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                                                                  EXHIBIT 10.113





                                      LEASE

                               DATED JULY 16, 1999

                                     BETWEEN

                         LTC PROPERTIES, INC., AS LESSOR

                                       AND

                    ALTERRA HEALTHCARE CORPORATION, AS LESSEE




















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                                TABLE OF CONTENTS


ARTICLE I......................................................................1

   1.1  Leased Property........................................................1
   1.2  Term...................................................................2

ARTICLE II.....................................................................2

   Definitions.................................................................2

ARTICLE III....................................................................6

   3.1  Minimum Rent...........................................................6
   3.2  Annual Escalation of Minimum Rent......................................6
   3.3  Additional Charges.....................................................7
   3.4  Net Lease..............................................................7
   3.5  Late Charge............................................................7

ARTICLE IV.....................................................................8

   4.1  Payment of Impositions.................................................8
   4.2  Notice of Impositions..................................................9
   4.3  Utility Charges........................................................9
   4.4  Insurance Premiums.....................................................9
   4.5  Payables...............................................................9

ARTICLE V.....................................................................10

   5.1  No Termination, Abatement, etc........................................10
   5.2  Abatement Procedures..................................................10

ARTICLE VI....................................................................10

   6.1  Ownership of the Leased Property......................................10
   6.2  Lessee's Personal Property............................................10
   6.3  Consumable Inventory..................................................11

ARTICLE VII...................................................................11

   7.1  Condition of Leased Property..........................................11
   7.2  Use of the Leased Property............................................12

ARTICLE VIII..................................................................12

   8.1  Compliance with Legal and Insurance Requirements, Instruments, etc....12
   8.2  Legal Requirement Covenants...........................................13

ARTICLE IX....................................................................14

   9.1  Maintenance and Repair................................................14
   9.2  Expenditures to Comply with Law; Construction of Additional
        Improvements Pursuant to Certificate of Need..........................15
   9.3  Encroachments, Restrictions, etc......................................15



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ARTICLE X.....................................................................16

   10.1 Lessee's Obligations for Hazardous Materials..........................16
   10.2 Definition of Hazardous Materials.....................................16

ARTICLE XI....................................................................16

   No Liens...................................................................16

ARTICLE XII...................................................................17

   Permitted Contests.........................................................17

ARTICLE XIII..................................................................17

   13.1 General Insurance Requirements........................................17
   13.2 Replacement Cost......................................................18
   13.3 Additional Insurance..................................................19
   13.4 Waiver of Subrogation.................................................19
   13.5 Form Satisfactory, etc................................................19
   13.6 Increase in Limits....................................................19
   13.7 Blanket Policy........................................................20
   13.8 No Separate Insurance.................................................20
   13.9 Continuous Coverage...................................................20

ARTICLE XIV...................................................................20

   14.1 Insurance Proceeds....................................................20
   14.2 Reconstruction in the Event of Damage or Destruction Covered by
         Insurance Proceeds...................................................21
   14.3 Reconstruction in the Event of Damage or Destruction Not Covered
         by Insurance.........................................................21
   14.4 Lessee's Property.....................................................21
   14.5 Restoration of Lessee's Property......................................21
   14.6 No Abatement of Rent..................................................21
   14.7 Termination of Option to Extend.......................................21
   14.8 Waiver................................................................22

ARTICLE XV....................................................................22

   15.1 Definitions...........................................................22
   15.2 Parties'Rights and Obligations........................................22
   15.3 Total Condemnation....................................................22
   15.4 Allocation of Portion of Award........................................22
   15.5 Partial Condemnation..................................................23
   15.6 Temporary Condemnation................................................23

ARTICLE XVI...................................................................24

   16.1 Events of Default.....................................................24
   16.2 Certain Remedies......................................................27
   16.3 Damages...............................................................27


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   16.4   Waiver..............................................................29
   16.5   Application of Funds................................................29

ARTICLE XVII..................................................................29

   Lessor's Right to Cure Lessee's Default....................................29

ARTICLE XVIII.................................................................29

   18.1   Options to Extend...................................................29
   18.2   Minimum Rent During Extended Terms..................................30

ARTICLE XIX...................................................................31

   Holding Over...............................................................31

ARTICLE XX....................................................................31

   Risk of Loss...............................................................31

ARTICLE XXI...................................................................32

   Indemnification............................................................32

ARTICLE XXII..................................................................33

   22.1   Attornment..........................................................33
   22.2   Sublease Limitation.................................................33

ARTICLE XXIII.................................................................34

   Officer's Certificates and Financial Statements............................34

ARTICLE XXIV..................................................................34

   Lessor's Right to Inspect..................................................34

ARTICLE XXV...................................................................34

   No Waiver..................................................................34

ARTICLE XXVI..................................................................35

   Remedies Cumulative........................................................35

ARTICLE XXVII.................................................................35

   Acceptance of Surrender....................................................35

ARTICLE XXVIII................................................................35

   No Merger of Title.........................................................35

ARTICLE XXIX..................................................................35

   Conveyance by Lessor.......................................................35

ARTICLE XXX...................................................................35

   Quiet Enjoyment............................................................35




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ARTICLE XXXI..................................................................36

   Notices....................................................................36

ARTICLE XXXII.................................................................37

   32.1   Lessor May Grant Liens..............................................37
   32.2   Attornment..........................................................37
   32.3   Lessee's Right to Cure..............................................37
   32.4   Breach by Lessor....................................................38

ARTICLE XXXIII................................................................38

   33.1   Survival of Obligations.............................................38
   33.2   Late Charges; Interest..............................................38
   33.3   Limits of Lessor's Liability........................................38
   33.4   Transfer of Operations..............................................38
   33.5   Addendum, Amendments and Exhibits...................................39
   33.6   Headings............................................................39
   33.7   Time................................................................39
   33.8   Days................................................................39
   33.9   Rent................................................................39
   33.10  Applicable Law......................................................39
   33.11  Successors and Assigns..............................................39
   33.12  Recordation.........................................................39
   33.13  Prior and Future Agreements.........................................39
   33.14  Partial Invalidity..................................................39
   33.15  Attorneys'Fees......................................................40
   33.16  Authority of Lessor and Lessee......................................40
   33.17  Relationship of the Parties.........................................40
   33.18  Counterparts........................................................40
   33.19  Brokers.............................................................40
   33.20  Computer Disc.......................................................40



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                                      LEASE

         THIS LEASE (this "Lease") is made as of this 16th day of July, 1999, by
and between LTC PROPERTIES, INC., a Maryland corporation, herein called
"Lessor", and ALTERRA HEALTHCARE CORPORATION, a Delaware corporation, herein
called "Lessee", subject to the terms, conditions and contingencies set forth
below.

                                   ARTICLE I

         1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee, and Lessee rents and hires from
Lessor all of the following (the "Leased Property"):

              (i) The real property situated in the City of Fort Collins,
Larimer County, Colorado and more particularly described in EXHIBIT "A" attached
hereto (the "Land");

              (ii) All buildings, structures, Fixtures (as hereinafter defined)
and other improvements of every kind including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site
and off-site), parking areas and roadways appurtenant to such buildings and
structures presently situated upon the Land (collectively, the "Leased
Improvements");

              (iii) All easements, rights and appurtenances relating to the Land
and the Leased Improvements;

              (iv) All permanently affixed equipment, machinery, fixtures, and
other items of real and/or personal property, including all components thereof,
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 greatest extent permitted by the law, are hereby
deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, to the extent
acquired by Lessor pursuant to the "Purchase Agreement" as defined in Article II
hereof (collectively the "Fixtures"); and

              (v) All tangible and intangible personal property included in the
"Property" acquired by Lessor pursuant to the Purchase Agreement, as more
particularly described in EXHIBIT "B" attached hereto and made a part hereof,
including without limitation all replacements, substitutions, additions or
improvements thereto, whether now existing or hereafter acquired (collectively,
the "Personal Property").

              The Leased Property includes that certain 36-unit assisted living
facility located in the City of Fort Collins, Larimer County, Colorado, known as
"Clare Bridge Cottage." Notwithstanding the foregoing, the Leased Property shall
not include any property not acquired by Lessor from ALS pursuant to the
Purchase Agreement (as such terms are defined below. The Leased Property is
demised subject to all covenants, conditions, restrictions, easements, and other
matters of record, and all other matters that affect title, zoning and any other
matters set



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forth in that certain Title Policy issued by Chicago Title Company concurrently
with Lessor's purchase of the Leased Property and all matters disclosed in the
ALTA survey obtained in connection with such title insurance (collectively the
"Permitted Title Matters").


         1.2 TERM. The initial term of the Lease (the "Initial Term") shall be
the period commencing on June 30, 1999 (the "Commencement Date") and expiring on
December 31, 2008. Lessee has the right to extend the term of this Lease, at
Lessee's option, as provided in Article XVIII, below. (The Initial Term plus all
validly exercised options to extend, if any, shall be referred to herein as the
"Term").

                                   ARTICLE II

         DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided, (i) the terms defined in this Article II have the meanings
assigned to them in this Article II 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 generally accepted accounting
principles at the time applicable; and (iii) 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, Paragraph or other subdivision:

                  ADDITIONAL CHARGES. As defined in Article III.

                  AFFILIATE. When used with respect to any person, the term
"Affiliate" shall mean any other person which, directly or indirectly, whether
by operation of law or otherwise, controls or is controlled by or is under
common control with such person. For the purposes of this definition, "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, whether by operation of law or otherwise, of
the power to direct or cause the direction of the management and policies of
such person, through the ownership of voting securities, partnership interests
or other equity interests or the ownership of more than thirty percent (30%) of
the stock of any corporation directly or indirectly controlling such person by
operation of law or otherwise. For the purposes of this definition, "person"
shall mean any natural person, trust, partnership, corporation, joint venture or
other legal entity.

                  BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday, and
Friday, which is not a day on which national banks in the State of California
are authorized or obligated, by law or executive order, to close.

                  CALENDAR YEAR. The period from January 1 through and including
December 31 in the
same calendar year.

                  CODE. The Internal Revenue Code of 1986, as amended.

                  CONSOLIDATED FINANCIALS. For any Fiscal Year or other
accounting period for Lessee and its consolidated subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and the related balance sheet as of the end of such period, together with
the notes thereto, all audited by a certified public accountant and in
reasonable detail and setting forth in comparative form the corresponding
figures for the



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corresponding period in the preceding Fiscal Year, and prepared in accordance
with generally accepted accounting principles.

                  ENCUMBRANCE. As defined in Article XXXII.

                  EVENT OF DEFAULT. As defined in Article XVI.

                  EXTENDED TERM. As defined in Article XVIII.

                  FACILITY. That certain 36-unit assisted living facility which
is part of the Leased Property, as defined in Article I, above.

                  FACILITY MORTGAGE. As defined in Article XIII.

                  FACILITY MORTGAGEE. As defined in Article XIII.

                  FISCAL YEAR. The twelve (12) month period from January 1
through the following
December 31.

                  FIXTURES. As defined in Article I.

                  IMPOSITIONS. Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent taxes, bed taxes or fees or any other taxes as the
same relate to or are imposed upon Lessee or Lessor or the business conducted
upon the Leased Property), 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 within the
Term), water, sewer or other rents and charges, excises, tax levies, fees
(including, without limitation, 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, Lessor, or the business conducted
thereon by Lessee (including all interest and penalties thereon due to any
failure in payment by Lessee), and all increases in all the above from any cause
whatsoever, including reassessment, which at any time prior to, during or in
respect of the Term may be assessed or imposed on or in respect of or be a lien
upon (a) Lessor's interest in the Leased Property or any part thereof; (b) the
Leased Property or any part thereof, including without limitation any Personal
Property located thereon or used in connection therewith, 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 Leased Property or the leasing or use of the Leased Property
or any part thereof by Lessee. Without limiting the foregoing, the term
"Imposition" shall include any sales tax on rents paid under this Lease or by
residents of the Facility (including, but not limited to, rental receipts
taxes), bed taxes, depreciation recapture, any other taxes (except for the
specific exclusions stated below), fees or charges imposed by the State of
Colorado and any potential subdivision thereof relating to the Facility or the
Leased Property, this Lease, or rents received under this Lease, whether
relating to any period prior to or after the Commencement Date. Nothing
contained in this Lease shall be construed to require Lessee to pay (1) the
following taxes and fees to the extent they relate to Lessor's business
generally (as opposed to relating specifically to Lessor's ownership of the
Facility, lease thereof to Lessee or income therefrom):



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any federal, state or local income tax of Lessor, taxes based on outstanding
corporate shares of Lessor or Lessor's equity or capitalization, regardless of
whether denominated as an income tax, franchise tax, capital tax or otherwise;
(2) any income or capital gain tax imposed with respect to the sale, exchange or
other disposition, or operation, by Lessor of any Leased Property or the
proceeds thereof; or (3) estate, inheritance, gift taxes or documentary transfer
taxes. In addition, Lessee shall not be required to pay any franchise,
registration, or qualification tax or fee to the extent such tax or fee exceeds
the minimum amount which would be imposed on Lessor if Lessor reported
liabilities equal to at least eighty percent (80%) of Lessor's assets.

