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                                                                   EXHIBIT 10.11











                                 LEASE AGREEMENT


                                     BETWEEN


                             HEALTH CARE REIT, INC.


                                       AND


                        ALTERNATIVE LIVING SERVICES, INC.



                               DECEMBER ___, 1998



                          CLARE BRIDGE OF OKLAHOMA CITY
                             OKLAHOMA CITY, OKLAHOMA



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                                 LEASE AGREEMENT
                            (OKLAHOMA CITY, OKLAHOMA)


         This Lease Agreement ("Lease" or "Agreement") is made effective as of
the ___ day of December, 1998 (the "Effective Date") between HEALTH CARE REIT,
INC., a corporation organized under the laws of the State of Delaware
("Landlord"), having its principal office located at One SeaGate, Suite 1500,
P.O. Box 1475, Toledo, Ohio 43603, and ALTERNATIVE LIVING SERVICES, INC., a
corporation organized under the laws of the State of Delaware ("Tenant"), having
its chief executive office located at 450 N. Sunnyslope Road, Suite 300,
Brookfield, Wisconsin 53005.

                                 R E C I T A L S

         A. As of the date hereof, Landlord holds fee simple title to the land
described in Exhibit A attached hereto ("Land").

         B. Landlord desires to lease the Leased Property (defined below) to
Tenant and Tenant desires to lease the Leased Property from Landlord upon the
terms set forth in this Lease.

         C. Tenant desires to construct a 34 unit/38 bed assisted
living/Alzheimer/dementia facility ("Facility") on the Land. Landlord has agreed
to pay for the development and construction costs of the Facility up to the
maximum amount of $3,200,000.00 subject to the terms and conditions of this
Lease and the Construction Disbursing Agreement between Landlord and Tenant.

         D. All amounts paid by Tenant for the acquisition and development costs
of the Leased Property shall be considered Tenant's contribution.

         NOW, THEREFORE, Landlord and Tenant agree as follows:


                ARTICLE 1: LEASED PROPERTY, TERM AND DEFINITIONS

         1.1 Leased Property. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the following property:

             (a) The Land.

             (b) All buildings, structures, and other improvements, including
without limitation, sidewalks, alleys, utility pipes, conduits, and lines,
parking areas, and roadways, now or hereafter situated upon the Land (the
"Improvements").

             (c) All easements, rights and other appurtenances relating to the
Land and Improvements (the "Appurtenances").


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             (d) All permanently affixed equipment, machinery, fixtures, and
other items of real and personal property, including all components thereof,
located in, or used in connection with, and permanently affixed to or
incorporated into the 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, and built-in oxygen and vacuum
systems, all of which, to the greatest extent permitted by law, are hereby
deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto but specifically
excluding all items included within the category of Personal Property as defined
below (collectively the "Fixtures").

             (e) All machinery, equipment, furniture, furnishings, movable walls
or partitions, computers, trade fixtures, consumable inventory and supplies, and
other personal property used or useful in Tenant's business on the Leased
Property, and the replacements therefor, except items, if any, included within
the definition of Fixtures (collectively the "Personal Property"). The Land,
Improvements, Appurtenances, and Fixtures and Personal Property are hereinafter
referred to as the "Leased Property".

         SUBJECT, HOWEVER, to all easements, liens, encumbrances, restrictions,
agreements, and other title matters existing as of the date hereof as listed on
Exhibit B attached hereto (the "Permitted Exceptions").

         All Improvements constructed by Tenant on the Land and all Fixtures
installed by Tenant into the Improvements shall be the property of Landlord and
shall be part of the "Leased Property" hereunder. From time to time upon
Landlord's request, Tenant shall execute and deliver to Landlord such
instruments, certificates and other documents as Landlord may reasonably request
to evidence Landlord's ownership of the Improvements and Fixtures constructed
and installed by Tenant.

         1.2 Term. The Construction Term of this Lease commences on the
Effective Date and expires on the Conversion Date. The initial term ("Initial
Term") of this Lease commences on the day after the Conversion Date and expires
at 12:00 Midnight Eastern Time on the thirteenth anniversary of the Term
Commencement Date (the "Expiration Date"); provided, however, that Tenant has an
option to renew the Lease pursuant to Article 12 and, provided further, the
current Term of this Lease shall be deemed automatically extended from time to
time (without any written amendment or other documentation) to be concurrent
with the Term of the Phase IV Lease having the latest expiration date.

         1.3 Definitions. Except as otherwise expressly provided, [i] the terms
defined in this section have the meanings assigned to them in this section 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 as of the time applicable; [iii] the
words "herein", "hereof", and "hereunder" and similar words refer to this Lease
as a whole and not to any particular section; and [iv] any capitalized term not
defined in this

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Agreement which is defined in the Construction Agreement shall have the meaning
set forth in the Construction Agreement.

         "Acquisition Amount" means $30,187.50.

         "ADA" means the federal statute entitled Americans with Disabilities
Act, 42 U.S.C. Section 12101, et seq.

         "Affiliate" means any person, corporation, partnership, trust, or other
legal entity that, directly or indirectly, controls, or is controlled by, or is
under common control with Tenant. "Control" (and the correlative meanings of the
terms "controlled by" and "under common control with") means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such entity. "Affiliate" includes, without
limitation, each Related Tenant.

         "Annual Financial Statements" means the Tenant's unaudited balance
sheet and statement of income for the most recent fiscal year on an individual
facility and consolidated basis and an unaudited operating statement for the
Facility for the most recent fiscal year.

         "Base Rent" has the meaning set forth in 2.4, as increased from time to
time pursuant to Section 2.5.

         "Business Day" means any day other than a Saturday, Sunday, or national
holiday.

         "CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time. The terms "disposal"
and "release" as used in this Agreement shall have the meaning set forth in
CERCLA.

         "Closing" means the closing of the purchase of the Leased Property by
Landlord and the lease of the Leased Property to Tenant.

         "Commencement Date" means the Effective Date if such date is the first
day of a month, and if it is not, the first day of the first month following the
Effective Date.

         "Commitment" means the Commitment Letter from Landlord to Sterling
dated as of April 3, 1996, as amended from time to time.

         "Construction Agreement" means the Construction Disbursing Agreement
between Tenant and Landlord dated the date hereof.

         "Construction Base Rent" has the meaning set forth in Section 2.1.

         "Construction Rate Index" means the Base Rate announced from time to
time by National City Bank (Cleveland) or the successor bank with which Landlord
maintains its primary

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line of credit; the Lease Rate for the Construction Term shall be adjusted to
reflect each change in the Construction Rate Index.

         "Construction Term" means the term of this Lease commencing on the
Effective Date and expiring on the Conversion Date.

         "Conversion Date" means the date when the Facility is completed and the
final disbursement of the Lease Amount has been made pursuant to Section 3.3 of
the Construction Agreement.

         "Effective Date" is the date hereof as first set forth above.

         "Environmental Laws" means all federal, state, and local ecological,
wetlands, and other environmental laws and regulations, as amended from time to
time, including but not limited to [i] CERCLA; [ii] the Resource Conservation
and Recovery Act; [iii] the Hazardous Materials Transportation Act; [iv] the
Clean Air Act; [v] Clean Water Act; [vi] the Toxic Substances Control Act; and
[vii] the Safe Water Drinking Act.

         "Event of Default" has the meaning set forth in Section 8.1.

         "Expiration Date" has the meaning set forth in Section 1.2.

         "Extended Term" has the meaning set forth in Section 12.3(a).

         "Facility" means the 34 units/38 bed assisted
living/Alzheimers/dementia facility known as Clare Bridge of Oklahoma City and
located on the Leased Property.

         "Facility Financial Statement" means the financial statement for the
Facility which shall include the statement of income and expense, occupancy
census data (including payor mix to the extent presently provided by Affiliates)
and a comparison of the actual financial data versus the Facility's internal
budget for the applicable period.

         "Fair Market Value" has the meaning set forth in Section 13.3.

         "Financial Statements" means [i] the annual, quarterly and year to date
financial statements of Tenant; and [ii] all operating statements for the
Facility, that were submitted to Landlord prior to the Effective Date.

         "Government Authorizations" means all permits, licenses, approvals,
consents, and authorizations required to comply with all Legal Requirements,
including but not limited to, [i] zoning permits, variances, exceptions, special
use permits, conditional use permits, and consents; [ii] to the extent
applicable, the permits, licenses, provider agreements and approvals required
for licensure and operation of a residential care home certified as a provider
under the federal Medicare and state Medicaid programs; [iii] environmental,
ecological, coastal, wetlands, air, and water permits, licenses, and consents;
[iv] curb cut, subdivision, land use, and planning permits, licenses, approvals
and consents; [v] building, sign, fire, health, and safety permits,

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licenses, approvals, and consents; and [vi] architectural reviews, approvals,
and consents required under restrictive covenants.

         "Hazardous Materials" means any substance [i] the presence of which
poses a hazard to the health or safety of persons on or about the Land including
but not limited to asbestos containing materials; [ii] which requires removal or
remediation under any Environmental Law, including without limitation any
substance which is toxic, explosive, flammable, radioactive, or otherwise
hazardous; or [iii] which is regulated under or classified under any
Environmental Law as hazardous or toxic including but not limited to any
substance within the meaning of "hazardous substance", "hazardous material",
"hazardous waste", "toxic substance", "regulated substance", "solid waste", or
"pollutant" as defined in any Environmental Law.

         "Impositions" has the meaning set forth in Section 3.2.

         "Initial Rate Index" means the yield to maturity quoted in the Wall
Street Journal on the applicable Rate Determination Date for the most actively
traded United States Treasury Notes having the nearest equivalent maturity date
to the Expiration Date.

         "Initial Term" has the meaning set forth in Section 1.2.

         "Landlord Affiliate" means any person, corporation, partnership,
limited liability company, trust, or other legal entity that, directly or
indirectly, controls, or is controlled by, or is under common control with
Landlord. "Control" (and the correlative meanings of the terms "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity. "Landlord Affiliate" includes, without limitation, Health Care
REIT, Inc., HCRI Texas Properties, Ltd., HCRI Pennsylvania Properties, Inc.,
HCRI Nevada Properties, Inc., and HCRI Louisiana Properties, L.P.

         "Lease Advance" means each advance of funds by Landlord to Tenant
pursuant to the term of this Lease, including the first Lease Advance in the
amount equal to the Acquisition Amount.

         "Lease Advance Amount" means the amount of any Lease Advance.

         "Lease Advance Date" means the date on which Landlord makes a Lease
Advance.

         "Lease Amount" is an aggregate concept and means the sum of the Lease
Advance Amounts outstanding at the applicable time.

         "Lease Payments" means the sum of the Base Rent payments (as increased
from time to time) for the applicable period.

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         "Lease Rate" means the annual rate used to determine Construction Base
Rent and Base Rent for each Lease Advance. The Lease Rate is the greater of [i]
925 basis points or [ii] the sum of the applicable Rate Index plus the
applicable Rate Spread, computed using the 365/360 method.

         "Lease Year" means each consecutive period of 365 or 366 days
throughout the Term, except the Construction Term. The first Lease Year
commences on the Term Commencement Date and expires on the day before the first
anniversary of the Term Commencement Date.

         "Legal Requirements" means all laws, regulations, rules, orders, writs,
injunctions, decrees, certificates, requirements, agreements, conditions of
participation and standards of any federal, state, county, municipal or other
governmental entity, administrative agency, insurance underwriting board,
architectural control board, private third-party payor, accreditation
organization, or any restrictive covenants applicable to the development,
construction, condition and operation of each Facility by Tenant, including but
not limited to, [i] zoning, building, fire, health, safety, sign, and
subdivision regulations and codes; [ii] certificate of need laws, if applicable;
[iii] licensure to operate as a residential care home; [iv] Medicare and
Medicaid certification requirements, if applicable, and if Tenant elects to
participate in such programs; [v] the ADA; [vi] any Environmental Laws; and
[vii] requirements, conditions and standards for participation in third-party
payor insurance programs.

         "Material Obligation" means [i] any indebtedness secured by a security
interest in or a lien, deed of trust or mortgage on any of the Leased Property
and any agreement relating thereto; [ii] any obligation or agreement that is
material to the operation of the Facility; [iii] any indebtedness or capital
lease of Tenant that has an outstanding principal balance of at least
$1,000,000.00 in any one instance or at least $1,000,000.00 in the aggregate and
any agreement relating thereto; and [iv] any sublease of the Leased Property.

         "Maximum Lease Amount" means $3,200,000.00.

         "Option Price" has the meaning set forth in Section 13.2.

         "Option to Purchase" has the meaning set forth in Section 13.1.

         "Overdue Rate" has the meaning set forth in Section 8.6.

         "Periodic Financial Statements" means [i] for Tenant, the unaudited
balance sheet and statement of income of Tenant for the most recent quarter; and
[ii] for the Facility, the unaudited Facility Financial Statement for the most
recent month.

         "Permitted Exceptions" means the exceptions to title set forth on
Exhibit B.

         "Permitted Liens" means [i] liens granted to Landlord; [ii] liens
customarily incurred by Tenant in the ordinary course of business for items not
delinquent including mechanic's liens and deposits and charges under worker's
compensation laws; [iii] liens for

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taxes and assessments not yet due and payable; [iv] any lien, charge, or
encumbrance which is being contested in good faith pursuant to this Agreement;
[v] the Permitted Exceptions; and [vi] purchase money financing and capitalized
equipment leases for the acquisition of personal property provided, however,
that Landlord obtains a nondisturbance agreement from the purchase money lender
or equipment lessor in form and substance as may be satisfactory to Landlord if
the original cost of the equipment exceeds $50,000.00.

         "Phase I Lease" means each lease, now or hereafter existing, between
Landlord or any Landlord Affiliate and Sterling, or any successor or assign of
Sterling, relating to the 8 assisted living facilities located in Bartlesville,
Oklahoma, Midwest City, Oklahoma, Stillwater, Oklahoma, Enid, Oklahoma, S.W.
Oklahoma City, Oklahoma, Shawnee, Oklahoma, Chickasha, Oklahoma and Ponca City,
Oklahoma, as amended from time to time.

         "Phase I Tenant" means each tenant under any Phase I Lease.

         "Phase II Lease" means each lease, now or hereafter existing, between
Landlord or any Landlord Affiliate and Sterling, or any successor or assign of
Sterling, relating to the 9th through 16th assisted living facilities (or other
similar facilities) developed by Sterling in association with Landlord or any
Landlord Affiliate, as amended from time to time.

         "Phase II Tenant" means each tenant under any Phase II Lease.

         "Phase III Lease" means each lease now or hereafter existing, between
Landlord or any Landlord Affiliate and Tenant, Sterling or any Affiliate
relating to the 17th through 23rd assisted living facilities (or other similar
facilities) developed by Tenant, Sterling or any Affiliate in association with
Landlord or any Landlord Affiliate, as amended from time to time.

         "Phase III Tenant" means each tenant under any Phase III Lease.

         "Phase IV Lease" means each lease, including this Lease, now or
hereafter existing, between Landlord or any Landlord Affiliate and Tenant,
Sterling or any Affiliate relating to the 24th through 35th assisted living
facilities (or other similar facilities) developed by Tenant, Sterling or any
Affiliate in association with Landlord or any Landlord Affiliate, as amended
from time to time.

         "Phase IV Tenant" means each tenant under any Phase IV Lease.

         "Pro Forma Statement" means a financial forecast for the Facility for
the next five year period commencing on the anticipated date when the Facility
commences operations prepared in accordance with the standards for forecasts
established by the American Institute of Certified Public Accountants.

         "Purchase Notice" has the meaning set forth in Section 13.1.

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         "Rate Determination Date" means the date on which the value for the
Rate Index is established for computing any Lease Rate. For any Lease Advances
made during the Construction Term or the Initial Term, the Rate Determination
Date is the Lease Advance Date.

         "Rate Index" means the rate index used from time to time to calculate
the Lease Rate. The Rate Index is [i] the Construction Rate Index during the
Construction Term; and [ii] the Initial Rate Index during the Initial Term.

         "Rate Spread" means the rate spread from time to time used to calculate
the Lease Rate applicable to any Lease Advance. The Rate Spread is [i] 200 basis
points for the Construction Term; and [ii] 330 basis points for the Initial
Term.

         "Receivables" means [i] all of Tenant's rights to receive payment for
providing resident care and services at the Facility as set forth in any
accounts, contract rights, and instruments, and [ii] those documents, chattel
paper, inventory proceeds, provider agreements, participation agreements, ledger
sheets, files, records, computer programs, tapes, and agreements relating to
Tenant's rights to receive payment for providing resident care services at the
Facility.

         "Related Lease" means any Phase I Lease, Phase II Lease, Phase III
Lease, Phase IV Lease or any other lease, now or hereafter existing, between
Landlord or any Landlord Affiliate and Tenant, Sterling or any Affiliate.

         "Related Tenant" means any Phase I Tenant, Phase II Tenant, Phase III
Tenant, Phase IV Tenant or any other tenant under any Related Lease.

         "Renewal Date" means the date on which the Lease Rate is reset and will
be the first day of the Renewal Term.

         "Renewal Option" has the meaning set forth in Section 12.1.

         "Renewal Rate" means the Lease Rate established the Renewal Date in
accordance with Section 12.2(c).

         "Renewal Term" has the meaning set forth in Section 12.1.

         "Sterling" means Sterling House Corporation, a corporation organized
under the laws of the State of Kansas.

         "State" means the State in which the Facility is located.

         "Tenant's Obligations" means all payment and performance obligations of
Tenant under this Lease and all documents executed by Tenant in connection with
this Lease.

         "Term" means the Construction Term, Initial Term and the Renewal Term.

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         "Term Commencement Date" means the first day of the first month after
the Conversion Date.

                                 ARTICLE 2: RENT

         2.1 Construction Base Rent. Tenant shall pay Landlord construction base
rent ("Construction Base Rent") in arrears in consecutive monthly installments
payable on the first day of each month during the Construction Term commencing
on the Commencement Date. The annual Construction Base Rent for the Construction
Term will be equal to the product of the aggregate Lease Amount times the
applicable Lease Rate (adjusted for each change in the Construction Rate Index),
with the Lease Rate charged for each Lease Advance Amount from the date such
amount was disbursed. The Construction Base Rent will be computed monthly based
on the actual number of days elapsed over a 360-day year (365/360 method). The
Construction Base Rent for any partial month shall be prorated.

