgage, deed of trust, or other
instrument now or hereafter executed by Lessee or an Affiliate of Lessee in
favor of Lessor or an Affiliate of Lessor has occurred or (c) an event or
circumstance has occurred which with notice or passage of time, or both, would
constitute an Event of Default hereunder or an event of default under any such
other lease, agreement, letter of credit, guaranty, mortgage, deed of trust or
other instrument, but for the fact that transmittal of such notice is barred by
applicable debtor relief law. In addition, if Lessee


                                      49


fails to obtain a satisfactory letter of credit (or renewal of an existing
letter of credit) prior to the applicable Letter of Credit Date, Lessor may
draw upon the full amount of the then existing letter of credit without giving
any notice or time to cure to Lessee. No such draw shall (i) cure or constitute
a waiver of an Event of Default, (ii) be deemed to fix or determine the amounts
to which Lessor is entitled to recover under this Lease or otherwise, or (iii)
be deemed to limit or waive Lessor's right to pursue any remedies provided for
in this Lease. If all or any portion of a letter of credit is drawn against by
Lessor, Lessee shall, within two (2) business days after demand by Lessor,
cause the issuer of such letter of credit to issue Lessor, at Lessee's expense,
a replacement or supplementary letter of credit in substantially the form
attached hereto as Exhibit D such that at all times during the Term, Lessor
shall have the ability to draw on one or more letters of credit totaling, in
the aggregate, the amount required pursuant to Section 21.1.

                  21.4     Reduction in Letter of Credit Amount. If Lessee
purchases any Facility, or if this Lease is terminated or expires with respect
to any Facility (other than by reason of an Event of Default), the Letter of
Credit Amount shall be reduced by an amount equal to the product of (a) the
then existing Letter of Credit Amount, times (b) a fraction, the numerator of
which is the then existing Allocated Minimum Rent for the Facility being
purchased by Lessee or for which this Lease has been terminated or expired, as
applicable, and if applicable, the Victoria Additional Rent, and the
denominator of which is the then existing total Minimum Rent payable for all
Facilities (including the Facility being purchased by Lessee, or the Facility
with respect to which this Lease has been terminated or expired) and, if
applicable, the Victoria Additional Rent.

                  21.5     Treatment of Funds Drawn Under Letters of Credit. If
Lessor draws upon a letter of credit and the amount drawn exceeds the damages
or losses that Lessor has suffered or reasonably expects to suffer by reason of
the Event of Default or other reason, then Lessor shall remit such excess to
Lessee upon the first to occur (i) the date the amount of damages to which
Lessor is entitled to recover on account of such Event of Default or otherwise
is determined, whether by a final, non-appealable judgment of a court or
arbitrator of competent jurisdiction or by a written settlement executed Lessor
and Lessee or (ii) the receipt by Lessor of the replacement or supplementary
letter of credit provided for in Section 21.3 above. Upon written request from
Lessee, Lessor shall certify in writing to the issuer of the replacement or
supplementary letter of credit provided for in Section 21.3 to the effect that,
upon receipt by Lessor of such replacement or supplementary letter of credit,
Lessor shall deliver to such issuer any such excess drawing under the letter of
credit(s) for which such replacement or supplementary letter of credit is being
delivered.

                                 ARTICLE XXII.

                  22.1     Risk of Loss. The risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property and any Capital Additions
as a consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than by Lessor and
Persons claiming from, through or under Lessor) is assumed by Lessee, and no
such event shall entitle Lessee to any abatement of Rent.


                                      50


                                ARTICLE XXIII.

                  23.1     General Indemnification. In addition to the other
indemnities contained herein, and notwithstanding the existence of any
insurance carried by or for the benefit of Lessor or Lessee, and without regard
to the policy limits of any such insurance, Lessee shall protect, indemnify,
save harmless and defend Lessor from and against all liabilities, obligations,
claims, damages penalties, causes of action, costs and expenses, including
reasonable attorneys', consultants' and experts' fees and expenses, imposed
upon or incurred by or asserted against Lessor by reason of: (i) any accident,
injury to or death of Persons or loss of or damage to property occurring on or
about the Leased Property, or any Capital Additions or adjoining sidewalks
thereto; (ii) any use, misuse, non-use, condition, maintenance or repair by
Lessee of the Leased Property or any Capital Additions; (iii) any failure on
the part of Lessee to perform or comply with any of the terms of this Lease;
(iv) the non-performance of any of the terms and provisions of any and all
existing and future subleases of the Leased Property or any Capital Additions
to be performed by any party thereunder; (v) any claim for malpractice,
negligence or misconduct committed by any Person on or working from the Leased
Property or any Capital Additions; and (vi) the violation of any Legal
Requirement. Any amounts which become payable by Lessee under this Article
shall be paid within ten (10) days after liability therefor is determined by
litigation or otherwise, and if not timely paid shall bear interest at the
Overdue Rate from the date of such determination to the date of payment.
Lessee, at its sole cost and expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against Lessor or may
compromise or otherwise dispose of the same as Lessee sees fit; provided,
however, that any legal counsel selected by Lessee to defend Lessor shall be
reasonably satisfactory to Lessor. All indemnification covenants are intended
to apply to losses, damages, injuries, claims, etc. incurred directly by the
indemnified parties and their property, as well as by the indemnifying party or
third party, and their property. For purposes of this Article XXIII, any acts
or omissions of Lessee, or by employees, agents, assignees, contractors,
subcontractors or others acting for or on behalf of Lessee (whether or not they
are negligent, intentional, willful or unlawful), shall be strictly
attributable to Lessee. It is understood and agreed that payment shall not be a
condition precedent to enforcement of the foregoing indemnification
obligations.

                                 ARTICLE XXIV.

         24.1     Transfers.

                  24.1.1   Prohibition. Lessee shall not, without Lessor's prior
written consent, which may be withheld in Lessor's sole and absolute discretion,
either directly or indirectly or through one or more step transactions or tiered
transactions, voluntarily or by operation of law, (i) assign, convey, sell,
pledge, mortgage, hypothecate or otherwise encumber, transfer or dispose of all
or any part of this Lease or Lessee's leasehold estate hereunder, (ii) Master
Sublease all or any part of the Leased Property and/or any Capital Additions of
such Facility, (iii) engage the services of any Person for the management or
operation of all or any part of the Leased Property and/or any Capital Additions
of such Facility, (iv) convey, sell, assign, transfer or dispose of any stock or
partnership, membership or other interests (whether equity or otherwise) in
Lessee (which shall include any conveyance, sale, assignment, transfer or
disposition of any stock or partnership, membership or other interests (whether
equity or


                                      51

otherwise) in any Controlling Person(s)), if such conveyance, sale, assignment,
transfer or disposition results, directly or indirectly, in a change in control
of Lessee (or in any Controlling Person(s)), (v) dissolve, merge or consolidate
Lessee (which shall include any dissolution, merger or consolidation of any
Controlling Person) with any other Person, if such dissolution, merger or
consolidation, directly or indirectly, results in a change in control of Lessee
or in any Controlling Person(s), (vi) sell, convey, assign, or otherwise
transfer all or substantially all of the assets of Lessee (which shall include
any sale, conveyance, assignment, or other transfer of all or substantially all
of the assets of any Controlling Person(s)), (vii) sell, convey, assign, or
otherwise transfer any of the assets of Lessee (which shall include any sale,
conveyance, assignment, or other transfer of any of the assets of any
Controlling Person) if the Consolidated Net Worth of Lessee (or such Controlling
Person, as the case may be) immediately following such transaction is not at
least equal to seventy-five percent (75%) of the Consolidated Net Worth of
Lessee (or such Controlling Person) immediately prior to such transaction, or
(viii) enter into or permit to be entered into any agreement or arrangement to
do any of the foregoing or to grant any option or other right to any Person to
do any of the foregoing (each of the aforesaid acts referred to in clauses (i)
through (viii) being referred to herein as a "Transfer"). Any Commercial
Occupancy Arrangement with respect to more than Ten Percent (10%) of any
Facility in the aggregate to any Person and/or its Affiliates, directly or
indirectly, or through one or more step transactions or tiered transactions,
shall be deemed to be a "Master Sublease" hereunder. Notwithstanding anything
herein to the contrary, Lessee may enter into (a) non-Commercial Occupancy
Arrangements with residents or patients of any facility, and (b) any Commercial
Occupancy Arrangement that does not constitute a Master Sublease with respect to
any Facility (provided that all such Commercial Occupancy Arrangements comply
with Sections 24.1.3 and 24.1.7 herein), all without Lessor's consent, and such
actions shall not be considered a "Transfer" hereunder (but shall constitute a
"Transfer" for purposes of Section 24.1.7). For any Commercial Occupancy
Arrangement transaction not requiring the consent of Lessor hereunder (i.e., a
Commercial Occupancy Arrangement not constituting a Master Sublease), Lessee
shall, within ten (10) days of entering into any such Commercial Occupancy
Arrangement, notify Lessor of the existence of such Commercial Occupancy
Arrangement and the identity of the Occupant and supply Lessor with a copy of
the agreement relating to such Commercial Occupancy Arrangement and any other
related documentation, materials or information reasonably requested by Lessor.

         24.1.2   Consent and Transfer Consideration.

                  24.1.2.1 Prior to any Transfer, Lessee shall first notify
Lessor of its desire to do so and shall submit in writing to Lessor: (i) the
name of the proposed Occupant, assignee, manager or other transferee; (ii) the
terms and provisions of the Transfer, including any agreements in connection
therewith; and (iii) such financial information as Lessor reasonably may
request concerning the proposed Occupant, assignee, manager or other
transferee. Lessor may, as a condition to granting such consent, which consent
may be given or withheld in the sole and absolute discretion of Lessor, and in
addition to any other conditions imposed by Lessor, require that the
obligations of any Occupant, assignee, manager or other transferee which is an
Affiliate of another Person be guaranteed by its parent or Controlling Person
and that any Guaranty of this Lease be reaffirmed by any Guarantor
notwithstanding such Transfer.


                                      52


                  24.1.2.2 In connection with any Transfer, Lessor shall be
entitled to receive the applicable Transfer Consideration.

                  24.1.2.3 The consent by Lessor to any Transfer shall not
constitute a consent to any subsequent Transfer or to any subsequent or
successive Transfer. Any purported or attempted Transfer contrary to the
provisions of this Article shall be void and, at the option of Lessor, shall
terminate this Lease.

                  24.1.3   Attornment and Related Matters. Any Commercial
Occupancy Arrangement (whether or not the same constitutes a Master Sublease)
shall be expressly subject and subordinate to all applicable terms and
conditions of this Lease and provide that upon the expiration or earlier
termination of this Lease Lessor, at its option and without any obligation to
do so, may require any Occupant to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee, as sublessor, licensor or otherwise
under such Commercial Occupancy Arrangement from the time of the exercise of
such option to the termination of such Commercial Occupancy Arrangement;
provided, however, that in such case Lessor shall not be liable for any prepaid
rents, fees or other charges or for any prepaid security deposits paid by such
Occupant to Lessee or for any other prior defaults of Lessee under such
Commercial Occupancy Arrangement. In the event that Lessor shall not require
such attornment with respect to any Commercial Occupancy Arrangement, then such
Occupancy Arrangement shall automatically terminate upon the expiration or
earlier termination of this Lease, including any early termination by mutual
agreement of Lessor and Lessee. In addition, any such Commercial Occupancy
Arrangement shall provide that in the event that the Occupant or other
transferee receives a written notice from Lessor stating that an Event of
Default has occurred, or that an event or circumstance has occurred which with
notice or passage of time, or both, would constitute an Event of Default
hereunder, but for the fact that the transmittal of such notice is barred by
applicable debtor relief law, such Occupant or other transferee thereafter
shall without further consent or instruction of Lessee pay all rentals accruing
under such Commercial Occupancy Arrangement directly to Lessor or as Lessor may
direct; provided however that (i) as and to the extent that the amounts so paid
to Lessor, together with other amounts paid to or received by Lessor on account
of this Lease, exceed the amounts then due Lessor from Lessee under this Lease,
the excess shall be promptly remitted to Lessee, and (ii) at such time as the
Event of Default has been cured and this Lease reinstated (if ever), Lessor
shall notify and direct the Occupant(s) in writing to resume making payments of
rentals under their Commercial Occupancy Arrangement(s) directly to Lessee or
as Lessee may direct. Any such rentals collected from such Occupant or other
transferee by Lessor shall be credited against the amounts owing by Lessee
under this Lease in such order of priority as Lessor shall reasonably
determine. Furthermore, any Commercial Occupancy Arrangement or other agreement
regarding a Transfer shall expressly provide that the Occupant, assignee,
manager or other transferee shall furnish Lessor with such financial,
operational and other information about the physical condition of the
applicable Facility, including the information required by Section 25.1.2
herein, as Lessor may request from time to time. Notwithstanding the foregoing,
Lessor acknowledges that the Commercial Occupancy Arrangements set forth on
Exhibit G currently exist and do not include the provisions required by this
Section 24.1.3; provided, however, that if any such Commercial Occupancy
Arrangements are modified or amended, then the provisions required by this
Section 24.1.3 shall be included in such modification or amendment; and
provided further that nothing herein shall be construed to relieve Lessee of
its obligation under the Contract of Acquisition to


                                      53


use best efforts to obtain a subordination agreement, in form and substance
satisfactory to Lessor, for the First Union License (as defined in the Contract
of Acquisition), all as more particularly set forth therein.

                  24.1.4   Assignment of Lessee's Rights Against Occupant Under
a Master Sublease. If Lessor shall consent to a Master Sublease, then the
written instrument of consent, executed and acknowledged by Lessor, Lessee and
the Occupant thereunder, shall contain a provision substantially similar to the
following:

                           (i)      Lessee and such Occupant hereby agree that,
         if such Occupant shall be in default of any of its obligations under
         the Master Sublease, which default also constitutes an Event of
         Default by Lessee under this Lease, then Lessor shall be permitted to
         avail itself of all of the rights and remedies available to Lessee
         against such Occupant in connection therewith.

                           (ii)     Without limiting the generality of the
         foregoing, Lessor shall be permitted (by assignment of a cause of
         action or otherwise) to institute an action or proceeding against such
         Occupant in the name of Lessee in order to enforce Lessee's rights
         under the Master Sublease, and also shall be permitted to take all
         ancillary actions (e.g., serve default notices and demands) in the
         name of Lessee as Lessor reasonably shall determine to be necessary.

                           (iii)    Lessee agrees to cooperate with Lessor, and
         to execute such documents as shall be reasonably necessary, in
         connection with the implementation of the foregoing rights of Lessor.

                           (iv)     Lessee expressly acknowledges and agrees
         that the exercise by Lessor of any of the foregoing rights and
         remedies shall not constitute an election of remedies, and shall not
         in any way impair Lessor's entitlement to pursue other rights and
         remedies directly against Lessee.

                  24.1.5   Costs. Lessee shall reimburse Lessor for Lessor's
actual costs and expenses incurred in conjunction with the processing and
documentation of any request to Transfer, including attorneys', architects',
engineers' or other consultants' fees whether or not such Transfer is actually
consummated.