                  INSURANCE REQUIREMENTS. All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.

                  LAND. As defined in Article I.

                  LEASE. As defined in the Preamble.

                  LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in
Article I.

                  LEGAL REQUIREMENTS. All federal, state, county, municipal, and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees, and injunctions affecting either the Leased Property or the
construction, use or alteration thereof whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property; or (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
thereto, and all covenants, agreements, restrictions, and encumbrances contained
in any instruments, either of record or known to Lessee, at any time in force
affecting the Leased Property.

                  LESSEE. Alterra Healthcare Corporation, a Delaware corporation
(and any assignee permitted subject to the terms and conditions in this Lease).

                  LESSEE'S PERSONAL PROPERTY. All machinery, equipment,
furniture, furnishings, movable walls or partitions, computers, or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Lessee and used or useful in Lessee's business on the Leased Property,
including without limitation, all items of furniture, furnishings, equipment,
supplies and inventory, except items acquired by Lessor pursuant to the Purchase
Agreement.

                  LESSOR. LTC Properties, Inc., a Maryland corporation, and its
successors and assigns. Unless Lessee is notified by Lessor otherwise, Lessor's
address is: 300 Esplanade Drive, Suite 1860, Oxnard, California 93030,
Attention: James J. Pieczynski

                  MINIMUM RENT. As defined in Article III.

                  NOTICE. A notice given pursuant to Article XXXI hereof.

                  OFFICER'S CERTIFICATE. A certificate of Lessee signed by (i)
the Chairman of the Board of Directors or the President or any authorized Vice
President; and (ii) the secretary, or another officer authorized by appropriate
resolution to so sign by the Board of Directors. Any


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signature required above may be substituted with a signature of another person
whose power and authority to act has been authorized by an appropriate corporate
resolution.

                  OTHER LEASES. Any Lease of an assisted living facility now
existing or hereafter entered into between Lessor (or any of its Affiliates) and
Lessee (or any of its Affiliates) of any assisted living facility in any state
of the United States, irrespective of the terms and conditions of such lease,
irrespective of the date such lease is (or was) entered into, irrespective of
the total number of leases of assisted living facilities by and between Lessor
and Lessee, and irrespective of the location of any such assisted living
facilities; provided, however, that the term Other Leases shall not include
those certain four (4) existing leases by and between Lessor and Sterling House
Corporation, a Kansas corporation (an Affiliate of Lessee), of assisted living
facilities located in Dodge City, Kansas; McPherson, Kansas; Great Bend, Kansas;
and Salina, Kansas ("Existing Four Kansas Leases"). It is Lessor's and Lessee's
intention that the term "Other Leases" shall mean and include each and every
lease of an assisted living facility between Lessor and Lessee within the United
States other than Existing Four Kansas Leases.

                  OVERDUE RATE. On any date, a rate equal to the Prime Rate
(defined below), plus two percent (2%); provided, however, that it is the intent
of Lessor and Lessee that the Overdue Rate (and all other interest rates
provided for hereunder) be in strict compliance with applicable usury laws of
the State of Colorado, and that in the event the Overdue Rate (or other interest
rate provided for hereunder) shall be deemed to exceed that permitted to be
charged by the laws of the State of Colorado, any and all excess sums collected
by Lessor shall be credited against the Rent payable under this Lease or if
there is no Rent due, promptly refunded to Lessee.

                  PAYMENT DATE. Any due date for the payment of the installments
of Minimum Rent or any other payments required under this Lease.

                  PRIMARY INTENDED USE. As defined in Article VII.

                  PRIME RATE. On any date, a rate equal to the annual rate on
such date announced by Citibank, N.A. to be its prime rate for 90-day unsecured
loans to its corporate borrowers of the highest credit standing or, if not
available, such other rate as may be published by The Wall Street Journal as the
prime rate in its listing of "Money Rates."

                  PURCHASE AGREEMENT. That certain Agreement of Purchase and
Sale and Joint Escrow Instructions, dated as of December 1, 1998, between
ALS-Wovenhearts, Inc., a Delaware corporation ("ALS"), as "Seller" and Lessor as
"Buyer" providing for Lessor's acquisition of all of ALS's interest in and to
the Leased Property.

                  RELATED LEASES. Those certain leases executed or to be
executed by and between Lessee (or any of its Affiliates) and Lessor (or any of
its Affiliates), relating to the assisted living facilities in the locations
listed on Exhibit "D" attached hereto.

                  RENT. Any and all monetary obligations of Lessee owing under
this Lease.

                  SUBSIDIARIES. Corporations, of which either Lessee or Lessor
owns, directly or indirectly, more than 50% of the voting stock (individually, a
"Subsidiary").


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                  TERM. Collectively, the Initial Term plus any Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.

                  UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of condition
of the Facility such that by reason of damage or destruction, or a partial
taking by Condemnation, in the good faith judgment of Lessor, reasonably
exercised, the Facility cannot be operated on a commercially practicable basis
for its Primary Intended Use taking into account, among other relevant factors,
the number of usable units affected by such damage or destruction or partial
Condemnation.

                  UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder; provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds available to Lessor
results from Lessee's failure to perform any of its obligations under this
Lease.

                  The above does not include all the definitions to be used in
this Lease. Various definitions of other terms are included in the other
Articles of this Lease.

                                  ARTICLE III

         3.1 MINIMUM RENT. Lessee will 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, at Lessor's address set forth above or at such other place or
to such other person, firms or corporations as Lessor from time-to-time may
designate in a Notice, Minimum Rent (as defined below), during the Term, as
follows:


                        (a) INITIAL TERM. The initial "Minimum Rent" is the
annual sum of $329,000.00. The Minimum Rent shall be subject to increase as and
when provided below in this Article III. The Minimum Rent shall be paid in
advance in equal, consecutive monthly installments on the first day of each
calendar month of the Term. Minimum Rent shall be prorated for any partial month
at the beginning or end of the Term; and

                        (b) EXTENDED Terms. The Minimum Rent during the Extended
Terms shall be as stated in Article XVIII, below.

         3.2 ANNUAL ESCALATION OF MINIMUM RENT. For purposes of this Paragraph
3.2, the "Adjusted Commencement Date" shall be the first (1st) day of the first
calendar month following the Commencement Date (as defined in Paragraph 1.2 of
this Lease), unless the Commencement Date falls on the first (1st) day of a
calendar month, in which case the "Adjusted Commencement Date" shall be the
Commencement Date. Commencing on the one year anniversary of the Adjusted
Commencement Date, and continuing on each subsequent one year anniversary
thereof during the Term (the Initial Term as well as any Extended Terms, but
specifically excluding the first year of any such Extended Terms, for which the
Minimum Rent shall be calculated as set forth in Paragraph 18.2 below) (each, an
"Escalation Date"), the Minimum Rent (irrespective of any prorations made
pursuant to Paragraph 3.1(a) of this Lease) shall increase by an amount equal to
the Minimum Rent for the immediately preceding twelve (12) month period
multiplied



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by an amount ("Annual Multiplier") equal to one hundred fifty percent (150%) of
the following fraction: (i) the numerator of which shall be the C.P.I. (defined
below) for the second month preceding the month in which such Escalation Date
occurs (for example, if the Escalation Date is March 1, 2000, then the C.P.I.
from January, 2000 shall be used); and (ii) the denominator of which shall be
the C.P.I. for the second month preceding the month in which the prior year's
Escalation Date occurred (or, in the case of the first Escalation Date, the
second month preceding the month in which the Adjusted Commencement Date
occurred); provided, however, that the Annual Multiplier shall not ever exceed
two percent (2%) per year, nor shall it ever result in a decrease in the Minimum
Rent payable hereunder. "C.P.I." shall mean and refer to the Consumer Price
Index published as the "CPI-U" index by the Bureau of Labor Statistics of the
Department of Labor, U.S. Cities Average, All Items (1982-84=100) in the manner
calculated as of the date of this Lease; provided that if compilation of the
C.P.I. is discontinued or transferred to any other governmental department or
bureau, then the index most nearly the same as the C.P.I. shall be used.

         3.3 ADDITIONAL CHARGES. In addition to the Minimum Rent, (1) Lessee
will 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 (2) in the event of any failure on the part of Lessee to
pay any of those items referred to in the immediately preceding clause (1)
above, Lessee will 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 (1) and (2) 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. If any elements of Additional Charges shall not be paid within seven
(7) Business Days after its due date and Lessor pays any such amount (which
Lessor shall have the right, but not the obligation, to do), then, in addition
to Lessor's other rights and remedies, Lessee will pay Lessor on demand, as
Additional Charges, interest on such unpaid Additional Charges computed at the
Overdue Rate from the due date of such installment to the date of Lessee's
payment thereof.

         3.4 NET LEASE. Subject to the provisions of Article V, below, without
limiting any provision of this Lease, the Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Minimum Rent throughout the Term, all as more fully set forth in
Articles IV, VIII, IX and XIII, and other provisions of this Lease, so that,
accordingly, Lessee shall pay all Additional Charges and any other expenses of
any kind associated with this Lease and the Leased Property to insure that
Lessor receives the Minimum Rent, net of all expenses. Further, because Lessee,
prior to the date of this Lease, is the opera-tor of the Facility pursuant to a
management agreement, Lessee shall be responsible for all Additional Charges and
all other amounts due under this Lease for any period prior to and during the
Term.

         3.5 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT LATE PAYMENT BY LESSEE
TO LESSOR OF RENT (INCLUDING WITHOUT LIMITATION MINIMUM RENT AND ADDITIONAL
CHARGES) WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE
EXACT AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS
INCLUDE, BUT ARE NOT LIMITED TO, PROCESSING AND ACCOUNTING


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CHARGES. ACCORDINGLY, IF ANY INSTALLMENT OF MINIMUM RENT OR ANY OTHER SUM DUE
FROM LESSEE SHALL NOT BE RECEIVED BY LESSOR WITHIN SEVEN (7) BUSINESS DAYS AFTER
SUCH AMOUNT SHALL BE DUE, THEN WITHOUT ANY REQUIREMENT FOR NOTICE TO LESSEE,
LESSEE SHALL PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH
OVERDUE AMOUNT. THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR
AND REASONABLE ESTIMATE OF THE COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT
BY LESSEE. ACCEPTANCE OF SUCH LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE
A WAIVER OF LESSEE'S DEFAULT OR BREACH WITH RESPECT TO ANY UNPAID OVERDUE
AMOUNTS, NOR PREVENT LESSOR FROM EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES
GRANTED UNDER THIS LEASE WITH RESPECT TO ANY SUCH UNPAID OVERDUE AMOUNTS.

                                   ARTICLE IV

         4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions coming
due prior to or during the Term, or which relate to any period within the Term
or prior to the Term, before any fine, penalty, interest or cost may be added
for non-payment (or earlier if required by any taxing authority), such payments
to be made directly to the taxing authorities where feasible, and will promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be deemed
absolutely fixed upon the date such Impositions become a lien upon the Leased
Property or any part thereof. If any Imposition may, at the option of the
taxpayer, lawfully (without penalty) be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessee, at its expense, shall, to the extent required or permitted by
Legal Requirements, prepare and file all tax returns and reports in respect of
any Imposition as may be required by governmental authorities. If any refund
shall be due from any taxing authority in respect of any Imposition, the same
shall be paid over to or retained by Lessee if no Event of Default shall have
occurred hereunder and be continuing, but if such Event of Default has occurred
and is continuing (i.e., it has not been cured), such refund shall be paid to
Lessor and utilized to cure any such continuing Event of Default. After fully
curing such Event of Default, any excess funds from such refund shall be paid by
Lessor to Lessee. Any such funds retained by Lessor, as provided above, shall be
applied as provided in Article XVI. 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 as may be necessary to prepare any
required returns and reports. If governmental authorities classify any property
covered by this Lease as personal property, 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, will 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, Lessee will provide to Lessor copies of assessment



                                       8

<PAGE>   14


notices indicating a value in excess of the reported value in sufficient time
for Lessor to file a protest. Lessee may, upon notice to Lessor, at Lessee's
option and at Lessee's sole cost and expense, protest, appeal or institute such
proceedings as Lessee may deem appropriate to effect a reduction of real estate
or personal property assessments and Lessor, at Lessee's sole cost and expense
as aforesaid, shall fully cooperate with Lessee in such protest, appeal, or
other action, provided that Lessee may not withhold payments pending such
challenges except under the conditions set forth in Article XII. Billings for
reimbursement by Lessee to Lessor of personal property taxes shall be
accompanied by copies of a bill therefor and payments thereof which identify the
personal property with respect to which such payments are made. Lessor shall
have the right to require that Lessee pay to Lessor 1/12th of the annual
Impositions each month concurrently with the payment of Minimum Rent, effective
(a) upon the occurrence of any Event of Default relating to the payment or
nonpayment of Impositions (and irrespective of whether such Event of Default is
continuing or has been cured); (b) as to any Event of Default not covered in the
preceding subparagraph (a), upon the occurrence of the second Event of Default
under this Lease (and irrespective of whether any such Events of Default are
continuing or have been cured); and (c) once any Event of Default has occurred
hereunder that has not been cured within sixty (60) days. Unless Lessee is
notified by Lessor otherwise, Lessee shall pay all Impositions directly to the
appropriate taxing or other authorities to which payments are due, and Lessee
shall provide Lessor written evidence and notice that all such payments have
been made. Without limiting any of the other indemnities set forth in this
Lease, Lessee hereby agrees to defend, indemnify, protect and hold harmless
Lessor in connection with any Impositions that relate to any time prior to or
during the Term, and Lessee acknowledges and agrees that it will not make claims
against, or otherwise look to, Lessor to reimburse Lessee for payments made
relating to any period prior to the Commencement Date.