         2.2 Construction Lease Advances. Subject to the terms and upon the
conditions set forth in this Lease and the Construction Agreement, Landlord
shall disburse Lease Advances to Tenant to pay for the development and
construction costs of the Facility up to the Maximum Lease Amount.

         2.3 Conversion to Initial Term. Upon the Conversion Date, Tenant shall
pay Landlord [i] all accrued and unpaid Construction Base Rent; [ii] Base Rent
in advance for the balance of the then current month; and [iii] all costs and
expenses incurred by Landlord in connection with the conversion to the Initial
Term.

         2.4 Base Rent. Tenant shall pay Landlord base rent ("Base Rent") in
advance in consecutive monthly installments payable on the first day of each
month during the Term commencing on the Commencement Date. If the Effective Date
is not the first day of a month, Tenant shall pay Landlord Base Rent on the
Effective Date for the partial month, i.e., for the period commencing on the
Effective Date and ending on the day before the Commencement Date. The annual
Base Rent for the Initial Term will be equal to the sum of the products of each
Lease Advance times the Lease Rate for each Lease Advance. The Base Rent will be
computed monthly based on the actual number of days elapsed over a 360-day year
(365/360 method). The Base Rent for the Renewal Term will be computed in
accordance with Section 12.2. The Acquisition Amount paid by Landlord to Tenant
is the first Lease Advance under this Lease.

         2.5 Increase of Lease Rate and Base Rent. Commencing on the first
anniversary of the Commencement Date and on each anniversary thereafter during
the Term, including any Renewal Term and Extended Term, (each such date shall be
herein defined as "Rent Adjustment Date") the Base Rent shall be increased so as
to equal the lesser of (a) the Maximum Rent Adjustment (defined below), or (b)
an amount determined by multiplying the Base Rent then in effect times a
fraction, the numerator of which shall be the CPI Index on the applicable Rent
Adjustment Date and the denominator of which shall be the CPI Index on the
preceding Rent Adjustment Date (or on the Effective Date in the case of the
first Rent Adjustment Date).

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         If, for any Lease Year or any portion thereof, the Base Rent is
adjusted in accordance with clause (b) above, then the difference between the
Base Rent for such Lease Year, and the Base Rent for such Lease Year if adjusted
in accordance with clause (a) above shall be referred to herein as the "Rent
Shortfall." If, for any Lease Year, the Base Rent is adjusted in accordance with
clause (a), then the difference between the Base Rent for such Lease Year and
the Base Rent for such Lease Year if adjusted in accordance with clause (b),
shall be referred to herein as the "Rent Surplus."

         Any Rent Surplus for a Lease Year shall be applied first to payment of
the unpaid balance of any Rent Shortfalls for any previous Lease Years.

         As used herein, the "Maximum Rent Adjustment" shall be the Base Rent in
any applicable year, which would result solely by multiplying, in each year, on
the Rent Adjustment Date, the Base Rent then in effect (as adjusted pursuant to
this Section 2.2 only) by 1.02.

         As used herein, the "CPI Index" shall mean and refer to the Consumer
Price Index for Urban Wage Earners and Clerical Workers, U.S. Cities Average.
All items (1982-84-100) published by the Bureau of Labor Statistics of the U.S.
Department of Labor; provided that if compilation of the CPI Index in its
present form and calculated on its present basis is discontinued or transferred
to any other governmental department or bureau, then the index most nearly the
same as the CPI Index published by the Bureau of Labor statistics shall be used.
If there is no such similar index, a substitute index which is then generally
recognized as being similar to the CPI Index shall be used, such substitute
index to be reasonably selected by Landlord. Until the CPI Index is established,
Tenant shall pay the Base Rent calculated in accordance with clause (a) above,
and once the CPI Index for the Rent Adjustment Date of such Lease Year is
published, the new Base Rent (as increased) shall be effective retroactively as
of the Rent Adjustment Date with the remaining payments to be adjusted ratably.

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

         2.7 Place of Payment of Rent. Tenant shall make all payments of Base
Rent and any additional Rent required to be paid to Landlord at the Landlord's
address set forth in the first paragraph of this Lease or at such other place as
Landlord may designate from time to time. If delivery is by overnight mail, the
address for Landlord shall be One SeaGate, Suite 1500, Toledo, Ohio 43604.

         2.8 Net Lease. This Lease shall be deemed and construed to be an
"absolute net lease", and Tenant shall pay all Rent and other charges and
expenses in connection with the Leased Property throughout the Term, without
abatement, deduction or set-off.

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         2.9 No Termination, Abatement, Etc. Except as otherwise specifically
provided in this Lease, Tenant shall remain bound by this Lease in accordance
with its terms. Tenant shall not, without the consent of Landlord, modify,
surrender or terminate the Lease, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent. Except
as expressly provided in this Lease, the obligations of Landlord and Tenant
shall not be affected by reason of [i] any damage to, or destruction of, the
Leased Property or any part thereof from whatever cause or any Taking (as
hereinafter defined) of the Leased Property or any part thereof; [ii] the lawful
or unlawful prohibition of, or restriction upon, Tenant's use of the Leased
Property, or any part thereof, the interference with such use by any person,
corporation, partnership or other entity, or by reason of eviction by paramount
title (subject to the provisions of Article 10); [iii] any claim which Tenant
has or might have against Landlord or by reason of any default or breach of any
warranty by Landlord under this Lease or any other agreement between Landlord
and Tenant, or to which Landlord and Tenant are parties; [iv] any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceeding affecting Landlord or any assignee or transferee
of Landlord; or [v] any other cause, whether similar or dissimilar to any of the
foregoing, other than a discharge of Tenant from any such obligations as a
matter of law. Except as otherwise specifically provided in this Lease, Tenant
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law [a] to modify, surrender
or terminate this Lease or quit or surrender the Leased Property or any portion
thereof; or [b] entitling Tenant to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Tenant hereunder. The obligations
of Landlord and Tenant hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Tenant hereunder shall
continue to be payable in all events unless the obligations to pay the same
shall be terminated pursuant to the express provisions of this Lease or by
termination of this Lease other than by reason of an Event of Default.

         2.10 Computational Method. Landlord and Tenant acknowledge that all
rates under this Lease will be computed based on the actual number of days
elapsed over a 360-day year (365/360 method).

         2.11 Commitment Fee. No commitment fee is payable by Tenant to
Landlord for this Lease.

                      ARTICLE 3: IMPOSITIONS AND UTILITIES

         3.1 Payment of Impositions. Tenant shall pay, as Additional Rent, all
Impositions that may be levied or become a lien on the Leased Property or any
part thereof at any time (whether prior to or during the Term), without regard
to prior ownership of said Leased Property, before any fine, penalty, interest,
or cost is incurred; provided, however, Tenant may contest any Imposition in
accordance with Section 3.7. Tenant shall deliver to Landlord [i] not more than
five days after the due date of each Imposition, copies of the invoice for such
Imposition and the check delivered for payment thereof; and [ii] not more than
15 business days after the due date of each Imposition, a copy of the official
receipt evidencing such payment or other proof of payment satisfactory to
Landlord. Tenant's obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property


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or any part thereof. Tenant, at its expense, shall prepare and file all tax
returns and reports in respect of any Imposition as may be required by
governmental authorities. Tenant shall be entitled to any refund due from any
taxing authority if no Event of Default shall have occurred hereunder and be
continuing. Landlord shall be entitled to any refund from any taxing authority
if an Event of Default has occurred and is continuing. Any refunds retained by
Landlord due to an Event of Default shall be applied as provided in Section 8.8.
Landlord and Tenant shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and reports. In the
event governmental authorities classify any property covered by this Lease as
personal property, Tenant shall file all personal property tax returns in such
jurisdictions where it may legally so file. Landlord, to the extent it possesses
the same, and Tenant, to the extent it possesses the same, will provide the
other party, upon request, with cost and depreciation records necessary for
filing returns for any property so classified as personal property. Where
Landlord is legally required to file personal property tax returns, Tenant will
be provided with copies of assessment notices indicating a value in excess of
the reported value in sufficient time for Tenant to file a protest. Tenant may,
upon notice to Landlord, at Tenant's option and at Tenant's sole cost and
expense, protest, appeal, or institute such other proceedings as Tenant may deem
appropriate to effect a reduction of real estate or personal property
assessments and Landlord, at Tenant's expense as aforesaid, shall fully
cooperate with Tenant in such protest, appeal, or other action. Tenant shall
reimburse Landlord for all personal property taxes paid by Landlord within 30
days after receipt of billings accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made. Impositions imposed in respect to the tax-fiscal period
during which the Term terminates shall be adjusted and prorated between Landlord
and Tenant, whether or not such Imposition is imposed before or after such
termination, and Tenant's obligation to pay or Landlord's obligation to refund
its prorated share thereof shall survive such termination.

         3.2 Definition of Impositions. "Impositions" means, collectively, [i]
taxes (including without limitation, all capital stock and franchise taxes of
Landlord imposed by the State or any governmental entity in the State due to
this lease transaction or Landlord's ownership of the Leased Property and the
income arising therefrom, or due to Landlord being considered as doing business
in the State because of Landlord's ownership of the Leased Property or lease
thereof to Tenant), all real estate and personal property ad valorem, sales and
use, business or occupation, single business, gross receipts, transaction
privilege, rent or similar taxes; [ii] assessments (including without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed with the Term); [iii] ground rents, water, sewer or other rents and
charges, excises, tax levies, and fees (including without limitation, license,
permit, inspection, authorization and similar fees); [iv] all taxes imposed on
Tenant's operations of the Leased Property, including without limitation,
employee withholding taxes, income taxes and intangible taxes; [v] all real
property conveyance taxes, transfer fees, deed stamps and similar charges
imposed by the State or any governmental entity in the State with respect to the
conveyance of the Leased Property from Sterling to Landlord (if applicable) and
from Landlord to Tenant; and [vi] all other governmental charges, in each case
whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or any part
thereof and/or the Rent (including all interest and penalties thereon due to any
failure in payment by

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<PAGE>   14

Tenant), which at any time prior to, during or in respect of the Term hereof may
be assessed or imposed on or in respect of or be a lien upon [a] Landlord or
Landlord's interest in the Leased Property or any part thereof; [b] the Leased
Property or any part thereof or any rent therefrom or any estate, right, title
or interest therein; or [c] any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with the Leased Property
or the leasing or use of the Leased Property or any part thereof. Tenant shall
not, however, be required to pay any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Landlord by
any governmental entity other than as described in clause [i] above.

         3.3 Escrow of Impositions. If an Event of Default occurs and while it
remains uncured, Tenant shall, at Landlord's election, deposit with Landlord on
the first day of each month a sum equal to 1/12th of the Impositions assessed
against the Leased Property for the preceding tax year, which sums shall be used
by Landlord toward prompt payment of such Impositions. Tenant, on demand, shall
pay to Landlord any additional funds necessary to pay and discharge the
obligations of Tenant pursuant to the provisions of this section. The receipt by
Landlord of the payment of such Impositions by and from Tenant shall only be as
an accommodation to Tenant, the mortgagees, and the taxing authorities, and
shall not be construed as rent or income to Landlord, Landlord serving, if at
all, only as a conduit for delivery purposes.

         3.4 Utilities. Tenant shall pay, or cause to be paid, as Additional
Rent, all taxes, assessments, charges, deposits, and bills for utilities,
including without limitation charges for water, gas, oil, sanitary and storm
sewer, electricity, telephone service, and trash collection, which may be
charged against the occupant of the Improvements during the Term. If an Event of
Default occurs and while it remains uncured, Tenant shall, at Landlord's
election, deposit with Landlord on the first day of each month a sum equal to
1/12th of the amount of the annual utility expenses for the preceding Lease
Year, which sums shall be used by Landlord to promptly pay such utilities.
Tenant shall, on demand, pay to Landlord any additional amount needed to pay
such utilities. Landlord's receipt of such payments shall only be an
accommodation to Tenant and the utility companies and shall not constitute rent
or income to Landlord. Tenant shall at all times maintain that amount of heat
necessary to ensure against the freezing of water lines. Tenant hereby agrees to
indemnify and hold Landlord harmless from and against any liability or damages
to the utility systems and the Leased Property that may result from Tenant's
failure to maintain sufficient heat in the Improvements unless the failure
arises from Landlord's failure to make prompt payment of utility expenses to the
extent that funds for such expenses have been deposited with Landlord under this
section.

         3.5 Discontinuance of Utilities. Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of rent or operate to
release Tenant from any of Tenant's obligations under this Lease unless Landlord
has failed to make prompt payment of utility expenses to the extent that funds
for such expenses have been deposited with Landlord under Section 3.4 above.

         3.6 Business Expenses. Tenant shall promptly pay all expenses and costs
incurred in connection with the operation of the Facility on the Leased
Property, including


                                       13
<PAGE>   15

without limitation, employee benefits, employee vacation and sick pay,
consulting fees, and expenses for inventory and supplies.

         3.7 Permitted Contests. Tenant, on its own or on Landlord's behalf (or
in Landlord's name), but at Tenant's expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or insurance requirement or any lien, attachment, levy, encumbrance,
charge or claim provided that [i] in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Landlord and from the Leased Property; [ii] neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in any
immediate danger of being sold, forfeited, attached or lost; [iii] in the case
of a Legal Requirement, Landlord would not be in any immediate danger of civil
or criminal liability for failure to comply therewith pending the outcome of
such proceedings; [iv] in the event that any such contest shall involve a sum of
money or potential loss in excess of $50,000.00, Tenant shall deliver to
Landlord and its counsel an opinion of Tenant's counsel to the effect set forth
in clauses [i], [ii] and [iii], to the extent applicable; [v] in the case of a
Legal Requirement and/or an Imposition, lien, encumbrance or charge, Tenant
shall give such reasonable security as may be demanded by Landlord to insure
ultimate payment of the same and to prevent any sale or forfeiture of the
affected Leased Property or the Rent by reason of such nonpayment or
noncompliance; provided, however, the provisions of this section shall not be
construed to permit Tenant to contest the payment of Rent (except as to contests
concerning the method of computation or the basis of levy of any Imposition or
the basis for the assertion of any other claim) or any other sums payable by
Tenant to Landlord hereunder; [vi] in the case of an insurance requirement, the
coverage required by Article 4 shall be maintained; and [vii] if such contest be
finally resolved against Landlord or Tenant, Tenant shall, as Additional Rent
due hereunder, promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or insurance requirement. Landlord, at Tenant's expense, shall
execute and deliver to Tenant such authorizations and other documents as may be
reasonably required in any such contest, and, if reasonably requested by Tenant
or if Landlord so desires, Landlord shall join as a party therein. Tenant hereby
agrees to indemnify and save Landlord harmless from and against any liability,
cost or expense of any kind that may be imposed upon Landlord in connection with
any such contest and any loss resulting therefrom.

                              ARTICLE 4: INSURANCE

         4.1 Property Insurance. At Tenant's expense, Tenant shall maintain in
full force and effect a property insurance policy or policies insuring the
Leased Property against the following:

             (a) Loss or damage commonly covered by a "Special Form" policy
insuring against physical loss or damage to the Improvements and Personal
Property, including but not limited to, risk of loss from fire and other
hazards, collapse, transit coverage, vandalism, malicious mischief, theft,
earthquake (if the Leased Property is in earthquake zone 1 or 2 per the ISO
rating system,) and sinkholes (if usually recommended in the area of the Leased
Property).


                                       14
<PAGE>   16

The policy shall be in the amount of the full replacement value (as defined in
Section 4.5) of the Improvements and Personal Property and shall contain a
deductible amount acceptable to Landlord. Landlord shall be named as an
additional insured. The policy shall include a stipulated value endorsement or
agreed amount endorsement and endorsements for contingent liability for
operations of building laws, demolition costs, and increased cost of
construction.

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

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

             (d) If the Leased Property is located, in whole or in part, in a
federally designated 100-year flood plain area, flood insurance for the
Improvements in an amount equal to the lesser of [i] the full replacement value
of the Improvements; or [ii] the maximum amount of insurance available for the
Improvements under all federal and private flood insurance programs.

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

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

         4.2 Liability Insurance. At Tenant's expense, Tenant shall maintain
liability insurance against the following:

             (a) Claims for personal injury or property damage commonly covered
by comprehensive general liability insurance with endorsements for incidental
malpractice, contractual, personal injury, owner's protective liability,
voluntary medical payments, products and completed operations, broad form
property damage, and extended bodily injury, with commercially reasonable
amounts for bodily injury, property damage, and voluntary medical payments
acceptable to Landlord, but with a combined single limit of not less than
$5,000,000.00 per occurrence.

             (b) Claims for personal injury and property damage commonly covered
by comprehensive automobile liability insurance, covering all owned and
non-owned automobiles, with commercially reasonable amounts for bodily injury,
property damage, and for automobile medical payments acceptable to Landlord, but
with a combined single limit of not less than $5,000,000.00 per occurrence.

                                       15
<PAGE>   17

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

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

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

         4.4 Insurance Requirements. The following provisions shall apply to all
insurance coverages required hereunder:

             (a) The form and substance of all policies shall be subject to the
approval of Landlord, which approval will not be unreasonably withheld.

             (b) The carriers of all policies shall have a Best's Rating of "A"
or better and a Best's Financial Category of IX or higher and shall be
authorized to do insurance business in the State.

             (c) Tenant shall be the "named insured" and Landlord shall be an
"additional insured" on each liability policy. On all property and casualty
policies, Landlord and Tenant shall be joint loss payees.

             (d) Tenant shall deliver to Landlord certificates or policies
showing the required coverages and endorsements. The policies of insurance shall
provide that the policy may not be cancelled or not renewed, and no material
change or reduction in coverage may be made, without at least 30 days' prior
written notice to Landlord.

             (e) The policies shall contain a severability of interest and/or
cross-liability endorsement, provide that the acts or omissions of Tenant or
Landlord will not invalidate the coverage of the other party, and provide that
Landlord shall not be responsible for payment of premiums.

                                       16
<PAGE>   18

             (f) All casualty loss adjustment shall require the written consent
of Landlord and Tenant, as their interests may appear.

             (g) At least 30 days prior to the expiration of each policy, Tenant
shall deliver to Landlord a certificate showing renewal of such policy and
payment of the annual premium therefor and a current Certificate of Compliance
(in the form delivered at the time of Closing) completed and signed by Tenant's
insurance agent.