                  24.1.6   No Release of Lessee's Obligations. No Transfer
shall relieve Lessee of its obligation to pay the Rent and to perform all of
the other obligations to be performed by Lessee hereunder. The liability of
Lessee named herein and any immediate and remote successor in interest of
Lessee (i.e., by means of any Transfer), and the due performance of the
obligations of this Lease on Lessee's part to be performed or observed, shall
not in any way be discharged, released or impaired by any (i) agreement which
modifies any of the rights or obligations of the parties under this Lease, (ii)
stipulation which extends the time within which an obligation under this Lease
is to be performed, (iii) waiver of the performance of an obligation required
under this Lease, or (iv) failure to enforce any of the obligations set forth
in this Lease. If any Occupant, assignee, manager or other transferee defaults
in any performance due hereunder, Lessor may proceed directly against the
Lessee named herein and/or any


                                      54


immediate and remote successor in interest of Lessee without exhausting its
remedies against such Occupant, assignee, manager or other transferee.

                  24.1.7   REIT Protection. Anything contained in this Lease to
the contrary notwithstanding, (i) no Transfer shall be consummated on any basis
such that the rental or other amounts to be paid by the Occupant, assignee,
manager or other transferee thereunder would be based, in whole or in part, on
the income or profits derived by the business activities of the Occupant,
assignee, manager or other transferee; (ii) Lessee shall not furnish or render
any services to an Occupant, assignee, manager or other transferee with respect
to whom Transfer Consideration is required to be paid or manage or operate the
Leased Property and/or any Capital Additions so Transferred with respect to
which Transfer Consideration is being paid; (iii) Lessee shall not consummate a
Transfer with any Person in which Lessor owns an interest, directly or
indirectly (by applying constructive ownership rules set forth in Section
856(d)(5) of the Code); and (iv) Lessee shall not consummate a Transfer with
any Person or in any manner which could cause any portion of the amounts
received by Lessor pursuant to this Lease or any Occupancy Arrangement to fail
to qualify as "rents from real property" within the meaning of Section 856(d)
of the Code, or any similar or successor provision thereto or which could cause
any other income of Lessor to fail to qualify as income described in Section
856(c)(2) of the Code.

                  24.1.8   Transfers In Bankruptcy. In the event of a Transfer
pursuant to the provisions of the Bankruptcy Code, all consideration payable or
otherwise to be delivered in connection with such Transfer shall be paid or
delivered to Lessor, shall be and remain the exclusive property of Lessor and
shall not constitute property of Lessee or of the estate of Lessee within the
meaning of the Bankruptcy Code. Any consideration constituting Lessor's
property pursuant to the immediately preceding sentence and not paid or
delivered to Lessor shall be held in trust for the benefit of Lessor and be
promptly paid or delivered to Lessor. For purposes of this Section 24.1.8, the
term "consideration" shall mean and include money, services, property and any
other thing of value such as payment of costs, cancellation or forgiveness of
indebtedness, discounts, rebates, barter and the like. If any such
consideration is in a form other than cash (such as in kind, equity interests,
indebtedness earn-outs, or other deferred payments, consulting or management
fees, etc.), Lessor shall be entitled to receive in cash the then present fair
market value of such consideration.

                  24.1.9   Public Trading of ARC Stock. So long as the common
stock of ARC is listed for trading on the American Stock Exchange or the New
York Stock Exchange or authorized for quotation on the NASDAQ National Market,
the transfer or exchange of such stock over such exchange or market shall not
be deemed a Transfer hereunder unless the same (whether in one transaction or
in any step or series of transactions) results, directly or indirectly, in a
change in control of Lessee or such Controlling Person(s) (including pursuant
to a tender or similar offer to acquire the outstanding and issued securities
of Lessee or such Controlling Person(s)).


                                      55


                                 ARTICLE XXV.

         25.1     Officer's Certificates and Financial Statements.

                  25.1.1   Officer's Certificate. At any time and from time to
time upon Lessee's receipt of not less than ten (10) days' prior written
request by Lessor, Lessee shall furnish to Lessor an Officer's Certificate
certifying (i) that this Lease is unmodified and in full force and effect, or
that this Lease is in full force and effect as modified and setting forth the
modifications; (ii) the dates to which the Rent has been paid; (iii) whether or
not, to the best knowledge of Lessee, Lessor is in default in the performance
of any covenant, agreement or condition contained in this Lease and, if so,
specifying each such default of which Lessee may have knowledge; and (iv)
responses to such other questions or statements of fact as Lessor, any ground
or underlying lessor, any purchaser or any current or prospective Facility
Mortgagee shall reasonably request. Lessee's failure to deliver such statement
within such time shall constitute an acknowledgment by Lessee that (x) this
Lease is unmodified and in full force and effect except as may be represented
to the contrary by Lessor; (y) Lessor is not in default in the performance of
any covenant, agreement or condition contained in this Lease; and (z) the other
matters set forth in such request, if any, are true and correct. Any such
certificate furnished pursuant to this Article may be relied upon by Lessor and
any current or prospective Facility Mortgagee, ground or underlying lessor or
purchaser of the Leased Property or any portion thereof.

                  25.1.2   Statements. Lessee shall furnish the following
statements to Lessor:

                  (a)      within 120 days after the end of Lessee's and ARC's
fiscal years, (i) a copy of the unaudited balance sheets of Lessee and ARCPI
and audited consolidated balance sheets of ARC and its consolidated
Subsidiaries as of the end of such fiscal year, (ii) related audited
consolidated statements of income, changes in common stock and other
stockholders' equity and changes in the financial position of ARC and its
consolidated Subsidiaries for such fiscal year, and (iii) related unaudited
statements of income, changes in common stock and other stock holders' equity
and changes in the financial position of Lessee and ARCPI (if any), prepared in
accordance with GAAP applied on a basis consistently maintained throughout the
period involved (such consolidated financial statements of ARC to be certified
by nationally recognized certified public accountants);

                  (b)      within 120 days after the end of each of Lessee's
and Guarantor's fiscal years, and together with the annual audit report
furnished in accordance with clause (a) above, an Officer's Certificate stating
that to the best of the signer's knowledge and belief after making due inquiry,
Lessee is not in default in the performance or observance of any of the terms
of this Lease, or if Lessee shall be in default, specifying all such defaults,
the nature thereof, and the steps being taken to remedy the same;

                  (c)      within thirty (30) days after the end of each of the
first twelve (12) months of the Term and the last eighteen (18) months of the
Term, all consolidated financial reports that Lessor may reasonably request
containing, among other things, detailed statements of income and detailed
operational statistics regarding occupancy rates, patient and resident mix


                                      56


and patient and resident rates by type for each Facility; and otherwise within
thirty (30) days after the end of each of Lessee's quarters, all quarterly
consolidated financial reports Lessee may reasonably request containing, among
other things, detailed statements of income and detailed operational statistics
regarding occupancy rates, patient and resident mix and patient and resident
rates by type for each Facility;

                  (d)      within thirty (30) days after filing, a copy of each
cost report filed with the appropriate governmental agency for each Facility;

                  (e)      within thirty (30) days after they are required to
be filed with the SEC, copies of any annual reports and of information,
documents and other reports, or copies of such portions of any of the foregoing
as the SEC may prescribe, which ARC is required to file with the SEC pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934;

                  (f)      immediately upon Lessee's receipt thereof, copies of
all written communications received by Lessee from any regulatory agency
relating to (i) surveys of each Facility for purposes of licensure, Medicare
and Medicaid certification and accreditation and (ii) any proceeding, formal or
informal, with respect to cited deficiencies with respect to services and
activities provided and performed at each Facility, including patient and
resident care, patient and resident activities, patient and resident therapy,
dietary, medical records, drugs and medicines, supplies, housekeeping and
maintenance, or the condition of each Facility, and involving an actual or
threatened warning, imposition of a fine or a penalty, or suspension,
termination or revocation of any Facility's license to be operated in
accordance with its Primary Intended Use;

                  (g)      [intentionally omitted];

                  (h)      immediately upon Lessee's receipt thereof, copies of
all claims, reports, complaints, notices, warnings or asserted violations
relating in any way to the Leased Property or any Capital Additions or Lessee's
use thereof; and

                  (i)      with reasonable promptness, such other information
respecting (i) the financial and operational condition and affairs of Lessee,
any Guarantor and each Facility, (ii) the physical condition of the Leased
Property and any Capital Additions and (iii) any suspected Transfer, including
the then equity or voting ownership in Lessee or in any Controlling Person(s),
in each case as Lessor may reasonably request, in the form of a questionnaire
or otherwise, from time to time.

                  25.1.3   Charges. Lessee acknowledges that the failure to
furnish Lessor with any of the certificates or statements required by this
Article XXV will cause Lessor to incur costs and expenses not contemplated
hereunder, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Accordingly, if Lessee fails to furnish Lessor with any
of the certificates or statements required by this Article XXV more than two
(2) times in any given Lease Year, Lessee shall pay to Lessor, as an Additional
Charge, upon demand $1,000 for each subsequent failure to provide any of such
certificates or statements occurring in such Lease Year. The parties agree that
this charge represents a fair and reasonable estimate of


                                      57


the costs that Lessor will incur by reason of Lessee's failure to furnish
Lessor with such certificates and statements.

                                 ARTICLE XXVI.

         26.1     Lessor's Right to Inspect and Show the Leased Property and
Capital Additions. Lessee shall permit Lessor and its authorized
representatives, upon reasonable prior notice, to (i) inspect the Leased
Property and any Capital Additions and (ii) exhibit the same to prospective
purchasers and lenders, and during the last twelve (12) months of the Term
applicable to each portion of the Leased Property and Capital Additions, to
prospective lessees or managers, in each instance during usual business hours
and subject to any reasonable security, health, safety or confidentiality
requirements of Lessee or any Legal Requirement or Insurance Requirement.
Lessee shall cooperate with Lessor in exhibiting the Leased Property and any
Capital Additions to prospective purchasers, lenders, lessees and managers.

                                ARTICLE XXVII.

         27.1     No Waiver. No failure by Lessor to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
hereunder and no acceptance of full or partial payment of Rent during the
continuance of any default or Event of Default shall constitute a waiver of any
such breach or of any such term. No waiver of any breach shall affect or alter
this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.

                                ARTICLE XXVIII.

         28.1     Remedies Cumulative. Each legal, equitable or contractual
right, power and remedy of Lessor now or hereafter provided either in this
Lease or by statute or otherwise shall be cumulative and concurrent and shall
be in addition to every other right, power and remedy and the exercise or
beginning of the exercise by Lessor of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or subsequent exercise by
Lessor of any or all of such other rights, powers and remedies.

                                 ARTICLE XXIX.

         29.1     Acceptance of Surrender. No surrender to Lessor of this Lease
or of the Leased Property or any Capital Additions or any part(s) thereof or of
any interest therein, shall be valid or effective unless agreed to and accepted
in writing by Lessor and no act by Lessor or any representative or agent of
Lessor, other than such a written acceptance by Lessor, shall constitute an
acceptance of any such surrender.

                                 ARTICLE XXX.

         30.1     No Merger. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly, (i) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate
and (ii) the fee estate in the Leased Property.


                                      58


                                 ARTICLE XXXI.

         31.1     Conveyance by Lessor. Lessor may, without the consent or
approval of Lessee, sell, transfer, assign, convey or otherwise dispose of any
or all of the Leased Property, subject, however, to this Lease. If Lessor or
any successor owner of the Leased Property shall sell, transfer, assign, convey
or otherwise dispose of the Leased Property other than as security for a debt
and if Lessor delivers all letters of credit to such transferee, Lessor or such
successor owner, as the case may be, shall thereupon be released from all
future liabilities and obligations of Lessor with respect to such Leased
Property under this Lease arising or accruing from and after the date of such
sale, transfer, assignment or other disposition and all such future liabilities
and obligations with respect to such Leased Property shall thereupon be binding
upon such purchaser, grantee, assignee or transferee. In the event of any such
sale, transfer, assignment, conveyance or other disposition (other than as
security for a debt) of less than all of the Leased Property then subject to
this Lease, the provisions of Section 31.2 hereof shall apply.

         31.2     New Lease. Lessor shall have the right, at any time and from
time to time during the Term for any purpose, by written notice to Lessee, to
require Lessee to execute an amendment to this Lease whereby the Leased
Property of one or more Facilities (individually, a "Separated Property" or
collectively, the "Separated Properties") is separated and removed from this
Lease, and to simultaneously execute a substitute lease with respect to such
Separated Property(ies), in which case:

                  31.2.1   Lessor and Lessee shall execute a new lease (the
"New Lease") for such Separated Property(ies), effective as of the date
specified in Section 31.2.3 below (the "New Lease Effective Date"), in the same
form and substance as this Lease, but with such changes thereto as necessary to
reflect the separation of the Separated Property(ies) from the balance of the
Leased Property, including specifically the following:

                  (a)      The total monthly Minimum Rent payable under such
New Lease shall be the total applicable monthly Allocated Minimum Rent with
respect to such Separated Property(ies);

                  (b)      All Minimum Rent rental escalations under the New
Lease shall be at the times and in the amounts set forth in this Lease for
Minimum Rent increases;

                  (c)      If such Separated Property(ies) includes the
Victoria Facility, the "Additional Rent" payable under such New Lease shall be
the Victoria Additional Rent; and

                  (d)      The New Lease shall provide that the lessee
thereunder shall be responsible for the payment, performance and satisfaction
of all duties, obligations and liabilities arising under this Lease, insofar as
they relate to the Separated Property(ies), that were not paid, performed and
satisfied in full prior to the effective date of the New Lease (and Lessee
under this Lease shall also be responsible for the payment, performance and
satisfaction of the aforesaid duties, obligations and liabilities not paid,
performed and satisfied in full prior to the effective date of such New Lease).


                                      59


                  31.2.2   Lessor and Lessee shall also execute an amendment to
this Lease effective as of the New Lease Effective Date reflecting the
separation of the Separated Property(ies) from the balance of the Leased
Property and making such modifications to this Lease as are necessitated
thereby.

                  31.2.3   In the case of any New Lease that is entered into in
accordance with this Section 31.2 such New Lease shall be effective on the date
which is the earlier of (i) the date the New Lease is fully executed and
delivered by the parties thereto and (ii) the date specified in the written
notice from Lessor to Lessee requiring a New Lease as described above, which
date shall be no sooner than ten (10) days after the date such notice is
issued.

                  31.2.4   The amendment contemplated in Section 31.2.2 above
and the New Lease shall be such that the obligations of the lessees under this
Lease (as amended) and the New Lease shall not be greater or less than the
obligations of Lessee under this Lease (prior to such amendment) and the rights
and entitlements of such lessees under this Lease (as amended) and the New
Lease shall not be less than the rights and entitlements of Lessee under this
Lease (prior to such amendment).

