SETTLEMENT AGREEMENT
                              --------------------


           THIS SETTLEMENT AGREEMENT made and entered into as of the ____ day of
October,  1996 by and among DAVID L. FRIEDMAN of Boulder,  Colorado,  MICHAEL C.
TYLER,  of Camden,  Maine,  MICHAEL B.  PRIOR,  of  Portland,  Maine,  DANIEL J.
MAGUIRE,  of Harpswell,  Maine (referred to collectively as the  "Individuals");
BIRCH  GROVE  MANAGEMENT  COMPANY,  INC.,  a  Maine  corporation,   CEDAR  RIDGE
MANAGEMENT,  INC.,  a  Maine  corporation,   CEDAR  RIDGE  NURSING  CARE  CENTER
ASSOCIATES, a Maine limited partnership,  HARBOR HILL LIMITED LIABILITY COMPANY,
a Maine limited liability company, HOMEWOOD LIMITED PARTNERSHIP, a Maine limited
partnership,  NURSING  ADMINISTRATORS,  INC.,  a Maine  corporation,  OAK  GROVE
MANAGEMENT COMPANY,  INC., a Maine corporation,  PINE POINT NURSING CARE CENTER,
INC., a Maine  corporation,  RIVERRIDGE  MANAGEMENT,  INC., a Maine corporation,
RIVER RIDGE ASSOCIATES,  a Maine general  partnership,  SANDY RIVER DEVELOPMENT,
INC., a Maine corporation,  SANDY RIVER GROUP, a Maine corporation,  SPRINGBROOK
ASSOCIATES, a Maine general partnership,  SPRINGBROOK MANAGEMENT,  INC., a Maine
corporation,  SRG/HOMEWOOD,  INC., a Maine  corporation,  SRG/WINDWARD  GARDENS,
INC.,  a Maine  corporation,  THE  WILLOWS  MANAGEMENT  COMPANY,  INC.,  a Maine
corporation,  WILSON  STREAM  MANAGEMENT,  INC., a Maine  corporation,  WINDWARD
GARDENS LIMITED PARTNERSHIP, a Maine limited partnership,  WOODFORD PARK NURSING
CARE CENTER,  INC., a Maine  corporation  (collectively  the "SRG Entities") and
SANDY RIVER HEALTH SYSTEM LLC, a Maine limited liability  company,  as agent for
the SRG  Entities  ("SRHS"),  and  COMMUNITY  CARE OF AMERICA,  INC., a Delaware
corporation with its principal place of business in Naples,  Florida ("CCA") and
CCA OF MAINE, INC., a Delaware  corporation with its principal place of business
in Naples,  Florida ("CCA Maine") and CCA acting on behalf of MEDICAL  SUPPLY OF
AMERICA and REHAB AMBASSADORS, such entities being affiliates of CCA

                              W I T N E S S E T H :

           WHEREAS,  Leon  Bresloff,  Mary Bayer,  Richard  Boisvert,  Christine
Boisvert, David Sylvester, Sara Sylvester,  Eleanor Goldberg and D. Wayne Silby,
High Valley Group,  Inc. and Elder Solutions,  Inc.  (collectively the "Minority
Holders") and the Individuals  entered into a certain  Purchase Option Agreement
with CCA and CCA Maine dated June 23, 1995 (the "Option Agreement"); and

           WHEREAS, CCA Maine entered into ten Management Agreements,  all dated
June 23, 1995,  with  certain of the  Individuals  and of the SRG Entities  with
respect to Woodford  Park Nursing Care Center,  Pine Point  Nursing Care Center,
Marshwood  Nursing Care  Center,  RiverRidge,  Springbrook  Nursing Care Center,
Sandy River  Nursing Care  Center,  Cedar Ridge  Nursing Care Center,  Sedgewood
Commons, Harbor Hill and Windward Gardens, all nursing homes owned by certain of
the SRG  Entities,  as well as a letter of intent  dated  August  14,  1995 with
respect  to  The  Willows,   Oak  Grove  and  Birch  Grove   (collectively   the
"Facilities") (such


<PAGE>



Management  Agreements are referred to  collectively  herein as the  "Management
Agreements"); and

           WHEREAS, CCA Maine sent the SRG Entities a written notice on July 14,
1996 stating its intention to terminate the Management Agreements; and

           WHEREAS,  CCA and/or CCA Maine  have  entered  into a number of other
written agreements with certain of the Individuals,  Minority Holders and/or SRG
Entities,  more  particularly  described on Exhibit A attached hereto and made a
part hereof (collectively the "Miscellaneous Agreements"); and

           WHEREAS,  certain of the SRG Entities  commenced suit, for injunctive
and other relief,  in Superior  Court,  Androscoggin  County,  in a civil action
captioned Nursing  Administrators,  Inc. v. Community Care of America,  Inc., et
al., Docket No. CV-96-____ (the "Lawsuit"); and

           WHEREAS,  the parties to this Agreement have determined that it is in
their mutual best interests to terminate the Management  Agreements,  modify the
Option  Agreement  and  terminate  or  continue  certain  of  the  Miscellaneous
Agreements  and to enter  into a  comprehensive  financial  settlement  of their
mutual obligations, all on the terms and conditions set forth in this Agreement;
and

           WHEREAS,  as part of the consideration  for this settlement,  SRHS is
assuming the obligation to settle any claims owed by CCA to the SRG Entities;

           NOW   THEREFORE,   for  valuable   consideration,   the  receipt  and
sufficiency of which are hereby acknowledged, the parties agree as follows:

           1.  Termination  of Management  Agreements.  Subject to the terms and
conditions of this Agreement, the Management Agreements and the letter of intent
dated August 14, 1995 with respect to Birch Grove, Oak Grove and The Willows are
hereby  terminated  effective the date of this Agreement.  At the closing of the
settlement  described  in this  Agreement,  CCA Maine  shall  assign to SRHS all
accrued, unpaid management fees under the Management Agreements by assignment in
form and substance similar to that attached hereto as Exhibit B.