         4.5 Replacement Value. The term "full replacement value" means the
actual replacement cost thereof from time to time including increased cost of
construction endorsement, with no reductions or deductions. Tenant shall, in
connection with each annual policy renewal, deliver to Landlord a
redetermination of the full replacement value by the insurer or an endorsement
indicating that the Leased Property is insured for its full replacement value.
If Tenant makes any Permitted Alterations (as hereinafter defined) to the Leased
Property, Landlord may have such full replacement value redetermined at any time
after such Permitted Alterations are made, regardless of when the full
replacement value was last determined.

         4.6 Blanket Policy. Notwithstanding anything to the contrary contained
in this section, Tenant may carry the insurance required by this Article under a
blanket policy of insurance, provided that the coverage afforded Tenant will not
be reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all of the requirements of this Lease.

         4.7 No Separate Insurance. Tenant shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article, or increase the amounts of any then existing insurance, by
securing an additional policy or additional policies, unless all parties having
an insurable interest in the subject matter of the insurance, including Landlord
and any mortgagees, are included therein as additional insureds or loss payees,
the loss is payable under said insurance in the same manner as losses are
payable under this Lease, and such additional insurance is not prohibited by the
existing policies of insurance. Tenant shall immediately notify Landlord of the
taking out of such separate insurance or the increasing of any of the amounts of
the existing insurance by securing an additional policy or additional policies.

         4.8 Waiver of Subrogation. Each party hereto hereby waives any and
every claim which arises or may arise in its favor and against the other party
hereto during the Term for any and all loss of, or damage to, any of its
property located within or upon, or constituting a part of, the Leased Property,
which loss or damage is covered by valid and collectible insurance policies, to
the extent that such loss or damage is recoverable under such policies. Said
mutual waiver shall be in addition to, and not in limitation or derogation of,
any other waiver or release contained in this Lease with respect to any loss or
damage to property of the parties hereto. Inasmuch as the said waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
agrees immediately to give each insurance company which has issued to it
policies of insurance, written notice of the terms of said mutual waivers, and
to have such insurance policies properly

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<PAGE>   19

endorsed, if necessary, to prevent the invalidation of said insurance coverage
by reason of said waivers, so long as such endorsement is available at a
reasonable cost.

         4.9 Mortgages. The following provisions shall apply if Landlord now or
hereafter places a mortgage on the Leased Property or any part thereof: [i]
Tenant shall obtain a standard form of lender's loss payable clause insuring the
interest of the mortgagee; [ii] Tenant shall deliver evidence of insurance to
such mortgagee; [iii] loss adjustment of claims in excess of $50,000 shall
require the consent of the mortgagee, which consent shall not be unreasonably
withheld; and [iv] Tenant shall provide such other information and documents as
may be reasonably required by the mortgagee.

         4.10 Escrows. After an Event of Default occurs hereunder and until such
Event of Default is cured, Tenant shall make such periodic payments of insurance
premiums in accordance with Landlord's requirements after receipt of notice
thereof from Landlord.

                              ARTICLE 5: INDEMNITY

         5.1 Tenant's Indemnification. Tenant hereby indemnifies and agrees to
hold harmless Landlord, any successors or assigns of Landlord, and Landlord's
and such successor's and assign's directors, officers, employees and agents from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), losses, liabilities (including strict
liability), judgments, and expenses (including, without limitation, reasonable
attorneys' fees, court costs, and the costs set forth in Section 8.7) incurred
in connection with or arising from: [i] the use or occupancy of the Leased
Property by Tenant or any persons claiming under Tenant; [ii] any activity,
work, or thing done, or permitted or suffered by Tenant in or about the Leased
Property; [iii] any acts, omissions, or negligence of Tenant or any person
claiming under Tenant, or the contractors, agents, employees, invitees, or
visitors of Tenant or any such person; [iv] any breach, violation, or
nonperformance by Tenant or any person claiming under Tenant or the employees,
agents, contractors, invitees, or visitors of Tenant or of any such person, of
any term, covenant, or provision of this Lease or any law, ordinance, or
governmental requirement of any kind including, without limitation, any failure
to comply with any applicable requirements under the ADA; [v] any injury or
damage to the person, property or business of Tenant, its employees, agents,
contractors, invitees, visitors, or any other person entering upon the Leased
Property; and [vi] any construction, alterations, changes or demolition of the
Facility performed by or contracted for Tenant or its employees, agents or
contractors. Provided, however, that Tenant shall have no indemnity obligation
with respect to matters, liabilities, obligations, claims, damages, penalties,
causes of actions, costs and expenses caused by Landlord's gross negligence or
willful misconduct. If any action or proceeding is brought against Landlord, its
employees, or agents by reason of any such claim, Tenant, upon notice from
Landlord, will defend the claim at Tenant's expense with counsel reasonably
satisfactory to Landlord. All amounts payable to Landlord under this section
shall be payable on written demand and any such amounts which are not paid
within 10 days after demand therefor by Landlord shall bear interest at the
Overdue Rate. In case any action, suit or proceeding is brought against Tenant
by reason of any such occurrence, Tenant shall use its best efforts to defend
such action, suit or proceeding.

                                       18
<PAGE>   20

         5.1.1 Notice of Claim. Landlord shall notify Tenant in writing of any
claim or action brought against Landlord in which indemnity may be sought
against Tenant pursuant to this section. Such notice shall be given in
sufficient time to allow Tenant to defend or participate in such claim or
action, but the failure to give such notice in sufficient time shall not
constitute a defense hereunder nor in any way impair the obligations of Tenant
under this section unless the failure to give such notice precludes or
materially prejudices Tenant's defense of any such action.

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

         5.1.3 Reimbursement of Expenses. Unless prohibited by law, Tenant
hereby agrees to pay to Landlord all of the reasonable fees, charges and
reasonable out-of-pocket expenses related to the Facility and required hereby,
or incurred by Landlord in enforcing the provisions of this Agreement.

         5.2 Environmental Indemnity; Audits.

         5.2.1 Indemnification. Tenant hereby indemnifies and agrees to hold
harmless Landlord, any successors to Landlord's interest in this Lease, and
Landlord's and such successors' directors, officers, employees and agents from
and against any losses, claims, damages (including consequential damages),
penalties, fines, liabilities (including strict liability), costs (including
cleanup and recovery costs), and expenses (including expenses of litigation and
reasonable attorneys' fees) incurred by Landlord or any other indemnitee or
assessed against the Leased Property by virtue of any claim or lien by any
governmental or quasi-governmental unit, body, or agency, or any third party,
for cleanup costs or other costs pursuant to any Environmental Law. Tenant's
indemnity shall survive the termination of this Lease. Provided, however, Tenant
shall have no indemnity obligation with respect to [i] Hazardous Materials first
introduced to the Leased Property subsequent to the date that Tenant's occupancy
of the Leased Property shall have fully terminated; or [ii] Hazardous Materials
introduced to the Leased Property by Landlord, its agent, employees, successors
or assigns. If at any time during the Term of this Lease any governmental
authority notifies Landlord or Tenant of a violation of any Environmental Law or
Landlord reasonably believes that a Facility may violate any Environmental Law,
Landlord may require one or more environmental audits of the Leased Premises, in
such form, scope and substance as specified by Landlord, at Tenant's expense.
Tenant shall, within 30 days after receipt of an invoice from Landlord,
reimburse Landlord for all costs and expenses incurred in reviewing any
environmental audit, including without limitation, reasonable attorneys' fees
and costs.

         5.3 Limitation of Landlord's Liability. Landlord, its agents, and
employees, will not be liable for any loss, injury, death, or damage (including
consequential damages) to persons, property, or Tenant's business occasioned by
theft, act of God, public enemy,

                                       19
<PAGE>   21

injunction, riot, strike, insurrection, war, court order, requisition, order of
governmental body or authority, fire, explosion, falling objects, steam, water,
rain or snow, leak or flow of water (including water from the elevator system),
rain or snow from the Leased Property or into the Leased Property or from the
roof, street, subsurface or from any other place, or by dampness or from the
breakage, leakage, obstruction, or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning, or lighting fixtures of the
Leased Property, or from construction, repair, or alteration of the Leased
Property or from any acts or omissions of any other occupant or visitor of the
Leased Property, or from any other cause beyond Landlord's control. The
foregoing limitation does not apply to loss, injury, death or damage caused by
Landlord's gross negligence or willful misconduct.

                    ARTICLE 6: USE AND ACCEPTANCE OF PREMISES

         6.1 Use of Leased Property. Tenant shall use and occupy the Leased
Property exclusively as an assisted living/ facility and for all lawful and
licensed ancillary uses, and for no other purpose without the prior written
consent of the Landlord which consent shall not be unreasonably withheld. Tenant
shall obtain and maintain all approvals, licenses, and consents needed to use
and operate the Leased Property as herein permitted. Tenant shall deliver to
Landlord complete copies of surveys, examinations, certification and licensure
inspections, compliance certificates, and other similar reports issued to Tenant
by any governmental agency within 10 days after Tenant's receipt of each item.

         6.2 Acceptance of Leased Property. Tenant acknowledges that [i] Tenant
and its agents have had an opportunity to inspect the Leased Property; [ii]
Tenant has found the Leased Property fit for Tenant's use; [iii] Landlord will
deliver the Leased Property to Tenant in "as-is" condition; [iv] Landlord is not
obligated to make any improvements or repairs to the Leased Property; and [v]
the roof, walls, foundation, heating, ventilating, air conditioning, telephone,
sewer, electrical, mechanical, elevator, utility, plumbing, and other portions
of the Leased Property are in good working order. Tenant waives any claim or
action against Landlord with respect to the condition of the Leased Property.
LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF
THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.

         6.3 Conditions of Use and Occupancy. Tenant agrees that during the Term
it shall use and keep the Leased Property in a careful, safe and proper manner;
not commit or suffer waste thereon; not use or occupy the Leased Property for
any unlawful purposes; not use or occupy the Leased Property or permit the same
to be used or occupied, for any purpose or business deemed extra hazardous on
account of fire or otherwise; keep the Leased Property in such repair and
condition as may be required by the Board of Health, or other city, state or
federal authorities, free of all cost to Landlord; not permit any acts to be
done which will cause the cancellation, invalidation, or suspension of any
insurance policy; and permit Landlord and its

                                       20
<PAGE>   22

agents to enter upon the Leased Property at all reasonable times to examine the
condition thereof and accompanied by a representative of Tenant to the extent
such a representative is available.

                     ARTICLE 7: REPAIRS AND MECHANICS' LIENS

         7.1 Maintenance. Tenant shall maintain, repair, and replace the Leased
Property, including without limitation, all structural and nonstructural repairs
and replacements to the roof, foundations, exterior walls, parking areas,
sidewalks, water, sewer, and gas connections, pipes, and mains. Tenant shall
pay, as Additional Rent, the full cost of maintenance, repairs, and
replacements. Tenant shall maintain all drives, sidewalks, parking areas, and
lawns on or about the Leased Property in a clean and orderly condition, free of
accumulations of dirt, rubbish, snow and ice. Tenant shall permit Landlord to
inspect the Leased Property at all reasonable times, and shall implement all
reasonable suggestions of the Landlord as to the maintenance and replacement of
the Leased Property.

         7.2 Required Alterations. Tenant shall, at Tenant's sole cost and
expense, make any additions, changes, improvements or alterations to the Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to maintain licensure or
certification under the Medicare and Medicaid programs (if so certified),
whether such changes are required by Tenant's use, changes in the law,
ordinances, or governmental regulations, defects existing as of the date of this
Lease, or any other cause whatever. All such additions, changes, improvements or
alterations shall be deemed to be Permitted Alterations and shall comply with
all laws requiring such alterations and with the provisions of Section 16.4.

         7.3 Mechanic's Liens. Tenant shall have no authority to permit or
create a lien against Landlord's interest in the Leased Property, and upon
Landlord's request, Tenant shall post notices during construction or file such
documents as may be required to protect Landlord's interest in the Leased
Property against liens. Tenant hereby agrees to defend, indemnify, and hold
Landlord harmless from and against any mechanic's liens against the Leased
Property by reason of work, labor, services or materials supplied or claimed to
have been supplied on or to the Leased Property. Tenant shall remove, bond-off,
or otherwise obtain the release of any mechanic's lien filed against the Leased
Property within 10 days after Tenant receives notice of the filing thereof;
provided, however, that Tenant shall have the right to contest in good faith and
with due diligence the validity of any such lien upon furnishing such security
or indemnity as may be reasonably required by Landlord. Tenant shall pay all
Landlord's expenses in connection therewith, including without limitation,
damages, interest, court costs and reasonable attorneys' fees.

         7.4 Replacements of Fixtures and Personal Property. Tenant shall not
remove Fixtures and Personal Property from the Leased Property except to replace
the Fixtures and Personal Property by other similar items of equal quality and
value. Items being replaced by Tenant may be removed and shall become the
property of Tenant and items replacing the same shall be and remain the property
of Landlord. Tenant shall execute, upon written request from Landlord, any and
all documents necessary to evidence Landlord's ownership of the Personal
Property and replacements therefor. Tenant may finance replacements for the
Fixtures and

                                       21
<PAGE>   23

Personal Property by equipment lease or by a security agreement and financing
statement and if the original cost of the equipment exceeds $50,000.00, Tenant
must obtain the following: [i] Landlord's consent to the terms and conditions of
the equipment lease or security agreement; and [ii] a nondisturbance agreement
from the equipment lessor or lender upon terms and conditions reasonably
acceptable to Landlord, including without limitation, the following: [a]
Landlord shall have the right (but not the obligation) to assume such security
agreement or equipment lease upon the occurrence of an Event of Default under
this Lease; [b] the equipment lessor or lender shall notify Landlord of any
default by Tenant under the equipment lease or security agreement and give
Landlord a reasonable opportunity to cure such default; and [c] Landlord shall
have the right to assign its rights under the equipment lease, security
agreement, or nondisturbance agreement. Tenant shall, within 30 days after
receipt of an invoice from Landlord, reimburse Landlord for all costs and
expenses incurred in reviewing and approving the equipment lease, security
agreement, and nondisturbance agreement, including without limitation,
reasonable attorneys' fees and costs.

                        ARTICLE 8: DEFAULTS AND REMEDIES

         8.1 Events of Default. The occurrence of any one or more of the
following shall be an event of default ("Event of Default") hereunder:

             (a) Tenant fails to pay in full any installment of Rent, or any
other monetary obligation payable by Tenant under this Lease (including the
Option Price) within three business days after Tenant is given written notice of
such failure, which written notice shall be given, at Landlord's option, at any
time after the expiration of 10 days from the date such payment is due;
provided, however, that if Tenant receives two notices of default during any one
year period, regardless of any subsequent cure of such default, thereafter
Landlord shall not be obligated to give Tenant written notice of any failure to
make any such payments, and it shall be an Event of Default if Tenant fails to
pay any installment of Rent or any other monetary obligation payable by Tenant
under this Lease within 10 days after such payment is due.

             (b) [DELETED]

             (c) Tenant fails to comply with any covenant set forth in Article
14, Section 15.6 or Section 15.7 of this Lease, to the extent such covenant is
applicable to such entity.

             (d) Tenant fails to observe and perform any other covenant,
condition or agreement under this Lease to be performed by Tenant and [i] such
failure continues for a period of 30 days after written notice thereof is given
to Tenant by Landlord; or [ii] if, by reason of the nature of such default, the
same cannot be remedied within said 30 days, Tenant fails to proceed with
diligence reasonably satisfactory to Landlord after receipt of the notice to
cure the same or, in any event, fails to cure such default within 90 days after
receipt of the notice. The foregoing notice and cure provisions do not apply to
any Event of Default otherwise specifically described in any other subsection of
Section 8.1.

                                       22
<PAGE>   24

             (e) Tenant abandons or vacates the Leased Property or any material
part thereof or ceases to do business or ceases to exist for any reason for any
one or more days except as a result of condemnation or casualty.

             (f) [i] The filing by Tenant of a petition under 11 U.S.C. or the
commencement of a bankruptcy or similar proceeding by Tenant; [ii] the failure
by Tenant within 60 days to dismiss an involuntary bankruptcy petition or other
commencement of a bankruptcy, reorganization or similar proceeding against
Tenant or to lift or stay any execution, garnishment or attachment of such
consequence as will impair its ability to carry on its operation at the Leased
Property; [iii] the entry of an order for relief under 11 U.S.C. in respect of
Tenant; [iv] any assignment by Tenant for the benefit of its creditors; [v] the
entry by Tenant into an agreement of composition with its creditors; [vi] the
approval by a court of competent jurisdiction of a petition applicable to Tenant
in any proceeding for its reorganization instituted under the provisions of any
state or federal bankruptcy, insolvency, or similar laws; [vii] appointment by
final order, judgment, or decree of a court of competent jurisdiction of a
receiver of a whole or any substantial part of the properties of Tenant
(provided such receiver shall not have been removed or discharged within 60 days
of the date of his qualification).

             (g) [i] Any receiver, administrator, custodian or other person
takes possession or control of any of the Leased Property and continues in
possession for 60 days; [ii] any writ against any of the Leased Property is not
released within 60 days; [iii] any judgment is rendered or proceedings are
instituted against the Leased Property or Tenant which affect the Leased
Property or any part thereof, which is not dismissed for 60 days (except as
otherwise provided in this section); [iv] all or a substantial part of the
assets of Tenant are attached, seized, subjected to a writ or distress warrant,
or are levied upon, or come into the possession of any receiver, trustee,
custodian, or assignee for the benefit of creditors; [v] Tenant is enjoined,
restrained, or in any way prevented by court order (other than ex parte order)
from conducting all or a substantial part of its business or affairs; or [vi]
except as otherwise permitted hereunder, a final notice of lien, levy or
assessment is filed of record with respect to all or any part of the Leased
Property or any property of Tenant located at the Leased Property and is not
dismissed, discharged, or bonded-off within 30 days or is not otherwise
addressed pursuant to Section 7.3.

             (h) Any representation or warranty made by Tenant in this Lease or
any other document executed in connection with this Lease, any guaranty of or
other security for this Lease, or any report, certificate, application,
financial statement or other instrument furnished by Tenant pursuant hereto or
thereto shall prove to be false, misleading or incorrect in any material respect
as of the date made.

             (i) Tenant or any Affiliate defaults on any indebtedness or
obligation to Landlord or any Landlord Affiliate, including, without limitation,
any lease with Landlord or any Landlord Affiliate, or Tenant, Sterling or any
Affiliate receives notice of acceleration of payment in connection with a
default under any Material Obligation unless Tenant can demonstrate to Landlord
that such acceleration will not cause Tenant to be in violation of Section 15.7,
and any applicable grace or cure period with respect to default under such
indebtedness or obligation expires without such default having been cured. This
provision applies to all such

                                       23
<PAGE>   25

indebtedness and obligations as they may be amended, modified, extended, or
renewed from time to time.