                  31.2.5   Lessee's obligation to provide letters of credit in
accordance with Article 21 of this Lease shall be segregated so that (a) the
applicable Lessee shall be required to provide a letter of credit pursuant to
the New Lease, on the same terms and conditions as set forth in this Lease,
except that "Letter of Credit Amount" under the New Lease shall mean an amount
equal to the then existing Letter of Credit Amount under this Lease (prior to
the amendment contemplated in Section 31.2.2 above), times a fraction, the
numerator of which is the then existing annual Allocated Minimum Rent for the
Separated Propert(ies), and the denominator of which is the then existing total
annual Minimum Rent payable for all Facilities (including the Separated
Propert(ies)), and (b) the "Letter of Credit Amount" under this Lease (as
amended) shall be reduced by the "Letter of Credit Amount" for the New Lease
determined in accordance with subsection (a) above.

                  31.2.6   Lessee and Lessor shall take such actions and
execute and deliver such documents, including without limitation the New Lease
and an amendment to this Lease, as are reasonably necessary and appropriate to
effectuate the provisions and intent of this Section 31.2.

                  31.2.7   Each party shall bear its own costs and expenses in
connection with any New Lease entered into in accordance with this Section
31.2.

                                ARTICLE XXXII.

         32.1     Quiet Enjoyment. So long as Lessee shall pay the Rent as the
same becomes due and shall fully comply with all of the terms of this Lease and
fully perform its obligations hereunder, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term, free of any claim or
other action by Lessor or anyone claiming by, through or under Lessor, but
subject to all liens and encumbrances of record as of the date hereof, or the
Commencement Date or created thereafter as permitted hereunder or thereafter
consented to by Lessee.


                                      60


                                ARTICLE XXXIII.

         33.1     Notices. Any notice, consent, approval, demand or other
communication required or permitted to be given hereunder (a "notice") must be
in writing and may be served personally or by U.S. Mail. If served by U.S.
Mail, it shall be addressed as follows:

          If to Lessor:             Health Care Property Investors, Inc.
                                             4675 MacArthur Court, Suite 900
                                             Newport Beach, California 92660
                                             Attn:  Legal Department
                                             Fax:  (949) 221-0607

          with a copy to:           Latham & Watkins
                                             650 Town Center Drive, Suite 2000
                                             Costa Mesa, California 92626
                                             Attn:  David C. Meckler, Esq.
                                             Fax:  (714) 755-8290

          If to Lessee:             American Retirement Corporation
                                             111 Westwood Place, Suite 200
                                             Brentwood, Tennessee  37027
                                             Attn:  W.E. Sheriff
                                             Fax:  (615) 221-2272

          with a copy to:           Bass, Berry & Sims PLC
                                             AmSouth Center
                                             315 Deaderick Street, Suite 2700
                                             Nashville, Tennessee 37238-0002
                                             Attn:  D. Mark Sheets, Esq.
                                             Fax:   (615) 742-2757

Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return
receipt requested, postage prepaid and addressed as provided above, on the date
of receipt, refusal or non-delivery indicated on the return receipt. In lieu of
notice by U.S. Mail, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal Express). Any notice sent by facsimile
shall be effective upon confirmation of receipt in legible form, provided that
an original of such facsimile is also sent to the intended addressee by another
method approved in this Section 33.1, and any notice sent by a nationally
recognized overnight courier shall be effective on the date of delivery to the
party at its address specified above as set forth in the courier's delivery
receipt. Either party may, by notice to the other from time to time in the
manner herein provided, specify a different address for notice purposes.


                                      61


                                ARTICLE XXXIV.

         34.1     Appraiser. If it becomes necessary to determine the Fair
Market Value, or Fair Market Rental of any Facility for any purpose of this
Lease or the Leasehold FMV for purposes of determining any Transfer
Consideration payable to Lessor in connection with a Sale of Business pursuant
to this Lease, the same shall be determined by an independent appraisal firm,
in which one or more of the members, officers or principals of such firm are
Members of the Appraisal Institute (or any successor organization thereto), as
may be reasonably selected by Lessor and approved by Lessee (the "Appraiser").
Lessor shall cause such Appraiser to determine the Fair Market Value, Fair
Market Rental, or Leasehold FMV of such Facility as of the relevant date
(giving effect to the impact, if any, of inflation from the date of the
Appraiser's decision to the relevant date) and the determination of such
Appraiser shall be final and binding upon the parties. A written report of such
Appraiser shall be delivered and addressed to each of Lessor and Lessee. To the
extent consistent with sound appraisal practice as then existing at the time of
any such appraisal, an appraisal of Fair Market Value for purposes of this
Lease shall take into account and shall give appropriate consideration to all
three customary methods of appraisal (i.e., the cost approach, the sales
comparison approach and the income approach), and no one method or approach
shall be deemed conclusive simply by reason of the nature of Lessor's business
or because such approach may have been used for purposes of determining the
fair market value of the applicable Facility at the time of acquisition thereof
by Lessor. This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and
any determination hereunder shall be final and binding upon the parties except
as otherwise provided by applicable law. Lessor and Lessee shall each pay
one-half (1/2) of the fees and expenses of the Appraiser and one-half (1/2) of
all other costs and expenses incurred in connection with such appraisal. If
Lessor and Lessee are unable to agree upon the Appraiser within fifteen (15)
days after Lessor notifies Lessee of the identity of Lessor's selected
Appraiser, then the following shall apply:

                  34.1.1   Within fifteen (15) days after Lessee's receipt of
Lessor's selected Appraiser, Lessee shall by notice to Lessor appoint a second
Appraiser meeting the requirements set forth above to act on its behalf. In
such event, the Appraisers thus appointed shall, within sixty (60) days after
the date of Lessor's notice of its originally selected Appraiser, proceed to
determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such
Facility as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date); provided,
however, that if Lessee fails to appoint its Appraiser within the time
permitted, or if two Appraisers shall have been so appointed but only one such
Appraiser shall have made such determination within such sixty (60) day period,
then the determination of such sole Appraiser shall be final and binding upon
the parties.

                  34.1.2   If the two Appraisers shall have been appointed and
shall have made their determinations within the respective requisite periods
set forth above and if the difference between the amounts so determined shall
not exceed ten percent (10%) of the lesser of such amounts then the Fair Market
Value, Fair Market Rental, or Leasehold FMV of such Facility shall be an amount
equal to fifty percent (50%) of the sum of the amounts so determined. If the
difference between the amounts so determined shall exceed ten percent (10%) of
the lesser of such amounts, then such two Appraisers shall have twenty (20)
days to appoint a third Appraiser meeting the above requirements, but if such
Appraisers fail to do so, then either party


                                      62


may request the CPR or AAA (as such terms are defined in Article XLIV) or any
successor organization(s) thereto to appoint an Appraiser meeting the above
requirements within twenty (20) days of such request, and both parties shall be
bound by any appointment so made within such twenty (20) day period. If no such
Appraiser shall have been appointed within such twenty (20) days or within one
hundred five (105) days of the original request for a determination of Fair
Market Value, Fair Market Rental, or Leasehold FMV of such Facility, whichever
is earlier, either Lessor or Lessee may apply to any court having jurisdiction
to have such appointment made by such court. Any Appraiser appointed by the
original Appraisers, by the CPR or AAA or by such court shall be instructed to
determine the Fair Market Value, Fair Market Rental, or Leasehold FMV of such
Facility within thirty (30) days after appointment of such Appraiser.

                  34.1.3   The determination of the Appraiser which differs
most in terms of dollar amount from the determinations of the other two
Appraisers shall be excluded, and fifty percent (50%) of the sum of the
remaining two determinations shall be final and binding upon Lessor and Lessee
as the Fair Market Value, Fair Market Rental, or Leasehold FMV of such
Facility. This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and
any determination hereunder shall be final and binding upon the parties except
as otherwise provided by applicable law.

If the foregoing two (2) or three (3) Appraiser system is utilized, then Lessor
and Lessee shall each pay the fees and expenses of the Appraiser appointed by
it and each shall pay one-half (1/2) of the fees and expenses of any third
Appraiser.

                                 ARTICLE XXXV.

         35.1     Lessee's Option to Purchase the Post Oak Facility. Provided
(i) no Event of Default, or event which, with notice or lapse of time or both,
would constitute an Event of Default, has occurred and is continuing hereunder,
(ii) ARC has completed a Successful Refinancing, and (iii) the aggregate Cash
Flow Coverage for the Richmond Heights Facility, the Delray Beach Facility, and
the Shavano Park Facility for the three month period immediately preceding
Lessee's exercise of the option equals or exceeds 1.2., then at any time after
the fourth (4th) Lease Year and prior to the expiration of the Term, Lessee
shall have the option to purchase the Post Oak Facility for a purchase price
equal to the Post Oak Repurchase Price. Such option shall be exercised, if at
all, upon ninety (90) days written notice to Lessor and concurrently with such
notice to Lessor, (i) opening an escrow (the "Escrow") with and by depositing
five percent (5%) of the Post Oak Repurchase Price (the "Opening Deposit) and a
copy of this Lease with a national title company reasonably acceptable to
Lessor ("Escrow Holder") and (ii) delivering to Lessor a reaffirmation of any
Guaranty executed by a Guarantor stating, in substance, that such Guarantor's
obligations under the Guaranty shall extend to the purchase contract formed by
Lessor and Lessee upon proper and timely exercise of such option. If Lessee
shall not be entitled to exercise such option (e.g., by reason of an Event of
Default) or shall be entitled to exercise the same but shall fail to do so
within the time and in the manner herein provided, such option shall lapse and
thereafter not be exercisable by Lessee. Without limiting the foregoing, if
Lessee shall not be entitled to exercise such option or shall be entitled to
exercise the same but shall fail to do so within the time and in the manner
herein provided, such option shall automatically terminate without further
action by either party. No failure by Lessor to notify Lessee of any defect in
any attempted exercise of the foregoing option shall be deemed a waiver by
Lessor of the right to


                                      63


insist upon Lessee's exercise of such option in strict accordance with the
provisions hereof. In the event that Lessee shall properly and timely exercise
such option, then such transaction shall be consummated on or within thirty
(30) days following the expiration of the foregoing ninety (90) day period (the
"Outside Closing Date").

         35.2     Defaults.

                  35.2.1   Liquidated Damages. IF, FOLLOWING A VALID AND PROPER
EXERCISE OF THE FOREGOING OPTION, LESSEE FAILS TO COMPLETE THE PURCHASE OF THE
POST OAK FACILITY AND SUCH FAILURE CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT
ITS OPTION, MAY TERMINATE THE PURCHASE CONTRACT FORMED BY LESSEE'S EXERCISE OF
SUCH OPTION AND THE ESCROW BY GIVING WRITTEN NOTICE TO LESSEE AND ESCROW HOLDER
AND, THEREUPON, THE ESCROW SHALL BE CANCELLED, ALL DOCUMENTS SHALL BE RETURNED
TO THE RESPECTIVE PARTIES WHO DEPOSITED THE SAME, AND LESSEE SHALL PAY ALL
TITLE AND ESCROW CANCELLATION CHARGES AND ALL OF LESSOR'S LEGAL FEES AND COSTS.
IN ADDITION, LESSOR AND LESSEE AGREE THAT, BASED ON THE CIRCUMSTANCES NOW
EXISTING, KNOWN OR UNKNOWN, IT WOULD BE EXCESSIVELY COSTLY AND IMPRACTICABLE TO
ESTABLISH LESSOR'S DAMAGES BY REASON OF LESSEE'S DEFAULT RESULTING IN A FAILURE
OF THE ESCROW TO CLOSE, AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT WOULD
BE REASONABLE TO AWARD LESSOR LIQUIDATED DAMAGES IN THE AMOUNT OF THE OPENING
DEPOSIT PLUS ANY ACCRUED INTEREST ON THE OPENING DEPOSIT. BY THEIR RESPECTIVE
INITIALS SET FORTH BELOW, LESSOR AND LESSEE ACKNOWLEDGE AND AGREE THAT THE
OPENING DEPOSIT, PLUS ANY INTEREST ACCRUED ON THE OPENING DEPOSIT, TOGETHER
WITH PAYMENT OF LESSOR'S LEGAL FEES AND COSTS, IS REASONABLE AS LIQUIDATED
DAMAGES FOR A DEFAULT OF LESSEE UNDER THE PURCHASE CONTRACT FORMED BY LESSEE'S
EXERCISE OF SUCH OPTION THAT RESULTS IN A FAILURE OF THE ESCROW TO CLOSE AND
SHALL BE IN LIEU OF ANY OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO
WHICH LESSOR MIGHT OTHERWISE BE ENTITLED BY REASON OF A LESSEE'S DEFAULT THAT
RESULTS IN A FAILURE OF THE ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN SHALL
LIMIT LESSOR'S RIGHTS AND REMEDIES FOR LESSEE'S DEFAULT OCCURRING AFTER THE
CLOSE OF ESCROW OR FOR LESSEE'S DEFAULT UNDER THIS LEASE. ESCROW HOLDER IS
HEREBY AUTHORIZED AND INSTRUCTED TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED
INTEREST THEREON TO LESSOR UPON THE DELIVERY OF UNILATERAL WRITTEN INSTRUCTIONS
THEREOF TO ESCROW HOLDER BY LESSOR, AND ESCROW HOLDER IS HEREBY RELIEVED OF ALL
LIABILITY THEREFOR. IF LESSEE WRONGFULLY ATTEMPTS TO INTERFERE WITH THE RELEASE
OF ANY SUCH SUMS BY ESCROW HOLDER TO LESSOR, OR WRONGFULLY COMMENCES ANY ACTION
AGAINST LESSOR OR THE LEASED PROPERTY ARISING OUT OF THIS ARTICLE, THEN LESSOR
SHALL NOT BE LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER FROM LESSEE.


                                      64


                                    Lessor's Initials:
                                                          ----------------------

                                    Lessee's Initials:
                                                          ----------------------

                  35.2.2   Other Defaults. A default under any other lease or
other agreement or instrument, including any purchase contract formed upon
exercise of any other option, with or in favor of Lessor or any Affiliate of
Lessor and made by or with Lessee or any Affiliate of Lessee where such default
is not cured within the applicable time period, if any, shall be deemed a
default under this Article XXXV and the purchase contract formed upon proper
exercise by Lessee of the option herein provided, entitling Lessor, as seller,
at its option, to terminate such purchase contract and the Escrow and upon any
such termination the Opening Deposit plus all accrued interest thereon shall be
paid over to Lessor as provided in Section 35.3.1 above.

         35.3     Escrow Provisions.

                  35.3.1   Opening of Escrow. Escrow shall be deemed open when
the Opening Deposit and a copy of this Lease are delivered to Escrow Holder.

                  35.3.2   General and Supplemental Instructions. Lessee and
Lessor each shall execute, deliver and be bound by such further escrow
instructions or other instruments as may be reasonably requested by the other
party or by Escrow Holder from time to time, so long as the same are consistent
with the provisions of this Lease.