         4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt Notice to Lessee
for 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, but such failure shall obviate
any default hereunder for a reasonable time after Lessee receives notice (from
any source) of any Imposition which it is obligated to pay. However,
notwithstanding the foregoing, it shall be Lessee's sole duty to inquire and
determine all of the Impositions for which it is liable as provided herein and
shall promptly pay such Impositions when due, and Lessor shall have no duty of
inquiry concerning Impositions.

         4.3 UTILITY CHARGES. Lessee will pay or cause to be paid all charges
for electricity, power, gas, oil, water, sewer connection and all other
utilities used in or for the Leased Property during the Term.

         4.4 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Article XIII during the Term.

         4.5 PAYABLES. Lessee acknowledges and agrees that prior to the
Commencement Date, certain liabilities and other obligations were incurred
arising from the development, construction and operation of the Facility for
which Lessee is and shall remain responsible and liable and Lessor shall have no
responsibility, liability or obligation whatsoever with respect to the same.
Therefore, Lessee agrees as part of this Lease to pay all liabilities and
obligations concerning the Facility, whether arising before or after the
Commencement Date.



                                       9

<PAGE>   15


                                    ARTICLE V

         5.1 NO TERMINATION, ABATEMENT, ETC. Subject to the provisions of
Paragraph 5.2, Lessee shall not be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent, nor shall the
respective obligations of Lessor and Lessee be otherwise affected by reasons of
(a) any damage to, or destruction of, any Leased Property or any portion
thereof; (b) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, the interference
with such use by any person, corporation, partnership or other entity, or by
reason of eviction by paramount title; (c) any claim which Lessee has or might
have against Lessor or by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding-up
or other proceedings affecting Lessor or any assignee or transferee of Lessor;
or (e) 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 to (i)
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof; or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent payable under this Lease. The
obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent due under this Lease shall continue to be
payable in all events, irrespective of Lessor's performance or non-performance
under this Lease, 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 ABATEMENT PROCEDURES. If Lessee is entitled to an abatement of
Minimum Rent under Article XV (by reason of any Condemnation as provided
thereunder), the Lease shall not terminate (except as provided in Article XV)
but the Minimum Rent shall be abated in proportion to the reduced capacity of
the Leased Property for the use made of the same by Lessee at the time of the
Condemnation (i.e., the reduction in the number of units to less than 36 and/or
a reduction in the maximum allowable resident occupancy to less than 36). If
Lessor and Lessee are unable to agree upon the amount of such abatement within
thirty (30) days after any partial taking as provided under Article XV, the
matter shall be submitted by either party to a court of competent jurisdiction
for resolution, but Lessee during such resolution shall continue to perform its
obligations hereunder, including, but not limited to, payment of that portion of
the Minimum Rent which is not then in dispute.

                                   ARTICLE VI

         6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges and agrees
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.

         6.2 LESSEE'S PERSONAL PROPERTY. Lessee may (and shall as provided
herein below), at its expense, install, assemble or place on any parcels of the
Land or in any of the Leased Improvements, any items of Lessee's Personal
Property, and Lessee may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the


                                       10

<PAGE>   16


Term. Lessee shall provide and maintain during the entire Term all such Lessee's
Personal Property as shall be necessary in order to operate the Facility in
compliance with all licensure and certification requirements, in compliance with
all applicable Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the industry for the Primary Intended Use.
All of Lessee's Personal Property not removed by Lessee within twenty-one (21)
days following the expiration or earlier termination of this Lease shall be
subjected to Landlord's lien and may be removed, stored or sold pursuant to
Colorado Law. Lessee shall, within twenty-one (21) days following the expiration
or earlier termination of this Lease, at its sole cost and expense, repair any
damage to the Land or the Leased Improvements occasioned by the installation,
maintenance or removal of Lessee's Personal Property, and restore the Land or
Leased Improvements to its condition immediately prior to any such installation.
Lessor and Lessee agree that Lessor shall not be required to sell Lessee's
Personal Property or account to Lessee therefor. To that end, Lessee
specifically waives any and all rights Lessee may have under Colorado law for
damages against Lessor for failure to comply with the provisions thereof.

         6.3 CONSUMABLE INVENTORY. Lessor and Lessee acknowledge that certain
inventory, including consumables, at the Facility, as of the Commencement Date
("Consumable Inventory") will be completely consumed or otherwise disposed of
during the course of Lessee's operation of the Facility. Lessee agrees that, at
the end of the Term or earlier termination of the Lease, it shall replace and
restore the Consumable Inventory to the type and amount (with the same value) as
that existing as of the Commencement Date, and as may otherwise be sufficient to
fully equip the Facility for its operation and maintenance as may be customary
for assisted living facilities comparable to the Leased Property in the State of
Colorado.

                                  ARTICLE VII

         7.1 CONDITION OF LEASED PROPERTY. Lessee acknowledges receipt and
delivery of possession of the Leased Property and further acknowledges 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 and satisfactory for it purposes hereunder.
Lessee represents and warrants that the Personal Property (as defined in Article
I hereof) includes all equipment and property required under applicable federal
and state law to operate the Facility at full capacity. 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. LESSOR
MAKES NO WARRANTY OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN RESPECT OF THE
LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
WITHOUT LIMITING THE FOREGOING, IT SHALL BE LESSEE'S RESPONSIBILITY TO DETERMINE
THE AMOUNT OF REIMBURSEMENT AND OTHER PAYMENTS THAT IT IS ENTITLED TO RECEIVE
FROM THE FEDERAL, STATE OR LOCAL GOVERNMENTS AND LESSEE'S OBLIGATIONS UNDER THIS
LEASE SHALL NOT BE MODIFIED, CHANGED OR OTHERWISE BE REDUCED IN THE EVENT THAT
LESSEE HAS INCORRECTLY


                                       11

<PAGE>   17


ANALYZED THE AMOUNTS TO BE PAID TO LESSEE BY ANY GOVERNMENT OR AGENCY THEREOF.

         7.2 USE OF THE LEASED PROPERTY.

                  7.2.1 Lessee covenants that it will obtain and, at all times
during the Term, maintain all approvals needed to use and operate the Leased
Property and the Facility under applicable federal, state and local law,
including, but not limited to, licensure and Medicaid certification, as
applicable. Lessee shall provide to Lessor, at Lessor's request a copy of any
report or survey conducted by any federal, state or local government entity
regarding the quality of care at the Facility, and any other such information or
documents concerning the operation of the Facility.

                  7.2.2 After the Commencement Date and during the entire Term,
Lessee shall use or cause to be used the Leased Property as an assisted living
facility licensed by the State of Colorado and uses incidental to the foregoing
(the particular such use to which the Leased Property is put at any particular
time is herein referred to as the "Primary Intended Use"). Lessee shall not use
the Leased Property or any portion thereof for any other use without the prior
written consent of Lessor, which consent may be withheld in Lessor's sole and
absolute discretion; provided, however, that Lessor shall not unreasonably
withhold its consent to any alternate use that is within the long term care
industry. No use shall be made of the Leased Property, and no acts shall be
done, which will cause the cancellation of any insurance policy to residents
therein, 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. Lessee shall, at its sole cost, comply with all
of the requirements pertaining to the Leased Property or other improvements of
any insurance board, association, organization, or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Lessee's Personal Property.

                  7.2.3 Lessee covenants and agrees that during the Term it will
operate continuously the Leased Property in accordance with its Primary Intended
Use and will maintain its certifications for reimbursement and its licensure.

                  7.2.4 Lessee shall not commit or suffer to be committed any
waste on the Leased Property, or in the Facility nor shall Lessee cause or
permit any nuisance thereon.

                  7.2.5 Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, including Lessee's Personal Property, to be
used in such a manner as (i) might reasonably tend to impair Lessor's (or
Lessee's, as the case may be), title thereto or to any portion thereof; or (ii)
may reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the Leased
Property or any portion thereof.

                                  ARTICLE VIII

         8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, INSTRUMENTS, ETC.
Subject to Article XII relating to permitted contests, Lessee, at its sole cost
and expense, will


                                       12

<PAGE>   18


promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair, and
restoration of the Leased Property, whether or not compliance therewith shall
require structural changes in any of the Leased Improvements or interfere with
the use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses, certificates of need, provider agreements and other
authorizations, if any, required for any use of the Leased Property and Lessee's
Personal Property then being made, and for the proper erection, installation,
operation, and maintenance of the Leased Property or any part thereof.

         8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and agrees that the
Leased Property and Lessee's Personal Property shall not be used for any
unlawful purpose. Lessee further warrants and represents that Lessee has
obtained all necessary governmental approvals and has given all necessary
notices to allow Lessee to operate the Leased Property for its Primary Intended
Use. Lessee shall acquire and maintain all licenses, certificates, permits,
provider agreements and other authorizations and approvals needed to operate the
Leased Property in its customary manner for the Primary Intended Use, and any
other use conducted on the Leased Property as may be permitted by Lessor from
time-to-time hereunder. Lessee shall deliver to Lessor within five (5) Business
Days after Lessee's receipt thereof, copies of any written notices, demands,
claims, inquiries, investigations, reports or correspondence from any third
party, whether governmental, quasi-governmental or private, stating or in any
manner indicating that any of Lessee's licenses, certificates, permits, provider
agreements and/or other authorizations and approvals in connection with the
Leased Property is or may be downgraded, revoked, cancelled, suspended or
otherwise adversely affected, or that an action of any kind is pending or being
considered to downgrade, revoke, cancel, suspend or otherwise adversely affect
any of the same. Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance, alteration and operation of the same, and all
parts thereof, shall at all times conform to all applicable federal, state and
local laws, ordinances, rules, and regulations unless the same are held by a
court of competent jurisdiction to be unlawful. Lessee, may, however, upon prior
written notice to Lessor, contest the legality or applicability of any such law,
ordinance, rule, or regulation, or any licensure or certification decision if
Lessee maintains such action in good faith, with due diligence, without
prejudice to Lessor's rights hereunder, and at Lessee's own expense. If by the
terms of any such law, ordinance, rule or regulation, compliance therewith
pending the prosecution of any such proceeding may legally be delayed without
the incurrence of any fine, charge or liability of any kind against the Leased
Property, including the Facility, or Lessee's leasehold interest therein and
without subjecting Lessor to any liability, civil or criminal, for failure so to
comply therewith, Lessee may delay compliance therewith until the final
determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, may nonetheless contest as aforesaid and delay as
aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay; and (b) prosecutes the contest continuously, with due diligence and in
good faith.


                                       13

<PAGE>   19




                                   ARTICLE IX

         9.1 MAINTENANCE AND REPAIR.

                  9.1.1 Lessee, at its sole cost and expense, will keep the
Leased Property and Lessee's Personal Property and all private roadways,
sidewalks and curbs appurtenant thereto 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, or any portion thereof), and, except as otherwise provided in Article
XIV, with reasonable promptness, make all necessary and appropriate repairs
thereto of every kind and nature, 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 (concealed or
otherwise). All repairs shall, to the extent reasonably achievable, 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 may materially or adversely impair
the value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use. Any repair work performed by Lessee shall be paid for so
that no lien (i.e., mechanics', materialmen's or other liens) shall attach to
the Leased Property, subject to the provisions of Article XII.

                  9.1.2 Lessor shall not under any circumstances be required in
connection with this Lease to build or rebuild any improvements on the Leased
Property, or to make any repairs, replacements, alterations, restorations, or
renewals of any nature or description 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 to maintain the Leased
Property 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. Lessor shall have
the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' or materialmen's
lien laws now or hereafter existing.

                  9.1.3 Lessee shall not make any modifications, alterations or
improvements to the Leased Improvements or any portion thereof, whether by
addition or deletion, without Lessor's prior written consent, which consent may
be given or withheld in Lessor's sole and absolute discretion; provided that
Lessor shall not unreasonably withhold its consent to any non-structural
modifications, alterations or improvements that do not constitute capital
improvements and that are otherwise made in compliance with this Lease, so long
as the total cost thereof does not exceed $50,000 and the total cost in any
twelve (12) month period does not exceed $100,000. Nothing contained in this
Lease and no action or inaction by Lessor shall be construed as (i) constituting
the consent or request of Lessor, express or implied, to any contractor,
sub-contractor, 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 or any part 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, or any portion thereof. Lessor shall have the right to




                                       14

<PAGE>   20


give, record and post, as appropriate, notices of non-responsibility (or similar
notices) under any mechanics' or materialmen's lien laws now or hereafter
existing.