           2. Limited  Continuation of Option  Agreement.  The time during which
the option  granted by the Option  Agreement  may be  exercised,  as provided in
Section 3 of the  Option  Agreement,  is  hereby  made to expire at the close of
business on January 2, 1997. In the event CCA Maine exercises the option granted
in the Option  Agreement  pursuant  to the terms of the Option  Agreement  on or
before January 2, 1997, and  notwithstanding  anything to the contrary contained
in  the  Option  Agreement,  CCA  of  Maine  (a)  shall  pay  as  an  additional
non-refundable  deposit  $480,000  as a  condition  of, and at the time of, such
exercise,  in immediately available funds paid by wire transfer to SRHS as agent
and (b)  shall  have a period of 30 days  after  exercise,  subject  to the next
sentence, in which to close on its purchase of the Facilities. In no event shall
the Option Agreement extend beyond 5:00 PM February 3, 1997, even if the option

                                        2

<PAGE>



has been  exercised.  The  Option  Agreement  shall be deemed  modified  by this
Section  and by  other  provisions  of  this  Agreement  specifically  amending,
changing  or  modifying  the Option  Agreement.  The Option  Agreement  shall be
construed  together  with  this  Agreement,  and to the  extent  there  are  any
inconsistencies between the Option Agreement and this Agreement,  this Agreement
shall be controlling.

           3.  Miscellaneous  Agreements.  Exhibit A attached hereto  identifies
those of the Miscellaneous  Agreements which shall survive and those which shall
be  terminated  effective  as of  the  date  of  this  Agreement.  As  to  those
Miscellaneous Agreements listed on Exhibit A that are to terminate effective the
date of this Agreement, neither party shall have further liability to the other.
CCA and CCA Maine  agree that they shall  continue to perform  their  respective
obligations under those Miscellaneous  Agreements that shall survive the closing
of the settlement described in this Agreement. SRHS shall be responsible for and
shall have the benefit of all cost  reports and  exceptions  to the Routine Cost
Limitations  ("RCLs").  CCA Maine shall send all work  relating to 1995 Medicare
RCLs , including all work papers, diskettes and other materials to SRHS and SRHS
shall complete the 1995 Medicare RCLs. In addition, any other agreements between
CCA and/or CCA Maine and Leon  Bresloff  and Mary Bayer are not affected by this
Agreement.

           4. Offset of Claims.  In  consideration of CCA and CCA Maine waiving,
canceling and forgiving all amounts due (including any interest accrued thereon)
by  certain  of the  SRG  Entities  with  respect  to the  Facilities  and  more
particularly  described  on  Exhibit C attached  hereto  and made a part  hereof
(collectively   the  "Working  Capital   Lines"),   the  SRG  Entities  and  the
Individuals,  for  themselves and their  successors and assigns,  hereby forever
waive and  relinquish  all  claims  against  CCA and CCA Maine  asserted  in the
Lawsuit,  but not including those  obligations of CCA and CCA Maine  undertaken,
continued  or  modified  pursuant to this  Agreement.  In  consideration  of the
foregoing waiver and relinquishment by certain of the SRG Entities of all claims
against  CCA and CCA Maine  asserted in the  Lawsuit,  but not  including  those
obligations of CCA and CCA Maine  undertaken,  continued or modified pursuant to
this  Agreement,  CCA and CCA Maine,  for  themselves  and their  successors and
assigns,  do hereby waive,  cancel and forgive all amounts due under the Working
Capital Lines  (including  any interest  accrued  thereon).  Upon executing this
Settlement Agreement,  CCA Maine hereby authorizes and directs its attorney John
P. Doyle, Jr. to execute and to deliver to those SRG Entities that are liable on
the Working Capital Lines discharges and UCC-3 terminations of all mortgages and
financing statements securing the Working Capital Lines. CCA and CCA Maine shall
deliver the  original  Working  Capital Line  promissory  notes to SRHS as agent
marked "paid in full." CCA and CCA Maine shall  provide such evidence as the SRG
Entities shall request showing that NationsBank of Florida,  N.A., has consented
to the  cancellation  of  the  Working  Capital  Lines  and  the  return  of the
collateral for the same.

           5.  Modification  of Stock Options and Put Option with Respect to the
Individuals and Minority Holders.


                                        3

<PAGE>



           (a) With  respect to the  rights  granted by CCA and CCA Maine to the
Individuals  to acquire  shares of common stock of CCA (the "Stock  Options") in
and  pursuant to those  certain  Stock  Option  Agreements  between  each of the
Individuals  and CCA  dated  July 11,  1995,  (collectively  the  "Stock  Option
Agreements"),  and notwithstanding any provisions in the Stock Option Agreements
to the contrary dealing with the vesting of the Stock Options, CCA and CCA Maine
agree  that all of the shares of the  common  stock of CCA  subject to the Stock
Options,  for a total of twenty thousand (20,000) shares,  are as of the date of
this Agreement  fully vested with respect to the Stock Options,  and, as to such
twenty thousand (20,000) shares,  the Stock Options shall be nonforfeitable  and
immediately exercisable, and, upon exercise thereof, all stock so acquired shall
be freely tradeable.