             (j) Except as otherwise specifically permitted herein, the
assignment, sublease or the occurrence of any other change in Tenant's leasehold
interest in the Leased Property, which shall not include any change in Tenant's
stock ownership.

             (k) The license for the Facility or any other Government
Authorization, is cancelled, suspended or otherwise invalidated, notice of
impending revocation proceedings is received and Tenant fails to diligently
contest such proceeding, or any reduction occurs in the number of licensed beds
or units at the Facility in excess of 3%.

             (l) The occurrence of an Event of Default (after expiration of any
applicable grace or cure period) under the Construction Agreement.

         8.2 Remedies. Landlord may exercise any one or more of the following
remedies upon the occurrence of an Event of Default:

             (a) Landlord may re-enter and take possession of the Leased
Property without terminating the Lease, and lease the Leased Property for the
account of Tenant at a commercially reasonable rate, holding Tenant liable for
all costs of the Landlord in reletting the Leased Property and for the
difference in the amount received by such reletting and the amounts payable by
Tenant under the Lease.

             (b) Landlord may terminate this Lease, exclude Tenant from
possession of the Leased Property and use efforts to lease the Leased Property
to others at a commercially reasonable rate, holding Tenant liable for the
difference in the amounts received from such reletting and the amounts payable
by Tenant under the Lease.

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

             (d) Landlord may have access to and inspect, examine and make
copies of the books and records and any and all accounts, data and income tax
and other returns of Tenant insofar as they pertain to the Leased Property.

             (e) Landlord may accelerate all of the unpaid Rent hereunder so
that the aggregate Rent for the unexpired term of this Lease becomes immediately
due and payable.

             (f) Landlord may take whatever action at law or in equity as may
appear necessary or desirable to collect the Rent and other amounts payable
under the Lease then due and thereafter to become due, or to enforce performance
and observance of any obligations, agreements or covenants of Tenant under the
Commitment and this Lease, and may exercise all of Landlord's remedies set forth
in the Commitment and this Lease.

                                       24
<PAGE>   26

             (g) With respect to the Collateral and Landlord's security interest
therein, Landlord may exercise all of its rights as secured party under Article
9 of the Uniform Commercial Code as adopted in the State. Landlord may sell the
Collateral by public or private sale upon 10 days notice to Tenant. Tenant
agrees that a commercially reasonable manner of disposition of the Collateral
shall include, without limitation and at the option of Landlord, a sale of the
Collateral, in whole or in part, concurrently with the sale of the Leased
Property.

             (h) Landlord may obtain control over and collect the Receivables
and apply the proceeds of the collections to satisfaction of Tenant's
Obligations unless prohibited by law. Tenant appoints Landlord or its designee
as attorney for Tenant with powers [i] to receive, to endorse, to sign and/or to
deliver, in Tenant's name or Landlord's name, any and all checks, drafts, and
other instruments for the payment of money relating to the Receivables, and to
waive demand, presentment, notice of dishonor, protest, and any other notice
with respect to any such instrument; [ii] to sign Tenant's name on any invoice
or bill of lading relating to any Receivable, drafts against account debtors,
assignments and verifications of Receivables, and notices to account debtors;
[iii] to send verifications of Receivables to any account debtor; and [iv] to do
all other acts and things necessary to carry out this Lease. Landlord shall not
be liable for any omissions, commissions, errors of judgment, or mistakes in
fact or law made in the exercise of any such powers provided Landlord's exercise
of such power is commercially reasonable. At Landlord's option, Tenant shall [i]
provide Landlord a full accounting of all amounts received on account of
Receivables with such frequency and in such form as Landlord may require, either
with or without applying all collections on Receivables in payment of Tenant's
Obligations or [ii] deliver to Landlord on the day of receipt all such
collections in the form received and duly endorsed by Tenant. At Landlord's
request, Tenant shall institute any action or enter into any settlement
determined by Landlord to be necessary to obtain recovery or redress from any
account debtor in default of Receivables. Landlord may give notice of its
security interest in the Receivables to any or all account debtors with
instructions to make all payments on Receivables directly to Landlord, thereby
terminating Tenant's authority to collect Receivables. After terminating
Tenant's authority to enforce or collect Receivables, Landlord shall have the
right to take possession of any or all Receivables and records thereof and is
hereby authorized to do so, and only Landlord shall have the right to collect
and enforce the Receivables. Prior to the occurrence of an Event of Default, at
Tenant's cost and expense, but on behalf of Landlord and for Landlord's account,
Tenant shall collect or otherwise enforce all amounts unpaid on Receivables and
hold all such collections in trust for Landlord, but Tenant may commingle such
collections with Tenant's own funds, until Tenant's authority to do so has been
terminated, which may be done only after an Event of Default. Notwithstanding
any other provision hereof, Landlord does not assume any of Tenant's obligations
under any Receivable, and Landlord shall not be responsible in any way for the
performance of any of the terms and conditions thereof by Tenant.

             (i) Without waiving any prior or subsequent Event of Default,
Landlord may waive any Event of Default or, with or without waiving any Event of
Default, remedy any default.

             (j) Landlord may terminate its obligation to disburse Lease
Advances.

                                       25
<PAGE>   27

             (k) Landlord may enter and take possession of the Land and Facility
without terminating the Lease and complete renovation of the Improvements (or
any part thereof) and perform the obligations of Tenant under this Lease.
Without limiting the generality of the foregoing and for the purposes aforesaid,
Tenant hereby appoints Landlord its lawful attorney-in-fact with full power to
do any of the following: [i] complete renovation and equipping of the
Improvements in the name of Tenant; [ii] use unadvanced funds remaining under
the Maximum Lease Amount, or funds that may be reserved, escrowed, or set aside
for any purposes hereunder at any time, or to advance funds in excess of the
Maximum Lease Amount, to complete the Improvements; [iii] make changes in the
Plans and Specifications that shall be necessary or desirable to complete the
Improvements in substantially the manner contemplated by the Plans and
Specifications; [iv] retain or employ new general contractors, subcontractors,
architects, engineers, and inspectors as shall be required for said purposes;
[v] pay, settle, or compromise all existing bills and claims, which may be liens
or security interests, or to avoid such bills and claims becoming liens against
the Facility or security interest against fixtures or equipment, or as may be
necessary or desirable for the completion of the construction and equipping of
the Improvements or for the clearance of title; [vi] do any and every act that
Tenant might do in its own behalf, to prosecute and defend all actions or
proceedings in connection with the Improvements; and [vii] to execute, deliver
and file all applications and other documents and take any and all actions
necessary to transfer the operations of the Facility to Landlord or Landlord's
designee. This power of attorney is a power coupled with an interest and cannot
be revoked.

         8.3 Right of Set-Off. After an Event of Default occurs hereunder and is
continuing, Landlord may, and is hereby authorized by Tenant to, at any time and
from time to time without advance notice to Tenant (any such notice being
expressly waived by Tenant), set-off and apply any and all sums held by
Landlord, any indebtedness of Landlord to Tenant, and any claims by Tenant
against Landlord, against any obligations of Tenant hereunder and against any
claims by Landlord against Tenant, whether or not such obligations or claims of
Tenant are matured and whether or not Landlord has exercised any other remedies
hereunder. The rights of Landlord under this section are in addition to any
other rights and remedies Landlord may have against Tenant.

         8.4 Performance of Tenant's Covenants. Landlord may perform any
obligation of Tenant which Tenant has failed to perform within 10 days after
Landlord has sent a written notice to Tenant informing it of its specific
failure. Tenant shall reimburse Landlord on demand, as Additional Rent, for any
expenditures thus incurred by Landlord and shall pay interest thereon at the
Overdue Rate (as defined in Section 8.6).

         8.5 Late Payment Charge. Tenant acknowledges that any default in the
payment of any installment of Rent payable hereunder will result in loss and
additional expense to Landlord in servicing any indebtedness of Landlord secured
by the Leased Property, handling such delinquent payments, and meeting its other
financial obligations, and because such loss and additional expense is extremely
difficult and impractical to ascertain, Tenant agrees that in the event any Rent
payable to Landlord hereunder is not paid within 10 days after the due date,
Tenant shall pay a late charge of 5% of the amount of the overdue payment as a
reasonable

                                       26
<PAGE>   28

estimate of such loss and expenses, unless applicable law requires a lesser
charge, in which event the maximum rate permitted by such law may be charged by
Landlord. The 10 day grace period set forth in this section shall not extend the
time for payment of Rent or the period for curing any default or constitute a
waiver of such default.

         8.6 Interest. In addition to the late payment charge, any payment not
made by Tenant within 10 days after the due date shall thereafter bear interest
at the rate (the "Overdue Rate") of the greater of [i] 18.5% per annum; or [ii]
2.5% per annum above the Lease Rate then in effect (except that if this Lease is
governed by Texas law, the Overdue Rate shall be 18.0% per annum); provided,
however, that at no time will Tenant be required to pay interest at a rate
higher than the maximum legal rate and, provided further, that if a court of
competent jurisdiction determines that any other charges payable under this
Lease are deemed to be interest, the Overdue Rate shall be adjusted to ensure
that the aggregate interest payable under this Lease does not accrue at a rate
in excess of the maximum legal rate. Tenant shall not be required to pay
interest upon any late payment fees assessed pursuant to Section 8.5.

         8.7 Litigation; Attorneys' Fees. Within five days after Tenant has
knowledge of any litigation or other proceeding that may be instituted against
Tenant that is material to the construction or operation of the Facility or that
is material to Tenant's business or financial condition, against the Leased
Property to secure or recover possession thereof, or that may affect the title
to or the interest of Landlord in the Leased Property, Tenant shall give written
notice thereof to Landlord. Tenant shall pay all reasonable costs and expenses
incurred by Landlord in enforcing or preserving Landlord's rights under this
Lease, whether or not an Event of Default has actually occurred or has been
declared and thereafter cured, including without limitation, [i] the fees,
expenses, and costs of any litigation, receivership, administrative, bankruptcy,
insolvency or other similar proceeding; [ii] reasonable attorney, paralegal,
consulting and witness fees and disbursements, whether in house counsel or
outside counsel; and [iii] the expenses, including without limitation, lodging,
meals, and transportation, of Landlord and its employees, agents, attorneys, and
witnesses in preparing for litigation, administrative, bankruptcy, insolvency or
other similar proceedings and attendance at hearings, depositions, and trials in
connection therewith. All such costs, charges and fees payable by Tenant shall
be deemed to be Additional Rent under this Lease.

         8.8 Escrows and Application of Payments. As security for the
performance of its obligations hereunder, Tenant hereby assigns to Landlord all
its right, title, and interest in and to all monies escrowed with Landlord under
this Lease and all deposits with utility companies, taxing authorities and
insurance companies; provided, however, that Landlord shall not exercise its
rights hereunder until an Event of Default has occurred. Any payments received
by Landlord under any provisions of this Lease during the existence or
continuance of an Event of Default shall be applied to Tenant's obligations in
the order which Landlord may determine.

         8.9 Remedies Cumulative. The remedies of Landlord herein are cumulative
to and not in lieu of any other remedies available to Landlord at law or in
equity. The use of any one remedy shall not be taken to exclude or waive the
right to use any other remedy.



                                       27
<PAGE>   29

                        ARTICLE 9: DAMAGE AND DESTRUCTION

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

         9.2 Substantial Destruction.

         9.2.1 If the Improvements are substantially destroyed at any time other
than during the final 18 months of the Initial Term or any Renewal Term, Tenant
shall promptly rebuild and restore the Leased Property in accordance with
Section 9.4 through Section 9.9 and Landlord shall make the insurance proceeds
available to Tenant for such restoration. The term "substantially destroyed"
means any casualty resulting in the loss of use of 35% or more of the licensed
beds or units at any one Facility.

         9.2.2 If the Improvements are substantially destroyed during the final
18 months of the Initial Term or any Renewal Term, Tenant shall have the option
to either [i] rebuild the Leased Property in accordance with Section 9.4 through
Section 9.9; or [ii] terminate this Lease; subject, however, to the following
conditions. In order for Tenant to elect to rebuild the Leased Property, Tenant
must satisfy the following conditions within 60 days after the occurrence of the
damage: [i] Tenant must give irrevocable notice to Landlord of Tenant's election
to rebuild and Tenant's election to either [a] renew this Lease pursuant to
Section 9.2.3 (if the damage occurred during the Initial Term), or [b] exercise
its option to purchase the Leased Property pursuant to Section 9.2.4; and [ii]
if Tenant elects to renew this Lease, each Phase IV Tenant must give irrevocable
notice to Landlord that such Phase IV Tenant elects to renew its respective
Phase IV Lease or, if Tenant elects to exercise its option to purchase, each
Phase IV Tenant must give irrevocable notice to Landlord that such Phase IV
Tenant elects to purchase the Leased Property subject to its respective Phase IV
Lease. In order for Tenant to elect to terminate this Lease, Tenant must give
irrevocable notice to Landlord, within 60 days after the occurrence of the
damage, of Tenant's election to terminate this Lease; provided, however, that
Tenant shall pay to Landlord all Rent and all other obligations accrued under
this Lease through the effective date of termination and, if the amount of
insurance proceeds received or to be received by Landlord is less than the Lease

                                       28
<PAGE>   30

Amount, Tenant shall pay to Landlord the amount by which the Lease Amount
exceeds the amount of insurance proceeds. Termination of this Lease shall not be
effective until all such amounts have been paid by Tenant to Landlord and the
insurance proceeds have been paid to Landlord.

         The failure of Tenant to give Landlord notice of Tenant's election
within 60 days after the occurrence of the damage shall constitute an election
to terminate and Tenant shall be liable to Landlord for all Rent and other
obligations under this Lease and the amount, if any, by which the Lease Amount
exceeds the amount of insurance proceeds received by Landlord.

         9.2.3 If the Improvements are substantially destroyed during the final
18 months of the Initial Term and if Tenant and each Phase IV Tenant give
irrevocable notice to Landlord of its respective election to renew, the current
Term of each Phase IV Lease shall continue until its expiration date and the 11
year Renewal Term shall commence on the day following the expiration date. All
other terms of each Phase IV Lease for the Renewal Term shall be in accordance
with Article 12 of such Phase IV Lease. The Leased Property will be restored by
Tenant in accordance with Section 9.4 through Section 9.9.

         9.2.4 If the Improvements are substantially destroyed during the final
18 months of the Initial Term or the Renewal Term and if Tenant and each Phase
IV Tenant gives irrevocable notice to Landlord of its respective election to
purchase its respective Leased Property, the purchase price will be the Option
Price determined in accordance with Section 13.2 and the Fair Market Value will
be determined in accordance with Section 13.3. For purposes of determining the
Fair Market Value, the Leased Property will be valued as if it had been restored
to be equal in value to the Leased Property existing immediately prior to the
occurrence of the damage. All other terms of such purchase shall be in
accordance with Article 13. Landlord shall hold the insurance proceeds until the
closing of the purchase of the Leased Property and at closing shall deliver the
proceeds to Tenant.

         9.3 Partial Destruction. If the Leased Property is not substantially
destroyed, then Tenant shall comply with the provisions of Section 9.4 and
Landlord shall make the insurance proceeds available to Tenant for such
restoration.

         9.4 Restoration. Tenant shall promptly repair, rebuild, or restore the
Leased Property, at Tenant's expense, so as to make the Leased Property at least
equal in value to the Leased Property existing immediately prior to such
occurrence and as nearly similar to it in character as is practicable and
reasonable. Before beginning such repairs or rebuilding, or letting any
contracts in connection with such repairs or rebuilding, Tenant will submit for
Landlord's approval, which approval Landlord will not unreasonably withhold or
delay, plans and specifications meeting the requirements of Section 16.2 for
such repairs or rebuilding. Promptly after receiving Landlord's approval of the
plans and specifications and receiving the proceeds of insurance, Tenant will
begin such repairs or rebuilding and will prosecute the repairs and rebuilding
to completion with diligence, subject, however, to strikes, lockouts, acts of
God, embargoes, governmental restrictions, and other causes beyond Tenant's
reasonable control. Landlord will make available to Tenant the net proceeds of
any fire or other casualty insurance paid to Landlord for such repair or
rebuilding as the same progresses. Tenant shall be

                                       29
<PAGE>   31

responsible for collection of the insurance proceeds, subject to Landlord's
prior reasonable consent to any settlement, and Tenant shall bear all costs of
collection, including attorneys' fees. Payments will be made against properly
certified vouchers of a competent architect in charge of the work and approved
by Landlord. Prior to commencing the repairing or rebuilding, Tenant shall
deliver to Landlord for Landlord's approval a schedule setting forth the
estimated monthly draws for such work. Landlord will contribute to such payments
out of the insurance proceeds an amount equal to the proportion that the total
net amount received by Landlord from insurers bears to the total estimated cost
of the rebuilding or repairing, multiplied by the payment by Tenant on account
of such work. Landlord may, however, withhold 10% from each payment due
subcontractors until the work is completed and proof has been furnished to
Landlord that no lien or liability has attached or will attach to the Leased
Property or to Landlord in connection with such repairing or rebuilding. Upon
the completion of rebuilding and the furnishing of such proof, the balance of
the net proceeds of such insurance payable to Tenant on account of such
repairing or rebuilding will be paid to Tenant. Tenant will obtain and deliver
to Landlord a temporary or final certificate of occupancy before the Leased
Property is reoccupied for any purpose. Tenant shall complete such repairs or
rebuilding in accordance with the building codes and all applicable laws,
ordinances, regulations, or orders of any state, municipal, or other public
authority affecting the repairs or rebuilding, and also in accordance with all
requirements of the insurance rating organization, or similar body. Any
remaining proceeds of insurance after such restoration will be Tenant's
property.

         9.5 Insufficient Proceeds. If the proceeds of any insurance settlement
are not sufficient to pay the costs of Tenant's repair, rebuilding or
restoration under Section 9.4 in full, Tenant shall deposit with Landlord at
Landlord's option, and within 20 days of Landlord's request, an amount
sufficient in Landlord's reasonable judgment to complete such repair, rebuilding
or restoration. Tenant shall not, by reason of the deposit or payment, be
entitled to any reimbursement from Landlord or diminution in or postponement of
the payment of the Rent.