                  9.1.4 Lessee will, upon the expiration or prior termination of
the Term, vacate and surrender the Leased Property in the condition in which the
Leased Property was originally received from Lessor, except as repaired,
rebuilt, restored, altered or added to as permitted or required under this Lease
and except for ordinary wear and tear (subject to the obligation of Lessee to
maintain the Leased Property in good order and repair during the entire Term).

         9.2 EXPENDITURES TO COMPLY WITH LAW; CONSTRUCTION OF ADDITIONAL
IMPROVEMENTS PURSUANT TO CERTIFICATE OF NEED. Without limiting Lessee's other
obligations, during the Term of this Lease, Lessee will, at its expense, make
whatever expenditures (including, but not limited to capital and non-capital
expenditures) that are required to conform the Leased Property to such standards
as may from time-to-time be required by Federal Medicaid (Title 19) assisted
living programs, if applicable, or any other applicable programs or legislation,
or capital improvements required by any other governmental agency having
jurisdiction over the Leased Property as a condition of the continued operation
of the Leased Property during the Term (as extended) as an assisted living
residence or other health-care related facility, approved for Medicaid and
similar programs, pursuant to present or future laws of governmental regulation.
Lessor shall not unreasonably withhold its consent to any expenditures or
capital improvements made by Lessee pursuant to this Paragraph 9.2 and otherwise
made in compliance with this Lease.

         9.3 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Leased Improvements
shall, at any time, encroach upon any property, street or right-of-way adjacent
to the Leased Property, or shall violate the agreements or conditions contained
in any lawful restrictive covenant or other agreement affecting the Leased
Property, or any part thereof, or shall impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, then promptly
upon the request of Lessor at the behest of any person affected by any such
encroachment, violation or impairment, Lessee shall, at its sole cost and
expense (and after Lessor's prior approval), subject to Lessee's right to sue
Lessee's predecessors in title with respect thereto or to contest the existence
of any such encroachment, violation or impairment and, in such case, in the
event of an adverse final determination, 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 the Leased Property; or (ii) make such changes in the Leased
Improvements, and take such other actions, as Lessee in the good faith exercise
of its judgment deems reasonably practicable, to remove such encroachment, and
to end such violation or impairment, including, if necessary, the alteration of
any of the Leased Improvements, 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 for the Primary Intended Use substantially in the manner and to the
extent the Leased Improvements were operated prior to the assertion of such
violation, impairment or encroachment. Any such alteration shall be made in
conformity with the applicable requirements of Paragraph 8.2 and this Article
IX. Lessee's obligations under this Paragraph 9.3 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.


                                       15

<PAGE>   21


                                   ARTICLE X

         10.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS MATERIALS. Lessee shall, at its
sole cost and expense, take all actions as required to cause the Leased Property
including, but not limited to, the Land and all Leased Improvements, to be free
and clear of the presence of all Hazardous Materials during the Term; provided,
however, that Lessee shall be entitled to use and maintain Hazardous Materials
on the Leased Property in connection with Lessee's business and in compliance
with all applicable laws. In this connection, Lessee shall, upon its discovery,
belief or suspicion of the presence of Hazardous Materials on, in or under any
part of the Leased Property, including, but not limited to, the Land and all
Leased Improvements, immediately notify Lessor and, at no expense to Lessor,
cause any such Hazardous Materials to be removed immediately, in compliance with
all applicable laws and in a manner causing the least disruption of or
interference with the operation of Lessee's business. Lessee hereby agrees to,
and hereby does, fully indemnify, protect, defend and hold harmless Lessor from
any costs, damages, claims, liability or loss of any kind or nature arising out
of or in any way in connection with the presence, suspected presence, removal or
remediation of Hazardous Materials in, on, or about the Leased Property, or any
part thereof. Lessee acknowledges that it has received and reviewed that certain
environmental report, dated as of March 2, 1998, prepared by Giles Engineering
Associates, Inc., as Project No. 5E-9802003 and updated on June 10, 1999, as
project No. 1E-9906042 (the "Environmental Report"). Without limiting Lessee's
other obligations under this Lease, Lessee agrees, at Lessee's sole cost, to
fully comply with all recommendations set forth in the Environmental Report, as
updated, promptly after the Commencement Date hereunder. Lessee's obligations
hereunder shall apply to all Hazardous Materials, irrespective of whether the
existence of such Hazardous Materials is known by Lessor and no matter when they
arose or were discovered and therefore will include any Hazardous Materials that
existed prior to, at, or after the Commencement Date and during the Term.

         10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes of this Lease,
"Hazardous Materials" shall include, but not be limited to, any substance,
material, waste, pollutant or contaminant, now or hereafter defined, listed or
regulated by the "Environmental Laws" (defined below) or any other federal state
or local law, regulation or order or by common law decision. "Environmental
Laws" means and includes any law, ordinance, regulation or requirement now or
hereinafter in effect relating to land use, air, soil, surface water,
groundwater (including the protection, cleanup, removal, remediation or damage
thereof), human health and safety or any other environmental matter, including,
without limitation, the following laws as the same may be amended from time to
time: Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"), 42 U.S.C. ss. 9601, et seq.; Federal Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901, et seq.; Clean Water Act, 33 U.S.C. ss. 1251,
et seq.; Toxic Substances Control Act, 15 U.S.C. ss. 2601, et seq.; Refuse Act,
33 U.S.C. ss. 407; Occupational Safety and Health Act, 29 U.S.C. ss. 651, et
seq.; Clean Air Act, 42 U.S.C. ss. 7401, et seq.; and any and all similar state
and local laws and ordinances and the regulations now or hereafter adopted,
published and/or promulgated pursuant thereto.

                                   ARTICLE XI

         NO LIENS. Subject to the provisions of Article XII relating to
permitted contests, Lessee will not directly or indirectly, voluntarily or by
operation of law, create or allow to remain and





                                       16

<PAGE>   22

will promptly discharge at its expense any lien, mortgage, encumbrance,
attachment, title retention agreement, or claim upon the Leased Property or any
attachment, levy, claim, or encumbrance in respect of the Rent.

                                  ARTICLE XII

         PERMITTED CONTESTS. Lessee shall have the right to contest the amount
or validity of any Imposition or any Legal Requirement or Insurance Requirement
or any lien, attachment, levy, encumbrance, charge or claim ("Claims") not
otherwise permitted by Article XI, by appropriate legal proceedings in good
faith and with due diligence, and to delay payment if legally permitted;
provided this shall not be deemed or construed in any way as relieving,
modifying or extending Lessee's covenants to pay or its covenants to cause to be
paid any such charges at the time and in the manner as in this Lease provided
and further provided that, such legal proceedings (and delay in payment) shall
not cause the sale of the Leased Property, or any part thereof, to satisfy the
same or cause Lessor or Lessee to be in default under any mortgage or deed of
trust encumbering the Leased Property or any interest therein or otherwise
threaten to cause loss or damage to Lessor or the Leased Property. Upon the
reasonable request of Lessor, Lessee shall provide to Lessor reasonable security
satisfactory to Lessor to assure the payment of all Claims which may be assessed
against the Leased Property, together with interest and penalties, if any,
thereon. Lessor agrees to join in any such proceedings if the same be required
to legally prosecute such contest of the validity of such Claims; provided,
however, that Lessor shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any proceedings brought by
Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such
costs or expenses. In the event that Lessee fails to pay any Claims when due or,
upon Lessor's request, to provide the security therefor as provided in this
Article XII and to diligently prosecute any contest of the same or in the event
the same threatens to cause loss or damage to Lessor or the Leased Property,
Lessor may, upon thirty (30) days advance written Notice to Lessee, pay such
charges together with any interest and penalties and the same shall be repayable
by Lessee to Lessor at the next Payment Date provided for in this Lease.
Provided, however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or otherwise threaten to
cause loss or damage to Lessor, then Lessor shall give such written Notice as is
practical under the circumstances. Lessee shall be entitled to any refund of any
Claims and such charges and penalties or interest thereon which have been paid
by Lessee or paid by Lessor and for which Lessor has been fully reimbursed.

                                  ARTICLE XIII

         13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the provisions of
Paragraph 13.8, during the Term, Lessee shall at all times keep the Leased
Property, and all property located in or on the Leased Property, including
Lessee's Personal Property, insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the state in which the Leased Property is located. The
policies must name Lessor as loss payee and additional named insured, shall
contain a provision that such insurance may not be cancelled or amended without
at least thirty (30) days' notice to Lessor and shall be payable to Lessor as
provided in Article XIV. In addition, upon Lessor's written request, the
policies shall name as mortgagee, loss payee and additional insured the holder
("Facility Mortgagee") of any mortgage, deed of trust or other security
agreement and any other


                                       17

<PAGE>   23


Encumbrance placed on the Leased Property in accordance with the provisions of
Article XXXII, as well as any other entity interested in the Leased Property
("Facility Mortgage") by way of a standard form of mortgagee's loss payable
endorsement. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of premiums for insurance to be made with such
Facility Mortgagee, or, pursuant to written direction by Lessor upon the
occurrence of any Event of Default hereunder (and irrespective of whether such
Event of Default is continuing or has been cured), Lessee shall make such
deposits directly with such Facility Mortgagee or with Lessor, as required. The
policies on the Leased Property, including the Leased Improvements, Fixtures and
Lessee's Personal Property, shall insure against the following risks:

                  13.1.1 Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as "All Risk," and all
physical loss perils normally included in such All Risk insurance, including,
but not limited to, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as defined below in
Paragraph 13.2);

                  13.1.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, if
any, in such amounts with respect to any one accident as may be reasonably
requested by Lessor from time-to-time;

                  13.1.3 Loss of rental under a rental value insurance policy
covering risk of loss during the first twelve (12) months of reconstruction
necessitated by the occurrence of any of the hazards described in Paragraph
13.1.1 or 13.1.2 in an amount sufficient to prevent Lessor from becoming a
co-insurer.

                  13.1.4 Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not less
than One Million Dollars ($1,000,000.00) per occurrence, and with an annual
aggregate of Three Million Dollars ($3,000,000.00);

                  13.1.5 Claims arising out of malpractice or other professional
actions or omissions under a policy of professional liability insurance with
amounts not less than One Million Dollars ($1,000,000.00) per occurrence, and
with an annual aggregate of Three Million Dollars ($3,000,000.00);

                  13.1.6 Flood (if the Leased Property is located in whole or in
part within a flood plain area, as designated by any governmental or other
responsible agency and if such insurance is available pursuant to applicable
law) and such other hazards and in such amounts as may be customary for
comparable properties in the area; and

                  13.1.7 Any other kinds of insurance, and in such amounts, as
Lessor may reasonably require from time to time to the extent available in the
state where the Leased Property is located.

         13.2 REPLACEMENT COST. The term "full replacement cost" as used herein,
shall mean the full actual replacement cost of the Leased Property as determined
from time-to-time upon the request of Lessor or Lessee (but not more frequently
than once in every 24 months), including an



                                       18

<PAGE>   24

increased cost of construction endorsement, less exclusions provided in the
standard form of fire insurance policy in the state where the Leased Property is
located. Lessor and Lessee agree that as of the Commencement Date the full
replacement cost shall be deemed to be $2,240,000.00.

         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 Lessor or any Facility Mortgagee (to the extent
available in the state where the Leased Property is located) and shall further
at all times maintain adequate worker's compensation insurance coverage for all
persons employed by Lessee on the Leased Property. Such worker's compensation
insurance shall be in accordance with the requirements of applicable federal,
state and local law.

         13.4 WAIVER OF SUBROGATION. All insurance policies carried by either
party covering the Leased Property, the Fixtures, the Facility, or Lessee's
Personal Property including without limitations, contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so. Upon written request, each party shall provide the other party with a copy
of each insurance policy with the waiver clause or endorsement attached.

         13.5 FORM SATISFACTORY, ETC. All of the policies of insurance referred
to in this Article XIII shall be written in a form reasonably satisfactory to
Lessor and by insurance companies reasonably satisfactory to Lessor. Subject to
the foregoing, Lessor agrees that it will not unreasonably withhold its approval
as to the form of the policies of insurance or as to the insurance companies
selected by Lessee. Lessee shall pay all of the premiums therefor, and deliver
such policies or evidence thereof to Lessor prior to their effective date (and,
with respect to any renewal policy, prior to the expiration of the existing
policy), and in the event of the failure of Lessee either to effect such
insurance as herein called for or to pay the premiums therefor, or to deliver
such policies or evidence 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, which premiums shall be repayable by Lessee to Lessor upon
written demand therefor, and failure to repay the same shall constitute an Event
of Default within the meaning of Paragraph 16.1(c). Each insurer mentioned in
this Article XIII shall agree, by endorsement on the policy or policies issued
by it, or by independent instrument furnished to Lessor, that will give to
Lessor (and to any Facility Mortgagee, if required by the same) thirty (30) days
written notice before the policy or policies in questions shall be altered,
allowed to expire or cancel.