           (b) With  respect  to the rights  granted by CCA and CCA Maine  under
Section 9(j) of the Option  Agreement to require the purchase of common stock of
CCA previously  issued to each of the  Individuals  and the Minority  Holders in
connection  with the payment of the  deposit  under  Section  8(a) of the Option
Agreement (the "Put Option") covering the shares of CCA common stock held by the
Individuals,  such Put  Option  shall  continue  in full  force and  effect,  as
modified by this  Section,  and CCA hereby agrees that it is liable with respect
to the Put Option.  Without regard to any  limitations as to percentages of such
stock to be put or as to dates for such puts,  all shares of stock under the Put
Option are hereby  exercised and CCA  acknowledges  and agrees to such exercise.
The Individuals  agree they shall not demand payment for the stock hereby put to
CCA until the earlier to occur of (i)  February 28, 1997 or (ii) the sale of all
or  substantially  all of the  assets  of CCA or the sale of a  majority  of the
issued and outstanding shares of stock of CCA to a third party, or the merger of
CCA with or into another  entity,  or any similar type of  transaction  (each, a
"Sale  Transaction").  If the  sale of CCA is  structured  as a  stock-for-stock
transaction,  the  Individuals and Minority  Holders hereby agree to accept,  in
lieu of cash,  shares of stock in the acquiring entity in an amount that results
in the Individuals and Minority Holders  receiving stock in the acquiring entity
of a market value on the date of closing equal to the value of the shares in CCA
held by the Individuals and Minority  Holders at the price under the Put Option,
and provided  that the stock of the  acquiring  entity is fully  registered  and
freely tradeable upon issuance to the Individuals and Minority Holders.

           6.  Continuation  and  Extension  of Put Rights with Respect to Maine
Head Trauma  Center.  The put options  granted to the  Individuals  in the Stock
Purchase  Agreement  (the "MHTC  Agreement")  among CCA,  CCA Maine,  Maine Head
Trauma Center,  Inc. and the Individuals and others dated as of November 1, 1995
(the "MHTC Put Options") shall continue in full force and effect,  and the dates
contained in Section  2.1(j) of the MHTC  Agreement  governing the period during
which the MHTC Put Options may be exercised are hereby  changed as follows:  The
shares  subject to the First Put Period (as defined in the MHTC  Agreement)  and
the Second Put Period (as defined in the MHTC  Agreement)  are hereby  exercised
and  shall be paid at the same  time as those  Put  Option  rights  set forth in
Section  5(b)  above  and the MHTC  Agreement  shall  be  deemed  to be  amended
accordingly. The Put Option price shall be as provided in the MHTC Agreement.


                                        4

<PAGE>



           7.  Appointment  of Agent with Respect to Put Option.  The holders of
the rights described in Sections 5 and 6 above hereby irrevocably  appoint James
N. Broder,  Esquire,  Curtis Thaxter Stevens Broder & Micoleau, One Canal Plaza,
Portland,  Maine 04412 as agent to hold the shares of stock to be tendered under
Sections 5 and 6 and to deliver  the  certificates  evidencing  said shares upon
tender of payment as required hereunder.  In the event CCA fails to make payment
of or to otherwise  perform under this  Agreement,  CCA agrees that such holders
shall be entitled to recover from CCA their  reasonable  legal fees and expenses
in addition to any other damages  incurred by reason of CCA's said failure.  CCA
waives any  conflict of interest  arising  from Mr.  Broder's  serving as escrow
agent under this Section and releases Mr. Broder from all  liability  except for
that arising from his intentional tortious acts.

           8. Additional Consideration for Settlement. The consideration for the
Settlement  described  herein shall be the mutual offset  described in Section 4
above.  In  addition,  CCA and CCA Maine agree  jointly and  severally to pay to
SRHS,  as agent for the SRG Entities  and the  Individuals,  including,  without
limitation,   David  L.  Friedman,  without  offset  or  deduction,  $50,000  in
immediately available funds, as follows: $25,000 on or before November 15, 1996,
and  $25,000  on the  earlier to occur of (i)  February  28,  1997,  or (ii) the
closing of a Sale  Transaction,  in payment of legal fees and  expenses  paid or
accrued by the SRG Entities and the  Individuals,  including  David L. Friedman,
between September 15, 1996 and the closing of this Agreement.

           9. Rehab Ambassadors. CCA represents and warrants to the SRG Entities
and the  Individuals  that One Hundred  Twenty  Thousand  Dollars  ($120,000.00)
previously  paid to CCA in July or August  1996 was  applied on that date to the
account of Rehab Ambassadors, an affiliate of CCA. Provided the $120,000 payment
was made to Rehab  Ambassadors,  the SRG Entities agree that they shall continue
to use the services of Rehab  Ambassadors,  except that the SRG  Entities  shall
have the right to  terminate  Rehab  Ambassadors  severally  on thirty (30) days
notice.  In addition,  Rehab Ambassadors will be treated the same as other trade
payables, i.e., shall be paid no sooner or later than any other accounts payable
of the SRG  Entities.  The amounts owing to Rehab  Ambassadors  as of August 31,
1996 are as shown on Exhibit D hereto and are hereby  confirmed by CCA and Rehab
Ambassadors.

           10. Office Lease.  SRHS shall enter into a Sublease with CCA Maine in
form and  substance  similar  to that  attached  hereto as  Exhibit  E. The rent
payable by SRHS shall be the rent payable by CCA Maine to Dead River Properties,
the Landlord under the Lease. The Sublease shall be for an initial term expiring
on February  14, 1997 with the right to extend for  additional  six month terms.
CCA and CCA  Maine  acknowledge  that all  furniture,  fixtures,  machinery  and
equipment located on the premises  described in the Sublease belong to SRHS. Any
additions,  accessions,  modifications  or  substitutions  to such equipment are
hereby transferred, sold and conveyed to SRHS.


                                        5

<PAGE>



           11. Continuation of Workers  Compensation  Program.  The SRG Entities
agree to continue utilizing the workers  compensation program currently covering
the SRG Entities'  employees until the end of the current policy term,  which is
March 31, 1997.

           12. No Amounts Owed to Medical Supply.  CCA and CCA Maine acknowledge
and confirm that none of the SRG Entities and none of the  Individuals  owes any
sums whatsoever to Medical Supply of America, an affiliate of CCA.