                  35.3.3   Disposition of Opening Deposit. Escrow Holder shall
hold the Opening Deposit in interest-bearing accounts. All interest earned on
the Opening Deposit shall accrue to Lessee's benefit unless Lessor is entitled
thereto under Section 35.3.1. With full knowledge that Escrow shall not have
closed, Lessee nevertheless agrees to relieve Escrow Holder of all liabilities
in making such payment and for any failure to recover said sum in the event
that Escrow does not close at anytime thereafter. The Opening Deposit plus
interest thereon shall be (i) applied against the purchase price (as herein
determined) if Escrow closes, (ii) returned to Lessee in full if Escrow does
not close for any reason other than Lessee's default, or (iii) be paid to
Lessor as nonrefundable liquidated damages under Section 35.2.1, if Escrow
fails to close under the provisions of hereof as a result of Lessee's default.

                  35.3.4   Closing Funds. At least one (1) business day before
the Close of Escrow (as hereinafter defined), Escrow Holder shall calculate and
Lessee shall wire cash into Escrow (using wiring instructions reasonably
satisfactory to Escrow Holder) in an amount which, when added to the Opening
Deposit and all accrued interest shall equal the purchase price for the Post
Oak Facility plus any other sums payable by Lessee pursuant to the provisions
hereof.

                  35.3.5   Close of Escrow. Escrow shall close on the Outside
Closing Date. The term "Close of Escrow" as used in this Article shall mean the
time and date that an appropriate deed or other conveyance document conveying
Lessor's entire interest in the Post Oak Facility, subject to the permitted
liens and encumbrances described in Article XVIII hereof, is recorded in
appropriate records of the county in which the Post Oak Facility is located.
The Outside Closing Date shall not be extended for any reason.


                                      65


                  35.3.6   Closing Costs. The closing costs of consummating the
purchase of the Post Oak Facility shall be paid by Lessee as provided in
Article XVIII.

                  35.3.7   [Intentionally Omitted]

                  35.3.8   Termination of Lease with Respect to Post Oak
Facility. Upon the Close of Escrow, this Lease shall be terminated with respect
to the Post Oak Facility (only) in accordance with Section 5.2 above.

         35.4     Lessor's Election of 1031 Exchange.

                  35.4.1   In the event that Lessee exercises its option to
purchase as provided in this Article XXXV, Lessor may elect to sell the Post
Oak Facility to Lessee in the form of a tax-deferred exchange pursuant to
Section 1031 of the Internal Revenue Code of 1986, as amended ("1031
Exchange"). In the event that Lessor shall so elect, Lessor shall give written
notice to Lessee and Escrow Holder of such election and the following shall
apply:

                  35.4.1.1 Simultaneous Exchange. Lessor may attempt to
identify before the Close of Escrow other property which qualifies as
"like-kind" property for a 1031 Exchange (the "Target Property") by giving
written notice to Lessee and Escrow Holder and identifying to Escrow Holder the
Target Property prior to the Close of Escrow.

                  35.4.1.2 Non-simultaneous Exchange. If Lessor has not so
identified the Target Property before the Close of Escrow, then Lessor shall
proceed with the Close of Escrow and Lessor at its option may enter into an
exchange agreement with an accommodation party ("Accommodator") in order to
facilitate a non-simultaneous or so-called "Starker deferred" exchange. If an
Accommodator is so designated, Lessor shall cause the Accommodator (i) to
acquire title to the Post Oak Facility from Lessor at or before the Close of
Escrow and, (ii) to transfer title in the Post Oak Facility to Lessee on the
Close of Escrow for the Post Oak Repurchase Price.

                  35.4.1.3 Expenses and Documents. Lessee shall fully cooperate
with any such 1031 Exchange, including but not limited to executing and
delivering additional documents reasonably requested or approved by Lessor;
provided, that Lessee shall not be required to incur any additional costs or
liabilities or financial obligation as a consequence of any of the foregoing
exchange transactions.

                                ARTICLE XXXVI.

         36.1     Lessor May Grant Liens. Without the consent of Lessee, Lessor
may, from time to time, directly or indirectly, create or otherwise cause to
exist any ground lease, mortgage, trust deed, lien, encumbrance or title
retention agreement (collectively, an "Encumbrance") upon the Leased Property
and any Capital Additions or any part(s) or portion(s) thereof or interests
therein. This Lease is and at all times shall be subject and subordinate to any
such Encumbrance which may now or hereafter affect the Leased Property and/or
any such Capital Additions and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, that the subjection and
subordination of this Lease and Lessee's leasehold interest hereunder to any
Encumbrance shall be conditioned upon the


                                      66


execution by the holder of such Encumbrance and delivery to Lessee of a
non-disturbance and attornment agreement which provides that so long as no
Event of Default has occurred and is continuing, the holder of such Encumbrance
shall not disturb Lessee's leasehold interest or possession of the Leased
Property in accordance with the terms hereof, or any of Lessee's rights,
privileges and options hereunder. This clause shall be self-operative and no
further instrument of subordination shall be required; provided, however, that
in confirmation of such subordination, Lessee shall execute promptly any
certificate or document that Lessor or any ground or underlying lessor,
mortgagee or beneficiary may reasonably request for such purposes. If, in
connection with obtaining financing or refinancing for the Leased Property
and/or any such Capital Additions, a Facility Mortgagee or prospective Facility
Mortgagee shall request reasonable modifications to this Lease as a condition
to such financing or refinancing, Lessee shall not unreasonably withhold or
delay its consent thereto.

         36.2     Attornment. If Lessor's interest in the Leased Property
and/or any Capital Additions is sold or conveyed upon the exercise of any
remedy provided for in any Facility Mortgage, or otherwise by operation of law:
(i) Lessee shall attorn to and recognize the new owner as Lessee's Lessor under
this Lease or enter into a new lease substantially in the form of this Lease
with the new owner, and Lessee shall take such actions to confirm the foregoing
within ten (10) days after request; and (ii) the new owner shall not be (a)
liable for any act or omission of Lessor under this Lease occurring prior to
such sale or conveyance, or (b) subject to any offset, abatement or reduction
of rent because of any default of Lessor under this Lease occurring prior to
such sale or conveyance.

                                ARTICLE XXXVII.

         37.1     Hazardous Substances. Lessee shall not allow any Hazardous
Substance to be located, stored, disposed of, released or discharged in, on,
under or about the Leased Property or incorporated in any Facility; provided,
however, that Hazardous Substances may be brought, kept, used or disposed of
in, on or about the Leased Property or any Capital Additions in quantities and
for purposes similar to those brought, kept, used or disposed of in, on or
about similar facilities used for purposes similar to the Primary Intended Use
and which are brought, kept, used and disposed of in strict compliance with
Legal Requirements. Lessee shall not allow the Leased Property or any Capital
Additions to be used as a waste disposal site or, except as permitted in the
immediately preceding sentence, for the manufacturing, handling, storage,
distribution or disposal of any Hazardous Substance.

         37.2     Notices. Lessee shall provide to Lessor promptly, and in any
event immediately upon Lessee's receipt thereof, a copy of any notice, or
notification with respect to, (i) any violation of a Legal Requirement relating
to Hazardous Substances located in, on, or under the Leased Property or any
Capital Additions or any adjacent property thereto; (ii) any enforcement,
cleanup, removal, or other governmental or regulatory action instituted,
completed or threatened with respect to the Leased Property or any Capital
Additions; (iii) any claim made or threatened by any Person against Lessee or
the Leased Property or any Capital Additions relating to damage, contribution,
cost recovery, compensation, loss, or injury resulting from or claimed to
result from any Hazardous Substance; and (iv) any reports made to any federal,
state or local environmental agency arising out of or in connection with any
Hazardous Substance in,


                                      67


on, under or removed from the Leased Property or any Capital Additions,
including any complaints, notices, warnings or asserted violations in
connection therewith.

         37.3     Remediation. If Lessee becomes aware of a violation of any
Legal Requirement relating to any Hazardous Substance in, on, under or about
the Leased Property or any Capital Additions or any adjacent property thereto,
or if Lessee, Lessor or the Leased Property or any Capital Additions becomes
subject to any order of any federal, state or local agency to repair, close,
detoxify, decontaminate or otherwise remediate the Leased Property and any
Capital Additions, Lessee shall immediately notify Lessor of such event and, at
its sole cost and expense, cure such violation or effect such repair, closure,
detoxification, decontamination or other remediation; provided, however, that
Lessee shall not be required to cure any violation or effect any repair,
closure, detoxification, decontamination or other remediation on any adjacent
property unless such violation is caused by Lessee or the source of any such
violation emanated from the Leased Property, whether prior to or during the
Term. If Lessee fails to implement and diligently pursue any such cure, repair,
closure, detoxification, decontamination or other remediation, Lessor shall
have the right, but not the obligation, to carry out such action and to recover
from Lessee all of Lessor's costs and expenses incurred in connection
therewith.

         37.4     Indemnity. Lessee shall indemnify, defend, protect, save,
hold harmless, and reimburse Lessor for, from and against any and all costs,
losses (including, losses of use or economic benefit or diminution in value),
liabilities, damages, assessments, lawsuits, deficiencies, demands, claims and
expenses (collectively, "Environmental Costs") (whether or not arising out of
third-party claims and regardless of whether liability without fault is
imposed, or sought to be imposed, on Lessor) incurred in connection with,
arising out of, resulting from or incident to, directly or indirectly, before
or during the Term (i) the production, use, generation, storage, treatment,
transporting, disposal, discharge, release or other handling or disposition of
any Hazardous Substances from, in, on or about the Leased Property or any
Capital Additions (collectively, "Handling"), including the effects of such
Handling of any Hazardous Substances on any Person or property within or
outside the boundaries of the Leased Property or any Capital Additions, (ii)
the presence of any Hazardous Substances in, on, under or about the Leased
Property or any Capital Additions and (iii) the violation of any Legal
Requirements (including Environmental Laws). "Environmental Costs" include
interest, costs of response, removal, remedial action, containment, cleanup,
investigation, design, engineering and construction, damages (including actual,
consequential and punitive damages) for personal injuries and for injury to,
destruction of or loss of property or natural resources, relocation or
replacement costs, penalties, fines, charges or expenses, attorney's fees,
expert fees, consultation fees, and court costs, and all amounts paid in
investigating, defending or settling any of the foregoing.

         Without limiting the scope or generality of the foregoing, Lessee
expressly agrees to reimburse Lessor for any and all costs and expenses
incurred by Lessor:

                  (a)      In investigating any and all matters relating to the
Handling of any Hazardous Substances, in, on, from, under or about the Leased
Property or any Capital Additions;

                  (b)      In bringing the Leased Property or any Capital
Additions into compliance with all Legal Requirements; and


                                      68


                  (c)      Removing, treating, storing, transporting,
cleaning-up and/or disposing of any Hazardous Substances used, stored,
generated, released or disposed of in, on, from, under or about the Leased
Property or any Capital Additions or offsite.

         If any claim is made hereunder, Lessee agrees to pay such claim
promptly, and in any event to pay such claim within thirty (30) calendar days
after receipt by Lessee of notice thereof. If any such claim is not so paid and
Lessor is ultimately found or agrees to be responsible therefore, Lessee agrees
also to pay interest on the amount paid from the date of the first notice of
such claim, at the Overdue Rate.

         37.5     Environmental Inspection. If Lessor reasonably believes the
Leased Property to be in violation of applicable Environmental Laws, then (a)
Lessor shall have the right, from time to time, and upon not less than five (5)
days' written notice to Lessee, except in the case of an emergency in which
event no notice shall be required, to conduct an inspection of the Leased
Property and all Capital Additions to determine the existence or presence of
Hazardous Substances on or about the Leased Property or any such Capital
Additions, (b) Lessor shall have the right to enter and inspect the Leased
Property and all Capital Additions, conduct any testing, sampling and analyses
it deems necessary and shall have the right to inspect materials brought into
the Leased Property or any such Capital Additions, (c) Lessor may, in its
discretion, retain such experts to conduct the inspection, perform the tests
referred to herein, and to prepare a written report in connection therewith,
and (d) all costs and expenses incurred by Lessor under this Section shall be
paid on demand as Additional Charges by Lessee to Lessor. Failure to conduct an
environmental inspection or to detect unfavorable conditions if such inspection
is conducted shall in no fashion be intended as a release of any liability for
environmental conditions subsequently determined to be associated with or to
have occurred during Lessee's tenancy. Lessee shall remain liable for any
environmental condition related to or having occurred during its tenancy
regardless of when such conditions are discovered and regardless of whether or
not Lessor conducts an environmental inspection at the termination of this
Lease. The obligations set forth in this Article shall survive the expiration
or earlier termination of the Lease.

                               ARTICLE XXXVIII.

         38.1     Memorandum of Lease. Lessor and Lessee shall, promptly upon
the request of either, enter into one or more short form memoranda of this
Lease, each in form suitable for recording under the laws of the applicable
State. Lessee shall pay all costs and expenses of recording any such memoranda
and shall fully cooperate with Lessor in removing from record any such
memoranda upon the expiration or earlier termination of the Term with respect
to the applicable Facility.

                                ARTICLE XXXIX.

         39.1     Sale of Assets. Notwithstanding any other provision of this
Lease, Lessor shall not be required to (i) sell or transfer the Leased
Property, or any portion thereof, which is a real estate asset as defined in
Section 856(c)(5)(B), or functionally equivalent successor provision, of the
Code, to Lessee if Lessor's counsel advises Lessor that such sale or transfer
may not be a sale of property described in Section 857(b)(6)(C), or
functionally equivalent


                                      69


successor provision, of the Code or (ii) sell or transfer the Leased Property,
or any portion thereof, to Lessee if Lessor's counsel advises Lessor that such
sale or transfer could result in an unacceptable amount of gross income for
purposes of the Ninety-Five percent (95%) gross income test contained in
Section 856(c)(2), or functionally equivalent successor provision, of the Code.
If Lessee has the right or obligation to purchase the property pursuant to the
terms herein, and if Lessor determines not to sell such property pursuant to
the above sentence, then Lessee shall purchase such property, upon and subject
to all applicable terms and conditions set forth in this Lease, including the
provisions of Article XXXV, at such time as the transaction, upon the advice of
Lessor's counsel, would be a sale of property (to the extent the Leased
Property is a real estate asset) described in Section 857(b)(6)(C), or
functionally equivalent successor provision, of the Code, and would not result
in an unacceptable amount of gross income for purposes of the Ninety-Five
Percent (95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property and all Capital Additions from Lessor at the lesser
of (i) Fair Market Rental or (ii) the then current Allocated Minimum Rent and
any Victoria Additional Rent, if applicable, for such Leased Property under
this Lease.

                                  ARTICLE XL.

         40.1     [Intentionally Omitted].

                                 ARTICLE XLI.

         41.1     Authority. If Lessee is a corporation, limited liability
company, trust, or partnership, Lessee, and each individual executing this
Lease on behalf of Lessee, represent and warrant that each is duly authorized
to execute and deliver this Lease on behalf of Lessee and shall concurrently
with the execution and delivery of this Lease to Lessor deliver to Lessor
evidence of such authority satisfactory to Lessor.

                                 ARTICLE XLII.