         13.6 INCREASE IN LIMITS. In the event that Lessor or a Facility
Mortgagee shall at any reasonable time deem the limits of the personal injury or
property damage public liability insurance then carried to be insufficient,
Lessee shall thereafter carry the insurance with increased limits until further
change pursuant to the provisions of this Paragraph; provided that if Lessor
desires to increase the limits of insurance, and such is not pursuant to the
request of a Facility Mortgagee, then Lessor may not demand an increase in
limits above the limits generally consistent with the requirements of owners of
long term care properties in the State of Colorado.



                                       19

<PAGE>   25


         13.7 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article XIII, Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called 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 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.

         13.8 NO SEPARATE INSURANCE. Lessee shall not on Lessee's own initiative
or pursuant to the request or requirement of any third party take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, to be furnished or which may reasonably be required to
be furnished, by Lessee or increase the amount of any then existing insurance by
securing any 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
insureds, and the loss is payable under said insurance in the same manner as
losses are payable under the Lease. Lessee shall immediately notify Lessor of
the taking out of any such separate insurance or of the increasing of any of the
amount of the then existing insurance.

         13.9 CONTINUOUS COVERAGE. Lessee was the operator of the Leased
Property prior to the date of this Lease. Therefore, Lessee already has in place
insurance with respect to the Leased Property. Lessee shall assure that there is
no gap in the insurance coverage provided in connection with the Facility at or
after the Commencement Date, and therefore, the insurance provided by Lessee
shall be continuous, with the types and amounts of coverage, described herein to
be applicable on the Commencement Date. To the extent there is not full,
complete and continuous coverage for all issues, no matter when arising, claimed
or occurring, Lessee shall, at its sole cost, obtain such insurance.

                                  ARTICLE XIV

         14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any loss of
or damage to the Leased Property, or any portion thereof, which is insured under
any policy of insurance required by Article XIII of the Lease, where the total
proceeds paid by the insurer are less than $150,000.00, shall be paid to Lessee
and applied to the reconstruction or repair, as the case may be, of any damage
to or destruction of the Leased Property, or any portion thereof. All proceeds
payable by reason of any loss of or damage to the Leased Property, or any
portion thereof, which is insured under any policy of insurance required by
Article XIII of this Lease where the total proceeds paid by the insurer are
equal to or in excess of $150,000.00 shall be paid to Lessor and held by Lessor
in trust (subject to the provisions of Paragraph 14.7) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Leased Property, or any portion thereof, and shall be paid
out by Lessor from time-to-time for the reasonable costs of such reconstruction
or repair. Any excess proceeds of insurance remaining after the completion of
the restoration or reconstruction of the Leased Property shall go to Lessee,
provided the Lease is in force and there exists no uncured Event of Default;
otherwise such excess shall be paid to Lessor for application as set forth in
Article XVI hereof. In the event neither Lessor nor Lessee is required or elects
to repair and restore, and the Lease is terminated as described in Paragraph
14.7, all such insurance proceeds shall be retained by



                                       20

<PAGE>   26


Lessor. All salvage resulting from any risk covered by insurance shall belong to
Lessor except that any salvage relating to Lessee's Personal Property shall
belong to Lessee.

         14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE PROCEEDS.

                  14.2.1 If during the Term, the Leased Property is totally or
partially destroyed by a risk covered by the insurance described in Article XIII
and whether or not the Facility thereby is rendered Unsuitable for Its Primary
Intended Use, Lessee shall restore the Leased Property to substantially the same
condition as existed immediately before the damage or destruction.

                  14.2.2 If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessee or Lessor from the insurance required
under Article XIII, Lessee shall be obligated to restore the Leased Property and
pay the extra cost therefor, provided that, prior to commencing the repair and
restoration, Lessee shall either (i) contribute any excess amount needed to
restore the Leased Property, or (ii) provide Lessor with satisfactory evidence
that such funds are, and throughout the entire period of reconstruction will be,
available. If Lessee contributes such excess in cash, such excess shall be paid
by Lessee to Lessor to be held in trust, together with any insurance proceeds,
for application to the cost of repair and restoration.

         14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED
BY INSURANCE. If during the Term, the Leased Property is damaged or destroyed
irrespective of the extent of the damage from a risk not covered by the
insurance described in Article XIII, whether or not such damage or renders the
Facility Unsuitable for Its Primary Intended Use, Lessee shall restore the
Leased Property to substantially the same condition it was in immediately before
such damage or destruction and such damage or destruction shall not terminate
this Lease.

         14.4 LESSEE'S PROPERTY. All insurance proceeds payable by reason of any
loss of or damage to any of Lessee's Personal Property shall be paid to Lessee,
and Lessee shall hold such insurance proceeds in trust to pay the cost of
repairing or replacing damaged Lessee's Personal Property. Any proceeds in
excess of the cost of repairing or replacing any such Lessee's Personal Property
shall belong to Lessee.

         14.5 RESTORATION OF LESSEE'S PROPERTY. Without limiting Lessee's
obligation to restore the Leased Property as provided in Paragraphs 14.2 and
14.3, Lessee shall also pay the cost to restore all Alterations and other
improvements made by Lessee which Lessee elects to restore, including Lessee's
Personal Property to the extent that Lessee's Personal Property is necessary to
the operation of the Leased Property for its Primary Intended Use in accordance
with applicable Legal Requirements.

         14.6 NO ABATEMENT OF RENT. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during any period required
for repair and restoration.

         14.7 TERMINATION OF OPTION TO EXTEND. Any termination of this Lease by
reason of damage to or destruction of the Leased Property shall cause any
options to extend the Lease under Article XVIII to be terminated and without
further force or effect.


                                       21



<PAGE>   27

         14.8 WAIVER. Lessee hereby waives any statutory rights
of termination which may arise by reason of any damage to or destruction of the
Leased Property which Lessor is obligated to restore or may restore under any of
the provisions of this Lease.

                                   ARTICLE XV

         CONDEMNATION.

         15.1 DEFINITIONS.

                  15.1.1 "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor;
(b) a voluntary sale or transfer by Lessor to any Condemnor, either under threat
of Condemnation or while legal proceedings for Condemnation are pending.

                  15.1.2 "Date of Condemnation" means the date the Condemnor has
the right to possession of the property being condemned.

                  15.1.3 "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.

                  15.1.4 "Condemnor" means any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.

         15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
taking of all or any part of the Leased Property or any interest in this Lease
by Condemnation, the rights and obligations of the parties shall be determined
by this Article XV.

         15.3 TOTAL CONDEMNATION. If title to the fee of the whole of the Leased
Property shall be taken or condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Condemnation by said Condemnor. If title to the
fee of less than the whole of the Leased Property shall be so taken or
condemned, which nevertheless renders the Leased Property Unsuitable for Its
Primary Intended Use, as reasonably determined by Lessor and Lessee, Lessee and
Lessor shall each have the option by written Notice to the other, at any time at
or prior to the taking of possession by, or the date of vesting of title in,
such Condemnor, whichever first occurs, to terminate this Lease as of the date
of the occurrence of such first event. If such Notice has timely been given,
this Lease shall thereupon cease and terminate. Upon the termination of the
Lease, all Minimum Rent, and Additional Charges paid or payable by Lessee
hereunder shall be apportioned as of the date the Lease terminates.

         15.4 ALLOCATION OF PORTION OF AWARD. The total Award made with respect
to all or any portion of the Leased Property or for loss of rent, or for loss of
business, whether or not beyond the Term of this Lease, or for the loss of value
of the leasehold (including the bonus value of the Lease) shall be solely the
property of and payable to Lessor and Lessee hereby assigns to Lessor any and
all rights in such Award; provided, however, that Lessee shall be entitled to
make a separate claim for the taking of Lessee's Personal Property and
relocation expense as long as any such claim will not in any way diminish
Lessor's Award, or for any other loss that can be awarded to Lessee separately
from Lessor's claim and which will not in any

                                       22

<PAGE>   28




respect whatsoever diminish or threaten to diminish the total amounts to be
awarded to Lessor, as set forth above or otherwise. To the extent Lessee's claim
may thereafter reduce Lessor's claim, Lessee shall, and hereby does, assign its
claim to Lessor. In any Condemnation proceedings, each of the Lessor and Lessee
shall seek its own claim in conformity herewith, at its own expense.

         15.5 PARTIAL CONDEMNATION. If title to the fee of less than the whole
of the Leased Property shall be so taken or condemned, and the Leased Property
is still suitable for its Primary Intended Use, as reasonably determined by
Lessor and Lessee, or if Lessee or Lessor shall be so entitled, but shall not
elect to terminate this Lease as provided in Paragraph 15.3 hereof, Lessee, at
its own cost and expense (subject to Lessor's contribution described below),
shall with all reasonable dispatch restore the untaken portion of any Leased
Improvements on the Leased Property so that such Leased Improvements shall
constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the Leased
Improvements existed immediately prior to such Condemnation. Lessor shall
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration; provided, however, the amount of such
contribution shall not exceed the cost of restoration. The Minimum Rent shall be
reduced as set forth in Paragraph 5.2.

         15.6 TEMPORARY CONDEMNATION. Lessee agrees that if, at any time after
the date hereof, the whole or any part of the Leased Property or of Lessee's
interest under this Lease, shall be Condemned by any Condemnor for its temporary
use or occupancy, this Lease shall not terminate by reason thereof, and Lessee
shall continue to pay, in the manner and at the times herein specified, the full
amounts of Minimum Rent and Additional Charges. Except only to the extent that
Lessee may be prevented from doing so pursuant to the terms of the order of the
Condemnor, Lessee shall also continue to perform and observe all of the other
terms, covenants, conditions and obligations hereof, on the part of the Lessee
to be performed and observed, as though such Condemnation had not occurred. In
the event of any such Condemnation as in this Paragraph 15.6 described, the
entire amount of any such Award made for such temporary use, whether paid by way
of damages, rent or otherwise, shall be paid to Lessee to the extent
attributable to any period within the Initial Term (as extended by any already
exercised options to extend) and except as otherwise provided hereunder.
Notwithstanding the foregoing, in the event that any temporary use or occupancy
covered under this Paragraph 15.6 renders any portion of the Leased Property
Unsuitable for its Primary Intended Use (or otherwise reduces the number of
units to less than 42 and/or reduces the maximum allowable resident occupancy to
less than 42 residents) for a period in excess of twelve (12) calendar months,
Lessee shall have the right to elect a reduction in Minimum Rent as set forth in
Paragraph 5.2 commencing on the twelve (12) month anniversary of any such use or
occupancy and continuing so long as such temporary use or occupancy continues,
in which event any Award made for such temporary use or occupancy shall be paid
to Lessor to the extent attributable to the period that Minimum Rent is so
abated. Lessee covenants that upon the termination of any such period of
temporary use or occupancy as set forth in this Paragraph 15.6, it will, at its
sole cost and expense, restore the Leased Property as nearly as may be
reasonably possible, to the condition in which the same was immediately prior to
the Condemnation, unless such period of temporary use or occupancy shall extend
beyond the expiration of the Term, in which case Lessee shall not be required to
make such restoration, and in such case, Lessee shall contribute to the cost of
such restoration that


                                       23

<PAGE>   29


portion of its entire Award which is specifically allocated to such restoration
in the judgment or order of the court, if any.