           13.  Representations and Warranties of CCA and CCA Maine. CCA and CCA
Maine jointly and severally warrant and represent to the Individuals and the SRG
Entities as follows:

                    a.  Each  of  CCA  and  CCA  Maine  is  a  validly   created
corporation in good standing under the laws of Delaware and has been  authorized
by all necessary  corporate  action to execute and deliver this Agreement and to
complete the transactions  described herein.  Certified corporate resolutions to
that  effect  will be  delivered  to SRHS  within  5 days of  execution  of this
Agreement.

                    b.  Neither  CCA nor CCA Maine is  required  to  obtain  the
consent of any party in order to enter into this  Agreement  and to perform  its
respective obligations hereunder.

                    c. Except for the Lawsuit, there is no litigation pending or
threatened, nor any proceeding before any other court or tribunal either pending
or threatened against CCA or CCA Maine that would have a material adverse effect
upon the performance by CCA or CCA Maine of their respective  obligations  under
this Agreement.

                    d.  Except  for an  assignment  in favor of  NationsBank  of
Florida,  N.A.,  CCA  Maine is the  holder  of the  promissory  notes,  security
agreements,  and all other documents and instruments  evidencing or securing the
Working  Capital  Lines,  has not assigned or  transferred  the Working  Capital
Lines,  and has the right to discharge and terminate the same as required by the
terms of this Agreement.  NationsBank of Florida N.A. has consented to the terms
of this Settlement Agreement.

           14.  Representations  and  Warranties  by the SRG  Entities.  The SRG
Entities jointly and severally warrant to CCA and CCA Maine as follows:

                    a.  Each  of  the  SRG   Entities   is  a  validly   created
corporation,  general  partnership,  limited  partnership  or limited  liability
company,  as the case may be, in good  standing  under the laws of Maine and has
been  authorized by all necessary  corporate  action to execute and deliver this
Agreement and to complete the transactions described herein.

                    b.  None of the SRG  Entities  is  required  to  obtain  the
consent of any party in order to enter into this  Agreement  and to perform  its
respective obligations hereunder.


                                        6

<PAGE>



                    c. Except for the Lawsuit, there is no litigation pending or
threatened, nor any proceeding before any other court or tribunal either pending
or threatened against any of the SRG Entities that would have a material adverse
affect upon the performance by the SRG Entities of their respective  obligations
under this Agreement.

           15.  Indemnification  by CCA and CCA of Maine. CCA and CCA Maine, and
their respective  successors and assigns,  shall jointly and severally indemnify
and defend the SRG Entities,  the Individuals,  and their respective successors,
assigns,  heirs  and  personal  representatives  from  and  against  any and all
liability,  costs, damages, and claims arising from or in any way related to (i)
all claims,  demands and liabilities by or in favor of Rehab Ambassadors arising
from or in any way  related to the  $120,000  payment  referred  to in Section 9
above,  including  whether or not such  payment  was in fact  received  by Rehab
Ambassadors, (ii) all claims, demands and liabilities (including fines) that may
be imposed upon or asserted  against the SRG  Entities by reason of  operational
matters within the Facilities  arising from actions or omissions of CCA Maine or
any affiliates  between August 15, 1995 and August 14, 1996 and (iii) any breach
of the  representations  and warranties set forth in Section 13 above.  Upon the
happening of any event  covered by this  indemnity,  CCA and CCA Maine shall pay
the amount of such loss upon demand.  This indemnity  shall also cover all costs
associated  with   collection  or  enforcement  of  this  indemnity,   including
reasonable  attorneys'  fees.  This  indemnity  shall continue in full force and
effect for a period of six (6) years from the closing of this settlement.

           16.  Indemnification  by SRG  Entities.  The SRG  Entities  and their
respective  successors  and assigns,  shall jointly and severally  indemnify and
defend CCA, CCA Maine,  and their  respective  successors and assigns,  from and
against any and all liability, costs, damages, and claims arising from or in any
way related to (i) any breach of the representations and warranties set forth in
Section 14 above,  and (ii) any claims by the Minority  Holders arising from the
settlement  described  in this  Agreement,  except  with  respect to  continuing
obligations of CCA or CCA Maine to certain of the Minority  Holders as described
in  Sections  3, 5 and 6 above.  This  indemnity  shall  also  cover  all  costs
associated  with   collection  or  enforcement  of  this  indemnity,   including
reasonable  attorneys'  fees.  This  indemnity  shall continue in full force and
effect for a period of six (6) years from the closing of this settlement.

           17.  Closing.  The  closing  of  the  settlement  described  in  this
Agreement shall take place on October ___, 1996. At the closing:

                    a.  CCA  shall  execute  and  deliver  original  termination
statements and mortgage discharges releasing all of the mortgages and all of the
UCC-1 financing statements covering the Facilities, in form for proper recording
and filing at the appropriate public office.

                    b. CCA Maine shall execute and deliver the  Assignment  with
respect  to unpaid  management  fees,  the form of which is  attached  hereto as
Exhibit B.


                                        7

<PAGE>



                    c. CCA Maine and SRHS shall execute the  Sublease,  the form
of which is attached hereto as Exhibit E.

                    d.  The  parties   shall  execute  such  other  and  further
documents as shall be necessary  to complete  the  settlement  described in this
Agreement.

           18.  Release  by CCA and CCA of  Maine.  CCA  and CCA of  Maine,  for
themselves and their respective successors and assigns,  hereby remise,  release
and forever  discharge and, by these presents,  do, for themselves and for their
agents and representatives, hereby remise, release and forever discharge the SRG
Entities,  the  Individuals  and the  Facilities  and  their  respective  heirs,
successors,  agents, attorneys, personal representatives and assigns of and from
all claims, debts, demands,  actions,  causes of action,  covenants,  contracts,
controversies,  agreements,  promises,  doings, omissions,  variances,  damages,
executions,  claims, rights,  liabilities,  suits, dues, sums and sums of money,
accounts, reckonings, presentments, liens and any other claim of whatsoever kind
or nature,  whether known or unknown, of every name and nature, either at law or
in equity or otherwise,  which CCA and CCA Maine,  or either of them,  ever had,
now have or which may result in the future  from the  existing  or past state of
things,  from the beginning of time to the date of closing  specified in Section
17 above,  arising from, or in any way relating to, the  Management  Agreements,
the  Option  Agreement  (except  as  provided  below),  and those  Miscellaneous
Agreements  listed  on  Exhibit A  attached  hereto  that are  being  terminated
pursuant to this Agreement, as well as the Lawsuit. This release shall not cover
or apply to any  obligations of the SRG Entities or the  Individuals  under this
Agreement,  including,  without limitation, the indemnities set forth in Section
16  above,  or  under  the  Option  Agreement  as it has been  modified  by this
Agreement, all of which obligations shall continue in full force and effect.