         42.1     Attorneys' Fees. If Lessor or Lessee brings an action or
other proceeding (including an arbitration pursuant to Article XLIV) against
the other to enforce any of the terms, covenants or conditions hereof or any
instrument executed pursuant to this Lease, or by reason of any breach or
default hereunder or thereunder, the party prevailing in any such action or
proceeding and any appeal thereupon shall be paid all of its costs and
reasonable attorneys' fees incurred therein. In addition to the foregoing and
other provisions of this Lease that specifically require Lessee to reimburse,
pay or indemnify against Lessor's attorneys' fees, Lessee shall pay, as
Additional Charges, all of Lessor's reasonable attorneys' fees incurred in
connection with the administration or enforcement of this Lease, including
attorneys' fees incurred in connection with Lessee's exercise of its option to
purchase the Leased Property or the renewal of this Lease for any Extended
Term, the review of any letters of credit, the review, negotiation or
documentation of any subletting, assignment, or management arrangement or any
consent requested in connection therewith, and the collection of past due Rent.


                                      70


                                ARTICLE XLIII.

         43.1     Brokers. Lessee warrants that it has not had any contact or
dealings with any Person or real estate broker which would give rise to the
payment of any fee or brokerage commission in connection with this Lease, and
Lessee shall indemnify, protect, hold harmless and defend Lessor from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessee. Lessor warrants that it has not had any
contact or dealings with any Person or real estate broker which would give rise
to the payment of any fee or brokerage commission in connection with this
Lease, and Lessor shall indemnify, protect, hold harmless and defend Lessee
from and against any liability with respect to any fee or brokerage commission
arising out of any act or omission of Lessor.

                                 ARTICLE XLIV.

         44.1     Submission to Arbitration.

         44.1.1   Except as provided in Section 44.1.2 below, any controversy,
dispute or claim of whatsoever nature arising out of, in connection with, or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort or statute, shall be determined by final and
binding, confidential arbitration in accordance with the then current CPR
Institute for Dispute Resolution Rules for Non-Administered Arbitration of
Business Disputes ("CPR"), by a sole arbitrator mutually selected by Lessor and
Lessee from among the CPR Panel of Distinguished Neutrals; provided, however,
that if the CPR (or any successor organization thereto) no longer exists, then
such arbitration shall be administered by the American Arbitration Association
("AAA") in accordance with its then-existing Commercial Arbitration Rules, and
the sole arbitrator shall be selected in accordance with such AAA rules. Any
arbitration hereunder shall be governed by the United States Arbitration Act, 9
U.S.C. 1-16 (or any successor legislation thereto), and judgment upon the award
rendered by the arbitrator may be entered by any state or federal court having
jurisdiction thereof. If Lessor and Lessee are not able to agree on an
arbitrator, then an arbitrator shall be appointed by the CPR or AAA upon
application by either party. Neither Lessor, Lessee nor the arbitrator shall
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of all parties; provided, however, that either party
may disclose the existence, content or results of any such arbitration to its
partners, officers, directors, employees, agents, attorneys and accountants and
to any other Person to whom disclosure is required by applicable Legal
Requirements, including pursuant to an order of a court of competent
jurisdiction, or as may be necessary to enforce the same. Unless otherwise
agreed by the parties, any arbitration hereunder shall be held at a neutral
location selected by the arbitrator in the major metropolitan area in the State
closest in proximity to the Leased Property. The cost of the arbitrator and the
expenses relating to the arbitration (exclusive of legal fees) shall be borne
equally by Lessor and Lessee unless otherwise specified in the award of the
arbitrator. Such fees and costs paid or payable to the arbitrator shall be
included in "costs and reasonable attorneys' fees" for purposes of Article XLII
and the arbitrator shall specifically have the power to award to the prevailing
party pursuant to such Article XLII such party's costs and expenses incurred in
such arbitration, including fees and costs paid to the arbitrator.


                                      71


                  44.1.2   The provisions of this Article XLIV shall not apply
to:

                  (a)      Any unlawful detainer or other similar summary or
expedited proceeding for ejectment or recovery of possession of the Leased
Property and Capital Additions of any Facility instituted by Lessor in
accordance with applicable Legal Requirements as the result of an Event of
Default or alleged Event of Default by Lessee pursuant to this Lease, and any
compulsory counterclaim of Lessee with respect thereto. In addition, if
permitted by applicable Legal Requirements, Lessor shall be entitled in
connection with any such proceeding to seek any damages to which it is entitled
at law, including those set forth in Article XVI.

                  (b)      Any specific controversy, dispute, question or issue
as to which this Lease specifically provides another method of determining such
controversy, dispute, question or issue and provides that a determination
pursuant to such method is final and binding, unless both Lessor and Lessee
agree in writing to waive such procedure and proceed instead pursuant to this
Article XLIV.

                  (c)      Any request or application for an order or decree
granting any provisional or ancillary remedy (such as a temporary restraining
order or injunction) with respect to any right or obligation of either party to
this Lease, and any preliminary determination of the underlying controversy,
dispute, question or issue as is required to determine whether or not to grant
such relief. A final and binding determination of such underlying controversy,
dispute, question or issue shall be made by an arbitration conducted pursuant
to this Article XLIV after an appropriate transfer or reference to the
arbitrator selected pursuant to this Article XLIV upon motion or application of
either party hereto. Any ancillary or provisional relief which is granted
pursuant to this clause (c) shall continue in effect pending an arbitration
determination and entry of judgment thereon pursuant to this Article XLIV.

                                 ARTICLE XLV.

         45.1     Miscellaneous.

                  45.1.1   Survival. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities and indemnities
of, Lessee or Lessor arising prior to the expiration or earlier termination of
the Term shall survive such expiration or termination. In addition, all claims
against, and all liabilities and indemnities hereunder of Lessee shall continue
in full force and effect and in favor of the Lessor named herein and its
successors and assigns, notwithstanding any conveyance of the Leased Property
to Lessee.

                  45.1.2   Severability. If any term or provision of this Lease
or any application thereof shall be held invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.

                  45.1.3   Non-Recourse. Lessee specifically agrees to look
solely to the Leased Property (and any proceeds thereof) for recovery of any
judgment from Lessor. It is specifically agreed that no constituent partner in
Lessor or officer, director or employee of Lessor shall ever be personally
liable for any such judgment or for the payment of any monetary obligation to
Lessee. The provision contained in the foregoing sentence is not intended to,
and


                                      72

shall not, limit any right that Lessee might otherwise have to obtain
injunctive relief against Lessor, or any action not involving the personal
liability of Lessor. Furthermore, except as otherwise expressly provided herein,
in no event shall Lessor ever be liable to Lessee for any indirect or
consequential damages suffered by Lessee from whatever cause.

                  45.1.4   Licenses and Operation Transfer Agreements. Upon the
expiration or earlier termination of the Term applicable to any Facility
(unless such Facility has been purchased by Lessee), Lessee shall use its best
efforts to transfer to Lessor or Lessor's nominee such Facility in a fully
operational condition and shall cooperate with Lessor or Lessor's designee or
nominee in connection with the processing by Lessor or Lessor's designee or
nominee of any applications for all licenses, operating permits and other
governmental authorization, all contracts, including contracts with
governmental or quasi-governmental entities, business records, data, patient
and resident records, and patient and resident trust accounts, which may be
necessary or useful for the operation of such Facility; provided that the costs
and expenses of any such transfer or the processing of any such application
shall be paid by Lessor or Lessor's designee or nominee. Lessee shall not
commit any act or be remiss in the undertaking of any act that would jeopardize
the licensure or certification of such Facility, and Lessee shall comply with
all reasonable requests for an orderly transfer of the same upon the expiration
or early termination of the Term applicable to such Facility. Without limiting
the generality of the foregoing, if requested by Lessor or a proposed
replacement operator for such Facility, Lessee hereby agrees to enter into a
reasonable operations transfer agreement with such replacement operator as is
customary in the transfer to a new operator of the operations of a facility
similar to such Facility. Lessee shall not unreasonably withhold, condition or
delay its consent to entering into any interim subleases or management
agreements as may be necessary to effectuate an early transfer of the
operations of such Facility prior to the time that such replacement operator
holds all licenses and permits from all applicable governmental authorities
with jurisdiction necessary to operate such Facility for its Primary Intended
Use. In addition, upon request, Lessee shall promptly deliver copies of all
books and records relating to the Leased Property and all Capital Additions of
such Facility and operations thereon to Lessor or Lessor's designee or nominee.
Lessee shall indemnify, defend, protect and hold harmless Lessor from and
against any loss, damage, cost or expense incurred by Lessor or Lessor's
designee or nominee in connection with the correction of any and all
deficiencies of a physical nature identified by any governmental authority
responsible for licensing the Leased Property and all Capital Additions in the
course of any change of ownership inspection and audit.

                  45.1.5   Successors and Assigns. This Lease shall be binding
upon Lessor and its successors and assigns and, subject to the provisions of
Article XXIV, upon Lessee and its successors and assigns.

                  45.1.6   Termination Date. If this Lease is terminated by
Lessor or Lessee under any provision hereof with respect to any one or more
(including all, if applicable) of the Facilities, and upon the expiration of
the Term applicable to a Facility (collectively, the "termination date"), the
following shall pertain:

                  (a)      Lessee shall vacate and surrender the Leased
Property, Lessee's Personal Property and all Capital Additions relating to the
applicable Facility to Lessor in the condition required by Section 9.1.4. Prior
to such vacation and surrender, Lessee shall remove


                                      73


any items which Lessee is permitted or required to remove hereunder. Lessee
shall, at Lessee's cost, repair any damage to such Leased Property, any
Lessee's Personal Property, and any Capital Additions caused by such vacation
and/or removal of any items which Lessee is required or permitted hereunder to
remove. Any items which Lessee is permitted to remove but fails to remove prior
to the surrender to Lessor of such Leased Property, Lessee's Personal Property
and Capital Additions shall be deemed abandoned by Lessee, and Lessor may
retain or dispose of the same as Lessor sees fit without claim by Lessee
thereto or to any proceeds thereof. If Lessor elects to remove and dispose of
any such items abandoned by Lessee, the cost of such removal and disposal shall
be an Additional Charge payable by Lessee to Lessor upon demand.

                  (b)      Without limiting the provisions of Section 45.1.1
above, upon any such termination or expiration of this Lease with respect to a
Facility, the following shall pertain:

                           (i)      Lessee agrees to defend, protect,
         indemnify, defend and hold harmless Lessor from and against any and
         all claims, costs, losses, expenses, damages, actions, and causes of
         action for which Lessee is responsible under this Lease (including
         Lessee's indemnification obligations under Articles XXIII and XXXVII)
         and which accrue or have accrued on or before the termination date.

                           (ii)     Lessee shall remain liable for the cost of
         all utilities used in or at the Leased Property and any Capital
         Additions relating to such Facility through the termination date and
         accrued and unpaid, whether or not then billed, as of the termination
         date until full payment thereof by Lessee. Lessee shall obtain
         directly from the companies providing such services closing statements
         for all services rendered through the termination date and shall
         promptly pay the same. If any utility statement with respect to such
         Leased Property and any Capital Additions includes charges for a
         period partially prior to and partially subsequent to the termination
         date, such charges shall be prorated as between Lessor and Lessee,
         with Lessee responsible for the portion thereof (based upon a fraction
         the numerator of which is the number of days of service on such
         statement through the termination date and the denominator of which is
         the total number of days of service on such statement) through the
         termination date and Lessor shall be responsible for the balance. The
         party receiving any such statement which requires proration hereunder
         shall promptly pay such statement and the other party shall, within
         ten (10) days after receipt of a copy of such statement, remit to the
         party paying the statement any amount for which such other party is
         responsible hereunder.

                           (iii)    Lessee shall remain responsible for any and
         all Impositions imposed against the Leased Property, the Personal
         Property and any Capital Additions with a lien date prior to the
         termination date (irrespective of the date of billing therefor) and
         for its pro rata share of any Impositions imposed in respect of the
         tax-fiscal period during which the Term terminates as provided in
         Section 4.1.7, and Lessee shall indemnify and hold Lessor harmless
         with respect to any claims for such Impositions or resulting from
         nonpayment thereof.

                           (iv)     Lessee shall (y) execute all documents and
         take any actions reasonably necessary to (1) cause the transfer to
         Lessor of all of Lessee's Personal Property and any Capital Additions
         not owned by Lessor, as provided in Section 6.3, in


                                      74


         each case free of any encumbrance, as provided in Section 6.3 and (2)
         remove this Lease and/or any memorandum hereof as a matter affecting
         title to the Leased Property as provided in Article XXXVIII and (z)
         comply with its covenants set forth in Section 45.1.4.

                           (v)      Lessee shall observe any covenant or
         agreement of Lessee in this Lease which is intended to or expressly
         provides that it shall survive the expiration or sooner termination of
         this Lease.

                  45.1.7   Governing Law. THIS LEASE WAS NEGOTIATED IN THE
STATE OF CALIFORNIA, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY.
ACCORDINGLY, IN ALL RESPECTS THIS LEASE (AND ANY AGREEMENT FORMED PURSUANT TO
THE TERMS HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD
OF PRINCIPLES OR CONFLICTS OF LAW) AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA, EXCEPT THAT ALL PROVISIONS HEREOF RELATING TO THE CREATION OF THE
LEASEHOLD ESTATE AND ALL REMEDIES SET FORTH IN ARTICLE XVI RELATING TO RECOVERY
OF POSSESSION OF THE LEASED PROPERTY OF ANY FACILITY (SUCH AS AN ACTION FOR
UNLAWFUL DETAINER OR OTHER SIMILAR ACTION) SHALL BE CONSTRUED AND ENFORCED
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE IN WHICH THE LEASED
PROPERTY OF SUCH FACILITY IS LOCATED.

                  45.1.8   Waiver of Trial by Jury. EACH OF LESSOR AND LESSEE
ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT
TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF THE UNITED STATES, THE
STATE OF CALIFORNIA AND THE STATES IN WHICH THE LEASED PROPERTY OF ANY OF THE
FACILITIES IS LOCATED. EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF)
OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT FORMED
PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER ARISING,
AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH OF LESSOR AND
LESSEE HEREBY AGREES AND CONSENTS THAT, SUBJECT TO ARTICLE XLIV, ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL
WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH ANY
COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF
ITS RIGHT TO TRIAL BY JURY.


                                      75




                             LESSOR'S INITIALS:
                                                           ------------------

                             LESSEE'S INITIALS:
                                                           ------------------

                  45.1.9   Lessee Counterclaim and Equitable Remedies. Lessee
hereby waives the right to interpose counterclaim (other than compulsory
counterclaims) in any summary proceeding instituted by Lessor against Lessee in
any court or in any action instituted by Lessor in any court for unpaid Rent
under this Lease. In the event that Lessee claims or asserts that Lessor has
violated or failed to perform a covenant of Lessor not to unreasonably withhold
or delay Lessor's consent or approval hereunder, or in any case where Lessor's
reasonableness in exercising its judgment is in issue, Lessee's sole remedy
shall be an action for specific performance, declaratory judgment or
injunction, and in no event shall Lessee be entitled to any monetary damages
for a breach of such covenant, and in no event shall Lessee claim or assert any
claims for monetary damages in any action or by way of set-off defense or
counterclaim, and Lessee hereby specifically waives the right to any monetary
damages or other remedies in connection with any such claim or assertion.