                                  ARTICLE XVI

         16.1 EVENTS OF DEFAULT. Any one or more of the following events shall
be an "Event of Default":

                  (a) if Lessee fails to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such failure
is not cured by Lessee within a period of three (3) Business Days after Notice
thereof from Lessor; or

                  (b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease other than those described under Paragraphs
16.1(a) and 16.1(c) through and including 16.1(m) of this Lease, and such
failure is not cured by Lessee within a period of 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 an Event of Default if Lessee proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof within ninety (90)
days; or

                  (c) if Lessee commits an "Event of Default" under any of the
Other Leases. Without limiting the foregoing, if Lessee commits an "Event of
Default" under this Lease, Lessee shall thereby be in default (and shall
therefore have committed an "Event of Default") under all of the Other Leases;
or

                  (d) if Lessee does any of the following:

                        (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 law;

                        (iii) make an assignment for the benefit of 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; or

                  (e) if Lessee, on a petition in bankruptcy filed against it,
is adjudicated as bankrupt or an order for relief thereunder is entered against
it or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a receiver for Lessee or of the whole
or substantially all of its property or the Facility, or approving a petition
filed against Lessee seeking reorganization or arrangement of Lessee under the
Federal bankruptcy laws or other applicable law or statute of the United States
of America or any state




                                       24

<PAGE>   30


thereof, and such judgment, order or decree shall not be vacated or set aside
within sixty (60) days from the date of the entry thereof; or

                  (f) if Lessee 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 of its assets; or

                  (g) subject to the provisions of Article XII hereof, if the
estate or interest of Lessee in the Leased Property or any part thereof be
levied upon or attached in a 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 Notice thereof from Lessor, or a mechanic's or similar
lien is filed with respect to the Leased Property and is not released or bonded
around for a period exceeding sixty (60) days after Lessee first has knowledge
of the same; or

                  (h) if Lessee voluntarily ceases operations on the Leased
Property for a period in excess of two (2) days; or

                  (i) if any of Lessee's representations or warranties expressly
set forth in this Lease (or financial statements provided to Lessor) proves to
be untrue when made in any material respect which materially and adversely
affects Lessor; or

                  (j) if Lessee (or any of its Affiliates) commits an "Event of
Default" or any other form of default under any other lease or sublease now or
hereafter entered into between Lessor (or any of its Affiliates) and Lessee (or
any of its Affiliates). Without limiting the foregoing, if Lessee commits an
"Event of Default" under this Lease, Lessee (or any of its Affiliates) shall
thereby be in default (and shall therefore have committed an "Event of Default")
under all other leases between Lessor (or any of its Affiliates) and Lessee (or
any of its Affiliates); or

                  (k) if Lessee attempts to assign or sublease, in violation of
the provisions of this Lease; or

                  (l) subject to the provisions of Article XII hereof, if Lessee
ceases to maintain in effect any license, permit, certificate or approval
necessary or otherwise required to operate the Facility in accordance with its
Primary Intended Use or if Lessee fails to deliver to Lessor within five (5)
Business Days after Lessee's receipt thereof, copies of any written notices,
demands, claims, inquiries, investigations, reports or correspondence from any
third party, whether governmental, quasi-governmental or private, stating or in
any manner indicating that any of Lessee's licenses, certificates, permits,
provider agreements and/or other authorizations and approvals in connection with
the Leased Property is or may be downgraded, revoked, cancelled, suspended or
otherwise adversely affected, or that an action of any kind is pending or being
considered to downgrade, revoke, cancel, suspend or otherwise adversely affect
any of the same; or

                  (m) any Change of Control (as defined below) of Lessee
following the Commencement Date of this Lease. As used in this Paragraph
16.1(m), the term "Change of Control" shall mean any change (voluntary or
involuntary, by operation of law or otherwise) in



                                       25

<PAGE>   31



the Person or Persons (as defined below) which ultimately exert effective
control over the management of the affairs of Lessee (a "Controlling Entity") as
of the date hereof. A Change of Control shall specifically include, but not be
limited to, any of the occurrences described in subparagraphs (i) through (iii)
below in this Paragraph 16.1(m).

         Notwithstanding anything to the contrary set forth in this Paragraph
16.1(m), any Change of Control which either (a) has been previously agreed to in
writing by Lessor, or (b) constitutes a Permitted Transaction (as defined
below), shall not constitute an Event of Default under this Lease. For the
purpose of this Paragraph 16.1(m), the term "Permitted Transaction" shall mean
any transaction, whether by operation of law or otherwise, resulting in a Change
of Control in which, immediately following such Change of Control, the Person or
Persons which ultimately exert effective control over the management of the
affairs of Lessee and/or Lessee's Controlling Entity (such Person or Persons,
the "Successor Person") meet both of the following tests: (A) such Successor
Person or Persons has or have an audited consolidated tangible net worth,
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP"), equal to or greater than One Hundred Fifty
Million and No/100 Dollars ($150,000,000.00), and (B) such Successor Person or
Persons then has or have issued and outstanding securities which are publicly
traded on the New York Stock Exchange ("NYSE"), the American Stock Exchange
("AMEX"), or the NASDAQ-National Markets System ("NASDAQ"). From and after the
occurrence of a Permitted Transaction, the failure by the Successor Person or
Persons to (AA) maintain an audited consolidated tangible net worth, determined
in accordance with GAAP, equal to or greater than One Hundred Fifty Million and
No/100 Dollars ($150,000,000.00), and (BB) continue to have issued and
outstanding securities which are publicly traded on the NYSE, the AMEX, or the
NASDAQ, shall constitute an Event of Default.

         For purposes of this Paragraph 16.1(m), a Change of Control shall
include, but not be limited to, any of the following occurrences:

                        (i) any Person (defined below) is or becomes the
Beneficial Owner (defined below), directly or indirectly, of securities of
Lessee and/or Lessee's Controlling Entity, whether by operation of law or
otherwise, representing thirty percent (30%) or more of the combined voting
power of the then outstanding securities of Lessee and/or its Controlling Entity
(whereupon such Person shall be deemed a Successor Person hereunder); or

                        (ii) the stockholders of Lessee or its Controlling
Entity approve a merger or consolidation of Lessee or its Controlling Entity (as
applicable) with any other corporation (or other entity), other than a merger or
consolidation which would result in the voting securities of Lessee or its
Controlling Entity (as applicable) which are outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities of Lessee or
its Controlling Entity or such surviving entity immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected to
implement a recapitalization of Lessee or its Controlling Entity (or similar
transaction) in which no Person acquires more than thirty percent (30%) of the
combined voting power of the then outstanding securities of Lessee and/or its
Controlling Entity shall not constitute a Change of Control; or


                                       26

<PAGE>   32



                        (iii) the stockholders of Lessee or its Controlling
Entity approve a plan of complete liquidation of Lessee or its Controlling
Entity (as applicable) or an agreement for the sale or disposition by Lessee or
its Controlling Entity of all or substantially all of the assets of Lessee or
its Controlling Entity.

         For purposes of this Paragraph 16.1(m), the term "Person" shall have
the meaning ascribed thereto in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the term "Beneficial
Owner" shall have the meaning ascribed thereto in Rule 13d-3 of the Exchange
Act."

         Upon the occurrence of an Event of Default, in addition to all of
Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) Business Days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.

         In the event litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation shall receive,
in addition to its damages incurred, such sum as the court shall determine as
its reasonable attorneys' fees, and all costs and expenses incurred in
connection therewith, including reasonable attorneys' fees and costs incurred on
appeal.

         16.2 CERTAIN REMEDIES. Lessor shall have all remedies and rights
provided under this Lease and/or otherwise available in law and equity as a
result of an Event of Default or Lessee's other breach under this Lease,
including, to the extent permitted by Colorado law, the right to appoint a
receiver as a matter of strict right without regard to the solvency of Lessee,
for the purpose of procuring the Leased Property, preventing waste, protecting
and otherwise enforcing the provisions of this Lease and for any and all other
purposes for which a receiver is allowed under the laws of the State of
Colorado. Without limiting the foregoing, if an Event of Default occurs (and the
event giving rise to such Event of Default has not been cured within the
curative period, if any, relating thereto as set forth in this Lease) whether or
not this Lease has been terminated pursuant to Paragraph 16.1, Lessee shall, to
the extent permitted by law, and if required by Lessor to so do, immediately
surrender to Lessor the Leased Property pursuant to the provisions of Paragraph
16.1 and quit the same and Lessor may enter upon and repossess the Leased
Property, in person, by agent or by a court-appointed receiver, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property subject to rights of
any residents (and their property) and to any requirements of law. Without
limiting all other rights and remedies of Lessor under this Lease and under law,
Lessor shall have the right to accelerate all Rent (including Minimum Rent) and
therefore, upon Lessee's default, at Lessor's option, all such Rent shall become
immediately due and payable in accordance with Paragraph 16.3, below. Further,
without limiting all other rights and remedies of Lessor under this Lease and
under law, Lessor shall be entitled to recover from Lessee, and Lessee shall
therefore be liable for, all costs of recovering possession (including without
limitation all costs associated with any receiver) and renovating the Leased
Property for a new lessee and all other costs of re-leasing, including, but not
limited to, broker's commissions and attorneys' fees, except as limited by
Paragraph 16.3 below.


         16.3 DAMAGES. Neither (i) the termination of this Lease pursuant to
Section 16.1, (ii) the repossession of the Leased Property; (iii) the failure of
Lessor, notwithstanding



                                       27

<PAGE>   33


reasonable good faith efforts, to relet the Leased Property; nor (iv) the
reletting of all or any portion thereof, shall relieve Lessee of its liability
and obligations hereunder, all of which shall survive any such termination,
repossession or reletting (except for proceeds received on subletting). In the
event of any such termination, Lessee shall forthwith pay to Lessor all Rent due
and payable with respect to the Leased Property to and including the date of
such termination.

                  (a) Lessor shall not be deemed to have terminated this Lease
unless Lessor delivers written Notice to Lessee of such election. If Lessor
voluntarily elects to terminate this Lease upon an Event of Default, then in
addition to all remedies available to Lessor, Lessor may recover the sum of:

                        (i) the worth at the time of award of the unpaid Rent
which had been earned at the time of termination;

                        (ii) the worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Lessee proves could
have been reasonably avoided;

                        (iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided; and

                        (iv) 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.

                        The "worth at the time of award" of the amounts referred
to in subparagraphs (i) and (ii) above is computed by allowing interest at the
Overdue Rate. The worth at the time of award of the amount referred to in
subparagraph (iii) is 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%).

                  (b) Without limiting Lessor's other remedies provided herein
and provided by law, Lessor may continue the Lease in effect after Lessee's
breach and abandonment and recover Rent as it becomes due, provided that, in
such event, Lessee has the right to sublet or assign subject only to reasonable
conditions imposed by Lessor. Accordingly, without termination of Lessee's right
to possession of the Leased Property, Lessor may demand and recover each
installment of Minimum Rent and other sums payable by Lessee to Lessor under the
Lease as the same becomes due and payable, which Minimum Rent and other sums
shall bear interest at the maximum interest rate permitted in accordance with
the laws of the State of Colorado (or the Overdue Rate, whichever is lower),
from the date when due until paid, and Lessor may enforce, by action or
otherwise, any other term or covenant of this Lease. If Lessor elects to recover
each installment of Rent as it becomes due, then Lessor may file any number of
lawsuits for the recovery of the amounts due hereunder.


                                       28

<PAGE>   34


         16.4 WAIVER. If this Lease is terminated pursuant to Paragraph 16.1,
Lessee waives, to the extent permitted by applicable law, the benefit of any
laws now or hereafter in force exempting property from liability for rent or for
debt.

         16.5 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 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 of Colorado.

                                  ARTICLE XVII

         LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease,
and to cure the same within the relevant time periods, if any, provided under
this Lease, Lessor, after fifteen (15) days' Notice to and demand upon Lessee,
and without waiving or releasing any obligation of Lessee or default, may (but
shall be under no obligation to) at any time thereafter 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, in person, by agent or
by court-appointed receiver, for such purpose and take all such action thereon
as, in Lessor's opinion, may be necessary or appropriate therefor. Provided,
however, that should Lessor reasonably determine that the giving of such Notice
would risk loss to the Leased Property, or cause damage to Lessor, then Lessor
shall give such written Notice as is practical under the circumstances. No such
entry shall be deemed an eviction of Lessee. In exercising any remedy under this
Article XVII, Lessor shall use its good faith efforts not to violate any rights
of residents of the Facility. All sums so paid by Lessor and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which sums or
expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this Article
shall survive the expiration or earlier termination of this Lease.

                                 ARTICLE XVIII

         18.1 OPTIONS TO EXTEND. Provided there exists no uncured Event of
Default under this Lease or any of the Related Leases at the time Lessee
exercises any option to extend (in accordance with this Article XVIII), Lessee
will have the right to extend this Lease for two (2) periods of five (5) years
each (each such additional term shall be referred to herein as an "Extended
Term"), commencing immediately following the end of the Initial Term or the
immediately preceding Extended Term, as the case may be. Notwithstanding
anything stated in this Paragraph 18.1 or elsewhere in this Lease, Lessee shall
not be entitled to exercise its option to extend this Lease for any Extended
Term (and any such option to extend shall automatically expire and terminate)
unless Lessee concurrently exercises its option as to the applicable Extended
Term under each of the Related Leases, as provided in each of the Related
Leases; and any attempt to exercise Lessee's option to extend this Lease without
Lessee exercising its options under all of the Related Leases shall be null and
void. The Lease during any Extended Term shall be on the same terms and
conditions as during the Initial Term, except that the Minimum Rent shall be
determined as set forth in Paragraph 18.2 below. In the event Lessee desires to
exercise any option to extend granted in this Article XVIII, Lessee shall give
Landlord written




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<PAGE>   35


notice ("Notice to Extend") not more than three hundred sixty (360) days prior
and not less than one hundred eighty (180) days prior to the expiration of the
Initial Term or the immediately preceding Extended Term, as the case may be. If
Lessee fails to give Landlord any such notice, then such option to extend and
all future options to extend granted in this Article XVIII shall be null and
void and of no further force or effect.