           19. Release by the Individuals and the SRG Entities.  The Individuals
and the SRG Entities, for themselves and their respective heirs,  successors and
assigns,  hereby remise,  release and forever  discharge and, by these presents,
do, for  themselves  and for their agents and  representatives,  hereby  remise,
release and forever discharge CCA and CCA Maine and their respective successors,
assigns,  agents and attorneys of and from all claims, debts, demands,  actions,
causes of action, covenants,  contracts,  controversies,  agreements,  promises,
doings, omissions,  variances, damages, executions, claims, rights, liabilities,
suits, dues, sums and sums of money, accounts, reckonings,  presentments,  liens
and any other claim of whatsoever kind or nature,  whether known or unknown,  of
every  name and  nature,  either  at law or in equity  or  otherwise,  which the
Individuals  and the SRG Entities,  or any of them,  ever had, now have or which
may result in the future  from the  existing  or past state of things,  from the
beginning of time to the date of closing specified in Section 17 above,  arising
from, or in any way relating to, the Management Agreements, the Option Agreement
(except as provided below), and those Miscellaneous Agreements listed on Exhibit
A attached hereto that are being terminated pursuant to this Agreement,  as well
as the Lawsuit.  This release shall not cover or apply to (i) any obligations of
CCA or CCA Maine  under  this  Agreement,  including,  without  limitation,  the
indemnities set forth in Section 15 above and under the Option Agreement,  Stock
Option  Agreement  and  MHTC  Agreement,  as they  have  been  modified  by this
Agreement, all of which

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<PAGE>



obligations shall continue in full force and effect, or to (ii) any liability of
CCA or CCA Maine arising from operation of the Facilities,  other than the third
party  reimbursement or other financial  obligations that have been addressed by
this  Agreement.  The  parties'  intent  is that  this  release  shall not cover
obligations owed by CCA and CCA Maine as Manager to patients and with respect to
day-to-day operations of the Facilities.

           20. Further Assurances. The parties to this Agreement agree that they
shall  perform all such further  acts and execute all such further  documents as
may be necessary or required in order to complete the transactions  described in
this Agreement.

           21. Miscellaneous.  Time is of the essence. This Agreement sets forth
the entire  Agreement of the parties and  supersedes  all prior  agreements  and
understandings,  whether  oral or  written.  No  modification  or  waiver of any
provision  of this  Agreement  shall be  effective  unless  the same shall be in
writing and  executed by all parties  hereto.  All notices,  demands,  and other
communications  under this Agreement  shall be in writing and shall be deemed to
have  been  duly  given  to  the   recipient  if  mailed  by   certified   mail,
postage-prepaid,  or if by sent  by  hand  delivery  or by  reputable  overnight
delivery service, address to the recipient at the following addresses:

           If to CCA and CCA Maine:

                                          3050 North Horseshoe Drive
                                          Suite 260
                                          Naples, Florida  33942

           with a copy to:

                                          Michael Blass, Esquire
                                          Blass & Driggs
                                          461 Fifth Avenue, 19th Floor
                                          New York, New York 10017

           If to any of the SRG Entities or Individuals:

                                          c/o Sandy River Development
                                          183 Middle Street
                                          P.O. Box 110
                                          Portland, Maine  04112

           with a copy to:

                                          James N. Broder, Esquire
                                          Curtis Thaxter Stevens Broder & 
                                          Micoleau LLC
                                          One Canal Plaza--P.O. Box 7320

                                        9

<PAGE>



                                          Portland, Maine 04112

Any party may change addresses by providing written notice of such change to the
other parties hereto. All  representations and warranties made by the parties in
this Agreement  shall survive the delivery of this  Agreement  shall continue in
full force and effect.  This Agreement shall be binding upon and shall inure the
benefit of the  parties  and their  respective  successors,  assigns,  heirs and
personal  representatives.  This  Agreement  may be  executed  in any  number of
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall  constitute  one and the same  instrument.  The  representations,
warranties  and  indemnities  contained  in  Sections  13, 14, 15 and 16 of this
Agreement  shall survive the closing of the settlement  described  herein.  This
Agreement  shall be  construed  under the laws of the  State of  Maine.  Section
headings used in this  Agreement are for  convenience  only and shall not affect
the construction of this Agreement.

           IN WITNESS  WHEREOF,  the parties  have caused this  Agreement  to be
executed as of the day and year first written above.

WITNESS:                               COMMUNITY CARE OF AMERICA,
                                       INC.


_________________________________      By:_______________________________
                                             Name:
                                             Title:

                                       CCA OF MAINE, INC.


_________________________________      By:_______________________________
                                             Name:
                                             Title:

                                       MEDICAL SUPPLY OF AMERICA

                                       BY:        COMMUNITY CARE OF
                                                  AMERICA, INC., its duly
authorized                                                  agent


_________________________________      By:_______________________________
                                            Name:
                                            Title:


                                       10

<PAGE>



                                      REHAB AMBASSADORS

                                      BY:        COMMUNITY CARE OF
                                                 AMERICA, INC., its duly
authorized                                                 agent


_________________________________     By:______________________________
                                           Name:
                                           Title:

                                      CEDAR RIDGE MANAGEMENT, INC.


_________________________________     By:_______________________________
                                            David L. Friedman, its President

                                      BIRCH GROVE MANAGEMENT
                                      COMPANY, INC.