                  45.1.10  Entire Agreement. This Lease, together with the
other Transaction Documents, as defined in the Contract of Acquisition, the
Exhibits hereto and thereto and such other documents as are contemplated
hereunder or thereunder, constitutes the entire agreement of the parties with
respect to the subject matter hereof, and may not be changed or modified except
by an agreement in writing signed by the parties. Lessor and Lessee hereby
agree that all prior or contemporaneous oral understandings, agreements or
negotiations relative to the leasing of the Leased Property are merged into and
revoked by this Lease.

                  45.1.11  Headings. All titles and headings to sections,
subsections, paragraphs or other divisions of this Lease are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other contents of such sections, subsections,
paragraphs or other divisions, such other content being controlling as to the
agreement among the parties hereto.

                  45.1.12  Counterparts. This Lease may be executed in any
number of counterparts, each of which shall be a valid and binding original,
but all of which together shall constitute one and the same instrument.

                  45.1.13  Joint and Several. If more than one Person is the
Lessee under this Lease, the liability of such Persons under this Lease shall
be joint and several.

                  45.1.14  Interpretation. Both Lessor and Lessee have been
represented by counsel and this Lease and every provision hereof has been
freely and fairly negotiated. Consequently, all provisions of this Lease shall
be interpreted according to their fair meaning and shall not be strictly
construed against any party.

                  45.1.15  Time of Essence. Time is of the essence of this
Lease and each provision hereof in which time of performance is established.

                  45.1.16  Force Majeure. In the event that either Lessor or
Lessee is delayed in performing its respective obligations pursuant to this
Lease by any cause beyond the


                                      76


reasonable control of the party required to perform such obligation, the time
period for performing such obligation shall be extended by a period of time
equal to the period of the delay. For purposes of this Lease:

                  (a)      A cause shall be beyond the reasonable control of a
party to this Lease when such cause would affect any person similarly situated
(such as power outage, labor strike, Act of God or trucker's strike) but shall
not be beyond the reasonable control of such party when peculiar to such party
(such as financial inability or failure to order long lead time material
sufficiently in advance).

                  (b)      This Section shall not apply to any obligation to
pay money or otherwise perform any financial obligation hereunder.

                  (c)      In the event of any occurrence which a party
believes constitutes a cause beyond the reasonable control of such party and
which will delay any performance by such party, such party shall promptly in
writing notify the other party of the occurrence and nature of such cause, the
anticipated period of delay and the steps being taken by such party to mitigate
the effects of such delay. Failure to give such notice promptly, shall deem
such occurrence or event not to be a cause beyond the reasonable control of
such party.

                  45.1.17  Further Assurances. The parties agree to promptly
sign all documents reasonably requested to give effect to the provisions of
this Lease.

                                 ARTICLE XLVI.

         46.1     Provisions Relating to Master Lease. Lessor and Lessee hereby
acknowledge and agree that, except as otherwise expressly provided herein to
the contrary, this Lease is and the parties intend the same for all purposes to
be treated as a single, integrated and indivisible agreement. Lessee
acknowledges that in order to induce Lessor to lease the Leased Property of
each Facility to Lessee and as a condition thereto, Lessor insisted that the
parties execute this Lease covering all of the Facilities in a single,
integrated and indivisible agreement.

         46.2     Provisions Relating to Tax Treatment of Lease. Lessor and
Lessee hereby acknowledge and agree that this Lease shall be treated as an
operating lease for all purposes and not as a synthetic lease, financing lease
or loan, and that Lessor shall be entitled to all the benefits of ownership of
the Leased Property, including depreciation for all federal, state and local
tax purposes.

                                ARTICLE XLVII.

         47.1     Replacement Lease and Termination of Old Victoria Lease. In
addition to covering the other Facilities, this Lease is a replacement for that
certain Lease dated December 20, 1995 currently in effect between Texas HCP, as
"Lessor," and American Retirement Corporation II, a Tennessee corporation, as
the last and current assignee of Remmington Retirement Community - One, Ltd., a
Texas limited partnership, as the original "Lessee," covering the Victoria
Facility (as the same may have been amended in accordance with the terms
thereof, the "Old Victoria Lease"). Lessor and Lessee acknowledge and agree
that: (i) the tenancy created by the Old Victoria Lease shall terminate as of
the Commencement Date, and (ii)


                                      77


from and after such Commencement Date, Lessee shall continue to occupy the
Leased Property of the Victoria Facility pursuant to this Lease.
Notwithstanding the termination of the Old Victoria Lease, the following
obligations of Lessee under the Old Victoria Lease shall be preserved and
continue subsequent to such termination:

                  (a)      Lessee shall remain responsible for and shall
protect, defend, indemnify and hold Lessor harmless from and against any and
all claims, liabilities, damages, actions and causes of action, costs and
expenses, including attorneys' fees, for which Lessee is responsible pursuant
to the Old Victoria Lease and which accrue or have accrued on or before the
date of termination of the Old Victoria Lease.

                  (b)      Lessee shall remain responsible for all obligations
of the Lessee under the Old Victoria Lease which have accrued on or before the
date of termination until full and complete payment and/or performance of the
same.

                                ARTICLE XLVIII.

         48.1     Covenants with Respect to Operations and Fundamental Changes
of Lessee. Each Lessee hereby represents, warrants and covenants as of the date
hereof and until the expiration or earlier termination of this Lease, that such
Lessee:

                  (a)      will not amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation,
bylaws, certificate of formation, limited liability company agreement,
operating agreement, articles of organization, or other formation agreement or
document, as applicable, in any material term or manner, or in a manner which
adversely affects Lessee's existence as a single purpose entity;

                  (b)      will not permit any partner, limited or general,
member or shareholder of Lessee, as applicable, amend, modify or otherwise
change such Lessee's partnership certificate, partnership agreement, articles
of incorporation, bylaws, certificate of formation, limited liability company
agreement, operating agreement, articles of organization, or other formation
agreement or document, as applicable, in any material term or manner, or in a
manner which adversely affects Lessee's existence as a single purpose entity;

                  (c)      to the full extent permitted by law, will not
liquidate or dissolve (or suffer any liquidation or dissolution), or enter into
any transaction of merger or consolidation, or acquire by purchase or otherwise
all or substantially all the business or assets of, or any stock or other
evidence of beneficial ownership of, any entity;

                  (d)      has not and will not guarantee, pledge its assets
for the benefit of, or otherwise become liable, on or in connection with, any
obligation of any other Person;

                  (e)      does not own and will not own any asset other than
(i) its leasehold interest in the applicable Leased Property and (ii)
incidental personal property necessary for the operation of the applicable
Leased Property;


                                      78


                  (f)      is not engaged and will not engage, either directly
or indirectly, in any business other than the ownership, management and
operation of the applicable Leased Property;

                  (g)      has maintained and will maintain an arm's length
relationship with its Affiliates and its shareholders and any other parties
furnishing services to it;

                  (h)      has not incurred and will not incur any debt,
secured or unsecured, direct or contingent (including guaranteeing any
obligation) (other than accounts payable incurred in the ordinary course of
business and equipment and motor vehicle leases not exceeding One Hundred
Thousand Dollars ($100,000) per Facility;

                  (i)      has not made and will not make any loans or advances
to any third party (including any Affiliate);

                  (j)      is and will be solvent and pay its own liabilities,
indebtedness and obligations of any kind, including administrative expenses,
from its assets as the same shall become due;

                  (k)      has done or caused to be done and will do all things
necessary to preserve its existence, and will observe all formalities
applicable to it and necessary to maintain its identity as an entity separate
and distinct from its Affiliates;

                  (l)      will conduct and operate its business in its own
name and as presently conducted and operated;

                  (m)      will maintain financial statements, books and
records and bank accounts separate from those of its Affiliates, including,
without limitation, its general partners, shareholders or members, as
applicable; provided, however, that Lessee may be included in consolidated
financial statements of another person, provided that such consolidated
financial statements contain a note indicating that Lessee is a separate legal
entity and Lessee's assets and liabilities are neither available to pay the
debts of the consolidated entity nor constitute obligations of the consolidated
entity and that the consolidated entity is not liable for any of the
liabilities of such Lessee;

                  (n)      will be, and at all times will hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including, without limitation, any Affiliate or any partner, member or
shareholder of Lessee);

                  (o)      will file its own tax returns and pay any taxes so
required to be paid under applicable law; provided, however, that so long as
Lessee's tax liability and its income and expenses are readily determinable
based on a review of Lessee's books and records, it may file consolidated tax
returns (provided that Lessee shall maintain sufficient books and records to
determine its separate tax obligations for any particular reporting periods);

                  (p)      will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations;


                                      79


                  (q)      will not commingle the funds and other assets of
Lessee with those of any general partner, shareholder, member, Affiliate,
principal or any other Person;

                  (r)      has and will maintain its assets in such a manner
that it is not costly or difficult to segregate, ascertain or identify its
individual assets from those of any Affiliate or any other Person;

                  (s)      does not and will not hold itself out to be
responsible for the debts or obligations of any other Person;

                  (t)      will pay any liabilities out of its own funds,
including salaries of its employees, not funds of any Affiliate;

                  (u)      will use stationery, invoices, and checks separate
from its Affiliates;

                  (v)      will not do any act which would make it impossible
to carry on the ordinary business of Lessee;

                  (w)      will not hold title to Lessee's assets other than in
Lessee's name;

                  (x)      will deposit all of its funds in checking accounts,
savings accounts, time deposits or certificates of deposit in its own name or
invest such funds in its own name;

                  (y)      will correct any known misunderstanding regarding
its separate identity;

                  (z)      will participate in the fair and reasonable
allocation of any and all overhead expenses and other common expenses for
facilities, goods or services provided to multiple entities;

                  (aa)     will establish and maintain an office through which
its business is conducted separate and apart from that of its Affiliates
(including the other Lessees); provided, however, that nothing herein shall be
construed so as to prevent Lessee from having office space at the same address
as any of Affiliate, so long as the costs and expenses associated with such
office space are allocated as set forth in paragraph (aa) above;

                  (bb)     will maintain a separate telephone number from that
of its Affiliates or any other entity (provided, however, that any Lessee that
is a limited partnership shall be permitted to have the same telephone number
as its general partner);

                  (cc)     has not and will not institute proceedings to be
adjudicated bankrupt or insolvent; or consent to the institution of bankruptcy
or insolvency proceedings against it; or file a petition seeking, or consent
to, reorganization or relief under any applicable federal or state law relating
to bankruptcy; or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Lessee or a
substantial part of Lessee's property; or make any assignment for the benefit
of creditors; or admit in writing


                                      80


its inability to pay its debts generally as they become due; or take any action
in furtherance of any such action;

                  (dd)     shall at all times cause there to be at least one
duly appointed member of the board of directors or board of managers of Lessee
reasonably satisfactory to Lessor who shall not have been at the time of such
individual's appointment, and may not have been at any time during the
preceding five years (i) a shareholder of, or an officer, director, other than
as an independent director, or manager for other special purpose entities which
may be Affiliates of Lessee, attorney, counsel, partner, employee or member of,
Lessee or any of its members, shareholders, subsidiaries or Affiliates, (ii) a
customer of, supplier to, Lessee or any of its shareholders, subsidiaries or
Affiliates, (iii) a Person or other entity controlling or under common control
with any such member, shareholder, partner, supplier or customer, or (iv) a
member of the immediate family of any such member, shareholder, officer,
director, partner, employee, supplier or customer of any other director of
Lessee. As used herein, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise;

                  (ee)     Lessee shall not cause or permit the board of
directors or the members of Lessee to take any action which, under the terms of
any articles of organization, operating agreement, limited liability company
agreement, certificate of incorporation, bylaws or any voting trust agreement
with respect to any common stock or limited liability company interest,
requires a vote of the board of directors or the members of Lessee unless at
the time of such action there shall be at least one member who is an
independent directors.

                  Notwithstanding anything herein to the contrary, Lessee may,
from time to time, (i) make lawful distributions in accordance with applicable
corporate law or loans on an arm's length basis to its affiliates subject to
the provisions of paragraph (p) above, or (ii) obtain loans on an arm's length
basis or lawful capital contributions in accordance with applicable corporate
law from its affiliates to the extent necessary to satisfy its obligations as
they become due; provided, however, that all such transactions are accurately
reflected in the books and records of the corporation and each of its
applicable affiliates.

                            [Signature pages follow]

                                      81


         IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and attested by their respective officers thereunto duly authorized.

                                          "Lessor"

                           HEALTH CARE PROPERTY INVESTORS, INC.,
                           a Maryland corporation



                           By:
                                 ----------------------------------------------
                                 Edward J. Henning
                                 Senior Vice President,
                                 General Counsel and Corporate Secretary


                           TEXAS HCP HOLDING, L.P., a Delaware limited
                           partnership

                           By:   Texas HCP G.P., INC., a Delaware
                                 corporation, its sole General Partner



                                 By:
                                      -----------------------------------------
                                      Edward J. Henning
                                      Senior Vice President

                           [Signature pages continue]


                           "Lessee"

                           ARC RICHMOND HEIGHTS, LLC, a Tennessee
                           limited liability company


                           By:
                                -----------------------------------------------
                                Ross C. Roadman, Senior Vice President--
                                Strategic Planning and Investor Relations

                           ARC SHAVANO, L.P., a Tennessee limited
                           partnership


                           By:   ARC Shavano Park, Inc., a Tennessee
                                 corporation, its general partner


                                By:
                                     ------------------------------------------
                                     Ross C. Roadman, Senior Vice President--
                                     Strategic Planning and Investor Relations


                           ARC DELRAY BEACH, LLC, a Tennessee limited
                           liability company


                           By:
                                     ------------------------------------------
                                     Ross C. Roadman, Senior Vice President--
                                     Strategic Planning and Investor Relations


                           ARC VICTORIA, L.P., a Tennessee limited
                           partnership


                           By:   ARC Homewood Victoria, Inc., a Tennessee
                                 corporation, its general partner


                                 By:
                                      -----------------------------------------
                                      Ross C. Roadman, Senior Vice President--
                                      Strategic Planning and Investor Relations

                           [Signature pages continue]


                           ARC CARRIAGE  CLUB OF JACKSONVILLE,
                           INC., a Tennessee corporation



                           By:
                                  ---------------------------------------------
                                  Ross C. Roadman, Senior Vice President--
                                  Strategic Planning and Investor Relations

                           ARC POST OAK, L.P., a Tennessee limited
                           partnership

                           By:   ARC Hampton Post Oak, Inc.,
                                 a Tennessee corporation, its general partner



                                 By:
                                      -----------------------------------------
                                      Ross C. Roadman, Senior Vice President--
                                      Strategic Planning and Investor Relations


STATE OF                              )
         ------------------------
                                      )  SS:
COUNTY OF                             )
          -----------------------

         I, _____________________, a Notary Public in and for the county and
state aforesaid, DO HEREBY CERTIFY that _____________________________, as
____________________ of _________________________, an ___________________
corporation who is personally known to me to be the same person whose name is
subscribed to the foregoing instrument as such ________________________
appeared before me this day in person and acknowledged that he signed, sealed
and delivered the said instrument as his free and voluntary act as such
__________________ and as the free and voluntary act of said corporation for
the uses and purposes therein set forth.