         9.6 Not Trust Funds. Notwithstanding anything herein or at law or
equity to the contrary, none of the insurance proceeds paid to Landlord as
herein provided shall be deemed trust funds, and Landlord shall be entitled to
dispose of such proceeds as provided in this Article 9. Tenant expressly assumes
all risk of loss, including a decrease in the use, enjoyment or value, of the
Leased Property from any casualty whatsoever, whether or not insurable or
insured against.

         9.7 Landlord's Inspection. During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such repairs
or rebuilding. Tenant will keep all plans, shop drawings, and specifications at
the building, and Landlord and its architects and engineers may examine them at
all reasonable times. If, during such repairs or rebuilding, Landlord and its
architects and engineers determine that the repairs or rebuilding are not being
done in accordance with the approved plans and specifications, Landlord will
give prompt notice in writing to Tenant, specifying in detail the particular
deficiency, omission, or other respect in which Landlord claims such repairs or
rebuilding do not accord with the approved plans and specifications. Upon the
receipt of any such notice, Tenant will cause corrections to be made to any
deficiencies,

                                       30
<PAGE>   32

omissions, or such other respect. Tenant's obligations to supply insurance,
according to Article 4, will be applicable to any repairs or rebuilding under
this section.

         9.8 Landlord's Costs. Tenant shall, within 30 days after receipt of an
invoice from Landlord, pay the reasonable costs, expenses, and fees of any
architect or engineer employed by Landlord to review any plans and
specifications and to supervise and approve any construction, or for any
services rendered by such architect or engineer to Landlord as contemplated by
any of the provisions of this Lease, or for any services performed by Landlord's
attorneys in connection therewith. With respect to any inspections by the
architect or engineer employed by Landlord, Tenant shall pay no more than $500
per day plus out of pocket expenses for travel, lodging, food and
transportation.

         9.9 No Rent Abatement. Except to the extent that business interruption
insurance proceeds are received by Landlord, Rent will not abate pending the
repairs or rebuilding of the Leased Property.

                            ARTICLE 10: CONDEMNATION

         10.1 Total Taking. If, by exercise of the right of eminent domain or by
conveyance made in response to the threat of the exercise of such right
("Taking"), the entire Leased Property is taken, or so much of the Leased
Property is taken that the Leased Property cannot be used by Tenant for the
purposes for which it was used immediately before the Taking, then this Lease
will end on the earlier of the vesting of title to the Leased Property in the
condemning authority or the taking of possession of the Leased Property by the
condemning authority. All damages awarded for such Taking under the power of
eminent domain shall be the property of the Landlord, except for damages awarded
to Tenant as compensation for diminution in value of the leasehold of the Leased
Property provided the award to Landlord is not less than the Lease Amount.

         10.2 Partial Taking. If, after a Taking, so much of the Leased Property
remains that the Leased Property can be used for substantially the same purposes
for which it was used immediately before the Taking, then [i] this Lease will
end as to the part taken on the earlier of the vesting of title to the Leased
Property in the condemning authority or the taking of possession of the Leased
Property by the condemning authority; [ii] at its cost, Tenant shall restore so
much of the Leased Property as remains to a sound architectural unit
substantially suitable for the purposes for which it was used immediately before
the Taking, using good workmanship and new, first-class materials; [iii] upon
completion of the restoration, Landlord will pay Tenant the lesser of the net
award made to Landlord on the account of the Taking (after deducting from the
total award, attorneys', appraisers', and other reasonable fees and costs
incurred in connection with the obtaining of the award and amounts paid to the
holders of mortgages secured by the Leased Property), or Tenant's actual
out-of-pocket costs of restoring the Leased Property; and [iv] Landlord shall be
entitled to the balance of the net award. The restoration shall be completed in
accordance with Sections 9.4, 9.5, 9.7, 9.8 and 9.9 with such provisions deemed
to apply to condemnation instead of casualty.

                                       31
<PAGE>   33

         10.3 Condemnation Proceeds Not Trust Funds. Notwithstanding anything in
this Lease or at law or equity to the contrary, none of the condemnation award
paid to Landlord shall be deemed trust funds, and Landlord shall be entitled to
dispose of such proceeds as provided in this Article 10. Tenant expressly
assumes all risk of loss, including a decrease in the use, enjoyment, or value,
of the Leased Property from any Condemnation.

                          ARTICLE 11: TENANT'S PROPERTY

         11.1 Tenant's Property. Tenant shall install, place, and use on the
Leased Property such fixtures, furniture, equipment, inventory and other
personal property in addition to the Personal Property as may be required or as
Tenant may, from time to time, deem necessary or useful to operate the Leased
Property for its permitted purposes. All fixtures, furniture, equipment,
inventory, and other personal property installed, placed, or used on the Leased
Property which is owned by Tenant or leased by Tenant from third parties is
hereinafter referred to as "Tenant's Property".

         11.2 Requirements for Tenant's Property. Tenant shall comply with all
of the following requirements in connection with Tenant's Property:

              (a) Tenant shall, at Tenant's sole cost and expense, maintain,
repair, and replace Tenant's Property.

              (b) Tenant shall, at Tenant's sole cost and expense, keep Tenant's
Property insured against loss or damage by fire, vandalism and malicious
mischief, sprinkler leakage, earthquake, and other physical loss perils commonly
covered by fire and extended coverage, boiler and machinery, and difference in
conditions insurance in an amount not less than 90% of the then full replacement
cost thereof. Tenant shall use the proceeds from any such policy for the repair
and replacement of Tenant's Property.

              (c) Tenant shall pay all taxes applicable to Tenant's Property.

              (d) If Tenant's Property is damaged or destroyed by fire or any
other cause, Tenant shall promptly repair or replace Tenant's Property unless
Landlord elects to terminate this Lease pursuant to Section 9.2.2.

              (e) Unless an Event of Default or any event which, with the giving
of notice or lapse of time, or both, would constitute an Event of Default has
occurred, Tenant may remove Tenant's Property from the Leased Property from time
to time provided that [i] the items removed are not required to operate the
Leased Property as a licensed assisted living facility (unless such items are
being replaced by Tenant); and [ii] Tenant repairs any damage to the Leased
Property resulting from the removal of Tenant's Property.

              (f) Tenant shall not, without the prior written consent of
Landlord or as otherwise provided in this Lease, remove any Tenant's Property or
Leased Property. Tenant shall, at Landlord's option, remove Tenant's Property
upon the termination or expiration of this Lease and shall repair any damage to
the Leased Property resulting from the removal of Tenant's

                                       32
<PAGE>   34

Property. If Tenant fails to remove Tenant's Property within 30 days after
request by Landlord, then Tenant shall be deemed to have abandoned Tenant's
Property, Tenant's Property shall become the property of Landlord, and Landlord
may remove, store and dispose of Tenant's Property. In such event, Tenant shall
have no claim or right against Landlord for such property or the value thereof
regardless of the disposition thereof by Landlord. Tenant shall pay Landlord,
upon demand, all expenses incurred by Landlord in removing, storing, and
disposing of Tenant's Property and repairing any damage caused by such removal.
Tenant's obligations hereunder shall survive the termination or expiration of
this Lease.

              (g) Tenant shall perform its obligations under any equipment lease
or security agreement for Tenant's Property. For equipment loans or leases for
equipment having an original cost in excess of $50,000.00, Tenant shall cause
such equipment lessor or lender to enter into a nondisturbance agreement with
Landlord upon terms and conditions acceptable to Landlord, including without
limitation, the following: [i] Landlord shall have the right (but not the
obligation) to assume such equipment lease or security agreement upon the
occurrence of an Event of Default by Tenant hereunder; [ii] such equipment
lessor or lender shall notify Landlord of any default by Tenant under the
equipment lease or security agreement and give Landlord a reasonable opportunity
to cure such default; and [iii] Landlord shall have the right to assign its
interest in the equipment lease or security agreement and nondisturbance
agreement. Tenant shall, within 30 days after receipt of an invoice from
Landlord, reimburse Landlord for all costs and expenses incurred in reviewing
and approving the equipment lease, security agreement and nondisturbance
agreement, including without limitation, reasonable attorneys' fees and costs.

                           ARTICLE 12: RENEWAL OPTIONS

         12.1 Renewal Options. Tenant has the option to renew ("Renewal Option")
this Lease for two 11-year renewal terms (each a "Renewal Term"). Tenant can
exercise each Renewal Option only upon satisfaction of the following conditions:

              (a) There shall be no uncured Event of Default, or any event which
with the passage of time or giving of notice would constitute an Event of
Default, at the time Tenant exercises its Renewal Option nor on the date each
Renewal Term is to commence.

              (b) Tenant shall give Landlord irrevocable written notice of
renewal ("Renewal Notice") no later than the date which is [i] 90 days prior to
the expiration date of the Initial Term; or [ii] if applicable, 15 days after
the occurrence of the substantial destruction of the Improvements as set forth
in Sections 9.2.2 and 9.2.3.

              (c) Each Phase IV Tenant shall concurrently give irrevocable
notice of renewal for each Phase IV Lease.

         12.2 Effect of Renewal. The following terms and conditions will be
applicable if Tenant renews the Lease:

              (a) Effective Date. The effective date of the first Renewal Term
will be the first day after the expiration date of the Initial Term. The first
day of each respective


                                       33
<PAGE>   35

Renewal Term is also referred to as the Renewal Date. The effective date of the
second Renewal Term will be the first day after the expiration date of the first
Renewal Term.

              (b) Lease Amount. Effective as of each Renewal Date, a single
Lease Amount will be computed by summing all Lease Advance Amounts (including
the Acquisition Amount).

              (c) Lease Rate. Effective as of each Renewal Date, a single Lease
Rate will be computed equal to the Renewal Rate. The Renewal Rate for each
Renewal Term shall be the fair market value lease rate for this type of lease as
determined in accordance with the following provisions. The parties shall
attempt to determine the fair market value lease rate by mutual agreement within
15 days after the date Tenant gives the Renewal Notice. If the parties do not
agree on such lease rate within the 15 day period, the appraisal procedure set
forth in Section 13.3 shall be used. The appraisers shall be instructed to
appraise the fair market value lease rate as a financing lease rate for a health
care facility of the same type as the Facility. The appraised rates submitted by
the three appraisers shall be ranked from highest to lowest, the rate (highest
or lowest) which is furthest from the middle rate shall be discarded, and the
remaining two appraised rates shall be averaged to arrive at the appraised lease
rate. The Renewal Rate shall be the appraised lease rate provided, however, that
Landlord shall not be obligated to renew this Lease at a Renewal Rate less than
the lease rate then being charged by Landlord to tenants of comparable
creditworthiness for comparable facilities.

              (d) [INTENTIONALLY OMITTED]

              (e) Base Rent. Effective as of each Renewal Date, the annual Base
Rent will be changed to equal the product of [i] the Lease Amount on the
applicable Renewal Date times [ii] the new Lease Rate equal to the Renewal Rate.

              (f) Other Terms and Conditions. Except for the modifications set
forth in this Section 12.2, all other terms and conditions of the Lease will
remain the same for the Renewal Term.

         12.3 Effect of Non-Renewal or Expiration of Lease. The following terms
and conditions will be applicable if Tenant does not renew this Lease or
exercise its Option to Purchase by the expiration date for the Initial Term or
the first Renewal Term:

              (a) Extension of Current Term. The Initial Term will be extended
(the "Extended Term") for 180 days.

              (b) Lease Payments. During the Extended Term, Tenant shall
continue to make monthly payments of Rent (including Base Rent) based upon the
then existing Lease Rate.

                                       34
<PAGE>   36

                         ARTICLE 13: OPTION TO PURCHASE

         13.1 Option to Purchase. If Sterling is not Tenant or an Affiliate,
Landlord hereby grants to Tenant an option to purchase ("Option to Purchase")
all of the Leased Property (but not less than all thereof) in accordance with
the terms and conditions of this Article 13. Tenant may exercise its Option to
Purchase only by giving an irrevocable notice of Tenant's election to purchase
the Leased Property ("Purchase Notice") in accordance with the following:


                (a) During the Initial Term or the Renewal Term, Tenant and each
Phase IV Tenant must give a Purchase Notice no earlier than the date which is
180 days, and no later than the date which is 90 days, prior to the expiration
date of the then current Term of this Lease and each Phase IV Lease.

                (b) In accordance with Sections 9.2.2 and 9.2.4, hereof. Tenant
shall have no right to exercise the Option to Purchase other than in accordance
with subparagraph [a] or [b].

         13.1.1 If Sterling is Tenant or an Affiliate, Tenant shall have a right
of first refusal to purchase the Facility. If at any time during the Term,
Landlord shall receive a bona fide offer ("Offer") from a third person for the
purchase of the Leased Property, which Offer Landlord desires to accept,
Landlord shall promptly deliver to Tenant a copy of such Offer. Tenant shall
have the right for a period of 60 days thereafter to elect to purchase the
Leased Property on the same terms and conditions as those set forth in the
Offer. If Tenant elects to purchase the Leased Property, Tenant must give
written notice thereof to Landlord no later than the 60th day after the date
Landlord delivers the Offer to Tenant. If Tenant does not elect to exercise its
right of first refusal as set forth in this section, Landlord shall be free to
sell and convey the Leased Property to the third party purchaser in accordance
with the terms and provisions of the Offer, subject to this Lease. In the event
that Landlord does not consummate the sale of the Leased Property to such
purchaser, Tenant's right of first refusal under this section shall remain
applicable to subsequent bona fide offers from third persons.

         13.2 Option Price. The option price ("Option Price") will be the Fair
Market Value of the Leased Property determined pursuant to Section 13.3;
provided, however, that the Option Price shall not be less than the Lease
Amount. Notwithstanding any provision in this Lease to the contrary, Tenant
shall have the right to revoke its Purchase Notice within 10 days after the
Option Price has been determined if the Option Price is not acceptable to Tenant
or Tenant may revoke to the extent that an event occurs which under the
provisions of this Lease would permit Tenant to terminate this Lease and Tenant
so elects to terminate this Lease. In addition to the Option Price, Tenant shall
pay all closing costs and expenses in connection with the transfer of the Leased
Property to Tenant including but not limited to the following: [a] real property
conveyance or transfer fees or deed stamps; [b] title search fees, title
insurance commitment fees, and title insurance premiums; [c] survey fees; [d]
environmental assessment fees; [e] recording fees; [f] reasonable attorneys'
fees of Landlord's counsel; [g] fees of any escrow agent; and [h] all amounts,
costs, expenses, charges, Additional Rent and other items payable by Tenant to
Landlord including but not limited to enforcement costs as set forth in Section
8.7.


                                       35
<PAGE>   37

         13.3 Fair Market Value. The fair market value (the "Fair Market Value")
of the Leased Property shall be determined as follows.

         13.3.1 The parties shall attempt to determine the Fair Market Value by
mutual agreement within 15 days after giving the Purchase Notice. However, if
the parties do not agree on the Fair Market Value within such 15 day period, the
following provisions shall apply.

         13.3.2 Landlord and Tenant shall each give the other party notice of
the name of a qualified MIA or SRA appraiser 15 days after giving of the
Purchase Notice. The two appraisers will then select a third appraiser within an
additional five days. Each appraiser must demonstrate to the reasonable
satisfaction of both Landlord and Tenant that it has significant experience in
appraising assisted living and other health care properties substantially
similar to the Leased Property. Within five days after designation, each
appraiser shall submit a resume to Landlord and Tenant setting forth such
appraiser's qualifications including education and experience with similar
properties. A notice of objections to the qualifications of any appraiser shall
be given within 10 days after receipt of such resume. If a party fails to timely
object to the qualifications of an appraiser, then the appraiser shall be
conclusively deemed satisfactory. If a party gives a timely notice of objection
to the qualifications of an appraiser, then the disqualified appraiser shall be
replaced by an appraiser selected by the qualified appraisers or, if all
appraisers are disqualified, then by an appraiser selected by a commercial
arbitrator acceptable to Landlord and Tenant.

         13.3.3 The Fair Market Value shall be determined by the appraisers
within 60 days after the appointment of the appraisers as follows. Each of the
appraisers shall be instructed to prepare an appraisal of the Leased Property in
accordance with the following instructions:

         The Leased Property is to be valued upon the three conventional
         approaches to estimate value known as the Income, Sales Comparison and
         Cost Approaches. Once the approaches are completed, the appraiser
         correlates the individual approaches into a final value conclusion.

The three approaches to estimate value are summarized as follows:

         INCOME APPROACH: This valuation approach recognizes that the value of
         the operating tangible and intangible asset can be represented by the
         expected economic viability of the business giving returns on and of
         the assets and shall use a management fee of 7%.

         SALES COMPARISON APPROACH: This valuation approach is based upon the
         principle of substitution. When a facility is replaceable in the
         market, the market approach assumes that value tends to be set at the
         price of acquiring an equally desirable substitute facility. Since
         healthcare market conditions change and frequently are

                                       36
<PAGE>   38

         subject to regulatory and financing environments, adjustments need to
         be considered. These adjustments also consider the operating
         differences such as services and demographics.

         COST APPROACH: This valuation approach estimates the value of the
         tangible assets only. Value is represented by the market value of the
         land plus the depreciated reproduction cost of all improvements and
         equipment.

In general, the Income and Sales Comparison Approaches are considered the best
representation of value because they cover both tangibles and intangible assets,
consider the operating characteristics of the business and have the most
significant influence on attracting potential investors.

The appraised values submitted by the three appraisers shall be ranked from
highest value to middle value to lowest value, the appraised value (highest or
lowest) which is furthest from the middle appraised value shall be discarded,
and the remaining two appraised values shall be averaged to arrive at the Fair
Market Value.

         13.3.4 In the event of any condemnation, similar taking or threat
thereof with respect to any part of the Leased Property or any insured or
partially insured casualty loss to any part of the Leased Property after Tenant
has exercised an Option to Purchase, but before settlement, the Fair Market
Value of the Leased Property shall be redetermined as provided in this Section
13.3 to give effect to such condemnation, taking or loss.