         18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent at the
commencement of each Extended Term shall be the higher of: (i) the previous
year's Minimum Rent amount, increased in accordance with the method described in
Paragraph 3.2, above; and (ii) the Fair Market Rent, as determined below. The
Minimum Rent shall be redetermined at the commencement of both the first
Extended Term and the second Extended Term and upon such determination shall
apply for the entire Extended Term (subject to annual adjustments as provided in
Paragraph 3.2 hereof).

                  (a) If Lessor and Lessee cannot agree on the Fair Market Rent
within thirty (30) days after the date of any Notice to Extend, each party
shall, by notice to the other, appoint a disinterested and licensed M.A.I. Real
Estate Appraiser with at least five years of experience in appraising long term
care facilities in the State of Colorado (with the same type of operating
license as that which is then in effect for the Facility) to determine the Fair
Market Rent. If any party should fail to appoint an appraiser within ten (10)
days after notice, the appraiser selected by the other party shall determine the
Fair Market Rent. In determining the Fair Market Rent, each appraiser shall give
appropriate consideration to, among other things, generally applicable minimum
rent for tenancies of property comparable to the Leased Property in the area in
which the Leased Property is located.

                  (b) If the two appraisers selected pursuant to Paragraph
18.2(a) above, cannot agree upon the Fair Market Rent within forty-five (45)
days, they shall immediately give written notice of such inability ("Notice of
Disagreement") to both Lessor and Lessee setting forth the Fair Market Rent
determinations of each of the appraisers. If the determinations of each of the
two appraisers of the Fair Market Rent at the commencement of such Extended Term
differ by less than ten percent (10%) of the lower determination, the Fair
Market Rent shall be fixed at an amount equal to the average of the two
determinations.

                  (c) If the determinations of each of the two appraisers
selected pursuant to Paragraph 18.2(a), above, differ by ten percent (10%) or
more of the lower determination with respect to the Fair Market Rent to be paid
at the commencement of such Extended Term, then within thirty (30) days after
the giving of the Notice of Disagreement, the two appraisers shall appoint a
third disinterested and licensed M.A.I. Real Estate Appraiser with at least 5
years of experience appraising long term care facilities with the same type of
operating license which is then in effect for the Facility. If the parties
cannot then agree on the Fair Market Rent, the third appraiser shall determine
the Fair Market Rent, and in so doing, shall give appropriate consideration to
those items described in Paragraph 18.2(a). The third appraiser shall not select
a Fair Market Rent either (i) higher than the highest of the two appraisals made
pursuant to Paragraph 18.2(a); or (ii) lower than the lowest of the two
appraisals made pursuant to Paragraph 18.2(a), above. If the first two
appraisers cannot agree on the selection of a third appraiser within such thirty
(30) days, or if the first two appraisers fail to provide a Notice of
Disagreement (as stated above in Paragraph 18.2(b), above, then the Fair Market
Rent shall be


                                       30

<PAGE>   36



determined by a third appraiser selected by the American Arbitration Association
(or such other organization at Lessor's election) upon application by Lessor.

                  (d) During the time before the determination of the Fair
Market Rent, Lessee shall pay Minimum Rent at the rate paid immediately
preceding such Extended Term, increased by two percent (2%); provided, however,
that, if the Fair Market Rent is determined to be higher than such amount, the
Minimum Rent owed by Lessee at the Fair Market Rent shall be effective
retroactively as of the first day of such Extended Term. If, after the Minimum
Rent for an Extended Term is adjusted and applied retroactively as of the first
day of such Extended Term, it is determined that additional Minimum Rent is due
Lessor, the aggregate amount of any such additional Minimum Rent shall be paid
to Lessor within thirty (30) days of the determination of the Fair Market Rent
for such Extended Term.

                  (e) Each of the parties shall pay the fees of the appraiser
that it selects pursuant to Paragraph 18.2(a), above, and shall equally share
the cost of the third appraiser, if necessary, and shall equally share the cost
of arbitration (excluding attorneys' fees), if necessary.

                                   ARTICLE XIX

         HOLDING OVER. If Lessee shall for any reason remain in possession of
the Leased Property after the expiration of the Term or earlier termination of
the Term hereof, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, one and one-half times the
aggregate of (i) one-twelfth of the aggregate Minimum Rent payable with respect
to the immediately preceding twelve (12) months of the Term; (ii) all Additional
Charges accruing during the month; and (iii) all other sums payable by Lessee
pursuant to the provisions of this Lease. 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. 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 XX

         RISK OF LOSS. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures
(to the extent caused by or through Lessee), attachments, levies or executions
(other than those caused by or through Lessor) is assumed by Lessee, and Lessor
shall in no event be answerable or accountable therefor, nor shall any of the
events mentioned in this Paragraph entitle Lessee to any abatement of Rent
except as specifically provided in this Lease, or any right to terminate this
Lease, except as provided in Articles XIV or XV, above. Without limiting the
foregoing, Lessor shall not be liable for injury or damage to the person or
goods, wares, merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers, or any other person in or about the Leased
Property, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air


                                       31

<PAGE>   37


conditioning, or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Leased Property, or
upon other portions of the Land, or any part thereof, or from other sources or
places, and regardless of whether the cause of such damage or injury or the
means of repairing the same is accessible or not. Lessor shall not be liable for
any damages arising from any act or neglect of Lessee, or any other party named
above. Lessor shall, however, remain liable for any damages arising from
Lessor's own gross negligence or willful misconduct.

                                  ARTICLE XXI

         INDEMNIFICATION. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will, and hereby does, protect, indemnify, hold harmless
and defend Lessor from and against all liabilities, obligations, claims,
demands, damages, penalties, causes of action, costs, and expenses (including,
without limitation, actual reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against Lessor
by reason of any of the following: (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, including without limitation any claims of
malpractice, whether occurring prior to or after the Commencement Date provided
however, that if any such liability, obligation, demand, claim or cause of
action is covered by liability insurance pursuant to Article XIII, and if the
insurance carrier is providing a defense acceptable to Lessor in the reasonable
exercise of Lessor's discretion, or has otherwise acknowledged coverage for
same, then Lessee shall not be obligated to duplicate the defense,
investigation, adjustment, or other steps being taken by the insurer; (b) any
occupancy, use, misuse, non-use, condition, maintenance, or repair by Lessee of
the Leased Property; (c) any Impositions (which are the obligations of Lessee to
pay pursuant to the applicable provisions of this Lease, which include any
Impositions arising prior to the Commencement Date); (d) any failure on the part
of Lessee to perform or comply with any of the terms of this Lease; (e) the
non-performance of any of the terms and provisions of any and all existing and
future subleases of the Leased Property to be performed by the landlord (Lessee)
thereunder; (f) any Hazardous Materials, as defined in Paragraph 10.2, above
that now or hereafter during the Term may be located in, on or around, or may
potentially affect, any part of the Land or Leased Improvements; (g) any and all
other matters pertaining to the Leased Property or the operation of the Facility
after the date of this Lease or otherwise during the Term, including without
limitation compliance with or failure to comply with the provisions of Section 8
of the United States Housing Act of 1937 as and to the extent applicable, and
the provisions of the Fair Housing Amendments Act of 1988, each as amended from
time to time; and (h) any liability relating to the construction or development
of the Facility, whether arising in connection with events occurring prior to or
after the Commencement Date, including without limitation compliance with or
failure to comply with the provisions of the federal Americans with Disabilities
Act, as amended from time to time. Any amounts which became payable by Lessee
under this Paragraph shall be paid within ten (10) days of the date the same
becomes due and if not timely paid, shall bear a late charge (to the extent
permitted by law) at the Overdue Rate from the date of such determination to the
date of payment. Lessee, at its 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, at Lessee's sole
cost, but after consultation with and approval by Lessor. Nothing herein shall
be construed as indemnifying Lessor against its own gross negligence or


                                       32

<PAGE>   38



willful misconduct. Lessee's liability for a breach of the provisions of this
article arising during the Term hereof shall survive any termination of this
Lease.

                                  ARTICLE XXII

         SUBLETTING AND ASSIGNMENT. Lessee may not assign, sublease or sublet,
encumber, appropriate, pledge or otherwise transfer, by operation of law or
otherwise, directly or indirectly, the Lease or the leasehold or other interest
in the Leased Property without the prior written consent of Lessor, which
consent shall not be unreasonably withheld; provided, however, that Lessee may
from time to time during the Term of this Lease enter into rental agreements
with residents of the Facility, and execute any documents necessary in
connection therewith, without obtaining Lessor's prior consent. Upon Lessor's
consent, (a) in the case of any subletting, the sublessee shall comply with the
provisions of Paragraph 22.2, and (b) in the case of any assignment, any such
assignee shall assume in writing and agree to keep and perform all of the terms
of this Lease on the part of Lessee to be kept and performed and shall be, and
become, jointly and severally liable with Lessee for the performance thereof. In
the case of either an assignment or a subletting, (i) an original counterpart of
each sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor, (ii) Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder; and (iii) Lessee shall be solely
liable for all costs and expenses (including attorneys' fees and costs) incurred
by Lessor in connection with such assignment or subletting, including but not
limited to the evaluation, granting or withholding of consent, documentation and
closing of the assignment or subletting transaction.

         22.1 ATTORNMENT. Lessee shall insert in each sublease permitted under
Paragraph 22 (not including rental agreements with residents) provisions to that
effect that (i) such sublease is subject and subordinate to all of the terms and
provisions of this Lease and the rights of Lessor hereunder; (ii) in the event
this Lease shall terminate before the expiration of such sublease, the sublessee
thereunder will, at Lessor's option, attorn to Lessor and waive any right the
sublessee may have to terminate the sublease or to surrender possession
thereunder, as a result of the termination of this Lease; and (iii) in the event
the sublessee receives a written Notice from Lessor or Lessor's assignees, if
any, stating that Lessee is in default under this Lease, the sublessee shall
thereafter be obligated to pay all rentals accruing under said sublease directly
to the party giving such Notice, or as such party may direct. All rents received
from the sublessee by Lessor or Lessor's assignees, if any, as the case may be,
shall be credited against amounts owing by Lessee under this Lease.

         22.2 SUBLEASE LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (i) the income or profits derived by the
business activities of the sublessee; or (ii) any other formula such that any
portion of the sublease rental received by Lessor would fail to qualify as
"rents from real property" within the meaning of Paragraph 856(d) of the Code,
or any similar or successor provision thereto.


                                       33

<PAGE>   39



                                 ARTICLE XXIII

         OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.

                  (a) At any time from time-to-time upon not less than twenty
(20) days Notice by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease unmodified and in full force and effect
(or that this Lease is in full force and effect as modified and setting forth
the modifications), the date to which the Rent has been paid and such other
information concerning this Lease as may be reasonably requested by Lessor. Any
such certificate furnished pursuant to this Paragraph may be relied upon by
Lessor and any prospective purchaser or lender of the Leased Property.

                  (b) In addition to all other obligations to provide financial
information contained in the Lease, Lessee will furnish the following statements
to Lessor:

                        (i) within one hundred twenty (120) days after the end
of each Fiscal Year, an Officer's Certificate stating that to the best of the
signer's knowledge and belief after making reasonable 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 to its knowledge, specifying all such defaults,
the nature thereof, and the steps being taken to remedy the same, and

                        (ii) with reasonable promptness, such other information
respecting the financial condition and affairs of Lessee as Lessor may
reasonably request from time-to-time.

                  (c) Within one hundred twenty (120) days after the end of each
Fiscal Year, Lessee agrees to provide to Lessor Consolidated Financials of
Lessee for such Fiscal Year.

                                  ARTICLE XXIV

         LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property on at least one
Business Day's prior notice during usual business hours subject to any security,
health, safety, or confidentiality requirements of Lessee or any governmental
agency or insurance requirement relating to the Leased Property, or imposed by
law or applicable regulations. Lessor shall take reasonable steps to avoid
interference with the residents.

                                  ARTICLE XXV

         NO WAIVER. The waiver by Lessor or Lessee of any term, covenant or
condition in this Lease shall not be deemed to be a waiver of any other term,
covenant or condition or any subsequent waiver of the same or any other term,
covenant or condition contained in this Lease. The subsequent acceptance of rent
hereunder by Lessor or any payment by Lessee shall not be deemed to be a waiver
of any preceding default of any term, covenant or condition of this Lease, other
than the failure to pay the particular amount so received and accepted,
regardless of the knowledge of any preceding default at the time of the receipt
or acceptance.




                                       34

<PAGE>   40


                                  ARTICLE XXVI

         REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of each party 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 each party of any one or more of
such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by such party of any or all of such other rights, powers and
remedies.

                                 ARTICLE XXVII

         ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease 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 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 XXVIII

         NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation, or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate; and (b) the fee estate in the
Leased Property.

                                  ARTICLE XXIX

         CONVEYANCE BY LESSOR. If Lessor or any successor owner of the Leased
Property shall transfer or assign Lessor's title or interest in the Leased
Property or this Lease other than as security for a debt, then, subject to the
provisions of this Article XXIX and provided the new owner has agreed in writing
for the benefit of Lessee to recognize this Lease and be bound by all of the
terms and conditions hereof, Lessor shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such transfer or assignment and all such future
liabilities and obligations shall thereupon be binding upon the new owner.