         Given under my hand and notarial seal, this _____ day of March, 2002.



                                                    ---------------------------
                                                    Notary Public


STATE OF                              )
         ------------------------
                                      )  SS:
COUNTY OF                             )
          -----------------------

         I, _____________________, a Notary Public in and for the county and
state aforesaid, DO HEREBY CERTIFY that _____________________________, as
____________________ of _________________________, an ___________________
corporation who is personally known to me to be the same person whose name is
subscribed to the foregoing instrument as such ________________________
appeared before me this day in person and acknowledged that he signed, sealed
and delivered the said instrument as his free and voluntary act as such
__________________ and as the free and voluntary act of said corporation for
the uses and purposes therein set forth.

         Given under my hand and notarial seal, this _____ day of March, 2002.



                                                    ---------------------------
                                                    Notary Public

                                   EXHIBIT A-1

                     LEGAL DESCRIPTION OF CLEVELAND FACILITY

Situated in the City of Richmond Heights, County of Cuyahoga and State of Ohio:

And know as being part of Original Euclid Township Lot No. 35, Tract No. 5 and
being further bounded and described as follows:

Beginning at an iron monument found on the centerline of Richmond Road, 60 feet
wide, at the northeast corner of said Original Lot No. 35, Tract No. 5;

Thence South 00(Degree) 18' 56" East along said centerline of Richmond Road also
being the easterly line of said Original Lot No. 35, a distance of 180.18 feet
to the southeasterly corner of Parcel No. 1 of land conveyed to Elmer F. Vitek
and Shirley A. Vitek as Trustees in a deed dated July 23, 1992 and recorded in
Volume 92-06367, Page 44, of Cuyahoga County Deed Records;

Thence South 89(Degree) 55' 18" West along the said southerly line of Vitek, a
distance of 30.00 feet to a point on the westerly line of said Richmond Road and
the Principal Place of Beginning of the parcel of land herein intended to be
described;

Course No. 1:
Thence South 89(Degree) 55' 18" West continuing along said southerly line of
Vitek, a distance of 314.98 feet to the southwesterly corner thereof;

Course No. 2:
Thence North 00(Degree) 18' 56" West along the westerly line of said Vitek, a
distance of 77.34 feet to the northeasterly corner of land conveyed to The
Forest City Development Co. by deed recorded in Volume 12748, Page 569 of
Cuyahoga county Deed Records;

Course No. 3:
Thence North 89(Degree) 41' 25" West along the northerly line of said Forest
City Development Co., a distance of 236.70 feet to the easterly line of Block
"G" in Richmond Run Subdivision recorded in Volume 215 of Maps, Pages 19 and 20
of Cuyahoga County Records;

Course No. 4:
Thence South 48(Degree) 41' 29" West along the southeasterly line of said Block
"G" a distance of 291.91 feet to an interior corner of said Block "G";

Course No. 5.:
Thence South 00(Degree) 18' 56" East along the easterly line of said Block "G" a
distance of 257.55 feet to an interior corner of said Block "G";

Course No. 6:
Thence North 89(Degree) 55' 18" East along the northerly line of said Block "G"
a distance of 125.90 feet to an interior corner of said Block "G";


                                      A-1



Course No. 7:
Thence South 00(Degree) 18' 56" East along the easterly line of said Block "G",
a distance of 60.11 feet to a point on the northerly line of Hillary Lane, 55.11
feet wide, as shown in the Dedication Plat recorded in Volume 231 of Maps, Page
66 and 67 of Cuyahoga County Records;

Course No. 8:
Thence North 89(Degree) 55' 18' East along the northerly line of said Hillary
Lane, a distance of 626.02 feet to a point of curvature of a turnout to said
Richmond Road;

Course No. 9:
Thence Northeasterly along said turnout, on a curve deflecting to the left and
having a radius of 20.00 feet, a delta of 90(Degree) 14' 14", an arc distance of
31.50 feet, and a chord distance of 28.34 feet which bears North 44(Degree) 48'
11" East to a point of tangency on the westerly line of said Richmond Road;

Course No. 10:
Thence North 00(Degree) 18' 56" West along the westerly line of said Richmond
Road, a distance of 411.03 feet to the Place of Beginning and containing 7.8019
acres (339,853 sq. ft.) of land according to a survey prepared by Mc Steen &
Associated, Inc. in February of 1998, be the same more or less, but subject to
all legal highways and easements.

Permanent Parcel Number 662-27-003, 004, 010 and 011


                                      A-2





                                   EXHIBIT A-2

                      LEGAL DESCRIPTION OF DELRAY FACILITY

PARCEL 1:

All of Parcel "A" and all of Parcel "B", ARC AT DELRAY WEST, P.U.D. according to
the plat thereof as recorded in Plat Book 84, Pages 42 through 43, inclusive of
the Public Records of Palm Beach County, Florida.

PARCEL 2:

TOGETHER with a Non-Exclusive Easement of Ingress, Egress and Utilities for the
benefit of Parcel 1 set forth in Cross Access Easement Agreement recorded in
Official Records Book 5866, Page 1085, as affected by instrument recorded in
Official Records Book 6544, Page 1909 and Official Records Book 6544, page 1915,
as further affected by Second Amendment to Cross Access and Utility Easement
Agreement recorded in Official Records Book 11469, Page 1835, of the Public
Records of Palm Beach County, Florida.

Said lands situate, lying and being in Palm Beach County, Florida.

Tax Assessor's No. PCN 00-42-46-20-10-001-0000


                                      A-3





                                   EXHIBIT A-3

                   LEGAL DESCRIPTION OF JACKSONVILLE FACILITY
Parcel "A"

A portion of Section 14, Township 3 South, Range 27 East, Duval County, Florida,
being more particularly described as follows:

For Point of Reference, commence at the Southeast corner of Section 14, and run
North 00(degree) 37' 00" West, along the East line of said Section 14, a
distance of 675.00 feet to a point; run thence North 89(degree) 42' 50" West, a
distance of 120.00 feet to the Point of Beginning.

From the Point of Beginning thus described, run North 89(degree) 42' 50" West, a
distance of 795.00 feet to a point; run thence North 00(degree) 02' 10" West a
distance of 1920.24 feet to a point; run thence South 89(degree) 45' 00" East, a
distance of 801.46 feet to a point; run thence South 00(degree) 02' 10" East, a
distance of 1823.07 feet to the Point of Beginning.

Parcel "B"

Together with a non-exclusive easement for ingress and egress as described in
Amended and Restated Declaration of Easement recorded in Official Records Volume
6163, page 2383, of the current public records of Duval County, Florida, over
and across the following described lands:

A portion of Section 13 and 14, Township 3 South, Range 27 East, Jacksonville,
Duval County, Florida, being more particularly described as follows:

For point of beginning, commence at the Northeast corner of that property
described in Official Records Volume 5141, Page 126, Public Records of said
County, said point lying on the Westerly right of way line of Southside
Boulevard, State Road No. 115, U.S. Alternate No. 1 (a 200 foot right of way as
now established) at a point 100 feet Northerly of the intersection of said right
of way line with the line dividing Sections 13 and 24, Township and Range
aforementioned, and run North 89(degree) 45' 47" West, along the Northerly
boundary line of said Official Records Volume 5141, Page 126, a distance of
1,534.86 feet; run thence North 0(degree) 14' 06" East, a distance of 150.00
feet to the Northerly line of a 150 foot power line easement as recorded in
Official Records Volume 3040, page 983, of said County; run thence North
89(degree) 45' 47" West, a distance of 462.85 feet to a point lying on the
Westerly line of said Section 13; run thence North 37(degree) 32' 14" West, a
distance of 460.31 feet to a point of tangent intersection, with a curve,
concave to the Northeast and having a radius of 100.00 feet; run thence
Northerly, along said curve an arc distance of 66.01 feet through a central
angle of 37(degree) 49' 23", a chord bearing and distance of North 18(degree)
37' 30" West, a distance of 64.82 feet to a point of intersection with a
non-tangent line, said point being on the Northerly line of a 150-foot power
line easement, as recorded in Official Records Volume 3040, Page 963; run thence
South 89(degree) 42' 50" East, along the Northerly line of said power line
easement, a distance of 176.59 feet to the Southerly and most Westerly corner of
that land described in Official Records Volume 5809, Page 1938, of said County;
run thence South 37(degree) 45' 02" East, a distance of 245.40 feet to a point
of tangent intersection with a curve, concave to the Northeast and having a
radius of 342.30 feet; run thence


                                      A-4



along said curve, an arc distance of 310.74 feet, through a central angle of
52(degree) 00' 45", a chord bearing and distance of South 63(degree) 45' 24"
East, 300.18 feet to a point of tangency, run thence South 89(degree) 45' 47"
East, a distance of 1,666.86 feet; run thence North 45(degree) 06' 01" East, a
distance of 49.62 feet to the Westerly right of way line of said Southside
Boulevard; run thence South 0(degree) 02' 10" East; along said Westerly line, a
distance of 285.17 feet to the point of beginning, excepting therefrom that
portion lying within the right of way of State Road No. 115 (Southside
Boulevard) as now established and as described in instrument recorded in
Official Records Volume 6333, page 2257, public records of said County.

Parcel "C"

Together with a non-exclusive easement for ingress and egress as described in
Easement recorded in Official Records Volume 6164, page 6 of the current public
records of Duval County, Florida, over and across the following described lands:

A parcel of land, lying in Section 14, Township 3 South, Range 27 East, Duval
County, Florida, being more particularly described as follows: For point of
reference, commence at the Southeast corner of Section 14, and run North
00(degree) 37' 00" West, along the East line of said Section 14, a distance of
675.00 feet to the North line of a 150 foot power line easement, as described in
Official Records Volume 3040, Page 963, of the current public records of said
County; run thence North 89(degree) 42' 50" West, along said easement line, a
distance of 296.58 feet to the point of beginning; thence continue North
89(degree) 42' 50" West, along said easement line, a distance of 149.01 feet to
the intersection of a tangent curve, and having a radius of 250.00 feet, concave
to the Southwest; run thence Southeasterly, along the arc of a curve, curving to
the right through a central angle of 52(degree) 10' 36", a distance of 227.66
feet, the chord bearing and distance being South 63(degree) 37' 32" East, 219.88
feet, to the point of tangency; run thence North 37(degree) 32' 14" West, a
distance of 44.78 feet to the beginning of a tangent curve, with a radius of
100.00 feet, concave to the East; run thence Northerly, along the arc of said
curve, curving to the right, through a central angle of 37(degree) 49' 23", a
distance of 66.01 feet, the chord bearing and distance being North 18(degree)
37' 30" West, 64.82 feet, to the point of beginning.

Parcel "D"

Together with the rights and easement, in common with others, for sign purposes
as described in Sign and Landscaping Agreement recorded in Official Records
Volume 5987, page 669 of the current public records of Duval County, Florida, as
partially assigned by Partial Assignment recorded in Official Records Volume
5987, page 675, of the current public records of Duval County, Florida, upon
across, over and under the following described lands:

A portion of Section 13, Township 3 South, Range 27 East, Jacksonville, Duval
County, Florida, being more particularly described as follows:

For point of beginning, commence at the Northeast corner of that property
described in Official Records Volume 5141, Page 126, Public Records of said
County, said point lying on the Westerly right of way line of Southside
Boulevard, State Road No. 115, U.S. Alternate No. 1 (a 200 foot right of way, as
now established) at a point 100 feet Northerly of the intersection of said


                                      A-5



right of way line with the line dividing Sections 13 and 24, Township and Range
aforementioned. From the point of beginning thus described, run North 89(degree)
45' 47" West, along the Northerly boundary line of the aforementioned property
described in Official Records Volume 5141, page 126, said point lying on the
line dividing Sections 13 and 14, Township and Range aforementioned; run thence
North 00(degree) 37' 00" West, along said dividing line, a distance of 150.02
feet to a point; run thence North 37(degree) 32' 14" West a distance of 460.30
feet to a point of curvature; run thence 328.99 feet along the arc of a curve,
concave Southeasterly and having a radius of 100.00 feet; a chord distance of
199.45 feet to the point of tangency, the bearing of the aforementioned chord
being North 56(degree) 42' 42" East, run thence South 29(degree) 02' 11" East, a
distance of 228.22 feet to a point of curvature; run thence 362.80 feet, along
the arc of a curve, concave Northeasterly and having a radius of 342.303 feet, a
chord distance of 346.06 feet to the point of tangency, the bearing of the
aforementioned chord being South 59(degree) 23' 59" East; run thence South
89(degree) 45' 47" East, a distance of 1666.86 feet to a point; run thence North
45(degree) 06' 01" East, a distance of 49.62 feet to a point; run thence South
00(degree) 02' 10" East, along the Westerly right of way line of said Southside
Boulevard, a distance of 285.17 feet to the point of beginning. Said Parcel
being subject to a 150-foot power line easement along the Southerly and Westerly
sides, as recorded in Official Records Volume 3040, page 963, of the public
records of said county.

LESS AND EXCEPT the following described land:

A portion of Section 14, Township 3 South, Range 27 East, Jacksonville, Duval
County, Florida, being more particularly described as follows: For point of
reference, commence at the Northeast corner of that property described in
Official Records Volume 5141, page 126, public records of said county, said
point lying on the Westerly right of way line of Southside Boulevard, State Road
No. 115, U.S. Alternate No. 1 (a 200 foot right of way, as now established) at a
point 100 feet Northerly of the intersection of said right of way line with the
line dividing Sections 13 and 24, Township and Range aforementioned; run thence
North 89(degree) 45' 47" West, along the Northerly boundary line of the
aforementioned property described in Official Records Volume 5141, page 126, a
distance of 1995.48 feet to the Northwest corner of the aforementioned property
described in Official Records Volume 5141, page 126, said point lying on the
line dividing Sections 13 and 14, Township and Range aforementioned; run thence
North 00(degree) 37' 00" West, along said dividing line, a distance of 574.99
feet to a point; run thence North 89(degree) 42' 50" West, a distance of 120.00
feet to a point for point of beginning; thence continue North 89(degree) 42' 50"
West, a distance of 176.59 feet to a point on a curve; run thence 243.75 feet
along the arc of a curve, concave Southeasterly and having a radius of 100.00
feet, a chord distance of 187.74 feet to a point on a curve, the bearing of the
aforementioned chord being North 70(degree) 06' 58" East; run thence South
00(degree) 02' 10" East, a distance of 64.73 feet to the point of beginning,
also excepting therefrom that portion lying within the right of way of State
Road No. 115 (Southside Boulevard) as now established and a described in
instrument recorded in Official Records Volume 6333, page 2257, public records
of said county.


                                      A-6



Parcel "E"

Together with a non-exclusive easement for drainage purposes as described in
Drainage and Storm Water Easement recorded in Official Records Volume 5987 page
677, of the current public records of Duval County, Florida, on, over, across,
under and through the following described lands:

A portion of that certain parcel of land lying within the power line easement
recorded in Official Records Volume 1192, page 261, and also described in
Official Records Volume 3040, page 963, current public records of Duval County,
Florida, which lies in the Westerly six hundred thirty feet (630') of the most
Easterly one thousand forty feet (1040') thereof.