         13.3.5 Tenant shall pay, or reimburse Landlord for, all costs and
expenses in connection with the appraisals.

         13.4 Closing. The purchase of the Leased Property by Tenant shall close
on a date agreed to by Landlord and Tenant which shall be not less than 60 days
after Landlord's receipt of the Purchase Notice and not more than 60 days after
the Fair Market Value of the Leased Property has been determined. At the
closing, Tenant shall pay the Option Price and all closing costs in immediately
available funds and Landlord shall convey title to the Leased Property to Tenant
or to Tenant's assignee by a recordable limited warranty deed subject only to
Permitted Exceptions and encumbrances approved in writing by Tenant and limited
warranty bill of sale. The warranties provided for in such documents shall not
be limited by any limitations upon Landlord's liability as provided in this
Lease. Landlord shall also execute those affidavits reasonably required by the
title company for the issuance of an owner's policy of title insurance.

         13.5 Failure to Close Option. If Tenant for any reason fails to
purchase the Leased Property after Tenant has given the Purchase Notice, then
Tenant shall pay Landlord all costs and expenses incurred by Landlord as a
result of the failure to close including costs of unwinding swap transactions or
other interest rate protection devices and preparing for the closing. Tenant
shall continue to be obligated as lessee hereunder for the remainder of the Term
(including the Extended Term as set forth in Section 12.3).

                                       37
<PAGE>   39

                  13.6 Failure to Exercise Option to Purchase and Renewal
Option. If Tenant for any reason does not exercise its Option to Purchase or
Renewal Option in accordance with the terms and conditions of this Lease before
the expiration of the then current Term, Tenant shall be deemed to have
forfeited its equity contribution and all proprietary and ownership interest in
the Leased Property.

                         ARTICLE 14: NEGATIVE COVENANTS

         Until Tenant's Obligations shall have been performed in full, Tenant
covenants and agrees that Tenant shall not do any of the following without the
prior written consent of Landlord which consent shall not be unreasonably
withheld:

         14.1 No Debt. Tenant shall not create, incur, assume, or permit to
exist any indebtedness related to the Facility other than [i] trade debt
incurred in the ordinary course of Tenant's business; [ii] indebtedness for
Facility working capital purposes in an amount not to exceed $150,000.00; [iii]
indebtedness that is secured by any Permitted Lien; and [iv] unsecured
indebtedness that will not cause Tenant to be in violation of Section 15.7.

         14.2 No Liens. Tenant shall not create, incur, or permit to exist any
lien, charge, encumbrance, easement or restriction upon the Leased Property or
any lien upon or pledge of any interest in Tenant related to the Facility,
except for Permitted Liens.

         14.3 No Guaranties. Tenant shall not create, incur, assume, or permit
to exist any guarantee of any loan or other indebtedness except for the
endorsement of negotiable instruments for collection in the ordinary course of
business or guaranties that will not cause Tenant to be in violation of Section
15.7.

         14.4 No Transfer. Tenant shall not sell, lease, sublease, mortgage,
convey, assign or otherwise transfer any legal or equitable interest in the
Leased Property or any part thereof, except for transfers made in connection
with any Permitted Lien and transfers to an Affiliate.

         14.5 No Dissolution. Tenant shall not dissolve, liquidate, merge,
consolidate or terminate its existence or sell, assign, lease, or otherwise
transfer (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) except
for mergers, consolidations or other structural changes in Tenant that will not
cause Tenant to be in violation of Section 15.7.

         14.6 [INTENTIONALLY OMITTED]

         14.7 No Investments. Tenant shall not purchase or otherwise acquire,
hold, or invest in securities (whether capital stock or instruments evidencing
indebtedness) of or make loans or advances to any person, including, without
limitation, any Affiliate, or any shareholder, member or partner of Tenant, or
any Affiliate, except for cash balances temporarily invested in short-term or
money market securities and except for purchases, acquisitions, advances,
investments or loans that will not cause Tenant to be in violation of Section
15.7.

                                       38
<PAGE>   40

         14.8 Contracts. Tenant shall not execute or modify any material
contracts or agreements with respect to the Facility except for contracts and
modifications approved by Landlord. Contracts made in the ordinary course of
business and in an amount less than $150,000.00 shall not be considered
"material" for purposes of this paragraph.

         14.9 Subordination of Payments to Affiliates. After the occurrence of
an Event of Default and until such Event of Default is cured, Tenant shall not
make any payments or distributions (including, without limitation, salary,
bonuses, fees, principal, interest, dividends, liquidating distributions,
management fees, cash flow distributions or lease payments) to any Affiliate, or
any shareholder, member or partner of Tenant or any Affiliate, except for
ordinary payroll.

         14.10 Change of Location or Name. Tenant shall not change any of the
following without giving Landlord at least 60 days' advance written notice: [i]
the location of the principal place of business or chief executive office of
Tenant, or any office where any of Tenant's books and records are maintained; or
[ii] the name under which Tenant conducts any of its business or operations.

                        ARTICLE 15: AFFIRMATIVE COVENANTS

         15.1 Perform Obligations. Tenant shall perform all of its obligations
under this Lease, the Government Authorizations, the Permitted Exceptions, and
all Legal Requirements. Tenant shall take all necessary action to obtain all
Government Authorizations required for the operation of the Facility as soon as
possible after the Effective Date.

         15.2 Proceedings to Enjoin or Prevent Construction. If any proceedings
are filed seeking to enjoin or otherwise prevent or declare invalid or unlawful
Tenant's construction, occupancy, maintenance, or operation of the Facility or
any portion thereof, Tenant will cause such proceedings to be vigorously
contested in good faith, and in the event of an adverse ruling or decision,
prosecute all allowable appeals therefrom, and will, without limiting the
generality of the foregoing, resist the entry or seek the stay of any temporary
or permanent injunction that may be entered, and use its best efforts to bring
about a favorable and speedy disposition of all such proceedings and any other
proceedings.

         15.3 Documents and Information.

         15.3.1 Furnish Documents. Tenant shall periodically during the term of
the Lease deliver to Landlord the Annual Financial Statements, Periodic
Financial Statements and other documents described on Exhibit C within the
specified time periods. With each delivery of Annual Financial Statements and
Periodic Financial Statements to Landlord, Tenant shall also deliver to Landlord
a certificate signed by the Chief Financial Officer of Tenant, an Annual
Facility Financial Report or Quarterly Facility Financial Report, as applicable,
and a Quarterly Facility Accounts Receivable Aging Report all in the form of
Exhibit D. In addition, Tenant shall deliver to Landlord the Annual Facility
Financial Report and a Quarterly Facility Accounts

                                       39
<PAGE>   41

Receivable Aging Report (based upon internal financial statements) within 90
days after the end of each fiscal year.

         15.3.2 Furnish Information. Tenant shall [i] promptly supply Landlord
with such information concerning its financial condition, affairs and property,
as Landlord may reasonably request from time to time hereafter; [ii] promptly
notify Landlord in writing of any condition or event that constitutes a breach
or event of default of any term, condition, warranty, representation, or
provisions of this Agreement or any other agreement, and of any material adverse
change in its financial condition; [iii] maintain a standard and modern system
of accounting; [iv] permit Landlord or any of its agent or representatives to
have access to and to examine all of its books and records regarding the
financial condition of the Facility at any time or times hereafter during
business hours and after reasonable oral or written notice; and [v] permit
Landlord to copy and make abstracts from any and all of said books and records.

         15.3.3 Further Assurances and Information. Tenant shall, on request of
Landlord from time to time, execute, deliver, and furnish documents as may be
necessary to fully consummate the transactions contemplated under this
Agreement. Within 15 days after a request from Landlord, Tenant shall provide to
Landlord such additional information regarding Tenant, Tenant's financial
condition or any Facility as Landlord, or any existing or proposed creditor of
Landlord, or any auditor or underwriter of Landlord, may reasonably require from
time to time, including, without limitation, a current Tenant's Certificate and
Facility Financial Report in the form of Exhibit D.

         15.3.4 Material Communications. Tenant shall transmit to Landlord,
within five business days after receipt thereof, any material communication
affecting the Facility, this Lease, the Legal Requirements or the Government
Authorizations, and Tenant will promptly respond to Landlord's inquiry with
respect to such information. Tenant shall promptly notify Landlord in writing
after Tenant has knowledge of any potential, threatened or existing litigation
or proceeding against, or investigation of, Tenant or the Facility that may
affect the right to operate the Facility or Landlord's title to the Facility or
Tenant's interest therein. Without otherwise limiting the term "material" as
used in the preceding sentence, any litigation or proceeding involving a claim
of $50,000 or more or involving a threatened or alleged violation of an
Environmental Law shall be deemed to be material.

         15.3.5 Requirements for Financial Statements. Tenant shall meet the
following requirements in connection with the preparation of the financial
statements: [i] all audited financial statements shall be prepared in accordance
with general accepted accounting principles consistently applied; [ii] all
unaudited financial statements shall be prepared in a manner substantially
consistent with prior audited and unaudited financial statements submitted to
Landlord; [iii] all financial statements shall fairly present the financial
condition and performance for the relevant period in all material respects; [iv]
the financial statements shall include all notes to the financial statements and
a complete schedule of contingent liabilities and transactions with Affiliates;
and [v] the audited financial statements shall contain an unqualified opinion,
except to the extent such opinion references a change in treatment made in
accordance with generally accepted accounting principles.

                                       40
<PAGE>   42

         15.3.6 Confidentiality. Landlord shall use reasonable efforts not to
disclose the information provided by Tenant under this Section 15.3; provided,
however, that Landlord may disclose such information to any person or entity to
whom Landlord is required to make such disclosure; to governmental authorities;
and to any other person or entity having a legitimate business interest in the
Landlord, including, but not limited to, regulators, auditors, accountants,
attorneys, investors, underwriters, rating agencies, bond or surety companies,
and lenders of Landlord (including, but not limited to, collateral pool lenders
and line of credit lenders).

         15.4 Compliance With Laws. Tenant shall comply with all Legal
Requirements and keep all Government Authorizations in full force and effect.
Tenant shall pay when due all taxes and governmental charges of every kind and
nature that are assessed or imposed upon Tenant at any time during the term of
the Lease, including, without limitation, all income, franchise, capital stock,
property, sales and use, business, intangible, employee withholding, and all
taxes and charges relating to Tenant's business and operations. Tenant shall be
solely responsible for compliance with all Legal Requirements, including the
ADA, and Landlord shall have no responsibility for such compliance.

         15.5 Broker's Commission. Tenant and Landlord shall indemnify each
other from claims of brokers arising by the execution hereof or the consummation
of the transactions contemplated hereby and from expenses incurred by Landlord
or Tenant in connection with any such claims (including attorneys' fees).

         15.6 Existence and Change in Control. Tenant or any entity into which
Tenant is merged shall maintain its existence throughout the term of this
Agreement.

         15.7 Financial Covenants. The defined terms used in this section are
defined in Section 15.7.1. The following financial covenants shall be met
throughout the term of this Lease:

         15.7.1 Definitions.

                (a) "Cash Flow" means the net income of Tenant as reflected on
the income statement of Tenant plus [i] the amount of the provision for
depreciation and amortization; [ii] the amount of the provision for management
fees; plus [iii] the amount of the provision for income taxes; plus [iv] the
amount of the provision for Rent payments and interest and lease payments, if
any; minus [v] an imputed management fee equal to 8% of revenues (net of
contractual allowances); and minus [vi] an imputed replacement reserve of
$300.00 per unit at the Facility, per year.

                (b) "Coverage Ratio" is the ratio of [i] Cash Flow for each
applicable period; [ii] to the Rent payments due pursuant to this Lease and all
other debt service of Tenant and lease payments relating to the Leased Property
for the applicable period.

                (c) "Net Worth" means an amount equal to the total consolidated
fair market value of the tangible assets of the entity (excluding good will and
other intangible assets) minus the total consolidated liabilities of such
entity.

                                       41
<PAGE>   43

         15.7.2 Coverage Ratio. Tenant shall maintain a Coverage Ratio of not
less than 1.25 to 1.0 [i] during at least one month of the 8 month period
following the Commencement Date and [ii] for each fiscal year during the second
full year that the Facility is operational and for each year thereafter;
provided, however, that after two or more of Tenant's and Sterling's assisted
living facilities financed by Landlord are in their second full year of
operation, the Coverage Ratio for any one or more facilities may be as low as
1.15 to 1.0 if the collective Coverage Ratio for all such facilities (that are
in operation at least one year) is at least 1.25 to 1.0.

         15.7.3 Shareholders' Equity. Tenant and its consolidated subsidiaries
shall maintain combined shareholders' equity and subordinated debt of at least
$10,000,000.00.

         15.7.3 Current Ratio. Tenant and its consolidated subsidiaries shall
maintain for each fiscal quarter a ratio of current assets to current
liabilities of not less than 1.25 to 1.00 for the second full year that the
Facility is operational and for each year thereafter.

         15.7.4 Minimum Cash Requirement. Tenant shall maintain cash and cash
equivalents of at least $500,000.00.

         15.7.6 Working Capital. Tenant shall maintain available working capital
for the Facility in the amount not less than $100,000.00. The available working
capital may be included as part of the cash requirement under Section 15.7.5.

            ARTICLE 16: ALTERATIONS, CAPITAL IMPROVEMENTS, AND SIGNS

         16.1 Prohibition on Alterations and Improvements. Except for Permitted
Alterations (as hereinafter defined), Tenant shall not make any structural or
nonstructural changes, alterations, additions and/or improvements (hereinafter
collectively referred to as "Alterations") to the Leased Property.

         16.2 Approval of Alterations. If Tenant desires to perform any
Permitted Alterations, Tenant shall deliver to Landlord plans, specifications,
drawings, and such other information as may be reasonably requested by Landlord
(collectively the "Plans and Specifications") showing in reasonable detail the
scope and nature of the Alterations that Tenant desires to perform. It is the
intent of the parties hereto that the level of detail shall be comparable to
that which is referred to in the architectural profession as "design development
drawings" as opposed to working or biddable drawings. Landlord agrees not to
unreasonably delay its review of the Plans and Specifications. Provided Tenant
has given Landlord written notice at the time of delivery of the Plans and
Specifications of the effect of Landlord's failure to respond, Landlord's
failure to respond within 60 days of receipt of Plans and Specifications shall
be deemed to constitute Landlord's approval. Within 30 days after receipt of an
invoice, Tenant shall reimburse Landlord for all costs and expenses incurred by
Landlord in reviewing and, if required, approving or disapproving the Plans and
Specifications, inspecting the Leased Property, and otherwise monitoring
compliance with the terms of this Article 16. Tenant shall comply with the
requirements of Section 16.4 in making any Permitted Alterations.

                                       42
<PAGE>   44

         16.3 Permitted Alterations. Permitted Alterations means any one of the
following: [i] Alterations approved by Landlord; [ii] Alterations required under
Section 7.2; [iii] Alterations having a total cost of less than $100,000; or
[iv] repairs, rebuilding and restoration required or undertaken pursuant to
Section 9.4.

         16.4 Requirements for Permitted Alterations. Tenant shall comply with
all of the following requirements in connection with any Permitted Alterations:

              (a) The Permitted Alterations shall be made in accordance with the
approved Plans and Specifications.

              (b) The Permitted Alterations and the installation thereof shall
comply with all applicable legal requirements and insurance requirements.

              (c) The Permitted Alterations shall be done in a good and
workmanlike manner, shall not impair the value or the structural integrity of
the Leased Property, and shall be free and clear of all mechanic's liens.

              (d) Tenant shall, at Tenant's expense, obtain a builder's
completed value risk policy of insurance insuring against all risks of physical
loss, including collapse and transit coverage, in a nonreporting form, covering
the total value of the work performed, and equipment, supplies, and materials,
and insuring initial occupancy. Landlord and any mortgagee of Landlord shall be
additional insureds of such policy. Landlord shall have the right to approve the
form and substance of such policy.

              (e) Tenant shall pay the premiums required to increase the amount
of the insurance coverages required by Article 4 to reflect the increased value
of the Improvements resulting from installation of the Permitted Alterations,
and shall deliver to Landlord a certificate evidencing the increase in coverage.

              (f) Tenant shall, not later than 60 days after completion of the
Permitted Alterations, deliver to Landlord a revised "as-built" survey of the
Leased Property if the Permitted Alterations altered the Land or "footprint" of
the Improvements and an "as-built" set of Plans and Specifications for the
Permitted Alterations in form and substance satisfactory to Landlord.

              (g) Tenant shall, not later than 30 days after Landlord sends an
invoice, reimburse Landlord for any reasonable costs and expenses, including
attorneys' fees and architects' and engineers' fees, incurred in connection with
reviewing and approving the Permitted Alterations and ensuring Tenant's
compliance with the requirements of this section. The fee for Landlord's
consulting engineer is $500.00 per day plus out-of-pocket expenses for travel,
lodging, food and transportation.

         16.5 Ownership and Removal of Permitted Alterations. The Permitted
Alterations shall become a part of the Leased Property, owned by Landlord, and
leased to Tenant

                                       43
<PAGE>   45

subject to the terms and conditions of this Lease. Tenant shall not be required
or permitted to remove any Permitted Alterations.

         16.6 Signs. Tenant may, at its own expense, erect and maintain
identification signs at the Leased Property, provided such signs comply with all
laws, ordinances, and regulations. Upon the termination or expiration of this
Lease, Tenant shall, within 30 days after notice from Landlord, remove the signs
and restore the Leased Property to its original condition.

                             ARTICLE 17: [RESERVED]

               ARTICLE 18: ASSIGNMENT AND SALE OF LEASED PROPERTY

         18.1 Prohibition on Assignment and Subletting. Tenant acknowledges that
Landlord has entered into this Lease in reliance on the personal services and
business expertise of Tenant. Tenant may not assign, mortgage, hypothecate,
pledge, or transfer any interest in this Lease, or in the Leased Property, in
whole or in part, without the prior written consent of Landlord, which Landlord
may withhold in its sole and absolute discretion. The following transactions
will be deemed an assignment or sublease requiring Landlord's prior written
consent: [i] an assignment by operation of law (other than as a result of
mergers, consolidation or other structured changes in Tenant that will not cause
Tenant to be in violation of Section 15.7; [ii] an imposition (whether or not
consensual) of a lien, mortgage, or encumbrance upon Tenant's interest in the
Lease; and [iii] an arrangement (including but not limited to, management
agreements, concessions, licenses, and easements) which allows the use or
occupancy of all or part of the Leased Property by anyone other than Tenant or
any other permitted manager. Landlord's consent to any assignment or sublease
will not release Tenant (or any guarantor) from its payment and performance
obligations under this Lease, but rather Tenant, any guarantor, and Tenant's
assignee or sublessee will be jointly and severally liable for such payment and
performance. An assignment or sublease without the prior written consent of
Landlord will be void at the Landlord's option. Landlord's consent to one
assignment or sublease will not waive the requirement of its consent to any
subsequent assignment or sublease. Subject to the foregoing and Section 18.2,
Landlord shall consent to a sublease of the Facility or a management agreement,
provided the sublessee or manager is an Affiliate and the execution of the
sublease or management agreement does not result in a lapse in licensure.