_________________________________     By:_______________________________
                                           David L. Friedman, its President

                                      CEDAR RIDGE NURSING CARE
                                      CENTER ASSOCIATES

                                      BY:        SANDY RIVER GROUP, its
                                                 General Partner


_________________________________     By:_______________________________
                                            David L. Friedman, its President

                                      HARBOR HILL LIMITED LIABILITY
                                      COMPANY


_________________________________     By:_______________________________
                                            David L. Friedman, its Member

                                      HOMEWOOD LIMITED PARTNERSHIP


                                       11

<PAGE>



                                      BY:        SEDGEWOOD LIMITED
                                                 LIABILITY COMPANY, its
                                                           General Partner


_________________________________     By:_______________________________
                                            David L. Friedman, its Member

                                      NURSING ADMINISTRATORS, INC.


_________________________________     By:_______________________________
                                            David L. Friedman, its President

                                      OAK GROVE MANAGEMENT
                                      COMPANY, INC.


_________________________________     By:_______________________________
                                           David L. Friedman, its President

                                      PINE POINT NURSING CARE CENTER,
                                      INC.


_________________________________     By:_______________________________
                                            David L. Friedman, its President

                                      RIVER RIDGE MANAGEMENT, INC.


_________________________________     By:_______________________________
                                            David L. Friedman, its President



                                      RIVER RIDGE ASSOCIATES

                                      BY:        SANDY RIVER GROUP, its
                                                 General Partner


_________________________________     By:_______________________________

                                       12

<PAGE>



                                              David L. Friedman, its President

                                        SANDY RIVER DEVELOPMENT, INC.


_________________________________       By:_______________________________
                                             David L. Friedman, its President

                                        SANDY RIVER GROUP


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        SPRINGBROOK ASSOCIATES

                                        BY:        SANDY RIVER GROUP, its
                                                   General Partner


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        SPRINGBROOK MANAGEMENT, INC.


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        SRG/HOMEWOOD, INC.


_________________________________       By:_______________________________
                                              David L. Friedman, its President




                                        SRG/WINDWARD GARDENS, INC.


_________________________________       By:_________________________________
                                              David L. Friedman, its President

                                       13

<PAGE>



                                        THE WILLOWS MANAGEMENT
                                        COMPANY, INC.


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        WILSON STREAM MANAGEMENT,
                                        INC.


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        WINDWARD GARDENS LIMITED
                                        PARTNERSHIP

                                        BY:        WINDWARD GARDENS
                                                   LIMITED LIABILITY COMPANY,
                                                   its General Partner


_________________________________       By:_______________________________
                                              David L. Friedman, its Member

                                        WOODFORD PARK NURSING CARE
                                        CENTER, INC.


_________________________________       By:_______________________________
                                              David L. Friedman, its President

                                        SANDY RIVER HEALTH SYSTEM LLC


_________________________________       By:_______________________________
                                              David L. Friedman, its Member


---------------------------------       ----------------------------------
                                        David L. Friedman



                                       14

<PAGE>



---------------------------------   ----------------------------------
                                    Michael C. Tyler


---------------------------------   ----------------------------------
                                    Michael B. Prior


---------------------------------   ----------------------------------
                                    Daniel J. Maguire


                                                           LIMITED JOINDER


           The undersigned,  being all of the Minority Holders identified above,
hereby  join in this  Settlement  Agreement  for the  purpose of agreeing to the
provisions of Sections 5(b), 6 and 7 above, as applicable.

WITNESS:


---------------------------------        ---------------------------------
                                         Leon Bresloff


---------------------------------        ---------------------------------
                                         Mary Bayer


---------------------------------        ---------------------------------
                                         D. Wayne Silby


---------------------------------        ---------------------------------
                                         Richard Boisvert


---------------------------------        ---------------------------------
                                         Christine Boisvert




                                       15

<PAGE>



---------------------------------         ---------------------------------
                                          Eleanor Goldberg


---------------------------------         ---------------------------------
                                          David Sylvester


---------------------------------         ---------------------------------
                                          Sarah Sylvester

                                          HIGH VALLEY GROUP, INC.


_________________________________         By:______________________________
                                                     Its:

                                          ELDER SOLUTIONS, INC.


_________________________________         By:______________________________
                                                     Its:


---------------------------------         ---------------------------------
                                          Anne Hess


---------------------------------         ---------------------------------
                                          Terri-Lee Brown

---------------------------------         ---------------------------------
                                          Judith Smith


---------------------------------         ---------------------------------
                                          Robert Gass


---------------------------------         ---------------------------------
                                          Marc Sarkady



                                       16

<PAGE>



---------------------------------            ---------------------------------
                                             Peter Troast






                                       17

<PAGE>



                     SETTLEMENT AGREEMENT--LIST OF EXHIBITS


           Exhibit A:         Miscellaneous Agreements.
           Exhibit B:         Form of Assignment of unpaid management fees.
           Exhibit C:         List of Working Capital Lines.
           Exhibit D:         Rehab Ambassadors Payables.
           Exhibit E:         Form of Sublease.








                                       18

<PAGE>



                                    EXHIBIT A

                            MISCELLANEOUS AGREEMENTS


MISCELLANEOUS AGREEMENTS BEING TERMINATED:


           1. Side letter to David L. Friedman from CCA and CCA Maine dated June
23, 1995 re depreciation recapture.

           2. Side letter between Harbor Hill Limited  Liability Company and CCA
dated June 23, 1995, as amended, re Harbor Hill start-up.

           3. Side letter  between CCA and David L. Friedman dated June 23, 1995
re automobile leases.

           4.  Consulting  Agreement  dated July 10, 1995  between CCA and Sandy
River Development, Inc.

           5. Services Agreement dated June 23, 1995 between CCA Maine and Sandy
River Development, Inc.

           6.  Development  Agreement term sheet dated June 30, 1995 between CCA
and Sandy River Development, Inc.

           7.  Replacement  Promissory Note in the original  principal amount of
$21,846.61 dated July 12, 1991 made by River ridge Management,  Inc. in favor of
Amethyst E.G. Mountfort Revocable Trust and endorsed to CCA Maine.