APN:  147983-0100


                                      A-7





                                   EXHIBIT A-4

                      LEGAL DESCRIPTION OF HOUSTON FACILITY

All that certain 1.8892 acre (82,292 square foot) tract of land located in the
William White League, Abstract Number 836, Harris County, Texas, being all of a
called 1.8892 acre tract of land described by special warranty deed recorded
under Harris County Clerk's File Number U960067, said 1.8892 acre tract being
more particularly described by metes and bounds as follows: (All bearings are
referenced to the deed of record of subject as described by special warranty
deed recorded under Harris County Clerk's File Number U960067 and originate from
monuments found along the south line of said tract):

BEGINNING at a 1-inch iron pipe found at the northwest corner of a called 40,455
square feet tract of land described by deed recorded under Harris County Clerk's
File Number N129530 lying in the east right-of-way line of South Post Oak
Boulevard, (100-foot wide right-of-way) for the southwest corner of the herein
described tract;

THENCE, North 02(degree) 43' 01" West, along said east right-of-way line and
along the west line of said 1.8892 acre tract, a distance of 246.96 feet to an
"X" cut in concrete found at the southwest corner of a called 2.427 acre tract
of land described by deed recorded under Harris County Clerk's File Number
K208035 from which a PK nail In concrete found bears North 13(degree) 11' 47"
West, a distance of 0.42 feet and a 60d nail In concrete found bears North
33(degree) 36' 30" East, a distance of 0.40 feet for the northwest corner of the
herein described tract;

THENCE, North 87(degree) 16' 55" East, along the south line of said 2.427 acre
tract and the north line of said 1.8892 acre tract, a distance of 359.99 feet to
an "X" cut in concrete found at the southeast corner of said 2.427 acre tract
from which an "X" cut in concrete found bears North 87(degree) 16' 55" East, a
distance of 0.47 feet and a 60d nail in concrete found bears South 83(degree)
38' 35" East, a distance of 0.59 feet lying in the west right-of-way line of
West Loop South (Interstate Highway 610, 300-foot wide right-of-way) for the
northeast corner of the herein described tract;

THENCE, South 09(degree) 22' 30" West, along said west right-of-way line and
along the east line of said 1.8892 acre tract, a distance of 252.04 feet to a
1-inch iron pipe found at the northeast of a called 5,963 square feet tract of
land described by deed recorded under Harris County Clerk's File Number N129530
and being the southeast corner of the herein described tract;

THENCE, South 87(degree) 11' 14" West, along the north line of said 5,963 square
feet tract and the south line of said 1.8892 acre tract, at a distance of 284.31
feet pass an angle point in the northerly line of said 40,455 square feet tract
and being the northwest corner of said 5,963 square feet tract, continuing along
said course, for a total distance of 307.19 feet to the POINT OF BEGINNING and
containing a computed area of 1.8892 acres (82,292 square feet) of land.

APN:  0451400040269, 0451400040103, 0451400040099


                                      A-8



                                   EXHIBIT A-5

                    LEGAL DESCRIPTION OF SAN ANTONIO FACILITY

Lot 1650, SHAVANO PARK, UNIT 16F, Bexar County, Texas, according to the Plat
recorded in Volume 9538, Pages 66-69, Deed and Plat Records, Bexar County,
Texas.

APN:  04773-100-1650


                                      A-9



                                   EXHIBIT A-6


                     LEGAL DESCRIPTION OF VICTORIA FACILITY

Being Lot One (1), in Block No. One (1) of VICTORIA RETIREMENT COMMUNITY, LTD.
SUBDIVISION, a Subdivision to the City of Victoria, Victoria County, Texas,
according to the established map and plat of said Subdivision of record in
Volume 7, Page 168A of Plat Records of Victoria County, Texas, to which
reference is here made for description purposes.


                                      A-10



                                    EXHIBIT B

List of Facilities, Facility Description, Allocated Minimum Rent, Allocated
Initial Investment and Lease Rate




- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                              INITIAL
                                                       FACILITY DESCRIPTION                              MONTHLY ALLOCATED
          FACILITY                                   AND PRIMARY INTENDED USE                              MINIMUM RENT
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
JACKSONVILLE FACILITY          Core community located at 9601 Southbrook Drive in Jacksonville,              $262,500.00
                               Florida, consisting of 60 assisted living facility units and 238
                               independent living beds commonly known as "Carriage Club of
                               Jacksonville"
- -------------------------------------------------------------------------------------------------------------------------------
POST OAK FACILITY              Core community located at 2929 Post Oak Boulevard in Houston,                 $218,750.00
                               Texas, consisting of 39 assisted living facility units, 149
                               independent living beds and 56 skilled nursing beds commonly known
                               as "Hampton at Post Oak"
- -------------------------------------------------------------------------------------------------------------------------------
RICHMOND HEIGHTS FACILITY      Assisted living facility located at Richmond Road and Hillary Land             $66,562.50
                               in Cleveland, Ohio, consisting of 78 assisted living units and 17
                               memory enhanced (Alzheimer's) units commonly known as "Homewood at
                               Richmond Heights"
- -------------------------------------------------------------------------------------------------------------------------------
DELRAY BEACH FACILITY          Assisted living facility located at 8020 W. Atlantic Avenue in                 $57,187.50
                               Delray, Florida, consisting of 54 assisted living units and 32
                               memory enhanced (Alzheimer's) units commonly known as "Homewood at
                               Delray Beach"
- -------------------------------------------------------------------------------------------------------------------------------
SHAVANO PARK FACILITY          Assisted living facility located at 4096 De Zavala Road in San                 $46,875.00
                               Antonio, Texas, consisting of 62 assisted living units and 17
                               memory enhanced (Alzheimer's) units commonly known as "Homewood at
                               Shavano Park"
- -------------------------------------------------------------------------------------------------------------------------------




- ------------------------------------------------------------------

                                 ALLOCATED INITIAL
          FACILITY                   INVESTMENT       LEASE RATE
- ------------------------------------------------------------------
                                                
JACKSONVILLE FACILITY                $30,000,000.00      10.5%



- ------------------------------------------------------------------
POST OAK FACILITY                    $25,000,000.00      10.5%



- ------------------------------------------------------------------
RICHMOND HEIGHTS FACILITY             $7,100,000.00     11.25%



- ------------------------------------------------------------------
DELRAY BEACH FACILITY                 $6,100,000.00     11.25%



- ------------------------------------------------------------------
SHAVANO PARK FACILITY                 $5,000,000.00     11.25%



- ------------------------------------------------------------------



                                      B-1






                                                                                                                  INITIAL
                                                  FACILITY DESCRIPTION                                       MONTHLY ALLOCATED
    FACILITY                                    AND PRIMARY INTENDED USE                                        MINIMUM RENT
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
VICTORIA FACILITY              Mixed congregate care and assisted living facility located at 9806             $53,635.41
                               N.E. Zac Lentz Parkway in Victoria, Texas, of 60 and 30 units,
                               respectively, commonly known as "Homewood Residence at Victoria"
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                                        ALLOCATED
                                         INITIAL           LEASE
                                       INVESTMENT          RATE
- ------------------------------------------------------------------
                                                    
VICTORIA FACILITY                     $4,584,284.00       N/A



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                                       2





                                    EXHIBIT C

                       List of Lessor's Personal Property

All machinery, equipment, furniture, furnishings, moveable walls or partitions,
computers or trade fixtures or other tangible personal property used or useful
in Lessee's business on the Leased Property and all Capital Additions, excluding
items, if any, included within the definition of Fixtures, but specifically
including those items described in Schedule 1 hereto.


                                      C-1





                                   Schedule 1

                    Itemization of Lessor's Personal Property

[To be mutually agreed upon by Lessor and Lessee prior to the Commencement Date.
When agreed upon, the same shall be initialed by each of Lessor and Lessee and
attached to Exhibit C as Schedule 1, and will thereafter form a part of this
Lease. Failure of either Lessor or Lessee to prepare and/or initial such
Schedule 1 shall not affect the definition of or what personal property
constitutes Lessor's Personal Property in accordance with Exhibit C.]


                             Schedule 1 to Exhibit C




                                    EXHIBIT D

                                     Form Of
                      Irrevocable Standby Letter Of Credit

Health Care Property Investors, Inc.
Texas HCP Holdings, L.P.
4675 MacArthur Boulevard, Suite 900
Newport Beach, California 92660

Date:                                       Letter of Credit No.:
     ------------------                                          ---------------
                                            Expiration Date:
                                                            --------------------

GENTLEMEN:

We hereby establish our irrevocable letter of credit in your favor for the
account of __________________________ available by your draft(s) on us payable
at sight not to exceed a total
of__________________________________________________________________
(_____________________) when accompanied by the following documents:

1)       A certificate purported to be executed by a representative of Health
         Care Property Investors, Inc. or Texas HCP Holdings, L.P. ("Lessor")
         stating the amount for which a draw under this letter of credit is made
         and that: (a) _____________________________ ("Lessee") has committed an
         Event of Default under the lease dated ________________, between Lessor
         and Lessee; or (b) that Lessee or an Affiliate of Lessee has committed
         an event of default (beyond applicable periods of notice and cure)
         under any other lease or agreement or other instrument now or hereafter
         made with or in favor of Lessor or an Affiliate of Lessor]; or (c) an
         event or circumstance has occurred which with notice or passage of
         time, or both, would constitute an Event of Default or an event of
         default under any such other lease or agreement or instrument, but for
         the fact that transmittal of any such notice is barred by applicable
         debtor relief law; or (d) a certificate purported to be executed by a
         representative of Lessor stating that a replacement letter of credit
         for this instrument has not been supplied prior to thirty (30) days in
         advance of the expiration of this instrument for the account of Lessor.

2)       The original letter of credit must accompany all drafts unless a
         partial draw is presented, in which case the original must accompany
         the final draft.

Partial drawings are permitted, with the letter of credit being reduced, without
amendment, by the amount(s) drawn hereunder.

This letter of credit shall expire at 2:00 p.m. at the office of
____________________________ ________________________________________ on the
expiration date.

This letter of credit may be transferred or assigned by the beneficiary hereof
to any successor or assign of such beneficiary's interest in any such lease or
other agreement or to any lender obtaining a lien or security interest in the
property covered by any such lease. Each draft


                                      D-1



hereunder by any assignee or successor shall be accompanied by a copy of the
fully executed documents or judicial orders evidencing such encumbrance,
assignment or transfer.

Any draft drawn hereunder must bear the legend "Drawn under
________________________ Letter of Credit Number __________ dated
____________________. Except so far as otherwise expressly stated, this letter
of credit is subject to the "Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Brochure No. 500." We
hereby agree with you and all persons negotiating such drafts that all drafts
drawn and negotiated in compliance with the terms of this letter of credit will
be duly honored upon presentment and delivery of the documents specified above
by certified or registered mail to _________________________________ located at
____________________________________
______________________________________________________________________________
if negotiated not later that 2:00 p.m. on or before the expiration date shown
above.

Very truly yours,



By
     ------------------------------------------------

Its
     ------------------------------------------------


                                      D-2



                                    EXHIBIT E

                     Schedule of Insurance Deductible Limits

                                                                      
Independent Living (all states except Florida and Texas):                $  200,000
Independent Living (Florida and Texas):                                  $1,000,000

Assisted Living (all states except Florida and Texas):                   $  250,000
Assisted Living (Florida and Texas):                                     $1,000,000

Memory Enhanced (Alzheimers) (all states):                               $1,000,000

Skilled Nursing Facility (all states except Florida and Texas):          $1,000,000
Skilled Nursing Facility (Florida and Texas)                             $3,000,000





                                      E-1



                                    EXHIBIT F

               List of Existing Facilities Within Ten Mile Radius




Leased Property                     Facilities Within Ten Mile Radius
- ---------------                     ---------------------------------
                                 
1.  Jacksonville Facility           None

2.  Houston Facility                The Hampton Assisted Living Residences at Shadowlake
                                    The Hampton Assisted Living Residences at Pinegate
                                    The Hampton Assisted Living Residences at Shadow
                                        Springs (approximately 10.88 miles from Houston
                                        Facility)

3.  San Antonio Facility            Homewood Residence at Castle Hills

4.  Richmond Facility               Homewood Residence at Rockefeller Gardens

5.  Delray Facility                 Homewood Residence at Boynton Beach
                                    Homewood Residence at Boca Raton




                                      F-1





                                    EXHIBIT G

               List of Existing Commercial Occupancy Arrangements




- ----------------------------------------------------------------------------------------------------
          FACILITY                   OCCUPANT                       TERMS
- ----------------------------------------------------------------------------------------------------
                                                
JACKSONVILLE FACILITY         Eckerd                  Occupant does not pay owner any
                                                      amounts

- ----------------------------------------------------------------------------------------------------
                              First Union             Occupant pays owner
                              National Bank           $7,000/year in equal
                                                      monthly payments,
                                                      inclusive of all sales tax
- ----------------------------------------------------------------------------------------------------
                              Beauty Shop             Occupant pays owner weekly rent
                                                      of 15% of gross receipts (plus
                                                      sales tax if applicable)

- ----------------------------------------------------------------------------------------------------
POST OAK FACILITY             Beauty Shop             Occupant pays owner $1,200/month


- ----------------------------------------------------------------------------------------------------
SAN ANTONIO FACILITY          Beauty Shop             Occupant pays owner a station
                                                      fee of $12/half day or $24/day
- ----------------------------------------------------------------------------------------------------
RICHMOND HEIGHTS FACILITY     Beauty Shop             Pursuant to oral license

- ----------------------------------------------------------------------------------------------------
DELRAY BEACH FACILITY         Beauty Shop             Occupant pays owner 10% of gross
                                                      revenues, excluding tips
- ----------------------------------------------------------------------------------------------------



- ----------------------------------------------------------------------------------------------------
          FACILITY                               RENEWAL AND TERMINATION RIGHTS
- ----------------------------------------------------------------------------------------------------
                           
JACKSONVILLE FACILITY         Automatically renewed each year; may be terminated by either party
                              upon 90 days' notice

- ---------------------------------------------------------------------------------------------------
                              Occupant has option to renew for 20 consecutive terms of one year
                              each upon 60 days' notice

- ----------------------------------------------------------------------------------------------------
                              Automatically renewed each year; may be terminated by either party
                              upon 30 days' notice


- ----------------------------------------------------------------------------------------------------
POST OAK FACILITY             Automatically renews for one year; expires 5/31/02; may be
                              terminated by either party upon 90 days' notice

- ----------------------------------------------------------------------------------------------------
SAN ANTONIO FACILITY          Automatically renews each year; may be terminated by either party
                              upon 30 days' notice

- ----------------------------------------------------------------------------------------------------
RICHMOND HEIGHTS FACILITY     Pursuant to oral license

- ----------------------------------------------------------------------------------------------------
DELRAY BEACH FACILITY         Expires 10/1/02; may be terminated by either party upon 30 days'
                              notice
- ----------------------------------------------------------------------------------------------------



                                      F-1