         18.2 Requests for Landlord's Consent to Assignment, Sublease or
Management Agreement. If Tenant requests Landlord's consent to a specific
assignment, sublease, or management agreement, Tenant shall give Landlord [i]
the name and address of the proposed assignee, subtenant or manager; [ii] a copy
of the proposed assignment, sublease or management agreement; [iii] reasonably
satisfactory information about the nature, business and business history of the
proposed assignee, subtenant, or manager and its proposed use of the Leased
Property; and [iv] banking, financial, and other credit information, and
references about the proposed assignee, subtenant or manager sufficient to
enable Landlord to determine the financial responsibility and character of the
proposed assignee, subtenant or manager. Any assignment, sublease or management
agreement shall contain provisions to the effect that [a] such assignment,
sublease or management agreement is subject and subordinate to all of the terms
and provisions of this Lease and to the rights of Landlord; [b] such assignment,
sublease or

                                       44
<PAGE>   46

management agreement may not be modified without the prior written consent of
Landlord not to be unreasonably withheld or delayed; [c] if this Lease shall
terminate before the expiration of such assignment, sublease or management
agreement, the assignee, subtenant or manager thereunder will, at Landlord's
option, attorn to Landlord and waive any right the assignee, subtenant or
manager may have to terminate the assignment, sublease or management agreement
or surrender possession thereunder as a result of the termination of this Lease;
and [d] if the assignee, subtenant or manager receives a written notice from
Landlord stating that Tenant is in default under this Lease, the assignee,
subtenant or manager shall thereafter pay all rentals or payments under the
assignment, sublease or management agreement directly to Landlord until such
default has been cured. Tenant hereby collaterally assigns to Landlord, as
security for the performance of its obligations hereunder, all of Tenant's
right, title, and interest in and to any assignment, sublease or management
agreement now or hereafter existing for all or part of the Leased Property.
Tenant shall, at the request of Landlord, execute such other instruments or
documents as Landlord may request to evidence this collateral assignment. If
Landlord, in its sole and absolute discretion, consents to such assignment,
sublease, or management agreement, such consent shall not be effective until [i]
a fully executed copy of the instrument of assignment, sublease or management
agreement has been delivered to Landlord; [ii] in the case of an assignment,
Landlord has received a written instrument in which the assignee has assumed and
agreed to perform all of Tenant's obligations under the Lease; and [iii] Tenant
has paid to Landlord a fee in the amount of $1,500.00; and [iv] Landlord has
received reimbursement from Tenant or the assignee for all reasonable attorneys'
fees and expenses and all other reasonable out-of-pocket expenses incurred in
connection with determining whether to give its consent, giving its consent and
all matters relating to the assignment.

         18.3 Agreements with Residents. Notwithstanding Section 18.1, Tenant
may enter into an occupancy agreement with residents of the Leased Property
without the prior written consent of Landlord provided that [i] the agreement
does not provide for lifecare services (a single payment to provide services for
the remainder of occupants life); [ii] Tenant may not collect rent for more than
one month in advance except that Tenant may collect security deposits in an
amount that does not exceed two months rent; and [iii] all residents of the
Leased Property are accurately shown in Tenant's accounting records.

         18.4 Sale of Leased Property. If Landlord or any subsequent owner of
the Leased Property sells the Leased Property, its liability for the performance
of its agreements in this Lease will end on the date of the sale of the Leased
Property, and Tenant will look solely to the purchaser for the performance of
those agreements. Landlord shall remain liable to Tenant for any breach of this
Lease by Landlord that occurs during the period of Landlord's ownership of the
Leased Property. For purposes of this section, any holder of a mortgage or
security agreement which affects the Leased Property at any time, and any
landlord under any lease to which this Lease is subordinate at any time, will be
a subsequent owner of the Leased Property when it succeeds to the interest of
Landlord or any subsequent owner of the Leased Property.

         18.5 Assignment by Landlord. Landlord may transfer, assign, mortgage,
collaterally assign, or otherwise dispose of Landlord's interest in this Lease
or the Leased Property.

                                       45
<PAGE>   47

                       ARTICLE 19: HOLDOVER AND SURRENDER

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

         19.2 Surrender. Except for [i] Permitted Alterations; [ii] normal and
reasonable wear and tear (subject to the obligation of Tenant to maintain the
Leased Property in good order and repair during the Term); and [iii] damage and
destruction not required to be repaired by Tenant, Tenant shall surrender and
deliver up the Leased Property at the expiration or termination of the Term in
as good order and condition as of the Commencement Date.

                              ARTICLE 20: RESERVED

           ARTICLE 21: QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT AND
                             ESTOPPEL CERTIFICATES

         21.1 Quiet Enjoyment. So long as Tenant performs all of its obligations
under this Lease, Tenant's possession of the Leased Property will not be
disturbed by Landlord.

         21.2 Subordination. Subject to the terms and conditions of this
section, this Lease and Tenant's rights under this Lease are subordinate to any
ground lease or underlying lease, first mortgage, first deed of trust, or other
first lien against the Leased Property, together with any renewal,
consolidation, extension, modification or replacement thereof, which now or at
any subsequent time affects the Leased Property or any interest of Landlord in
the Leased Property, except to the extent that any such instrument expressly
provides that this Lease is superior. The foregoing subordination provision is
expressly conditioned upon any lessor or mortgagee being obligated and bound to
recognize Tenant as the tenant under this Lease, and such lessor or mortgagee
shall have no right to disturb Tenant's possession, use and occupancy of the
Leased Property or Tenant's enjoyment of its rights under this Lease unless and
until an Event of Default occurs hereunder. Any foreclosure action or proceeding
by any mortgagee with respect to the Leased Property shall not affect Tenant's
rights under this Lease and shall not terminate this Lease unless and until an
Event of Default occurs hereunder. The foregoing provisions will be
self-operative, and no further instrument will be required in order to effect
them. However, Tenant shall execute, acknowledge and deliver to Landlord, at any
time and from time to time upon demand by Landlord, such documents as may be
requested by Landlord or any mortgagee or any holder of any mortgage or other
instrument described in this section, to confirm or effect any such
subordination, provided that any such document shall include a non-disturbance
provision as set forth in this section satisfactory to Tenant. Any mortgagee of
the Leased Property shall be deemed to be bound by the non-disturbance provision
set forth in this section. If Tenant fails or refuses to execute, acknowledge,
and deliver any such document within 20 days after written demand, Landlord may
execute acknowledge and deliver any such

                                       46
<PAGE>   48

document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby
constitutes and irrevocably appoints Landlord, its successors and assigns, as
Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any documents described in this section. This power of attorney is
coupled with an interest and is irrevocable.

         21.3 Attornment. If any holder of any mortgage, indenture, deed of
trust, or other similar instrument described in Section 21.2 succeeds to
Landlord's interest in the Leased Property, Tenant will pay to such holder all
Rent subsequently payable under this Lease. Tenant shall, upon request of anyone
succeeding to the interest of Landlord, automatically become the tenant of, and
attorn to, such successor in interest without changing this Lease. The successor
in interest will not be bound by [i] any payment of Rent for more than one month
in advance; [ii] any amendment or modification of this Lease thereafter made
without its consent as provided in this Lease provided Tenant has knowledge that
Landlord's interest has been transferred and that such successor in interests
consent is required; [iii] any claim against Landlord arising prior to the date
on which the successor succeeded to Landlord's interest; or [iv] any claim or
offset of Rent against the Landlord. Upon request by Landlord or such successor
in interest and without cost to Landlord or such successor in interest, Tenant
will execute, acknowledge and deliver an instrument or instruments confirming
the attornment. If Tenant fails or refuses to execute, acknowledge, and deliver
any such instrument within 20 days after written demand, then Landlord or such
successor in interest will be entitled to execute, acknowledge, and deliver any
document on behalf of Tenant as Tenant's attorney-in-fact. Tenant hereby
constitutes and irrevocably appoints Landlord, its successors and assigns, as
Tenant's attorney-in-fact to execute, acknowledge, and deliver on behalf of
Tenant any such document. This power of attorney is coupled with an interest and
is irrevocable.

         21.4 Estoppel Certificates. At the request of Landlord or any mortgagee
or purchaser of the Leased Property, Tenant shall execute, acknowledge, and
deliver an estoppel certificate, in recordable form, in favor of Landlord or any
mortgagee or purchaser of the Leased Property certifying the following: [i] that
the Lease is unmodified and in full force and effect, or if there have been
modifications that the same is in full force and effect as modified and stating
the modifications; [ii] the date to which Rent and other charges have been paid;
[iii] whether Tenant or Landlord is in default or whether there is any fact or
condition which, with notice or lapse of time, or both, would constitute a
default, and specifying any existing default, if any; [iv] that Tenant has
accepted and occupies the Leased Property; [v] that Tenant has no defenses,
set-offs, deductions, credits, or counterclaims against Landlord, if that be the
case, or specifying such that exist; and [vi] such other information as may
reasonably be requested by Landlord or any mortgagee or purchaser. Any purchaser
or mortgagee may rely on this estoppel certificate. If Tenant fails to deliver
the estoppel certificates to Landlord within 10 days after the request of the
Landlord, then Tenant shall be deemed to have certified that [a] the Lease is in
full force and effect and has not been modified, or that the Lease has been
modified as set forth in the certificate delivered to Tenant; [b] Tenant has not
prepaid any Rent or other charges except for the current month; [c] Tenant has
accepted and occupies the Leased Property; [d] to Tenant's knowledge, neither
Tenant nor Landlord is in default nor is there any fact or condition which, with
notice or lapse of time, or both, would constitute a default; and [e] to
Tenant's knowledge, Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord. Tenant hereby irrevocably appoints Landlord as
Tenant's attorney-in-fact to execute, acknowledge, and

                                       47
<PAGE>   49

deliver on Tenant's behalf any estoppel certificate to which Tenant does not
object within the time period specified in Landlord's transmittal of the
certificate to Tenant. This power of attorney is coupled with an interest and is
irrevocable.

                   ARTICLE 22: REPRESENTATIONS AND WARRANTIES

         Tenant hereby makes the following representations and warranties, as of
the Effective Date, to Landlord and acknowledges that Landlord is granting the
Lease in reliance upon such representations and warranties. Tenant's
representations and warranties shall survive the Closing and, except to the
extent made as of a specific date, shall continue in full force and effect until
Tenant's Obligations have been performed in full.

         22.1 Organization and Good Standing. Tenant is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business in and is in good standing under the
laws of the State.

         22.2 Power and Authority. Tenant has the power and authority to
execute, deliver and perform this Lease. Tenant has taken all requisite action
necessary to authorize the execution, delivery and performance of Tenant's
obligations under this Lease.

         22.3 Enforceability. This Lease constitutes a legal, valid, and binding
obligation of Tenant enforceable in accordance with its terms.

         22.4 Government Authorizations. The Land and Plans and Specifications
conform with all Legal Requirements for the construction and development of the
Facility. Upon completion of the Facility, in accordance with the Plans and
Specifications, the Facility will conform to all Legal Requirements. Except as
otherwise noted on Exhibit E, Tenant holds all Government Authorizations
required to commence construction of the Facility.

         22.5 Financial Statements. Tenant has furnished Landlord with true,
correct, and complete copies of the Financial Statements. The Financial
Statements fairly present the financial position of Tenant, as of the respective
dates and the results of operations for the periods then ended in conformance
with generally accepted accounting principles applied on a basis consistent with
prior periods. The Financial Statements and other information furnished to
Landlord are true, complete and correct and, as of the Effective Date, no
material adverse change has occurred since the furnishing of such statements and
information. As of the Effective Date, the Financial Statements and other
information do not contain any untrue statement or omission of a material fact
and are not misleading in any material respect. Tenant is solvent, and no
bankruptcy, insolvency, or similar proceeding is pending or contemplated by or,
to the knowledge of Tenant, against Tenant.

         22.6 No Litigation. As of the Effective Date [i] there are no actions
or suits, or any proceedings or investigations by any governmental agency or
regulatory body pending against Tenant or the Facility which, if determined
adversely to Tenant, would materially and adversely affect the Facility, title
thereto, operation thereof or the financial condition of Tenant and Tenant has
not received notice of any threatened actions, suits, proceedings or
investigations

                                       48
<PAGE>   50

against Tenant or the Facility at law or in equity, or before any governmental
board, agency or authority, which, if determined adversely to Tenant, would
materially and adversely affect the Facility or title to the Facility (or any
part thereof), the right to operate the Facility as presently operated, or the
financial condition of Tenant; [ii] there are no unsatisfied or outstanding
material or adverse judgments against Tenant or the Facility; [iii] there is no
labor dispute materially and adversely affecting the operation or business
conducted by Tenant at the Facility; and [iv] Tenant has not been notified in
writing of any facts or circumstances which might reasonably form the basis for
any such action, suit, or proceeding.

         22.7 Consents. The execution, delivery and performance of this Lease
will not require any consent, approval, authorization, order, or declaration of,
or any filing or registration with, any court, any federal, state, or local
governmental or regulatory authority, or any other person or entity, the absence
of which would materially impair the ability of Tenant to operate the Facility
as presently operated.

         22.8 No Violation. The execution, delivery and performance of this
Lease [i] do not and will not conflict with, and do not and will not result in a
breach of the Articles of Incorporation or Bylaws of Tenant; [ii] do not and
will not conflict with, and do not and will not result in a breach of, and do
not and will not constitute a default under (or an event which, with or without
notice or lapse of time, or both, would constitute a default under), any of the
terms, conditions or provisions of any agreement or other instrument or
obligation to which Tenant is a party or by which its assets are bound; and
[iii] do not and will not violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Tenant or the Facility.

         22.9 Reports and Statements. All reports, statements, certificates and
other data furnished by or on behalf of Tenant to Landlord in connection with
this Lease, and all representations and warranties made herein or in any
certificate or other instrument delivered in connection herewith and therewith,
are true and correct in all material respects and do not omit to state any
material fact or circumstance necessary to make the statements contained herein
or therein, in light of the circumstances under which they are made, not
misleading as of the date of such report, statement, certificate or other data.
The copies of all agreements and instruments submitted to Landlord, including,
without limitation, all agreements relating to management of the Facility, the
Letter of Credit, and Tenant's working capital are true, correct and complete
copies and include all amendments and modifications of such agreements.

         22.10 ERISA. All plans (as defined in Section 4021(a) of the Employee
Retirement Income Security Act of 1974, as amended or supplemented from time to
time ("ERISA")) for which Tenant is an "employer" or a "substantial employer"
(as defined in Sections 3(5) and 4001(a)(2) of ERISA, respectively) are in
compliance with ERISA and the regulations and published interpretations
thereunder. To the extent Tenant maintains a qualified defined benefit pension
plan: [i] there exists no accumulated funding deficiency; [ii] no reportable
event and no prohibited transaction has occurred; [iii] no lien has been filed
or threatened to be filed by the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA; and [iv] Tenant has not
been deemed to be a substantial employer.

                                       49
<PAGE>   51

         22.11 Chief Executive Office. Tenant maintains its chief executive
office and its books and records at the address set forth in the introductory
paragraph of this agreement.

         22.12 Other Name or Entities. Tenant has not, since November 1, 1997,
[i] changed its name, [ii] used any name other than the name stated at the
beginning of this agreement, or other than names under which Tenant's facilities
do business, such as the name of the Facility, or [iii] merged or consolidated
with, or acquired any of the assets of, any corporation or other business, other
than acquisitions of operating facilities.

         22.13 Parties in Possession. Except as disclosed on Exhibit B, there
are no parties in possession of any Leased Property or any portion thereof as
managers, lessees, tenants at sufferance, or trespassers.

         22.14 Access. Access to the Land is directly from a dedicated public
right-of-way without any easement. To the knowledge of Tenant, there is no fact
or condition which would result in the termination or reduction of the current
access to and from the Land to such right-of-way.

         22.15 Utilities. There are available at the Land gas, municipal water,
and sanitary sewer lines, storm sewers, electrical and telephone services in
operating condition which are adequate for the operation of the Facility at a
reasonable cost. The Land has direct access to utility lines located in a
dedicated public right-of-way without any easement. As of the Effective Date,
there is no pending or, to the knowledge of Tenant, threatened governmental or
third party proceeding which would impair or result in the termination of such
utility availability.

         22.16 Condemnation and Assessments. As of the Effective Date, Tenant
has not received notice of, and there are no pending or, to the best of Tenant's
knowledge, threatened, condemnation, assessment or similar proceedings affecting
or relating to the Facility, or any portion thereof, or any utilities, sewers,
roadways or other public improvements serving the Facility.

         22.17 Zoning. As of the Effective Date, [i] the use and operation of
the Facility as a 34 units/38 bed assisted living/Alzheimers/dementia facility
is a permitted use under the applicable zoning code; [ii] except as disclosed on
Exhibit E hereto, no special use permits, conditional use permits, variances, or
exceptions have been granted or are needed for such use of each Facility; and
[iii] the Land is not located in any special districts such as historical
districts or overlay districts.

         22.18 Pro Forma Statement. Tenant has delivered to Landlord a true,
correct and complete copy of the Pro Forma Statement. The Pro Forma Statement
shows Tenant's reasonable expectation of the most likely results of Facility
operations for the five year period commencing on the anticipated date when the
Facility commences operations.

         22.19 Environmental Matters. During the period of Tenant's ownership of
the Leased Property, if any, and to the best of Tenant's knowledge after
diligent inquiry, for the period Tenant did not own the Leased Property, [i] the
Leased Property is in compliance with all

                                       50
<PAGE>   52

Environmental Laws; [ii] there were no releases of Hazardous Materials on, from,
or under the Leased Property, except in compliance with all Environmental Laws;
[iii] no Hazardous Materials have been, are or will be used, generated, stored,
or disposed of on the Leased Property, except in compliance with all
Environmental Laws; [iv] no permit is or has been required to be obtained by
Tenant from the Environmental Protection Agency or any similar agency or
department of any state or local government for the use or maintenance of any
Improvements; and [v] no summons, citation or inquiry has been made by any such
environmental unit, body or agency or a third party demanding any right of
recovery for payment or reimbursement for costs incurred under CERCLA or any
other Environmental Laws and the Land is not subject to the lien of any such
agency. "Disposal" and "release" shall have the meaning set forth in CERCLA.