                                  ARTICLE XXX

         QUIET ENJOYMENT. So long as Lessee shall pay all Rent as the same
becomes due and shall comply with all of the terms of this Lease and perform its
obligations hereunder, and except for any claims, actions, liens or encumbrances
arising from the acts or omissions of Lessee or otherwise from events occurring
prior to the Commencement Date here-under, Lessee shall peaceably and quietly
have, hold and enjoy the Leased Property for the Term hereof, 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
hereafter consented to by Lessee. Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant or any covenant of this
Lease shall give Lessee any right to cancel or terminate this


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<PAGE>   41


Lease or abate, reduce or make a deduction from or offset against the Rent or
any other sum payable under this Lease, or to fail to perform any other
obligation of Lessee hereunder.

                                  ARTICLE XXXI

         NOTICES. All notices, demands, requests, consents, approvals, and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served upon an Executive Officer (defined below) of the party being
served or mailed (by registered or certified mail, return receipt requested and
postage prepaid), overnight delivery service addressed to the respective
parties, as follows:


                  (a) If to Lessee:       Alterra Healthcare Corporation
                                          450 North Sunnyslope Road, Suite 300
                                          Brookfield, Wisconsin 53005
                                          Attention: Mr. Mark Ohlendorf

                      with a copy to:     Rogers & Hardin
                                          2700 International Tower
                                          Peachtree Center
                                          229 Peachtree Street, N.E.
                                          Atlanta, Georgia  30303
                                          Attention:  Miriam J. Dent, Esq.

                  (b) If to Lessor:       LTC Properties, Inc.
                                          300 Esplanade Drive, Suite 1860
                                          Oxnard, California 93030
                                          Attention: James J. Pieczynski

                      with a copy to:     LTC Properties, Inc.
                                          300 Esplanade Drive, Suite 1860
                                          Oxnard, California 93030
                                          Attention:  Senior Vice President/
                                                      General Counsel/Secretary

                      and:                Stern, Neubauer, Greenwald & Pauly
                                          1299 Ocean Avenue, Tenth Floor
                                          Santa Monica, CA  90401-1007
                                          Attention:  Dennis L. Greenwald, Esq.

or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices sent
by overnight delivery service) shall be effective upon receipt, and Notice given
by mail shall be completed five (5) days after the time of deposit in the U.S.
Mail system. For the purposes hereof, the term "Executive Officer" shall mean
the Chairman of the Board of Directors, the President, any Vice President, or
the Secretary of the corporation upon which service is to be made.



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<PAGE>   42


                                 ARTICLE XXXII

         32.1 LESSOR MAY GRANT LIENS. Without the consent of Lessee, but subject
to the terms and conditions set forth below in this Paragraph 32.1, Lessor may,
from time-to-time, directly or indirectly, create or otherwise cause to exist
any lien or encumbrance or any other change of title ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing or other-wise. Provided
that Lessee receives the non-disturbance agreement described below, 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 to all renewals,
modifications, consolidations, replacements and extensions thereof. This clause
shall be self-operative and no further instruments of subordination shall be
required; provided, however that, at any time from time to time, within ten (10)
days after the request by Lessor or any holder of any Encumbrance, Lessee shall
execute an agreement to the effect that this Lease shall be subject and
subordinate to the lien of any such new Encumbrance on the Leased Property, and
that in the event of any default or foreclosure under such Encumbrance, Lessee
shall attorn to the holder of such lien, and as otherwise requested by Lessor;
provided further, however, that the subjection and subordination of this Lease
and Lessee's leasehold interest hereunder to any Encumbrance hereafter imposed
by Lessor shall be conditioned upon the execution by the holder of such
Encumbrance and delivery to Lessee of a commercially reasonable non-disturbance
agreement specifying, among other things, that (a) so long as Lessee is not in
default and no event has occurred which with the passage of time or the giving
of notice or both would constitute a default under this Lease, in the event of
any foreclosure, judicial sale or deed in lieu of foreclosure, Lessee's rights
and leasehold estate hereunder shall not be disturbed by the holder of such
Encumbrance, its successors or assigns or any successful bidder; and (b)
notwithstanding such subordination, so long as Lessor is not in default and no
event has occurred which with the passage of time or the giving of notice or
both would constitute a default under such Encumbrance, the holder of such
Encumbrance will recognize the rights of the parties under the terms of this
Lease with respect to the disposition of insurance payments and condemnation
proceeds in the event of any casualty or condemnation.

         32.2 ATTORNMENT. If Lessor's interest in the Leased Property is sold or
conveyed upon the exercise of any remedy provided for in any Encumbrance, or
otherwise by operation of law: (i) at the new owner's option, Lessee shall
attorn to and recognize the new owner as Lessee's lessor under this Lease, in
which case this Lease shall automatically become a new lease between Lessee and
the new owner upon all of the terms and conditions hereof, or enter into a new
lease in the exact form and substance of this Lease with the new owner, and
Lessee shall take such actions to confirm the foregoing within ten (10) Business
Days after request; and (ii) the new owner (other than any new owner or other
entity which is an Affiliate of Lessor) (provided that LTC Healthcare, Inc. and
its subsidiaries and affiliates shall not be deemed an Affiliate of Lessor)
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.

         32.3 LESSEE'S RIGHT TO CURE. Subject to the provisions of Paragraph
32.4, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to




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<PAGE>   43

any other remedies available to Lessee, may (but shall be under no obligation at
any time thereafter to) make such payment or perform such act for the account
and at the expense of Lessor. All sums so paid by Lessee and all costs and
expenses (including, without limitation, reasonable attorneys' fees) so
incurred, together with interest thereon from the date on which such sums or
expenses are paid or incurred by Lessee, shall be paid by Lessor to Lessee on
demand, but may not be offset by Lessee against payments of Rent hereunder.

         32.4 BREACH BY LESSOR. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed, and such failure shall continue for a period of thirty
(30) days after Notice thereof from Lessee 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 continue if Lessor, within said thirty (30) day
period, proceeds promptly, continuously and with due diligence to cure the
failure and diligently completes the curing thereof. The time within which
Lessor shall be obligated to cure any such failure shall also be subject to
extension of time due to the occurrence of any Unavoidable Delay."

                                 ARTICLE XXXIII

         MISCELLANEOUS.

         33.1 SURVIVAL OF OBLIGATIONS. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Lessee or
Lessor arising prior to, or in connection with any event occurring prior to, the
date of any expiration or termination of this Lease or the date of Lessee's
surrender of possession, whichever is later, shall survive such termination or
surrender of possession.

         33.2 LATE CHARGES; INTEREST. If any interest rate provided for in any
provision of this Lease is based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at the maximum permissible rate.

         33.3 LIMITS OF LESSOR'S LIABILITY. Lessee specifically agrees to look
solely to the assets of Lessor for recovery of any judgment against Lessor, it
being specifically agreed that no constituent shareholder, officer or director
of Lessor shall ever be personally liable for any such judgment or the payment
of any monetary obligation to Lessee. The provision contained in the foregoing
sentence is not intended to, and shall not, limit any right that Lessee might
otherwise have to obtain injunctive relief against Lessor or Lessor's successors
in interest, or any action not involving the personal liability of Lessor
(original or successor). Additionally, Lessor shall be exonerated from any
further liability under this Lease upon Lessor's transfer or other divestiture
of its ownership of the Leased Property, provided that the assignee or grantee
shall expressly assume in writing the obligations of Lessor hereunder.
Furthermore, in no event shall Lessor (original or successor) ever be liable to
Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause.

         33.4 TRANSFER OF OPERATIONS. At Lessor's request, upon the expiration
or earlier termination of the Term, Lessee shall use its best efforts to
transfer to Lessor or Lessor's nominee (or to cooperate with Lessor or Lessor's
nominee in connection with the processing by Lessor or Lessor's nominee of any
applications for) all licenses, operating permits and other


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<PAGE>   44


governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary for the
operation of the 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 nominee.

         33.5 ADDENDUM, AMENDMENTS AND EXHIBITS. Any addendum, amendments and
exhibits attached to this Lease are hereby incorporated in this Lease and made a
part of this Lease.

         33.6 HEADINGS. The headings and paragraph titles in this Lease are not
a part of this Lease and shall have no effect upon the construction or
interpretation of any part of this Lease.

         33.7 TIME. Time is of the essence of this Lease and each and all of its
provisions.

         33.8 DAYS. Unless otherwise expressly indicated herein, any reference
to "days" in this Lease shall be deemed to refer to calendar days.

         33.9 RENT. Each and every monetary obligation under this Lease shall be
deemed to be "Rent" under this Lease and for all other purposes under law.

         33.10 APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Colorado, but not including its
conflicts of laws rules; thus the law that will apply is the law applicable to a
transaction solely within the State of Colorado, including parties solely
domiciled in the State of Colorado.

         33.11 SUCCESSORS AND ASSIGNS. The covenants and conditions contained in
this Lease shall, subject to the provisions regarding assignment (Article XXII),
apply to and bind the heirs, successors, executors, administrators, and assigns
of Lessor and Lessee.

         33.12 RECORDATION. Lessor and Lessee shall execute with appropriate
acknowledgments and record in the Official Records of Larimer County, Colorado,
that certain Short Form Lease in the form and content of EXHIBIT "C" attached
hereto. Lessor and Lessee shall equally share the cost of recording the
Memorandum of Lease.

         33.13 PRIOR AND FUTURE AGREEMENTS. This Lease contains all of the
agreements of Lessor and Lessee with respect to any matter covered or mentioned
in this Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may be
amended or supplemented except by an agreement in writing signed by both Lessor
and Lessee or their respective successors in interest. This Lease shall not be
effective or binding on any party until fully executed and delivered by both
Lessor and Lessee.

         33.14 PARTIAL INVALIDITY. Any provision of this Lease which shall be
held by a court of competent jurisdiction to be invalid, void or illegal shall
in no way affect, impair or invalidate any other provision or term of this
Lease, and such other provision or terms shall remain in full force and effect.


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<PAGE>   45



         33.15 ATTORNEYS' FEES. In the event of any action or proceeding brought
by one party against the other under this Lease, the prevailing party shall be
entitled to recover its attorneys' fees in such action or proceeding from the
other party, including all attorneys' fees incurred in connection with any
appeals, and any post-judgment attorneys' fees incurred in efforts to collect on
any judgment.

         33.16 AUTHORITY OF LESSOR AND LESSEE. Lessor and Lessee each hereby
represent and warrant that the individuals signing on its behalf are duly
authorized to execute and deliver this Lease on behalf of the corporation, in
accordance with the bylaws of the corporation, and that this Lease is binding
upon the corporation.

         33.17 RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease
shall be deemed or construed by Lessor or Lessee, nor by any third party, as
creating the relationship of principal and agent or a partnership, or a joint
venture by Lessor or Lessee, it being understood and agreed that no provision
contained in this Lease nor any acts of Lessor and Lessee shall be deemed to
create any relationship other than the relationship of landlord and tenant.

         33.18 COUNTERPARTS. This Lease may be executed in one or more separate
counterparts, each of which, once they are executed, shall be deemed to be an
original. Such counterparts shall be and constitute one and the same instrument.

         33.19 BROKERS. Lessor and Lessee each warrants that it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Lease and it knows of no real estate broker or agent who is entitled to
a commission in connection with this Lease. Lessor and Lessee hereby agree to
indemnify the other and to hold the other harmless from and against any and all
costs, expenses, claims, damages, suits, including attorneys' fees, in any way
resulting from claims or demands for commissions or other compensation from any
real estate brokers claiming through such party with respect to this Lease.

         33.20 COMPUTER DISC. In order to facilitate the electronic filing of
this document with the United States Securities Exchange Commission and other
governmental agencies, Lessor shall provide or cause to be provided to Lessee a
computer disc containing this document, together with all exhibits, schedules
and ancillary documents related thereto, formatted in WordPerfect 5.1 Times New
Roman Font 12, upon Lessee's one-time request for same.







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<PAGE>   46



         WHEREFORE, each of the parties has accepted and agreed by affixing
their respective authorized signatures below as of the date first above written.

                                  "LESSEE"

                                  ALTERRA HEALTHCARE CORPORATION,
                                  a Delaware corporation



                                  By:    /s/ Thomas E. Komula
                                       ------------------------------------
                                  Name:  Thomas E. Komula
                                       ------------------------------------
                                  Its:     Senior Vice President
                                       ------------------------------------

                                  "LESSOR"

                                  LTC PROPERTIES, INC.,
                                  A MARYLAND CORPORATION



                                  By:   /s/ Andre C. Dimitriadis
                                       ------------------------------------
                                  Name: Andre C. Dimitriadis
                                       ------------------------------------
                                  Its: Chairman and Chief Executive Officer
                                      -------------------------------------












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