           8.  Replacement  Promissory Note in the original  principal amount of
$21,704.31 dated August 6, 1991 made by River ridge Management, Inc. in favor of
Amethyst E.G. Mountfort Revocable Trust and endorsed to CCA Maine.

           9.  Replacement  Promissory Note in the original  principal amount of
$14,470.20 dated August 2, 1991 made by River ridge Management, Inc. in favor of
Christine Boisvert and endorsed to CCA Maine.

           10.  Replacement  Promissory Note in the original principal amount of
$14,564.40 dated July 15, 1991 made by River ridge Management,  Inc. in favor of
Christine Boisvert and endorsed to CCA Maine.


                                       19

<PAGE>



           11.  Replacement  Promissory Note in the original principal amount of
$8,000  dated  August 4, 1992 made by River ridge  Management,  Inc. in favor of
Christine Boisvert and endorsed to CCA Maine.

           12.  Replacement  Promissory Note in the original principal amount of
$12,000  dated August 7, 1992 made by River ridge  Management,  Inc. in favor of
David L. Friedman and endorsed to CCA Maine.

           13. Side letter to David Fater from David  Friedman  dated August 10,
1995 re Owner Entities' working capital loans.

           14. Non-Competition Agreements of various dates between CCA Maine and
Richard  Boisvert and  Christine  Boisvert,  Sara  Sylvester,  David  Sylvester,
Eleanor Goldberg,  David Friedman,  Michael Tyler, Michael Prior, Daniel Maguire
and Sandy River Development, Inc.


MISCELLANEOUS AGREEMENTS CONTINUING IN FULL FORCE AND EFFECT:


           1. The MHTC Agreement and all documents and  instruments  executed in
connection therewith, as modified by this Agreement.

           2 The Stock Options, as modified by this Agreement.





                                       20

<PAGE>



                                    EXHIBIT B

                                   ASSIGNMENT


           KNOW ALL PERSONS BY THESE PRESENTS, that CCA OF MAINE, INC., a
Delaware  corporation  with  a  place  of  business  in  Naples,   Florida  (the
"Assignor"), for valuable consideration, the receipt and sufficiency of which is
hereby acknowledged,  hereby grants, transfers,  assigns, sets over and delivers
to SANDY RIVER HEALTH SYSTEM LLC, a Maine limited liability company with a place
of business in Portland, Maine (the "Assignee"),  all accrued, unpaid management
fees due to assignor under those certain  Management  Agreements  dated June 23,
1995 with Assignor as manager with respect to Woodford Park Nursing Care Center,
Pine Point  Nursing Care  Center,  Marshwood  Nursing  Care Center,  RiverRidge,
Springbrook  Nursing Care Center,  Sandy River Nursing Care Center,  Cedar Ridge
Nursing Care Center, Sedgewood Commons, Harbor Hill and Windward Gardens.

           This  Assignment is the  assignment  referred to in Section 1 of that
certain Settlement  Agreement by and among Assignor,  Assignee and others.  This
Assignment  is  subject  to  and  shall  be  construed  consistently  with  such
Settlement Agreement.

           IN WITNESS WHEREOF,  CCA of Maine, Inc. has caused this Assignment to
be executed by  _____________________________,  its ________________,  thereunto
duly authorized, this _____ day of October, 1996.

WITNESS:                                CCA OF MAINE, INC.



_________________________________       By:_______________________________
                                                   Its:
                                                   Print Name:





                                       21

<PAGE>



                                    EXHIBIT C

                          LIST OF WORKING CAPITAL LINES




        NAME OF FACILITY                       FACE AMOUNT OF    OUTSTANDING
                                               LINE              AMOUNT AS OF
                                                                 August 14, 1996

Windward Gardens Limited Partnership           $145,000             $
Revolver
Windward Gardens Term Note                     $200,000             $
Homewood Limited Partnership Revolver          $450,000             $
Nursing Administrators, Inc. Revolver          $325,000             $
Springbrook Management Revolver                $350,000             $         *
RiverRidge Management Revolver                 $570,000             $         *
Cedar Ridge Management Revolver                $225,000             $         *
Pine Point Nursing Care Center, Inc.           $150,000             $
Revolver
Wilson Stream Management Revolver              $200,000             $
Woodford Park Nursing Care Center, Inc.        $300,000             $
Revolver


           * Includes  principal  amount of SRG land loans with  respect to land
adjacent to these Facilities.


                                       22

<PAGE>



                                    EXHIBIT D

                                     SUMMARY

                             ACCOUNTS PAYABLE DUE TO
                                REHAB AMBASSADORS
                              AS OF AUGUST 31, 1996


Sandy River Nursing Care Center                        $  93,062.89

Marshwood Nursing Care Center                          $  68,747.24

Springbrook Nursing Care Center                        $  89,807.52

Pine Point Nursing Care Center                         $  30,495.82

Woodford Park Nursing Care Center                      $  45,756.67

                                              TOTAL:   $327,870.14




                                       23

<PAGE>



                                    EXHIBIT E

                                    SUBLEASE


           SUBLEASE made this ______ day of October, 1996, by and between CCA OF
MAINE, INC., a Delaware corporation with a place of business in Portland,  Maine
("Landlord")  and SANDY  RIVER  HEALTH  SYSTEM  LLC, a Maine  limited  liability
company with a place of business in Portland, Maine ("Tenant")

                              W I T N E S S E T H:

           WHEREAS,  Landlord is tenant under that certain Lease dated  November
14, 1995 (the "Prime Lease") with Dead River Company,  acting by and through its
division, Dead River Properties, as Landlord (the "Prime Landlord") with respect
to approximately  3,838 square feet of office space in Prime Landlord's building
known as  Atlantic  Place and located at Darling  Avenue and Foden  Road,  South
Portland, Maine; and

           WHEREAS,  Landlord  wishes to sublease  such space to Tenant upon the
terms and conditions contained in this Sublease and in the Prime Lease;

           NOW,  THEREFORE,   for  valuable   consideration,   the  receipt  and
sufficiency of which are hereby acknowledged, the parties agree as follows:

           1.  Premises  Subleased.  Landlord  subleases  to Tenant,  and Tenant
subleases from  Landlord,  the entire space leased to Landlord by Prime Landlord
under the terms of the Prime  Lease,  with all rights in common  with  others in
common areas in Prime Landlord's building (collectively the "Premises").