         22.20 Leases and Contracts. As of the Effective Date and except as
disclosed on Exhibit F, there are no leases or contracts (including but not
limited to, insurance contracts, maintenance contracts, construction contracts,
employee benefit plans, employment contracts, equipment leases, security
agreements, architect agreements, and management contracts) to which Tenant is a
party relating to any part of the ownership, operation, possession,
construction, management or administration of the Land or the Facility.

         22.21 No Default. As of the Effective Date, [i] there is no existing
Event of Default under this Lease; and [ii] no event has occurred which, with
the giving of notice or the passage of time, or both, would constitute or result
in such an Event of Default. Except as disclosed to Landlord in writing, Tenant
and Sterling are not in default, after expiration of any applicable grace
period, under any Related Lease.

         22.22 Tax Status. To the best of Tenant's knowledge, all of the
mechanical and electrical systems, heating and air conditioning systems,
plumbing, water and sewer systems, and all other items of mechanical equipment
or appliances are in good working order, condition and repair, or of sufficient
size and capacity to service the Facility as presently operated, and conform
with all applicable ordinances and regulations, and with all building, zoning,
fire, safety, and other codes, laws and orders. The Improvements, including the
roof and foundation, are structurally sound and free from leaks and other
defects.

                           ARTICLE 23: FUTURE PROJECTS

         23.1 Obligation for Future Projects. Subject to the requirements, terms
and conditions of the Commitment and this Lease, Landlord has committed to
finance additional assisted living facilities to be developed by Tenant,
Sterling or an Affiliate ("Tenant Projects"). Landlord's obligation to provide
financing for each Tenant Project is subject to the satisfaction of Landlord's
due diligence requirements and the closing conditions set forth in the
Commitment.

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<PAGE>   53

                          ARTICLE 24: SECURITY INTEREST

         24.1 Collateral. Tenant hereby grants to Landlord a security interest
in the following described property, whether now owned or hereafter acquired by
Tenant (the "Collateral"), to secure the payment and performance of Tenant's
obligations under this Lease:

              (a) All machinery, furniture, equipment, trade fixtures,
appliances, inventory and all other goods (as "equipment," "inventory" and
"goods" are defined for purposes of Article 9 ("Article 9") of the Uniform
Commercial Code as adopted in the State) and any leasehold interest of Tenant in
any of the foregoing (except for any leasehold interest in property owned by
Landlord), now or hereafter located in or on or used or usable in connection
with the Land, Improvements, or Fixtures and replacements, additions, and
accessions thereto, including without limitation those items which are to become
fixtures or which are building supplies and materials to be incorporated into an
Improvement or Fixture.

              (b) All accounts, contract rights, general intangibles,
instruments, documents, and chattel paper [as "accounts", "contract rights",
"general intangibles", "instruments", "documents", and "chattel paper", are
defined for purposes of Article 9] now or hereafter arising in connection with
the business located in or on or used or usable in connection with the Land,
Improvements, or Fixtures, and replacements, additions, and accessions thereto.

              (c) All franchises, permits, licenses, operating rights,
certifications, approvals, consents, authorizations and other general
intangibles regarding the use, occupancy or operation of the Improvements, or
any part thereof, including without limitation, certificates of need, state
health care facility licenses, and Medicare and Medicaid provider agreements, to
the extent permitted by law.

              (d) Unless expressly prohibited by the terms thereof, all
contracts, agreements, contract rights and materials relating to the design,
construction or operation of the Improvements, including but not limited to,
plans, specifications, drawings, blueprints, models, mock-ups, brochures,
flyers, advertising and promotional materials and mailing lists.

              (e) All ledger sheets, files, records, computer programs, tapes,
other electronic data processing materials, and other documentation relating to
the preceding listed property or otherwise used or usable in connection with the
Land and Improvements.

              (f) The products and proceeds of the preceding listed property,
including without limitation cash and non-cash proceeds, proceeds of proceeds,
and insurance proceeds.

         24.2 Additional Documents. At the request of Landlord, Tenant shall
execute additional security agreements, financing statements, and such other
documents as may be requested by Landlord to maintain and perfect such security
interest. Tenant hereby irrevocably appoints Landlord, its successors and
assigns, as Tenant's attorney-in-fact to execute,

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<PAGE>   54

acknowledge, deliver and file such documents on behalf of Tenant. This power of
attorney is coupled with an interest and is irrevocable.

         24.3 Notice of Sale. With respect to any sale or other disposition of
any of the Collateral after the occurrence of an Event of Default, Landlord and
Tenant agree that the giving of five days notice by Landlord, sent by overnight
delivery, postage prepaid, to Tenant's notice address designating the time and
place of any public sale or the time after which any private sale or other
intended disposition of such Collateral is to be made, shall be deemed to be
reasonable notice thereof and Tenant waives any other notice with respect
thereto.

                            ARTICLE 25: MISCELLANEOUS

         25.1 Notices. Landlord and Tenant hereby agree that all notices,
demands, requests, and consents (hereinafter "notices") required to be given
pursuant to the terms of this Lease shall be in writing, shall be addressed to
the addresses set forth in the introductory paragraph of this Lease, and shall
be served by [i] personal delivery; [ii] United States mail, postage prepaid; or
[iii] nationally recognized overnight courier; provided, however, that any
notice of an Event of Default shall be served by (I) personal delivery; (ii)
certified United States mail, postage prepaid, return receipt requested; or
(iii) nationally recognized overnight courier. A copy of any notice given to
Tenant shall be sent to Miriam J. Dent, Esq., Rogers & Hardin, 229 Peachtree
Street, N.E., 2700 International Tower, Peachtree Center, Atlanta, Georgia
30303, but the failure to give the notice required by this sentence shall not
affect the validity or effectiveness of the notices to Tenant hereunder. All
notices shall be deemed to be given upon the earlier of actual receipt or three
business days after mailing, or one business day after deposit with the
overnight courier. Any notices meeting the requirements of this section shall be
effective, regardless of whether or not actually received. Landlord or Tenant
may change its notice address at any time by giving the other party notice of
such change.

         25.2 Advertisement of Leased Property. In the event the parties hereto
have not executed a renewal Lease within 120 days prior to the expiration of
this Lease, then Landlord or its agent shall have the right to enter the Leased
Property at all reasonable times for the purpose of exhibiting the Leased
Property to others and to place upon the Leased Property for and during the
period commencing 120 days prior to the expiration of this Lease, "for sale" or
"for rent" notices or signs.

         25.3 Entire Agreement. The Commitment, this Lease and the Construction
Agreement constitute the entire agreement between Landlord and Tenant with
respect to the subject matter hereof. No representations, warranties, and
agreements have been made by Landlord except as set forth in the Commitment and
this Lease. If there is any direct conflict between the terms and provisions of
the Commitment and the terms of this Lease, this Lease shall govern. Tenant
hereby reaffirms the Commitment and all provisions thereof. The Commitment shall
survive the execution of this Lease.

         25.4 Severability. If any term or provision of this Lease is held to be
invalid or unenforceable, such holding shall not affect the remainder of this
Lease and the same shall remain in full force and effect, unless such holding
substantially deprives Tenant of the use of

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<PAGE>   55

the Leased Property or Landlord of the rents herein reserved, in which event
this Lease shall forthwith terminate as if by expiration of the Term.

         25.5 Captions and Headings. The captions and headings are inserted only
as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.

         25.6 Governing Law. This Lease shall be construed under the laws of the
State.

         25.7 Memorandum of Lease. Tenant shall not record this Lease. Tenant
may, however, record a memorandum of lease approved by Landlord.

         25.8 Waiver. No waiver by Landlord of any condition or covenant herein
contained, or of any breach of any such condition or covenant, shall be held or
taken to be a waiver of any subsequent breach of such covenant or condition, or
to permit or excuse its continuance or any future breach thereof or of any
condition or covenant, nor shall the acceptance of Rent by Landlord at any time
when Tenant is in default in the performance or observance of any condition or
covenant herein be construed as a waiver of such default, or of Landlord's right
to terminate this Lease or exercise any other remedy granted herein on account
of such existing default.

         25.9 Binding Effect. This Lease will be binding upon and inure to the
benefit of the heirs, successors, personal representatives, and permitted
assigns of Landlord and Tenant.

         25.10 Power of Attorney. Effective upon [i] the occurrence and during
the continuance of an Event of Default or upon [ii] termination of the Lease
without Tenant exercising its Option to Purchase, Tenant hereby irrevocably and
unconditionally appoints Landlord, or Landlord's authorized officer, agent,
employee or designee, as Tenant's true and lawful attorney-in-fact, to act for
Tenant in Tenant's name, place, and stead, to execute, deliver and file all
applications and any and all other necessary documents or things to effect the
issuance, transfer, reinstatement, renewal and/or extension of any and all
Governmental Authorizations issued to Tenant or applied for by Tenant in
connection with Tenant's operation of the Facility, to permit any transferee to
operate the Facility under the Governmental Authorizations, and to do any and
all other acts incidental to any of the foregoing. Tenant irrevocably and
unconditionally grants to Landlord as its attorney-in-fact full power and
authority to do and perform every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as Tenant might or could do if
personally present or acting, with full power of substitution, hereby ratifying
and confirming all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and is
irrevocable prior to the full performance of Tenant's Obligations. Except in the
case of an emergency, Landlord shall give Tenant three business days prior
written notice before acting on behalf of Tenant pursuant to this power of
attorney.

         25.11 No Offer. Landlord's submission of this Lease to Tenant is not an
offer to lease the Leased Property, or an agreement by Landlord to reserve the
Leased Property for

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<PAGE>   56

Tenant. Landlord will not be bound to Tenant until Tenant has duly executed and
delivered duplicate original leases to Landlord, and Landlord has duly executed
and delivered one of these duplicate original leases to Tenant.

         25.12 Modification. This Lease may only be modified by a writing signed
by both Landlord and Tenant except for the automatic extension of the Term
pursuant to Section 1.2. All references to this Lease, whether in this Lease or
in any other document or instrument, shall be deemed to incorporate all
amendments, modifications and renewals of this Lease, made after the date
hereof. If Tenant requests Landlord's consent to any change in ownership, merger
or consolidation of Tenant, any assumption of the Lease, or any modification of
the Lease, Tenant shall provide Landlord all relevant information and documents
sufficient to enable Landlord to evaluate the request. In connection with any
such request, Tenant shall pay to Landlord a fee in the amount of $1,500.00 and
shall pay all of Landlord's reasonable attorney's fees and expenses and other
reasonable out-of-pocket expenses incurred in connection with Landlord's
evaluation of Tenant's request, the preparation of any documents and amendments,
the subsequent amendment of any documents between Landlord and its collateral
pool lenders (if applicable), and all related matters.

         25.13 Landlord's Modification. Tenant acknowledges that Landlord may
mortgage the Leased Property or use the Leased Property as collateral for a
collateralized mortgage obligations or Real Estate Mortgage Investment Companies
(REMICS). If any mortgage lender of Landlord desires any modification of this
Lease, Tenant agrees to consider such modification in good faith and to execute
an amendment of this Lease if Tenant finds such modification acceptable in
Tenant's reasonable discretion provided such modification does not materially
diminish Tenant's rights under the Lease.

         25.14 No Merger. The surrender of this Lease by Tenant or the
cancellation of this Lease by agreement of Tenant and Landlord or the
termination of this Lease on account of Tenant's default will not work a merger,
and will, at Landlord's option, terminate any subleases or operate as an
assignment to Landlord of any subleases. Landlord's option under this paragraph
will be exercised by notice to Tenant and all known subtenants of the Leased
Property.

         25.15 Laches. No delay or omission by either party hereto to exercise
any right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.

         25.16 Limitation on Tenant's Recourse. Tenant's sole recourse against
Landlord, and any successor to the interest of Landlord in the Leased Property,
is to the interest of Landlord, and any such successor, in the Leased Property.
Tenant will not have any right to satisfy any judgment which it may have against
the Landlord, or any such successor, from any other assets of Landlord, or any
such successor. In this section, the terms "Landlord" and "successor" include
the shareholders, venturers, and partners of "Landlord" and "successor" and the
officers, directors, and employees of the same. The provisions of this section
are not intended to limit Tenant's right to seek injunctive relief or specific
performance.

                                       55
<PAGE>   57

         25.17 Construction of Lease. This Lease has been prepared by Landlord
and its professional advisors and reviewed by Tenant and its professional
advisors. Landlord, Tenant, and their advisors believe that this Lease is the
product of all their efforts, that it expresses their agreement, and agree that
it shall not be interpreted in favor of either Landlord or Tenant or against
either Landlord or Tenant merely because of their efforts in preparing it.

         25.18 Counterparts. This Lease may be executed in multiple
counterparts, each of which shall be deemed an original hereof.

         25.19 Custody of Escrow Funds. Any funds paid to Landlord in escrow
hereunder may be held by Landlord or, at Landlord's election, by a financial
institution, the deposits or accounts of which are insured or guaranteed by a
federal or state agency. The funds shall not be deemed to be held in trust, may
be commingled with the general funds of Landlord or such other institution, and
shall not bear interest.

         25.20 Landlord's Status as a REIT. Tenant acknowledges that Landlord
has now and may hereafter elect to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code.

         25.21 Exhibits. The following exhibits are attached hereto and
incorporated herein:

         Exhibit A:  Legal Description
         Exhibit B:  Permitted Exceptions
         Exhibit C:  Documents to be Delivered
         Exhibit D:  Certificate and Facility Financial Report
         Exhibit E:  Government Authorizations
         Exhibit F:  List of Leases and Contracts

         25.22 Waiver of Jury Trial. Landlord and Tenant waive trial by jury in
any action, proceeding or counterclaim brought by either of them against the
other on all matters arising out of this Lease or the use and occupancy of the
Leased Property (except claims for personal injury or property damage). If
Landlord commences any summary proceeding for nonpayment of Trent, Tenant will
not interpose, and waives the right to interpose, any counterclaim in any such
proceeding.

         25.23 Attorney's Fees and Expenses. Tenant shall pay to Landlord all
reasonable costs and expenses incurred by Landlord in administering this Lease
and the security for this Lease, enforcing or preserving Landlord's rights under
this Lease and the security for this Lease, and in all matters of collection,
whether or not an Event of Default has actually occurred or has been declared
and thereafter cured, including but not limited to, [a] reasonable attorney's
and paralegal's fees and disbursements; [b] the fees and expenses of any
litigation, administrative, bankruptcy, insolvency, receivership and any other
similar proceeding; [c] court costs; [d] the expenses of Landlord, its
employees, agents, attorneys and witnesses in preparing for litigation,
administrative, bankruptcy, insolvency and other proceedings and for lodging,

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<PAGE>   58

travel, and attendance at meetings, hearings, depositions, and trials; and [e]
consulting and witness fees incurred by Landlord in connection with any
litigation or other proceeding.

         25.24 CONSENT TO JURISDICTION. TENANT HEREBY IRREVOCABLY SUBMITS AND
CONSENTS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL
COURT HAVING JURISDICTION OVER LUCAS COUNTY, OHIO FOR ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO [I] THE COMMITMENT;
[II] THIS LEASE; OR [III] ANY DOCUMENT EXECUTED BY TENANT IN CONNECTION WITH
THIS LEASE. TENANT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT TENANT MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
ANY SUCH ACTION OR PROCEEDING. TENANT AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

TENANT AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LANDLORD
OR ANY DIRECTOR, OFFICER, EMPLOYEE, AGENT OR PROPERTY OF LANDLORD, CONCERNING
ANY MATTER ARISING OUT OF OR RELATING TO THE COMMITMENT, THIS LEASE OR ANY
RELATED DOCUMENT IN ANY COURT OTHER THAN A STATE OR FEDERAL COURT HAVING
JURISDICTION OVER LUCAS COUNTY, OHIO, WAUKESHA COUNTY, WISCONSIN OR OKLAHOMA
COUNTY, OKLAHOMA.

         TENANT HEREBY CONSENTS TO SERVICE OF PROCESS BY LANDLORD IN ANY MANNER
AND IN ANY JURISDICTION PERMITTED BY LAW. NOTHING HEREIN SHALL AFFECT OR IMPAIR
LANDLORD'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW, OR
LANDLORD'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST TENANT OR THE
PROPERTY OF TENANT IN THE COURTS OF ANY OTHER JURISDICTION.

         25.25 Survival. The following provisions shall survive termination of
the Lease: Article 9 (Damage & Destruction), Article 10 (Condemnation); Article
16 (Alterations); and Section 25.26 (Survival).

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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<PAGE>   59

         IN WITNESS WHEREOF, the parties hereto have executed this Lease or
caused the same to be executed by their respective duly authorized officers as
of the date first set forth above.

Signed and acknowledged
in the presence of                          HEALTH CARE REIT, INC.

Signature                                   By: /s/ Erin C. Ibele
         ----------------------------           --------------------------------
Print Name
          ---------------------------           Title: Vice President, Corporate
                                                       Secretary
Signature                                              -------------------------
         ----------------------------
Print Name
          ---------------------------


                                            ALTERNATIVE LIVING SERVICES, INC.

Signature                                   By: /s/ Mark Ohlendorf
         ----------------------------           --------------------------------
Print Name
          ---------------------------           Title: Senior Vice President
                                                       Secretary
Signature                                              -------------------------
         ----------------------------
Print Name                                  Tax I.D. No.: 39-1771281
          ---------------------------


STATE OF OHIO                  )
                               ) SS:
COUNTY OF LUCAS                )

         The foregoing instrument was acknowledged before me this ___ day of
December, 1998 by _________________________, the _________________________ of
Health Care REIT, Inc., a Delaware corporation, on behalf of the corporation.


                                            ------------------------------------
                                            Notary Public


My Commission Expires:____________                          [SEAL]


                                       58
<PAGE>   60

STATE OF WISCONSIN             )
                               ) SS:
COUNTY OF WAUKESHA             )

         The foregoing instrument was acknowledged before me this ___ day of
December, 1998 by _________________________, the _________________________ of
Alternative Living Services, Inc., a Delaware corporation, on behalf of the
corporation.


                                            ------------------------------------
                                            Notary Public


My Commission Expires:____________                          [SEAL]


THIS INSTRUMENT PREPARED BY:

OKSANA M. LUDD, ESQ.
SHUMAKER, LOOP & KENDRICK, LLP
1000 JACKSON STREET
TOLEDO, OHIO 43624


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