           2. Term;  Right to Renew.  The term of this Sublease shall be for six
months  beginning  on the date of this Lease and ending on February  ___,  1997.
Provided  Tenant is not in default  under this  Sublease,  Tenant may renew this
Sublease for successive terms, each of six months' duration,  upon the terms and
conditions contained herein, provided Tenant gives written notice to Landlord of
Tenant's  election  to renew at least  sixty  (60)  days  before  the end of the
then-current term.

           3. Rent.  Tenant  covenants and agrees to pay rent during the term in
the amount of ____________________________________________ Dollars ($__________)
per month,  payable  in advance on the first day of each month  during the term.
Rent for partial months shall be prorated.

           4.  Utilities.  Tenant  shall pay all charges  for gas,  electricity,
lights,  heat, water, sewer and telephone or other  communication  service used,
rendered or supplied to the Premises.



<PAGE>



           5.  Use of  Premises.  Tenant  shall  use the  Premises  only for the
purposes allowed in Section 4.1 of the Prime Lease.

           6. Maintenance and Repair.  Tenant acknowledges that the Premises are
in  reasonable  condition as of the date of this  Sublease.  Tenant shall at all
times  maintain  the Premises in the same order and repair as they are in at the
commencement  of the term,  reasonable  use and wear and damage by fire or other
casualty only  excepted;  shall keep all fixtures and equipment in the Premises,
including without  limitation all heating,  plumbing,  electrical and mechanical
fixtures  and  equipment in the same  operating  condition as they are in on the
date of this  Sublease,  reasonable  use and wear and damage by fire or casualty
only excepted.  At the end of the term,  Tenant shall  surrender the Premises to
Landlord  in the same  condition  as they were in on the date of this  Sublease,
reasonable  use and wear and  damage by fire or other  casualty  only  excepted.
Tenant shall make no alterations or  modifications  to the Premises  without the
Landlord's written consent, which consent shall not be unreasonably withheld.

           7.  Insurance.  Tenant shall  maintain a policy of general  liability
insurance  insuring  Landlord  and  Tenant,  said  policy  to be in the  amounts
required of the tenant under the Prime Lease.  The policy shall name Landlord as
an additional insured.

           8. Indemnification. Except for claims arising before the date of this
Lease,  and  except  for  claims  arising at any time due in whole or in part to
Landlord's  negligence or wilful acts,  Tenant shall indemnify and hold Landlord
harmless  from and against any and all claims for injury to persons or damage to
property  in or  about  the  Premises  or  arising  in any way  from  the use or
condition of the Premises,  and against any costs or damages which  Landlord may
incur by reason of the assertion of any such claims.

           9. Assignment and  Subletting.  Tenant shall not assign this Sublease
or sublet the Premises or any part thereof  without the prior written consent of
Landlord, which consent shall not be unreasonably withheld.  Landlord represents
and  warrants to Tenant that  Landlord has  received  all  approvals  from Prime
Landlord that are necessary in order for Landlord to enter into this Sublease.

           10. Damage or Destruction by Fire, Eminent Domain or Casualty. In the
event that the Premises or any part thereof shall be taken by eminent  domain or
shall be so damaged  or  destroyed  by fire or  unavoidable  casualty,  that the
Premises are thereby rendered  untenantable,  then either Landlord or Tenant may
terminate  this Sublease upon written  notice to the other and the rent shall be
prorated as of the date of such termination.

           11.  Tenant's  Property.  All  property  of every kind of Tenant's or
Tenant's  employees or invitees which may be on the Premises  during the term or
any occupancy by Tenant thereof, shall be at the sole risk and hazard of Tenant.


                                        2

<PAGE>


           12. Default. If Tenant shall default in the performance of any of its
obligations hereunder, and such default is not cured within fifteen (15) days of
the date of a written  notice  from  Landlord if the default is a failure to pay
rent, or thirty (30) days from the date of a written notice from Landlord in the
case of other  defaults,  including  any default  under the Prime  Lease,  or if
Tenant  shall file or have filed  against it a petition in  bankruptcy  or if an
assignment shall be made by Tenant for the benefit of creditors,  then in any of
such  cases  Landlord  may  lawfully,  immediately  and at any time  thereafter,
without further notice or demand,  and without  prejudice to any other remedies,
terminate this Sublease by written  notice  addressed to Tenant at the Premises,
and upon such mailing this Sublease shall terminate.

           13.  Successors and Assigns;  Incorporation  of the Prime Lease.  The
provisions  of this  Sublease  shall be binding upon and inure to the benefit of
the respective successors and assigns of Landlord and Tenant. The Prime Lease is
incorporated  herein  by  reference  and a copy of the Prime  Lease is  attached
hereto as Exhibit A. Tenant shall abide by all terms and conditions of the Prime
Lease.

           14. Settlement  Agreement.  This Sublease is the Sublease referred to
in Section 10 of that certain Settlement Agreement dated as of October ___, 1996
by and among Landlord,  Tenant and others, and shall be subject to and construed
consistently with, such Settlement Agreement.

           IN WITNESS  WHEREOF,  Landlord and Tenant have executed this Sublease
as of the date first above written.

WITNESS:                                  CCA OF MAINE, INC., Landlord



_________________________________         By:______________________________
                                                     Its:

                                          SANDY RIVER HEALTH SYSTEM
                                          LLC, Tenant



_________________________________         By:______________________________
                                                     Its Member



                                        3